STAFF REPORT TO THE (CITY COUNCIL, AGENCY, ETC.) The Mayor and Members of the City Council

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2 STAFF REPORT TO THE (CITY COUNCIL, AGENCY, ETC.) DATE: Regular Meeting of January 28, 2014 TO: SUBMITTED BY: SUBJECT: The Mayor and Members of the City Council Phil Batchelor, City Manager Eleventh Amendment to Purchase and Sale Agreement with Presidio Parners (UC/BNB Partners, LLC) for the Real Property Known as Sycamore North RECOMMENDED ACTION: Adopt a Resolution (Attachment1) authorizing the City Manager to finalize and execute the Eleventh Amendment (Exhibit A to Resolution) to the Purchase and Sale Agreement with UC/BNB Partners, LLC, a California limited liability company ( Buyer ) for the City owned site (APN# ) on the north side of Sycamore Avenue between San Pablo Avenue and Tsushima Street, to delete the Earn Out Formula in section 1.4, adjust the Purchase Price to $1,100,000. FISCAL IMPACT OF RECOMMENDATION: The proposed Eleventh Amendment increases the contract sales price from $425, to $1,100, The increase in the sales price is necessary in order to satisfy the requirements imposed on Buyer by the State Department of Industrial Relations for this Project to be considered exempt from prevailing wage requirements, and to assure that the City recoups its actual costs, including certain legal expenses, school district fees, and other incurred costs associated with the maintenance and sale of the property. Most of the proceeds from the sale will go towards payment of City costs related to the sale of the Project, and will be paid directly out of escrow. BACKGROUND: Sycamore North was declared a Failed Project by resolution of the City Council in The property, including the half built residential and commercial structure, was subsequently put up for sale as a market rate project. Presidio Development Partners was chosen from several qualified buyers due to their responsiveness to the City s need to get the project going quickly, January 28, 2014 Page 1

3 and their experience with residential multi-family and retail development. They also proposed a short due diligence schedule and a quicker close of escrow as compared to other potential buyers. At the time the Purchase and Sale Agreement (the PSA ) was entered into, the proposed project was fully entitled. Presidio proposed changing most of the ground floor to residential uses, requiring Planning Commission approval for a zoning change as well as additional design review and entitlement processes. The original PSA was amended for extension of time due to the proposed development changes, as well as additional unforeseeable title issues, by First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, and Tenth Amendments, dating from April 30, 2012 to July 23, Under the existing PSA, close of escrow must occur by January 31, 2014, pursuant to the terms of the Tenth Amendment, adopted by the City Council on July 23, Originally, the Buyer was to have negotiated an easement agreement with the Bayside Home Owners Association for rights in R Alley adjacent to the property. The Buyer, however, was not successful in obtaining the necessary easements from the Bayside Home Owners Association. The City eventually filed litigation in order to secure the necessary easements, and after considerable time and effort, reached a settlement with the HOA in order to secure the necessary right of way on R Alley to provide emergency access to the project, and to allow for construction and maintenance. DISCUSSION: An Eleventh Amendment is necessary because a number of matters needed to be ironed out before the Buyer can close the sale of the Property. These issues have ultimately affected the price that the City can accept from Buyer. The City simply cannot shoulder any costs that might result from the sale, as the City has no funds to cover such costs. Several of the matters related to the sale of the property that have had financial consequences for the City are described as follows: Prevailing Wage. According to the Buyer, if the Project were subject to prevailing wage requirements, the cost of construction would increase substantially, making it financially infeasible for the Buyer to complete the Project. The Buyer requested a determination from the State Department of Industrial Relations (DIR) whether the Project would be subject to prevailing wage requirements. The DIR has recently issued a ruling indicating that the proposed Project would not be considered subject to prevailing wage requirements if the purchase price paid by Buyer were to reflect what the DIR determined to be the minimum fair market value (FMV) of the property. The DIR determined that the minimum FMV for the property is $700, The price adjustment is a change to a material term of the PSA, and requires an Eleventh Amendment. Easement for R Alley. The necessary easement has been acquired from the Bayside HOA as a result of the City s legal efforts, and Buyer has agreed to pay these costs. The City does not have funds to pay these costs, and must recoup this expense from the sale proceeds. January 28, 2014 Page 2

