HomeMy WebLinkAbout10/29/84 MINUTES RA MINUTES
BAKERSFIELD REDEVELOPMENT AGENCY
Special Meeting--October 29, 1984
The Special Meeting of the Redevelopment Agency was called to
or~er by Chairman Rockoff on Monday, October 29, 1984 at 12:00 p.m.
the City Hall Council Chambers. The Secretary called the roll as
follows:
MEMBERS PRESENT:
James Barton
James Childs
Chris Christensen
Rollie Moore
Thomas Payne
Art Rockoff
MEMBERS ABSENT:
Donald Ratty
REPORTS
1. Written and oral report to the Agency regarding the Truxtun
Galleria financing.
Agency Member Payne stated that he would not participate in this
issue due to a previously announced conflict of interest.
Mr. Dave Beatty, of McDonough, Holland and Allen, Special Counsel
to the Redevelopment Agency, read the staff report to the Agency dated
October 29, 1984 regarding Report and Recommendations on Galleria
Financing.
"On September 27, 1984, the Redevelopment Agency found the
Moreland Corporation in default of the Disposition and Develop-
ment Agreement (DDA) pursuant to Section 511 of that agreement.
This action found the Moreland Corporation had failed to provide
adequate evidence of financing for the Truxtun Galleria project,
as required by the Disposition and Development Agreement. The
Moreland Corporation was also found in default of a second major
issue that required an agreement between California Republic Bank
and the Moreland Corporation. This agreement would permit the
use or exchange of certain properties on the building site
sufficient to construct the Truxtun Galleria as it is proposed.
'~On October 23, 1984, a copy of a letter addressed to
Mr. Terry Moreland from the Bank of America was received by the
Executive Director of the Redevelopment Agency (attached). This
letter contained the terms and conditions for financing the con-
struction and permanent financing of the Truxtun Galleria project.
"The letter submitted by the Moreland Corporation is a serious
and substantive effort to obtain financing, and while it does not
technically comply with the provisions of the DDA, it should be
considered by the Agency as an important step in assuring
development of the project.
"Except for the reference made in item number 6 of the subject
correspondence to a Deed of Trust, the letter from the Bank of
America to Mr. and Mrs. Terry Moreland, dated October 21, 1984,
is sufficient to remove the condition of default regarding
financing for the Truxtun Galleria project. It is recommended
to the Agency that any reference to title insurance or Deeds of
Trust prior to the Agency's approval of any required Resolutions
of Necessity to acquire property, or the successful negotiation
of a purchase with a property owner is not acceptable.
"The agreement between the Moreland Corporation and California
Republic Bank, dated October 17, 1984, is sufficient to remove the
condition of default with regard to the absence of an agreement
between the Moreland Corporation and California Republic Bank.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 2
"It is recommended that a letter substantially identical to the
letter of October 21, 1984 be submitted to the Redevelopment
Agency within 90 days for approval by the Agency. To facilitate
the development of this project, the following actions must
occur or changes must be made in the letter submitted by the
Bank of America to Mr. and Mrs. Terry Moreland on October 21, 1984.
Construction drawings and specifications must be com-
pleted to the degree necessary for the bank to review
final plans, cost breakdown and specifications to
determine if they are acceptable to the bank's Appraisal
Department, with no further review necessary prior to
the disbursement of any construction funds.
2 o
No requirement for the execution of a Deed of Trust or
title insurance of any parcel in the project area can
occur prior to the approval of a Resolution of Necessity
by the Redevelopment Agency on the parcel, or the Agency
has acquired the parcel, or has conveyed the parcel to the
Developer.
The bank will consent in writing to the retention of air
rights over Parcel B by the Agency as specified in the
DDA between Moreland and the Agency.
4 o
Item 30-c of the letter from Bank of America dated
October 21, 1984 shall be changed to read, "(c) if the
Bank, based on normal banking practices, determines in
its sole judgment that Borrower's ability..."
A soils report acceptable to the Lender and the Building
Director of the City of Bakersfield has determined that
the proposed structures and improvements are feasible
under existing soil conditions.
"In addition to the aforementioned changes, the DDA is to be
amended to resolve the following issues:
Elimination of the Agency's requirement to use its
best efforts to issue tax-exempt financing for acquisition
of the land to be used for the parking structure and to
assist in the construction of a parking structure. An
alternative method must be established for providing
the necessary funds for the acquisition of land and con-
struction of the parking facilities on Parcel B.
