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HomeMy WebLinkAbout04/27/82 MINUTES RA JOINTBakersfield, California, April 27, 1982 Minutes of a Joint Public Hearing of the Council of the City of Bakersfield and the Bakersfield Redevelopment Agency, held in the Council Chambers of City Hall at 7:00 P.M., April 27,' 1982. The meeting was called to order by Mayor Shell and Agency Chairman Lewis, followed by the Pledge of Allegiance and a moment of silent prayer. The City Clerk called the roll of the Council, as follows: Present: Mayor Shell. Councilmen Ratty, Rockoff, Strong, Barton Christensen, Means Absent: Councilman Payne The City Clerk called the roll of the Agency as follows: Present: Agency Members Bllas, Clausen, Lewis, Mooneyham, Moore, Wirier Absent: None. Mayor Shell stated that the purpose of this public hearing was to consider a proposal by Hedrick-McBride for development of a downtown hotel located directly adjacent to and east of the Civic Auditorium. The proposed plan would involve the property bounded by Truxtun Avenue on the north, "Q" Street on the east, Santa Fe Railroad right-of-way on the south, and the Civic Auditorium on the west. CORRESPONDENCE Upon a motion by Councilman Means, correspondence from the Community Development Program Department, County of Kern, dated April 14, 1982, regarding the Negative Declaration for the Conven- tion Center Hotel Facility was received and placed on file. Upon a motion by Councilman Means, correspondence from Kern County Council of Governments, dated April 22, 1982, regarding the Negative Declaration for the Convention Center Hotel Facility was received and placed on file. Bakersfield, California, April 27, 1982 - Page 2 STAFF REPORTS City Manager and Executive Director of the Redevelopment Agency Kelmar introduced the Agency consultants and developer as' follows: Calvin Hollis, Katz, Hollis, Coren, & Associates, Inc., Financial Consultant for the Redevelopment Agency. Joe Coomes and John Carrier, McDonough, Holland, and Allen, Legal Counsel for the Redevelopment Agency. Richard L. Botti, Keyser, Marston Associates, Inc., Land Use Economists for the Redevelopment Agency. Tom McBride and Jack Cassidy, Hedrick and McBride, Developers of the project. Economic Development Coordinator Kennon, stated that the Proposal involves construction of a Convention Center Hotel with parking facilities, and a full service hotel with approximately 320 rooms, located on property directly adjacent to and east of the Civic Auditorium. The proposed plan would involve the property bounded by Truxtun Avenue on the north, "Q" Street on the east, Santa Fe Railroad right-of-way on the south, and the Civic Auditorium on the west. The Proposal also involves additional construction of replacement facilities for the Civic Auditorium located south and southwest of the existing facilities. City Manager and Executive Director of the Redevelopment Agency Kelmar gave a Summary Report for the proposed Convention Center Hotel Development, as follows: The City Council and Redevelopment Agency will be considering a number of documents at the public hearing on Tuesday, April 27th, relating to the proposed Convention Hotel. These documents refer to the various responsibilities on the part of the developer and the City as defined in the Disposition and Development Agreement and Lease Agreement. In addition, there will be reports discussed which deal with the economics and costs associated with the DDA and Lease Agreement. However, there are other issues which the City Council and Redevelopment Agency members should be made aware of which deal with this proposed develop- ment and are not specifically a part of the above named documents, but will require action either at the hearing or subsequent meetings. Bakersfield, California, April 27, 1982 - Page 3 1. Replacement of storase facilities and handi- capped access at the Civic Auditorium. The development of the hotel will result in the loss of 12,000 square feet of storage facilities presently utilized by the Civic Auditorium on the block east of the Civic Auditorium. It will be necessary to replace this storage. Preliminary plans and cost estimates have been prepared to add two storage areas to the rear of the Civic Auditorium at an estimated cost of $810,000. In addition, the issue of handicapped access to the Civic Auditorium should also be addressed. The developer will be providing total access to meet- ing rooms and public areas and the City should study this problem and attempt to resolve this issue at this time. A resolution for the use of tax increments for these public improvements will be considered at the public hearing. 