SR-08-22-1989-6Ln -L: rAUIkUU SHORE ASSOCIATES /LENDER FINANCING REQUIREMENT: A
recommendation to authorize City Manager to execute Addendum No.
5 to the Lease Agreement with Pacific Shore Associates Limited
Partnership to accommodate lender financing requirement, thereby
amending Contract No. 1740(CCS), was approved.
CITY COUNCIL MINUTES
AUGUST 22, 1989
TO: The Mayor and City Council
FROM: City Staff
SUBJECT: Approval of Addendum With Pacific Shore Associates
Limited Partnership to Provide Certain Leasehold
Mortgage Provisions to Accommodate Standard Lender
Financing Requirements
INTRODUCTION
This staff report requests City Council authorization for City
Manager execution of Addendum No. 5, to Lease Agreement with the
Pacific Shore Hotel Lessee to accommodate lender financing
requirement.
BACKGROUND
The City entered into an agreement with Royal Inns of America in
1966 to lease City -owned property for the development of a hotel.
The 76,000 square foot site located along the north side of Pico
Boulevard between Ocean Avenue and Main Street was improved in
1967 with an eight story, 168 room hotel in accordance with this
Lease Agreement. Since execution of the original agreement and
completion of construction, four addendums to the lease have been
approved by the City to accommodate a variety of issues including
assignment of leasehold interests, termination of expansion
rights and enhancements to lease revenue compensation. The 55
year lease has 27 years remaining.
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DISCUSSION
Pacific Shore Associates Limited Partnership, the current lessee,
requested certain mortgage protection provisions to accommodate
standard lender financing requirements. The financing instrument
will be a traditional leasehold mortgage held by an institutional
lender, technically known as the "Holder ".
The proposed Addendum No. 5 will add Section 4.08 Mortgage of
Leasehold which provides adequate Holder protections for lending
which are consistent with recent federal tax reform, bankruptcy
code changes, and prevailing banking regulations. In particular,
No. 5 Addendum provides the Holder with more information
regarding the Lessee's performance including notices of any
default and /or breach under the Lease Agreement. A reasonable
opportunity for the Holder to cure any such default and /or breach
is also provided. Finally, in the event of foreclosure, the
Holder's ability to either assume or transfer the lease to a
party approved in advance by the City has been clarified.
BUDGET /FISCAL IMPACT
The addendum does not alter the City's interest, nor the lease
revenue compensation derived from the previously amended
agreement.
Consideration in the amount of $30,000.00 to compensate the City
for its time and efforts to prepare and excute the Addendum has
been agreed upon by the Lessee and will be deposited in account
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01- 904 - 077 - 000 -000.
It is recommended that City Council authorize City Manager to
execute Addendum No. 5 to the Lease Agreement with Pacific Shore
Associates Limited Partnership.
Prepared by: Peggy Curran, Director
Community and Economic Development Department
Linda Moxon, Deputy City Attorney
City Attorney's Office
Jeff Mathieu, Manager
Economic Development Division
Attachment: Addendum No. 5
(pacshore)
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17146/RIS/07 -17 -01
07/19/89
ADDENDUM NO. 5
THIS ADDENDUM NO. 5 shall be attached to and become a
part of Contract Number 1740 (City Council Series) (the
"Addendum ") is made this _ day of , 1989, by and
between Pacific Shore Associates Limited Partnership, a
California limited partnership (the "Developer ") and the City of
Santa Monica, a municipal corporation (the "City "), based on the
following facts.
RECITALS
A. on December 28, 1966, the City entered into that
certain Lease and Agreement with Royal Inns of America, Inc., a
California corporation ( "RIA "), as amended by that certain Adden-
dum dated December 28, 1966, and by that certain Addendum No. 2
dated July 26, 1987, and by that certain Addendum No. 3 between
the City and Royal Inns of America, Inc., a corporation, dated
December 21, 1967 and by that certain Addendum No. 4 (undated)
between the City and Royal Inns of Santa Monica, a California
general partnership (the "Agreement ") whereby the City leased
certain property to RIA for the construction operation of a 150
unit hotel.
B. Developer has succeeded to all of RIA's and Royal
Inns of Santa Monica's interest in the Agreement.
C. Developer and the City desire to make additional
revisions to the Agreement on the terms and conditions set forth
herein.
