HomeMy WebLinkAbout11/26/2002 - STAFF REPORTS DATE: NOVEMBER 6, 2002
TO: COMMUNITY REDEVELOPMENT AGENCY AND CITY COUNCIL
FROM: DIRECTOR OF COMMUNITY AND ECONOMIC DEVELOPMENT
JOINT PUBLIC HEARING APPROVING AMENDMENT NO. 1 TO A DISPOSITION AND
DEVELOPMENT AGREEMENT WITH SCHLPS, LCC FOR DEVELOPMENT OF THE
STAR CANYON RESORT ON THE WEST.SIDE OF SOUTH PALM CANYON DRIVE
BETWEEN SUNNY DUNES ROAD AND MESQUITE AVENUE, MERGED PROJECT
AREA NO. 1 (FORMERLY SOUTH PALM CANYON PROJECT AREA).
RECOMMENDATION:
It is recommended ft_ the City and Agency approve Amendment No. 1 to a
Disposition and Development Agreement ("DDA") with SCHLPS, LLC approved
September 19, 2001 to provide a facilitate the development of the Star Canyon
Resort on South Palm Canyon Drive between Sunny Dunes Road and Mesquite
Avenue.
SUMMARY:
This resolution amends the previously approved DDA with SCHLPS, LLC, the
developers of the Star Canyon Resort on South Palm Canyon Drive. The original
DDA was approved on September 19, 2001 for a resort, which received final land-
use approvals from City Council in May 2000, and featured a 210-room hotel and
264 time share units (over 13,000 intervals). Based on the analysis of the
developer's pro forma, the project had a significant financing gap that could not be
feasibly closed with private sector financing. Through the DDA the Agency would
acquire the hotel site from the land seller for approximately $4.6 million using the
Developers' funds, convey the site to the Developer for $1.00, and then repay the
Developer for the loan, with interest, over a period of 18 years from tax increment
generated by both the hotel and time share components of the project. The
present value of the anticipated assistance was $4.6 million.
On July 17, 2002 the City Council approved an applicant-requested land use
change for the subject site from hotel and timeshare to all timeshare resulting in a
total of 255 timeshare (over 19,000 intervals) units to be developed on the site.
This request was due to the developer's inability to secure financing for a
conventional hotel project at the site.
BACKGROUND:
This action amends the approval of the Disposition and Development Agreement
(DDA) between the Agency and SCHLPS, LLC approved September 19, 2001 to
reflect the changes in the project and several of the deal points.
City Council originally approved the Star Canyon Resort project on May 17, 2000
by adopting a Mitigated Negative Declaration and approving Case 5.0830,
Preliminary Planned Development District 260 and Tentative Parcel Map 29691.
The project consisted of the hotel and vacation ownership units, as well as the
subdivision of the 11.41 acre project site into 9 parcels, subject to conditions. The
approval was amended on July 17, 2002 to convert the hotel portion of the site to
time share units and make several other minor physical changes to the plan.
The project was originally proposed to be developed in several phases. However,
as the Developer tried to firm up funding commitments, his financial consultant,
Holliday Fenoglio Fowler, L.P., identified several factors in the project financing
that made the project difficult to finance:
1. Star Canyon does not have its own golf course.
2. The average daiiy rates (ADRs) of existing Palm Springs Hotels are lower
in Palm Springs than in other Coachella Valley cities such as Rancho
Mirage, Indian Wells, and Palm Desert.
3. The seasonality of Palm Springs and the entire Coachella Valley
substantially lowers occupancy levels and average daily rates.
4. The site location is not centralized to the Coachella Valley.
5. There are only one or two comparable hotels in Palm Springs.
6. Competition from "down Valley" cities is a serious threat.
Other factors contributing to the gap included increased site development costs
related to topography and off-site improvements, competitive pressures on the
hotel from other Valley hotels that have received subsidies, the lack of a
convenient golf amenity at the project site, and the seasonality of the hotel industry
in the desert.
