CC MINS 20090526 SPC MINUTES
RANCHO PALOS VERDES CITY COUNCIL
SPECIAL MEETING
MAY 26, 2009
The meeting was called to order at 7:12 P.M. by Mayor Clark at the Point Vicente
Interpretive Center, 31501 Palos Verdes Drive West, with Councilman Gardiner present
via teleconference*, notice having been given with affidavit thereto on file.
City Council roll call was answered as follows:
PRESENT: Gardiner*, Long, Stern, Wolowicz, and Mayor Clark
ABSENT: None
* Councilman Gardiner was present via teleconference from the following remote site:
3115 Martingale Drive, Rancho Palos Verdes, CA.
Also present were: Carolyn Lehr, City Manager; Carolynn Petru, Deputy City Manager;
Carol Lynch, City Attorney; Dennis McLean, Director of Finance/IT; and Teri Takaoka,
Deputy 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 Retired Lt. Colonel William Wolf.
APPROVAL OF AGENDA:
Mayor Pro Tern Wolowicz moved, seconded by Councilman Stern, to approve the
Agenda.
Without objection, Mayor Clark so ordered.
PUBLIC COMMENTS:
Elfin Vanderlip, Rancho Palos Verdes, provided observations and suggestions regarding
improvements to the City Hall Civic Center site, and expressed support for the Terranea
Resort project.
NEW BUSINESS:
APPROVAL OF CONSENT CALENDAR:
Deputy City Manager Petru requested that Item 3 (Support Letter for the Metro Harbor
Rapid Transit Center) be continued to June 2, 2009 to all3w staff additional time for
research and updates on this item.
Councilman Stern moved, seconded by Councilman Long, to approve the Consent
Calendar with Item 3 (Support Letter for the Harbor Metro Rapid Transit Corridor)
continued to June 2, 2009.
The motion passed by the following roll call vote:
AYES: Gardiner, Long, Stern, Wolowicz, and Mayor Clark
NOES: None
ABSENT: None
Motion to Waive Full Reading
Adopted a motion to waive reading in full of all ordinances presented at this meeting
with consent of the waiver of reading deemed to be gi.,ien by al Council Members after
the reading of the title.
Approval of the Minutes (301)
Approved the Minutes of the May 4, 2009 Adjourned Regular Meeting.
Support Letter for Metro Harbor Rapid Transit Corridor (306)
Continued to the June 2, 2009 City Council meeting.
# # # # # #
REGULAR NEW BUSINESS:
City Participation in the Senate and Assembly State Budget Conference
Committee (306)
Council and staff discussion focused on the following topics: the opinion that the City
did not need to be personally represented at the Senate and Assembly State Budget
Conference Committee meetings; opportunities to view webcasts of the workshops
taking place in Sacramento; the ability to stay well informed by the League of California
Cities and by staff's monitoring of the process; potential losses to the City as a result of
the State's intent to take 8% of municipal property taxes; and, holding the Governor's
Office to the original commitment of Proposition 1A.
Council directed staff to continue to monitor the state budget process and report any
significant developments to the City Council, as appropriate.
City Council Minutes
May 26, 2009
Page 2of9
Terranea Resort— Request for Financial Assistance Using Future Transient
Occupancy Tax (TOT) Revenue (1804)
Councilman Long stated that he was recusing himself from discussion of the Terranea
Resort per the advice of City Attorney Lynch since his firm contracted some time ago to
hold their annual retreat at Terranea Resort and he holds a little more than a 1% equity
interest in his firm, which constitutes a potential conflict of interest, although he noted it
would not have impacted his decision. Councilman Long left the meeting at 7:31 P.M.
City Manager Lehr expressed concern with the appearance of a conflict of interest and
recused herself from the discussion of the Terranea Resort item.
Deputy City Manager Petru reported that late correspondence had been distributed prior
to the meeting on the item.
Mayor Clark explained procedures and thanked the staff, consultants, and legal team
for their hard work regarding the item.