4 Closing Costs. City needs to make sure that Buyer pays for all closing costs, estimated at $25,000. The City does not have funds to pay these costs, and must recoup this expense from the sale proceeds. School District Development Fees. The Project is subject to payment of school district developer fees. The Buyer has agreed to pay the portion of school fees resulting from the increase in the total number of residential units being proposed. Seller has agreed that all school fees which were originally an obligation of the City and/or RDA at the time construction permits were issued in 2010 remain an obligation of the City and/or the RDA. City was informed earlier this month by WCCUSD that the fees owed for this Project are $814, Listing Agent Fee. In March 2011, the City entered into a fixed fee contract for $300,000 with CBRE to serve as Listing Agent for the sale of Sycamore North. The City does not have the funds to pay these costs, and must recoup this expense from the sale proceeds. Carrying Costs (Insurance, ongoing security, etc). Currently, in exchange for extending the closing date via several previous amendments to the PSA, the Buyer incurs the carrying costs of approximately $28,000 per month. Under the terms of the Tenth Amendment, upon close of the sale, the City is required to reimburse Buyer half of these costs. The Eleventh Amendment removes the provision that would provide for the City paying back 50% of the carrying costs. The City does not have the funds to pay these costs, and cannot pay this expense from the sale proceeds. CONCLUSION Due to the changed circumstances as summarized above, an Eleventh Amendment is necessary in order for the City to complete the sale of Sycamore North to Buyer. The City has no money in the General Fund to cover the costs noted above, and should not commit the General Fund to pay these expenses. The City is intent on recovering enough money to pay the known expenses associated with the sale of the property. An Eleventh Amendment is also necessary in order for Buyer to complete the sale. Buyer cannot construct the Project without the Project being subjected to prevailing wage requirements, unless the purchase price is amended. ATTACHMENTS: Attachment 1 Resolution Attachment 2 Amendment January 28, 2014 Page 3

5 RESOLUTION NO. 14- AUTHORIZING THE CITY MANAGER TO FINALIZE AND EXECUTE THE ELEVENTH AMENDMENT TO THE PURCHASE AND SALE AGREEMENT WITH UC/BNB PARTNERS, LLC ( BUYER ) FOR THE CITY OWNED SITE (APN# ) ON THE NORTH SIDE OF SYCAMORE AVENUE BETWEEN SAN PABLO AVENUE AND TSUSHIMA STREET, SAID AMENDMENT TO DELETE THE EARN OUT FORMULA IN SECTION 1.4 AND REPLACE IT WITH AN ADJUSTED TOTAL PRICE OF $1,100,000 WHEREAS, the City of Hercules ( Seller ) and UC/BNB Partners, LLC, ( Buyer ), entered into that certain Agreement of Purchase and Sale of Real Property and Joint Escrow Instructions with an Effective Date of April 16, 2012, as amended by those certain First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, and Tenth Amendments dated from April 30, 2012 to July 23, 2013 (collectively referred to herein as the Purchase Agreement or PSA ) pursuant to which Seller agreed to sell and Buyer agreed to purchase that certain parcel of improved real property commonly known as Sycamore North, and located at the northeast corner of Sycamore Avenue and Tsushima Street in Hercules, California; and WHEREAS, Close of escrow was continued until January 31, 2014, pursuant to the terms of the Tenth Amendment, adopted by the City Council on July 23, 2013; and WHEREAS, because the various conditions for closing specified in the Purchase Agreement have been satisfied, including obtaining the necessary easements from the Bayside Home Owners Association, it remains in the best interests of the parties that Buyer be able to close escrow on or before January 31, 2014; and WHEREAS, the PSA must be amended because the Purchase Price of $425,000 does not cover the City s actual costs related to the sale of the Property, as detailed in Attachment A to the Eleventh Amendment, and the City Council has determined that it is necessary and in the City s best interest to recover City costs related to the sale of the property, including closing costs, City s legal fees resulting from the eminent domain action against the Bayside HOA, listing agent fees, carrying costs, and school district impact fees; and WHEREAS, the Purchase Agreement must be amended because the Buyer is required by the State Department of Industrial Relations (DIR) to increase the Purchase Price in order to consider the Project exempt from prevailing wage requirements. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Hercules as follows: That the City Council hereby authorizes the City Manager to finalize and execute the Eleventh Amendment to the PSA, which is Exhibit A to this Resolution in its substantially complete form, to delete the earn out formula in Section 1.4, and amend the purchase price from $425,000 to $1,100,000.