In addition, the decline in hotel occupancy and in average daily room rates over
the past two years has made the financing of the hotel portion of the project
increasingly difficult. This difficulty existed before September 11, 2001, but was
exacerbated by the global effects on tourism due to the terrorist acts. The
Developer had proposed in January a revision to the phasing of the plan that
would have allowed the development of the common area and timeshare buildings
but held off on the hotel building until hotel financing was available. The Agency
was concerned that a delay of more than a year or two in the hotel financing would
leave a permanent hole in the project and rob it of its most significant architectural
element—the five-story hotel right on Palm Canyon Drive.
In the end, the Developer was able to secure a commitment from a timeshare
company for project financing, only if the entire project was converted to
timeshares. That change necessitated the revision to the Planning approval, as
well as a change to the DDA.
The Agency financial participation in the project remains as follows:
a) The Developer would make a loan to the Agency of approximately $4.6
million, which would be repaid with interest to the Developer through the
net tax increment generated by both the hotel and time share component of
the project over a period of up to 18 years. The average imputed interest
rate paid on the note, based on calculating the present value's relationship
to the payment stream, is 10.5%.
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b) The Developer commits to keeping the project as proposed and approved
as amended, including the architectural upgrades, quality landscaping, and
other components.
c) The Agency would take title to the land from the seller for an amount of
approximately $4,600,000, including the Developer's carry costs. The
appraisal of the land shows the value to be in excess of$4.6 million.
d) The Agency agrees to contribute the land to the project when the project is
fully funded, permits have been obtained for the initial phase, and the
Developer is prepared to commence construction.
e) The Developer will construct the resort in phases, and receive repayment
of the Agency note through the tax increment of the project, net of pass-
throughs to other taxing agencies and housing setaside payments, over 18
years, with the present value of this contribution projected to be $4.6
million. (The annual value of projected assistance will rise from $175,400
in Year 1 to $769,746 in Year 18, or$10.4 million over 18 years.)
f) The Agency would retain reverter rights if the Developer fails to proceed or
complete the project. Moreover, the Agency will suspend the repayment
obligations under the note if the Developer fails to proceed or defaults
under the terms of the Agreement.
g) The Developer also agrees to place an additional fee on the time share
intervals, equal to $28.50 per full interval per year, payable through the
HOA payment. That fee would be paid to the City to reimburse the City for
the public improvements and other investments in the area that benefit the
project; there are a number of possible ways to structure the fee to comply
with state law. The total amount of tax benefit to the City, including the
development fee, sales tax, and TOT from rentals (rather than time share
owners) is expected to be nearly $900,000 per year once the project is built
out.
The project, as proposed by the Developer, is extremely attractive and would
provide an economic jump-start to the South Palm Canyon Drive area, which has
lagged behind the downtown and North Palm Canyon Drive areas in revitalization.
While this DDA commits all of the property tax increment from the project to the
loan repayment, it will spur additional development in the area that would have not
otherwise occurred, it will also develop a flow of TOT, development fees and sales
taxes to the City with little "cannibalization" of existing Palm Springs hoteliers.
A separate agreement between the Developer and the City shall allow the owners
or guests at the resort to receive reduced greens fees at the Tahquitz Creek Golf
Resort owned by the City, as an incentive to produce more rounds of golf at the
course, as well as be an attractive amenity for those buying or staying at the
resort. The intent in building the City's Resort Course was to try to develop more
golf-related tourism in the City.
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A Summary Report describing the purchase and sale of the property, as required
by California Health and Safety Code Section 33433 (a), is enclosed with the
resolution.
/JOHA S. RAY ND
D' ctor of Co unity and Economic Development
APPROVED
Executive Director
ATTACHMENTS:
1. Resolution
2. Amendment No. 1
3. Public Hearing Notice
4. City Council Resolution on findings per Section 33445
5. City Council Concurring Resolution
6. Summary Report
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SUMMARY REPORT:
DISPOSITION AND DEVELOPMENT AGREEMENT
BY AND BETWEEN
THE PALM SPRINGS COMMUNITY REDEVELOPMENT AGENCY
AND
SCHLPS, LLC, a California Limited Liability Company
November 2002
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INTRODUCTION
Before real property acquired by a Community Redevelopment Agency with tax increment
proceeds may be sold or leased, the transaction must be approved by the Agency Board in
accordance with California Health and Safety Code Section 33433. This Section requires a
"Summary Report", which describes and specifies certain information in regard to the proposed
transaction, be available for public inspection.
