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BAKERSFIELD REDEVELOPMENT AGENCY
Continued Meeting-September 27, 1984
The continued meeting from the September 12, 1984 Redevelopment
Agency Meeting was called to order by Chairman Rockoff on Thursday,
September 27, 1984, at 8:00 p.m. in the City Hall Council Chambers.
The Secretary called the roll as follows:
MEMBERS PRESENT
James Barton
James Childs
Chris Christensen
Rollie Moore
Art Rockoff
MEMBERS ABSENT:
Donald Ratty
Thomas Payne
REPORTS
1) Status report on the Galleria project.
Executive Director Caravalho read the following memorandum that
was submitted to the Redevelopment Agency Members from the Executive
Director dated September 27, 1984 regarding the Truxtun Galleria
Evidence of Financing.
"After careful review of all input and recommendations from the
Agency's consultants, and after several discussions between the
Agency staff and Mr. Moreland and the President of Harbour
Financial Corporation, I recommend to the Agency that the
correspondence received from Harbour Financial Corporation does
not represent an irrevocable commitment to finance the Truxtun
Galleria project.
The letter dated September 7, 1984 from Harbour Financial Corpora-
tion contains forty-three conditions which must be met before
financing is, in fact, assured. Most of these conditions are
beyond the control of the Agency. In addition, those conditions
that are the responsibility of the developer have not been met
by the developer. The most significant of these conditions are as
follows:
27)
This commitment is subject to receipt and approval of final
and complete plans and specifications by Lender. Any changes
in plans and specifications must be approved in writing by
Lender.
33)
Borrower shall furnish Lender copies of the architect's
contract, the construction manager's contract, the general
contractor's contract and all subcontractor's contracts, as
required by Lender, which contracts shall be subject to
Lender's approval and shall be assigned to Lender. Borrower
shall furnish written agreements of the architect, construction
manager, general contractor, and subcontractors to continue
performance of Lender's behalf under their respective contracts
without additional cost in the event of a default by borrower,
unless this requirement is waived by Lender.
34)
Borrower shall furnish, for Lender's approval prior to
closing, an itemized cost breakdown on AIA Document G702A,
showing both direct and indirect costs, with an anticipated
monthly draw schedule, together with names and addresses of
all subcontractors and materialmen to perform work or
furnish materials to the project.
35)
Borrower shall deposit with Lender prior to any advance of
funds, the difference between the loan funds available for
construction and the total cost of construction.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, September 27, 1984 Page 2
In our opinion, it would require a significant effort to satisfy
these conditions and thus does not provide acceptable assurances
so that the Agency may complete its obligation to begin
acquisition of the site.
Additionally, the developer was required, pursuant to the
Disposition and Development Agreement (DDA) to reach agreement
with California Republic Bank. On August 29, a document was
delivered to the Redevelopment Agency as a proposed Exchange
Agreement between California Republic Bank and the Moreland
Corporation. It is our understanding that this agreement has
been reviewed by the Bank's Board of Directors and has been
approved. However, we have received no such document in final
or executed form.
In addition to not receiving the document, there is a condition
contained within the draft received on August 29 that does not
satisfactorily provide for the exchange of property nor give
Moreland Corporation the necessary rights to develop the Galleria
over the property now used as a parking ramp. An alternative
proposal has been submitted by the developer in which he indicates
that the need for further consideration of the exchange of the
California Republic Bank's property would no longer be necessary.
While this may, in effect, eliminate the need for an agreement
between California Republic Bank and the Moreland Corporation,
several issues in this regard must be considered. For this reason,
we are recommending that the Agency disapprove the agreement as
submitted in draft form on August 29 insofar as it does not meet
the requirements of the DDA with respect to the exchange of
these properties.
Contained within this packet is a letter that has been drafted
for the purpose of giving notice to the developer that the Agency
intends to terminate the agreement pursuant to Section 511 of
the DDA. I am, therefore, recommending subject to the determination
and findings contained within this attached letter to Moreland
Corporation, that the Agency finds Moreland Corporation in default
of the Truxtun Galleria Disposition and Development Agreement.
