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CC MINS 20090605 SPC MINUTES RANCHO PALOS VERDES CITY COUNCIL SPECIAL MEETING JUNE 5, 2009 The meeting was called to order at 3:05 P.M. by Mayor Clark at the Point Vicente Interpretive Center, 31501 Palos Verdes Drive West, notice having been given with affidavit on file. City Council roll call was answered as follows: ti PRESENT: Gardiner*, Stern, Wolowicz, and Mayor Clark ABSENT: Long (excused) ** * Councilman Gardiner was present via teleconference from the following remote site: 3115 Martingale Drive, Rancho Palos Verdes, CA. ** Councilman Long received an excused absence due to his recusal from the Terranea item, pursuant to the advice of City Attorney Lynch. Also present were: Carolynn Petru, Deputy City Manager; Carol Lynch, City Attorney; Dennis McLean, Director of Finance/Information Technology; and Carla Morreale, City Clerk. Also present were: Bruce Galloway, Real Estate Legal Counsel and Partner with Richards, Watson and Gershon; and Tim Schaeffer, Financial Consultant, Magis Advisors. FLAG SALUTE: The Flag Salute was led by City Attorney Carol Lynch. APPROVAL OF AGENDA: j. Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to approve the Agenda. Without objection, Mayor Clark so ordered. PUBLIC COMMENTS: None. NEW BUSINESS: APPROVAL OF CONSENT CALENDAR: City Council Minutes June 5, 2009 Page 1 of 5 Councilman Stern moved, seconded by Mayor Pro Tern Wolowicz, to approve the Consent Calendar. The motion passed on the following roll call vote: AYES: Gardiner, Stern, Wolowicz, and Mayor Clark NOES: None ABSENT: Long Motion to Waive Full Reading A, opted a motion to waive reading in full of all ordinances presented at this meeting with consent of the waiver of reading deemed to be given by all Council Members after the reading of the title. # # # # # # REGULAR NEW BUSINESS: Terranea Resort-- Request for Financial Assistance Using Future Transient Occupancy Tax (TOT) Revenue (1804) Mayor Pro Tem Wolowicz reported participating in a conference call with the Council subcommittee, staff, and consultants on June 4, 2009. Mayor Clark reported the following points of discussion during that conference call: the proposed TOT rebate; major structural points of the proposed TOT Rebate Arrangement; the Hospitality Valuation Services (HVS) report; and the Covenant Agreement and management representation letter. He indicated that a follow-up conference call took place earlier that day with Bob Lowe and City representatives to work out several issues. Councilman Stern reported speaking with Mr. Lowe earlier in the day. Director of Finance/IT McLean provided a PowerPoint presentation and staff report on the proposed TOT Rebate Arrangement and the HVS report. Discussion between staff and the Council included the following topics: concern that many of the documents and the analysis provided to the Council are subject to a confidentiality agreement with Lowe Enterprises to protect certain proprietary information they provided; clarification regarding the revised TOT Rebate Arrangement based upon allocation of 80% to Terranea and 20% to the City, not to exceed the revised time frame of 34 months; the possibility for an extension to the repayment due date; the absence of penalties and remedies for default on the repayment; the decline in the hotel industry and the affect of the economy on Terranea Resort; clarification that repayment of the TOT Rebate Arrangement to the City is dependent upon the refinancing and/or the sale of the condominiums; the relationship between the rate of sales and sale prices and the build-up of equity in the project that could enable City Council Minutes June 5, 2009 Page 2 of 5 repayment to the City upon re-financing and the; the possibility that the Lowe's would not be able to extend their loan and concern that the Corus and Mezzanine loans may not be refinanced in 2010 and 2011 respectively; the market risks of Southern California luxury resorts in the current economy; possible extension dates of the loans; development of equity of the property over time, including the stabilization of operations and refinancing possibilities and timelines; acknowledgement that the project has an experienced developer with a unique coastal property; the City's obligation to continue to provide the rebate even if a change of ownership and/or control of the Terranea Resort takes place during the 34-month period; possible scenarios from a lender's perspective in the case of financial failure, default, or foreclosure; the probability that the Terranea Resort will open even without the City providing the TOT Rebate Arrangement; the high degree of probability that Terranea Resort will open; the question of whether there is sufficient working capital to keep the resort operating after opening; and, conclusions after the gathering of information and analysis. RECESS AND RECONVENE: Mayor Clark called a brief recess from 4:34 P.M. to 4:41 P.M. Bob Lowe, Founder, Chairman of the Board and Chief Executive Officer of Lowe Enterprises, stated that without the TOT Rebate Arrangement Lowe Enterprises would not be able to secure the necessary loan from their equity lenders. He summarized the goals of the TOT Rebate Arrangement and commented on points contained in the HVS report using a Powerpoint presentation. Discussion between the Council, speaker and staff included the following issues: comparisons with other hotel properties; condominium sales; the possibility of refinancing in the future; an assertion by Bob Lowe that even if Lowe's projections were flawed the City would still be repaid; Lowe's concern that the investors are reluctant to fund the final $8-10 million in order to ensure that the project is opens and is successful; the unlikelihood for obtaining permanent refinancing in the near future; and, the Representation Letter and the Covenant Agreement. The following members of the