HomeMy WebLinkAbout7/20/2011 - STAFF REPORTS - 4.B. V A LM SA
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g41polt %P CITY COUNCIL STAFF REPORT
DATE: July 20, 2011 UNFINISHED BUSINESS
SUBJECT: APPROVE A PROJECT FINANCING AGREEMENT BETWEEN THE
CITY OF PALM SPRINGS AND PALM SPRINGS PROMENADE, LLC,
FOR THE REDEVELOPMENT OF CERTAIN REAL PROPERTY AT 123
NORTH PALM CANYON DRIVE
FROM: David H. Ready, City Manager
BY: Community and Economic Development
SUMMARY
The City Council will consider approving a Project Financing Agreement for the
redevelopment of the Desert Fashion Plaza. The proposed Agreement is the result of
recent negotiations with Palm Springs Promenade, LLC (the "Developer") and City staff
for the redevelopment of the property.
Pursuant to the proposed Agreement, the City would acquire the public areas and the
parking structure, which will assist the Developer to provide financing for a portion of the
development project. In addition, the City would undertake the construction of all public
streets and infrastructure on the site. The acquired properties include: (1) the real
property containing the above ground parking structure, as well as the surface and
underground level of the parking at the southwest comer of the site; (2) the
underground parking structure beneath the developed shopping center; (3) two possible
"museum expansion" sites; (4) the improved streets created by the project described as
the Museum Street, Andreas Road and the Belardo extension; and (5) new public
restrooms.
RECOMMENDATION:
1. Adopt Resolution No. _, "A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS, CALIFORNIA, APPROVING A PROJECT
FINANCING AGREEMENT WITH PALM SPRINGS PROMENADE, LLC FOR
THE REDEVELOPMENT OF CERTAIN REAL PROPERTY AT 123 NORTH
PALM CANYON DRIVE, COMMONLY KNOWN AS THE DESERT FASHION
PLAZA."
ITEM NO.
City Council Staff Report
July 20, 2011 -- Page 3
Purchase and Sale Agreement on Desert Fashion Plaza
STAFF ANALYSIS:
The purpose of the Agreement is to facilitate the redevelopment of the Desert Fashion
Plaza located at the center of Downtown. The redevelopment of this center has been a
priority of the City for the past 30 years, from its original construction on the site of the
historic Desert Inn to the largely unsuccessful effort by a prominent, national shopping
mall developer to expand and remake the property, to a number of redevelopment
proposals that have been made by several developers since the mall went into
foreclosure in the late 1990's.
Largely vacant for the past decade, the mall is the largest single property in the
Downtown and the most blighted. The deteriorated state of the mall keeps Downtown
from really thriving, and casts a negative pall over the entire area, offsetting a number of
successes in the Downtown area. As was typical at the time the mall was constructed
in the 1960's and redeveloped in the 1980's, it was "fortress-like" and focused inward,
with few storefronts facing the street, providing little synergy with the rest of the
Downtown. In addition, the property blocks the visibility of the Palm Springs Art
Museum, the City's most significant cultural asset, from Palm Canyon Drive. The
combination of the key location, the sheer mass, the retail obsolescence, and
deteriorated condition of the property makes its redevelopment critical to the future
success of Downtown.
Over the past several years the relationship between the City and the Developer has
included a number of joint efforts on research, marketing and capital projects, but have
also more recently included the initiation of eminent domain proceedings by the City's
Redevelopment Agency because a lack of progress toward the redevelopment of the
property. In the end, it is the recommendation of staff and the Council Subcommittee
that the proposed Project represents the broad desires of the community for a quality
development, and that the attached Project Financing Agreement and related actions
represent the best opportunity for all parties to move forward with the Project.
This Project would replace an obsolete enclosed mall with new city streets through the
Project, and effectively incorporate both residential and retail uses into an urban village.
The project presents a pedestrian-friendly environment with a number of plazas and
walkways that provide linkages throughout the project, as well as from Palm Canyon
Drive to the Palm Springs art Museum. Upon completion, the proposed Project will
reintegrate a property that had been massed into a monolithic "superblock" back into the
downtown street grid, resulting in a strong public gathering place comprised of well-
designed public spaces linked by a total entertainment and retail environment.
The major emphasis of the Project, like the rest of Downtown, is on dining, arts, and
entertainment. World-class architecture, landscaping and enhanced circulation will
create an exciting atmosphere where retail, hotel, cultural and other activities can
02
City Council Staff Report
July 20, 2011 --Page 4
Purchase and Sale Agreement on Desert Fashion Plaza
complement the existing Downtown as well as establish its own sense of place, as well
as compete with other high-quality Coachella Valley venues such as such as The River
in Rancho Mirage and The Gardens at El Paseo in Palm Desert.
A more detailed redevelopment history of the property and negotiation with the
Developer is included as Attachment No. 1 to this staff report.
Purpose of this Project
The overall community objectives for the Project include:
• Eliminate blight at a prominent location in the Downtown;
• Create a "community heart" that weaves into the existing Downtown fabric and
street grid and serves as a gathering place for tourists and locals;
• Foster an inclusive place that attracts and welcomes residents, workers and
visitors across a wide range of incomes, ages and demographics; and
• Ensure a high-quality environment with respect to the site's buildings,
architecture, uses, landscapes and character;
• Improve the economics of the Downtown by driving higher retail sales at the
Project and nearby properties;
• Create a dynamic mix of uses with no single-use or monolithic development in a
mixed-use project containing retail, entertainment, movie theaters restaurants,
offices, public gathering spaces, residential units in a high-quality setting;
• Improve circulation in the Downtown by breaking a superblock into smaller block
units;
• Preserve and enhance views of the adjacent San Jacinto Mountains;
• Provide improved visibility of and pedestrian-friendly movement and direct
vehicular access to the Art Museum;
• Guarantee a significant supply of free parking in the Downtown.
In addition to facilitating the private development of the Project, this Agreement helps
the City define and shape the proper size and scale of the project, desirable land uses,
street configuration, and public participation. Most importantly, the Downtown will be
re-energized with new entertainment venues, new stores, businesses, residences and
activities, and value will be created for all concerned - owners, operators, retailers,
residents, visitors, tourists, and the City of Palm Springs.
Project Description
One of the key public benefits of the proposed Project is that it reintegrates a 13 acre
property that had been massed into a monolithic "superblock" into the downtown street
grid, resulting in a strong public gathering place comprised of well-designed public
spaces linked by a total entertainment and retail environment. The General Plan and
03
City Council Staff Report
July 20, 2011 -- Page 5
Purchase and Sale Agreement on Desert Fashion Plaza
the Museum Market Specific Plan strongly recommend breaking this large, assembled
block into smaller modules, creating more street frontage, more open space and more
retail and commercial vitality.
Upon completion of the Project's new public streets, landscaping and walkways will be
in place to provide user friendly pedestrian and vehicular circulation; all street
intersections will be finished with decorative pavers; at entry points into the DFP Area,
streets will contain submersible stainless steel bollards that can be electronically raised
so that interior streets and other areas can be used for special events and functions as
needed; new public areas between
he center
of I he Project m Canyon Twill be ive and tenhanced l art;lE11 !ili''��e"I ¢ $e
with public art and sculpture to
serve as a place for pedestrian
activities and public functions; the
renovated building in Block A-1
(the only retail property not fully
demolished) will have all new
exterior facades; new buildings will
be in place in Blocks A-2 and C;
Blocks D, E and G will be � �
temporarily used for parking and/or "
landscaped open space pending
future vertical development; and,
� ' iss i yi` 4f
Block F will contain a new state of
the art multiplex movie theater.
The Conceptual Site Plan for the !P
Project is shown to the right. A �1..
more detailed description of the
Project and larger copy of the Plan
is included in Attachment No. 4.
The following section contains a number of potential deal points included in the
Agreement. These deal points assume that the City will be able to identify sufficient
funds to secure the project.
Financing Structure/Agreement Provisions
The total development cost of Phase I, described above, is in excess of $100 million.
The estimated amount of City participation, including the construction of public
infrastructure and the acquisition of certain public properties, would be approximately
$43 million.
04
City Council Staff Report
July 20, 2011 --Page 6
Purchase and Sale Agreement on Desert Fashion Plaza
The City has structured the project contribution as follows:
1. The City's funds of $32 million would be deposited in a project-related escrow
account to be used solely for project-related costs, under the terms described
below; and
2. The City would undertake the construction of the streets and the improvement of
the parking facilities, at an estimated cost of$11.0 million;
3. In return for its contribution toward making the Project economically feasible, the
City would receive title to all of the Project's parking (surface, underground, and
structure) as well as the land underneath the streets, the future Museum
expansion pads, and the restroom site and building.
Part of the structure under the Agreement shall be the acquisition of certain real
property at the site. These include: (1) the real property containing the above ground
parking structure, as well as the surface and underground level of the parking at the
southwest corner of the site; (2) the underground parking structure beneath the
developed shopping center; (3) the two possible "museum expansion" sites; (4) the
improved streets created by the project described as the Museum Street, Andreas Road
and the Belardo extension; and (5) new public restrooms.
Legal descriptions of the parcels are included in the Agreement. The City's
development cost would include the cost of constructing public streets with decorative
paving and the refurbishing of the underground and structured parking spaces. More
detail on the terms of the Agreement is included in this staff report as Attachment No. 2.
Project Incentive Analysis
The Agreement is intended to make the overall development project feasible. Every
previous Desert Fashion Plaza redevelopment proposal had a shortfall between the
"after-development value" and the cost to construct. The feasibility shortfall is due to
the difference in cost between rebuilding the center or tearing down and building a new
center and the capitalized value of the property based on future rents.
The City used Keyser Marston Associates, Inc. of Los Angeles to analyze the financial
assistance request from the Developer. Keyser Marston provides the third party
verification of the project's cost and revenue assumptions, based on their considerable
experience in the Southern California and Coachella Valley markets.
Keyser Marston completed a pro forma analysis for the Phase I of the Project. The
analysis found that, as currently proposed, the Project is not financially feasible without
significant public assistance. Keyser Marston has estimated that the Total Construction
Costs for the Project are approximately $81 million. These costs include off-site
05
City Council Staff Report
July 20, 2011 --Page 7
Purchase and Sale Agreement on Desert Fashion Plaza
improvements, on-site improvements and demolition, A-1 Fagade Improvements, Shell
Costs for A-2, C, and F, Tenant Improvements, Indirect Costs (including architects,
engineering, permits, taxes, etc) and financing expenses. The City will be responsible
for the off-site improvements estimated at $10.8 million. The Developer will be
responsible for the remaining expenses, or $70 million. In addition, the Developer has
incurred land costs related to the purchase and carrying of the property of at least $20
million. Keyser Marston has estimated that the Project requires approximately $20 to
$25 million in economic incentives or support.
A more detailed discussion of the feasibility analysis, as well as the role other cities
have taken in similar projects, is included in this report as Attachment No. 5.
FISCAL IMPACT:
The fiscal impact of this project comes in the form of direct impacts, primarily the
additional taxes generated by the project, and indirect impacts, mainly the increased
vitality and economic activity in the Downtown that yields additional economic impacts
from the entire Downtown area. It has been the experience of other communities which
have undertaken these major, transformative projects that the indirect benefits are often
in excess of the direct benefits, even when the community retains all the tax revenues
from the project itself.
Returns to the cities are viewed in many ways, the most common of which is the
achievement of a community vision. Public-private projects are intended to create a
sense of place and enhancement of the image of the community that the private sector
acting on its own could not otherwise create. Financial returns to cities can also be
measured, typically through the annual property taxes and sales taxes generated.
From a public benefit perspective, even in a project such as this receiving City or
Agency public investment, the City normally retains the sales taxes while the
Redevelopment Agency receives the incremental annual property taxes.
Direct Economic Benefit of the Project
The two direct sources of public benefit would be property tax increment, which would
accrue to the Redevelopment Agency, and sales taxes, a share of which would flow to the
City. For the purpose of public benefit calculations, it was assumed that the Agency
would continue to collect approximately 60% of the statutory 1% in property taxes paid by
the Developer, and that the current value of the property on the tax rolls is approximately
$20,000,000. Tax increment would be the Agency's share of the property tax paid on the
incremental difference in value between the base (todays value) and the improved value.
The amount Riverside County actually assess will likely be closer to the construction cost
than to the economic value discussed in the previous section. It is estimated that in 2015,
the year the core and shell improvements, as well as the movie theaters, are complete,
06
City Council Staff Report
July 20, 2011 --Page 8
Purchase and Sale Agreement on Desert Fashion Plaza
the project would produce approximately $369,000 in tax increment to the
Redevelopment Agency. At stabilization, the Phase I project would produce over
$400,000 per year in property tax increment.
Additional benefit comes with the development of the Phase II improvements on Blocks
D, E, and G. Assuming they are completed by the stabilization year 2021, those buildings
would produce an additional $430,000 per year in property tax revenue. Therefore,
ultimately, the Revitalization Plan would produce in excess of $830,000 per year in tax
increment for the Redevelopment Agency.
The City currently receives 1% of the current 7.75% sales tax paid by retail customers in
Palm Springs. Assuming the sales tax rate stayed the same, it is estimated that in the
first year of operation, 2015, the Project would produce $112,000 in sales tax for the City.
At stabilization, in 2021, the project is estimated to produce over $615,000 per year in
sales taxes for the City. Any increased sales tax rate would also increase revenues from
the project. Hypothetically, if the rate happened to be increased by 1.0% sometime in the
next five years, at stabilization the project would produce over $1,230,000 per year in
sales taxes for the City. Under the Agreement with the Developer, there is no sales tax
sharing and the City keeps all the revenue.
Indirect Economic Benefit of the Project
As stated above, other communities which have undertaken these major, transformative
projects have found that the indirect benefits are often in excess of the direct benefits,
even when the community retains all the tax revenues from the project itself. Livermore
found that the benefit of its street reconstruction and public improvement project, which
also facilitated private investment in the Downtown, was that the downtown retail vacancy
rate fell to under 5% even with addition of 100,000 new square feet of retail in last 5
years, and that average rents increased from $0.40-$0.60 per square foot to $3.20 to
$3.50 per square foot during that time. Downtown Palm Springs is beginning from a
stronger economic base, with typical rents in the $1.50-$2.00 per square foot range, but
doubling of property values in the area, based on dramatically improved sales in the
Downtown, is nevertheless quite conceivable.
Other significant mixed-use projects, such as The Grove in Los Angeles, find that their
average visitor spends $183 per visit — or three times the national average. The
creation of a destination combined with higher-end retail tenants is a formula for
increased economic benefit area-wide.
