Agenda Item AGENDA STAFF REPORT ASR Control 23-000992
MEETING DATE:	12/19/23
legal entity taking action:	Board of Supervisors
board of supervisors district(s):	5
SUBMITTING Agency/Department:	County Executive Office (Approved)
Department contact person(s):	Thomas A. Miller (714) 834-6019
	Dylan Wright (714) 480-2788

Subject: Approve Ground Lease Estoppels for Dana Point Harbor

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approved Agreement to Form

Consent Calendar

3 Votes Board Majority

Budgeted: N/A

Current Year Cost: N/A

Annual Cost: N/A

Staffing Impact:

# of Positions:

Sole Source: No

Current Fiscal Year Revenue: N/A

Funding Source: N/A	County Audit in last 3 years: No
Levine Act Review Completed: N/A

Prior Board Action: 3/8/2022 #29, 3/26/2020 #1, 7/17/2018 #27

RECOMMENDED ACTION(S):

1.	Approve Ground Lessor's Consent, Estoppel Certificate and Agreement to Citizens Business Bank to enable Dana Point Harbor Partners, LLC to secure a loan to fund construction of various phases of the Marina Improvement Project, and the Commercial Core Parking Structure and authorize the Chief Real Estate Officer or designee to execute the Ground Lessor's Consent, Estoppel Certificate and Agreement in substantially the same form as attached, subject to any minor modifications that do not materially alter the County’s responsibilities, costs or liabilities with the approval of County Counsel.
2.	Approve Ground Lessor's Consent, Estoppel Certificate and Agreement to Citizens Business Bank to enable Dana Point Harbor Partners Drystack, LLC to secure a loan to fund construction of various phases of the Marina Improvement Project, and the Commercial Core Parking Structure and authorize the Chief Real Estate Officer or designee to execute the Ground Lessor's Consent, Estoppel Certificate and Agreement in substantially the same form as attached, subject to any minor modifications that do not materially alter the County’s responsibilities, costs or liabilities with the approval of County Counsel.
3.	Approve the Ground Lessor Estoppel Certificate and Agreement Form to facilitate Dana Point Harbor Partners, LLC, and Dana Point Harbor Partners Drystack, LLC to secure additional financing for the Marina, Commercial Core, Hotel, and Drystack Components and authorize the Chief Real Estate Officer or designee to execute Ground Lessor Estoppel Certificate and Agreements in substantially the form of the attached Ground Lessor Estoppel Certificate and Agreement Form, subject to any minor modifications that do not materially alter the County’s responsibilities, costs or liabilities with the approval of County Counsel.
4.	Authorize the Chief Real Estate Officer or designee to execute any other documents necessary to effectuate loans for the Marina, Commercial Core, Drystack and Hotel consistent with the approved Ground Lessor Estoppel Certificate and Agreement Form and the Master Leases that do not materially alter the County’s responsibilities, costs, or liabilities with the approval of County Counsel.

SUMMARY:

Approval of the Ground Lessor's Consent, Estoppel Certificate and Agreement for Citizens Bank will allow Dana Point Harbor Partners, LLC and Dana Point Harbor Partners Drystack, LLC to secure a construction loan for future phases of the Marina Improvement Project, and the Commercial Core Parking Structure; and approval of the Ground Lessor Estoppel Certification and Agreement Form will enable the Chief Real Estate Officer to execute future estoppels consistent with the Board-approved Ground Lessor Estoppel Certification Form, ensuring consistency and expeditious processing of future Dana Point Harbor Revitalization Financing Events all in compliance with the Ground Lease between the County and Dana Point Harbor Partners, LLC and Dana Point Harbor Partners Drystack, LLC.

BACKGROUND INFORMATION:

On July 17, 2018, the Board of Supervisors (Board) approved Option Agreements and Master Leases with Dana Point Harbor Partners, LLC (DPHP) and Dana Point Harbor Partners Drystack, LLC (DPHP Drystack) for an approximately $400 million revitalization of Dana Point Harbor (DPH). This multi-phased project includes upgrades to the Commercial Core, Marina, Drystack and Hotel (DPH Revitalization). Following the satisfaction of all conditions required to exercise the Option Agreements, on October 29, 2018, the Chief Real Estate Officer executed the Master Leases on behalf of the County (collectively, the Master Leases). DPHP and DPHP Drystack have assumed the responsibility for the operation, maintenance, and revitalization of key areas of DPH, including the Commercial Core, Dry Storage area, West and East Basin Marinas, and the Marina Inn. County Executive Office Real Estate oversees the DPH Revitalization in close collaboration with OC Parks and the Fifth District Supervisorial Office.