2. Parkin~ for the Proposed Hotel. A review has been made of various parking require- ments for hotel facilities of a similar type. In addition, the developer has provided data relating to parking requirements, parking usage and patterns of occupants relative to parking needs. In order to relate this data to the site upon which the hotel is proposed, the Council will be requested, at its meeting on Wednesday, April 28, to adopt a resolution which will expand the extended core area boundary line, which now bisects the Civic Auditor- ium property, easterly to "Q" Street. In addition, the parking which will be lost with the proposed addition of storage facilities to the Civic Auditorium will be replaced by the recently developed one-block County parking area just west of the Civic Auditorium. The staff will also be studying future parking requirements as well. 3. City-Owned Property The City owns approximately 3/4 of a block within the proposed site. It will be necessary for the City Council, at a public hearing some time in the future, to transfer this property to the Redevelop- ment Agency. The Agency will pay the City for this property at current market values. City Manager and Executive Director Kelmar stated in the Disposition and Development Agreement under Developer's Deposit, it is indicated that prior to simultaneous execution of the Agreement the Developer will initially deposit $50,000 with the City. Mr. McBride has informed the City that his partner, Mr. Hedrick, will be out of town until Friday, April 30, 1982, but the deposit will be paid on Monday, May 3, 1982, at which time the Agreement will be signed. Bakersfield, California, April 27, 1982 - Page 4 Mr. Calvin Hollis, member of the Firm of Katz, Hollis, Coren and Associates, Financial Consultant for the Redevelopment Agency, stated, that when a Redevelopment Agency commits the us~ of cost increment to purchase property and then to convey it, ths law requires that a summary report be prepared for a public hearing, which presents the costs of the agreement to the agency, and an evaluation of the property being conveyed. In the Analysis of Cost of the Disposition and Development Agreement for the Convention Center Hotel, dated April 1982, it spells out what the agreement is, and what costs the Agency will incur. Table 1 of the Summary Report, identifies the costs that will be incurred by the Agency as a result of this agreement. Those costs include land acquisition, demolition, site occupant relocation, public improvements, and an administrative item, for a total of $1,619,000. The agreement provides that the demolition costs will be reimbursed to the Agency by the Developer over a ten-year period, with an interest rate of 10% per year. Included in the land acquisition is the appraised valus of property currently owned by the City in the development area. It is being proposed that the Redevelopment Agency agree to purchase this property from the City, at the appraised value. The Agency is incurring this as an obligation to the City to be repaid at such time as funds are available. It will be the Agency's and City's discretion as to what point in time the City is paid for this property. It is, however, a cost to the Agency as they will be paying the City for this property and it is included in the $1,452,000 shown. It is proposed that the costs be financed out of Redevelop- ment Agency funds currently on hand. long-term financing contemplated. Mr. Dick Botti of Keyser, There are no bond sales or Marston Associates,presented the Analysis of Lease Agreement between the Bakersfield Redevelopment Agency and Bakersfield Metropolitan Associates. Before the Council Bakersfield, California, April 27, 1982 - Page 5 and Agency is the result of many meetings in many months of negotiations created in part because of the pioneering nature of the investment that this particular developer is going to make and of the uncertain nature of the current financial market that relates to securing the necessary $17,000,000 or $18,000,000 investment that is required for this type of hotel. The basic lease terms can be broken into essentially two components. The first component is the base rents. The base rents start in year two at $50,000 per year and increases at $50,000 per year until it reaches $200,000 in year five; and remains at $200,000 per year through year fifteen. The purpose of the low base rent, is to allow and provide some concessions to the developer during the initial start of the hotel. After year sixteen we believe the agreement provides for a unique feature in that the base rent is established annually at 80% of the previous year's rent. The previous year's rent for the cal- culation of the base rent will include the percentage rents so that after the sixteen