Oakland found, with the redevelopment of its Fox Theatre downtown, that a spillover
benefit of that entertainment-oriented project was that seven new restaurants opened
within a five block area, and existing nearby businesses also showed increased sales.
Most communities found that their projects also expanded the number and types of
07
City Council Staff Report
July 20, 2011 --Page 9
Purchase and Sale Agreement on Desert Fashion Plaza
businesses and enhanced the economic vitality of the community, added additional
housing to downtown, and reused underutilized or blighted areas.
An investment of $80-100 million in the Phase I project would also create hundreds of
construction jobs as well as hundreds of permanent jobs in the community. Additionally,
the ultimate development of residential units in Phase II and Class A office space in the
Downtown in the later part of Phase I and in Phase II will also help begin to shape
Downtown into a true 24-hour community, where residents really can live, shop, dine,
play and even work.
No public participation is planned for the later phases. The costs of the mixed use
(residential) portions of the Project are projected, and could be as much as the rest of
Phase I combined. Thus, the effective local public contribution as a percentage of the
overall cost, spread over the entire Project, may be only half of the amount calculated to
date. Second, the parking garage and streets are investments in public infrastructure
just as other communities make, and do not represent a subsidy to the Developer.
Third, some of the investments will benefit projects and constituents beyond the Project
itself. A significant share of the public investment shall be used to reopen public streets
and refurbish an underutilized parking garage. While it may be hard to imagine these
improvements occurring without the impetus of the Project, they nonetheless benefit
more than just the Project's shoppers and residents.
If the City had to undertake the construction of these parking structures today, the cost
would be in excess of$30 million.
Finally, and perhaps most importantly, the value of the subsidy to the Developer seems
proportionate to the Developer's own investment and level of risk. There is no
guaranteed rate of return for the Developer in this Agreement. If project costs rise over
the next few years, the Developer's estimated rate of return may fall below the generally
accepted market rate of return.
The draft Project Financing Agreement attached to this staff report is still under
negotiation and subject to revision.
Joh R on irector Tom Wilson
Co unity an conomic Development Assistant City Manager
4
David H. Ready,
City Manager
08
City Council Staff Report
July 20, 2011 —Page 10
Purchase and Sale Agreement on Desert Fashion Plaza
Attachments:
Attachment No. 1:
History of the Desert Fashion Plaza and Negotiation with Wessman Development
Attachment No. 2
Summary of the Project Financing Agreement
Attachment No. 3
Community Design Plan-Visioning Process
Attachment No. 4
Site Plan/Project Description
Attachment No. 5
Project Economic Feasibility Analysis and Public Investment in Major Retail
Shopping Centers
Attachment No. 6
Limitations on Potential Redevelopment Agency Participation
Attached Documents:
1. Resolution
2. Project Financing Agreement
09
o�ppLIN S.0
City of Palm Springs
c4tip*0 Desert Fashion Plaza
Project Financing Agreement
Staff Report
Attachments
Attachment No. 1
History of the Desert Fashion Plaza and Negotiation with Wessman
Development
Attachment No. 2
Summary of the Project Financing Agreement
Attachment No. 3
Community Design Plan-Visioning Process
Attachment No. 4
Site Plan/Project Description
Attachment No. 5
Project Economic Feasibility Analysis and Public Investment in Major
Retail Shopping Centers
Attachment No. 6
Limitations on Potential Redevelopment Agency Participation
10
Attachment No. 1
History of the Desert Fashion Plaza and Negotiation with Wessman Development
At 13 acres over two full city blocks, the Desert Fashion Plaza is a property that
dominates the Downtown and, in its current condition, has been detrimental to the
economic vitality of the area. From the initial construction of the Desert Inn Fashion
Plaza, built in 1966 on the site of the Desert Inn, the project has always struggled to be
successful
Summary of the Redevelopment History of the Property
• The mall was constructed on the site of the former Desert Inn in 1966. It was
originally called the Desert Inn Fashion Plaza.
• In 1984 the City and Agency assisted the Edward J. DeBartolo Company
renovate and expand the mall, including a new store for Saks Fifth Avenue and
an expanded I. Magnin space.
• The mall went into foreclosure in late 1996, with the total defaulted loans at
$51,698,096.
• In early 1998, AZ Partners purchased the property for$13.5 million. AZ Partners'
plan was a $35-million redevelopment of the mall.
• In 1999 lender Excel Legacy Corp., terminated AZ Partners and proposed its
own $64-million renovation of the mall.
• In mid-2000, Excel opted to sell the mall instead of developing it. Their asking
price was $25 million.
• In July, 2001, Saks announced that it was closing the store.
• Wessman Development Company acquired the mall in late 2001 for
approximately $17,000,000.
• In 2005, Cirque Dreams opened a "temporary" theatre at the back of the site to
stage cirque-style performances. It closed in early 2007.
• Plans were submitted by Wessman Development in April 2007, called Palm
Grove.
• In April, 2008, Wessman Development submitted the Museum Market Plaza
plan. It required a Specific Plan.
• In December 2009, the City Council adopted the Museum Market Plaza Specific
Plan.
Project Financing Agreement Staff Report Attachments 3
Page 1
• In January, 2010, the City and Wessman began to negotiate on an Agreement to
move the project forward. Those efforts were not fruitful until February 2011.
• In December, 2010, the Agency Board authorized the Executive Director to make
an offer to purchase the entire property, beginning a sequence of events that
could have lead to an eminent domain action on the part of the Agency.
Property History
From 1909 through 1966, the site was the home of the internationally-renowned resort
hotel, The Desert Inn. The resort played an important role in the development and
recognition of Palm Springs as a premier, world-class vacation destination. Guests of
the Desert Inn came for the wonderful climate and natural beauty, but also for the
medicinal healing attributes — in its early days the Desert Inn was an international
center for the treatment of tuberculosis.
In 1966 the Desert Inn was demolished to make way for the Desert Inn Fashion Plaza,
which was renamed as the Desert Fashion Plaza in 1983.
Original Desert Inn Fashion Plaza 1NIII I f# III ` I I'
Facing increased retail 11 !I
competition to Downtown from
Mid-Valley locations, including El I i
Paseo and the Palm Desert TownA.
Center, in 1984 the City and .:'.
Agency assisted the Edward J.
DeBartolo Company to undertake
a major renovation and expansion
of the mall, including construction
of a new store for Saks Fifth
Avenue and an expanded I.
Magnin space. It was partly an
effort to keep Saks in Palm
Springs.
This competition, however,
eventually resulted in a loss of
shoppers for the Desert Fashion
Plaza. Also during this period,
major anchors within the Desert
Fashion Plaza vacated the site
due to corporate restructuring and
declining sales. Within a few years from the grand re-opening of the Desert Fashion
Plaza, Silverwood's and Joseph Magnin had closed, and a number of other quality
retailers failed or moved.
Project Financing Agreement Staff Report Attachments
Page 2 12
ti 4�
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Desert Fashion Plaza-DeBartolo 1
Over the next several years, I. Magnin was sold and later closed, leaving Saks as the
only anchor. In 1995, as one of the final efforts by DeBartolo to breathe life into the
property, the company supported a successful local initiative to allow a card room at the
property. The card room was never built, and the mall went into foreclosure in late
1996, with the total defaulted loans at$51,698,096.
The Hyatt, which was constructed as part of the DeBartolo expansion as a Maxim's de
Paris, was not included in the default or the sale.
Project Financing Agreement Staff Report Attachments
Page 3 13
1,
I _
DESERT FASHION PLAZA
COpClP}YL LMDCM!HAM �, .
DeBartolo Desert Fashion Plaza 1
In early 1998, the firm of AZ Partners purchased the property for $13.5 million. They
planned a $35-million redevelopment of the mall, expanding it to over 350,000 sq. ft.
and removing the roof to create an open-air center. The main entrance was to be an
open air plaza with outdoor dining, shops and gathering places, plus a 3,000-seat
cinema and a 2,400 seat live theatre. The live theater would have created a 75, tall
building at the rear of the property, facing the Art Museum, which expressed concerns
about such a monolithic property outside their front door. Metropolitan Theaters, the
operator of the Courtyard Theaters, agreed to lease the vacant I. Magnin space with the
cinemas. AZ Partners' idea was to be more visible to traffic and compatible with the
village atmosphere. The project would have been renamed The Promenade.
In 1999 Excel Legacy Corp., already the 96% owner and AZ Partners' lender on the
project, terminated AZ Partners and announced a $64-million renovation of the mall,
renamed Desert Walk. Their plan was to raze much of the center. Their new
development partner was MBK Southern California Ltd. Proposed tenants included
Saks, a two-story multiplex theater, a food court, gourmet market, restaurants and
various specialty shops. The two story theater was located right on Palm Canyon Drive
rather than in the center of the property.
Project Financing Agreement Staff Report Attachments
Page 4 14
An artist's sketch of the proposed Excel plan, which features the 75' live theater building
in front of the museum and the two story cinema on Palm Canyon Drive, is shown
below.
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Y � 1W
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a
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Work was expected to begin in 2000 and be completed in 2001. However, in mid-2000,
Excel made the decision to sell the mall instead of developing it. Their asking price
was $25 million. There were a number of parties that looked at the mall but the $25
million price was not warranted.
Wessman Development acquired the mall in late 2001 for approximately $17,000,000.
Wessman's original plan was a Spanish-Mediterranean project to be designed by the
Plaza Mercado architect, Robert Altevers. In July, 2001, Saks announced (before
escrow closed) that it was closing the store. Of course, the terrorist attacks on
September 11 also occurred two months prior to close of escrow, devastating hospitality
and retail spending and slowing the redevelopment opportunity through much of 2002.
Since 2002, the Developer has proposed at least 4 different unique projects on this site.
Some of the plans featured as many as 14 separate buildings, some with heights as
high as 74-79 feet, and plans with up to 955 condos, 400,000 square feet of retail or
620 hotel rooms. Many of the plans ran into some form of community opposition,
mainly over height or density. The current plan has been the best-received because of
its significantly reduced height and density.
Theaters were always thought to be critical to the proposed lifestyle center: soon after
The Developer purchased the property, however, Signature Theaters bought and
Project Financing Agreement Staff Report Attachments
Page 5 1 5
renovated the Courtyard Theaters from then-bankrupt Metropolitan Theaters, thereby
crowding out other operators in the Palm Springs film zone (trade area).
In 2003, as part of an effort to move the project forward, the City and Developer
partnered on a streetscape improvement project, creating 38 new parking spaces on
Palm Canyon Drive and opening up the building's facades to public view. The
Developer removed DeBartolo's heavy concrete trellis structures from the front, which
obscured many of the storefronts. The City pulled the curb back and added on-street
parking along the front of the mall, which had been removed with the DeBartolo project.
In 2004, a City Council Subcommittee was formed to work with the Developer. As part
of its collaboration, the City undertook demographic and movie theater market analysis,
which continues to be updated periodically, and City officials participated in tenant
meetings and worked on structuring financial assistance packages.
One of the challenges faced by DeBartolo, AZ Partners, and Excel was how to come up
with a viable economic use for the rear of the property, as the site was now configured
into a "superblock" two city blocks deep. The common experience in Downtown is that
retail vitality declines as stores locate further from Palm Canyon Drive. As a potential
solution, The Developer's proposed 2004-2005 project had a residential component with
condos and townhomes at the rear of the property. The focus would be a plaza for
events such as concerts and art fairs, and a new street between Palm Canyon Drive
and Museum Drive. The Bank of America building, the I. Magnin store and some of the
"back" retail space would be demolished.
A for69W�� s The Plan featured streets through the
spawnayaystfneeeer�neYy� wMawr�g�yeM
�re�ur� nr �u. veua�n , .a�wa project and multi-story buildings. In
2005, anticipating this plan, the Cityi = Undertook Downtown Urban Design
Plan process, which was an effort to
develop guidelines for the
urbanization of Downtown. Produced
after months of community
participation, the Plan included
design guidelines and greater east-
west connections, but did not grant
additional height to the project
t° beyond the existing General Plan. In
a that year a referendum was proposed
® c+oosnmeentlr i�ccwuun6 u?' that could have limited heights
xnsftawe.w ® TOM ii01"3 ftnaaftOkmDowntown, while at the same time
4 ® 46= &WNW two other "gateway' projects were
® z�oa,saro.nr aioM ro osed that were also taller-than-
.,. .,. .smar,w proposed
typical buildings: Port Lawrence and
The Palm Canyon.
Project Financing Agreement Staff Report Attachments
Page 6 16
Another development at the property also occurred in 2005: Cirque Dreams opened a
"temporary" theatre at the back of the site to stage cirque-style performances. That
venue closed early in its second season, in early 2007, leaving a significant tent
structure at the rear of the property where a portion of the mall had been demolished.
That tent was finally removed in April, 2011.
Plans were submitted by the Developer in April 2007, called Palm Grove, which
featured 14 separate buildings, ranging from 20-74 feet high; the project would have
included 65 to 75 new stores and restaurants, plus a gym, a pharmacy and several
hundred condos. The new Museum Way and Belardo would have cut through the
project, and open space with a stage and smaller restaurants.
The plans included the layout of the buildings and called for contemporary architecture,
to be submitted after the site plan was approved by City Council. Approval was
expected by the end of 2007, with construction beginning end of 2008.
Renovation Plan 1
In April, 2008, however, a
N a .. new plan was submitted:
Museum Market Plaza. It
also included a central public
s' plaza with condos, offices,
7 retail and entertainment.
._ Because the project
proposed buildings which
1 ?RR ' could reach 79 feet, the
Developer was required to
process a Specific Plan for
the area which amended the
=t
City's General Plan to allow
_ taller buildings.
Beginning in late 2008,
t; ' Wessman Development, the
City, and the Redevelopment
z , .,t= Agency embarked upon the
.. r e creation of a Specific Plan for
o "' the properties. The Specific
Plan allowed the developer
flexibility in proposing land uses which would be market-driven, with up to 955 condos,
400,000 square feet of retail and 620 hotel rooms, in a formula that traded retail square
footage for hotel rooms or condos, and vice versa. For example, if there were the full
620 hotel rooms, there would be fewer condos and retail square footage. It also
contained and allowed a "Renovation Plan," which was a minor remodel of the mall
property.
Project Financing Agreement Staff Report Attachments
Page 7
17
In December 2009, the City Council adopted the Museum Market Plaza Specific Plan
and the Redevelopment Agency adopted the Specific Plan as the Design for
Development for the Redevelopment Area Plan. In approving the Specific Plan and the
Design for Development, the Council and Agency expressed their belief that the
adoption of the Specific Plan and Design for Development, with its new zoning and
organization of the properties, accented by a new street from the Palm Springs Art
Museum through to Indian Canyon Drive and a potential expansion of the Palm Springs
Art Museum and the creation of new public spaces, would provide a template for the
redevelopment of the property with private development.