Tolling Agreements (First Amendment to Master Leases)

In April 2020, the County executed Tolling Amendments with DPHP and DPHP Drystack, in accordance with Board Resolution 20-025, Item No. 1 Emergency Real Property Authority (COVID-19). This resolution, approved by the Board on March 26, 2020, aimed to address the impacts of the COVID-19 pandemic on the terms and conditions of the Master Leases. The Tolling Amendments specifically extended the dates and deadlines in the Master Leases, excluding the lease term and due dates for the monthly minimum rent and percentage rents. The extension period spanned from the declaration of the COVID-19 County State of Emergency on March 3, 2020, to March 9, 2022, the date the Second Amendment to the Master Leases was executed.

Second Amendments to Master Leases

On March 9, 2022, the County executed Second Amendments to the Master Leases, facilitating DPHP and DPHP Drystack in obtaining necessary financing for the DPH Revitalization. These amendments offer extended timelines and increased flexibility, particularly for the Hotel Component development, as DPHP progresses through the entitlement process with the California Coastal Commission (CCC). If entitlements or financing for the proposed Hotels cannot be secured, the Second Amendment provides DPHP the option to initiate a substantial repair and maintenance program for the Marina Inn, covering its interior, exterior, lobby, guest rooms, and common areas serving as an alternative Hotel Component strategy to ensure continuous progress. Additionally, the Second Amendments also terminated the Tolling Amendments, which were implemented in response to the COVID-19 pandemic and reset certain dates and deadlines consistent with the Tolling Amendment.

Development Update

DPHP has secured entitlements for two of the three DPH Revitalization components: the Marina and Commercial Core. This includes approvals for surface parking, a parking structure, and associated facilities designed to serve these functions and the public. Concurrently, the third component, the Hotel, is in the process of acquiring a Local Coastal Plan Amendment through the CCC. Noteworthy progress has been made on the Marina Improvement Project, with permits issued and active construction underway for docks and slips. To date three of the 15 phases of the Marina Improvement Project have been completed, with slip license holders occupying completed phases. Phase four is underway and projected to be complete by December 2023. Simultaneously, construction documents for the Commercial Core, including both new constructions and renovations of existing structures, are undergoing plan check reviews with the County. The plans for the parking structure have received approval and construction is scheduled to commence in January 2024.

Financing Event

DPHP and DPHP Drystack is currently pursuing financing for the next phases of construction, in accordance with the provisions outlined and permitted in the Master Leases. As part of this effort, DPHP and DPHP Drystack has negotiated terms with Citizens Business Bank (Lender) for a $60,000,000 construction loan. The loan will fund Phases five, six, and seven of the Marina Improvement as well as construction of the Commercial Core Parking Structure. This strategic financing arrangement signifies a significant step forward for DPHP and DPHP Drystack, providing the necessary capital to advance key construction milestones outlined in the Construction Schedule. The Loan will be secured by the leasehold interest in the Master Leases. The Hotel Component, currently in the entitlement phase, is not included in this loan, it is included as collateral for the loan.

County staff has reviewed the proposed terms of the Loan and determined them to align with the stipulated requirements of the Master Leases. The following list highlights key requirements of the Master Leases that have been satisfactorily met:

-	The Lender to be an Institutional Lender, which includes a bank among the approved lender types. Citizens Business Bank is a specialty financial institution founded by CVB Financial Corp (aka Chino Valley Bank) which trades on the NASDAQ under the symbol “CVBF”. CVBF is one of the 10 largest bank holding companies headquartered in California with over $16,000,000,000 in assets.
-	The Encumbrance can only cover the Lessees’ interest in the Property and Improvements, and the leasehold estate of the Lessees under the Master Leases. The loan encumbers no interest in real property other than Lessees’ leasehold interest in the Property and its Improvements.
-	The total amount of all loans secured by the Encumbrances recorded against the Property cannot exceed 75 percent of the budgeted Improvement Costs across all Components collectively. The DPH Revitalization has an estimated cost of $610,000,000 with required financing estimated at $457,423,000 ($60,000,000 to for this loan and an additional $397,423,000 to complete the Marina, Commercial Core, Hotel and Drystack) or 75 percent of total project costs which is in line with the Master Leases.
-	County is not required to amend the Master Leases, nor undertake any additional obligations, nor be obligated to forego any rights under the Master Leases, in connection with any Financing Event. No such request is being made of the County, though the attached Ground Lessor's Estoppel Certificates and Agreements do give the Lender additional customary rights in the event of a foreclosure.

