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Ordinance No. 1171ORDINANCE NO. 1171 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CYPRESS, CALIFORNIA, APPROVING A THIRD AMENDMENT TO THE DEVELOPMENT AGREEMENT WITH WARLAND INVESTMENTS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP WHEREAS, California Government Code Section 65864 et seq. authorizes cities to enter into development agreements with private property owners; WHEREAS, Government Code Section 65868 further allows development agreements to be amended from time to time; WHEREAS, the City of Cypress ( "City ") previously entered into a Development Agreement with Warland Investments Company, a California limited partnership, ( "Warland ") pursuant to the authority of Government Code Section 65864 through 65869.5, which was recorded on May 8, 1995 as Instrument No. 95- 0196392 in the Official Records of Orange County, California, ( "Original Development Agreement ") to facilitate the development of property commonly known as The Warland Cypress Business Center, as more fully described therein, and as amended by that certain First Amendment to the Development Agreement dated May 29, 2001 ( "First Amendment ") and recorded on October 10, 2001 as Instrument No. 2001 - 0712300 and that certain Second Amendment to Development Agreement dated November 28, 2011 ( "Second Amendment ") and recorded on December 9, 2011 as Instrument No. 2011000644867 (the Original Development Agreement, the First Amendment, and the Second Amendment are collectively referred to herein as the "Development Agreement "); WHEREAS, City and Warland now desire to enter into a Third Amendment to Development Agreement ( "Third Amendment ") which (i) extends the term of the Development Agreement; (ii) modifies the definition of "Qualifying Tenant" in the Development Agreement; (iii) incorporates Recitals paragraphs A through D of the Third Amendment into Section 13.d of the Original Development Agreement, as amended by Section 2(a) of the Second Amendment; (iv) deletes Section 2(b) of the Second Amendment, which replaced Section 2(b) of the First Amendment (replacing Section 13(e) of the Original Development Agreement); (v) extends the time for which Reimbursement Payments, as defined by the Development Agreement, are made; (vi) modifying the manner in which Reconciliation, as defined by the Development Agreement, is calculated by replacing Section 2(d) of the Second Amendment, which replaced Section 2(d) of the First Amendment (replacing Section 13.i of the Original Development Agreement; and (vii) replacing Section 25, relating to hold harmless and indemnity requirements, of the Original Development Agreement; WHEREAS, the Third Amendment does not alter the legal description of the Property described in the Original Development Agreement; WHEREAS, the City Council conducted a duly noticed public hearing on November 13, 2017, at which time all interested parties were given an opportunity to be heard and present evidence regarding the Third Amendment. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CYPRESS, CALIFORNIA, DOES HEREBY ORDAIN AS FOLLOWS: Section 1. The recitals set forth above are true and correct and are incorporated herein by this reference. Section 2. The Third Amendment to the Development Agreement complies with the requirements of California Government Code Sections 53083, 65865 through 65869.5. Section 3. The Third Amendment to the Development Agreement will not be detrimental, or cause adverse effects, to adjacent property owners, residents, or the general public. No construction or other development activity is provided by the Third Amendment to the Development Agreement. In accordance with the California Environmental Quality Act ( "CEQA "), the Third Amendment to the Development Agreement is exempt pursuant to CEQA Guidelines, 14 CCR § 15061(b)(3) and 14 CCR § 15378(b)(4). Section 4. The Third Amendment to the Development Agreement does not alter the clear and substantial benefit to the residents of the City of the Project, since the proposed amendment makes no substantive changes to the Project or to the Development Agreement. Section 5. For the foregoing reasons, and based on the information contained in the staff reports, supporting documentation, public testimony, minutes and other records of the proceedings, all of which are incorporated herein by this reference, the City Council hereby approves the Third Amendment to the Development Agreement, which amendment is attached hereto as Exhibit "A" and incorporated herein by this reference. Section 6. The City Clerk shall certify to the passage and adoption of this Ordinance by the City Council of the City of Cypress and shall cause a summary of this Ordinance to be published in accordance with Government Code § 36933. FIRST READING at a regular meeting of the City Council of the City of Cypress held on the 13th day of November, 2017 and finally adopted and ordered posted at a regular meeting held on the 27th day of November, 2017. N:3-41i AYOR OF THE CITY OF CYPRESS ATTEST: CITY CLERK OF THE CITY OF YPRESS STATE OF CALIFORNIA } COUNTY OF ORANGE } SS I, DENISE BASHAM, City Clerk of the City of Cypress, DO HEREBY CERTIFY that the foregoing Ordinance was duly adopted at a regular meeting of said City Council held on the 27th day of November, 2017, by the following roll call vote: AYES: 5 COUNCIL MEMBERS: Berry, Johnson, Yarc, Peat and Morales NOES: 0 COUNCIL MEMBERS: None ABSENT: 0 COUNCIL MEMBERS: None CITY CLERK OF THE CITY OF CYPRESS RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: City of Cypress 5275 Orange Avenue Cypress, California 90630 Attn: City Clerk THIRD AMENDMENT TO DEVELOPMENT AGREEMENT This Third Amendment to Development Agreement (this "Third Amendment ") is made as of November , 2017 (the "Reference Date ") between the City of Cypress, a charter municipal corporation organized and existing under the laws of the State of California ( "City "), and