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HomeMy WebLinkAbout9/19/2007 - STAFF REPORTS - 2.N. �oFp ALM Sao c c'`'F0X1*' CITY COUNCIL STAFF REPORT DATE: September 19, 2007 CONSENT CALENDAR SUBJECT: APPROVE AN ESTOPPEL CERTIFICATE REQUESTED BY HH PALM SPRINGS LLC, A TENANT OF THE CITY AND THE OWNER OF THE WYNDHAM HOTEL FROM: David H. Ready, City Manager BY: Douglas Holland, City Attorney RECOMMENDATION Authorize the City Manager on behalf of the City to execute the Estoppel Certificate as requested by HH Palm Springs LLC. A2738. STAFF REPORT The Wyndham Palm Springs hotel is one of twenty-nine hotel properties in the Highland Hospitality Corporation hotel REIT (real estate investment trust) portfolio. Each of the hotels in this portfolio is owned by a separate entity set up to own just that hotel property, and each hotel is leased by a separate tenant entity. It is our understanding that this separate ownership arrangement is for federal tax reasons. For the Wyndham, the owning entity is HH Palm Springs LLC ("HHPS") and the operating entity has been HHC TRS OP LLC (the "Prior Operator"). The land on which the Wyndham is located is leased (along with various other land) by The City of Palm Springs from various Indian allottees under Business Lease No. PSL-315 dated February 28, 1984 (the "Master Lease"), which is managed by the Bureau of Indian Affairs (the "BIA"). The hotel land is, in turn, subleased by the City to HHPS under Sublease (Hotels I-XI) dated December 31, 1984 (the "Sublease"). The hotel building itself on the subleased land is owned by HHPS. HHPS has, in its turn, sub-subleased the land and leased the building to the Prior Operator under an operating sub-sublease. On July 17, 2007, JER Partners ("JER"), a large owner of hotel properties in the country, through various subsidiaries, including Blackjack Acquisition Corporation ("Blackjack") acquired Highland in an approximately $2 billion merger transaction. As a result of this merger, the ultimate ownership of HHPS--the owner of the Wyndham— changed, but the Wyndham itself remained owned by HHPS. In addition, for d \ ITEM NO. \ City Council Staff Report September 5, 2007 -- Page 2 Consent to Assignment of Interest in Shadowrock Development Agreement operational purposes as part of a post-merger reorganization of the various owning and operating entities in the Highland family by JER/Blackjack, a different operating entity— HHC TRS Portsmouth LLC (the "New Operator")—became the operating entity for the Wyndham through a new operating sub-sublease (the "New Operating Lease"). Wachovia Bank, National Association, and Barclays Capital Real Estate Inc. (the "Lenders") provided various financing in connection with the merger. Representatives of JER/Blackjack have advised that the JER/Blackjack is "actively reassessing the Wyndham Palm Springs and a potential future multi-million dollar renovation plan" and that they "intend to reposition the hotel to compliment the recently expanded and renovated Convention Center." [Letter from D. Rick Adams, which is attached to this staff report.] The financing from the Lenders would appear to provide the funds for such a program. A portion of that Financing is secured by a leasehold deed of trust encumbering HHPS's subleasehold interest under the Sublease, the hotel building, and the New Operator's sub-subleasehold interest under the New Operating Lease. The Sublease was amended in 1998 to provide various protections to a "Sublease Encumbrancer", such as the Lenders, to facilitate financings of the hotel property. The consent of the City for strictly financing arrangements and the encumbrance of solely sublease interests to secure such financing is expressly not required under the Sublease. The Sublease requires that, on the request of HHPS as the City's tenant, the City must provide a certificate (known as an "estoppel certificate") stating the Sublease is in effect, how it has been amended, the date to which rent and other amounts due under the Sublease have been paid, and whether there are any known defaults under the Sublease. The Sublease provides that the estoppel certificate may be given to and relied upon by another party, such as the Lenders, with which HHPS is dealing. HHPS has asked the City for an estoppel certificate with respect to the Sublease for its benefit and that of the Lenders. Douglas Holland, City Attorney David H. Ready, Ci wager Attachment: Estoppel Certificate Letter from D. Rick Adams 000092 ESTOPPEL CERTIFICATE RE: Sublease (Hotels i—XI) between The City of Palm Springs, a municipal corporation (successor