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HomeMy WebLinkAbout6/26/2002 - STAFF REPORTS (2) DATE: June 26, 2002 TO: City Council FROM:Assistant Director of Aviation via Executive Director-Airports CONSENT TO ASSIGNMENT OF LEASE AND OPTION TO LEASE NO, 1764 AND CONSENT TO ENCUMBRANCE OF GROUND LEASE INTEREST AND ESTOPPEL RECOMMENDATION- That the City Council approve a Consent to Assignment of Lease and Option to Lease No. 1764 and Consent to Encumbrance of Ground Lease Interest and Estoppel between the City of Palm Springs ("City"), and Palm Springs FBO TWO, LLC dba Million Air, Palm Springs ("Assignee") subject to a form approved and reviewed by the City Attorney. SUMMARY: This action will Consent to the Assignment of Lease and Option to Lease No. 1764 and Consent to Encumbrance of Ground Lease Interest and Estoppel between the City of Palm Springs ("City") and Palm Springs FBO TWO, LLC dba Million Air, Palm Springs ("Assignee"). BACKGROUND: The management partners of Million Air, Palm Springs are seeking new ways of making their operation more viable in the general aviation industry. Past practice has involved the sale of this facility every few years which has not allowed the operation to grow and prosper as it should. The current local investors are looking to sell their interests in the operation. The new entity ("Assignee") will be directed by Jeff Ross, President and CEO, Palm Springs FBO TWO, LLC, who is presently the President and CEO of Million Air, Palm Springs. He will keep the same administrative staff and will partner with Merced Partners, who share the belief that general aviation at the Palm Springs International Airport represents an attractive investment opportunity. Under Mr. Ross's direction, Million Air has seen a 26% higher operating profit over the prior fiscal year's income and expects this trend to continue and improve under the new arrangement. Merced Partners Limited Partnership, a Minnesota Investment firm, presented financial statements which indicate they have assets of approximately 600 million dollars, and they are looking to assist the proposed "Assignee" develop the property. The proposed "Assignee", in cooperation with the investment partners, have indicated that they will seek new ways of developing the property. Some of the improvements will include the addition of new hangar space and expanded office complex construction. The "Assignee" has indicated an intent to invest $9,431,000 for the purchase of the Million Air Palm Springs, FBO. Half of this amount will be used to pay the existing investors. At closing the loan amount funded will be $4,650,000 or 49% of the total investment. U.S. Bank is additionally providing a $400,000 line of credit. This line of credit will not be funded at the closing as part of the acquisition. Its purpose is to provide the FBO access to additional liquidity if City Council Meeting (6126/02) Consent to Assignment of Lease No. 1764\ Consent to Encumbrance of Ground Lease Interest and Estoppel Page -2- needed. If the line of credit were fully funded, the secured loan balance would be $5,050,000 which amounts to 51% of the increased investment amount. The proposed "Assignee' has requested the City of Palm Springs approve and issue a Consent to Encumbrance in favor of U.S. Bank for the maximum amount of $5,050,000, The Consent to Assignment of Lease and Option to Lease No. 1764 and Consent to Encumbrance of Ground Lease and Estoppel, prepared by the City Attorney's office, in coordination with staff and the referenced parties, is attached for your review, The Assignment will incorporate. that the new entity will assume all obligations of the Lease, that the City's consent of the Assignment is subject to the purchase of assets and other related requirements of the Lease in connection with the transactions contemplated by the Asset Purchase Agreement and is being transferred and assigned pursuant to the terms of the Asset Purchase Agreement. The proposed "Assignee" will also cover all legal expenses related to this transaction. The City Attorney's office and the Director of Finance have reviewed the financial statements and draft Asset Purchase Agreement. At its June 5, 2002 meeting the Airport Commission recommended approval this transaction subject to City Attorneyreview and recommendation of a o al to the City Council, BARRY IFFIT N F. #SMOOT, . A. E. _Assistant Director of Aviation Executive Director-Airports vn APPROVED: City Mana Attachments, 1. Consent to Assignment of Lease and Option to Lease No, 1764 2. Consent to Encumbrance of Ground Lease Interest and Estoppel 3. Minute Order CONSENT TO ASSIGNMENT OF LEASE AND OPTION TO LEASE NO. 1764 This CONSENT TO ASSIGNMENT OF LEASE AND OPTION TO LEASE N0. 