An EIR for the plan was certified at the same time. A much more modest Renovation
Plan was also included in the approval of the Specific Plan as well. The Specific Plan
shows a vehicular street through to the museum.
Beginning in January 2010, City staff and consultants engaged Wessman Development
in a defined, six month program to negotiate a Development Planning Agreement
("DPA") that would provide essentially a set of mutually agreeable assumptions,
timelines, and general requirements for the negotiation of both a Development
Agreement and Owner's Participation Agreement for the redevelopment of the Desert
Fashion Plaza. Despite the efforts of all parties, no agreements were reached.
On August 9, 2010, the City Attorneys Office, on behalf of the Redevelopment Agency,
advised Wessman Development that the Agency was unwilling to wait indefinitely for
Wessman Development to propose and demonstrate financial capacity to redevelop the
Desert Fashion Plaza.
On September 22, 2010, the City Council and Agency (1) authorized the completion of
an appraisal of the Properties, (2) solicited a Request for Proposals, and (3) directed
staff to identify potential alternatives for financing any Agency or City participation in any
approved project or the purchase
of the Properties.
The Agency commissioned Integra
a.
Realty to complete an appraisal,
which was discussed in the closed
session immediately preceding the L.
Council and Agency meeting on
December 15, 2010. The Agency
authorized the Executive Director
to make a conditional offer to
purchase the Properties and
negotiate in good faith with
Wessman Development for the
purchase of the Properties.
Project Financing Agreement Staff Report Attachments 8
Page 8
The Council considered two main constraints on any eminent domain: (1) The City can
only use eminent domain for a valid public purpose such as streets or parks, and not for
furthering private redevelopment (though the Redevelopment Agency can); and (2) any
eminent domain action would require the City to pay an owner the actual fair market
value— no government entity can 'take" the property without compensating the owner at
least the appraised value.
Staff also recommended the Agency and Council consider inclusion of a greater level of
potential public uses, amenities, facilities, and services in the project than would
otherwise be considered in any private development program or project. These public
uses, amenities, facilities, and programs would be consistent with the adopted Specific
Plan and enhance the vision of the Specific Plan properties as the focal point, the core,
of Downtown Palm Springs. Staff also developed several financing alternatives for the
acquisition of the Specific Plan Properties and presented several of those options at the
Council/Agency meeting.
An offer letter was delivered in late December and a negotiation meeting was scheduled
for mid-January, 2011. Agency staff, the City Attorney and special counsel met with
Wessman Development and their attorneys to discuss the Agency's offer. No
agreement was reached on any whole or partial purchase of the Specific Plan
Properties.
It is likely that the best way to move the project forward was to threaten acquisition of
the property. Since reopening negotiations with Wessman in February, 2011, the
Council made it clear that the negotiation is a "dual track" and, if necessary, wanted to
be able to adopt the Resolution of Public Necessity if negotiations fell apart. Notice has
been made to the Developer and the Resolution of Public Necessity is on this agenda
as well.
Project Financing Agreement Staff Report Attachments 1
Page 9
20
Attachment No. 2
Summary of the Project Financinq Agreement
The total development cost of Phase I of the Revitalization Plan is in excess of $100
million. The Agreement provides for an estimated amount of City participation, including
the construction of public infrastructure and the acquisition of certain public properties,
of approximately $42 million.
The City has structured the project contribution as follows:
1. The City's funds of $32 million would be deposited in a project-related escrow
account to be used solely for project-related costs, under the terms described
below; and
2. The City would undertake the construction of the streets and the improvement of
the parking facilities, at an estimated cost of$11.0 million;
3. In return for its contribution toward making the Project economically feasible, the
City would receive title to all of the Project's parking (surface, underground, and
structure) as well as the land underneath the streets, the two future Museum
expansion pads, and the restroom site and building.
A significant part of the structure under the Agreement shall be the acquisition of certain
real property at the site. These include: (1) the real property containing the above
ground parking structure, as well as the surface and underground level of the parking at
the southwest corner of the site; (2) the underground parking structure beneath the
developed shopping center; (3) the two possible "museum expansion" sites; (4) the
improved streets created by the project described as the Museum Street, Andreas
Road, and the Belardo extension; and (5) new public restrooms.
y iS b
}
r i
Existing Underground Parldng Plan 1
Project Financing Agreement Staff Report Attachments
Page 11 21
Legal descriptions of the parcels are included in the Agreement. The City's
development cost would include the cost of constructing public streets and the
refurbishing of the underground parking structure. The Developer provided the City
detailed cost estimates on these elements performed by the PENTA Building Group,
such as demolition, streets, renovation of the parking structure, plus site work for the
park/plaza and the private development. Other aspects of the Agreement include:
• Funds Control. In return for fee title to the Property described above, the City's
funds would be deposited in a project-related escrow account to be used solely
for project-related costs such as construction, architecture, engineering, and
design. Other necessary funds — such as the equity contribution and personal
guarantee from John Wessman, would be identified as well.
• Term. The Phase I of the Revitalization Plan sets a schedule for completion of
the core and shell improvements (retail and office along Palm Canyon, the street
infrastructure, the museum expansion sites, and the movie theaters) by
December 2014. The major milestones in the project schedule are:
Milestone Estimated Date
City approves or disapproves Agreement
July 20
City identifies potential source of public financing
November 18
City waives its right to terminate Agreement based on
inability to identify source of public financing December 10
Developer contracts with architectural firm to produce Major
Architectural Modification Plan/Tentative Map December 10
The City and Developer open escrow for conveyance of the
parking structure and other public sites to the City December 10
Developer commences demolition of Bank of America
building January 21, 2012
Close of Escrow, recordation and delivery of documents
April 15, 2012
Submission of Tentative Tract Map/Major Architectural
Approval Application Aril 24, 2012
Approval by City Council —Tentative Tract Map and Major
Architectural Approval June 6, 2012
Developer submits Construction (Building and Engineering)
Plans and Grading Plan May 17, 2013
Commencement of Construction of Developer's
Improvements August 15, 2013
Completion of Construction of Developer's Core & Shell
Improvements December 15, 2014
Likely Completion of Major Tenant Improvements
May 15, 2015
Project Financing Agreement Staff Report Attachments
Page 12
22
• Default. If the City is able to secure its public financing commitment, and there is
a default by the Developer, e.g. they do not move forward on the development of
the project, there is a provision that allows the City to acquire the remaining
private property and all entitlements from the Developer. The remedies for
default allow but not require the City to acquire the Property at a price
determined by a process whereby the City and the Developer each commission
an appraisal, and if the appraisers disagree on value, a third appraiser is hired to
provide a final, binding opinion by selecting one of the two appraisals. The date
of appraisal would be the default date. In addition, John Wessman, as the
Managing Member of Palm Springs Promenade, LLC, shall provide the City a
personal guarantee for the obligated private funds backed by other real property,
which provides the City another level of protection of its investment.
• Demolition. A small part of the demolition of the mall is included in the City's
cost, but most of the demolition is contained in the Project cost and the
responsibility of the Developer. The first property, the Bank of America building,
would be demolished in early 2012. The remainder of the Property demolition
would commence around May, 2013, at the time when the Project's plans are to
be submitted to the Building Department for Building Permits. That would allow
the vertical construction to proceed immediately after receipt of building plans.
• Relocation of tenants. All costs of tenant relocation are part of the private project
cost and the responsibility of the Developer, to be included in the overall project
cost. Under the Developer's schedule, tenant relocation costs may be relatively
small, as most tenants are not in long-term leases and could be relocated within
the project.
• Covenants on the Property. The Agreement contains related agreements that
cover the public parking, maintenance and operation of open space; reciprocal
easements for access to and from the center; and dedications of rights of way.
Certificates of Compliance/Certificates of Acceptance. The City would issue Certificates
of Compliance for certain milestones reached by the Developer, including a Final
Certificate of Compliance when the Project (as described in the Agreement) is
complete.
Project Financing Agreement Staff Report Attachments
Page 13 13
Attachment No. 3
Community Design Plan-Visioning Process
Because the City Council was considering placing a tax increase, possibly sales tax, on
the ballot to pay for the acquisition, creation of the streets through the site, demolition,
tenant relocation and development of public amenities there, the Council felt a strong
need for community input. To that end, the Council approved a community input
process to occur during January and February. To make a proposed June, 2011 ballot,
the Council would have needed to vote on March 2, 2011, to put the tax measure on the
ballot.
The Council's desire was to undertake many of the elements in the Specific Plan,
including the development and construction of the street grid described in the plan, as
well as the creation of the public open space, as well as eliciting wide community input
in the ultimate design and development of the project. In early January, 2011 the
Council's expressed desire was to expand the amount of public space in the plan,
extend the east-west connection through the project, possibly reconnect Belardo Road
through the north-south axis of the project and consider other civic uses on the site.
There would also have been some element of commercial/retail/restaurant that was
complementary to the overall public uses in the project.
Since there was a need to have a credible concept in hand at the conceptual level in
order to demonstrate the necessity for acquiring the property and to have some
confidence in the viability and public acceptance of the proposal, the Agency invited two
highly qualified professional urban design and land use planning firms to submit
qualifications and conceptual proposals to facilitate the community design process for
the project. These firms were selected for their sound and in-depth understanding of
contemporary commercial retail, mixed-use and entertainment center development, as
well as extensive experience in the design of quality projects within Downtown
entertainment districts.
In January, City Council hired MIG, Inc. of Berkeley to conduct community design
workshops to help determine the community "vision" for the mall. The first workshop
held was held on January 26, and approximately 200 people attended. The 2nd and 3rd
community workshops were held in February, with the final meeting the largest of the
three. It was during that period the Council Subcommittee met with The Developer and
recommended a new partnership approach.
Following an overview which summarized the history of the property, the current
General Plan and Downtown Urban Design Plan, and parameters of the workshop,
attendees were broken into five groups for focused discussions on the following topics:
• What types of stores and uses are desired?
• Where are new open spaces and plazas preferred?
• What are the possible new street connections, east to west and north to south?
• Are there any preferences for architectural styles?
Project Financing Agreement Staff Report Attachments 24
Page 14
• How much of the existing mail should be retained?
There were a number of themes that emerged from workshops. Most people wanted to
see some or all of the following types of activities in the center:
■ Most wanted open and pedestrian friendly spaces and a mix of uses.
■ Majority would like to see a combination of architectural styles-particularly
Spanish and Mid-Century modern blending in with existing styles. Scale is also
very important and low rise is the strong preference.
■ People want to see world class architecture from world renowned architect(s).
■ Majority would like all or at least some of the existing Desert Fashion Plaza
buildings to be demolished except for the underground parking and parking in
general.
■ Many expressed a desire for free parking at the site.
■ The consensus was for a mix of revenue generating businesses, office space
and public spaces. Mix high end and affordable stores to attract both residents
and tourists of all classes. Local/small boutiques are overwhelmingly preferred-
nobody asked for"big box" retail.
■ Also, art space/galleries and cultural spaces were identified as needed.
■ Shade/misters and other outdoor features should be incorporated to extend the
outdoor season and mitigate the impact of our extreme heat.
The MIG Plan was developed through the three community design workshops. What
came out of those very positive meetings were concepts and a plan that bears a
tremendous resemblance to the Developer plan. The two site plans were at least 80%
the same in February, as The Developer incorporated input from the community
workshops into his plan. Today's plan, as modified, it is even more similar than it was in
February
MIG showed a development site at the south end of the Hyatt that could accommodate
a new ballroom and some other retail space. They also suggested a pedestrian
promenade through the site to Belardo. Both plans contain two potential sites for the
Museum to expand. Other elements of the Community Plan were:
• East-West connection between Palm Canyon Drive and the Museum, as well as
Belardo Road connection
• Open space plaza along Museum Drive
• Movie theaters could move "into" the northern part of the mail
• Museum expansion sites on either side of roadway, across from Museum
• New or remodeled retail space along Palm Canyon
The elements of the Developer's Plan are:
• East-West connection between Palm Canyon Drive and the Museum, as well as
Belardo Road connection
Project Financing Agreement Staff Report Attachments
Page 15
25
• Movie theaters are located on the north side of the new Museum Drive, where the I.
Magnin store is today
• Museum expansion sites on either side of roadway, across from Museum
• New or remodeled retail space along Palm Canyon; almost all of it is new space and
one-story on the street
• New open space at the comer (Bank of America)
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Project Financing Agreement Staff Report Attachments
Page 16
26
Attachment No. 4
Site Plan/Proiect Description
The existing Desert Fashion Plaza is spread over 13 acres, located between North
Palm Canyon Drive, Tahquitz Canyon Way, Museum Drive, Belardo Road, and Amado
Road. The current development has more than 288,000 square feet of enclosed retail
and circulation space, including 115,000 square feet of three former anchor tenants —
Saks Fifth Avenue (50,000 square feet), I. Magnin (40,000 square feet), and Bank of
America (25,000 square feet). Today only a few tenants occupy the vast Desert Fashion
Plaza. These tenants include a restaurant, cafe and cellular telephone store. Pedestrian
access to these shops is directly from the west sidewalk of North Palm Canyon Drive.
The project also includes 1,061 parking spaces (282 at-grade, 670 below-grade, and
109 above-grade). A parking deck accessed from Museum Drive is located in the site's
northwest corner. An underground parking garage extends from beneath the northern
portion of the property to its southwest comer. There are three points of access to the
underground parking: from the hotel drop-off on North Palm Canyon Drive, from the
northern end of Museum Drive, and from Tahquitz Canyon Way.
The design and character of the Desert Fashion Plaza are more typical of a suburban
shopping mall than a downtown environment. With its inward focus and large footprint,
the site does not weave well into its surroundings. Blank walls characterize several
facades, particularly along North Belardo Road, and some spaces feel isolated and
dangerous. The mail cuts off and turns its back to the Palm Springs Art Museum,
blocking access and views. A few spaces are attractive and accessible, including some
retail frontage at the site's southeast corner along North Palm Canyon Drive. However,
as a whole the mall feels dated, inactive and incongruous with the exciting environment
of Downtown Palm Springs.
Based on substantial public
participation and input, the w nu
City has a number of design Ij 911C1
objectives and elements to V li yi
guide the development and
9 P
redevelopment of the Desert
Fashion Plaza, which include:
III
• Create a unique blend
of spaces, uses and
activities that reflect
the Palm Springs
lifestyle and climate;
• Include a diversity and
mix of land uses,
including retail shops,
restaurants and cafes,
Project Financing Agreement Staffi. Y ...... . .. ...
