SR-410-003 (13)
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JAN 2 4 1984
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Council MeetIng of 01/24/84
Santa MonIca, CalIfornIa
TO: Mayor and CIty CouncIl
FROM: CIty Staff
SUBJECT: Recommendation to Adopt a ResolutIon AuthorIZIng
the CIty Manager to SubmIt an ApplIcatIon for a $10
mIllIon Urban Development Actlon Grant for Phase II
Colorado PI ace.
INTRODUCTION
The Colorado Place Ltd. Developer has requested that the Clty
assIst them In the flnancIng of Councll approved Phase II of the
project conSIstIng of 390 room hotel and offIce/retaIl uses
located at 2601 Colorado Boulevard. The developers are makIng
thIS request pursuant to a term In the developer agreement that
states that the City will "cooperate with and aSsIst" the
developer to secure fInanCIng for the project If commerclally
reasonable fInanCing 15 not avallable.
The developer has
proposed that the CIty apply for an Urban Development ActIon
Grant (UDAG) for $10 millIon to make the project fInanCIally
feaslble.
ThIS report provldes a brief background of the Colorado Place
Ltd. development and the Urban Development Actlon Grant Program,
a descrIptlon of UDAG reqUirements and the terms of the proposed
agreement between the CIty and the developer, and a recommendatlon
to authorIze the CIty Manager to submIt an appllcatlon for a $10
mIll10n Urban Development ActIon Grant.
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JAN 2 4 1984
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BACKGROUND
Colorado Place, Ltd. has a Development Agreement (82-1931~7)
w1th the C1ty of Santa Mon1ca to develop the real property known
as the WBA Land and the Kranz Land descr1bed 1n the Development
Agreement. Phase I, bU1lt on the WBA Land, has been completed 1n
accordance wIth the terms of the Agreement.
Phase II, to be
bUIlt on the Kranz Land, IS scheduled to begIn In the sprIng of
1984. Phase II WIll consIst of approxImately 450,000 square feet
of usuable area.
The proJect wIll contaIn two offIce bUIldIngs,
IncludIng retaIl space; a 40,000 square foot health club; a 1,400
space parkIng structure; and a 390 room hotel. The 9 story hotel
WIll also contaIn meetIng faCIlItIes, ballroom, teleconference
center, two bars, a coffee shop, and two restaurants.
The overall cost of the proJect, IncludIng land, constructIon,
Improvements, permIts, archItecture and engineerIng, and
contIngencIes, IS approXImately $115 mIllIon. FInanCIng for the
project In the amount of $95 mIllIon has been secured. There IS
a gap of approXImately $20 mIllIon, for WhICh CIty assIstance
securIng addItIonal fInanCIng of $10 mIllIon IS beIng requested;
the remaInIng $10 mIllIon wIll be provIded as addItIonal equIty
from the Colorado Place developer.
If another source of
fInanCIng 15 not IdentIfied the quallty of Phase II would have to
be signlflcantly reduced.
Pursuant to a clause In the Development Agreement WhICh reqUIres
the City to assIst the developer secure fInanCIng for the
proJect, the Colorado Place partnershlp approached the CIty to
dISCUSS utllizing a federal program called Urban Development
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Actlon Grant (UDAG) to provlde addltlonal financ1ng to make the
project feaSIble. (A discrlptIon of the UDAG program 1S
attached.) UDAG 1S a grant to the C1ty from the federal
government WhICh the CIty 1n turn loans to the developer. The
loan payback lS reta1ned by the C1ty to fInance CDBG elIgIble
act1vltles. As long as loan repayment proceeds are used for
e11gIble actlvltles the CIty has no fInancial obl1gation to the
federal government. In add1t1on to authorIzIng submiss10n of the
appllcatlon, future Councll act10n w1ll be required for
acceptance of the grant award and approval of the contract
between the CIty and the developer.
Program Descrlptlon
Repayment Plan
The CIty wlllloan the proceeds of the UDAG to the Colorado Place
PartnershIp 1n the form of a second mortgage on the property. To
make loan repayment fInanclally feasIble durIng prOject startup a
stepped repayment plan has been desIgned, wIth Interest
IncreasIng from 6% 1n years 1 through 3, to 8.5% In years 4-6 and
to 11% for the remaInder of the agreement. Annual payments Wlll
consIst of both Interest and principal repayment. The annual
payment WIll be $684,200 durIng years 1 through 3, $887.600 years
4-6 and $1,100,600 thereafter. Although the loan 1S structured
on a 35 year amort1zatlon schedule, a ballon payment of the
remalnlng pr1nc1pal. $8.610,000, 1S requlred at the end of year
17. The total of these annual payments 1S equal to $25,432,000
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(constant dollars). After the early start up years, the Clty
should be able to "sell the loan" at face value or borrow agaInst
it.