Mr. Ralph Wegis, Attorney on behalf of the Moreland Corporation,
stated that they have given consideration to the two principal areas
of consideration in the memorandum. He addressed the issue of the
agreement with California Republic Bank/Chester Avenue Associates
stating that there have been numerous meetings with Chester Avenue
Associates relative to the acquisition of the property. He indicated
that efforts of the Moreland Corporation to satisfy the interest
of Chester Avenue Associates include substantially redesigning the
Galleria project to reduce its scope, reduce its infringement upon the
parking structure, reduce the overall size, and until the last meeting,
the needs were reduced to merely relocating a parking ramp and satisfy
the leaseholder about the relocation of that ramp and their need to
utilize the ramp to get to the parking structure. He stated that they
prepared a draft agreement that would solve all issues of interest to
the parties in good faith and they responded with a letter that
voiced objections to that agreement in several particulars. He stated
that they met with the Agency Chairman and City Attorney, Mr. Guay,
Mrs. Self, a tenant of California Republic Bank, to discuss the matter.
He indicated that their response to Mr. Moreland's request was
unacceptable. He stated that they have not been able to develop
anything further in view of the comments already made. He stated
that they have also submitted to California Republic Bank a proposal
which was also submitted to the Agency and requested some response.
He explained that it completely eliminates the need for the acquisi-
tion of that ramp which is the sole consideration to holding up this
project, and therefore eliminates the need for an agreement with
California Republic Bank and the Moreland Corporation.
With respect to the financial considerations in the memorandum,
he stated that they have met with staff and Harbour Financial Corpora-
tions and were unaware of any need for specific clarification on any
problem areas in the letter of commitment until 4:00 p.m. He stated
that upon receiving the provisions in the memorandum regarding Harbour
Financial's interest in modifying the provisions, they would contact
the financial entity to see what their position was with respect to
those items. He stated that they have received from
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, September 27, 1984 - Page 3
Gary Hagelman the following telegram:
The City of Bakersfield California
Redevelopment Agency
c/o Mr. Terry Moreland, Moreland Corp.
Bakersfield, CA 93301
Because of the memorandum received from City consultants, we are
addressing the conditions found to be of significant concern. We are
hereby eliminating from the list of conditions items 27, 33, 34 and 35
in their entirety. Additionally, we are extending the loan commitment
from 24 months to 30 months to give City Redevelopment Agency sufficient
time for site assembly and demolition.
Harbour Financial Corporation, Dublin, Ohio
Gary R. Hagelman, President
Mr. Joe Lewis, citizen, questioned the Agency about the acqui-
sition of property by eminent domain. He stated opposition to the
project because it would close off Eye Street and would cost the
taxpayers a lot of money.
Mr. Kennon stated that by law the City is obligated to negotiate
with property owners before considering eminent domain. In either case,
the Agency would pay fair market value.
Mr. Kennon stated that if the Agency chose to accept the redesign
and no longer address the issue of the parking ramp, then staff has been
advised by the Agency's counsel that it might require some changes in
the DDA.
Mr. Gene Denari, citizen, expressed his objection relative to staff
having two weeks and Mr. Moreland having four hours to respond to the memo.
Chairman Rockoff stated that Mr. Moreland would have 30 days to
cure any default, if the Agency finds him in default.
Mrs. Walters was present and expressed concern that the developer
had plenty of time to submit the letter of credit, and asked several
questions of staff. She expressed opposition to the Galleria project.
Mr. Wegis clarified that they are not critizing the timeliness of
the documents and that they are very appreciate of being able to
review the memorandum.
Mr. David Segesman, real estate broker, representative of Gibraltar
Savings and Loan as a loan agent, stated that they have submitted
an application for this project to their main office's major loan committee.
Mr. Wegis stated that Bank of America is evaluating the project so
that the Moreland Corporation can be in a position to come before the
Agency and work out any difficulties that could not be remedied with
Harbour Financial.
Ms. Elizabeth Van Alstein was recognized and asked several questions
regardign the commitment to finance. She stated that the Agency has
already done more than its share to accommodate Mr. Moreland and she also
commented that lives are being mortgaged if it continues.
