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Agenda Item
ASR
Control 24-000742 |
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MEETING
DATE: |
09/24/24 |
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legal entity taking action: |
Board
of Supervisors |
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board of supervisors district(s): |
5 |
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SUBMITTING Agency/Department: |
County
Executive Office (Approved) |
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Department contact person(s): |
Thomas
A. Miller (714) 834-6019 |
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Brian
Bauer (714) 834-5663 |
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Subject: Second
Amendment to Lease Agreement with Strawberry Farms Golf Club, LLC
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ceo CONCUR |
County Counsel Review |
Clerk of the
Board |
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Concur |
Approved Agreement to Form |
Discussion |
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3 Votes Board Majority |
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Budgeted: Yes |
Current
Year Cost: N/A |
Annual
Cost: N/A |
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Staffing
Impact:
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No |
#
of Positions: |
Sole
Source: No |
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Current Fiscal Year Revenue: 999,324.04
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Prior Board Action: 11/20/2007#13 ,12/10/1996 #2, 10/22/1996 #19, 8/22/1995
#16 |
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RECOMMENDED
ACTION(S):
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1. |
Find that the
project is categorically exempt from the California Environmental Quality Act
(CEQA), Class 1 (Existing Facilities) pursuant to CEQA Guidelines Section 15301. |
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2. |
Approve the
Second Amendment to Lease Agreement with Strawberry Farms Golf Club, LLC to
extend the lease term, modify percentage rents to include appraisal and rent
payments to Irvine Ranch Water District, complete capital improvement
projects within sixty months from the effective date of the Second Amendment,
add the requirement to control non-native, invasive plants and delete County
and Irvine Ranch Water District option to purchase leasehold interest. |
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3. |
Authorize Chief
Real Estate Officer, or designee, to negotiate, approve and execute an
Amended and Restated Concession Management Agreement between the County of
Orange and Irvine Ranch Water District to reflect the terms of the Second
Amendment to Lease Agreement with Strawberry Farms Golf Club, LLC and update
all clauses in the Concession Management Agreement. |
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4. |
Approve Consent
to Encumber to a maximum loan amount of $9,000,000 and authorize the Chief
Real Estate Officer or designee to execute the Consent to Encumber in
substantially the same form attached, as approved by County Counsel. |
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5. |
Authorize the
Chief Real Estate Officer or designee to execute subsequent documents, lease
amendments and option terms that make non-monetary and/or monetary changes
that do not increase the County costs by more than $75,000 per fiscal year as
approved by County Counsel and the OC Parks Director. |
SUMMARY:
Approval of the
Second Amendment to Lease Agreement with Strawberry Farms Golf Club, LLC,
modification of the concession management agreement between County of Orange
and Irvine Ranch Water District and the Consent to Encumber will extend the
lease term by 20 years to allow Strawberry Farms Golf Club, LLC to secure
financing to complete various capital improvement projects on the property.
BACKGROUND
INFORMATION:
On December 20, 1994, the Board of
Supervisors (Board) approved a joint venture with Irvine Ranch Water District
(IRWD) to develop a golf course at Mason Regional Park (Park). General Services
Agency/Real Estate, in conjunction with the Environmental Management Agency,
were to negotiate a lease with IRWD and an option/lease with Sand Canyon LLC
(Sand Canyon).
On August 22, 1995, an Option
Agreement (Option) was executed between the County of Orange (County) and Sand Canyon, granting Sand Canyon an
option to lease a portion of the Park for the development and use of a golf
course facility for the term and in accordance with the covenants and
conditions set forth in the lease. The term of the Option was for 300 days and
commenced on August 22, 1995.
Also on August 22, 1995, the Board
approved the execution of a Concession Management Agreement (CMA) between the
County and IRWD. The CMA provided for the combination of adjacent respective
County and IRWD reservoir parcels for the purpose of developing an 18-hole
urban golf course facility. On October
22, 1996, the Board approved an extension of the Option with Sand Canyon and
authorized execution of a Lease Agreement (Lease) for golf course development
at the Park, which was executed on November 8, 1996, between the County and
Sand Canyon. Sand Canyon developed an 18-hole urban golf course constructed on
the lands owned by the County and IRWD. The County property consists of the
front nine holes of the golf course, club house, parking and barn. The IRWD
property consists of the back nine holes of the golf course.
On December 10, 1996, the Board
approved a First Amendment to Lease with Sand Canyon. The First Amendment
incorporated certain easements into the leasehold premises, added language to
the limitation of leasehold clause and added Clause 15 titled “Initial
Construction by Tenant.”
On November 20, 2007, the Board
approved a consent to assign the Lease from Sand Canyon to Strawberry Farms
Golf Club LLC (SFGC). The approval of the assignment to SFGC in accordance with
the terms of the Lease would ensure a qualified operator provide a high
-quality recreational golf and related facility to the public. Currently, SFGC
operates the site as a public urban golf course with ancillary uses, such as an
event space, golf retail and a restaurant pursuant to the Lease that expires in
2041.
Since 1996, Sand Canyon and SFGC
have invested $17.5 million into capital improvements and site modernizations;
however, the aging buildings and infrastructure require additional investment.
On October 2, 2023, SFGC maintenance staff observed distressed land movement
adjacent to the cart path along the tee box of Hole #10 and contacted the
landowner, IRWD, regarding the issue. After conducting observations and
investigations, IRWD assigned SFGC to address measures required to remedy the
land movement.