1764 ("Consent") is trade and entered into as of the day of June, 2002, between the CITY OF PALM SPRINGS ("City"), PALM SPRINGS, FBO, LLC, a Delaware limited liability company, ("Lessee") and PALM SPRINGS PBO TWO, LLC, a Delaware limited liability company, d.b.a. Million Air, Palm Springs ("Assignee") with reference to the following facts and purposes. RECITALS A. City and Lessee are parties to that certain Indenture of Lease and Aeronautical Concession Agreement dated December 15, 1981, a memorandum of which was recorded on July 11, 1989, as Instrument No. 229437, Official Records of Riverside County, California, as duly amended, supplemented, assigned and extended (collectively the"Lease") covering that certain parcels of real property within the Palm Springs International Airport ("Airport"), which parcels are more particularly described as Exhibit"A" attached hereto and incorporated herein by this reference ("Premises"), B. City and Lessee are also parties to that certain Option to Lease dated September 19, 2001 ("Option") covering that certain parcel of real property within the Airport, which parcel is more particularly described as Exhibits "A" and "B" attached to the Option ("Option Premises"). B. Pursuant to the Lease, Lease, Lessee owns the airport facility improvements that are a part of the Premises during the term of the Lease ("Improvements"), C. Under the terms of the Asset Purchase Agreement by and between Lessee and Assignee ("Purchase Agreement') a copy of which is on file with the Airport offices, Assignee, as buyer acquired all of Lessee's tight, title and interest in the Lease. As a result of the Purchase Agreement, Assignee desires to purchase substantially all of the assets relating to the business operation conducted by Lessee on the Premises pursuant to the terms of the Lease, including all of Lessee's rights and privileges under the Lease which will be transferred and assigned by Lessee to Assignee under the Purchase Agreement. D. Under the Lease, Lessee has certain rights to assign the Lease, subject to the written consent of the City. As such, Lessee and Assignee desire to obtain the City's specific consent to such assignment and assignment of the Option subject to the terms of this Consent. E. Assignor and Assignee have represented to the City that Assignee will be adequately capitalized and will be managed by the same management learn that has been operating Lessee's business operation under the Lease and the Option, and thus the expertise and financial capabilities of Assignee to provide the services under the Lease and the Option are the same as those of Assignee. IRV 4223260 I 1_ `�y1/j//qd��— T \ ` I F. Based upon such representations, City wishes to consent to such assignment subject to the terms of this Consent. NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, City, Lessee and Assignee agree as follows: 1. Representations. Lessee represents and certifies the following: a. To the best of Lessee's knowledge, no default presently exists under the Lease or the Option and no state of facts exist which would constitute a default tinder the Lease or the Option. b. That all of the above recitals are true and correct. 2. Consent and Related Agreements. a. Assignee acknowledges that it has received a copy of the Lease and the Option and is fully familiar with their terms. b. Effective as of the date of the Closing Date of June 30, 2002 referenced in the Purchase Agreement ("Closing Date"), City specifically consents to the assignment of the Lease and the Option to Assignee, including all rights and obligations of Lessee thereunder and transfer of the Improvements to Assignee, subject to the temps of the Lease and the Option, respectively. c. Upon the Closing Date, Assignee shall assume all obligations of Lessee under the Lease and the Option and shall perform all duties and obligations required to be performed under the Lease and the Option, respectively. d. Assignee acknowledges and agrees that the Lease and the Option shall control the obligations of Assignee and City, and that the Lease and the Option shall control over any inconsistent provision in any agreement that may exist between Lessee and Assignee. 3. Payment of City Costs. Inconsideration for City's review and consideration of the Purchase Agreement and assignment. as proposed by Lessee and Assignee. Assignee shall pay to City, within five (5) days of the date of this Consent, the sum of One Thousand Five Hundred Dollars (S 1,500) ("Review Fee"), which Review Fee reflects, and Lessee and Assignee acknowledge and agree reflects, the City's actual cost and attorneys' fees of reviewing all documents in connection with the assignment contemplated hereunder. Assignee acknowledges that should Assignee fail to pay the Review Fee as required under this Section 3, this Consent shall be void and of no further force or effect. 4. Due Execution. The person(s) executing this Consent on behalf of the parties hereto warrant that (i) such party is duly organized and existing, (ii) they are duly authorized to execute and deliver this Consent on behalf of said party, (iii)by so jRV�22326 va 2 executing this Consent, such party is formally bound to the provisions of this Consent, and (iv) the entering into this Consent does not violate any provision of any other agreement to which said party is botmd. 