NOW, THEREFORE, the parties agree as follows:
1. A new section 4.08 shall be added to read as
follows:
4.08. Mortgage of Leasehold.
(a) Developer may, at any time and from time
to time during the term of this Agreement, encumber by a "Lease-
hold Mortgage" (as hereinafter defined) in favor of an "Institu-
tional Lender" (as hereinafter defined) all of the Developer's
interest under this Agreement and the leasehold estate created in
Developer, provided that Developer obtains the prior written
consent of City, which consent shall not be unreasonably withheld
or delayed, and further provided that:
1. The Leasehold Mortgage and all
rights acquired thereunder shall be subject to each and all,bf
the covenants, conditions, and restrictions stated in this Agree-
ment and to all rights and interests of City except as otherwise
provided in this Agreement.
2. Developer shall give City prior
written notice of any Leasehold Mortgage and shall accompany the
notice with a true copy of the note and Leasehold Mortgage.
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3. Developer provides all requested
information to City necessary or desirable in order to obtain
consent.
4. No encumbrance incurred by Developer
pursuant to this Section 4.08 shall, and Developer shall not have
power to incur any encumbrance that will constitute in any way a
lien or encumbrance on the fee of the Lease Parcel or any
interest of City in the Lease Parcel.
5. City consents to the amount of the
encumbrance, the terms of the assignment for security, and to the
Holder. Without the prior written consent of City, which consent
shall be in City's sole discretion, the amount of indebtedness
secured by such Leasehold Mortgage, plus the amount of
indebtedness secured by all other Leasehold Mortgages, if any,
encumbering the Property, shall not exceed ninety percent (900)
of the fair market value of Developer's interest in the Parcel
Improvements and Developer's leasehold interest under this
Agreement. For purposes of this Section 4.08(a), the "fair
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market value" of Developer's interest under this Agreement shall
mean the value of Developer's interest in the Parcel Improvements
and under the Lease as reasonably determined by the Leasehold
Mortgagee.
6. No encumbrance incurred by Developer
pursuant to this Section 4.08 shall extend beyond the term of
this Agreement.
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7. The City Manager shall be authorized
to provide the consent of City required pursuant to the terms of
this Section 4.08(a).
8. City shall not be required to
approve any Leasehold Mortgage unless the Holder thereof is an
Institutional Lender (as hereinafter defined). As used herein
the term "Institutional Lender" shall mean a savings and loan
association, a savings bank, a commercial bank or trust company,
an insurance company, a state, municipal or private employees'
welfare, pension or retirement fund or system, investment banking
firm, or other financial institution, provided that such entity
is subject to or submits to service of process within the State
of California and has total assets of at least two hundred
million dollars ($200,000,000).
City hereby acknowledges the existing
financing on the Lease Parcel consisting of (i) financing in
favor of The Bank of New York in the total principal amount of
$12,600,000 (evidenced by two notes, each in the principal sum of
$6,300,000, and secured by a Deed of Trust, Security Agreement,
Assignment of Rents and Fixtures Filing and (ii) financing in
favor of affiliates of the General Partner of Developer in the
total principal amount of $1 Million (evidenced by four notes in
the amount of $500,000, $300,000, $100,000 and $100,000
respectively and secured by a second Deed of Trust).
(b) As used in this Agreement, "Leasehold
Mortgage" shall mean any mortgage, deed of trust or other secur-
ity instrument, including, without limitation, an assignment of
the rents, issues and profits from the Lease Parcel, which
constitutes a lien on the leasehold estate created by this Agree-
ment.
(c) Any Leasehold Mortgage which contains a
power of sale as defined by California law, shall contain a pro-
vision that a copy of any notice of default and a copy of any
notice of sale under such Leasehold Mortgage shall be mailed to
City simultaneously with any such notice to Developer. In the
event that a Holder sends a written notice of default to Develo-
per pursuant to the Leasehold Mortgage, Developer agrees that the
Leasehold Mortgage shall contain a provision requiring that
Holder shall concurrently send a copy of such notice to City and
that Developer shall send a copy of said notice to City, within
two (2) days from Developer's receipt of any such notice from
Holder.
i
(d) In the event Developer incurs any Lease-
hold Mortgage, City shall mail to Holder a duplicate copy of any
notice City may from time to time give to or serve on Developer
regarding Developer's default under, or breach of, this Agree-
ment. Developer shall at all times keep City informed in writing
of the name and mailing address of Holder and any changes in
Holder's mailing address. Any notice or other communications
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permitted by this or any other Section of this Agreement or by
law to be served on or given to Holder by City shall be deemed
duly served on or given to Holder when deposited in the United
States mail, first -class postage prepaid, addressed to Holder at
the last mailing address for Holder furnished in writing to City
by Developer or Holder.