Councilman Stern, Councilman Gardiner, Mayor Pro Tem Wolowicz, and Mayor Clark,
disclosed that they had each had conversations with Mr. Bob Lowe on different
occasions.
Finance Director McLean provided a summary staff report and introduced Bruce
Galloway, Real Estate Legal Counsel and Partner with Richards, Watson and Gershon;
and Tim Schaeffer, Financial Consultant, Magis Advisors.
Discussion between Council and staff included the following issues: formulation of the
TOT rebate arrangement proposed by Lowe's Enterprises and the City's legal and
finance advisory team; the fiscal prudence of the City to retain a portion of the TOT over
the course of the next few years; information regarding the primary investors' positions
and what they would stand to lose; pending draw requests that have not been funded by
Terranea's lenders; the dynamic nature of the situation and Terranea's changing
financial condition; uncertainties with Terranea's lender and whether Terranea can
obtain sufficient capital to open and operate; whether it is fiscally prudent for the City to
rebate the TOT; grant opportunities that could be lost by the City which would require
matching funds that the TOT could provide if not rebated to Terranea; clarification that
the Council has not adopted a Capital Improvement Program nor has it prioritized
projects; requiring a provision that the Lowe Enterprise organization would indemnify
the City; an assertion that taxpayers should not bear the cost of defending an action for
the benefit of Terranea; disclosure that Donald Trump has threatened legal action if he
does not receive the same deal; differences between the City proposal and the
Terranea proposal; retaining HVS, the City's consultant with industry specific expertise;
projected values, equity, and underlying assumptions; property tax revenues; the
different lender positions and stringent lender guidelines; loan terms and repayment of
the loan; debt structure and legal issues related to the City's position in relation to other
lien holders; an ordinance vs. an agreement; the unique situation including the creation
of an ordinance for the proposed TOT arrangement; an observation that TOT rebates
City Council Minutes
May 26, 2009
Page 3of9
are usually provided for economic or redevelopment strategy, but the proposal before
the Council is for the TOT loan with planned repayment with interest; and, the belief of
staff and its advisory team that Terranea will be able to open without City assistance.
RECESS AND RECONVENE:
Mayor Clark called a brief recess from 8:49 P.M. to 8:58 P.M.
Bob Lowe, Rancho Palos Verdes, Long Point Development, provided a presentation on
the request from Lowe Enterprises for financial assistance using future TOT Revenue.
Discussion ensued between the Council and Mr. Lowe regarding the following topics:
whether investors would make up the additional funding upon receipt of the $8 million
rebate; whether City funding is necessary for Terranea to open; assurance by Lowe's
that the proposed ordinance will provide adequate security to the City for repayment
and no distributions will be made to equity investors until repaymei it with interest is
made to the City; Lowe's statement that interest is as an additional burden; the
continuity of the TOT rebate if there is a change in management control during the 27-
month period under discussion in the proposal; investment by equity holders vs. a loan
from the City's cash TOT; conditions that are in the proposal to protect the City; the
financial situation and efforts to secure funding from Corus Bank or alternate investors;
and, an explanation of the current "soft" opening for the purpose of hiring and training of
staff.
Bruce Baltin, Senior Consultant with PKF Consultants, Los Angeles, stated that the
request for TOT rebate was a modest effort to mitigate an unexpected economic
situation and the decrease in demand for hotel rooms. He discussed anticipated
economic recovery, cap rates, and issues with hotels that open with shortfalls in funding
resulting in shortcuts in marketing, training and landscaping.
Discussion between the Council and Mr. Baltin included the following topics: clarification
that he had not seen a similar TOT sharing situation completed, but had seen similar
proposals; stalled projects nationwide; shortcuts taken by hotels if there are shortfalls;
the future of the hotel if the City would not participate in the TOT sharing proposal; and,
whether the amount of proposed TOT rebate is adequate.