In addltlon, In return for provIdlng lower Interest rates than
are commercIally avaIlable, the CIty WIll receIve a percentage of
the prOJect success by sharIng the cashflow. ThIS "percentage
k lckerll 1 s less stable than the Inter est and pr inc 1 pal paym en ts
and could result In lIttle or no revenue or, alternatIvely,
could result In substantIal Income to the CIty. For calculatIon
pur pose s staff used a proJ ected oper a tl ng sta tern ent supplIed by
the Developer. The "percentage kIcker" IS calculated on the same
baSIS as the partIcIpatIon plan provIded for In the fIrst
mortgage WIth a pro rata adJustment for the amount of prIncpal at
rIsk.
In Phase II start up years prIor to stabIlIzatIon the Clty wIll
receIve 1/10th, 2/10th and 3/10th of 1% of the hotel gross
revenue for each of the three years prlor to stabllzatlon. The
developers proJectIons IndIcate that stabIlIzatIon wIll occur at
the end of year three. Once hotel and offlce revenues have
reached stabIlIzatIon, the CIty WIll earn 1% of hotel gross
revenue and 4% of pre-debt serVIce net Income after operatIons of
the offIce over stabIlIzatIon year revenue. USIng the
developer's prOjections these "klckerll payments grow from
approx I matel y $60,000 In year four to $685,000 In year 17. Over
the term of the loan, the payments total approximately $5
mIllion.
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Altogether the $10 mlllion UDAG wl!l earn $30 over 17 years. The
developer WIll be ab!e to prepay or reflnance the loan by paYlng
off the prlnclpal, but the Clty wlll malntaln ItS cashflow
partlcipatlon positlon for the term of the original loan
agreement.
Dlsbursement of Loan and Partlclpation Payments
HUD reqUIres that cltles receIVlng UDAG's use loan payback
proceeds to fund CDBG elIgIble actlvltles. Program areas
targeted for fundlng Include hOUSIng, soclal servlces,
nelghborhood Improvements and neIghborhood commercla!
revltallzatlon. CommunIty partlclpatlon WIll be sought for
determInIng the allocatlon of funds with priorIty glven to
nelghborhoods ImmedIately affected by the proJect.
The folloWIng nIne crIterIa are what the federal government WIll
use to evaluate the competltlveness of the CIty'S applIcation.
1. Relatlve Dlstress of the CIty and Leverage RatlO.
Under UDAG gUIdelInes, elIgIble cltIes natIonWlde are ranked
accordlng to theIr dIstress (unemployment, per capIta
Income, age of hOUSIng, etc.). Because Santa Monlca wlIl
score low In terms of dlstress relatlve to other cItles
natlon wlde, the lever age ratIO 0 f pr 1 v ate to pUblIC doll ar s
must be better than the natIonal average of 5.80 to 1. The
Colorado Place Phase II project WIll cost approxImately $115
millIon. A UDAG of $10 mIllIon would equate to a leverage
ratlo of 10.5 to 1, WhICh is well above the average and
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would offset the lower d~stress rank~ng.
2. Permanent Job Cost RatIo
An estimated 1,102 jobs are projected at this tIme, and,
WIth UDAG of $10 mIllIon, the cost per job would be $9,074,
WhICh IS hIgher than natIonal average UDAG's of
approxImately $6,000 - 8,000 of UDAG per new Job created.
3. Tax Return (RatIo of New Taxes to UDAG)
Projected taxes to be generated by thIS project Include
property tax, sales tax, and bed tax. HUD wants a return of
$.10 In taxes per dollar of UDAG. The Increase In valuatIon
of the property after constructIon of Colorado Place Phase
II WIll be an estImated $90 mIllIon. Annually thIS WIll
generate a property tax of $1.125 mIllIon, of WhiCh about 17
percent or $191,250 Will accrue to the Cl ty. The 8 percent
bed tax, based on 75 percent occupancy, generate
approximately $1 mIllIon and the 1% sales tax Will generate
about $160,000 annually. In total the prOject Will
generate taxes of $.14 per UDAG dollar.
4. Recapture of UDAG by the C1 ty
HUD recognIzes that UDAG dollars must meet "gap" f1nancllng
needs and are therefore In a less secure pOSItIon than
conventional flnanc~ng. AccordIngly HUD encourages cash
flow partiCipation to compensate for the additional rIsk.
Repayment WIll take the form of:
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Repayment WIll take the form of:
* Amtorlzed payments of prIncIpal and Interestj and
* PartIcIpatIon In cash flow.