(e) Should Developer incur any Leasehold
Mortgage, the Holder shall have the right at any time during the
term of this Agreement and the existence of the Leasehold
Mortgage toe
1. Do any act or thing required of
Developer under this Agreement which may be necessary and proper
to be done in observance of the covenants and conditions of this
Agreement, and any such act or thing done and performed by Holder
shall be as effective to prevent a forfeiture of Developer's
rights under this Agreement as if done by Developer, provided
that Holder complies with Section 4.08(g).
2. Realize on the security afforded by
the leasehold estate by exercising foreclosure proceedings or
power of sale or other remedy afforded by law or in equity or by
the Leasehold Mortgage and toe
a. Transfer, convey, or assign the
interest of Developer in the leasehold estate created by this
Agreement to any purchaser at any foreclosure sale, whether the
foreclosure sale be conducted pursuant to court order or pursuant
ME
to a power of sale contained in the Leasehold Mortgage; provided,
however, that Holder first complies with the provisions of
Sections 4.08(f) and 4.08(h).
b. Acquire and succeed to the
interest of Developer under this Agreement by virtue of any fore-
closure sale, whether the foreclosure sale be conducted pursuant
to a court order or pursuant to a power of sale contained in the
Leasehold Mortgage; provided, however, that Holder first complies
with the provisions of Section 4.08(f).
(f)(1) In the event that Developer incurs
any Leasehold Mortgage, and either (i) Developer thereafter de-
faults under or breaches this Agreement, or (ii) Developer there-
after defaults in any term, condition or covenant of the Lease-
hold Mortgage, then in either said event, and as a result of such
default or breach, Holder elects to accelerate the entire out-
standing balance of Developer's obligation to Holder and Holder
then completes the foreclosure action described in said Leasehold
Mortgage, Holder shall thereafter acquire and succeed to Deve i lo-
per's interest in the Lease Parcel under this Agreement and, "this
Agreement shall continue as a direct lease between City and
Holder. In the event that Holder succeeds to Developer's
interest as a result of any default or breach of Developer under
this Agreement, Holder shall be obligated to remedy such default
or breach as provided for in Section 4.08(g) of this Agreement if
Holder wishes to have the Agreement continue.
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(f)(2) In the event that Holder succeeds to
Developer's interest pursuant to Section 4.08(f)(1), above, and
thereafter Holder proposes to transfer, convey or assign the
interest of Developer in the leasehold estate created by this
Agreement to any purchaser or sublessee, then City further agrees
that in the event Holder presents to Lessor a proposed successor
lessee who otherwise meets all of the requirements for transfer
as provided for in Section 5.09(b), City shall not unreasonably
withhold its consent to the transfer of Holder's leasehold
interest to the proposed successor lessee.
(g) Should Developer incur a Leasehold Mort-
gage, before City may terminate this Agreement because of any
default under or breach of this Agreement by Developer, City must
have given written notice as provided in Section 4.08(d) to
Holder and afford Holder the opportunity after service of the
notice to:
1. Cure the breach or default within
ten (10) banking days after service of the notice given pursuant
to Section 4.08(d) in the event that the default can be cured by
the payment of money to City or some other person.
2. Cure the breach or default within
thirty (30) days after service of the notice where the breach or
default must be cured by something other than the payment of
money and can be cured within that time.
3. Cure the breach or default in such
reasonable time as may be required where something other than
money is required to cure the breach or default and the breach or
default cannot be cured within such thirty (30) day period, pro-
vided that acts to cure the breach or default are commenced
within such thirty (30) day period and are thereafter diligently
continued in good faith and completed by Holder.
(h) Holder under a Leasehold Mortgage, may
forestall termination of this Agreement by City for a default
under or breach of this Agreement by Developer by commencing
proceedings to foreclose its encumbrance on the leasehold estate
created by this Agreement. The proceedings so commenced may be
for foreclosure of the encumbrance by order of court or for fore-
closure of the encumbrance under a power of sale contained in the
instrument creating the encumbrance.