Page 17
27
as well as uses such as theaters, performance venues, museums and galleries
that reflect the arts, culture and entertainment focus of Palm Springs;
• Interface with the adjacent Palm Springs Art Museum and allow for future options
for museum expansion;
• Enhance views to the mountains and art museum;
• Ensure a walkable and human scale development;
• Create a strong east-west connection through the site;
• Create places to gather including a variety of interconnected open spaces, from
large community plazas to small, intimate spaces;
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PALM SPRINGS DOWNTOWN REVITALIZATION Conner
N 'E T AL MAN I ER PLAN
• Include "festival' streets, with the ability to close off automobile traffic for special
events and activities, such as the Farmer's Market, art festivals and Village Fest;
• Achieve architectural excellence;
Project Financing Agreement Staff Report Attachments
Page 18
28
• Incorporate sustainable and climate responsive building and landscape
elements; and
• Consider the costs and benefits of maintaining certain existing buildings; in
particular, keep the parking structure in the northwest corner.
All of those elements are present in the Revitalization Plan. Under this Agreement the
Developer shall construct Phase I of the Revitalization Plan project, which includes the
demolition of most of the retail properties of the mall, the development of new retail
buildings on Palm Canyon Drive, a new Museum Way from Palm Canyon Drive to the
Art Museum, a reconnection of Belardo Road, new public spaces, and new movie
theaters. The Project Description for the Agreement covers Phase I of the
Revitalization Plan, which is the portion of the project covered in the feasibility analysis
but does not include the future buildings on Blocks D, E, or G.
Streets
There will be no "private" vehicular streets in the Project, though there are private plaza
spaces, which includes the plaza at the corner of Tahquitz and Palm Canyon, as well as
a pedestrian street from that corner plaza to the center street, which includes a 60' x
140' plaza in the center. These shall be privately owned and financed; they are "public"
in that they are open and available to the public to use, but are under the control of the
private property owner, which shall also bear the cost of maintaining them. Any cost of
private streets or plazas is part of the project cost and the responsibility of The
Developer, to be included in the overall project cost.
The Project proposes demolishing property at the most valuable comer — the 100%
corner in Downtown — and placing a public space at least 90-100' deep there. The
entire street grid created by the project and conveyed to the City will also be designed
with landscaping, architectural shading and decorative interlocking pavers, and no
curbs, to maximize its use for events. The new Museum Way will be wider, building to
building, than Palm Canyon Drive. All of it will be available to be closed off for special
events and public activities. —
It is appropriate urban public
space for an urban
environment. That also
doesn't count the two
,'museum pads' to be
conveyed to the City which
will be open green space
until the day the Art Museum
builds on one of them.
It has been suggested that
normally in a development
-61 or—
project a developer would
construct and dedicate the
Project Financing Agreement Staff Report Attachments
Page 19 29
streets to the City. That is often true, but a City can actually only require dedication of
General Plan streets, and these are not. In addition, the cost of developing these
streets — on land that had previously been buildings, or worse, parking structures — is
extraordinarily high. From a business transaction perspective, the construction of the
public streets by the City is a legal and practical way to reduce the feasibility gap in the
project.
One outcome could be permanent free parking for the public at the site. Another
outcome would be City's ability to assist two of the City's most significant cultural assets
-- the Art Museum and the Film Festival — expanding their facilities or their programming
at the site.
The Museum Pads
These two parcels, located at the far western end of the project, shall be filled in and
free of debris and repainted, broken concrete repaired, and made usable during the
period the Museum does not develop one or the other. Under the Agreement, the City
shall receive the land from The Developer and negotiate with the Museum on a
development project. The Developer shall undertake the mapping and site work to
create these parcels. It would be up to the City and Museum, under a separate
agreement, to create a performance timetable for future Museum expansion. The City
would also have the ability to find an intermediate use. In addition, it is likely that the
Museum shall only develop one of the pads, not both, so the remainder pad presents
another opportunity for the City to secure another cultural use or create an additional
large public plaza.
Public Restrooms
There is a provision for the creation of public restrooms within the project, which the City
would operate and maintain. The Agreement contains a legal description of the
restroom space which the City would purchase.
Parking
The current estimate is that there is enough parking on site to accommodate all the
proposed project uses, including the demand for movie theaters and other uses, even at
peak times. The Agreement contains a parking agreement or covenant to allow the
project to meet its zoning obligations regarding the provision of on-site or off-site
parking.
All parking structure improvements shall be undertaken by the City upon its acquisition
of the property. There is work to be done in the parking structure, including replacing
the fire sprinklers and lights. There are some cost estimates available on whether any
concrete needs to be repaired or structural work needs to be done, including any
seismic work. Some reconfiguration of the parking structure shall also be necessary, in
order to allow the construction of Belardo and the new Andreas Road on grade, as well
Project Financing Agreement Staff Report Attachments
Page 20 30
as some new building pads on grade.
There has been some public concern expressed about the way the existing parking
structure was financed, and whether the City may have already "paid"for it once, only to
have to purchase it back. That is, in fact, not true.
The bonds that paid for the parking structure constructed by DeBartolo were Certificates
of Participation (COPs), in the amount of $23.5 million. COPS are a form of lease
revenue bonds that are secured by a lease. DeBartolo, as the lessee, pledged to pay
the annual debt service and would have received all right, title and interest to the
property. The City was the issuer of the bonds but DeBartolo had the obligation to pay
the debt service. In the event of paying the bonds off early, which occurred prior to
DeBartolo's default on the shopping center financing, title to the structure would still not
have flowed to the City. The City has never paid for the parking structure.
EIR Certification
Concurrently with approval of the Specific Plan, the Council approved and adopted
Resolution 22625, which certified an Environmental Impact Report for the Specific Plan.
Such Resolution included, without limitation, the making of amendments to the General
Plan and Zoning Ordinance of the City, the making of certain findings relative to
environmental effects identified in the EIR, the adoption of a Statement of Overriding
Considerations, and the adoption of a Mitigation Monitoring Plan and Reporting Plan.
The Resolution also included the incorporation of the Renovation Plan as an option, i.e.,
a potential "phase one" for remodeling the DFP Area.
Substantial Conformance of Revitalization Plan
The Project substantially conforms to the Palm Springs General Plan, specifically the
adopted Museum Market Plaza Speck Plan, because the proposed Revitalization Plan
meets both the guiding principles and the development standards and guidelines of the
Specific Plan through a mix of retail commercial, resort hotel and residential uses on a
grid of pedestrian-oriented streets and open spaces that together provide a fully
functioning Downtown core that integrates well with surrounding streets and land uses.
Project Financing Agreement Staff Report Attachments
Page 21
31
Attachment No. 5
Proiect Feasibility Analysis and
Public Investment in Maior Retail Shopping Centers
The Agreement is intended to make the overall development project feasible. Every
previous Desert Fashion Plaza redevelopment proposal had a shortfall between the
"after-development value" and the cost to construct, from the original AZ Partners
project, the Excel Legacy project, and earlier Wessman proposals. The shortfall is not
due to the size of the development company making the proposal, but any project would
likely have a feasibility shortfall even if the City didn't require any additional design
features or acquire any of the property.
The feasibility shortfall is due to the difference in cost between rebuilding the center (or
tearing down and building new) and the capitalized value of the property based on
future rents. In other words, the Project will simply cost more to build than it will be
worth, once completed. To build a simpler, less expensive project does not necessarily
diminish the need for assistance, as expected rents would also decline, thereby
lowering the after-completion value of the property. In fact, an argument for the larger
and denser projects proposed over the past several years, prior to this project, was that
the potential profit from the sale of the condominiums (back when there was profit from
the sale of condominiums) would have covered part or most of the shortfall. Those
projects, of course, yielded to other community concerns over height, mass, and
density, and ultimately the market turned as well.
Any other private developer on this property would face many of the same economic
challenges this Developer faces in the capital market and in the leasing environment. In
addition,. bringing in a new developer would add a new cost of acquisition to the
project's economics and could force another developer to maximize land use, since
there are up to 1.7 million square feet allowed under the Specific Plan as a way of
allowing more intense development to make the project economics more favorable.
Part of the process public agencies use to determine the appropriate level of public
investment in a private development project is to have a third party consultant analyze
all of the developer's numbers, such as their cost assumptions, proposed rents,
absorption estimates, financing costs, and other items, and to test those numbers
against other projects in the market. The Agency had previously used Keyser Marston
Associates, Inc. of Los Angeles to analyze financial assistance requests from the
previous proposers and owners of the Desert Fashion Plaza, including AZ Partners and,
later, Excel Legacy. The purpose of using Keyser Marston to analyze the economics of
the project was to determine the `warranted assistance" in the project: i.e. the financial
assistance necessary make the project financially feasible, as shown in the project's
own pro forma.
Project Financing Agreement Staff Report Attachments 32
Page 22
Keyser Marston provides the third party verification of the project's cost and revenue
assumptions, based on their considerable experience in analyzing major retail shopping
centers on behalf of public agencies in the California, Southern California and Coachella
Valley markets. Public-private partnerships have been ongoing in California for more
than 30 years, primarily through redevelopment agencies. In the last 10 to 15 years,
sales tax sharing agreements between cities and private developers have also
occurred.
Keyser Marston completed a preliminary pro forma analysis for the Phase I of the
Project. The analysis found that, as currently proposed, the project generates
approximately 4.8% in return to the Developer on total development costs, compared to
the average threshold rate of return in the current investment marketplace, which is in
the 9.5% range. Based on the development cost number, the Project is not financially
feasible without significant public assistance.
Keyser Marston found the Developer's cost and revenue assumptions fell within the high
end of the typical range for this type of development, but believed that it is appropriate,
however, given the location and significance of the project in the community. They
therefore used a majority of the Developer's cost assumptions in its analysis. The
Developer used PENTA, a large, experienced general contractor, to determine all of the
project costs. The development scope includes 246,612 square feet of gross building
area, including retail, restaurant, office, and a movie theater. The Project involves
demolition of most of the existing site, extensions of roadways through the site,
landscaping/streetscape improvements, and public plazas. Parking will be provided in
the existing parking facilities located on the site.
Keyser Marston estimated the total construction costs at $81 million, or $328 per square
foot, including the off-site improvements, on-site improvements, demolition, fagade
improvement costs, shell costs, and tenant improvements. Keyser Marston added a 5%
direct cost contingency. They estimated the indirect costs by applying industry standard
cost ratios, and used the Developer's estimate for the cost of public permits and fees
and for marketing and leasing costs, as well as adding a 5% indirect cost contingency.
They estimated the financing costs assuming a 7% blended debt /equity rate and 2.0
points.
To determine the value of the Project, Keyser Marston estimated the Project's net
operating income (NOI) using the Developer's assumptions for average monthly rental
rates for the retail, restaurant, and office rents on a triple net basis (NNN). The
projected rents are significantly above the current market average for Palm Canyon
Drive of $1.50-$2.00 NNN but not significantly above new Class A space in the market.
They included a 5% vacancy factor and a factor for unreimbursed operating expenses
estimated at$9.00 per square foot of vacant space.
Based on their estimate of annual net operating income, and their data that indicates
that currently investors are demanding an average return on total cost of 9.5% for
Project Financing Agreement Staff Report Attachments 33
Page 23
projects of this type, Keyser Marston determined that using this threshold rate of return,
the Project generates a financial gap of approximately $25.4 million, before
consideration of any land acquisition costs. The Developer estimated their land
acquisition cost at $32 million, supported by their March 15, 2011 appraisal. The City
has adjusted the land basis from $32 million to $20 million based on its own estimate of
value. Therefore, the estimated total Project shortfall, including a $20 million adjusted
land acquisition cost, is approximately$45.4 million.
If no financial assistance is provided, the Project would demonstrate a 4.7% return on
total development, based on the projected NOI and the estimated total development
cost, below the threshold likely to induce the private redevelopment of the Property.
Participation by Other Communities in DevelopmenVRedevelopment Projects
While each transaction has its nuances and complexities, there is significant precedent
in California of agreements between major retail developers and public agencies in
which public financial agencies provide financial assistance. Keyser Marston has been
the financial advisor to the public agencies in several of these agreements.
How agreements are structured is almost as numerous as the number of communities
structuring agreements. Like the proposed Agreement, many cities will use a
combination of mechanisms that are available under the law, including the construction
of public improvements, land acquisition and assembly, creation or provision of parking,
rebates or deferrals of development fees, use of tax exempt financing such as Mello
Roos bonds, rebates of tax revenue, the use of parking in-lieu fees, or project loans with
deferred payment or other favorable terms. Agencies and cities have also layered in
state and federal funding into projects, especially those with a transit (or transit-oriented
development) component.
Locally, redevelopment agencies in Rancho Mirage have assisted projects such as The
River, with a $16 million in assistance through land assembly and write-down as a way
of reducing or eliminating feasibility gaps in this highly desirable project. Both are
common and appropriate mechanisms for public participation in private development
projects.
Cathedral City, as part of its downtown revitalization efforts, built their City Hall and
adjacent parking structure in the downtown as a public investment there, and continues
to directly subsidize both the Pickford Theaters and the IMAX Theater in an effort to
maintain the forward momentum in its downtown.
Other examples of projects in California with significant public investment in other
communities include:
• City Place, Long Beach. (1999-2005) This project is the most similar to Palm Springs
in terms of development concept. • The City of Long Beach and the Long Beach
RDA, working with Developers Diversified Realty Inc., Coventry Long Beach (CLB),
Project Financing Agreement Staff Report Attachments
Page 24 34
and Hopkins Real Estate Group invested $19,300,000 into this $81,000,000 mixed
use project, which included 475,000 square feet of retail and over 300 residential
units on eight city blocks in the heart of Downtown Long Beach. It replaced an
obsolete enclosed 700,000 square foot mall - the Long Beach Plaza - and
reinvigorated retail, providing approximately 850 jobs for residents and additional tax
dollars for the City and the Agency. Major City responsibilities included the
renovation and improvement of the city-owned parking structures; issuance of an
$11.1 million bond to retire the existing municipal debt on the Long Beach Plaza
project ($5.23 million, including issuance costs of $1.9 million) and to fund parking
improvements ($5.74 million); and an additional $5.0 million in financial assistance
for traffic impact fees and roadway construction. The RDA commitments also
included the conveyance of an additional nearby site to CLB, including the provision
of $2.5 million in financial assistance. Interestingly, the most significant obstacle to
the completion of the redevelopment agreement was the level of return CLB would
receive as developer of the project. In exchange for the renovation, CLB's initial
negotiation position was for a 12% guaranteed return, while the CitpEBR4 pushed
for a non-guaranteed 11% return. The land write-down on the conveyance of the
International School Site pushed the estimated non-guaranteed return to 11.24%, an
acceptable compromise for both parties.