5. MInorIty and ReSIdent PartIcIpatIon In the ProJect
MInorIty partIcIpatIon, as requIred by HUD, wIll be evident
In employment, lessees of offIce and retaIl space. DurIng
constructIon, mInorIty contractors WIll be encouraged to
bId. To encourage the hIrIng of women and mInorItIes and
local residents partIcularly proJect neIghborhood reSIdents,
staff IS conSIderIng a system for abatIng some portIon of
the annual cash flow partICIpatIon payment for each
mInorIty and local reSIdent employed In the development
above a certaIn mInImum performance threshold. Staff WIll
establIsh a formula WhICh encourages employment of
mInorItIes and local reSIdents for CounCIl conSIderatIon
WhICh will be dIscussed In a subsequent staff report.
6. CommItment to TraIn the Unemployed and Under-Employed
An employment plan wIll be deVIsed defInIng the Jobs to be
created and prOVIdIng for ongOIng trainIng and placement.
7. Other PublIC FInanCIal PartIcipatIon
No other publIC fInanCIng IS antICIpated other than the
UDAG, HUD prefers prImarIly prIvate financing in conJuctlon
with the UDAG.
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8. Complet1on of Project
HUD requ1res complet1on of the project w1thin 48 months from
start. Colorado Place Phase II antIcIpates a complet1on
t1me of 22 months from startup.
DISCUSSION
At thIS t1me staff IS requestIng CouncIl authorIzatIon to subm1t
an applIcatIon for the UOAG. AddItIonal Council actIon WIll be
requ1red to accept the grant and to enter 1nto a contract w1th
the developer WhICh establIshes the terms for dIsbursement and
repayment of the loan and payment of particIpatIon proceeds.
The amount of the UDAG applIcatIon w1ll be $10 m1lllon, plus an
admInIstratIve fee WhICh WIll be used by the CIty to reImburse
Its costs 1n preparIng the applIcatIon contract and Will pay for
monItorIng the UDAG. As was IndIcated prevIously, It IS
necessary to cover the gap between the permanent fInancIng ($95
mIllIon) and Developer eqUIty (approxImately $10 m1llIon). HUD
normally plays a very actIve part In UDAG negotIatIon and the
UDAG request may have to be negotIated downward to make the
proJect more competItIve. Colorado Place, Ltd., has done
extenSIve prellm1nary research regardIng thIS speCIfIc proJect,
Including a personal meetIng of the UDAG staff In Washington,
D.C. The UDAG staff was very supportIve of the proJect and
1nd1cated that 1f the project was submItted by the end of
January, WIth a strong leverage ratIO and a reasonable cost per
Job, the project would be very competItive.
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In order to Increase the competItIveness of the proJect, It IS
ImperatIve to submIt the applIcatIon In thIS fundIng cycle, WhICh
ends on January 31, 1984.
There are two reasons for thIS
urgency:
1. The permanent fInanCIng agreement termInates prIor to the
next UDAG fundIng cycle In AprIl, 1984, and;
2. A SImIlar hotel proJect WIth a SImIlar UDAG amount from a
jurIsdIctIon WIthIn the Los Angeles metropolItan area IS
scheduled to be submItted In the AprIl, 1984, fundIng cycle.
To aVOId unnecessary Los Angeles baSIn competItIon a
submIttal In thIS round IS recommended.
BUDGET/FINANCIAL IMPACT
The UDAG Irnll generate revenue of approxImately $25 mIllIon In
loan repayments and $5.0 mIlllOTl In partICIpatIon proceeds over
17 years.
These revenues are In addItIon to other fIscal
benefIts provIded for In the Development Agreement.
Cost of
applying for and admInIsterIng thIS grant wIll be Included In the
gr ant amount.
The grant applIcatIon IS not expected to have any
budget Impact In fIscal year 1983-84. FIscal Impacts In future
years WIll be addressed In those years' budget process.
RECONMENDATIONS
1. After conductIng a publIC hearIng to obtaIn CItIzens VIews
regardIng submISSIon of thIS UDAG applIcatIon, adopt the
attached resolutIon authorIZIng the CIty staff to proceed
WIth the submISSIon of the UDAG applIcatIon, and authorIZIng
the Mayor to SIgn the applIcatIon and certIfIcatIons.
2. Instruct staff, should the UDAG be awarded, to negotiate and
return to CounCIl for approval the terms and condltIons of
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the necessary documents for (1) the CIty'S acceptance of
UDAG and (2) makIng the loan to the developer.
Prepared by: Mark Tlgan, DIrector
CommunIty & EconomIC Development Department
MarJorie MattuccI, EconomIc Development SpecIalIst
EconomiC Development DIvIsIon
CommunIty and EconomIc Development
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SCHEDULE OF EXHIBITS
Exhibit A UDAG Program Description
ExhibitB Resolution Authorizing Submission of
Application for UDAG
Exhibit C Certification for Federal UDAG
The Resolution and sample Certifications will arrive
under separate cover.
