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CC MINS 20090504 ADJ MINUTES RANCHO PALOS VERDES CITY COUNCIL ADJOURNED REGULAR MEETING MAY 4, 2009 The meeting was called to order at 7:03 P.M. by Mayor Clark at Fred Hesse Community Park, 29301 Hawthorne Boulevard, notice having been given with affidavit thereto on file. City Council roll call was answered as follows: PRESENT: Stern, Wolowicz, and Mayor Clark ABSENT: Gardiner (excused) and Long (excused) Also present were Carolyn Lehr, City Manager; Carolynn Petru, Deputy City Manager; Carol Lynch, City Attorney; Dennis McLean, Director of Finance/Information Technology; Joel Rojas, Director of Planning, Building, and Code Enforcement; Ara Mihranian, Principal Planner; Ron Dragoo, Senior Engineer; and, Carla Morreale, City Clerk. Also present were: Bruce Galloway, Real Estate Legal Counsel, Richards, Watson, and Gershon; and Tim Schaefer, Financial Consultant, Magis Advisors. FLAG SALUTE: The Flag Salute was led by Councilman Stern. APPROVAL OF AGENDA: Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to approve the Agenda. Without objection, Mayor Clark so ordered. PUBLIC COMMENTS: None. NEW BUSINESS: PUBLIC HEARINGS: Terranea Resort and Spa -ZON2009-00100 (Revision "K" to Conditional Use Permit No. 215, et. al.) [Continued from April 21, 2009] (1804) City Council Minutes May 4, 2009 Page 1 of 9 City Clerk Morteale reported that notice of the public hearing was duly published no written protests were received, and late correspondence was distributed prior to the meeting on the item. Principal Planner Mihranian provided a summary staff report on the item including revisions to the Conditional Use Permit (CUP) requested by the applicant Council and staff discussion included the following topics: the heights of the proposed three flag poles; snack shop hours of operation and public access; the possibility of modifying the proposed trial period from a six month review to a review after one year; disagreements over items to be included in the maintenance agreement; if the maintenance and watering of the median, including natural habitat, was included in the maintenance program, the responsibility for maintenance of the medians as outlined in the conditions required by the Coastal Commission; the daily maintenance of the Fishing Access parking lot; and, the request for the Council to accept the public amenities anc the public easements that have been completed by the applicant. Mayor Clark declared the public hearing open. Rob Lowe, Chief Executive Officer of Lowe Hospitality Group, provided information regarding the location of and height of the flag poles; maintenance responsibilities of the medians, including the natural habitat; daily maintenance and cleaning of the Fishing Access parking lot and restrooms, and the public trail along Nantasket Drive; snack shop hours of operation when the related food and beverage services at the resort would be open; and, the additional expense related to a bond requirement for the undergrounding of the existing utility poles. Discussion between Council, staff, and the applicant ensued on the following issues: the necessity of the bond requirement for undergrounding of the utility poles; the hours of operation of the snack shop to be concurrent with the opening of the facility for the hotel guests' component of the structure; the improvement and maintenance of the medians, including irrigation and weeding; removal and replacement of dead plants and removal of non-native, invasive vegetation; the need to clarify daily maintenance and cleaning responsibilities of the Fishing Access parking lot and the restroom facility at that site; the applicant's assertion that cleaning public facilities should not be their responsibility; and, the assertion that the guests of the resort would benefit from the facility and the applicant should maintain it or reimburse the City for the maintenance and cleaning. Principal Planner Mihranian reviewed the City staff's position that the maintenance and cleaning of the Fishing Access parking lot and restroom facility and maintenance of the fencing of the site should be the responsibility of the applicant. City Attorney Lynch stated that the daily locking and unlocking of the public restrooms should be the responsibility of the City, but the daily cleaning and maintenance should be the responsibility of the applicant. City Council Minutes May 4, 2009 Page 2 of 9 • Mayor Clark closed the public hearing. Councilman Stern suggested that the individual items outlined in the staff recommendations be considered one at a time. Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to approve the installation of one 35-foot tall flag pole and two 30-foot tall flag poles adjacent to the main hotel building near the motor courtyard with a revision to the existing variance permit to allow the flag poles to exceed the 16-foot height limit. Without objection, Mayor Clark so ordered. Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to approve the deferment of the construction of the required bus shelter at the entry driveway on the eastbound leg of Palos Verdes Drive South to June 1, 2010, with the posting of a $10,000 cash security. Without objection, Mayor Clark so ordered. Mayor Clark moved, seconded by Councilman Stern, to accept the clarification that undergrounding of existing utility poles on Palos Verdes Drive South shall be completed by December 31, 2009, without the requirement for a bond. Without objection, Mayor Clark so ordered. Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to adopt the modification of the hours of operation for the public snack shop at the lower pool facility to be concurrent with the hours of operation for the hotel guest facilities' component of the structure, with a trial period of one year from the date of the opening of the snack shop. Without objection, Mayor Clark so ordered. Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to approve the Maintenance Agreement that requires the hotel operator to maintain the public amenities associated with the project, include the public amenities outlined by staff with stated exclusions, as much as possible, and authorize the execution of the Maintenance Agreement. Without objection, Mayor Clark so ordered. Councilman Stern moved, seconded by Mayor Pro Tem Wolowicz, to accept the public amenities and the public easements for the related public amenities including public trails, access areas, overlooks/vista areas, parking, park area, and habitat areas that City Council Minutes May 4, 2009 Page 3 of 9 have been completed, with the City's acceptance of a $50,000 cash security for the incomplete items, and received a status update on the public amenities bond. Without objection, Mayor Clark so ordered. Mayor Pro Tem Wolowicz moved, seconded by Mayor Clark, to clarify that the City Council woad make appointments to the nonprofit Board of Directors. Without objection, Mayor Clark so ordered. RECESS AND RECONVENE: Mayor Clark called a brief recess from 8:19 P.M. to 8:26 P.M. A roll call vote to ADOPT RESOLUTION NO. 2009-24, AS AMENDED, APPROVING REVISION `K' TO CONDITIONAL USE PERMIT NO. 215, ET. AL. BY AMENDING THE COUNCIL ADOPTED CONDITIONS OF APPROVAL TO ALLOW: A) THE INSTALLATION OF ONE 35-FOOT TALL FLAG POLE AND TWO 30-FOOT TALL FLAG POLES ADJACENT TO THE MAIN HOTEL BUILDING NEAR THE MOTOR COURTYARD WITH A REVISION TO THE EXISTING VARIANCE PERMIT TO ALLOW THE FLAG POLES TO EXCEED THE 16-FOOT HEIGHT LIMIT; B) THE DEFERMENT OF THE CONSTRUCTION OF THE REQUIRED BUS SHELTER AT THE ENTRY DRIVEWAY ON THE EASTBOUND LEG OF PALOS VERDES DRIVE SOUTH TO JUNE 1, 2010 WITH THE POSTING OF A $10,000 CASH SECURITY; C) THE CLARIFICATION THAT UNDERGROUNDING OF EXISTING UTILITY POLES ON PALOS VERDES DRIVE SOUTH SHALL BE COMPLETED BY DECEMBER 31, 2009; AND, D) THE MODIFICATION OF THE HOURS OF OPERATION FOR THE PUBLIC SNACK SHOP AT THE LOWER POOL FACILITY TO BE CONCURRENT WITH THE HOURS OF OPERATION FOR HOTEL GUEST FACILITIES, WITH A TRIAL PERIOD OF ONE YEAR FROM THE DATE OF OPENING OF THE SNACK SHOP reflected the following: AYES: Stern, Wo!owicz, aid Mayor Clark NOES: None ABSENT: Gardiner and Long PAUSE TO CONSIDER THE REMAINDER OF THE AGENDA: REGULAR NEW BUSINESS: Terranea Resort— Request for Financial Assistance Using Future Transient Occupancy Tax (TOT) Revenue (1804) Bob Lowe, Founder, Chairman of the Board and Chief Executive Officer of Lowe Enterprises provided a status update and PowerPoint presentation of the progress on the Terranea Resort project. He stated that the Terranea Resort is scheduled to open City Council Minutes May 4, 2009 Page 4 of 9 during dire economic times and noted that hospitality market revenue for high-end full service resorts is down between 20 to 30 percent. He reported that the situation is further complicated by the extreme credit crisis which has resulted in essentially no capital being available for hotel financing. He clarified the nature of the Terranea Resort p g request for financial assistance as the allocation of 100 percent of the TOT revenue as it is collected over a 27-month period in the amount not to exceed $8 million, which will help ensure the realization of the Terranea Resorts' long term vision. He said that $8 million of TOT would enable them to successfully complete on-going discussions to attract $10-12 million of new equity for post-opening operations. He said that the TOT would be used as a'source of repayment for the additional funds raised for post-opening operating funds. He reported that Terranea Resort would reimburse the City of Rancho Palos Verdes for the shared TOT revenue from 100 percent of the net capital proceeds from future capital events, which would be well-secured by an ordinance of the City. He said that if Corus took ownership of the property, they would be required to repay the TOT owned the City from 100% of the net proceeds upon a sale. Discussion ensued between the Council, staff, and the applicant regarding the following topics: potential triggers of future capital events; the repayment of the allocation of the shared TOT revenue; the company's current debt on the project; estimated net operating income in the first stabilized year of 2014, and projected net proceeds from sales of the condominiums; the reasons behind the financing difficulties in the present state of the economy; the sharing of the future TOT by the City serving as an inducement to attract additional capital; a suggestion that the applicant match City rebate money with outside capital; questions on what happens if the economy gets worse; and, whether the ordinance provides the City enough protection if the existing lender foreclosed on the property, with a recorded judgment lien which would have priority. When asked, Mr. Lowe said that a $3 million draw was expected this week from Corus Bank and an additional $9 million later in the month. Timi Hallem, Legal Counsel, Long Point Development, clarified that the existing lenders would not be exempt from changes in the law and should the lenders become the