6 The foregoing Resolution was duly and regularly adopted at a regular meeting of the City Council of the City of Hercules held on the twenty-eighth day of January, 2014 by the following vote of the Council: AYES: NOES: ABSENT: ABSTAIN: ATTEST: Myrna L. de Vera, Mayor Margaret S. Roberts, City Clerk

7 Attachment 2 DRAFT 01/24/14 ELEVENTH AMENDMENT TO AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY AND JOINT ESCROW INSTRUCTIONS This Eleventh Amendment to Agreement of Purchase and Sale of Real Property and Joint Escrow Instructions (the Eleventh Amendment ) is made and entered into effective as of the day of January, 2014, by and between The City of Hercules, a municipal corporation ( Seller or City ), and UC/BNB Partners, LLC, a California limited liability company ( Buyer ). RECITALS A. Seller and Buyer entered into that certain Agreement of Purchase and Sale of Real Property and Joint Escrow Instructions with an Effective Date of April 16, 2012, (the Original Agreement ) as amended by those certain First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth and Tenth Amendments dated, respectively, April 30, 2012, May 10, 2012, May 24, 2012, June 19, 2012, June 28, 2012, July 31, 2012, July 31, 2012, March 1, 2013, April 10, 2013 and July 26, 2013 (the Original Agreement and all of the foregoing amendments being collectively referred to herein as the Purchase Agreement ), pursuant to which Seller agreed to sell and Buyer agreed to purchase that certain parcel of improved real property commonly known as Sycamore North, and located at the northeast corner of Sycamore Avenue and Tsushima Street in Hercules, California, as more particularly described in Exhibit A to the Original Agreement (the Property ), on all of the terms and conditions set forth therein. B. Seller and Buyer now desire to amend the Purchase Agreement on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the promises, terms and conditions contained herein and such other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Seller and Buyer hereby agree as follows: 1. Defined Terms and Recitals. Except as otherwise defined herein, all capitalized terms used herein but not otherwise defined herein shall have the meanings set forth in the Purchase Agreement. Seller and Buyer hereby agree that the recitals set forth hereinabove are true and correct and incorporated into this Eleventh Amendment. 2. Modifications to Purchase Agreement. The parties agree that from and after the date of this Eleventh Amendment, the Purchase Agreement shall be modified as follows: a. Purchase Price. Section 1.4 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following: Seller shall sell and Buyer shall purchase the Property for the purchase price of One Million Dollars ($1,000,000) (the Purchase Price ). b. Buyer s Remaining Closing Conditions. Buyer acknowledges its satisfaction of the Closing Conditions set forth in Section 4.4(j) of the Purchase Agreement as described in Section 2(d) of the Tenth Amendment. Buyer acknowledges and agrees that the only remaining Closing Conditions are those set forth in Section 4.4(a) and 4.4(g) of the Original - 1 -

