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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