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Agenda Item
ASR
Control 15-001472 |
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MEETING DATE: |
12/08/15 |
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legal entity taking action: |
Board of Supervisors |
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board of supervisors
district(s): |
2 |
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SUBMITTING
Agency/Department: |
OC Community Resources (Approved) |
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Department contact
person(s): |
Stacy Blackwood (949) 923-3743 |
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Scott Mayer (714) 834-3046 |
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Subject: Newport Dunes Lease
Amendment and Consents to Subleases
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ceo CONCUR |
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Clerk of the Board |
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Concur |
Approved Agreement to Form |
Discussion |
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4/5 Vote |
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Budgeted: N/A |
Current Year Cost:
N/A |
Annual Cost:
N/A |
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Staffing Impact: |
No |
# of Positions:
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Sole Source:
N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 8/25/2009
#64, 12/09/2008 #15 |
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RECOMMENDED ACTION(S):
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1. |
Find that the subject
activity is not a project within the meaning of CEQA Guidelines Section 15378
and is therefore not subject to review under CEQA. |
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2. |
Approve and authorize the Chairman of the Board to execute the First Amendment to Amended and Restated Lease and Option between Waterfront Resort Properties, L.P. and Newport Dunes Marina, LLC (Tenant) and the County of Orange which, among other things, allows the development of two hotels on the leasehold premises and extends the lease option period to 2020. |
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3. |
Approve and authorize the Chairman of the Board to execute the Consent to Hotel Sublease between Tenant and Brighton Management, LLC. |
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4. |
Approve and authorize the Chairman of the Board to execute the Consent to Amended and Restated Sublease (2015) between Tenant and Newport Dunes Resort and Marina Partnership. |
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5. |
Delegate to the CEO/Chief Real Estate Officer, or designee, the authority to consent to a hotel sublease to an affiliate of Brighton Management, LLC when such sublease is substantially in the form of the sublease attached to the Consent to Hotel Sublease and when such sublease has been approved by County Counsel. |
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6. |
Delegate to the CEO/Chief Real Estate Officer, or designee, the authority to enter into a subordination, attornment and non-disturbance agreement with Brighton or with a Brighton affiliate and estoppel agreements that permit subordination to financing entities and allow the financing entity to be notified of and be provided with cure periods for defaults, as well as entering into a new lease or assignment of the lease under the same terms and conditions in the event of a foreclosure or bankruptcy, when such agreements have been approved by County Counsel and executed by Brighton or a Brighton affiliate. |
SUMMARY:
Approval of the First Amendment to Amended and Restated Lease and the Consents to Subleases between Tenant and Brighton Management, LLC will promote the development of a waterfront family inn hotel, resulting in significant recreation and economic benefits for Orange County.
BACKGROUND INFORMATION:
Newport Dunes is a 102-acre recreation facility on County-owned tidelands in Upper Newport Bay in Newport Beach and is currently leased to Waterfront Resort Properties, L.P. and Newport Dunes Marina, LLC (Newport Dunes) through 2039.
In 1983 as a precursor to the redevelopment of the Newport Dunes marina property, the City of Newport Beach, the County and the then Newport Dunes marina tenant entered into a settlement agreement to resolve jurisdictional and entitlement disputes relating to the development of the Newport Dunes property. The settlement agreement limits the land uses and development of the property. One of the key development limitations requires that any hotel constructed on the property not exceed 500,000 S.F. of gross floor (including service storage and food/beverage preparation areas), that the hotel be attractive to families, and that accommodations not exceed 275 rooms, 40% of which are to include kitchenettes.
On December 9, 2008, your Board approved a Letter of Intent, between the County and Newport Dunes, defining lease terms to accommodate development of a 275-room hotel on Parcel C of the leased property (as shown on Attachment A). On August 25, 2009 pursuant to the terms of the Letter of Intent, your Board approved the Amended and Restated Lease and Option Agreement (Lease) which among other provisions established the requirements imposed upon Newport Dunes in order to secure a new 50-year lease for Parcel C, which included completion of a hotel and payment of a $500,000 lease fee. Your Board also approved a sublease between Newport Dunes and the Windsor Capital Group, Inc. (Windsor), the proposed hotel developer at that time. Due to the recent recession, Windsor was unable to proceed with the hotel development and to date a hotel has not been constructed on Parcel C.
Approval is now requested to modify the Lease to allow development of two hotels on Parcel C by a new hotel developer described below, with a combined maximum total of 275 rooms; to extend the option period; to clarify certain option conditions including when the $500,000 payment is to be made; to substitute the Hotel Development Plan lease attachments and to edit certain defined terms.