B. Any revision to the Stie Plan (Attachment No. 1) and
the Legal Description of the Site (Attachment No. 2).
C. Any elimination or change to the requirement to obtain an
agreement with California Republic Bank.
D o
The DDA must be amended to reflect any changes in the
Scope of Development or Method of Financing. These
must be reviewed by the Agency to determine if revisions
to the 33433 Report (financial report to the Agency) are
necessary.
"The aforementioned actions and changes will serve to bring the
lender's requirement and the development process established in
the approved DDA into synchronization.
"We are recommending the following motion by the Redevelopment
Agency: 'The letter from the Bank of America is sufficient to
remove the condition of default identified in the letter of
September 28, 1984 sent by the Agency to Mr. Moreland. This
motion is conditioned upon the requirements and actions delineated
as items 1 thru 5 and items A thru D in the staff memorandum
dated October 29, 1984 from the Executive Director to the
Redevelopment Agency.'
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 3
"The Agreement between the Moreland Corporation and
California Republic Bank dated October 17, 1984, is sufficient
to remove the condition of default with regarding to the absence
of an agreement between the Moreland Corporation and California
Republic Bank as stated in the letter of September 28, 1984 from
the Redevelopment Agency to Mr. Moreland."
Mr. Beatty stated that the letter removes the condition of default
that the Moreland Corporation is in because of the strength of this
letter. He stated that staff considers this letter as a serious and
substantive effort to obtain financing. He explained that the DDA
is very specific with regard to the terms of financing which must be
submitted, and that the letter for commitment must be irrevocable
by a total amount of the loan and the rate of interest. He stated that
this is a serious financing letter by the Bank of America, and he
recommended that the Agency remove the developer from the default
provision and, in effect, work out those changes in the letter of
financing with amendments that will have to be made to the DDA.
Mr. Beatty outlined the conditions of concer to staff. He stated
that the Deed of Trust is an unacceptable condition of the
letter of credit. The property is held both privately and public, and
there are problems with the fact that there will be a Deed of Trust
recorded on that property by the Moreland Corporation securing the
financing. He questioned how someone could record a Deed of Trust
on another person's property. He stated that this is unacceptable because
it is not irrevocable financing, and any other letter containing this
same provision is also unacceptable. He explained that staff has not
had the time to work with the developer on these problems. Mr. Beatty
stated that the second point, the agreement with California Republic
Bank, is sufficient to remove the condition of default. He stated
that they have approved a design which does not make an agreement,
which is required in the DDA, necessary. Depending upon how the DDA
is amended, that issue will be resolved.
Mr. Beatty recommended that a financing letter be provided similar
to the one submitted, but the following changes should be made with
regard to appraisal. He stated that if the Agency accepts the letter
of financing, the Agency is obligated to start acquiring property, and
therefore, recommended the changes as outlined in the staff report. He
also recommended that number 6 of the letter be amended to read
"Borrower's interest in the land and its ownership of all other real
properties shall be free and clear of all incumberances" and requested
that parcel B be written in as an exception. He explained that with
regard to the Deed of Trust, instead of eliminating those provisions
of the letter, the developer has offered to indemnify the Agency if
it is liable or is subject to attack because of these provisions.
Chairman Rockoff questioned the position of the Agency if this
indemnification letter is accepted.
Mr. Beatty responded that he would not recommend the acceptance
of this letter in lieu of eliminating the language requiring the Deed
of Trust to be recorded.
Mr. Ralph Wegis, Attorney for the Moreland Corporation, responded
to the points that were outlined. He stated that the air rights
issue has been addressed as not being a problem by Bank of America.
The soils report would not be a problem. He stated that they requested
that a meeting of the Agency be called in order to receive any input
with regard to what they could do to resolve any questions, because
the interest rate will increase for loans recorded in November
resulting in an increased cost of $282,000 or a $1 million increase
over the course of the loan. He stated that Bank of America is satisfied
with this condition, and the title insurance company guarantees that
clear title can be made, knowing the status of the property and the plans
for the property. He stated that Deeds of Trust on matters like this
are typical and the timing of the Deed of Trust is not typical in
the experience of the Agency. He stated that Agency staff had concerns
and therefore, the Moreland Coporation provided the letter of indemni-
fication for these concerns. He stated that regarding the appraisal
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 4
issue, the Bank of America officials discussed it with staff and that
it was a normal provision. He further commented that they will do
everything they can to proceed with this project.