years the percentage rent that is being generated from the formula would be converted into a guaranteed rental payment to the Agency. The percentage rent has two formu- las; two components. During years one through five, the developer has agreed to pay two percent of total room, and food and beverage sales to the Agency, less the base rents. After year six the developer has agreed to pay the Agency 5% of room sales, above $8,700,000, as additional rent, and 3% of food and beverage sales above $6,300,000. These numbers came about because of the need to establish base and percentage rents that would allow the developer to finance the hotel. Historically, those percentage rents have been based upon 5% of rent sales and 3% of food sales from year one. Today, because of the cost of money, these develop- ers cannot afford a high ground rent payment. There comes a point in time when the developer can afford to go back to the more traditional percentage rates. It is our calculation that that Bakersfield, California, April 27, 1982 - Page 6 point would be when the hotel generates $15,000,000 in total sales volume. At the $15,000,000 sales figure, the developer and investor would be receiving a fair return of investment on their invest- ment of 18% of internal rate of return. The internal rate of return is somewhat of a complex formula, based on discounted cash flows. Today, in the present status of the financial markets, an internal rate of return between 17% and 20% is required. This formula will generate that return to the developer and will produce to the Agency sufficient percentage rents above $15,000,000. The last minor component, of the total rent, is the repayment of the $100,000 the Agency needs to spend in order to attempt to provide the necessary demolition and minor site improve- ment work. As part of the analysis, income projections for the hotel have been made based upon the rental terms outlined. The Agency, based upon the terms contained in the proposed lease, would receive approximately $2,000,000 in lease revenue payments. Under the more conservative projection, the Agency would receive approximately $1,800,000. In addition, the agency would receive, in future years, additional revenues that could total between $6,500,000 and $10,000,000 depending upon the growth of the economy and inflation rate. In terms of trying to measure the worth of the investment to the Agency, cash flows have been taken that were produced by our projections and discounted at a 10% rate. That discount rate indicates that the worth of the investment to the Agency would be between $2,000,000 and $2,400,000. If a slightly higher discount rate of 12%; is assumed, the value of the investment to the Agency would be between $1,600,000 and $1,800,000. The Proposed Lease Agreement before the City Council and Agency provides an adequate return for the money that the Agency needs to spend in order to assemble the site, and to allow the developer to have a successJ~ul project and raise the necessary equity capital. Bakersfield, California, April 27, 1982 - Page 7 Economic Development Coordinator Kennon stated that at the point in time, during negotiations, when it appeared that a project was taking shape, staff conducted an "Initial Study".. This is a requirement of the California Environmental Quality Act in which the project is described and attempts are made to ident- ify any impact that would have significant or traumatic impact on the environment. That study was completed and is included in the packet. As a result of that study, it was found that there would be no impact or conditions that were going to create a traumatic or traumatizing impact to the environment or the method which the community functions. There were a number of issues that the City felt deserved to be discussed in more detail. One of those issues is access to the site, and another one is parking. There were several other issues of a lesser nature. As a result of that, and studies dealing with those issues, the City issued a Negative Declaration that was published in the local paper. The City received comments, none of which were of a negative nature or indicating that there was additional concern over what had already been identified. The one issue that the City feels is obviously mitigated deals with fire prevention, and as a function of the Building Code that would be included and considered during the design of the structure. For that reason, the Council and Agency are being requested to certify the Negative Declaration. Councilman Rockoff stated that in regard to the Lease Agreement, he had concerns about whether the hotel operator or lessee could further encumber the property as time goes on with additional