Item 11 - Consideration of Five Year Extension Option For Parking Facilities At the Lakes At West CovinaAGENDA ITEM NO. 11
AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
DATE: August 20, 2019
TO: Mayor and City Council
FROM: David Carmany
Interim City Manager
SUBJECT: CONSIDERATION OF FIVE (5) YEAR EXTENSION OPTION FOR PARKING FACILITIES
AT THE LAKES AT WEST COVINA
RECOMMENDATION:
It is recommended that the City Council adopt the following resolution:
RESOLUTION NO.2019-61 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST
COVINA, CALIFORNIA, APPROVING AND DIRECTING THE CITY MANAGER TO EXECUTE
A MEMORANDUM OF EXERCISE OF SUBLEASE EXTENSION OPTION FOR PARKING
FACILITIES AT THE LAKES AT WEST COVINA WITH CIP 2014/SG COVINA OWNER LLC
BACKGROUND:
The City of West Covina owns the two parcels that encompass the parking lot and parking structures (Parking
Facilities) at the Lakes Office development (Attachment No. 1). The two parcels were initially acquired by the
West Covina Parking Authority to develop public parking facilities. In 1988, the former Redevelopment Agency
(Agency) obtained ownership to construct the parking structures and the parking lots. With the elimination of
Redevelopment Agencies in 2012, the Successor Agency to the former Redevelopment Agency obtained
Department of Finance approval to transfer the two assets as "Government Purpose" to the City of West Covina. On
December 17, 2015, the City took ownership of the two parcels.
The two parcels owned by the City total 4.16-acres, which consist of surface parking spaces, one parking structure
on each parcel (2 parking structures in total), lighting, infrastructure, curb and gutter, landscaping, and ingress and
egress (roads and driveways). The properties are subject to numerous agreements, detailing the development and
primarily providing for the development and reservation of a public parking facility to the general public and to
patrons of the Lakes Office Development, Edwards Theater, the Lakes Entertainment Center, and adjacent
businesses. The agreements include a Lease Agreement (Master Lease), a Disposition and Development
Agreement, an Indenture of Trust Agreement, a Reimbursement Agreement, an Installment Agreement, an
Agreement of Sublease of Portion of Parking Facilities (Sublease Agreement), an Agreement Re Option to
Purchase (Option to Purchase Agreement), an Operating Agreement for Portion of Parking Facilities (Operating
Agreement), a Reciprocal Easement Agreement (REA), an Implementation Agreement, and numerous subsequent
amendments.
On August 1, 1988, the Agency issued $7,750,000 in lease revenue and refunding bonds, and entered into the
Master Lease with the City. The City leased the public Parking Facilities from the Agency for an Initial Term of
30-years (expired August 1, 2018), with eleven (11) additional five-year extensions (2073). Furthermore, the City
concurrently entered into the Sublease Agreement with Watt Investment Properties Inc. (Watt), dated August 1,
1988, as amended in January 1989, under the same terms of the Master Lease of an initial 30-year period with five
(5) additional five-year extensions (2043).
Under the Sublease Agreement between the City and Watt, Watt as the Sublessee, subleases (and manages) 25% of
the Parking Facilities for the Lakes Offices. Pursuant to the Operating Agreement Watt manages the remaining 75%
of the Parking Facilities on a non-exclusive basis for the public. The Operating Agreement was recently amended
and executed in May of 2018 with the new property owner Capital Partners LLC, with the entity CIP 2014/SG
Covina Owner, LLC (CIP) as the listed owner. The newly amended Operating Agreement will expire in five
(5)-years (May 2023).
Under the City's Master Lease, and the Indenture of Trust (between the City and Dai-Ichi Kango Bank of
California), the 1988 Lease Revenue Refunding Bonds for the Lakes Public Parking Project (Bonds) were paid by
the City from the lease payments, which were made in accordance to the Master Lease. The Bonds matured in
August 2018, with the last payment of $670,670 being paid in August 1, 2018.
Pursuant to the Option to Purchase Agreement, CIP, as property owner, maintains a right (but not obligation) to
purchase the properties after the bonds are paid in full for $1,000 for the 25% leased area and full market value for
the remaining 75% parking area, based on the existing use as a public parking facility. In April of 2018, Waterford
Property Company (managing company for CIP) exercised its option to purchase the Parking Facilities. Since the
request was made, the City and Waterford have conducted appraisals and have attempted to come to an agreement
over the fair market value of the parcels. The appraisals conducted by each entity came with a huge discrepancy in
the value, as such the parties could not come to an agreement on an acceptable purchase price. In June of 2019,
Waterford informed staff it was no longer interested in pursuing the purchase of the Parking Facilities and
requested to extend the sublease.