Agency Member Moore questioned the communication between the staff
and the developer.
Mr. Beatty stated that they had met all day on Thursday and spoke
with the developer at least three times on Friday. Thursday, staff
and consultants outlined the five concerns regarding the DDA and also
expressed concerns on the Deed of Trust. The conversations on Friday
were with regard to the Deed of Trust, and conferring with staff and
experts, and presenting conclusions on these specific concerns.
Mr. Moore stated that Mr. Wegis commented that the DDA was
written in such a way that it was impossible for the developer to
comply or perform. He questioned if these concerns were raised at the
time they signed the DDA, and if so, why was it signed on behalf of
the Moreland Corporation.
Mr. Wegis stated that his intent was not to malign the staff with
regard to their contribution to trying to resolve these issues, but
to give an outline of their involvement in trying to resolve questions.
He stated that the agreement was entered into with the view of performing
it and no issue was focused on at that time that he was aware of that
would say it is impossible for the developer to perform, because it
trusted in the commercial realities and good faith.
Agency Member Moore commented that Mr. Wegis had stated that it
was impossible to circulate the letter with Bank of America officials
before Monday regarding the concerns of staff. He questioned why the
meeting was requested; if there was not enought time to do the things
that needed to be accomplished.
Mr. Wegis responded that this was triggered by the date of October 31,
when the closure of the loan after that date will mean an increase
of $282,000 immediately and $1 million over the life of the loan. He
explained that since the Bank of America, and the title insurance company
were satisfied with that provision, then if the Agency had concerns
regarding that provision, the developer could, within its control,
address those issues to resolve them.
Agency Member Moore stated that after discussions with local
banking institutions and economists, they all advised that anyone
getting a loan should wait until the first of the month when rates are
lowered.
Mr. Wegis stated that they have the greatest interest of anyone
in negotiating for the best loan. He stated that Bank of America is
willing to commit to a November rate at an increased financial risk
because of the market. He said that they are prepared to meet anytime
that they are asked, and that has been the spirit of their ability
since the start of the project.
Agency Member Moore questioned if staff is satisfied that the
developer has come forward and met the concerns which were generated
by the memorandum.
Executive Director Caravalho stated that the concern is not the
ability of the developer, but that the developer must be prepared to
meet the deficiencies as itemized in the letter.
Mr. Wegis stated that they can meet with regard to indemnifica-
tion. If it is regarding changes in the agreement by the Bank of
America, then the bank would have to authorize that change.
Mr. Moore questioned if the concerns expressed by staff are still
outstanding.
Mr. Beatty responded that the concerns were still outstanding.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 5
Mr. Beatty questioned if the Bank of America wishes to have the
as described in the letter, secured by a Deed of Trust and title
insurance as security for the loan.
loan
Mr. Wegis stated that it was requested because it is a provision
within the Bank of America Letter of Commitment and it can be insured
to the bank's satisfaction. He stated that the reason the Moreland
Corporation requests this is because it is in the commitment letter
and it is something they can comply with.
Agency Member Barton made a motion to recess the Agency meeting
at 1:20 p.m.
Chairman Rockoff reconvened the Redevelopment Agency meeting at
1:35 p.m.
Mr. Tom Hardt, representative of Bank of America, stated that
the commitment is a clear attempt to provide financing for the Galleria,
not only for the borrower, but for the City. None of the things that
have been discussed seem unreasonable to the Bank, specifically, the
recording of a Deed of Trust. He explained that the Deed is to be
recorded on or before October 31, 1984, and that the Deed of Trust
could or may record in the month of November; this is to provide
flexibility in the commitment. He stated that with the present infor-
mation, the bank feels comfortable in offering a commitment for
October and November. The commitment is tied to a six-month average
of six-month Certificates of Deposit. The index has a two-month lag.
He stated that the Deed of Trust is collateral for this loan. He
explained that the recording of the Deed of Trust would guarantee the
borrower the said interest rate. If they are going to guarantee a
rate for October or November, the Deed of Trust must be recorded. The
title company is willing to issue an insurance policy in October or
November, but a Deed of Trust must be recorded. The only monies to
be disbursed will be the Bank of America loan fee and the title
company's insurance fee. He stated that the commitment letters
indicate that no construction funds will be advanced prior to the
written approval by the Bank of America of the final plans and speci-
fications of the cost breakdown. He stated that the risk to Bank of
America if they record a Deed of Trust tomorrow is only those two items.