8 Agreement, and Sections 4.4(k), 4.4(l), 4.4(m), and 4.4(n) of the Purchase Agreement as described in the Ninth Amendment. d. Closing Costs. Section 4.3 of the Original Agreement is hereby amended to provide that any and all (i) closing costs for which Seller is responsible under Section 4.3 of the Original Agreement, (ii) brokerage commissions due pursuant to Article 12 of the Original Agreement, and (iii) Seller s legal expenses and costs associated with obtaining rights to R Alley will be paid from the Purchase Price through escrow in accordance with Seller s instructions at Closing ( Seller s Closing Costs ). Buyer shall not be responsible for any further costs associated with obtaining the R Alley Rights or the Air Rights Easement. e. School District Impact Fees. Buyer shall pay to West Contra Costa County Unified School District prior to issuance of any building permits an amount equal to the total amount of School District Impact Fees chargeable to the current Project, minus that amount equal to the total amount of said school fees chargeable to the Sycamore Downtown Project (former RDA project). Seller shall be responsible for payment of school fees chargeable to the Sycamore Downtown Project (former RDA project). f. Advance Towards City Fees. In addition to the Purchase Price, Buyer shall deposit the sum of One Hundred Thousand Dollars ($100,000) (the City Fee Credit ) into Escrow at the Closing, which City Fee Credit shall be applied by City towards future development impact fees and charges imposed by City that become due and payable by Buyer or Hercules Urban Partners LLC pursuant to the Development Agreement between City and Hercules Urban Partners LLC, a California limited liability company dated as of November 13, 2012 (the Development Agreement ), as more particularly described in Exhibit E of the Development Agreement. In the event that such development impact fees and charges do not exceed the City Fee Credit, Buyer shall receive a refund of any balance. If such development impact fees and charges exceed the City Fee Credit, any such excess fees and charges shall be due and payable by Buyer to City in accordance with the Development Agreement. 3. No Current or Inchoate Default. As of the date of this Eleventh Amendment, Buyer is unaware of and is hereby estopped from asserting, any default or any facts or circumstances that have occurred which with the passage of time would become a default, by Seller of any of the representations, warranties, covenants, obligations or agreements made by Seller in the Purchase Agreement, including without limitation those set forth in Sections 4.4(g), (h), and (i) of the Original Agreement. As of the date hereof, Seller is unaware of and is hereby estopped from asserting, any default or any facts or circumstances that have occurred which with the passage of time would become a default, by Buyer of any of the representations, warranties, covenants, obligations or agreements made by Buyer in the Purchase Agreement. 4. Reaffirmation of Purchase Agreement. Seller and Buyer hereby acknowledge and agree that the Purchase Agreement, as modified by this Eleventh Amendment, is hereby reaffirmed, ratified, and confirmed in its entirety and shall continue in full force and effect, notwithstanding any prior communication between the parties. In the event of any inconsistency between the provisions of the Purchase Agreement and this Eleventh Amendment, the terms of this Eleventh Amendment shall control

9 5. Governing Law. This Eleventh Amendment shall be governed by, construed and enforced in accordance with, the laws of the State of California. 6. Counterparts. This Eleventh Amendment may be executed in two or more counterparts, which when taken together shall constitute one and the same instrument. The parties contemplate that they may be executing counterparts of this Eleventh Amendment transmitted by or facsimile and agree and intend that a signature by or facsimile shall bind the party so signing with the same effect as though the signature were an original signature. IN WITNESS WHEREOF, the parties have caused this Eleventh Amendment to be executed effective as of January, SELLER CITY OF HERCULES, a public body corporate and politic BUYER UC/BNB PARTNERS, LLC, a California limited liability company By: Phil Batchelor City Manager By: Mark Conroe Manager ATTEST: Margaret S. Roberts City Clerk APPROVED AS TO FORM: By Patrick Tang City of Hercules City Attorney EAD.PSA- 11 th Amd-cln - 3 -

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