DISCUSSION:
As the Master and Sublease Agreements both expired on August 1, 2018, Waterford provided a letter (Attachment
No. 2) requesting the First Extended term of five (5) years pursuant to Section 3.1) of the Sublease Agreement. The
letter was initially submitted on July 31, 2018, prior to the expiration of the Initial Term, and subsequently
Waterford informed staff of its continued desire to extend the sublease.
As the Sublease Agreement is directly related to the Master Lease, in order to comply with the request for the
Sublease extension, the Master Lease also has to be extended. The First Extended term will expire on August 1,
2023. Approval for the First Extended Term requires execution of a memorandum (Attachment No. 3). Pursuant to
the Master Lease, the City, as lessee, would be responsible for paying the City, as lessor, $1.00 for each Extended
Term of five (5) -years. Thereafter, pursuant to the Sublease Agreement, the developer (Watt or successor, in this
case CIP as sublessee) would be responsible for paying to the City Additional Payments (Bond associated fees), if
any, plus a $100.00 annual payment to the City. Costs associated with the management and operation of the
Parking Facilities will be covered by the CIP, pursuant to the Sublease Agreement (for the 25%) and the Operating
Agreement (remaining 75%).
LEGAL REVIEW:
The City Attorney's Office has reviewed the attached memorandum and approved it as to form.
OPTIONS:
The City Council has the following options:
1. Approve staffs recommendation; or
2. Provide alternative direction.
Fiscal Impact
FISCAL IMPACT:
If the City Council approves staffs recommendation, the fiscal impact to the City's General Fund would be an
annual revenue of approximately $100 for the First Extended Term of the Sublease Agreement. As the Master
lease is between the City as Lessor (successor to the former redevelopment Agency) and Leasee, the $1.00 fee per
Extended Term would void each other out.
Attachments
Attachment No. 1 - Parking Facilities Aerial
Attachment No. 2 - CIP 2014/SG Covina Owner, LLC, Letter Requesting First Extended Term
Attachment No. 3 - Resolution 2019-61
City Owned Parcels: The Lakes Public Parking Project
City Owned Parcels: 8474-011-942 and 8474-001-943
ATTACHMENT NO. 2
From:
John Drachman
To:
Paulina Morales
Subject:
Letter from last year - Sublease extension - Lakes Parking
Date:
Wednesday, August 7, 2019 9:21:12 AM
Attachments:
Attachment No 2 - CIP Letter odf
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Paulina
Per our conversation, on behalf of our ownership group for CIP 2014/SG Covina Owner, LLC, I am
resending you our letter from last year exercising our option to extend the sublease for the Parking
facilities at the Lakes office project in West Covina.
Please let me know if you have any questions
John
John P. Drachman
Waterford Property Company
130 Newport Center, Suite 230
Newport Beach, CA 92660
Tel: 949-529-3530
idrachma n (aDwaterfordco.com
WATERFORD
V N 11 P r F 1 1 111 %1 1' .l 1 1
CIP 2014/SG COVINA OWNER LLC
ONE BOSTON PLACE, SUITE 2310
BOSTON, MASSACHUSETTS 02108
July 31, 2018
VIA E-MAIL to Chris.Freelandna,westcovinaor
West Covina City Hall
City Manager's Office
Room 103
1444 West Garvey Avenue South
West Covina, CA 91790
Attention: Chris Freeland, City Manager
Re: Parkin¢ Facilities at The Lakes
Dear Chris,
As you know, CEP 2014/SG Covina Owner LLC ("CIP") has been assigned the option to
purchase granted to Watt Investment Properties, Inc., its successors and assigns, pursuant to the
Agreement Re Option to Purchase dated as of August 1,1988, which was recorded on September
1, 1988 as Instrument No. 88-1391950 in the Official Records of Los Angeles County, as
amended by that certain First Amendment to Agreement Re Option to Purchase dated January 1,
1989, recorded on March 6, 1989 as Instrument No. 89-342759 in the Official Records of Los
Angeles County ("Purchase Option"), to purchase certain City owned parking facilities (the
"Parking Facilities") and the land on which they are located (collectively, the "Pro a "), which
Property is located on Parcels 3 and 4, Parcel Map 18981, of the master development project
located on Lakes Drive.