Second
Amendment to the Lease
The County is offering SFGC a
20-year extension on its existing lease term in exchange for investing
approximately $5.3 million in various capital improvement projects, including
$1.5 million for the repair and rebuild of the tee box for Hole #10, which is
slated to begin in the fourth quarter of this year. To obtain financing for
capital improvement projects, SFGC may make a direct cash investment, finance the
balance of capital improvement projects or both. Should SFGC finance any of its
capital improvement projects, the proposed financing will also be used to pay
off an existing encumbrance and various other capital improvement and repair
projects such as, but not limited to: a new walk-in refrigerator/freezer for
the restaurant; roof repair; kitchen remodel and new equipment for the barn
event space; a new solar-paneled carport for the golf carts; and the repair and
replacement of golf course paths and irrigation lines.
County staff propose a Second
Amendment to the Lease with SFGC (Second Amendment) that would provide a lease
extension for an additional 20 years, modifying the Lease expiration date to
November 30, 2061. This term extension will provide enough time for SFGC to
amortize their new loan and earn a reasonable rate of return on their
investment.
The Second Amendment also proposes
to amend various provisions regarding rent paid to the County. It will add
Clause 32 titled “Change in Percentage Rent.” Beginning on January 1, 2040, and
no later than June 1, 2040, the County shall perform an appraisal to determine
fair market percentage rents for certain revenue categories. Based on the
findings of the appraisal, percentage rents will be negotiated and will go into
effect on January 1, 2042. In Clause 6 titled “Rent,” the process by which gift
certificates are handled will be memorialized. In Clause 11 titled “Rent
Payment Procedure,” the process by which SFGC pays IRWD its share of gross
revenue will be memorialized.
The Second Amendment will replace
the current insurance clause with CEO/Risk Management’s most updated insurance
language. CEO/Risk Management has reviewed the coverage and limits and has
concurred on their appropriateness for this Lease.
Both the County and IRWD have
agreed to the removal of Clause 26 of the Lease, which gave either the County
or IRWD the option to purchase the leasehold estate at any time during the
final 15 years of the lease term. This clause is being removed at the request
of SFGC as such an option may hinder their ability to obtain outside financing.
Additionally, neither the County nor IRWD has a desire to take over operation
of the golf course at any time during the lease term.
The Second Amendment will require
SFGC to complete all capital improvement projects within 60 months from the
effective date of the Second Amendment and to provide receipts and proof of
payment. If SFGC fails to complete all proposed capital improvement projects
within 60 months, the Lease will automatically revert back to the original
expiration date of November 30, 2041.
The Second Amendment also requires
SFGC to routinely conduct control of non-native, invasive plant species
throughout the leased premises. SFGC shall focus control efforts on target
species identified by the Natural Communities Coalition. County staff will
provide SFGC with the annually updated target species list on target species
and will provide guidance to SFGC on the control of target species.
Proposed
Capital Improvement and Repair Projects
A summary of the proposed
improvements and estimated costs for completion of the improvements are
detailed in the below table. The clubhouse and barn are located on County
property; Hole #10 is located on IRWD property; and the golf course paths and
irrigation lines are located throughout the leased premises on both County and
IRWD land.
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Location |
Proposed Improvement |
Cost Estimate |
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Golf Course |
Repair/rebuild
Hole #10 |
$1,500,000 |
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Club House |
Repair sections
of roof |
$65,000 |
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Club House |
Install new
walk-in refrigerator |
$125,000 |
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Barn |
Install new
equipment and remodel |
$312,000 |
|
Golf Cart
Storage |
Install solar
panel carport for charging golf carts and solar power |
$290,000 |
|
Golf Course |
Install new
irrigation controllers and repair/replace pipes throughout course |
$1,000,000 |
|
Golf Course |
Repair/replace
golf course cart paths throughout course |
$2,000,000 |
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Sub Total |
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$5,292,000 |
SFGC must obtain a signed Consent
to Encumber prior to procuring outside financing on any of the capital
improvement projects listed above. Should SFGC decide to finance all or part of
the capital improvement projects, the proposed maximum loan amount is $9
million. This loan amount will include paying off the existing loan of
approximately $4.2 million with an estimated cash allocation of $4.8 million
for capital improvements. Any cash out not allocated to capital improvement
projects will be subject to a refinance fee of 50 percent of the cash out
payable to the County.
Compliance
with CEQA: The
proposed project is Categorically Exempt (Class 1) from the provisions of CEQA
pursuant to Section 15301 because it provides for lease of existing public or
private structures and facilities involving negligible or no expansion of
existing use.
FINANCIAL IMPACT:
Approval of the
Second Amendment to the Lease and the Consent to Encumber will extend the Lease
for an additional 20 years, which will extend the period that the County will
receive revenue from this Lease. Revenues paid to the County for this item will
be absorbed into OC Parks Fund 405 FY 2024–25 Budget and will be included in
the budget for future fiscal years.
STAFFING IMPACT:
N/A
REVIEWING
AGENCIES:
OC Community Resources
ATTACHMENT(S):
Attachment A - Location Map
Attachment B - Summary of Second Amendment to Lease
Attachment C - Second Amendment to Lease Agreement
Attachment D - Consent to Encumber