• Americana at Brand (2001-2008). The Glendale Redevelopment Agency assisted
Caruso Affiliated with $88,700,000 in public investment on a 15.5 acre pedestrian-
oriented, open-air, mixed use center with emphasis on an open space network of
landscaped streets, sidewalks and promenades. This $460 million center features
over 431,000 square feet of commercial uses with stores, restaurants, and a cinema
at street level, 238 rental units and 100 for-sale condominiums at upper levels, three
acres of public open space featuring a children's play area, an animated water
feature, free concerts, and community programs. The project created approximately
2,500 construction jobs and 1,500 permanent jobs and is expected to generate
approximately $3.8 million annually from sales and property taxes.
• Fox Theater Renovation. Oakland (1996-2009). Oakland Redevelopment
Agency/California Capital Group, Turner Construction. On February 5, 2009, the
Bay Area celebrated the grand reopening of the historic Fox Oakland Theater in
downtown Oakland. First opened in 1928, it has served as movie theatre, vaudeville
house and live theater venue for many years. But, like most inner city theaters, it fell
victim to the times and closed in 1973. The Oakland Redevelopment Agency
purchased the blighted, vacant theater in 1996. The agency invested $50 million in
equity and loans for its renovation, which included fully restoring the 3,000 seat
performing arts theater, restaurant and bar. It is also a new home for the Oakland
School for the Arts. The project also received $36 million in state and federal grants,
Historic and New Market Tax Credit equity, and private capital financing. The
project created 900 full time jobs during renovation and 110 permanent full time jobs.
As a spillover benefit, seven new restaurants have opened within a five block area
and existing nearby businesses already show increased sales.
Project Financing Agreement Staff Report Attachments
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• Westfield Galleria, Roseville (2000). City of Roseville assisted Urban Retail
Properties, with the feasibility gap in the development of a fashion oriented shopping
center, to be anchored by Nordstrom. As part of the business agreement, the City is
reimbursing the developer tax revenue; there was no use of Redevelopment funds.
The first priority on sales tax revenues generated by the project is to make
outstanding debt payments on Mello-Roos Community Facilities District bonds used
to fund public infrastructure improvements. The second distribution of sales tax
revenues is to the City general fund. The third distribution is to repay the developer
for development impact fees, which was expected to be repaid by 2010. Any
remaining sales tax revenues are split 70% to the developer and 30% to the City
until the termination of the agreement in 2017. The sales tax rebate is estimated to
total $20 million. The City estimated that it would receive property tax revenues of
approximately $180,000 per year from the project.
• Downtown Pleasant Hill (1997). The creation of Downtown Pleasant Hill in a
formerly blighted project area was the culmination of nearly a quarter century of
planning and redevelopment efforts by the City of Pleasant Hill and its
Redevelopment Agency. In 1997, the Agency assisted BPP/Pleasant Hill, L.P.
(Burnham Pacific Properties) develop a mixed-use, pedestrian oriented new
downtown district, including 290,000 square feet of retail space and restaurants, plus
a multiplex theater and private parking, including a 660 space garage. The amount
of assistance was $13.75 million (plus interest). The Agency determined that the
"excess" cost to acquire the 66 parcels comprising the commercial development site
in the 33-acre project area and to relocate the businesses and residents would
amount to $13,750.000, which represents the projected additional costs above
purchasing a single tract of vacant land. In 1998, the City issued $14,085,000 in
Assessment District Bonds to fund various public improvements benefiting the
project, including the streets, utilities, and a 660-space parking garage. The
Developer is responsible for debt service on the bonds, but the Agency rebates
property tax increments produced by the project to the developer. The City retains
the sales taxes (projected at $700,000 at the time of agreement).
• Bay Street Shopping Center, Emeryville (1999) The Emeryville RDA had pursued
development of this high-profile site, formerly used for heavy industrial uses, into a
major lifestyle shopping center and entertainment project. The Agency expended
approximately $35 million, principally in land acquisition and assemblage, site
clearance, toxic clean-up costs, and archaeological costs, to achieve a developable
site to convey to the developer, Madison Marquette. The Agency conveyed the site
for$5.1 million, plus an Agency Note with a 25 year term. The payments on the Note
are a combination of fixed principal payments and fixed interest and participation
interest based on the success of the project over a 25-year period. The estimate of
the present value of the Note is approximately $11 million. Therefore, the net
Agency investment is $19 million (the net $30 million Agency cost, less the value of
the Agency Note). The City retains all the sales taxes and the Agency receives the
incremental property taxes.
Project Financing Agreement Staff Report Attachments
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• First Street Streetscape Improvement Project. Livermore. (2000-2008) The
Livermore Redevelopment Agency, working with the Chamber of Commerce, Cal
Water, and PG&E, spent$23,650,000 redesigning and upgrading 1,500 linear feet of
streetscape along First Street in the downtown area (central water feature, shade
trees, new landscaping, benches, planter pots, information kiosks, large trellises,
and enhanced street lighting). The RDA also acquired and developed land for the
central plaza and a new 550-space parking garage and constructed a new
pedestrian pathway from the parking structure to new housing projects. The benefit
of the project, which facilitated private investment in the downtown, was that
downtown retail vacancy rate fell to under 5% with addition of 100,000 square feet of
retail in last 5 years, and average rents increased from $0.40-$0.60 per square foot
to $3.20 to $3.50 per square foot during that time.
• Victoria Gardens, Rancho Cucamonga (2002) The Rancho Cucamonga
Redevelopment Agency owned a site they wished to be developed as a "new
downtown," with an open air town center and a "main street" consisting of a mixed
use complex with major retail tenants, specialty commercial uses, restaurants and
entertainment outlets, office uses, residential dwellings, and community facilities.
The minimum project was to be a fashion oriented lifestyle center and include at
least three major department stores (each with 80,000 square feet or more) and at
least 360,000 square feet of other retail, restaurant, and entertainment uses.
Robinsons-May was one of the original department stores, which is now a second
Macy's store. The Agency provided Forest City Development with a $26,900,000
Agency contribution to fund feasibility gap: first the Agency conveyed the site at no
initial cost with a $13,000,000 promissory note with a 30 year term. However,
payment on the Note is based on a formula subject to the financial success of the
project. The Agency also funded the cost of the community facilities, and the
Developer funds $100,000 per year in operating expenses. The Agency anticipates
that sales tax from the center would be approximately $2 million to $3 million per
year, based on a 1,000,000 square foot center.
• Claremont Village Expansion (1996-2008). The Claremont Redevelopment Agency
assisted the Olson Co., Arteco Partners, Tolkin Group, and Laemmle Theaters with
$8,000,000 in public assistance to develop a mixed-use project downtown with
residential, shops and offices. The project included the adaptive reuse of a packing
house and included restaurants, shops, jazz club, museum of art and work-live lofts,
plus a 477 space public parking structure and public plaza. It also expanded the
number and types of businesses and enhanced the economic vitality of the
community, added additional housing to downtown, and reused an underutilized
industrial area.
• The Strand, Huntington Beach (1999-2009). The Huntington Beach Redevelopment
Agency assisted CIM Group LLC with their $78,000,000 project with $950,000 of
assistance. The project was a 2.97 acre mixed-use development featuring 110,000
square feet of office and retail space featuring national credit tenants; local art
displays; the Shorebreak Hotel, a boutique hotel consisting of 157 rooms; Zimzala, a
Project Financing Agreement Staff Report Attachments
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restaurant featuring authentic coastal cuisine; and a public parking garage with 436
spaces. The project transformed a blighted area into gathering point and destination
for families. The Agency worked in collaboration with the developer to develop four
distinct buildings (hotel, retail, commercial, and restaurant components) linked by
open-air pedestrian walkways. Agency participation of $950,000 in assistance was
provided for 25 additional parking spaces in the parking garage, which will be
structured as a loan; however, so far the Parking In-Lieu Fund has repaid $500,000
of the $950,000. The Agency's financial assistance is from tax increment generated
from the project and from tax increment revenue generated within the Project Area.
• Alameda Theatre/Cineplex and Parking Structure (2005-2009). The Alameda
Community Improvement Commission provided Alameda Entertainment Associates,
Inc. $2,900,000 toward their $9,600,000 renovation.of a 1932 movie palace turned
into new 7-screen Cineplex, along with 340 space parking structure. The project
created 200 new jobs, eliminated physical blight, and the City is more self sufficient
keeping its sales tax dollars at home.
• Oakland Uptown Area Residential Development. This project opened in June 2009,
and is a two-phase, multi-family, mixed-income project developed by Forest City
Development. The Oakland Redevelopment Agency leveraged almost $200 million
in state and federal grants as well as private equity from its $50 million investment.
Much of the Agency's investment came through acquiring the dilapidated property,
remediating it, and clearing it for development: nearly two city blocks of dilapidated,
underutilized buildings, contaminated land, and vacant sites have been revitalized
into a new, well-managed residential, transit-oriented district that is also becoming a
center of commercial activity. Both phases of The Uptown Area Residential
Development were major brownfield sites due to the presence of low-levels of lead,
and former uses as a gas station, auto center, and car repair shops. Today, the area
is a sustainable, transit-oriented development that balances public and private open
space, and promotes use of public transportation. Phase II also features a
residential complex designed for families, people with special needs, individuals, and
seniors. The complex includes a childcare center, children's art space, a computer
room, and laundry. . In addition, Phase I received LEED Silver certification and
Phase II was a finalist for the Gold Nugget "Community of the Year" Award. The
Uptown Area Residential Development has created a safe, livable transit-oriented
community by designing buildings with an "eyes on the street" concept, providing
pedestrian-friendly sidewalks, and incorporating public art. It is no longer a drain on
the community but rather a place where residents enjoy life and contribute to the
economic vitality of the area.
Returns to the cities are viewed in many ways, the most common of which is the
achievement of a community vision. Public-private projects are intended to create a
sense of place and enhancement of the image of the community that the private sector
acting on its own could not otherwise create. Financial returns to cities can also be
measured, typically through the annual sales taxes generated. Given that two separate
appraisers considered the "highest and best use" of the property to hold it for several
Project Financing Agreement Staff Report Attachments
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years until the economy turns around, the choice facing the community is achievement
of its vision through quality redevelopment of the property through public assistance, or
status quo supported by market forces.
In the analysis, the Developer typically demonstrates the need for public investment by
providing a feasibility analysis, including a pro forma and commitment of key tenants.
The feasibility analysis often demonstrates that the cost to construct.the project is
greater than the private investment supported. From a public benefit perspective, the
City normally retains the sales taxes while the Redevelopment Agency receives the
incremental annual property taxes.
Project Financing Agreement Staff Report Attachments
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Attachment No. 6
Limitations on Potential Redevelopment Agency Participation
Compared to a number of other cities in the Coachella Valley, Palm Springs has a
relatively small redevelopment agency. The Agency has never had the capacity to
undertake a financial commitment this size. In addition, the Agency's Tax Increment
has been reduced through the national and local decline in property values. Finally, the
State of California has taken millions of dollars in redevelopment funds to balance its
own budget through an assessment called "SERAF." The Agency has paid over
$5,000,000 to the State over the past two years to cover those assessments.
On June 15, the California Legislature passed ABX1 26 and ABX1 27 as part of a larger
package of budget bills intended to close California's approximately $9.6 billion budget
deficit. ABX1 26 and ABX1 27 are so-called "trailer bills" which go along with, and help
implement, the state budget bill. ABX1 26 eliminates all California redevelopment
agencies ("RDAs") effective October 1, 2011. However, ABX1 27 provides that a
California RDA can continue to operate and function after the October 1, 2011
elimination date if certain steps are taken by the applicable local jurisdiction, including
passage of a local ordinance requiring the local jurisdiction to remit certain revenues to
school entities and special districts. Taken together, the two bills effectively eliminate
RDAs unless these agencies "voluntarily' turn over certain tax increment revenues for
local government uses.
Most of the provisions of ABX1 26 are taken from Governor Brown's initial proposal to
eliminate RDAs. ABX1 26 eliminates RDAs effective October 1, 2011, and protects only
those "enforceable obligations" existing as of the date of the Governor's signature.
ABX1 27 demonstrates that the motivation behind the elimination of RDAs is primarily
budgetary. The Agency's payment due this year would be in excess of$3.4 million.
If the City "voluntarily" commits to make annual Department of Finance—calculated
deposits into an Educational Revenue Augmentation Fund (ERAF) benefitting local
schools and into a Special District Allocation Fund (SDAF) benefitting local special
districts, then the Agency may continue to operate and function without regard to the
October 1, 2011 elimination date.
Essentially, these ERAF and SDAF funding obligations are intended to plug the local
jurisdiction's share of the approximately $5 billion in property tax revenues the
Legislature believes are being diverted each year to RDAs. Since the Governor has
signed both ABX1 26 and ABX1 27 as budget trailer bills, the Agency has no power to
approve new projects, including any Project Financing Agreement for the Desert
Fashion Plaza, effective immediately. The City will be able to restore such power by
enacting an ordinance pursuant to ABX1 27, but due to timing issues under the bill it is
unclear if it will be able to do so for several months. The ongoing uncertainty at the
state level in the area of redevelopment makes relying on the Agency very problematic.
Project Financing Agreement Staff Report Attachments
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RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM
SPRINGS, CALIFORNIA, APPROVING A PROJECT FINANCING
AGREEMENT WITH PALM SPRINGS PROMENADE, LLC FOR THE
REDEVELOPMENT OF CERTAIN REAL PROPERTY AT 123 NORTH
PALM CANYON DRIVE, COMMONLY KNOWN AS THE DESERT
FASHION PLAZA
The City Council of the City of Palm Springs finds:
A. The Property currently known as the Desert Fashion Plaza was constructed on
the site of the former Desert Inn in 1966 and was originally called the Desert Inn
Fashion Plaza.
B. In 1984 the City of Palm Springs and the Community Redevelopment Agency
assisted the Edward J. DeBartolo Company renovate and expand the mall, including
constructing a new store for Saks Fifth Avenue and developing an expanded I. Magnin
space.
C. Due to its lack of retail success, the Desert Fashion Plaza went into foreclosure
in late 1996, with the total defaulted loans at$51,698,096.
D. In early 1998, AZ Partners purchased the property for$13.5 million and proposed
a $35-million redevelopment of the Desert Fashion Plaza.
E. In 1999 lender Excel Legacy Corp., terminated AZ Partners and proposed its
own $64-million renovation of the Desert Fashion Plaza.