The Lease contemplated a five-year period for Newport Dunes or a third party to obtain entitlements to develop the hotel and to allow any such third party to sublease Parcel C for the hotel. The option provision also provided for three one-year extensions to obtain entitlements and two one-year extensions to complete construction, provided construction had commenced during the entitlement period. As previously stated, as a result of the recession, Windsor was unable to proceed.
Newport Dunes has now entered into an agreement with Brighton Management LLC (Brighton) to develop a Holiday Inn Resort and a Staybridge Hotel on Parcel C. The development calls for utilizing a single common entry and certain shared common facilities such as food service to create greater efficiency for the hotel operations, while providing two separate hotel concepts, both representing value-oriented accommodations. Holiday Inn Resort represents a reasonably priced hotel product. Likewise, Staybridge represents a value-oriented line, but with the expectation of a somewhat more extended stay for guests, consistent with the family orientation for the Newport Dunes location.
Brighton has been working towards development of conceptual plans and is proceeding with the entitlement process. Newport Dunes is seeking to reset the option periods to allow a realistic time period for Brighton to obtain all requisite approvals. The proposed restart of the option periods, assuming a December 2015 restart, would result in the developer having until December 2020 to obtain entitlements, with extensions up to December 2023, and provided construction is underway by December 2023, the developer would have until 2025 to complete construction. Under the current option provision, the entitlement period including extensions will end in August 2017. It is unlikely that Brighton will be able to get through CEQA reviews and obtain City of Newport Beach and California Coastal Commission approvals by that date. Without approval of the Lease amendment extending the hotel development period, Brighton will be unable to develop the hotel and Parcel C will remain undeveloped and will continue to be used by the tenant for dry boat and RV storage and a pedestrian walkway.
Your Board is also being requested to consent to a sublease between Newport Dunes and Brighton. It is contemplated that Brighton, at a future date, will form a joint venture or single purpose entity for financing purposes. As such, your Board is being requested to delegate authority to the CEO/Chief Real Estate Officer, or designee, to approve the sublease to this entity and enter into a subordination, attornment and non-disturbance agreement with Brighton or with a Brighton affiliate, as well as estoppel agreements for financing when such agreements have been approved by County Counsel and executed by Brighton or an affiliate. The subordination, attornment and non-disturbance agreement and estoppels will provide that, in the event the Lease with Newport Dunes is terminated, the Brighton Hotel sublease shall remain in effect as a lease between County and Brighton or a Brighton affiliate, as the case may be and that a new lease in substantially the form of the current lease will be executed in the event of a bankruptcy or transfer due to a foreclosure. They may also provide for notice and cure periods for lenders to remedy any defaults under the lease.
Your Board is also being requested to approve an Amended and Restated Sublease (2015) between Newport Dunes Resort and Marina Partnership, a California general partnership. Newport Dunes has made certain adjustments in the economic arrangements between its affiliated entities, particularly on the Waterfront Resorts side. In order to implement those adjustments, Newport Dunes has proposed an Amended and Restated Resort Sublease (2015) providing for such economic changes. The instrument is otherwise just a continuation of the Amended and Restated Resort Sublease put into place and approved by the County when Newport Dunes acquired the leasehold interest in 2002. While Newport Dunes has entered into such Sublease effective April 1, 2015, the document expressly provides that the Sublease will not take effect until it is approved by both the County of Orange and the City of Newport Beach.
Compliance with CEQA: 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 it solely involves fiscal activities related to the terms and conditions of the County’s lease with Waterfront Resort Properties, L.P. and Newport Dunes Marina, LLC. The development of the hotel will be subject to separate CEQA review.
General Plan Conformity: The proposed project conforms with the City of Newport Beach General Plan.
FINANCIAL IMPACT:
The amendment to the lease primarily allows for the development of two hotels instead of one and extends the lease option period. It does not change the revenue or rental terms of the lease. Additionally, the consents to subleases are related to arrangements between outside parties and do not have a financial impact on the County.
STAFFING IMPACT:
N/A
ATTACHMENT(S):
Attachment A - Location Map
Attachment B - First Amendment to Amended and Restated Lease and Option
Attachment C - Redline Amended and Restated Lease and Option
Attachment D - Consent to Hotel Sublease
Attachment E - Consent to Amended and Restated Sublease (2015)
Attachment F - Real Estate Questionnaire