owners of the property, they and/or future owners would be subject to the ordinance of the City. She answered questions on the assurance that the City would receive repayment of the TOT revenue, noting that it would be as secure as it could be once the agreement was recorded. Ms. Hallem discussed the inclusion of language in the ordinance to discontinue the rebate of the TOT revenue if a lender foreclosed on the property. Additional Council, staff, and applicant discussion included the following issues: review of the estimated revenue; refinancing options; Mr. Lowe's refusal to provide a personal guarantee; repayment plans; and, reasons that additional funding has not been forthcoming from the equity investors. When asked, Mr. Lowe said that he has a 40-year policy not to provide a personal guarantee. He also said that he could not provide a guarantee, because circumstances could change whereby, he would not be in control of the owners. City Council Minutes May 4, 2009 Page 5 of 9 • Mr. Lowe continued his presentation with comments on the benefits of the Terranea Resort for the City and the community; revenue to the City from sales tax, property tax, and golf tax during the 27-month period; estimates of projected TOT revenue in the first decade; repayment to the City of the shared TOT revenue; and, the projection that Terranea Resort will be the largest new employer in the County of Los Angeles with 700 new jobs to be created. Terri Haack, Executive Vice President & Managing Director, Terranea Resort, indicated that she did not have the statistics with her, but noted that a great majority of the new associates and approximately 15 percent of the management team would be living o the Peninsula. She noted that she could provide the statistics to staff and Council at a later time. Further Council, staff, and applicant discussion included the following topics: a review Jf discount incentives for residents of the City of Rancho Palos Verdes during the time the TOT revenue sharing has not been repaid; the possibility of a continuing local program of incentives for the residents; confirmation that there were no Coastal Commission restrictions that would affect the incentive program; the difference between economic incentives and TOT revenue sharing; and, a confirmation by Mr. Lowe that the amount of the TOT revenue sharing of approximately $10-12 million would be adequate. Director of Finance/IT McLean introduced Tim Schaefer, Financial Consultant, Magis Advisors, and Bruce Galloway, Real Estate Counsel, Richards, Watson and Gershon. He briefly commented on the initial process staff and consultants have taken to begin a review of the proposal to allow sufficient funds to enable the developer to move from construction to operation of the Terranea Resort project. He noted that if Council decides to proceed with consideration of the item, Mr. Shaffer would be responsible for the due diligence review of the proposal. Tim Schaefer, Financial Consultant, Magis Advisors, reiterated that the quality of the information received and the cooperation from the Lowe Enterprises has been good, but any certification of the proposal would require a thorough and measured due diligence process, with a complete numerical analysis to verify each of the assumptions. He noted that there has not been adequate time for this type of analysis to date and provided a brief overview of the necessary process. Additional discussion between Council, staff, and the applicant included the following issues: the determination of a specific outside date for repayment of the TOT revenue; clarification as to the date selected by staff and the adequacy of the timeframe; anticipated trends and risk analysis of the hospitality industry; exploration"of payoff time lines based on different economic scenarios; the high motivation of the applicants to refinance as soon as possible once the credit market adjusts; the intention of the applicant to simultaneously bring in additional funds to the City's contributions; the remittances of the TOT revenue on a monthly basis; reasons why the applicant turned down staff's request for personal guarantees on the debt proposal based on a 40-year company policy; and, the name of the entity or entities receiving, spending, and City Council Minutes May 4, 2009 Page 6 of 9 repaying the $8 million. Ms. Hallem clarified that Long Point Development, LLC, is the owner and reviewed the equity and investment in the project to date. Bruce Galloway, Real Estate Counsel, Richards, Watson and Gershon, responding to a question from Mayor Pro Tem Wolowicz regarding equity positions within the entity, stated that the debt has priority over the equity. He noted that if there was a judgment against the owner, to repay the TOT loan from the City and the owner was the borrower, the judgment lien would go behind the debt if it were not paid off at the time. RECESS AND RECONVENE: Mayor Clark called a brief recess from 10:04 P.M. to 10:13 P.M. Council and staff discussion continued regarding the following topics: the problems with the City having an equity position in the project; possible constitutional prohibitions on the investments and the securities with municipalities; exploration of enough collateral for the TOT revenue sharing proposal in order for the City to obtain a level of comfort in the transaction; the City Attorney's position regarding legal issues, to be addressed when considering the proposal, such as the state debt limit; situations where cities have used the TOT to incentivize