As you also know, in April 2018 CIP exercised the Purchase Option to purchase the Property
with a closing date to occur on or before summer, 2018. The City and CIP are currently working
on a determination of value for the Property and intend to come to mutual agreement on
valuation soon.
While the parties are working together to determine valuation, please accept this letter as CIP's
notice that it elects to extend the term of that certain Agreement for Sublease of Portion of
Parking Facilities dated as of August 1, 1988 between the City as lessor and CIP, the ultimate
successor in interest to Watt Investment Properties, Inc., as lessee, as amended by Fast
Amendment of Agreement for Sublease of Portion of Parking Facilities dated as of January 1,
1989, as further amended by Second Amendment of Agreement for Sublease of Portion of
Parking Facilities dated as of November 28, 1989 (as so amended, the "Sublease") for the first
Extended Term (as such term is defined in Section 3.1). of the Sublease). In the event the parties
come to mutual agreement on the valuation of the Property, the first Extended Term shall
terminate on the date CIP purchases the Property. In the event the parties fail to come to mutual
agreement on the valuation of the Property, the first Extended Term shall terminate on August 1,
2023.
We look forward to working with you on a successful transition of ownership of the Property.
Sincerely,
CIP 2014ISG Covina Owner LLC
By:
rachman
Authorized Signatory
cc via e-mail: Pauline Morales
Patrick O'Sullivan
Eric S. Boyd
ATTACHMENT NO. 3
RESOLUTION NO. 2019-61
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA,
CALIFORNIA, APPROVING AND DIRECTING THE CITY MANAGER TO
EXECUTE A MEMORANDUM OF EXERCISE OF SUBLEASE EXTENSION
OPTION FOR PARKING FACILITIES AT THE LAKES AT WEST COVINA
WITH CH' 2014/SG COVINA OWNER LLC
The City Council of the City of West Covina, California, does hereby resolves as follows:
WHEREAS, the Redevelopment Agency of the City of West Covina, as the Agency, and City of
West Covina, as the City, Lease Agreement dated August 1, 1988 (the "Master Lease") for the Parking
Facilities on Agency owned land. The Master Lease was entered into by and between the Agency as lessor
and the City as lessee.;
WHEREAS, the City and Watt Investment Properties, Inc., as the Developer, entered into an
Agreement for Sublease of Portion of Parking Facilities dated August 1, 1988 (the "Sublease"). The
Sublease was entered by and between the City as lessor and the Developer as sublessee; and
WHEREAS, the Agency entered into a Restated Disposition and Development Agreement (the
"Restated DDA") dated June 26, 1987, a First Implementation Agreement thereto dated as of December
22, 1987, and a Second Implementation Agreement dated as of August 1, 1988 with the Operator's
predecessor in interest for the sale of certain land (the "Developer Parcels #I and 2") to the Operator's
predecessor in interest for development thereon of commercial office buildings; and
WHEREAS, the City constructed on the Agency Parking Structure Parcels certain off-street
parking facilities (the "Parking Facilities") and entered into the Sublease, as the sublessor and defined in
the Sublease as the City, (the "Sublessor") with Watt Investment Properties, Inc. ("Watt"), a predecessor -
in -interest to Operator, as the sublessee and defined in the Sublease as the Developer, (the "Sublessee")
for Twenty -Five Percent (25%) of the Parking Facilities (the "Subject Premises") in order to implement
the Redevelopment Plan adopted by the Redevelopment Agency of the City of West Covina and the
Restated DDA (and the Implementation Agreements thereto), and in order to provide for the operation
and maintenance of the Subject Premises; and
WHEREAS, Operator has also purchased the Developer Parcels #1 and 2 and succeeded to the
interests and assumed all liabilities of the Sublessee under the Sublease; and
WHEREAS, Watt also entered into an operating agreement on August 1, 1988 (the "1988
Operating Agreement") with the City to manage the 75% of the Parking Facilities which are not included
within the Sublease (the "City's Premises"). On May 15, 2018, the City of West Covina and the new
owner, CIP 2014/SG Covina Owner LLC, entered into new Operating Agreement and have continued to
operate under the terms and conditions of the 2018 Operating Agreement to date; and
WHEREAS, on or about February I, 2012, the City began acting as the "Successor Agency" to
the Agency pursuant to various California statutes relating to the dissolution of Redevelopment Agencies
in the State (the "Redevelopment Dissolution Laws"). The Successor Agency is a separate legal entity
from the City pursuant to the Redevelopment Dissolution Laws.