F. In mid-2000, Excel opted to sell the mall instead of developing it and in late 2001
Wessman Development Company (the "Developer") acquired the Desert Fashion Plaza
from Excel.
G. A City Council Subcommittee was formed in 2004, to work with the Developer,
and as part of its collaboration the City undertook demographic and movie theater
market analysis and City officials participated in tenant meetings and worked on
structuring a financial assistance package for the redevelopment of the property.
H. Comprehensive redevelopment plans were submitted by the Developer in April
2007, called Palm Grove.
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I. In April, 2008, the Developer submitted the Museum Market Plaza plan, which
replaced the Palm Grove plan.
J. On May 21, 2008, the City Council initiated a Specific Plan review process and
directed staff to report on the conformance of the draft Museum Market Plaza Specific
Plan with the Palm Springs General Plan, Downtown Design Guidelines and Palm
Springs Zoning Code.
K. On November 18, 2009, the City Council certified an Environmental Impact
Report, adopted a Statement of Overriding Consideration and Findings of Fact, and
adopted the Museum Market Plaza Specific Plan ("Specific Plan"), including
Amendments to the Palm Springs General Plan and the Palm Springs Zoning Code.
L. On December 2, 2009, the City adopted the Specific Plan as Ordinance 1764,
and the Redevelopment Agency adopted the Specific Plan as the Design for
Development for the Redevelopment Area Plan. In approving the Specific Plan and the
Design for Development, the Council and Agency expressed their belief the adoption of
the Specific Plan and Design for Development would provide a template for the
redevelopment of the property with private development.
M. In January, 2010, the City and Developer began to negotiate a Development
Planning Agreement ("DPA") that would provide essentially a set of mutually agreeable
assumptions, timelines, and general requirements for the negotiation of both a
Development Agreement and Owner's Participation Agreement for the redevelopment
of the Desert Fashion Plaza; such efforts were not fruitful until February 2011
N. In August of 2010 the Redevelopment Agency of the City of Palm Springs
Agency, advised the Developer that the Agency was unwilling to wait indefinitely for the
Developer to propose and demonstrate financial capacity to redevelop the Desert
Fashion Plaza and subsequently authorized the preparation and completion of a fair
market value appraisal of the property and in December authorized the Executive
Director to make an offer to purchase the entire property, beginning a sequence of
events that could have lead to an eminent domain action on the part of the Agency.
O. In January of 2011 the City and the Developer commenced negotiations on
appropriate agreements and related documents for the implementation of the DFP Area
in a manner consistent with the Specific Plan.
P. The parties acknowledge that redevelopment of the DFP Area pursuant to the
Specific Plan is critical to restoring economic vitality to downtown Palm Springs, and
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that successful redevelopment will require public-private participation as provided and
contemplated herein.
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm Springs,
as follows:
SECTION 1. The above recitals and the Staff Report dated July 20, 2011 and the
attachments thereto are true and correct and incorporated herein.
SECTION 2. The Project Financing Agreement between the City of Palm Springs and
Palm Springs Promenade, LLC, attached and incorporated herein by reference, is
hereby approved.
SECTION 3. Proiect Description. Under this Project Financing Agreement the
Developer shall construct Phase I of the Revitalization Plan project, which includes the
demolition of most of the retail properties of the mall, the development of new retail
buildings on Palm Canyon Drive, a new Museum Way from Palm Canyon Drive to the
Art Museum, a reconnection of Belardo Road, new public spaces, and new movie
theaters. The Project Description for the Agreement covers Phase I of the
Revitalization Plan, which is the portion of the project covered in the feasibility analysis
but does not include the future buildings on Blocks D, E, or G. Later phases of the
Project may occur years later.
A significant part of the structure under the Agreement shall be the acquisition of certain
real property at the site. These include: (1) the real property containing the above
ground parking structure, as well as the surface and underground level of the parking at
the southwest corner of the site; (2) the underground parking structure beneath the
developed shopping center; (3) the two possible "museum expansion" sites; (4) the
improved streets created by the project described as the Museum Street and the
Belardo extension; and (5) new public restrooms. The City's development cost would
include the cost of constructing public streets and the refurbishing of the underground
parking structure.
SECTION 4. Existing Site. The existing Desert Fashion Plaza is spread over 13
acres, located between North Palm Canyon Drive, Tahquitz Canyon Way, Museum
Drive, Belardo Road, and Amado Road. The current development has more than
288,000 square feet of enclosed retail and circulation space, including 115,000 square
feet of three former anchor tenants — Saks Fifth Avenue (50,000 square feet), I.
Magnin (40,000 square feet), and Bank of America (25,000 square feet).
SECTION 5. Street Grid. The entire street grid created by the Project and
conveyed to the City will be designed with landscaping, architectural shading and
decorative interlocking pavers, and no curbs, to maximize its use for events. All of the
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street grid will be available to be closed off for special events and public activities. It is
appropriate urban public space for an urban environment.
SECTION 6. Parking. The project also includes 1,061 parking spaces (282 at-
grade, 670 below-grade, and 109 above-grade). A parking garage accessed from
Museum Drive is located in the site's northwest corner. An underground parking garage
extends from beneath the northern portion of the property to its southwest corner. All
parking structure improvements shall be undertaken by the City upon its acquisition of
the property. Some reconfiguration of the parking structure shall also be necessary, in
order to allow the construction of Belardo and the new Andreas Road on grade, as well
as some new building pads on grade.
SECTION 7. Museum Parcels. The City shall acquire two parcels as potential Palm
Springs Art Museum sites, located at the far western end of the project, which shall be
restored to "original" landscaped condition, free of debris and repainted, broken
concrete repaired. Under the Agreement, the City shall receive the land from the
Developer and negotiate with the Museum on a separate development project.
SECTION 8. Public Restrooms. There is a provision for the creation of public
restrooms within the project, which the City would operate and maintain. The
Agreement contains a legal description of the restroom space which the City would
purchase.
SECTION 9. Terms of Project Financing Agreement. The total development cost of
Phase I of the Revitalization Plan is in excess of$100 million. The Agreement provides
for an estimated amount of City participation, including the construction of public
infrastructure and the acquisition of certain public properties DESCRIBED IN Section 3
of this Resolution, of approximately$42 million.
SECTION 10. The City has structured the project contribution as follows:
1. The City would deposit the amount of $32 million in a project-related escrow
account, under the terms described below; and
2. The City would undertake the construction of the streets and the improvement
of the parking facilities, at an estimated cost of$10.8 million;
3. In return for its contribution toward making the Project economically feasible,
the City would receive title to all of the Projects parking (surface,
underground, and structure) as well as the land underneath the streets and
the restroom site and building.
SECTION 11. Phase I of the Revitalization Plan sets a schedule for completion of
the core and shell improvements (retail and office along Palm Canyon, the street
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infrastructure, the museum expansion sites, and the movie theaters) by December
2014.
SECTION 12. California Environmental Quality Act. Pursuant to the California
Environmental Quality Act (CEQA), the City Council finds the concurrently with approval
of the Specific Plan, the Council approved and adopted Resolution 22625, which
certified an Environmental Impact Report for the Specific Plan. Such Resolution
included, without limitation, the making of amendments to the General Plan and Zoning
Ordinance of the City, the making of certain findings relative to environmental effects
identified in the EIR, the adoption of a Statement of Overriding Considerations, and the
adoption of a Mitigation Monitoring Plan and Reporting Plan. The Resolution also
included the incorporation of the Renovation Plan as an option, i.e., a potential "phase
one" for remodeling the DFP Area.
SECTION 13. General Plan Conformance. The Project substantially conforms to
the Palm Springs General Plan, specifically the adopted Museum Market Plaza Specific
Plan, because the proposed Revitalization Plan meets both the guiding principles and
the development standards and guidelines of the Specific Plan through a mix of retail
commercial, resort hotel and residential uses on a grid of pedestrian-oriented streets
and open spaces that together provide a fully functioning downtown core that integrates
well with surrounding streets and land uses.
SECTION 14. Zoning Code Compliance. Staff has analyzed the proposed
Agreement against these findings, which require that the Agreement:
i. Is consistent with the objectives, policies, general land uses and programs
specified in the general plan and any applicable specific plan;
The Project Financing Agreement cites the Museum Market Plaza Specific
Plan as the land use plan to be used in the development of the affected
property. The Specific Plan was adopted by the City Council in November
2009 as both a General Plan and Zoning amendment for the subject sites.
Consequently, the Project Financing Agreement can be determined to be
consistent with the objectives, policies, general land uses and programs of the
City's adopted land use documents.
ii. Is compatible with the uses authorized in, and the regulations prescribed for,
the land use district in which the real property is located;
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The Museum Market Plaza Specific Plan sets forth the authorized uses and
prescribed regulations for the land use district in which the subject property is
located. The Project Financing Agreement specifically cites this Specific Plan
as the controlling land use document for future development. Consequently
the proposed Agreement can be determined to be compatible with the
authorized uses and prescribed land use regulations.
iii. Is in conformity with public convenience, general welfare and good land use
practice;
The proposed Project Financing Agreement will provide for the implementation
of the Museum Market Plaza Specific Plan and thereby provide a
comprehensive redevelopment of the center of City's downtown area. The
coordinated arrangement of buildings, roads, open space, parking and existing
surrounding land uses is provided for in this Specific Plan in a manner which
assures the long-term environmental, economic and social well being of the
community. Consequently, the proposed Project Financing Agreement can be
determined to be in conformity with public convenience, general welfare and
good land use practice.
iv. Will not be detrimental to the health, safety and general welfare;
The Project Financing Agreement will implement both the Museum Market
Plaza Specific Plan as well as the associated Mitigation Measures of the
certified Environmental Impact Report that was prepared for the Specific Plan.
Consequently, the proposed Project Financing Agreement can be determined
to not be detrimental to the health, safety and general welfare of the
community and surroundings.
V. Will not adversely affect the orderly development of property or the
preservation of property values.
The Project Financing Agreement is specifically intended to provide for the
orderly development of property in the downtown by establishing a means to
implement the Museum Market Plaza Specific Plan. Further, the
comprehensive redevelopment of the site as provided by the Agreement will
provide a stable long-term development environment for the site and
surroundings, thereby reducing uncertainty for the property owner, owners of
adjacent properties and the community. Consequently, the proposed Project
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Financing Agreement can be determined to not adversely affect the orderly
development of property or the preservation of property values.
SECTION 15. The City Council of the City of Palm Springs authorizes the City
Manager or his designee to execute, in the name of the applicant, the required
documents.
ADOPTED THIS day of 2011.
David H. Ready, City Manager
ATTEST:
James Thompson, City Clerk
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) SS.
CITY OF PALM SPRINGS )
I, JAMES THOMPSON, City Clerk of the City of Palm Springs, hereby certify that
Resolution No. is a full, true and correct copy, and was duly adopted at a regular
meeting of the City Council of the City of Palm Springs on
by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
James Thompson, City Clerk
City of Palm Springs, California
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DRAFT PROJECT FINANCING AGREEMENT (07.14.2011)
THIS PROJECT FINANCING AGREEMENT ("Agreement"), dated this _ day
of July, 2011, is entered into by and between the City of Palm Springs, a California
municipal corporation and charter city ("City"), and Palm Springs Promenade, LLC, a
California limited liability company("Developer"), with reference to the following:
RECITALS
A. On December 2, 2009, the City adopted, by unanimous vote of the City
Council, Ordinance 1764, which approved the Museum Market Plaza Specific Plan
("Specific Plan"). The Specific Plan covered two existing downtown commercial areas,
i.e., the area commonly known as Desert Fashion Plaza ("DFP Area"), and the area
commonly known as the Town and Country Center ("The Center"). This Agreement
relates only to the DFP Area, which is owned by PSP LLC, and does not include The
Center.
B. The Parties have long recognized that redevelopment of the DFP Area is
critical to restoring economic vitality to downtown Palm Springs, and that successful
redevelopment will, as is almost always the case with downtown areas, require public-
private participation and funding.
C. In early 2011, the Mayor and City Council commenced a series of
"visioning" sessions with community leaders and concerned citizens. As a result of that
effort, concepts evolved and subsequent to the"visioning" sessions have been refined and
finalized into a plan ("Revitalization Plan"), which is depicted on the "Project Site Plan"
attached hereto as Exhibit "A" and described in the "Project Description" attached hereto
as Exhibit`B"(the"Project").
D. In order to evaluate economic feasibility of the Revitalization Plan, and
determine the extent of required public participation, the City engaged Keyser Marston
Associates, Inc. ("KMA"), a qualified and reputable public financial consultant that has
worked with City on many prior occasions. At the request of City, KMA proceeded to
analyze projected redevelopment costs and post redevelopment rental revenues in order
to determine the extent to which public participation would be required for the Project.
KMA projected that the total redevelopment project costs would be at least $100 million
dollars. Using conservative but reasonable assumptions with respect to construction costs
and rental revenues, KMA determined that $40 to $45 million dollars in public
participation would be necessary to fund the Project.
E. Based on the foregoing, but subject to the City identifying sources of
funding as provided in Section LA.(1)(a) below, the parties have agreed to proceed with
the Revitalization Plan. City will provide up to $43 million dollars for
the City to acquire assets as referenced in this Agreement, create and refurbish public
improvements as depicted on the Project Site Plan and described in the Project
Description ("Public Improvements"), and to fund project incentives for the completion
of the Project.The Developer will create and refurbish private improvements as depicted
on the Project Site Plan and described in the Project Description ("Private
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Improvements"). In view of the fact that private vertical development of Blocks D, E, F,
and G will be deferred for future"phases", completion of Private Improvements as and to
the extent referenced in Section 2 of the Project Description could be, and sometimes are,
referred to as "Phase 1" of the Revitalization Plan. Nothing in this Agreement obligates
the City to fund or contribute to any future "phases" of Private Improvements. The
funds provided under the terms of this Agreement will not be used in conjunction with
development on Lots K-1 or K-2.
F. City Acquisition of Public Assets. The Revitalization Plan calls for the
City to acquire certain assets ("Public Assets"), as follows:
1. Land. Land to be acquired by the City ("Land") includes (a) land
located under proposed new public streets as depicted on the Project Site Plan and
described in the Project Description; (b) land located below the three level parking
structure at the northwest corner of the DFP Area; (c) land located below the two level
parking structure at the southwest comer of the DFP Area; (d) land located below the
underground parking garage that connects said three level parking structure and said two
level parking structure; and (e) land shown as Blocks H-1 and H-2 on the Project Site
Plan. Legal descriptions covering the Land, and each portion thereof, shall be separately
verified, signed and attached to this Agreement prior to or concurrently with final
execution. The Parties acknowledge that the California Subdivision Map Act allows
conveyances to public agencies such as the City without the necessity of subdivision or
parcel map recordation and, therefore, the parties agree that conveyances to the City per
this Agreement may be made without such map recordation.