(i)(1) Provided that Holder has complied
with Section 4.08(f) in any Leasehold Mortgage, the written con-
sent of City which said consent shall not be unreasonably with-
held or delayed, shall be required to transfer Developer's
interest under this Agreement to purchaser from Holder after
foreclosure where Holder was the purchaser of Developer's
interest at the foreclosure sale.
Holder shall give written notice of
the proposed transfer to City setting forth the name and address
of the proposed transferee as well as the effective date of the
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proposed transfer, and the qualifications of the proposed trans-
feree to operate a hotel in accordance with the provisions of
this Agreement.
(j) In the event a Holder or any third person
acquires Developer's interest in the Agreement and possession of
the Lease Parcel by foreclosure, by trustee's sale, or as a
result of any other action or remedy provided for by any mortgage
or deed of trust, or by deed or assignment in lieu of trustee's
sale for foreclosure proceedings, such Holder or third person,
shall take Developer's interest in the Lease Parcel and posses-
sion of the Lease Parcel subject to all the terms, covenants,
conditions, and provisions of this Agreement.
(k) No Holder under any Leasehold Mortgage
shall be liable to City as an assignee of this Agreement unless
and until such time as Holder acquires all rights of Developer
under this Agreement through foreclosure or other proceedings in
the nature of foreclosure or as a result of some other action or
remedy provided by law or the instrument creating the encum-
brance.
(1) If this Agreement shall terminate prior
to the expiration of the term hereof for any reason beyond the
control of Holder, e.g., rejection of the lease pursuant to the
provisions of Bankruptcy Code § 365(d)(4), City agrees that
Holder shall have the right, for a period of forty -five (45) days
subsequent to the termination, to receive from City a new lease
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of the Lease Parcel. If more than one Holder elects to make such
demand, the most senior Holder shall have the first right to
receive a new lease from City. The election of said new lease
shall be upon the following terms and conditions:
(i) The new lease shall be for a term to
commence upon such early termination of this Agreement and shall
have as the fixed date for the expiration thereof the same date
stated in this Agreement as the fixed date for the expiration of
this Agreement. (Such new lease shall be subject to all existing
subleases of the Lease Parcel.) The rent for the new lease shall
be at the same rate as would have been applicable during such
term under the provisions of this Agreement, had this Agreement
not so terminated, and all of the terms, covenants, conditions,
and provisions of such new lease shall be the same as the terms,
covenants, conditions, and provisions of this Agreement (except
for any requirements which have been fulfilled by Developer prior
to such termination of this Agreement).
(ii) If any Holder shall elect to demand
a new lease within the forty -five (45) day period, it shall.give
written notice to City of said election and City shall thereupon,
within forty -five (45) days of such election by the most senior
of all Holders, execute said new lease with the most senior
Holder.
(iii) The Holder shall, at the time of the
execution and delivery of such new lease, pay to City all sums
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owing by Developer to City under the terms of this Agreement
immediately prior to the termination of this Agreement as well as
all sums which would have become payable hereunder by Developer
to City to the date of execution and delivery of such new lease,
had this Agreement not terminated, and which remain unpaid at the
time of the execution and delivery of such new lease, including,
without limitation, the percentage rental provided for in Section
3.02 of this Agreement; provided, however, Holder shall be given
credit for any rents and income actually collected by City from
any subtenants of the Lease Parcel.
(iv) Any such new lease as herein contem-
plated may, at the option of the Holder, be executed by a wholly -
owned subsidiary or affiliate of such Holder without the Holder
assuming the obligations of the Developer thereunder. As used
herein the term "affiliate" shall mean an "entity" (as
hereinafter defined) that controls, is controlled by or is under
common control with such Holder. As used herein the term
"entity" shall mean a partnership or corporation.
(v) Subject to Holder's compliance,with
the provisions of Section 5.09(b) of this Agreement, the Holder
shall have the right to assign or transfer such new lease to any
other person or entity. The liability of the Holder under such
new lease shall cease on its assignment of such new lease to such
other person or entity.
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(vi) Until the earlier of (1) all
Holders' indication in writing to City that they elect not to
request a new lease or (2) the expiration of the time period
specified in 4.08(1) above for requesting a new lease, City shall
not cancel or agree to the termination or surrender of any
existing subleases nor enter into any new subleases hereunder
without the prior written consent of Holder.
(vii) Notwithstanding anything to the
contrary expressed or implied elsewhere in this Agreement, if
requested by Holder any new lease made pursuant to this
Section 4.08(1) shall be accompanied by a conveyance of title to
the improvements for a term of years equal to the term of the new
lease, subject to the reversion in the City upon expiration or
sooner termination of the new lease.