He stated that their collateral for this is the insurance policy from
the title company.
Agency Member Moore qeustioned if all the institutions use the
methodology that this bank uses for the change of interest rates that
are tied to the first of the month for the insuing month.
Mr. Hardt responded that he was not aware of other institutions'
changes of interest rate. He stated that they do this because the
indexes are for a 30-day period.
He stated that in the commitment letter there is a three percent
fee, $730,770 for the Bank of America loan fee. Mr. Moreland must
deposit $185,914 to cover a portion of the loan fee. He stated that
he has not received a quote from the title company, but it should be
approximately $80,000 or $90,000. He stated that the policy is for
125% of the loan amount, approximately $30,800,000.
Mr. Beatty questioned if the insurance policy on the Deed of Trust
to be recorded prior to November i is on the entire $30,800,000.
Mr. Hardt explained that they would require that the title policy
be in the same form and substance from the beginning of the loan as it
would be at the end. He stated that there are specific endorsements
that cannot be adhered to at this time with regard to progress. The
policy would insure the $30,800,000. He stated that the bank is at
risk for only the two items. The bank willnot disburse any funds
beyond the loan fee and the title policy fees until a Resolution of
Necessity has been issued by the Agency.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 6
Mr. Beatty asked if the bank would disburse any monies for con-
struction other than the two points made after the execution of a
Resolution of Necessity.
Mr. Hardt responded that this would occur after the final plans
and specifications and cost breakdown are approved by the Bank of
America and in accordance with the DDA by the Agency. He stated that
he did not have a copy of Attachment No. 7, the Deed of Trust, in
the Disposition and Development Agreement.
Mr. Beatty explained that the Deed of Trust must be recorded
pursuant to the DDA. He questioned if they could alleviate the necessity
for recording a Deed of Trust at this time, since it appears to secure
only the two points specified, by having an equity contribution in that
amount.
Mr. Hardt stated that that would suffice for the payment of those
two items but would not suffice for a locking in of the interest rate
or the issuance of title insurance.
Mr. Beatty explained that there are sections in the DDA that
specifically govern when Deeds of Trust on the property can be granted
and recorded. The requirement of the Bank of America commitment appears
to be inconsistent with the DDA because it assumes that the property
has been transferred by the Agency to the redeveloper, and it requires
specific subordination by the Agency under specific terms.
Mrs. Walters, citizen, asked several questions of the Agency and
staff as to whether Mrs. Moreland is a third party to the Agreement and
reasons for her being stated on the letter of financing.
Mr. Wegis responded that
Corporation has acquiesced to
required the signature.
they have both signed the letter, Moreland
the letter, and the Bank of America
Agency Member Moore asked if the Bank of America provided the
irrevocable proof of financing at this time.
Mr. Beatty stated that at this time it does not. It is incon-
sistent with the section in the Disposition and Development Agreement.
Agency Member Moore questioned if, through all this testimony and
information received, have staff's concerns been lessened.
Mr. Beatty stated that they have not had
what the resolutions of those differences are
give a specific answer.
time to specify exactly
and therefore cannot
Mr. Beatty stated that he would not recommend that approval be
given to this letter as it si written. The concerns are capable of
being rectified. He stated that if they cannot resolve the problems
as the staff memorandum suggests, then the Agency is at risk.
Executive Director Caravalho stated that when the project was
proposed many thought this would be the key to downtown revitalization.
He stated that the developer has made substantial efforts to meet the
provisions of the DDA, and therefore, recommended that the Agency move
forward with the project with the conditions as outlined in the staff
report. He further stated that the Disposition and Development
Agreement is very favorable to the Agency.
Agency Member Barton questioned how to alleviate the problems in
putting together a financial package that is satisfactory to the Agency.
Mr. Beatty responded that this a complicated effort which involves
the developer and Agency taking risks. Both parties are attempting to
develop the project, but not have unacceptable risks on their part.
The staff concern with the letter of financing is that if it is
accepted, the Agency is responsible for commencing the acquisition of
the site and it is the single point of risk of the Redevelopment Agency.
Therefore, the Agency should want to be certain that at the time it
made the decision to commence acquisition, it was reasonably certain
that the property acquisition would proceed in a standard manner.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 7
Agency Member Childs questioned if this letter is sufficient to
remove the reasons why they were put into default in the first place.
Mr. Beatty stated that the letter from Bank of America is a serious
substantive effort by Mr. Moreland to comply, and that it should be
given weight by the Agency. He stated that the Moreland Corporation has
not met the obligations that put it into default.
