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HomeMy WebLinkAbout11/6/2002 - STAFF REPORTS (3) 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 tha: 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. ccQ - �o 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 daily 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%. 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. Cm - b -3 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. JO 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 cca 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 c - 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 am.6 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. C `a -b -7 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. C M-M- 10 642000 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: C m+ b-G-� (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 Proof of Publication In Newspaper ,""�°' ` �` STATE OF CALIFORNIA County of Riverside Laura Reyes says: 1. 1 am a citizen of the United States, a resident of the City of Indio, County of Riverside, State of California, and over the age of 18 years. 2, 1 am the Office & Production Manager 'THE,CITY OF PALM SPRINGS AND, of The Public Record, a newspaper of THE COMMUNITY REDEVELOPMENT AGENCY OFTHE CITY OF PALM SPRINGS general circulation printed and published in NOTICE OF JOINT PUBLIC HEARING the City of Palm Springs, County of -NOTICE—IS HEHESY GIVEN that Ed—Gdmmmiiy he Riverside, State of California. Said The Redevelopment Agency of t City Palm Springs and the of Palm Springs well the a Public lic Hearing in the City Public Record is a newspaper of general Contrail Chambers,located at 3200 E.Tahquis,Canyon Wag Palm Springs, California 922e2, beginning at 7u00 p.m, circulation as that term is defined n Wednesday November G,2002.1°consider the following Government Code section 6000, its Approving Amendment No i to a Disposition and Development status as such having been established Agreement with SCHLPS,LLD for approximately 11 asses on the at side of South Palm Canyon Drive between Sunny by judicial decree of the Superior Court of Dunes Road and Mesquite Road, Palm Springs, California the State of California in and for the 92264 County of Riverside in Proceeding No. The Cs(Ageny@)proposes Redevelopment Agency the the City of Palm Springs Community proposes to amendAgency the a Cityi of and Indio 49271, dated March 31, 1987, Development Agreement , DArG) with SCHLPS, LLC To approve the amendment to the DOA,the Agency and the City entered in Judgment Book No. 129, of Palm Springs are required to make certain findings pursuant page 355, on March 31, 1987. adealthprio and Baling Code Bindings 3a Join,Public and33945 and nor to making those findings, a Joint Public Hearin is 3. The Public Record is a newspaper of held to receive publicInput—on the matter. -The original Disposition and Development Agreement was general circulation ascertained and approved on September 19,2001 The DDA amendment now established in the City of Palm Springs n being considered keeps all the original provisions of the DDA but changes the project description and amends the the County of Riverside, State of Development Fee charged to the project The amendment does not propose any financial assistance to the project not California, Case No. RIC 358286, Filed approved in the original agreement opposed in September June 8, 2001. 22001.The Agency will write down the land cost and convey[he parcel to the Developer, and in exchange, the Developer 4. The notice, of which the annexed is a agrees to construct the sort on the site and all necessary public I re mprovements without any further financial assistance true printed copy, was published in the from the Agency newspaper on the following publication All Interested persona are Invited to attend[he Public Hearing dates to wit: and express opinions on the Item listed above. If you challenge the nature of the proposed action in court,you may be limited October 22, 2002 to raising only those Issues you or someone else raised at the Public Hearing described in this notice,or in written correspon- October 29, 2002 dence deWered to the City Clerk,at the address listed above, al or prior to the Public Hearing Members of[he public may view this document and all refer- enced documents in the Community and Economic I certify under penalty of perjury that the Development Department,City Hall,and submit written core ments to the Community Redevelopment Agency at or pilot to above is true and correct. the Community Redevelopment Agency Meeting at or prior to Dated at Palm Springs, California, this the public hearing described in this notice. 29th dayof October 2002. Further information,including a copy of Ilse Amendment and Resolution, prepared in accordance with Health and Safety Code Section 33433,is available in the Office of the City Clerk at the above atltlress. f Dated October 11,2002 Pay an A Sanders k Assistant Secretary and City Clerk October22,29,2002 a eyes Offi & Produ io a ger 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 AGENCYTO 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) - - - - - - - - - - -- - - 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 City Clerk City Manager n r �/'� REVIEWED AND APPROVED: fir+ { Q — "`+ - . , (COL4- AC41 ) 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 , Uo"C,1)-