WHEREAS, on or about December 15, 2015, the Agency Parking Structure Parcels were
transferred to the City pursuant to various California statutes relating to the dissolution of Redevelopment
Agencies in the state, but there has been no merger of the Master Lease and the Sublease.
WHEREAS, Section 3 D of the Sublease, as amended by the First Amendment to Agreement for
Sublease for Portion of Parking Facilities dated January 1, 1989, grants the Developer the option to extend
the Initial Term, which expired August 1, 2018, with 5 additional terms of Five (5) years each (hereinafter
referred to as the "Extended Term") subject to conditions outlined in the section.
WHEREAS, The City Council finds that the sale of the Eastland Center Parking Facilities (Parcel
D) is exempt from review under the California Environmental Quality Act pursuant to California Code of
Regulations Section 15061 (b) (3) - General rule of no potential for causing significant impact; as the sale
of property does not allow any new uses or activities, and no development approvals are granted by this
purchase and sale of the property.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WEST
COVINA AS FOLLOWS:
SECTION 1. The City Council of the City of West Covina hereby approves and directs the City
Manager to execute a Memorandum of Exercise of Sublease Extension Option for Parking Facilities at
The Lakes at West Covina in substantially the form of Exhibit A, attached hereto and by this reference
incorporated herein, with CIP 2014/Sg Covina Owner LLC.
SECTION 2. The City Clerk shall certify to the adoption of this resolution.
PASSED, APPROVED, AND ADOPTED this 20`h day of August, 2019.
APPROVED AS TO FORM
Thomas P. Duarte
City Attorney
Lloyd Johnson
Mayor
ATTEST
Carrie Gallagher
Assistant City Clerk
EXHBIT A
MEMORANDUM OF EXERCISE OF SUBLEASE EXTENSION OPTION FOR
PARKING FACILITIES AT THE LAKES AT WEST COVINA
THIS MEMORANDUM OF EXERCISE OF SUBLEASE EXTENSION OPTION FOR PARKING
FACILITIES AT THE LAKES AT WEST COVINA (the "Memorandum") is entered into as of the
day of August, 2019, between The City of West Covina ("Sublessor") and CIP 2014/SG
Covina Owner LLC, a Delaware limited liability company ("Sublessee"), with respect to the
following facts:
A. Sublessor and Sublessee are parties to that certain Agreement for Sublease of Portion of
Parking Facilities originally by and between City and Watt Investment Properties, Inc. a California
corporation and West Covina Lakes Associates, a California limited partnership (collectively,
together with their successors and assigns, "Watt'), dated as of August 1, 1988, as amended by
First Amendment of Agreement for Sublease of Portion of Parking Facilities between City and
Watt dated January 1, 1989 , and Second Amendment of Agreement for Sublease of Portion of
Parking Facilities between City and Watt dated February 28, 1989 (the "Sublease"). Sublessee
is the ultimate successor in interest to Watt.
B. The initial term of the Sublease was from September 1, 1988 until August 1, 2018.
C. Pursuant to Section 3.D of the Sublease, the initial term of the Sublease can be extended
for five (5) additional terms of five (5) years each.
D. The first option to extend the initial term of the Sublease has been exercised, thereby
amending the expiration date of the Sublease term to be August 1, 2023.
NOW, THEREFORE, THE PARTIES DESIRE TO MEMORIALIZE THE AMENDMENT OF THE
SUBLEASE TERM AND AGREE AS FOLLOWS:
1. The current term of the Sublease will expire on August 1, 2023.
2. Sublessee has four remaining options to extend the term of the Sublease for four (4)
additional terms of five (5) years each, in accordance with the procedure set forth in Section 3.D
of the Sublease.
3. Except as provided herein, the Sublease remains in full force and effect as originally set
forth.
[Signatures on next page]
57037585.v2
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS MEMORANDUM AS OF THE
DATE FIRST SET FORTH ABOVE.
SUBLESSOR:
City of West Covina
Name: David Carmany
Title: Interim City Manager
SUBLESSEE:
CIP 2014/SG Covina Owner LLC
M
Name: John Drachman
Title: Authorized Signatory
2
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