DESCRIPTION OF THE PROPOSED AGREEMENT
Site and Interests to be Conveyed
The Site consists of a single parcel of land of approximately 11.41 acres, subdivided as part of
the development into 9 parcels. The Site is located on South Palm Canyon Drive between Sunny
Dunes Drive and Mesquite Drive and backs up to Belardo Road. The Developers of the Property,
SCHLPS, LLC, are seeking Agency financial assistance in developing a proposed 375-room
vacation ownership resort. Part of the assistance will be that the Agency shall purchase the land
from the current owner and convey it back to the project when the project is ready to proceed to
the construction phase. The Developerwill lend the Agency the funds to complete the transaction,
which the Agency shall repay over a period of 18 years to the Developer through the tax increment
the project has produced, including both the hotel and time share portions.
Proposed Development
The Developer is building 375 luxury vacation ownership units on the 11.41 acre site, in addition
to underground parking,water features and other site amenities, and restaurants. The time share
units will be sold in intervals and will be able to be divided into smaller configurations and fractional
shares to increase the total number of intervals available for sale. The project contains significant
architectural and landscaping upgrades as well significant off-site improvements. The project is
in an area that has lagged behind other areas of Palm Canyon Drive in new investment and will
provide a major economic boost to the area.
Financing
The Developer has received commitments of debt- and equity financing sufficient to ensure the
project will be built. Within the project financing structure is an equity gap of approximately$4.60
million, which will be covered by the amount of the Agency financial participation. The Agency's
percentage share of the overall project cost is approximately 6%and counts as Developer's equity
in the financing structure.
Agency Responsibilities
The Agency agrees to repay the Developer for the$4,600,000land acquisition costs, plus interest,
for a period of up to 18 years. The maximum amount paid over the period is $10.4 million. The
loan payment shall be made solely from the tax increment generated by the project; should a
portion of the project be undeveloped and the property tax increment not created, the Agency is
not obligated to pay non-project-based revenues to repay the note. All tax increment calculations
are net of pass-through obligations to other taxing entities, as well as the low/mod housing
setaside.
Developer Responsibilities
The developer commits to keeping the project as originally proposed, including the architectural
upgrades, quality landscaping, and other components. The Agency's standard terms and
conditions, including non-discrimination and maintenance covenants, and other terms and
conditions remain as in Disposition and Development Agreement for Developer.
COST OF AGREEMENT TO THE AGENCY
The Agency will commit an amount of up to $10,400,000 to the project from project-created tax
increment over a period of up to 18 years to repay a loan made by the Developer to the Agency
to execute the land sale from the Current Owner to the Agency. The present value of the
assistance, based on Year 2002 dollars, is approximately $4,600,000.
RESOLUTION NO.
OF THE COMMUNITY REDEVELOPMENT AGENCY OF
THE CITY OF PALM SPRINGS, CALIFORNIA,
APPROVING AMENDMENT NO. 1 TO A DISPOSITION
AND DEVELOPMENT AGREEMENT WITH SCHLPS, LLC
FOR APPROXIMATELY 11 ACRES ON THE WEST SIDE
OF SOUTH PALM CANYON DRIVE BETWEEN SUNNY
DUNES ROAD AND MESQUITE AVENUE, MERGED
PROJECT AREA NO. 1 (FORMERLY SOUTH PALM
CANYON PROJECT AREA).
WHEREAS, the Community Redevelopment Agency of the City of Palm Springs,
California ("Agency") is constituted under the Community Redevelopment Law
(California Health and Safety Code Section 33000 et. seq.) to carry out the purpose as
the redevelopment in the City of Palm Springs ("the City"); and
WHEREAS, the Agency approved a Disposition and Development Agreement, pursuant
to Resolution No. 1147 adopted on September 19, 2001, to effectuate the development
of a resort hotel and vacation ownership project on South Palm Canyon Drive between
Mesquite Avenue and Sunny Dunes Drive in Merged Project Area No. 1; and
WHEREAS, in the process of implementing the terms of the DDA, the Developer
encountered significant obstacles to hotel financing of the Project, which necessitated
significant changes to the nature of the Project's financing structure, requiring an
amendment to the DDA ; and
WHEREAS, a Notice of Public Hearing concerning the rescission of the prior approval of
the DDA and approving a new DDA was published in accordance with applicable law;
and
WHEREAS, the California Redevelopment Law requires certain findings by the
legislative body before the Agency can enter into this Agreement, as follows:
a) Section 33421.2 - that the (City Council) find that the provision of such
assistance will effectuate the Redevelopment Plan;
b) Section 33445 - that the (City Council) find that the improvements benefit
the Project Area; that no other means of financing the improvements are
available; that payment of the funds will assist in eliminating blight, and
that assistance to the project is consistent with the Agency's adopted Five
Year Implementation Plan.