Additional discussion between the Council and Mr. Lowe included the following issues:
whether the City would be protecting the future equity of the equity investors or whether
it would be protecting an asset that already exists; the reasons that existing equity
groups will not continue to fund the project without a partnership with the City; rooms
that have already been booked at the hotel; loss of momentum and negative press if the
hotel does not open; paying attention to the management team and their reputation; the
minimization of risk of loss for the investors and guarantees of equity; the risk being
transferred to the City; the completion of the financing being of interest or concern to the
auditors; and, the sale of condominiums and forecast for anticipated closing of escrows.
Mayor Clark invited public participation.
City Council Minutes
May 26, 2009
Page 4 of 9
Don Crocker stated that the Council should work out a deal to move forward with the
proposal, noting the difficulties with finding financing in the current market and the
importance of preserving income stream.
Marilyn Lyon, Rancho Palos Verdes, Palos Verdes Peninsula (PVP) Chamber of
Commerce, expressed support for the proposed TOT rebate request.
Bob Nelson, Rancho Palos Verdes, Sea Bluff Homeowners Association (HOA), reported
that 77% of the Sea Bluff HOA members support the proposed TOT rebate. He added
that he personally supported the proposal for the City to provide financial assistance to
Terranea Resort.
Mary Jane Schoenheider, Palos Verdes Estates, stated that she was a resident of the
City of Rancho Palos Verdes for 30 years, and expressed support for the proposed TOT
rebate.
Kay Finer, President and Chief Executive Officer, PVP Chamber of Commerce, stated
that the PVP Chamber of Commerce has supported the Terranea Resort and the
positive impact the resort would have on the local economy and City of Rancho Palos
Verdes. She stated that the PVP Chamber and other surrounding Chambers of
Commerce support the proposed TOT sharing rebate program.
Mayor Clark reported receiving a call earlier in the day from John Parsons, the current
President of the Redondo Beach Chamber of Commerce in support of the proposed
TOT rebate.
Ken Dyda, Rancho Palos Verdes, President of Peninsula Seniors, stated that he and
other Directors of the Peninsula Seniors support the partnership of the proposed TOT
rebate for the Terranea Resort, noting that the City would be fully repaid and future
revenue would benefit the City.
Mike Gin, Representative of Supervisor Don Knabe, Board of Supervisors, County of
Los Angeles, read a letter from Supervisor Knabe expressing support for the Terranea
Resort and for the City granting the necessary financial assistance of the proposed TOT
rebate sharing plan. Mr. Gin noted that as the Mayor of the City of Redondo Beach he
also supported the proposal.
Mayor Clark commented on the TOT rates of other surrounding cities, including
Redondo Beach with a 12% TOT rate.
Joe Murat, Rancho Palos Verdes, stated that he did not support providing financial
assistance as he felt that hotel management team did not do an adequate job with the
project, which resulted in their current financial difficulties. He commented that the City
has its own financial issues including the repair of the storm drains.
City Council Minutes
May 26, 2009
Page 5 of 9
George Kivett, Chair Elect, South Bay Association of Chambers of Commerce
(SBACC), Torrance, stated that the (SBACC) supported the proposed 'ntncial
assistance, noting that the project will be a benefit to the area ana will nave a posit1ve
influence on resident's property values.
Jon Cartwright, President, Council of Homeowners Association (CHOA), Rancho Palos
Verdes, reported meeting with Mr. Lowe and expressed support for providing the
Terranea Resort with the requested financial assistance, with a reasonable payback
period at a reasonable interest rate.
Betty Riedman, Rancho Palos Verdes, stated that she expressed support for providing
financial assistance to the Lowe organization for the Terranea Resort since it will be
another jewel on the Peninsula.
RECESS AND RECONVENE:
Mayor Clark called a brief recess from 11:00 P.M. to ;1:12 P.M.
Doug Hinchliffe, Rancho Palos Verdes, stated that he expressed support for the
temporary sharing of the TOT revenue with Lowe Enterprises based on his personal
experience, having worked for the organization for nearly 30 years. He stated that a
delay of the opening of the Terranea Resort would result in the City not receiving any
TOT during that period, and that revenue would be lost forever.