2. Parking Facilities. Existing parking facilities to be acquired and
refurbished by the City and then used for free public parking ("Parking Facilities")
include: the three level parking structure located at the northwest corner of the DFP Area;
the two level parking structure located at the southwest corner of the DFP Area; the
underground parking garage that connects said three level parking structure and said two
level parking structure; parking below developed portions of the DFP Area, and all
associated ramps, driveways, connection tunnel, approaches, elevators and escalators.
Legal descriptions covering the Parking Facilities shall be separately verified, signed and
attached to this Agreement prior to or concurrently with final execution. Such legal
descriptions may include three dimensional diagrammatic plans that describe airspace
areas to be acquired by the City.
AGREEMENT
1. Acquisition of Public Assets. Upon and subject to the terms and
provisions of this Agreement, City shall acquire the Public Assets.
A. Acquisition Escrow. At least ten (10) days prior to the Effective
Date of this Agreement, an escrow ("Acquisition Escrow") shall be opened by the Parties
with a mutually agreeable and reputable escrow holder ("Escrow Holder"), and City and
Developer shall each execute and deliver escrow instructions consistent with this
Agreement and as reasonably requested or required by the Escrow Holder.
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(1) Contingencies to Close of Acquisition Escrow. Close of
the Acquisition Escrow is subject to satisfaction of each of the following contingencies:
(a) City Funding. A first contingency to close of the
Acquisition Escrow shall be the City identifying funding sources for its obligations under
this Agreement. City is currently exploring potential sources of funding for this and
other desired public projects. hi any event, if, by December 21, 2011, City has not (i)
identified funds sufficient to cover its obligations under this Agreement, or (ii) been
placed in a position of being reasonably certain that such funds will promptly(within 150
days) be identified and/or reserved, then, in that event, City shall have the right, by
delivery of written notice to Developer by no later than December 22, 2011 (the
"Effective Date"), to terminate this Agreement and cancel the Acquisition Escrow,
without penalty or any damages for breach of any term of this Agreement. In the event
the City identifies and/or reserves a source or sources of funding its obligations under this
Agreement, the City will deposit with Escrow Holder the amount of$32 million dollars
("City's Payment") within a reasonable time after the City has identified and reserved
such funds.
(b) Condition of Title. A second contingency to close
of the Acquisition Escrow shall be the conveyance to City of good and marketable title to
the Public Assets, as evidenced by a CLTA title insurance policy (with such title
endorsements as City may reasonably request or require) issued by a mutually agreeable
and reputable title insurance company ("Title Company"). In this regard, the parties
acknowledge that prior to the Effective Date, City will receive, review, and approve, with
modifications, a pro forma of a title insurance policy that shall be issued to City upon
close of the Acquisition Escrow. City shall specify in writing the City's disapproval of
any item or exception, including any encumberance of any kind, shown on such pro
forma of title insurance together with the City's suggested cure thereof. In the event the
City reasonably determines that the title to the Public Assets and Land requires
modification or is otherwise inconsistent with good and marketable title to the Public
Assets and/or the Land, City shall have the right, by delivery of written notice to
Developer by no later than September 30, 2011, to terminate this Agreement and cancel
the Acquisition Escrow, without penalty or any damages for breach of any term of this
Agreement.
(c) Ph
ical Condition. A third contingency to close of
the Acquisition Escrow shall be the conveyance to City of the Public Assets, in
substantially the same physical condition that exists as of the Effective Date of this
Agreement. In this regard, the parties acknowledge that prior to September 30, 2011,
City and its independent consultants will perform thorough examinations of such Public
Assets, and approved the existing physical condition thereof, with the understanding that
such assets shall be conveyed "as is" and "with all faults", so long as the City reasonably
determines that such physical condition, including without limitation the estimates of
costs of repair and rehabilitation or renovation as identified by Developer's consultant,
PENTA, and submitted to the City prior to execution of this Agreement ("Developer's
Disclosure"). In the event the City reasonably determines that the physical condition of
the Public Assets, or any portion thereof, is materially inconsistent with the Developer's
Disclosure, City shall have the right, by delivery of written notice to Developer by no
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later than September 30, 2011, to terminate this Agreement and cancel the Acquisition
Escrow, without penalty or any damages for breach of any term of this Agreement. An
increase in the estimated cost of a Public Asset of 5%or more above the PENTA estimate
shall be deemed materially inconsistent with the Developer's Disclosure. Nothing in this
Agreement shall prohibit the Parties from renegotiating any or all terms of this
Agreement prior the City exercising its rights under this Section of the Agreement, which
may include Developer paying the cost of any increase in the estimated cost. hi the event
the acquisition Escrow closes, the City shall be solely responsible for creating and
refurbishing Public Improvements as contemplated herein.
(2) Close of Acquisition Escrow. Promptly upon satisfaction
of each and all of the above contingencies or upon the Effective Date, whichever event
occurs last, the Acquisition Escrow shall be closed and conveyances and transfers shall
occur as follows:
(a) Public Assets to City. Upon close of the
Acquisition Escrow, good and marketable title to the Public Assets shall be conveyed to
City, and City shall receive title insurance consistent with the provisions of paragraph (1)
(a) of this Section of the Agreement as referenced above.
(b) City Payment. Upon close of the Acquisition
Escrow, the City Payment shall be transferred by Escrow Holder directly into the
Improvement Escrow referenced below, and then be released therefrom, in increments,
based on periodic written authorizations from the IFC Agent referenced in Section
2.B.(2) below, to go solely towards creation and refurbishment of ,the Private
Improvements.
2. Creation and Refurbishment of Public and Private Improvements. Once
the Acquisition Escrow has been closed, the parties shall continue with implementation
of the Revitalization Plan, and creation and refurbishment of Public Improvements and
Private Improvements, in general accordance with the provisions of this Agreement. As
indicated in Section Le of the Project Description, City shall be solely responsible for
creation and refurbishment of the Public Improvements, and, as indicted in Section 2.i of
the Project Description, Developer shall be solely responsible for creation and
refurbishment of Private Improvements. As used herein, with respect to Public
Improvements, "creation" means demolition and construction work sufficient to install
and complete the new public streets referenced in the Project Description, and, with
respect to Private Improvements, "creation" means demolition and construction work
sufficient to install and substantially complete new buildings in Blocks A-2, C, and F,
refurbish existing buildings in Block A-1, and finished pads for future vertical
development in Blocks D, E, and G, as referenced in the Project Description. As used
herein, with respect to Public Improvements, "refurbishment" means rehabilitation of the
parking improvements to be acquired by the City to a top quality, clean, safe, and
operable condition, and, with respect to Private Improvements, "refurbishment" means
upgrading the existing building in Block A-1 with new facades, as referenced in the
Project Description. The parties agree to work cooperatively together and exert
commercially reasonable efforts to cause the Public Improvements and Private
Improvements to be completed concurrently. Upon completion of the Public
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Improvements, Developer shall execute and deliver to City a written certificate or
acknowledgment of completion, in form and substance reasonably satisfactory to City,
and, upon completion of the Private Improvements, City shall execute and deliver to
Developer a written certificate or acknowledgment of completion, in form and substance
reasonably satisfactory to Developer.
A. Open hnprovement Escrow. Concurrently with close of the
Acquisition Escrow, the Improvement Escrow shall be opened and all funds from the
Acquisition Escrow shall be deposited directly into the Improvement Escrow, and then be
released, in increments, based on periodic written authorizations from the IFC Agent
referenced in Section 2.B.(2) below, to go solely towards creation and refurbishment of
the Private Improvements. The hnprovement Escrow shall be administered pursuant to
the terms of the"Improvement Escrow Agreement" attached hereto as Exhibit"C".
B. Schedule of Performance. With respect to the creation and
refurbishment of Public Improvements and Private Improvements, Developer and City
have approved and agreed to the "Schedule of Performance" attached hereto as Exhibit
"D". In general, Developer shall be responsible for Private Improvements, and City shall
be responsible for Public Improvements. In this regard, the parties contemplate and have
agreed to actions and procedures as follows:
(1) Demolition of Bank of America Buildine. Once the City
funding contingency, as referenced in Section 1.A.(1)(a) above, has been satisfied, then
Developer shall, at Developer's sole cost and expense, within sixty days thereafter,
commence and complete demolition of the existing Bank of America building in the DFP
Area.
(2) Selection of IFC Agent. Once the City has advised
Developer that the City funding contingency has been satisfied, City and Developer shall
promptly select and enter into a written contract with a mutually acceptable and reputable
independent fund control agent ("IFC Agent"), with general construction experience, that
shall be responsible for authorizing periodic releases, in increments, of funds from the
Improvement Escrow, to go solely towards creation and refurbishment of the Private
Improvements.
(3) Architectural Approvals for Private Improvements. Once
the IFC Agent has been engaged, Developer shall select and enter into contracts with
project consultants (planners/architects/engineers) ("Project Consultant's Agreements")
as necessary to prepare plans and designs necessary to obtain architectural approvals for
the Private Improvements from the City Planning Department and City Council. All
costs and expenses in this regard shall be paid, upon release authorizations by the IFC
Agent, from funds in the Improvement Escrow.
(4) Building Permits for Private Improvements. Once
architectural approvals for Private Improvements have been received, Developer shall
select and enter into contracts with project consultants (planners/architects/engineers) as
necessary to prepare final plans and working drawings necessary obtain building permits
from the City Building Department to construct the Private Improvements. All costs and
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expenses in this regard shall be paid, upon release authorizations by the IFC Agent, from
funds in the Improvement Escrow.
(5) Commencement of Private Improvements. Once building
permits have been issued, Developer shall select and enter into contracts with
construction entities (contractors/subcontractors/materialmen) and commence creation
and refurbishment of the Private Improvements. All costs and expenses in this regard
shall be paid, upon release authorizations by the IFC Agent, from funds in the
Improvement Escrow.
(6) Completion of Private Improvements. Developer shall be
responsible for completion of the Private Improvements, and shall commence depositing
additional private funds into the Improvement Escrow, from time to time as and when
needed, to be used to complete creation and refurbishment of the Private Improvements.
Prior to the Close of the Acquisition Escrow, Developer shall make an initial deposit of at
least $2 million dollars into the Improvement Escrow. All costs and expenses for the
completion of the Private Improvements shall be paid, upon release authorizations by the
IFC Agent, from funds in the Improvement Escrow. The obligations of Developer under
this Agreement, including the prompt deposit of all additional private funds necessary to
complete creation and refurbishment of the Private Improvements, shall be personally
guaranteed in a form as provided in Exhibit "_" to this Agreement ("Personal
Guarantee"), by John Wessman, principal of Developer. The Personal Guarantee will be
secured by a pledge of unencumbered real property, the value of which will at least equal
the amount of Developer's obligations under this Agreement, as mutually determined by
the Parties. Developer agrees that no loan of any kind will be placed against the DFP
Area or any portion of the DFP Area until all Private Improvements referenced in the
Project Description, i.e., Phase 1 of the Revitalization Plan, have been completed. For
purposes of this restriction, Private Improvements do not include tenant improvements,
except with respect to the multi-plex theater which will have tenant improvements and
become fully operable as part of the Revitalization Plan.
(7) Public Improvements. City shall be solely responsible for
creation and refurbishment of all Public Improvements, and all costs associated
therewith. In this regard, City agrees, from and after closing of the Acquisition Escrow,
to promptly and diligently pursue creation and refurbishment of all Public Improvements,
and to coordinate construction and all other scheduling with Developer so that the Public
Improvements are completed concurrently with the Private Improvements. Upon
substantial completion of the Public Improvements, the City shall be released, except for
"punchlist" items, from any and all further obligations, under this Agreement or
otherwise,to create and/or refurbish Public Improvements, or any other improvements.
C. Close Improvement Escrow. Upon substantial completion of all
Private Improvements, the Improvement Escrow shall be closed and Developer shall be
released, except for "punchlist" items, from any and all further obligations, under this
Agreement or otherwise, to create and/or refurbish Private Improvements, or any other
improvements.
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3. City Option to Purchase DFP Area upon Developer Default. Anything in
this Agreement to the contrary notwithstanding,the following shall apply:
A. Default by Developer — Opportunity to Cure. From the close of
the Acquisition Escrow until substantial completion of the Private Improvements, if
Developer fails to diligently do and perform all things reasonably necessary on the part of
Developer to pursue creation and refurbishment of the Private Improvements, including
failure to timely achieve "major milestones" described in the Schedule of Performance,
then, in that event, City shall be entitled to deliver to Developer written notice of default,
specifying, in detail, all facts alleged by City to constitute such default. For a period of
120 consecutive days after receipt of such notice of default, Developer shall have the
right to commence and complete cure of the alleged default; provided, however, if the
default is of such a nature as to reasonably require more than 120 days to cure, as
reasonably determined by the City, Developer shall have such additional time as is
reasonably necessary to complete such cure.
B. Developer Failure to Cure — City Option to Purchase. If, at the
expiration of the applicable cure period, Developer has not reasonably completed such
cure, then, in that event, City shall have the right and option, for a period of 180 days
thereafter, to purchase from Developer Blocks A-1, A-2, C, and F of the DFP Area and
any and all improvements then in existence thereon ("Option Property"). Such option
may be exercised by written notice of exercise delivered by City to Developer at any time
during such 180 day option period. In the event of exercise of such option by City, the
following shall apply:
(1) Price. The price to be paid by City to Developer ("Option
Price") shall be established in accordance with the following: The appraised fair market
value of the Option Property shall be determined as of the date of option exercise, as
follows: City shall select an MAI appraiser and Developer shall select an MAI appraiser
and each appraiser shall prepare an appraisal. Each appraisal shall include the cost, sales
comparison, and income capitalization approaches in estimating the fair market value of
the Option Property. The two appraisers shall meet and confer and attempt to reconcile
any differences between their two appraisals, and reach a final agreed upon appraised
value. If such appraisers are unable to so agree, then they shall select a third MAI
appraiser, who shall review the two appraisals and select one or the other of the two
appraisals, and the decision of the third appraiser in that regard shall be binding and final.