(m) Except as provided in Sections 4.08(o)
and (q), this Agreement is and shall be subordinate to any encum-
brance now of record or recorded by City after the date of this
Agreement affecting the Lease Parcel. Such subordination is
effective without any further act of Developer. Developer shall
from time to time on request from City execute and deliver any
documents or instruments that may be required by a lender to
effectuate any subordination. If Developer fails to execute and
deliver any such documents, or instruments, Developer irrevocably
constitutes and appoints City as Developer's special attorney -in-
fact to execute and deliver any such documents or instruments.
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(n) This Section 4.08 may be amended to in-
corporate reasonable requirements of a responsible lending insti-
tution acceptable to City. Any such amendments shall not jeopar-
dize or reduce City's reversionary interest in the Lease Parcel
and improvements thereon or City's right to basic rental or per-
centage rental hereunder. City shall use best efforts to
cooperate with Developer and its lender to satisfy the loan
financing requirements of Developer's lender. City shall have
sole discretion in determining whether a lender's requirement is
reasonable and appropriate for incorporation by amendment. Any
amendment authorized hereunder shall be effective only if in
writing executed by City and Developer.
(o) Except as may be expressly provided
otherwise in this Agreement, and notwithstanding Section 4.08(m)
hereof, Developer's right to quiet possession of the Lease Parcel
shall not be disturbed, even in the event of foreclosure of a
lien on the fee interest in the real property leased hereunder,
if Developer is not in default to City and so long as Developer
shall pay the rent and observe and perform all of the provisions
of this Agreement required of Developer.
(p) The Holder shall not be liable to perform
Developer's obligations under this Agreement unless and until the
Holder acquires Developer's rights by foreclosure. After acquir-
ing Developer's rights by foreclosure, Holder shall be liable to
perform Developer's obligations only until Holder assigns or
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transfers the leasehold as permitted by this Agreement. Follow-
ing City's approval of Holder's transfer or assignment of the
leasehold to a new lessee pursuant to Section 5.09(b), Holder
shall have no further liability or obligation thereunder.
(q) The Leasehold Mortgage, and any renewals
and extensions thereof, shall unconditionally be and remain at
all times a lien or charge on the leasehold therein described,
prior and superior to any other lien or encumbrance on said
leasehold.
2. During the term of a Leasehold Mortgage covering
Developer's interest in the Agreement, the term "Gross Receipts"
as described and defined in the Agreement shall not include the
gross or net proceeds payable to or received by Developer in
connection with any casualty or condemnation proceeding affecting
the Property, the Lease Parcel or the Parcel Improvements.
3. Notwithstanding anything to the contrary contained
in Section 3.11 of the Agreement, the City will not take any
action to correct any Developer deficiency unless and until
Holder shall have failed to commence to remedy such deficiency
within ten (10) days after receiving the deficiency notice sent
by the City; provided however, City shall have the right to take
immediate remedial action to correct a deficiency which City
determines constitutes an emergency or public nuisance.
4. As used in the Agreement, the terms "the City" and
"Developer" shall include the respective successors and assigns
of each such party.
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5. The City shall have the right to approve the hotel
operator and to approve the terms and conditions of any manage-
ment agreement with respect to the operation of the hotel, which
approval shall not be unreasonably withheld or delayed. The
Developer shall be required at all times to operate the hotel in
a manner consistent with the standards for a first class hotel
and to operate each cost center as profitably as reasonably
possible in manner consistent with the standards of a first class
hotel. With respect to any significant renovation, the City
shall have the right to review the construction budget prior to
the award of construction contracts to determine whether the cost
is adequate to assure that the project will continue to be main-
tained as a first class hotel. The Developer shall maintain all
improvements constructed on the site throughout the term of the
Agreement as a first class hotel.
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6. Except as expressly modified herein, all other
terms and conditions of the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, this Addendum is entered into as of
the date first written above.
APPROVED AS TO FORM:
Robert M. Myers
City Attorney
"Developer"
PACIFIC SHORE ASSOCIATES
LIMITED PARTNERSHIP, a
California limited partnership
By:
Its: General Partner
"City"
THE CITY OF SANTA MONICA, a
municipal corporation
By:
John Jalili
Its: City Manager
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0
Reference:
Contract No. 1740 (CCS)
E'?1
Contract No. 3139 (CCS)