Mr. Wegis stated that given the fact that the Agency may consider
some drastic moves if financing is not in place within very strict
criteria, it was felt that the Moreland Corporation should give as many
lenders as possible the opportunity to make a decision. He stated
that many lenders are not willing to commit because it is not assured
that the agreement with the County will be approved.
Executive Director Caravalho stated that in October 1983 the
Disposition and Development Agreement was entered into and in
January they were granted a 125 day extension and there was an additional
90 days after that period with an additional 15 days and then 14 days,
equaling approximately eight months of extensions.
Ms. Jean Kamrar, citizen in favor of the Galleria, stated that
in the "13th hour" Gibraltar Savings has come forward and Bank of
America has shown interest, and she, therefore, requested that the
Agency provide more time to evaluate this project.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, September 27, 1984 - Page 4
City Attorney Oberholzer questioned if the Harbour Financial Commit-
ment is a commitment for permanent financing or for a construction loan.
Mr. Wegis stated that included in the letter of commitment was the
permanent financing, knowing that the construction would follow.
City Attorney Oberholzer stated that after reading the submittal
from Harbour Financial, it appears to be permanent financing.
Mr. Wegis stated that they have been operating on the assumption
that is is permanent financing and Mr. Hagelman has indicated that they
would also be interested and willing to offer construction financing.
He explained that this has never been expressed as a concern of the
Agency, but it is permanent.
Agency Member Childs questioned staff regarding the conditions
of the commitment that have been waived by Harbour.
City Attorney Oberholzer stated that the letter contains 43 con-
ditions which must be met before financing is assured and, therefore,
it does not constitute an irrevocable letter of commitment. He explained
that the most significant of these conditions are numbers 27, 33, 34
and 35.
City Attorney Oberholzer stated that since the commitment was made
in writing, the alterations should be made in writing from the president
of Harbour Financial Corporation. He stated that this can be done in
the 30-day period or during an extended period of time. Mr. Oberholzer
explained that Harbour Financial Corporation is an organization that
has been incorporated since March of this year, and based on informa-
tion received, it is a two-man operation made up of mortgage brokers.
He further explained that they go out and acquire the funds which
provide permanent financing for the project.
Agency Member Childs questioned if the Moreland Corporation came tonight
with an irrevocable letter of credit from the Bank of America and the
staff was satisfied with this letter, what would the Agency's obliga-
tion be.
City Attorney Oberholzer stated that the Agency is not obligated
to terminate the agreement or give notice of default. The Agency can
allow the agreement to go on, and each time the developer submits a
new letter of commitment the Agency has to act within 15 days to either
approve or disapprove it. The Agency can give a specific time to
perform, and if he does not perform during that time, then the Agency
would initiate the termination proceedings. If the developer is able
to provide an irrevocable letter of credit, then the project proceeds.
Agency Member Moore made a motion that the evidence of financing
submitted by the redeveloper from Harbour Financial Corporation dated
September 7, 1984 and the additional letter dated September 24, 1984
is disapproved for the reasons contained in the Memorandum from Keyser
Marston Associates, Inc., dated September 26, 1984 and the information
submitted at this meeting.
City Attorney Oberholzer stated that the telegram has not been
presented, and if the letter is going to be modified, it should be in
written form in the same manner in which it was received.
Agency Member Christensen's substitute motion was
following roll call vote:
AYES: Barton, Childs, Christensen, Moore, Rockoff
NOES: None
ABSENT: Ratty, Payne
approved by the
Agency Member Christensen made a motion that the Draft Exchange
Agreement between California Republic Bank and the Moreland Corporation
is disapproved for the reasons that itis not an executed document
and that it does not allow the Moreland Corporation to acquire the
rights necessary to develop the Galleria on that property now used as
a parking ramp.
BAKERSFIELD REDEVELOPMENT AGENCY MEETING, September 27, 1984 - Page 5
Agency Member Barton questioned how the developer plans to get
around the problem with Chester Avenue Associates, if the Agency forces
the developer into default on that issue.