WHEREAS, the Agency has considered the staff report, and all the information,
testimony and evidence provided during the public hearing on September 4 and 18 and
October 16, 2002.
NOW, THEREFORE, BE IT RESOLVED by the Community Redevelopment Agency of
the City of Palm Springs as follows:
SECTION 1. The above recitals are true and correct and incorporated herein.
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SECTION 2. Pursuant to the California Environmental Quality Act (CEQA), the
Community Redevelopment Agency finds as follows:
a) In connection with the approval of the DDA, the project
received approval of a Mitigated Negative Declaration on
May 17, 2000 based on the preparation of an Initial Study
and the recommendation of the Planning Commission.
Mitigation measures are included in the project design and
adopted as part of the Conditions of Approval for the
Project.
2. The Agency finds that the Planning Commission
adequately discussed the potential significant
environmental effects of the proposed project (land use,
traffic/circulation, parking, air quality, noise, aesthetics,
geology/soils, water quality, drainage, public utilities, public
safety, archaeological/historic resources and light and
glare). The Community Redevelopment Agency further
finds that the Mitigated Negative Declaration reflects its
independent judgment.
SECTION 3. The Developer proposes to construct a project of at least 252
vacation ownership units (time shares); underground parking;
water features and other amenities; and other landscaping and
on-site improvements.
SECTION 4. The Developer is required to make certain street improvements in
keeping with City codes. Such offsite improvements are
imperative to this project, such as reconstructing curb, gutter and
sidewalks along Belardo Road and South Palm Canyon Drive.
This project improves a blighted parcel in Merged Redevelopment
Project Area #1 (formerly South Palm Canyon) and will increase
tax increment to the Agency and development fees, transient
occupancy tax and sales tax collections to the City.
SECTION 5. The Agency agrees, through this Disposition and Development
Agreement, to borrow approximately $4,600,000 from the
Developer to acquire the 11.41 acre site from the seller, and to
acquire fee title to the site. The Agency agrees to contribute the
land to the project for $1.00 when the project is fully funded and
escrow is ready to close. The Agency would retain reverter rights
if the Developer fails to proceed or complete the project. The
Agency would then repay the loan from the net tax increment
generated by the project, including both the hotel and time share
portions. Over the 18 years the loan is to be repaid, the total tax
increment paid to the Developer will be close to $10.4 million. The
present value of the assistance, however, remains $4.6 million. In
addition, the Developer agrees to place an "development
reimbursement' fee on the time share units in the amount of
$28.50 per interval per year, payable through the HOA fees.
SECTION 6. The Agency does hereby find and determine as follows:
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(a) The property is currently vacant and lies between
Magruder Chevrolet on the south and the Rock
Garden Cafe to the north. The total site is
approximately 11.41 acres. Because of the
substantial amount of public improvements
required as part of the development, including the
undergrounding of utilities on Belardo Road, a
landscaped median island and traffic signal on
South Palm Canyon Drive, street widening on
South Palm Canyon Drive, and sidewalks,
bikelanes, curbs and gutters, it is only feasible for a
major development such as the Star Canyon
Resort to develop the property and carry the
overhead cost of the public improvements. In
addition, there are topographic challenges with
grade changes and a significant amount of boulder
coverage on the site, which also raises the cost of
a new development.