5. Full Force and Effect. The parties further agree that, except as specifically provided in this Consent, the terms of the Tease and Option shall remain unchanged and in full force and effect. IRV#22326v1 -3- / IN WITNESS WHEREOF, the parties hereto have executed and delivered this Consent as of the daic written above. "City" ATTEST: CITY OF PALM SPRINGS, a California municipal corporation City Cleric City Manager APPROVED AS TO FORM: City Attorney "Lessee" PALM SPRINGS, FBO, LLC, a Delaware limited liability company By Its By Its "Assignee" PALM SPRINGS FBO TWO, LLC, a Delaware limited liability company, d.b.a. Million Air, Palm Springs By Its By Its (Corporations require rwo signatures;one for each of the following: A. Chairman of Board,President or Vice President;AND B. Secretary,Assistant Secretary Treasurer,Assistant Treasurer or Chief Financial Officer.) IRV#22326 vI „4,_ CONSENT TO ENCUMBRANCE OF GROUND LEASE INTEREST AND ESTOPPEL This CONSENT TO ENCUMBRANCE OF GROUND LEASE INTEREST (this "Consent") is made and entered into as of the day of June, 2002, by and among the CITY OF PALM SPRINGS, whose principal place of business is 3200 East Tahquitz-Canyon Way, Palm Springs, California 92262 ("Lessor") and PALM SPRINGS FBO TWO, LLC, as assignee ("Assignee") with reference to the following facts and purposes: RECITALS A. Lessor and Palm Springs FBO, LLC ("Lessee") are parties to that certain Indenture of Lease and Aeronautical Concession Agreement effective December 15, 1981, a memorandum of which was recorded on July 11, 1989, as Instrument No. 229437. Official Records of Riverside County, California, as amended by that certain Amendment No. 1 to Indenture of Lease and Aeronautica, Concession Agreement No. 1764, dated September 18, 1986, and that certain Option Agreement dated September 18, 1986, and that certain Settlement Agreement dated September 18, 1986, including any extensions, renewals or permitted modifications thereof (collectively, the "Lease") covering a portion of those certain premises known as Palm Springs International Airport as is more particularly described in Exhibit A attached hereto and incorporated herein by reference (the "Premises"). B. Pursuant to the Lease, Lessee owns the airport facility improvements that are a part of the Premises during the term of the Lease (the "Improvements"). C. The Improvements and Lessee's interest in the Lease are to be conveyed to Assignee. D. U.S. BANK NATIONAL ASSOCIATION ("Lender") has agreed to lend the sum of up to $5,050,000.00 to Assignee in connection with the purchase by Assignee of (i) the improvements, and (ii) Lessee's leasehold interest under the Lease, (collectively, the "Property"), which loan will be evidenced by a promissory note and will be secured by. among other things, a deed of trust (the "Leasehold Deed of Trust") upon Assignee's leasehold estate under the Lease. E. Lender desires to obtain Lessor's specific consent to (i) the purchase of the Improvements by Assignee and assignment of Lessee's leasehold interest under the Lease to Assignee, and (ii) the encumbering of Assignee's interest in the Lease by the Leasehold Deed of Trust, and (iii) for other matters relating thereto, all as is required pursuant to Article XI of the Lease. F. Lender intends to rely on this instrument in connection with the extension of credit to Assignee. �ry IRV$22697 v1 d J NOW, THEREFORE, in consideration of the premises, the mutual promises of the parties thereto and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and as an inducement to Lender to make the above load to Assignee, Lessor and Assignee represent and agree as follows: I. Representations and Warrants. I,,essor and Assignee hereby represent, warrant and certify to Lender as follows: (a) (i) That the documents referred to in Recital A above are the only documents which constitute the Lease, and (ii) that the Lease is in full force and effect and has not been modified, changed, altered or amended in any respect- (b) The Lease is the only agreement between Lessor and Lessee, and/or between Lessor and Assignee, relating to the Premises. (c) That to Lessor's knowledge, Lessee and Assignee are current in the payment of any and all rent and any other charges required to be paid by Lessee and/or Assignee under the Lease, including the fixed ground rent, and to Lessor's knowledge, no default presently exists under the Lease and no state of facts exists which would constitute a default under the Lease- (d) That the current term of the Lease expires on December 14, 2031. 2. Lender's Rights to Notice and to Cure Defaults. Lessor and Assignee agree that so long as the Leasehold Deed of Trust shall remain of record: (a) The Lease shall not be amended, terminated (except for a default of the tenant under the Lease) or modified in any way without the prior written consent of Lender. (b) Any and all notices or other communication required or desired to be given to either Lessor or Assignee under the Lease shall, in addition, be given to Lender by certified mail return receipt requested at U.S. Bank National Association, 918 17th Street, Denver, Colorado 80202, Attention: Hassan Salem or such other address as Lender may designate in writing. (c) Any notice or other communication which Lender shall desire or is required to give to or serve upon Lessor or Assignee shall be deemed to have been duly given or served if delivered in accordance with Article XIX of the Least- (d) Lender shall have the right, but not the obligation to