(2) Opening of Option Escrow. As soon as the price has been
determined as provided above, a new and separate escrow ("Option Escrow") shall be
opened with the Escrow Holder, and City and Developer shall each promptly execute and
deliver instructions consistent with the terms hereof and as reasonably requested or
required by the Escrow Holder, and the purchase and sale shall be consummated and
close of the Option Escrow shall occur as expeditiously as possible. At closing, good and
marketable title, as evidenced by a CLTA title insurance policy (which includes any
endorsements reasonably requested or required by City) shall be conveyed to City, as
follows: Such conveyance shall be free and clear of any monetary encumbrances, except
for real property taxes and assessments which are a lien not yet due and payable,but shall
be subject to non-monetary matters of record and/or apparent. At close of the Option
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Escrow, all applicable construction warranties shall be assigned to the City. If, at close of
the Option Escrow, creation and refurbishment of Private Improvements are in progress,
City shall, as of that point, assume responsibility for completion of the Private
Improvements (or, at the sole discretion of the City, sale of the project "as is" to a third
party developer), and Developer shall have no further responsibility or obligation in that
regard. If, at close of the Option Escrow, any portion of the City's Payment (funds
provided by City per Section 1.B.(2)(b) above) that remains in the Improvement Escrow,
such funds shall, from that point, belong to City, and Developer shall have no further
claim to such funds.
C. Assignment of Project Consultant's Agreements. With respect to
each project consultant for any portion of the Project, Developer shall, in accordance
with the Schedule of Performance, execute and deliver to the City the Assignment of
Project Consultant's Agreements, Plans, Specifications, and Permits (With each propject
consultants consent and certificate) in substantially the form and substance of Exhibit" "
(the "Assignment of Project Consultant's Agreement") executed by Developer and each
such Project Consultant. The Assignment of Project Consultant's Agreement grants to
the City, in the event of termination of this Agreement by the City and exercise of the
City's Option to Purchase pursuant to this Agreement, the Developer's rights to: (a) the
plans and specifications prepared pursuant to this Agreement; (b)the agreements between
Developer and its project consultants; and (c) all permits and entitlements relating to the
Project.
4. Miscellaneous Specific Provisions. The parties further agree to
miscellaneous additional provisions as set forth below.
A. Local Requirements Applicable to Agreement. This Agreement is
subject to the City's General Plan, the Museum Market Plaza Specific Plan, the Palm
Springs Municipal Code and ordinances, and the Redevelopment Plan for Merged Area
No. 1,with respect to the Project("Governmental Regulations").
B. City Fast Track Process. The City shall use good faith efforts,
within applicable legal constraints and consistent with applicable City policies, to take
such actions as may be necessary or appropriate to effectuate and carry out this
Agreement in a timely and commercially reasonable manner and to reasonably "fast
track" the processing of all applications submitted by Developer to pursue the
Revitalization Plan and/or create and refurbish the Private Improvements.
C. Subdivision Issues. The parties acknowledge and agree that the
California Subdivision Map Act allows, without the necessity of recording a subdivision
or parcel map, conveyances to and from public agencies such as the City, and leasing and
financings of portions of parcels of property designated for commercial use.
Nevertheless, in connection with pursuit and implementation of the Revitalization Plan,
Developer may desire to record one or more subdivision or parcel maps against the DFP
Area (or portions thereof). In this regard, the parties agree to cooperate with each other,
and the City agrees to reasonably"fast track" the processing of any subdivision or parcel
map desired by Developer(including any vesting tentative map), and to promptly provide
and issue certificates of compliance as and to the extent reasonably necessary or
expedient as determined by the City
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D. Covenants, Conditions, and Restrictions. Concurrently with the
execution of this Agreement, City and Developer shall execute and cause to be recorded,
with the Official Records of Riverside County, California, a set of covenants, conditions,
restrictions, and easements to put in place, among other things, easements relating to
maintenance, repair, use, and operation of the Parking Improvements as provided in
Exhibit" "to this Agreement.
E. Escrow Matters. In the event of any inconsistency between the
terms of this Agreement and the terms of any escrow instructions executed pursuant to
this Agreement, the terms of this Agreement shall control unless a contrary intent is
clearly expressed in the inconsistent escrow instructions. All escrow fees, charges, and
title insurance costs for any escrow or title insurance called for herein shall be shared
equally by the parties. Unless otherwise provided herein, Escrow Holder shall process
and handle all escrow matters contemplated herein in the manner that is customary in the
Coachella Valley area of Riverside County.
F. Eminent Domain. Prior to entering into this Agreement, City
expressed a desire to acquire all property covered by the Specific Plan by use of powers
of eminent domain, and Developer expressed an intent to oppose any such effort. In that
regard, this Agreement represents a negotiated compromise between City and Developer
and, as a part hereof, City agrees as follows: In the event this Agreement is terminated by
City as the result of the inability of City to identify and reserve City funding, as
referenced in Section 1.A.(1)(a) above, City shall not, for a period of three (3) years
following such termination, directly or indirectly or in any way, attempt to take or acquire
all or portions of any properties or improvements covered by the Specific Plan via use or
exercise of eminent domain, or any similar or related public power or powers of the City.
The covenants and agreements of City pursuant to this Section 4.E shall survive and
remain in effect for a period of three (3) years from and after any such termination by
City.
G. Develoner Right of First Refusal for Blocks H-1 and H 2. In the
event that at any time in the future, City elects to sell Blocks H-1 and/or H-2, as shown
on the Project Site Plan, or portions thereof, for private purposes, i.e., for purposes other
than public or non-profit purposes, Developer shall have a right of first refusal to match
any offer received by City, and to purchase such Blocks H-1 and/or H-2, in accordance
with the following: City shall promptly notify Seller that City has received an offer that it
desires to accept and, concurrently therewith, provide Developer with an exact copy of
such offer, and Developer shall have, for a period of sixty (60) days after receipt, the
right to notify that Developer desires to match the terms of such offer and purchase the
property. In such event, an escrow shall be promptly opened and closed with a reputable
escrow company and City shall sell (and convey good and marketable title to) the
property to Developer. Legal descriptions covering Blocks H-1 and H-2 shall be
separately verified, signed and attached to this Agreement prior to or concurrently with
final execution.
H. Developer Right of Fast Refusal for Museum Drive. In the event
that at any time in the future, City decides to abandon portions of Museum drive located
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adjacent to O'Donnell Golf Course, as shown on the Specific Plan, and sell same, or
portions thereof, for private purposes, i.e., for purposes other than public or non-profit
purposes, Developer shall have a right of first refusal to match any offer received by City,
and to purchase such property in the same manner as contemplated for purchase of
Blocks H-1 and/or H-2, as provided in Section 4.F above. Legal descriptions covering
such property shall be separately verified, signed and attached to this Agreement prior to
or concurrently with final execution.
Not a Development Agreement. This Agreement is not a development agreement as
provided in Government Code Section 65864 and is not a grant of any entitlement,
permit, land use approval, or vested right in favor of the Developer or the Project.
S. Miscellaneous General Provisions.
A. Entire Agreement. This Agreement (together with a
Reimbursement Agreement and a Confidentiality Agreement previously entered into
between City and Developer) contains the entire agreement of the parties with respect to
matters covered herein, and there are no other agreements or representations, written or
oral, other than as contained herein.
B. Cooperation. Each party agrees to and shall do and perform such
other and further acts and properly execute and deliver such other and further documents
as may be reasonably necessary, expedient or convenient to implement the intents and
purposes hereof.
C. Reasonable Approvals. Whenever this Agreement requires or calls
for the approval or consent of any party hereto, such approval shall not be unreasonably
withheld,delayed, or conditioned.
D. Binding Arbitration. In the event of any dispute or controversy
arising out of or relating to this Agreement, or the breach or performance of it, the Parties
shall reasonably attempt to resolve each such dispute or controversy without resort to
third party review or resolution. The Parties shall first meet and confer on any such
dispute or controversy. Such meetings shall include any principal of the Developer and
at the discretion of the City may include the City Manager and/or the City Council either
as a whole or through an ad hoc subcommittee designated by the City Council. Upon the
Parties determination that the Parties are unable to resolve the dispute or controversy on
their own, the Parties shall submit the dispute, controversy, or any remaining disputed
matterbinding arbitration, to be held in the Coachella Valley, and be conducted pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
E. Legal Fees. In the event of any dispute, arbitration or litigation
arising out of or relating to this Agreement, or the breach or performance of it, the
prevailing party shall be entitled to recover, in addition to any other appropriate relief,
reasonable legal fees and costs incurred in connection therewith.
F. Force Majeure. Neither party shall be deemed to be in default
where failure or delay in performance of any of such party's obligations under this
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Agreement is caused by any event described below, where any such event is beyond the
control of the claiming party and such party's contractors and consultants and is not due
to an act or omission of the claiming party or such party's contractors or consultants, and
such event directly, materially and adversely affects (a) the ability of the claiming party
to meet its non-monetary obligations under this Agreement, including deadlines imposed
by the Schedule of Performance, or (b) the ability of the claiming party to complete
improvements (Private Improvements in the case of Developer and Public Improvements
in the case of City), and which event (or the effect thereof) could not have been avoided
by due diligence and use of reasonable efforts by the claiming party:
(1) Unusually Severe Weather: weather conditions not
reasonably anticipatable for that portion of the City of Palm Springs where the downtown
area is located, based upon U.S. Weather Bureau climatological reports for the months
included and a report indicating average precipitation, temperature, etc., for the previous
ten(10)year period from the nearest weather reporting station;
(2) Civil Unrest: an epidemic, blockage, quarantine, rebellion,
war, insurrection, act of terrorism, strike or lock-out, riot, act of sabotage, civil
commotion, act of a public enemy, or freight embargo;
(3) Unforeseeable Conditions: reasonably unforeseeable
physical conditions of the existing DFP Area or improvements thereon, including the
presence of hazardous materials, as defined by applicable state and federal laws and
regulations;
(4) Casual : fire, earthquake, flood or other casualty, in each
case only if causing material physical destruction or damage to improvements (Private
Improvements in the case of Developer and Public Improvements in the case of City);
(5) Liti ation: any lawsuit seeking to restrain, enjoin, challenge
or delay the issuance of any entitlement, or restraining, enjoining, challenging or delaying
construction of improvements ((Private Improvements in the case of Developer and
Public Improvements in the case of City), which is vigorously defended by the claiming
party and which is finally determined in a manner which restricts the ability of such party
to perform its material obligations hereunder, or which results in a injunction against such
party restricting its ability to so perform during the pendency of such injunction and
which directly impairs the ability of the claiming party to perform despite commercially
reasonable efforts to do so;
(6) Change of Law: the passage of a referendum or initiative
that results in the inability of the claiming party to perform its material obligations
hereunder; and/or
(7) Conduct by Other Party: conduct(action or inaction)by the
other party which delays the ability of the claiming party to perform its material
obligations under this Agreement, but only during periods in which such conduct (action
or inaction) actually delays such performance.
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G. No Partnership. Notwithstanding language in this Agreement
referring to "public-private participation", or words or similar import, it is aknowledged
that the relationship of the City to the Developer is neither that of a partnership nor that
of a joint venture and that neither the City nor the Developer shall be deemed or
construed for any purpose to be the agent of the other Party, and neither Party shall have
the power or the authority to speak on behalf of the other Party or to bind the other Party
to any contractual or other obligations. The Developer shall not at any time hold itself
out to the City or to any other third party as an agent of the City, as applicable, and shall
not, by any act or omission, mislead any third party into believing, or allow any third
party to continue in the mistaken belief, that the Developer is an agent of the City or has
the power or authority to bind the City to any contractual or other obligation.
H. Bindina on Successors. This Agreement shall be binding on the
parties hereto, their heirs, successors and assigns.
I. Independent Legal Representation. Each party hereto has, at all
times during the negotiation and execution of this Agreement, been represented by
independent legal counsel.
J. Incorporation of Recitals and Exhibits. All recitals herein and all
Exhibits attached hereto are incorporated into and made a part of this Agreement.
K. Captions and Headings. Any captions or headings in this
Agreement are for convenience only, and shall not be used to determine or construe
meanings of substantive language herein.
L. Applicable Law. This Agreement is entered into in California, and
relates to California real property, and shall be determined in accordance with the laws of
the State of California.
M. Venue. In the event of any arbitration or litigation arising out of or
relating to this Agreement, or the breach or performance of it, any such arbitration shall
be conducted in the Coachella Valley, and any such litigation shall be filed in the Indio
Branch of the Riverside County Superior Court.
N. Severability. In the event any provisions of this Agreement is
deemed or construed by arbitration or a court of competent jurisdiction to be
unenforceable, the remaining provisions shall nevertheless remain binding and
enforceable to the maximum extent possible.
O. Interpretation. This Agreement and language herein has been
prepared and agreed to by both parties, and any rules of contract interpretation calling for
construction against one party or the other based on drafting, shall be inapplicable.
P. Notices. As used in this Agreement, "notice" includes, but is not
limited to, the communication of notice, request, demand, approval, statement, report,
acceptance, consent, waiver, appointment or other communication required or permitted
hereunder. All notices shall be in writing and shall be considered given either: (i) when
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delivered in person to the recipient named below; or(ii) on the date of delivery shown on
the return receipt, after deposit in the United States mail in a sealed envelope as either
registered or certified mail with return receipt requested, and postage and postal charges
prepaid, and addressed to the recipient named below; or (iii) on the date of delivery
shown in the records of the telegraph company after transmission by telegraph to the
recipient named below. All notices shall be addressed as follows:
If to City:
City of Palm Springs
3200 East Tahquitz Canyon Way
Palm Springs, California 92262
Attn: City Manager
Telephone: (760) 322-8350
Facsimile: (760)---
Copy to:
City of Palm Springs
3200 East Tahquitz Canyon Way
Palm Springs, California 92262
Attn: City Attorney
Telephone: (760) 323-8211
Facsimile: (760) 323-8207
If to Developer:
Palm Springs Promenade, LLC
555 South Sunrise Way, Suite 200
Palm Springs, California 92264
Attn:John Wessman
Telephone: (760) 325-3050
Facsimile: (760) 325-5848
Copy to:
Ealy, Hemphill &Blasdel, LLP
71780 San Jacinto Drive, Suite I-3
Rancho Mirage, California 92270-5518
Attn: W. Curt Ealy
Telephone: (760) 340-0666
Facsimile: (760) 340-4666
Either party may, by notice given at any time, require subsequent notices to be given to
another person or entity, whether a party or an officer or representative of a party, or to a
different address, or both. Notices given before actual receipt of notice of change shall
not be invalidated by the change
Q. Authori . Each party represents and warrants to the other that
such party has full right, power and authority to sign, execute and enter into this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
made it effective as of the day and year set forth above.
DEVELOPER: PALM SPRINGS PROMENADE, LLC
A California limited liability company
By:
Title:
Dated:
CITY: CITY OF PALM SPRINGS
A California municipal corporation and charter city
By:
Title:
Dated:
ATTEST:
City Clerk
APPROVED AS
TO LEGAL FORM:
City Attorney
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