John Papadakis, Grand Promenade Project, Palos Verdes Estates, stated that he
supported the proposed TOT rebate, noting the importance of the resort as an
economic catalyst for the area and as a destination providing primary public access to
the coastline.
Jody Wiggins, Rancho Palos Verdes, stated that she supported the proposed TOT
rebate for Terranea, noting the benefits that the Terranea Resort would bring to the
Peninsula.
Marcella Low, Chair, South Bay Association of Chambers of Commerce, Rancho Palos
Verdes, stated that she would be speaking for herself and Noreen Chambers of the Gas
Company. She noted that the Gas Company had worked with Terranea Resort to
address energy efficiency measures and rebates, and opined that the City should help
Terranea Resort survive to ensure that its ability to contribute to the City's revenue base
remains intact.
Dan Pinkham, Rancho Palos Verdes, stated that he expressed support for the financial
assistance to Lowe Enterprises during a very unusual time.
Dave Milam, Rancho Palos Verdes, stated that he preferred to see the Lowe
Enterprises organization solve its own financial problems.
City Council Minutes
May 26, 2009
Page 6of9
Thomas Irish, Rancho Palos Verdes, stated that the Terranea project will be a terrific
addition to the City, but stated that he did not support the City funding the shortfall of a
private project with tax dollars.
Rob Lowe, Jr. read a letter from by Paris Zarrabian, owner of Golden Cove Center, in
support of assisting Lowe Enterprises with the proposed sharing of TOT which be
repaid in full to the City as a means to assist the resort with cash-flow in its post-
opening period.
Camilla Townsend, San Pedro Chamber of Commerce, stated that the Board of
Directors has met with Mr. Lowe regarding the Terranea Resort and expressed its
support for financial assistance to the Terranea Resort.
Brian Campbell, President of the Monaco Homeowners Association, Rancho Palos
Verdes, reported that the Board of the HOA is unanimously in favor of the proposed
sharing of TOT as described in Alternative 1, and the majority of the Monaco residents
are also in favor of Alternative 1. He thanked the Council for taking the fiscal
responsibility to not include any of the projected Terranea Resort revenue in the City's
future budgets, which would have precluded the City's ability to assist them at this point.
He stated that the proposal makes sense and that the Terranea Resort will have a
positive economic impact on the Peninsula.
Ann Shaw, Rancho Palos Verdes, stated that she supported the City's financial
assistance for the Terranea Resort, noting that there will be revenue generated from
sales tax, golf tax, and property tax.
Lowell Wedemeyer, Rancho Palos Verdes, stated that he supported the proposal to
assist the Lowe Enterprises development, noting that the approval process with the
government had slowed the process for the Lowe development.
Mayor Clark moved, seconded by Councilman Gardiner, that the Council approve
Alternative No. 1, a rebate to Lowe Enterprises, based on a TOT sharing program of
$8 million over 27 months with repayment with interest to be discussed. He noted that
his motion included focusing on the discussion points around the issues of
disagreement between staff and Lowe Enterprises.
Discussion between the Council and Mr. Lowe included the following issues: the
process and challenges from the approval of the Terranea Resort project to the point of
the opening of the resort; Lowe's reasons why he and the company would not provide a
personal or corporate guarantee for the loan; assurance that no equity would be
removed from Long Point Development, LLC until the City is fully repaid; an agreed
upon minimum property tax assessment; whether the TOT rebate amount requested is
adequate; support for the motion with conditions; an opinion that the City's budget was
adequate to allow for this rebate sharing; using reports from the consultant and from Mr.