Executive Director Caravalho requested a five-minute recess at
2:44 p.m.
Agency Chairman Rockoff reconvened the Redevelopment Agency meeting
at 2:55 p.m.
Agency Member Moore stated that this is not a vote as to whether
the Galleria is good for the community or not, nor does it address the
concers of many as to whether it should or should not be built. The
City entered into an agreement in October 1983 with the Moreland Corpora-
tion, by the DDA. part of the agreement was for the developer to obtain
irrevocable proof of financing. When this was not accomplished, following
many extensions, the Agency found the developer in default on September 27.
That action started a 30-day clock in which the developer was afforded
this period to remedy his financing deficiency or terminate the project.
The concerns in the community about this project are very real and
valid. The Agency has waited during 274 (9 months) of extensions
because of the inability to perform by the developer. The Agency was
assured of financing in May, July, August and twice in September,
each time to learn there was no irrevocable commitment.
Agency Member Moore stated that in view of staff's concern and
recommendation regarding this fifth attempt in financing, he made a
motion that the Agency reject the letter from Bank of America as not
constituting sufficient or irrevocable evidence of financing.
Agency Chairman Rockoff stated that based upon comments made by
staff, there appears to be grounds for finding solutions to these
problems. He stated that to put a project together requires discussion,
negotiations, giving and taking, and it appears from the report that
there is grounds to have these objections overcome. He, therefore,
made a substitute motion to continue consideration of this matter
until the date of November 7.
Agency Member Childs stated that he would like to see this project
work for the redevelopment of downtown, but that it is obvious that
Mr. Moreland is having problems in obtaining irrevocable financing for
this project.
Agency Member Christensen stated that this is another attempt to
delay, and that it will tie up money for all other projects in the
downtown blighted areas. He stated that the Agency should bring this
project ~o an end, and could not support the substitute motion.
Agency Chairman Rockoff's substitute motion to continue consideration
of this matter until November 7, 1984, was defeated by the following
roll call vote:
AYES: Rockoff, Barton, Childs
NOES: Christensen, Moore
ABSTAINS: Payne
ABSENT: Ratty
Agency Member Moore's motion to reject the letter from Bank of
America as not constituting sufficient or irrevocable evidence of
financing was defeated by the following roll call vote:
AYES: Christensen, Moore
NOES: Rockoff, Barton, Childs
ABSTAINS: Payne
ABSENT: Ratty
Agency Member Christensen made a motion to adjourn the meeting
for one hour at 3:03 p.m. The motion was defeated.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, October 29, 1984 - Page 8
Agency Member Moore made a motion to reject the letter from
Bank of America as not constituting sufficient irrevocable financing
and further provide that staff have the period until November 7 to
review and made a recommendation to the Agency.
City Attorney Oberholzer stated that staff would concur based
upon Mr. Beatty's recommendation that the letter does not meet the
irrevocable commitment required by the DDA and some action should be
taken, and that Agency Member Moore's motion satisfies the concern
of staff.
Agency Member Christensen questioned what would have to be done in
order to make this letter acceptable.
Mr. Beatty stated that five provisions in the
from Bank of America be corrected to be consistent
in the staff report.
existing letter
with the five points
Agency Member Moore's motion to reject the letter from Bank of
America as not constituting sufficient irrevocable financing and
further provide that staff have the period until November 7 to review
and make a recommendation to the Agency, was approved by the following
roll call vote:
AYES: Moore, Rockoff, Barton, Childs
NOES: Christensen
ABSTAINS: Payne
ABSENT: Ratty
NEW BUSINESS
(a)
Closed Session. Review appraisals of properties that are
necessary to acquire for the construction of the proposed
Convention Center Hotel.
Close sessions were held at 3:15 to discuss the appraisal of
properties for the Convention Center Hotel project.
The Redevelopment Agency meeting was reconvened by Chairman
Rockoff at 3:40 p.m.
Agency Chairman Rockoff made a motion to approve the appraisals,
which was approved and carried.
ADJOURNMENT
There being no further business to
Agency, Agency Member Childs made
3:41 p.m.
/~Br~gz~l~ ,/cretary
ake~'sf~e~Id/Redevelopment Agency
come before the Redevelopment
a motion to adjourn the meeting at
?
ARTH[R L. ROCKOFFL Charmin
Bakersfield Redevelo~t Agency