cure any default by the Assignee under the Lease and Lessor agrees to accept any performance tendered by Lender as if Assignee had tendered such performance, provided, however, that unless Lender otherwise agrees in writing, any performance or partial performance by Lender render the Lease shall not constitute an assumption of the Assignee's obligation under the Lease. y� IRV R22647 v] (e) In the event that Assignee shall commit a default under the Lease, Lessor shall give written notice to Lender of such default concurrently with the delivery of a notice of default to Assignee or subsequently thereafter. Lessor shall not tenninate the Lease by reason of such default by Assignee if Lender cures such default within the times set forth in Article XI of the Lease. (f) Unless otherwise provided herein, the exercise and non-exercise of remedies tinder the Leasehold Deed of Trust are solely at the election of Lender. If Lender agrees to exercise any of such remedies by reason of Assignee's default under the Lease or Leasehold Deed of Trust, Lender is not obligated to pursue such remedies if Assignee's defaults have not been corrected or cured. (g) Assignee hereby agrees that Assignee's right to cancel the Lease, pursuant to Article XII thereof, shall be subject to Lender's consent, and any exercise or attempt to exercise the cancellation right provided in Article XII of the Lease without the prior written consent of Lender shall be void. a. Limitation of Lender's Liabilitv Under Lease. Except as may otherwise be agreed in writing by Lender with Lessor and except for such period of time as Lender is actually the owner of the Lessee's interest in the Lease, in no event shall Lender be liable for any of the Lessee's obligations tinder the Lease. In the event that Lender shall at any time hold Lessee's interest wider the Lease or any new lease entered into in replacement thereof, then, upon any sale, transfer of assignment thereof by Lender (which shall be in accordance with the terns hereof), Lessor agrees that such transfer shall automatically release Lender from any liability wider the Lease or any successor lease occurring after the date of such sale, transfer or assignment. 4. Successors. This Amendment is binding upon and inures to the benefit of the parties hereto, their successors and assigns, and including specifically Lender and its successors and assigns. S. Lease and Airport Rules. Notwithstanding anything to the contrary contained herein, any person acquiring the leasehold interest of Assignee from Lender shall, as a condition precedent to the enjoyment of the leasehold estate, acknowledge and agree to be bound by the teens of the Lease and all rules and regulations of the Palm Springs International Airport. 6. Extensions of Time Periods. Notwithstanding anything to the contrary contained herein, any time periods within which Lender is required to act shall be extended by a period equal to the time Lender is prevented from exercising its remedies wider the Leasehold Deed of Trust pursuant to the automatic or any other stay provision or order or injunction issued or in force pursuant to the Federal Bankruptcy Code as now or hereafter in effect. 7. No Merger. So long as the Deed of Trust is in existence, and unless otherwise expressly consented to in writing, the fee title to the Premises and the leasehold estate of Assignee created by the Lease shall not merge, but shall remain separate and IRV#22647 vl -3- distinct, notwithstanding the acquisition of the fee title to the leasehold estate by Lessor or Assignee or by a third party, by purchase or otherwise- 8- Cautions: Counterparts. Captions are for reference only. This Consent may be executed in any number of identical counterparts, and each such counterpart shall be deemed a duplicate original hereof. 9. No Fee Mortgage. The foregoing provisions do not give any person the right to mortgage, hypothecate or otherwise encumber or cause any lien to be placed upon the fee estate of Lessor, nor shall the foregoing provisions in any event be construed as resulting in a subordination in whole or in part of the fee estate of Lessor to any indebtedness of Assignee. LESSOR CITY OF PALM SPRINGS, CALIFORNIA By: City Manager ATTEST City Clerk REVIEWED AND APPROVED City Attorney "Assignee" PALM SPRINGS FBO TWO, LLC, a Delaware limited liability company, d.b.a. Million Air, Palm Springs By Its IRV 422647 v1 _4_ MINUTE ORDER NO. APPROVING A CONSENT TO ASSIGNMENT OF LEASE AND OPTION TO LEASENO. 1764 AND CONSENT TO ENCUMBRANCE OF GROUND LEASE INTEREST AND ESTOPPEL BETWEEN THE CITY OF PALM SPRINGS ("CITY"), AND PALM SPRINGS FBO TWO, LLC DBA MILLION AIR, PALM SPRINGS ("ASSIGNEE") SUBJECT TO A FORM APPROVED AND REVIEWED BY THE CITY ATTORNEY. I HEREBY CERTIFY that this Minute Order, approving a Consent to Assignment of Lease and Option to Lease No. 1764 and Consent to Encumbrance of Ground Lease Interest and Estoppel between the City of Palm Springs ("City"), and Palm Springs FBO Two, LLC dba Million Air, Palm Springs ("Assignee") subject to a form approved and reviewed by the City Attorney, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 26`h day of June, 2002. PATRICIA A. SANDERS City Clerk