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City Council Meeting: March 8, 2011
Agenda Item: ~-D
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Viceroy Hotel: Assignment of Lease
Recommended Action
Staff recommends, subject to satisfaction of the Labor Peace Provision of Section 6.11
of the Lease, that the City Council:
1. authorize the City Manager to review and execute consent documents
associated with the sale and assignment of the Lease Agreement with Roscoe
Real Estate Limited Partnership, a Delaware limited partnership, to Seaside
Hotel LP, a Delaware limited partnership, for the Viceroy Hotel located at 1819
Ocean Avenue, Santa Monica;
2. authorize the City Manager to review and execute consent documents
associated with the Sublease between Seaside Hotel, L. P, and Seaside Hotel
Lessee, Inc.; and
3. authorize the City Manager to execute other documents required to affect the
sale and assignment of the Lease Agreement and Sublease.
Executive Summary
The City leases property at 1819 Ocean Avenue to Roscoe Real Estate Limited
Partnership, which owns the Viceroy Hotel. Roscoe intends to sell its interest in the
hotel and ground lease to Seaside Hotel, LP, a Delaware limited partnership, for
approximately $80 million. Seaside Hotel, LP will, in turn, enter into asub-lease with
Seaside Hotel Lessee, Inc: The sub-lessee will enter into a management agreement
with KHM Viceroy Hotel Santa Monica, LLC, the current operator of the hotel. The
Amended and Restated Lease requires City approval of the lease assignment, sublease
and management agreement. In addition, the City is entitled to a transfer premium of
approximately $500,000. Seaside Hotel LP, the new owner, is an entity created by
LaSalle Hotel Properties, a publically traded Real Estate Investment Trust (REIT) which
specializes in hospitality properties.
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Background
The City first entered into an 82-year ground lease with Royal Inns of America, Inc. in
1966 for development of a first class hotel, now known as the Viceroy Hotel. On
Member 19, 2000, Council authorized approval of an Amended and Restated Lease.
The Amended and Restated Lease extended the lease term by 17 years, to September
25, 2065, adjusted the percentage rent to be paid to the city, and required. significant
upgrades to the property.
Discussion
The terms of the Amended and Restated Lease require the City to approve any
assignment of the lease, sublease or management agreement. Roscoe Real Estate
Limited Partnership, current owner of the 162-room Viceroy Hotel, seeks. the City's
consent for the transfer of the leasehold interest and sublease to subsidiaries of LaSalle
Hotel Properties. LaSalle Hotel Properties is a publically traded REIT which owns 35
hotels with 9,100 rooms, including the Hilton San Diego in the Gaslamp .District of San
Diego and the Chamberlain in West Hollywood. As a REIT, LaSalle Hotef Properties
cannot directly manage the hotel. Additionally, to comply with other requirements of the
US Tax Code prior to the- close of escrow, LaSalle Hotel Operating Partnership LP will
assign its interest to Seaside Hotel LP, who will become the owner of the hotel and
Lessee. Seaside Hotel LP will enter into a sublease with- Seaside Hotel Lessee; Inc.
This entity will enter into a management agreement with KHM Viceroy Santa Monica,
LLC, the current operator of the hotel who has managed the hotel since 2000. The sale
price is estimated to be $80 million.
When Council approved the Amended and Restated Lease in 2000, an issue of concern
was the hotel's labor practices. The Amended and Restated Lease includes Section
6.11, Labor Peace, which provides: "Notwithstanding any other provisions of this
Agreement, in order to protect the City's proprietary interest in revenues under the
Agreement from adverse economic effects of labor disputes, an amended Agreement or
any City approval of any assignment or transfer of this Agreement may. not be executed
on behalf of the City until the Developer has submitted to the City afully-executed, valid
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Labor Peace agreement (in the form of a collective. bargaining agreement, organizing
agreement or other contract under 29 U.S.C. Section 185) with any labor organization
seeking to represent Developer's employees and until the City Council approves such
agreement as meeting the requirements provided in this section."
The operator of the Viceroy Hotel, KHM Viceroy Santa Monica, LLC, entered into a
Collective Bargaining Agreement with UNITE HERE Local 11, for a term commencing
August 1, 2006, through July 31, 2009, and extended by its terms for an additional year
to July 31, 2010. The seller and purchaser are currently in negotiations with Local 11
regarding the Labor Peace provisions required by Section 6.11 of the Lease. Staff will
report on the status of the negotiations at the City Council meeting.
Financial Impacts & Budget Actions
The Amended and Restated Lease provides for a Transfer Premium representing two
percent of the net sale proceeds. The anticipated one-time Transfer Premium payment
to the City will be approximately $500,000, and subject to audit by the City. The
Transfer Premium will be deposited into Account No. 01224.404170.
Prepared by: Miriam Mack, Economic Development Manager
Approved:
Andy Agle, Director
Housing and Econp
Forwarded to Council:
Rod Gould
City Manager
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