Mr. Wegis stated that they have responded with a proposal that
completely eliminates the need for that ramp and at the same time preserves
the project. He stated that they need to understand what they can do
to cure the default. They have done their best to respond to any concerns
to cure the defaults but they need direction.
Agency Member Childs questioned the meeting staff attended with
the developer and with Chester Avenue Associates.
City Attorney Oberholzer stated that the Chairman also attended
this meeting, Chester Avenue Associates was represented by Mr. Larry Guay,
Mr. Wegis, Mr. Moreland, Mr. Denatale, and Bob Self. He stated that
Mr. Guay had indicated that there were a number of conditions that he
felt the developer had not met with respect to his concerns. Mr. Self
had indicated that he was opposed to the project and to redevelopment
itself, and that it was his position that he would not agree to anything
with respect to offers made by the developer. He stated that Mr. Guay
indicated that he was still willing to negotiate.
Mr. Wegis stated that the project could be redesigned to eliminate
the need for the ramp.
City Attorney Oberholzer stated that this would not require a
major modification to the Disposition and Development Agreement. He
stated that during the default period, if the developer comes forward
with a plan, or a financial commitment which would be acceptable to
the Agency at the end of that 30-day period, you do not have to terminate
the agreement.
Executive Director Caravalho stated that the key issue is the
irrevocable commitment for financing and stated that an agreement
entered into nearly a year ago with many extensions granted and in terms
of administering the business of the Agency, there are other projects and
commitments with potential and this project lingers on and the key issue
is we want to see an irrevocable commitment and have the project proceed.
This has not happened, and the fact is the developer has not met their
agreement. He stated that it is time to find them in default.
Mr. Caravalho stated that the major obstacle is not the ramp, but the
financing commitment.
Agency Member Moore called for the question.
Agency Member Christensen's motion that the Draft Exchange Agreement
between California Republic Bank and the Moreland Corporation be
disapproved for the reasons that it is not an executed document and
that it does not allow the Moreland Corporation to acquire the rights
necessary to develop the Galleria on that property now used as a parking
ramp, was approved by the following roll call vote:
AYES: Barton, Childs,
NOES: None
ABSENT: Ratty, Payne
Christensen, Moore,
Rockoff,
Agency Member Moore commented that the community level of frustration
over the Galleria project has reached new heights. We are now into the
eighth month of extensions: 125 days on December 14, 1984; 90 days on
May 22, 1984; 14 days on August 29; and 15 days on September 12.
Additionally, we have been assured of financing in May, July, August,
and September; each time to learn there was no irrevocable commitment.
Red flags have been raised in the eyes of many in regard to the developer's
ability to obtain financing. The major evaluation and test for approving
any loan is the project's ability to repay that loan. Additional concerns
are: a 40% office vacancy rate downtown; the use of the County of Kern
as a tenant for 10 years in the amount of $4.5 million; and, all the
Agency's monies tied up until after 1990. In review of this latest in
a series of failures to perform on the part of the developer, Agency
Member Moore moved to accept the staff recommendation and find the
developer in default of the Disposition and Development Agreement and
made a motion that the Redevelopment Agency has chosen to invoke the
provision of Section 511, "Termination by Agency", of the DDA between
the Agency and Moreland Corporation due to a failure of the redeveloper
to: (1) provide evidence of financing; and (2) provide an agreement
between California Republic Bank as delineated in the proposed letter from
the Executive Director to the Moreland Corporation, dated September 27,
1984; and that the Executive Director is hereby directed to submit
notice of this action and written demand upon the developer. The motion
was approved by the following roll call vote:
AYES: Barton, Childs,
NOES: None
ABSENT: Ratty, Payne
Christensen, Moore,
Rockoff
ADJOURNMENT
There being no further business to come before the Redevelopment
Agency, Agency Member Christensen made a motion to adjourn at 9:51 p.m.
/~G r~ g o~ I~k~o, Secretary
Bake~s~e~d Redevelopment Agency
Bakersfield Redev~l'opment Agency