audience addressed the Council: Jody Wiggins, Rancho Palos Verdes, spoke in favor of a three-year extension in the $8 million loan and expressed her pleasure with the Council's approval of the TOT Rebate Arrangement. Bob Nelson, Sea Bluff Homeowners Association, Rancho Palos Verdes, stated that 77% of the Sea Bluff HOA members voted to support the TOT Rebate Arrangement and noted that the City expects to receive $65 million in TOT revenue over the next ten years. s MarilyPn Lyon, Board of Directors, Palos Verdes Peninsula Chamber of Commerce, Rancho Palos Verdes, expressed support for the Terranea TOT Rebate Arrangement. George Kivet, Chair-Elect, South Bay Association of Chambers of Commerce, urged City Council Minutes June 5, 2009 Page3of5 support of the TOT Rebate Arrangement, noting that Terranea Resort will serve as ein economic engine supporting economic development and job creation in the region Jennifer Richardson, Yogurt Deck owner, Rancho Palos Verdes, expressed support for the TOT Rebate Arrangement so that the Terranea Resort can open promptly Brian Campbell, Rancho Palos Verdes, stated that he supported the TOT Rebate Arrangement, noting that it was not worth the risk to see if Terra1i escrt ,pe-'i withG .t the City's support. Daniel Pinkham, Rancho Palos Verdes, expressed support for the TOT Renate Arrangement, so that the Terranea Resort could open on time. Mary Jane Schoenheider, Rancho Palos Verdes, stated that she was to,/or of the TOT Rebate Arrangement as outlined in the ordinance. Ken Dyda, Rancho Palos Verdes, stated that he was in favor of the Council's support of the ordinance as it woula allow the Terranea Resort to open and avoid problems that would affect the reputation of the hotel for years. Council and staff reviewed the ordinance page by page and discussed the following topics: the maximum TOT Rebate period shall be 34 months in length; clarification of the rating designation for Terranea Resort based on the level of services provided; the future consideration of increasing the City's existing TOT rate subject to a majority vote during a municipal election; a revision to the resident discounts with the addition of a 20% discount off of golf green fees during the off-peak hours; language added to clarify that any net proceeds available from refinancing or sale of Terranea before the fixed payment date would have to be applied towards repayment of the TOT Rebate Arrangement to the City; clarification regarding the date of repayment with accrued interest as no later than December 31st of the year that is four years after the date of the first TOT rebate; a typographical correction under 3.48.120 to change the word "participation" to "... `participate' in the incentive program ..."; and, comments regarding the inclusion of an indemnity clause under Section 3.48.030 of the ordinance. Council and staff discussion continued regarding the TOT Rebate Arrangement, draft Ordinance 490 and the Covenant Agreement including the following topics: the suspension of the TOT rebate in case of violations of Sections 2 or 6 of the Agreement; the possibility of an increase in the City's existing TOT rate subject to a majority vote during a municipal election; and the addition of item 7, noting that any company directly or indirectly owned by any member of the Lowe family shall be not the sole lender providing funds to Long Point Development. Mayor Clark indicated that the letter of representation would be worked on during the next week and the ordinance would come back for the second reading the week following. Mayor Clark moved, seconded by Councilman Gardiner, to 1) Receive Staff's summary of the information that has been provided by Hospitality Valuation Services, including City Council Minutes June 5, 2009 Page 4 of 5 information regarding the hospitality market in light of the current economic conditions and forecasts; 2) INTRODUCE ORDINANCE NO. 490, AS AMENDED, AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES, ESTABLISHING A HOTEL INCENTIVE PROGRAM AND AMENDING THE RANCHO PALOS VERDES MUNICIPAL CODE; and, 3) Approve the Covenant Agreement, as amended, between Long Point Development, LLC and the City. Councilman Stern clarified that the proposed TOT Rebate Arrangement differed from what was previously discussed, noting that the present proposal would result in the City retaining 20% of the TOT revenue generated by the Terranea Resort. He inquired as to the amount of the projected TOT revenue and expressed concern with the City's budget and cuts to services due to the economy and the anticipated borrowing of Prop 1A funds by the State. Finance Director McLean indicated that the City's portion of the projected TOT revenue in Fiscal Year 2009-2010 would be approximately $300,000. Further Council discussion included the following topics: support for the ordinance; acknowledgement that there was a high level of complexity to the decision to be made and all risk could not been eliminated; the assertion by Mayor Clark that the City would be repaid, the question was when the repayment would take place; the belief that the Terranea Resort would be good for the City and the region by creating jobs and providing indirect benefits to residents; the immediate fiscal repercussions that the TOT Rebate Arrangement would have on the City as a result of supporting this ordinance; and, appreciation for the good fiscal responsibility and management of the City. The motion carried on the following roll call vote: AYES: Gardiner, Stern, Wolowicz, and Mayor Clark NOES! None ABSENT: Long (recused) Mayor Clark received clarification that the final reading and adoption of the ordinance and the Covenant Agreement would be on June 16, 2009. ADJOURNMENT: Mayor Clark adjourned the meeting at 6:17 P.M. Mayor Attest: /1 City Clerk VA':\C.ity Council Minutes\2009\20090605 CC MINS SPEC MTG.doc City Council Minutes June 5, 2009 Page 5 of 5