Ground Lessor's Consent, Estoppel Certificates and Agreements

The Lender has requested the County execute Ground Lessor's Consent, Estoppel Certificate and Agreements for the Master Leases with DPHP and DPHP Drystack, the purpose of which is to confirm and memorialize certain material terms of the Master Leases and outline additional terms and conditions the Lender requires in the event of a foreclosure, including an increased tolling period and bifurcation of the Master Leases, if necessary. Execution of the Ground Lease Estoppel Certificate and Agreements will allow DPHP to secure the funding needed to fund construction of Phases 5, 6, and 7 of the Marina Improvement, and the Commercial Core Parking Structure. The Commercial Core Parking Structure construction will commence in January 2024, per the term of the approved construction schedule.

In the event of a foreclosure during the Loan, the Ground Lessor's Consent, Estoppel Certificate and Agreements authorize options designed to secure a successor tenant to complete construction and uphold the terms of the Master Leases. For example, construction activities may be tolled to allow the Lender the opportunity to secure a third-party successor tenant capable of completing the construction and operation of the DPH. If the process of securing a third-party successor tenant requires additional time and financial support to enhance marketability, the Master Lease may be divided into separate leases amongst the various Components, if construction of the Commercial Core has been completed. However, if the Commercial Core construction has not been completed, the Master Lease may be bifurcated into two distinct new leases –one covering the new hotel(s) and the other covering the Commercial Core and Marina.

To complete the DPH Revitalization future loans totaling approximately $397,423,000 will be required by DPHP. The Board’s approval of the Ground Lessor Estoppel Certificate Form (Form) is important for the success of the DPH Revitalization. Standardizing the estoppel process through Board approval ensures consistent and accurate information across all estoppel certificates. Given the current economic climate, characterized by scarcity in funding for substantial projects, the Board's approval of the Form becomes a strategic advantage. It enhances the Form’s credibility, strengthening DPHP's and DPHP Drystack's position in competitive markets and facilitating prompt capitalization on favorable financial opportunities or loans for the DPH Revitalization. This is particularly crucial during these challenging financial times when securing funds for significant projects is difficult. The approved Form establishes a secure and efficient pathway for future DPH Revitalization Financing Events. In the event any substantial revisions are requested to the Form, the revised document will be brought back to the Board for re-consideration.

CEQA COMPLIANCE:

This action is not a project within the meaning of CEQA Guidelines Section 15378 and is therefore not subject to CEQA, since it does not have the potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. The approval of this agenda item does not commit the County to a definite course of action in regard to a project since the action authorized herein is limited to assisting Dana Point Harbor Partners, LLC and Dana Point Harbor Partners Drystack, LLC in securing financing for revitalization of Dana Point Harbor. Dana Point Harbor Partners, LLC and Dana Point Harbor Partners Drystack, LLC are the entities responsible for obtaining all required environmental approvals and they must provide evidence to the Chief Real Estate Officer, prior to the commencement of construction, that any required environmental documentation has been certified, approved or adopted by the applicable government authority. This proposed activity is therefore not subject to CEQA. Any future action connected to this approval that constitutes a project will be reviewed for compliance with CEQA.

FINANCIAL IMPACT:

The execution of the Ground Lessor's Consent, Estoppel Certificates and Agreements (Estoppels) has no financial impact on the County. Approval and execution of the Estoppel will allow Dana Point Harbor Partners, LLC and Dana Point Harbor Partners Drystack, LLC to secure a construction loan for future phases of the Marina Improvement Project, and the Commercial Core Parking Structure. The loan is being executed between Dana Point Harbor Partners, LLC, Dana Point Harbor Partners Drystack, LLC and Citizens Business Bank; the County is not a party to this loan and has no financial responsibility for the loan.

STAFFING IMPACT:

N/A

REVIEWING AGENCIES:

ATTACHMENT(S):

Attachment A – Ground Lessor's Consent, Estoppel Certificate and Agreement to Citizens Business Bank re. Dana Point Harbor Partners, LLC
Attachment B – Ground Lessor's Consent Estoppel Certificate and Agreement to Citizens Business Bank re. Dana Point Harbor Partners Drystack, LLC
Attachment C – Ground Lessor's Estoppel Certificate and Agreement Form re. Dana Point Harbor Revitalization