in interest to SENCA Palm Springs, Inc-, a California corporation), as Sublandlord (the "Sublandlord"); and HHPS (defined below) (successor in interest to AP/APH Palm. Springs, L.P., a Delaware limited partnership; successor in interest to The Community Redevelopment Agency of the City of Palm Springs, California), as subtenant, dated December 31, 1984 (as amended and supplemented, the "Sublease"). TO: (i) 171H PALM SPRINGS LLC, a Delaware limited liability company ("HHPS") and its successors and assigns (collectively, the "Subtenant"), at 8405 Greensboro Drive, Suite 500, McLean, Virginia 22102, Attention: General Counsel; and (ii) (A) WACHOV1A BANK, NATIONAL ASSOCIATION; and BARCLAYS CAPITAL REAL ESTATE INC. (together, the "Mortgage Lender"); and (B) the MEZZANINE LENDERS (defined on Exhibit B), and their respective successors and assigns, at the address set forth below. The undersigned is the Sublandlord under the above-referenced Sublease of land located at 888 East Tahquitr Canyon Way in Palm Springs, California (the "Property"). The Sublandlord has been advised that, effective July 17, 2007— W Blackjack Merger Corporation, a Maryland corporation; Blackjack Holdings, LLC, a Delaware limited liability company; and Blackjack Merger Partnership, LP, a Delaware limited partnership, all of which are affiliates of JER Real Estate Partners 1V, L.P. (collectively, the "Buyer"), arc acquiring (such acquisition, the "Merger Transaction") 100% of the outstanding common shares and operating partnership units of Highland Hospitality Corporation, a Maryland corporation (together with any successor by merger thereto, "Highland"); (ii) In connection with the Merger Transaction, the Buyer is acquiring an indirect interest in 100°% of the limited liability company interests in, inter alia, HHPS; HHC TRS OP LLC, a Delaware limited liability company (the "Prior Operating Tenant"); and HHC TRS Portsmouth LLC, a Delaware limited liability company (the "Operating Tenant"), each of which is indirectly wholly-owned by Highland; (iii) In connection with the Merger Transaction, HHPS, the Prior Operating Tenant, the Operating Tenant, and a number of their affiliates are obtaining certain financing (the "Mortgage Financing") li-ont the Mortgage Lender pursuant to that certain Mortgage Loan Agreement dated July 17, 2007, between (A) HHPS, the Prior Operating Tenant, the Operating Tenant, and such other affiliates; and (B) the Mortgage Lender; Sublease Estoppel Certificate Page 1 Wyndham Palm Springs M Q SF\609545v2 65514-0013 (iv) In connection with and as part of the Mortgage Financing, Connecticut General Life Insurance Company, a Connecticut corporation ("CGLIC"), is assigning, inter alia, that certain Leasehold Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing dated as of July 14, 2005 (the "Existing Deed of Trust"), between HHPS and the Pt-ior Operating Tenant, as trustors; CGLIC, as beneficiary; and the trustee named therein, as trustee, encumbering, inter alia, the subleasehold estate of the Subtenant under the Sublease, the sub-subleasehold estate of the Prior Operating Tenant under the "Operating Lease" (as defined in the Existing Deed of 'rrust, the "Prior Operating Lease"), and the improvements located on the Property (all such improvements, collectively, the "Improvements"), including the hotel located thereon known as "Wyndham Palm Springs", which deed of trust was recorded in the Official Records of Riverside County, California (the "Official Records"), on such date, as Instrument No. 2005-0565205, to the Mortgage Lender by that certain Assignment of Leasehold Deed of Trust dated July 17, 2007 (the "Existing Deed of Trust Assignment"), made by CGLIC to and in favor of the Mortgage Lender, which assigmnent is to be recorded in the Official Records; (v) In connection with the Merger Transaction, (A) the Prior Operating Lease is being terminated by agreement between HHPS and the Prior Operating Tenant; and (B) in replacement thereof, the Property, inter alia, is being sub-subleased by that certain Lease Agreement dated July 177 2007 (the "Operating Lease"), between HHPS, as sub-sublandlord, and the Operating Tenant, as sub-subtenant; (vi) In connection with and as part of the Mortgage Financing, HHPS and the Operating Tenant, as tustor; and the Mortgage Lender, as beneficiary, are amending and restating the Existing Deed of Trust by that certain Amended and Restated Leasehold Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July 17, 2007 (the "Restated heed of Trust"), between them, which will continue to encumber, inter alia, the subleasehold