(b) The DDA effectuates the purposes of the
Community Redevelopment Law by reversing or
alleviating any serious physical, social, and
economic burden of the Community which cannot
reasonably be expected to be reversed or
alleviated by private enterprise acting alone, in that
the assistance will facilitate the development and
operation of the resort hotel development causing
the upgrade of the property, placing the property in
the hands of a first class and experienced resort
operator, in order to increase development fee
revenue and sales tax revenue and attract
additional commercial development within the City
and increase the City's tax base.
(c) The DDA effectuates the purposes of the
Community Redevelopment Law as it is intended to
eliminate blight and promote the health, safety and
general welfare of the people of Palm Springs.
SECTION 7. The proposed project is consistent with the Implementation
Plan for Merged Project Area #1 (formerly the South Palm
Canyon Project Area), and this project will increase tax
increment and create new commercial activities in the
project area. It will increase the City's commercial sector
by developing a major new destination property in the City,
in order to capture a portion of the significant resort and
leisure tourism leakage that occurs in Palm Springs.
SECTION 8. Based on foregoing reasons, this Amendment No. 1 to the DDA is
hereby approved and incorporated herein by this reference.
SECTION 9. The Chairman, or his designee, is hereby authorized to execute
on behalf of the Agency the Amendment and other documents
necessary to the Amendment, and make minor changes as may
be deemed necessary, in a form approved by Agency Counsel.
ADOPTED this day of 12002.
AYES:
NOES:
ABSENT:
ATTEST: COMMUNITY REDEVELOPMENT AGENCY
OF THE CITY OF PALM SPRINGS, CALIFORNIA
By
Assistant Secretary Chairman
REVIEWED &APPROVED
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RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM
SPRINGS, CALIFORNIA, MAKING A FINDING
PURSUANT TO SECTION 33445 OF THE
CALIFORNIA HEALTH & SAFETY CODE
RELATING TO AN DISPOSITION AND
DEVELOPMENT AGREEMENT OF THE PALM
SPRINGS COMMUNITY REDEVELOPMENT
AGENCY TO EFFECTUATE THE CONSTRUCTION
OF A VACATION OWNERSHIP RESORT ON
SOUTH PALM CANYON DRIVE IN MERGED
PROJECT AREA#1 (THE SOUTH PALM CANYON
REDEVELOPMENT PROJECT AREA)
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WHEREAS the City Council of the City of Palm Springs, California adopted Ordinance No. 1203
on November 30, 1983, adopting the Redevelopment Plan for the South Palm Canyon Project
Area for the purposes of (1) elimination of environmental deficiencies in the area, including
obsolete or aged buildings or substandard or irregular lots, (2) redesign and development of
undeveloped areas, (3) strengthening of retail and other commercial uses in the area, and (4)
establishing criteria to ensure high quality design and development in the area; and
WHEREAS, Developer has proposed a Project featuring 375 luxury vacation ownership units on
11.41 acres, plus underground parking,waterfeatures, and other site amenities, but the financial
analysis demonstrates that the cost of development exceeds the expected economic return and
the Developer requested that the Agency assist in writing down the cost of the site; and
WHEREAS the California Health &Safety Code Section 33445 requires that the legislative body
make a finding thatthe provision of financial assistance is necessary and benefits the project area;
that no other means of financing the improvements are available; that the payment of funds will
assist in eliminating blight; and that the assistance is consistent with the Agency's adopted Five
Year Implementation Plan.
NOW THEREFORE, it is hereby resolved that the City of Palm Springs, California, does hereby
give its consent and find that the provision of such assistance, including the writing down of the
Project's land cost, as provided in the DDA, are necessary to effectuate the purposes of the
Redevelopment Plan.
ADOPTED this day of , 2002.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By dCity Clerk City Manager r
REVIEWED AND APPROVED: 407
(Cc L& AC*4 1 Y
RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM
SPRINGS, CALIFORNIA,CONCURRING WITH THE
COMMUNITY REDEVELOPMENT AGENCY
REGARDING THE APPROVAL OF AMENDMENT
NO. 1 TO A DISPOSITION AND DEVELOPMENT
AGREEMENT WITH SCHLPS, LLC
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm Springs that it
concurs with the action of the Community Redevelopment Agency regarding the approval of
Amendment No. 1 to a Disposition and Development Agreement with SCHLPS, LLC.
ADOPTED this day of , 2002.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED & APPROVED AS TO FORM
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