trust deeds without notice to the Agency; and how the City would be protected so that the obligation under new encum- brances might not jeopardize the collection of rents. Bakersfield, California, April 27, 1982 - Page 8 Mr. Joe Coomes, Special Council for the Redevelopment Agency, stated that the Lease is an unsubordinated ground lease, meaning that a lender could not foreclose the interests of the Agency under the lease. There is a provision, for a subordination of rents during the first 10-year period. The question being raised as to whether the developer could encumber the lease hold interest to any amount, under the lease as it was drafted, since it was unsubordinated; it does not have that type of restriction. Just prior to the meeting, this particular provision was discussed with the developer. The developer agreed to a limitation on future financing to the lessor of .75% of the appraised value of the property; or to an income to debt service ratio of 1 to 1.25 and that will take care of the concerns expressed. Councilman Rockoff asked if there was a projected compu- tation as to when payment to the City will occur for the land they sell to the Redevelopment Agency. Mr. Hollis stated that the decision for repayment to the City is really not a function of the income generated from this property or the project, but rather a decision of the City and Agency as to how they are going to rank their redevelopment priorities. The Agency has under consideration a number of develop- ment opportunities that will take some Agency investment. As these come up, they can decide to either fund these opportunities or repay the City for this property. It is totally within the City and Agency's discretion as to when this occurs. City Manager, Executive Director Kelmar stated that this would become a liability on the books of the Agency. Councilman Rockoff stated that no matter when the decision is made to repay the City, if there is not a cash flow available to pay, then it cannot be done. Councilman Rockoff asked when the cash would be available so that the City can make a decision as to what they want to do? Bakersfield, California, April 27, 1982 - Page 9 Mr. Hollis stated that there are several ways. One way would be to pay back out of the increment generated by the hotel. This project will generate anywhere between $180,000 and $220,000 a year in property taxes, which, because it is incremental, will be received by the Agency. Under a plan such as that, for the value of this property it would be three or four years after the hotel is constructed before the City could be repaid. That is an option that might be considered acceptable to the Agency and Council. Councilman Rockoff stated that he did not understand Section 318, Subparagraph (g), of the Disposition and Development Agreement, which reads as follows: (g) "Any insurance proceeds from fire and extended coverage or other coverage shall be used for repairs, reconstruction, or restitution of the site to repay any part of the outstanding indebtedness secured by the mortgage, deed of trust, or other security interest." Mr. Coomes stated that the word, "not" ~has been left out and should be inserted after the word site. It should read: (g) "Any insurance proceeds from fire and extended coverage or other coverage shall be used for repairs, reconstruction, or restitution of the site not to repay any part of the outstanding indebtedness secured by the mortgage, deed of trust, or other security interest." Mayor Shell opened the hearing and called for comments by persons in regards to the Negative Declaration, objections to or in favor of the proposed Convention Center Hotel. No oral or written comments being received, either in favor or objecting to, the public portion of the hearing was closed for deliberation and action. Adoption of Resolution No. RA4-82 of the Redevelopment Agency of the City of Bakers- field making environmental findings necessary for the proposed'Disposition and Development Agreement between the Bakersfield Redevelopment Agency and Bakersfield Metropolitan Association for the lease of real property located in the Downtown Bakersfield Redevelopment Project, and the developers of said property. Bakersfield, California, April 27, 1982 - Page 10 91 Upon a motion by Agency Member Winer, seconded by Agency Member Bilas, Resolution No. RA4-82 of the Bakersfield Redevelopment Agency making environmental findings necessary for the proposed Disposition and Development Agreement between the Bakersfield Rede- velopment Agency and Bakersfield Metropolitan Association for the lease of real property located in the Downtown Bakersfield Redevelop- ment Project, and the development of said property, was adopted