Lowe as a baseline; the identification of issues of contention between the City and
Lowe's for further consideration; interest rates, the request by Mr. Lowe for a two
extension with the second year at a higher rate; clarification by Mr. Lowe that Terranea
City Council Minutes
May 26, 2009
Page 7 of 9
is prevented from agreeing to the use of net operating revenues to pay sown the debt:
assurance that no distributions wo= be made to equity investors until repayment with
interest is made to the City; a suggested requirement that Mr. Love remain in control of
the Terranea Resort or the deal would be off; clarification that the City is not obligated to
commit the rebate until Terranea Resort shows the City they have obtain 3d the $10
million which will provide cash reserves for the post-opening period; Mr. Lowe's interest
in being present for the long term of the project as owner and manager; support foi the
elimination of Condition No. 5 regarding managerial control, majority ownership, or
operating control; clarification that Lowe Enterprises would like to raise additional equity
long-term to further solidify the Terranea Resort: elimination of Condition No. 6
regarding the cessation of the TOT Rebate Arrangement if Terranea or its affiliates
receives more than $20 million during the 27-month; Council consensus that staff and
the applicant work out the appropriate language regarding valuation for Condition No. 8
based on the conceptual agreement; Condition No. 9 regarding expenditure of legal
costs and indemnification of the City regarding the defense of a claim based on the TOT
Rebate Arrangement; and there should be no other qualifications or, the audit opinion
other than the issues related to the financing transactions, with staff to assist with the
appropriate language.
Councilman Stern requested a legal opinion or an estoppel certificate from Terranea's
legal counsel that the ordinance would be binding on Lowe Enterprises, their entities,
existing and successive creditors.
Timi Hallem, Counsel for Lowe Enterprises, stated that she could not give an opinion on
the ordinance as she was not a municipal law expert. She suggested taking a
representation from Long Point Development and its related entities would not
challenge the validity of the municipal ordinance.
Additional discussion between the Council and Mr. Lowe included the following issues:
the timeline for raising the money; agreement regarding Mr. Lowe's language in
Condition D; requiring a representation from Lowe that they are not in default; a
representation from Corus Bank that Lowe Enterprises is not in default or evidence of
an extension of the loan with Corus Bank; Condition G and satisfactory proof that
Terranea Resort has sufficient funds for the 27-month period; the intention by Lowe
Enterprises to raise additional capital and assurances from Mr. Lowe that Lowe
Enterprises would not return to the City to request additional TOT; next steps in the
process; clarification that any sale or refinance triggers the obligation that the City will
be paid; full and complete disclosure of all financial arrangements; representations in
terms of anticipated performance regarding sale of units and reduction of debt; a
representation that the plan does not violate any existing agreements with lenders or
equity holders; clarification that Condition No. 2 will remain in the TOT Rebate
Arrangement; the affect of granting an extra year of extension of the TOT repayment to
Lowe Enterprises in correlation with the sunset of the collection of the City's Storm
Drain User Fee; and, the determination that the repayment of the TOT Rebate
Arrangement will be on December 31, 2014.
Mayor Clark moved, seconded by Councilman Gardiner, to 1) Approve Alternative
City Council Minutes
May 26, 2009
Page 8of9
No. 1, as amended, allowing Lowe Enterprises to participate in a TOT rebate up to a
maximum of$8 Million of TOT over a 27-Month period with repayment of the rebate with
interest to be to paid to the City of Rancho Palos Verdes as specified in an ordinance to
be brought back for Council's approval on June 2, 2009 commemorating Council's
action; and, 3) Approve the use of a trust deposit funded by Long Point Development,
LLC, or an affiliate of it, to pay for the City's cost of professional services, including due
diligence, document preparation, and other work product necessitated by the request for
financial assistance.
The motion carried on the following roll call vote:
AYES: Gardiner, Stern, Wolowicz, and Mayor Clark
NOES: None
ABSENT: Long (recused)
CITY COUNCIL ORAL REPORTS:
None.
COUNCIL DISCUSSION & SUGGESTION OF FUTURE AGENDA ITEMS:
•
None.
ADJOURNMENT:
At 1:17 A.M., Mayor Clark adjourned the meeting.
4110
qr.
No lig diP
ayor
Attest:
City Clerk
W:\City Council Minutes\2009\20090526 CC MINS.doc
City Council Minutes
May 26, 2009
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