estate of the Subtenant under the Sublease and the Improvements, and will thereafter encumber the sub-subleasehold estate of the Operating Tenant under the Operating Lease, which amended and restated deed of trust is to be recorded in the Official Records; and (vii) In correction with the Merger Transaction, the Mezzanine Lenders are making certain mezzanine loans (such loans, as more particularly described on Exhibit B, collectively, the "Mezzanine Loans") to certain direct or indirect owners of HHPS, the Operating Tenant, and their affiliates, which loans are being secured by the Pledges (defined on Exhibit B). (viii) Operating Tenant has advised Sublarudlord that Operations Tenant intends to make a substantial investment in the upgrade and renovation of the hotel Facility and the Property to ensure that the Hotel Facility is maintained and operated in a first class condition as a convention hotel consistent with the terms of the Sublease. As a condition to the Merger Transaction, the Mortgage Financing, including the Existing Deed of Trust Assigmnent, and the Mezzanine Loans, and in reliance thereon, HHPS, the Mortgage Lender, and the Mezzanine Lenders request that the Sublandlord certify to the Sublease Estoppel Certificate 000004 Page 2 Wyndham Palm Springs SI\609545v2 65514-0013 Mortgage Lender, the Mezzanine Lenders, HHPS, and their respective successors and assigns as follows: 1. The Sublease consists of the original agreement and the amendments thereof and supplement thereto that are identified in Exhibit A, and the Sublease, as so identified in Exhibit A, is unmodified and in hill force and effect and constitutes the entire agreement between the Sublandlord and HHPS. A true and complete copy of each such Sublease document is attached hereto as part of such exhibit. The Sublandlord acknowledges that HHPS is currently the sole subtenant under the Sublease. 2. The Sublandlord consents to the sub-sublease of the Property and the Improvements by HHPS to the Operating Tenant by the Operating Lease. 3. The Sublandlord approves the change of the direct and indirect ownership and control of HHPS and the Operating Tenant resulting from the Merger Transaction and acknowledges and agrees that the consummation of the Merger Transaction does not constitute, nor will be deemed to constitute, a default, event of default, or prohibited assignment or transfer under the Sublease. 4. All rent and any other charges or amounts due under the Sublease have been paid through June 30, 2007, and there are no unpaid amounts due from HHPS to the Sublandlord. 5. There are not, to the Sublandlord's knowledge, any uncured defaults on the part of HHPS under the Sublease beyond any applicable grace period, or any events or conditions now in existence that will, with notice, the passage of time, or both, constitute a default on the part of HHPS under the Sublease. 6. The Sublandlord is not in default of its obligations under that certain Business Lease No. PSL-3I5 dated February 28, 1984, approved by the United States Department of the Interior, acting, pursuant to delegated authority from such departrxient, through its Bureau of Indian Affairs (such bureau so acting for such deparhnent, the "BIA") on July 23, 1984, which approval was modified on August 20, 1984; as amended pursuant to (i) that certain Amendment No. 1 to PSL-315 dated as of August 10, 1995, approved by the BIA on October 13, 1995; (ii) that certain Amendment to Lease dated as of October 28, 1998, approved by the BIA on October 29, 1998; (iii) that certain First Amendment to Business Lease-315 dated as of April 7, 2004, approved by the BIA on May 26, 2004; and (iv) that certain Second Amendment to Business Leas6-315 dated as of February 9, 2006, approved by the BIA on February 9, 2006. 7. The Sublandlord acknowledges that the Mortgage Lender is holding the Restated Deed of Trust, which encumbers the subleasehold estate of the Subtenant under the Sublease, the sub-subleasehold estate of the Operating Tenant under the Operating Lease, and the improvements, and acknowledges that the Mortgage Lender is a "Sublease Encumbrancer" (as defined in the Sublease) entitled to all of the benefits thereof under the Sublease. 