by the following roll call vote: Ayes: Agency Members Bilas, Clausen, Lewis, Mooneyham, Moore Winer Noes: None. Absent: None. Adoption of Resolution No. 39-82 of the City Council of the City of Bakersfield making environmental findings necessary for the proposed Disposition and Development Agreement between the Bakersfield Redevelop- ment Agency and Bakersfield Metropolitan Association for the lease of real property located in the Downtown Bakersfield Redevelop- ment Project, and the Development of said property. Upon a motion by Councilman Barton, Resolution No. 39-82, of the Council of the City of Bakersfield making environmental find- ings necessary for the proposed Disposition and Development Agree-- ment between the Bakersfield Redevelopment Agency and Bakersfield Metropolitan Association for the lease of real property located in the Downtown Bakersfield Redevelopment Project, and the Development of said property, was adopted by the following roll call vote: Ayes: Councilmen Ratty, Rockoff, Strong, Barton, Chris%ensen, Means Absent: Councilman Payne Adoption of Resolution No. 40-82 of the' City Council of the City of Bakersfield making findings with respect to a Dispo- sition and Development Agreement between the Bakersfield Redevelopment Agency and Bakersfield Metropolitan Association approving the proposed lease of certain real property and the Disposition and Development Agreement for the Convention Center Hotel. Bakersfield, California, April 27, 1982 - Page 11 Upon a motion by Councilman Means, Resolution No. 40-82, of the Council of the City of Bakersfield making findings with respect to a Disposition and Development Agreement between the Bakersfield Redevelopment Agency and Bakersfield Metropolitan Association approving the proposed lease of certain real property and the Disposition and Development Agreement for the Convention Center Hotel, was adopted by the following roll call vote: Ayes: Councilmen Ratty, Rockoff, Strong, Barton, Christensen, Means Noes: None. Absent: Councilman Payne Adoption of Resolution No. RA5-82, of the Redevelopment Agency making certain find- ings with respect to a Disposition and Development Agreement between the Agency and Bakersfield Metropolitan Association approving the proposed lease of certain real property and the Disposition and Development Agreement for the Convention Center Hotel; and authorizing the execution and implementation of said Disposition and Development Agreement. Upon a motion by Agency Member Moore, seconded by Agency Member Clausen, Resolution No. RA5-82, of the Redevelopment Agency of the City of Bakersfield making certain findings with respect to a Disposition and Development Agreement between the Agency and Bakersfield Metropolitan Association approving the proposed lease of certain real property and the Disposition and Development Agree- ment for the Convention Center Hotel; and authorizing the execution and implementation of said Disposition and Development Agreement, was adopted by the following roll call vote: Ayes: Agency Member Bilas, Clausen, Lewis, Mooneyham, Moore, Winer Noes: None. Absent: None. Adoption of Resolution No. 41-82, of the City of Bakersfield wherein the Council agrees to consider in concept the use of Redevelopment Agency tax increments for certain improvements on the Auditorium made necessary by the development of the proposed Convention Center Hotel. Bakersfield, California, April 27, 1982 - Page 12 "~ Upon a motion by Councilman Ratty, Resolution No. 41-82, of the Council of the City of Bakersfield wherein the Council agrees to consider in concept the use of Redevelopment Agency Tax Increments for certain improvements on the Auditorium made necessary by the development'of the proposed Convention Center Hotel, was adopted by the following roll call vote: Ayes: Councilmen Ratty, Rockoff, Strong, Barton, Christensen, Means Noes: None. Absent: Councilman Payne ADJOURNMENT Upon a motion by Agency Member Moore, seconded by Agency Member Clausen, Redevelopment Agency's portion of the joint public hearing held before the Council on the proposed Convention Center Hotel with Parking Facilities located south of Truxtun Avenue, west of "Q" Street, north of the Santa Fe Railroad right-of-way, and east of the Civic Auditorium, was adjourned at 8:05 P.M. Upon a motion by Councilman Christensen, joint public hearing before the Council and Redevelopment Agency on the proposed Convention Center Hotel with Parking Facilities located south of Truxtun Avenue, west of "Q" Street, north of the Santa Fe Railroad and east of the Civic Auditorium, was adjourned at right-of-way, 8:05 P.M. MAYOR o~ty of ~rnia ATTEST: CITY CLERK ~nd of the Council of the City of Bakersfield, California cw