the developer to come in for economic development within the city; the lack of response and feedback from cities in the League of California Cities when an inquiry was sent out by staff; and, the unique situation presented to the City of Rancho Palos Verdes. Bill James, Finance Advisory Committee (FAC) member, Rancho Palos Verdes, reported on his experience with the FAC involving the lengthy process and care used to arrive at decisions regarding the finances of the City and opined that the City was not a bank or an investor. He suggested that the Council request a more detailed and careful analysis of the proposal and take the additional time necessary to consider the matter carefully. Greg Royston, Rancho Palos Verdes, stated that it would appear that the City would be in the fourth position among debt holders in the present proposal, and suggested that there should be interest collected on the proposal and a tiered repayment plan. Don Richardson, Rancho Palos Verdes, suggested that the Council take its time regarding the proposal, explore all of the options, and deny the proposal presented by Terranea Resort. Further Council, staff, and applicant discussion ensued regarding the following topics: the benefits or losses to the City and its residents if the Terranea Resort was unable to open; the underlying economics of the project if it does not open including the loss of sales tax, golf tax, and TOT tax; the risk and exposure to the City and consideration of interest rates of return; the appropriateness of forgiving the interest; economic stimulus funds and the ability of the City to provide matching funds to prospective projects; the City Council Minutes May 4, 2009 Page 7of9 assessment of interest if the date of repayment of the TOE" revenues was extended, and, the recovery of costs associated with additional infrastructure and public safety costs related to the opening of the Terranea Resort. Mayor Clark read a statement of support for the item from Councilman Gardiner. Mr. Lowe concluded his presentation stating that the proposal should be viewed as a tax incentive where the Resort will reimburse the City, rather than a loan. He provided an overview of the project and its potential benefits to the City and its citizens. He stated that the ordinance would place the City in a substantially more secure position compared to those who hold a deea of trust. He concluded that the Terranea Resort will be a world-class oceanfront resort that will bring fame and fortune to ihe City of Rancho Palos Verdes, adding that it was unfortunate that the Terranea Resort was opening in these extremely difficult economic times. Responding to a question by Councilman Stern, Mr. Lowe stated that he was willing to discuss an appropriate interest payment or cost of the tax incentive. Mayor Clark moved, seconded by Councilman Stern, to direct staff to take the following steps: 1) undertake a more complete legal, economic and financial review to address the points of interest and concern raised by the City Council; and 2) return with a more complete analytical staff report for Council's consideration on May 26, 2009 at a location to be determined by staff. Mayor Clark stated it had been a 25-year journey to develop the former Marineland property, noting that the proposal was for a temporary sharing of future TOT tax and that the opportunity costs demands a logical repayment plan and an interest for deferral of the TOT revenue income. He stated that he would expect to see a more exhaustive analysis before the Council makes a decision on the proposal. Councilman Stern stated that this proposal was a difficult decision for the City since the City was not a bank. He stated that he seconded the motion in order for the City to explore the proposal further in order to obtain additional information. Mayor Pro Tem Wolowicz stated that the situation is very difficult and that there should be a distinction between an economic incentive plan and government lending or bailout. He noted that this type of decision will take time to allow for a thorough analysis of the proposal. Finance Director McLean suggested a review of the developer's projections and financial records, with the frequent provision of feedback to Council throughout the process so that there are no surprises. Mayor Clark amended his motion to include the provision of weekly updates to Council from staff regarding the status of the review. The motion, as amended, passed on the following roll call vote: City Council Minutes May 4, 2009 Page 8of9 AYES: Stern, Wolowicz, and Mayor Clark NOES: None ABSENT: Gardiner and Long In response to a question from City Manager Lehr regarding the authorization to continue to fund the services of the consultant up to the City Manager's authorization level, Mayor Clark stated that an item should be placed on the next Council meeting to address the matter. Establishment of a Written Policy for Use of City Owned Electronic Equipment (602) Mayor Clark moved, seconded by Councilman Stern, to continue this item to the May 19, 2009 City Council meeting. Without objection, Mayor Clark so ordered. CITY COUNCIL ORAL REPORTS: Mayor Pro Tem Wolowicz moved, seconded by Mayor Clark, to defer this item. Without objection, Mayor Clark so ordered. COUNCIL DISCUSSION & SUGGESTION OF FUTURE AGENDA ITEMS: None. ADJOURNMENT: At 11:26 P.M., Mayor Clark adjourned the meeting. ■Ithitid it! ayor Attest: ./A/ City Clerk W:\City Council Minutes\2009\20090504 CC MINS ADJ MTG.doc City Council Minutes May 4, 2009 Page 9of9