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Upcoming News Alert (2021750-6424
RaclO S[:otfT"aster (SOO' 424-85'31) Ill" Wasr.lr.g'::-- ':' c: :a 755-7397"1
HUO No. 83-250
Jack Flynn (202) 755-5277
Leonard Burchman (202) 755-6980
FOR RELEASE;
Thursday,
December 29, 1983
58 UDAG GRANTS TOTAL
$117.5 MILLION FOR 42 METRO CITIES
More than $117.5 million in Urban Development Action Grant
(UnAG) funds have been awarded to 42 metropolitan cities for 58
industrial, commercial, and neighborhood projects, Secretary of
Housing and Urban Development, Samuel R. Pierce, Jr., announced
today.
The grants will attract over $521.9 mill10n in private
investment to economically dlstressed areas. When the projects
are completed--for most, within two or three years--they wlll
create 12,366 new permanent jabs. loday's awards also will help
retaln 594 private sector jobs, and start 7,255 in constructlon.
"Each of these public/prlvate economic development proJects
wl1l make a difference for the citiest" said HUD Secretary
Pierce. "For some, the most important aspect will be the job
creation, and for others it will be the strengthened tax base or
the rehabilitated housing.
"In every case, these are locally-designed programs worked
out with private lnvestors to meet locally-determlned needst"
Secretary Pierce added.
The HUD economlC development program lS designed to spur new
local projects that would not have occurred without Urban
Development Action Grant assistance. Only distressed citles,
urban count1est and areas wlth slgnlflcant "pockets of poverty"
may apply for the grants.
"While competltlon for UDAG approval is keen," said Stephen
J. Bollinger, Assistant Secretary for Community Plannlng and
Development, "these grants prove once again that distressed areas
produce competitive applicatlons for one reason: because they
can be good candldates for solid economic development projects."
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HUD-No. 83-250
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The awards offered today, for metropolitan cities competing
in the first quarter of fiscal year 1984, are preliminary
application approvals. The cities must sign a contract with HUD,
and obtain legally bin~ing commitments of the private investment,
be ore Urban Development Action Grant funds can be released.
Small city (under 50,000 population) awards for the first
quarter will be announced by early February.
January 31 lS the c1051n9 date for receipt of new metro tlty
and urban county applications for second quarter, FY 1984
competltlon. Those selections will be announced by early April.
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(Attached are brief project descriptions for metropolitan Clty
awards in the first quarter of FY 1984.)
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RESOLUTION ~UMBER
6813(CC5)
(C~ty Counell Ser~e8)
A RESOLC1'ION OF THE CITY OF SAL'JTA MONICA
AUTHORIZI~G THE CITY MANAGER TO SUBMIT
~ APPLICATION AND NEGO~IATE ~~
URBAS DEVELOPME~T ACTION GRANT FOR
COLORADO PLACE PHASE II.
WHEREAS, the C1ty of Santa Mon1ca 18 an ellglble Urban
Development Actlon Grant c~ty; and
WHEREAS, the C~ty of Santa Monlca de51res to submlt an
Urban Development Actlon Grant for Colorado Place II; and
WHEREAS, the Clty of Santa Monlca recagnlzes the
beneflts to be derlved from thlS proJect lncludlng Jobs,
property tax, sales tax and bed tax revenue,
NOW, THEREFORE, THE CITY COUKCIL OF THE CITY OF SAt>JTA
MONICA DOES RESOLVE AS FOLLOWS:
SEC~ION 1. The Clty CounCll of the Clty of Santa Monlca
authorlzes the Clty Manager to execute an appllcatlon and
execute all necessary assurances to the Department of Eiouslng
and Groan Development for an Urban Development Actlon Grant
for Coloracio Place Phase II and to negotlate wlth Colorado
Place, Ltc and HUD for a repayment of the UDAG acceptable to
the Depart~ent of Houslng ana Urban Development and the Clty.
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SECTION 2.
The Clty Clerk shall certlfy to the adoptlon
of thlS Resolutlon, and thenceforth and therafter the same
shall oe ln full force and effect.
APPROVED AS TO FORM
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ROBERT !'ol. ~lYERS
Clty Attorney
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ADOPTEO AND APPROVED THIS
24th
o A '1'
Or January
, '984.
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MAYOR
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I ~EREBY CERTIFY THAT THE FOREGOING RESOLUTION
NO. 6813
.WAS DULY ADOPTED BY THE CITY COUNCIL QF THE
CITY OF SANTA MONICA ~T A MEETING THEREOF HELD ON
Januarv 24
, 1984 BY THE FOllOWING COUNCIL VOTE:
AYES:
L COUNCIlMEMBERS: Conn, Jennlngs, Press, =ane ane
rlayor EdFards .
NOES:
COUNCILMEMBERS: Epsteln and Reed
ABSENT:
COUNCILMEMBERS: ~one
ABSTAIN:
COUNCILMEMBERS: ~one
ATTEST:
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CITY CLERK