8. The Sublandlord agrees to deliver written notice of any default by the Subtenant under the Sublease to the representative of the Mortgage Lender and the Mezzanine Sublease Estoppel Certificate 0 ` Paae 3 Wyndham Palm Springs U SF\609545v2 65514-0013 Lenders (the "Designated Representative") simultaneously with sending such notice to the Subtenant. All notices to be sent to the Designated Representative shall be sent to the following address (or such other address as may be designated by the Designated Representative): Wachovia Bank, National Association Commercial Real Estate Services 8739 Research Drive URP 4, NC 1075 Charlotte, North. Carolina 28262 Attention: Portfolio Management/ Loan Number: 509850780 Fax No.: (704) 715-0036 9. This Certificate is being delivered in connection with the Merger Transaction, the Mortgage Financing, and the Mezzanine Financing, and the Sublandlord understands and agrees that HHPS, the Mortgage Lender, the Mezzanine Lenders, and their respective successors and assigns will be relying upon this Certificate and that each of them is entitled to do so. The individual executing this Certificate on behalf of the Sublandlord is empowered and authorized to do so. This Certificate shall be governed by the laws of the State of California. This Certificate may be executed in any munber of counterparts, each of which shall be fully effective as an original and which together shall constitute a single instrument. This Certificate shall be binding upon the Sublandlord and its successors and assigns, and shall inure to the benefit of HHPS, the Mortgage Lender, the Mezzanine Lenders, and their respective successors and assigns. When used herein, "including" and the like are not limiting, "or" is not exclusive, each gender includes the other genders, the singular includes the plural and vice versa (including in the definitions of leans), a reference to an "Exhibit" means an exhibit hereto, and all exhibits hereto are incorporated herein by the reference thereto. [Signatures on Following Page] Sublease Estoppel Certificate 000006 Page 4 Wyndham Palm Springs SF\609545v2 65514-0013 This Certificate is executed effective as of the 17°' day of July, 2007. SUSLANDLORD: THE CITY OF PALM SPRINGS By: David R. Ready City Manager APPROVED AS TO FORM By: Douglas Holland City Attorney Sublease Estoppel Certificate Q®Q 0'", Page 5 Wyndham Palm Springs SF\609545v2 65514-0013 EXHIBIT A Sublease Documents 1. Sublease (Hotels 1-XI) dated as of December 31, 1984, between SENCA Palm Sprints, Inc., a California corporation ("SENCA-PS"), as sublandlord, and The Conununity Redevelopment Agency of The City of Palm Springs, California, a public body (the "Agency"), as subtenant. A memorandum of thereof was recorded in the Official Records on December 30, 1985, as Instrument No, 293742. 2. Supplement (for Purpose of Conlbnning Legal Description) to Sublease dated as of December 3, 1992, between the Suhlandlord (successor in interest to SENCA-PS) and the Agency. 3. Assignment and Amendment of Sublease and Termination of Sub-Subleases dated as of November 5, 1998, between the Agency; the Sublandlord; APJAPH Palm Springs, L.P., a Delaware limited partnership; and the other parties thereto identified therein. [Copies of the Foregoing Sublease Documents Follow] Sublease Estoppel Certificate o eA rf $ Page A-1 Wyndham Palm Springs Exhibit A—Sublease Documems SF\609545v2 65514-0013 EXHIBIT B Mezzanine Lenders 1, Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine A Lender") that is malting a mezzanine loan to, inter alga, 1.11-1 Mezz Swap A LLC, a Delaware limited liability company (the "Mezzanine A Borrower"), secured in part by direct or indirect pledge of 100% of the liunited liability company interests in HHPS and the Operating Tenant (the "Mezzanine A Pledge"). 2. Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine B Lender") that is making a mezzanine loan to HH Mezz Borrower A-2 LLC and HH Mezz Borrower D-2 LLC, each a Delaware limited liability company (together, the "Mezzanine B Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine A Botxower (the "Mezzanine B Pledge"). 3. Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (tobcther, the "Mezzanine C Lender") that is making a mezzanine loan to, inter alia, HH Mezz Borrower A-3 LLC and HH Mezz Borrower D-3 LLC, each a Delaware limited liability company (together, the "Mezzanine C Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine B Borrower (the "Mezzanine C Pledge"). 4. Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine D Lender") that is making a mezzanine loan to, inter alia, HH Mezz Borrower A-4 LLC and HH Mezz Borrower D-4 LLC, each a Delaware limited liability company (together, the "Mezzanine D Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine C Borrower (the "Mezzanine D Pledge")- 5- Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine E Lender") that is making a mezzanine loan to, inter alia, I114 Mezz Borrower A-5 LLC and 1114 Mezz Borrower D-5 LLC, each a Delaware limited liability company (together, the "Mezzanine E Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine D Borrower (the "Mezzanine E Pledge"). 6. Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine F Lender") that is making a nezzanine loan to, inter alia, HH Mezz Borrower A-6 LLC and HH Mezz Borrower D-6 LLC, each a Delaware limited liability company (together, the "Mezzanine F Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine E Borrower (the"Mezzanine F Pledge"). Master Lease Estoppel Ccrtd'ieate Q 0 Q O Z1°. Page B-1 Wyndham Palm Spnngs Exhibit B—Mezzanine Lenders SF\609545v2 65514-0013 7. Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine G Lender") that is making a mezzanine loan to, inter alia, HH Mezz Borrower A-7 LLC and HH Mezz Borrower D-7 LLC, each a Delaware litnited liability company (together, the "Mezzanine G Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine F Borrower (the"Mezzanine G Pledge"). S. Wachovia Bank, National Association; and Barclays Capital Real Estate Finance Inc., in their capacity as mezzanine lender (together, the "Mezzanine H Lender") that is making a mezzanine loan to, inter alia, I111 Mezz Borrower A-8 LLC and HH Mezz Borrower D-8 LLC, each a Delaware limited liability company(together, the "Mezzanine H Borrower"), secured in part by a pledge of 100% of the limited liability company interests in the Mezzanine G Borrower (the"Mezzanine H fledge"). Each of the Mezzanine A Lender, the Mezzanine B Lender, the Mezzanine C Lender, the Mezzanine D Lender, the Mezzanine E Lender, the Mezzanine F Lender, the Mezzanine G Lender, and the Mezzanine H Lender, together with each of their respective successors and assigns, are a"Mezzanine Lender", and collectively are the "Mezzanine Lenders". Each of the Mezzanine A Pledge, the Mezzanine B Pledge, the Mezzanine C Pledge, the Mezzanine D Pledge, the Mezzanine E Pledge, the Mezzanine F Pledge, the Mezzanine G Pledge, and the Mezzanine H Pledge are a "Pledge", and collectively are the "Pledges". Master Lease Estoppel Certificate 000010 Page B-2 Wyndham Palm Springs Exhibit B—Mezzanine Lenders SF\609545v2 65514-0013 Rug 31 07 04. 49P drohrbaugh 171301 416-2373 P• 1 �w HIG14LAND HOSPITALITY CORPORATION August 30, 2007 Palm Springs City Council 3200 E Tahquitz Canyon Way Palm Springs, CA 92263 RE: Palm Springs Wyndham Hotel Dear City Council Members We are energized and took forward to strengthening the long-torn partnership between the Wyndham Palm Springs Hotel and the City of Palm Springs. As you may or may not know, Highland Hospitality Corporation (HIH), the former owner for the Wyndham, merged with an affiliate of JER Partners (JER) on July 17, 2007. JER Partners is the private equity investment arm of J.E_ Robert Companies, a real estate investment managemem company with more than 26 years of experience in sourcing, underwriting and managing a broad spectrum of real estate equity investments and debt products in North America, Europe and recently the emerging markets. Most of JER Partners' investments are in office, hospitality, retail, multi-family and industrial propef Lies. Other areas of investment include Commercial Mortgage- Backed Securities, healthcare related real estate and mezzanine financing, For more information on JER Partners, please visit http://www.jer.com. Currently, JER Partners' hotel portfolio consists of more than 200 properties. These properties include those operated under the Starwood, Marriott, Hilton, Intercontinental, Hyatt and the Wyndham flag along with those operated by Longhouse Hospitality. While H1H had initiated its own plans to reposition the property, ultimately, these plans were placed on hold pending its merger with JER. Today with die merger process behind us, we are actively reassessing the Wyndham Palm Springs and a potential Future mull-million dollar renovation plan. We intend to reposition the hotel to compliment the recently expanded and renovated Convention Center, We are aware of and support the additional hospitality projects proposed in Palm Springs. We value our position as the headquarter convention hotel for Palm Springs and working togedrcr with City and Council Members, are confident that we can create a destination property That we can all be proud of. We 100% forward to our continued interaction and information sharing regarding this hotel_ Best Regards, qq " D. Rick Adams D. Rick Adams Semnr Vice PrcFldenl, Asset ManugCmept 8405 Grcensla ro I)mn • StmC 500 McLean,Vlrg�tu ±?Ip1 7n3 33ti,d917 I`na 7t133Jb.i95U :rk,:d: .�highlandhospii.ilny.mm 00001.1