Warland Investments Company, a California limited partnership ( "Developer "). RECITALS A. City and Developer entered into that certain Development Agreement dated September 12, 1994 and recorded on May 8, 1995 as Instrument No. 95- 0196392 in the Official Records of Orange County, California (the "Original Development Agreement "), to facilitate the development of certain property commonly known as The Warland Cypress Business Center, as more fully described on attached Exhibits A and B thereto, and as amended by that certain First Amendment to Development Agreement dated May 29, 2001 (the "First Amendment ") and recorded on October 10, 2001 as Instrument No. 2001 - 0712300 and that certain Second Amendment to Development Agreement dated November 28, 2011 (the "Second Amendment ") and recorded on December 9, 2011 as Instrument No. 2011000644867 (the Original Agreement, the First Amendment and the Second Amendment are collectively referred to herein as the "Development Agreement "). This Third Amendment does not alter the legal description of the Property described in the Original Development Agreement. Except as otherwise defined herein, all initially capitalized terms in this Third Amendment shall have the same meanings as given to them in the Development Agreement. B. Pursuant to Section 13.c of the Original Development Agreement, Developer and Shaw Industries, Inc., a Georgia corporation (the "Qualifying Tenant "), have entered into a Qualifying Lease dated February 14, 1995, as thereafter amended, for that portion of the Development commonly known as 11411 Valley View Street (collectively, the "Qualifying Lease "). The Qualifying Lease currently expires by its terms on July 31, 2019, and conditioned upon the corresponding extension of the Development Agreement pursuant to this Third Amendment, Qualifying Tenant desires to extend the Qualifying Lease term through July 31, 2029 (the "Lease Extension "). C. Pursuant to Section 13 of the Original Development Agreement, as amended by Section 4 of the First Amendment and Section 2 of the Second Amendment, City has agreed to provide Developer with Reimbursement Payments to be utilized as a rental credit under the Qualifying Lease for the benefit of the Qualifying Tenant. D. Pursuant to California Government Code Section 65867.5, the terms and conditions of this Third Amendment have undergone extensive review and have been found to be fair, just and reasonable, and City has concluded that, because the Qualifying Tenant provides significant employment and employment opportunities to citizens of the City and sales tax revenue to the City that would otherwise not be available, the terms of this Third Amendment will serve the best interests of its citizens and that the public welfare will be best served by entering into this Third Amendment. City acknowledges that Developer would not consider entering into certain obligations with Qualifying Tenant and that Qualifying Tenant would not agree to the Lease Extension without the assurances set forth in this Third Amendment. NOW, THEREFORE, pursuant to California Government Code section 65868 and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree to amend the Development Agreement as follows: 1. Term. Section 3.a of the Original Development Agreement, as amended by Section 1 of the First Amendment and Section 1 of the Second Amendment, is hereby amended to provide that all references in the Development Agreement to the "Term" or the "Extended Term" shall both mean the term of the Development Agreement expiring on July 31, 2029. 110632617M } -1- 88490.0055 2. Qualifying Tenant. The first sentence of Section 13.c of the Original Development Agreement is hereby deleted in its entirety and replaced with the following: "As a condition precedent to City's obligations to pay to Developer the Reimbursement Payments (as defined below and as the amount of such payments may be modified in amendments to this Development Agreement), Developer shall have entered into a lease (the `Qualifying Lease') for a portion of the Property for a regional distribution facility consisting of a building no less than 350,000 square feet, related parking areas of structures and surrounding landscaping (collectively, the `Premises') for a lease term of at least ten (10) years with a tenant who, on the basis of historical evidence or other reasonably satisfactory evidence to City, could reasonably be expected to generate gross sales tax revenue to City with respect to the Premises (`Gross Sales Tax Revenue') of at least Ten Million and No /100 Dollars ($10,000,000.00) over any ten (10) year period during the Term (the `Qualifying Tenant')." 3. Purpose of Financial Assistance. Section 13.d of the Original Development Agreement, as amended by Section 2(a) of the Second Amendment, is hereby amended to incorporate Recital paragraphs A through D, above. 4. Maximum Level of Assistance. Section 2(b) of the Second Amendment, which replaced Section 2(b) of the First Amendment (replacing Section 13(e) of the Original Development Agreement), is hereby deleted in its entirety. 5. Extension of Reimbursement Payments. Section 13.g of the Original Development Agreement, as amended by Section 4(a) of the First Amendment and Section 2(c) of the Second Amendment, is hereby amended to provide as follows: (a) During the Term, the Reimbursement Payments shall continue to be Four Hundred Fifty Thousand and No /100 Dollars ($450,000.00) annually, payable in equal monthly installments of Thirty-Seven Thousand Five Hundred and No /100 Dollars ($37,500.00) if the Premises is generating Eight Hundred Thousand and No /100 Dollars ($800,000.00) or more in Gross Sales Tax Revenue during the applicable Reporting Period (as defined below), provided that the amount of each Reimbursement Payment shall be reduced to Thirty Thousand and No /100 Dollars ($30,000.00) if the Premises is generating Seven Hundred Thousand and No /100 Dollars ($700,000.00) (the "Minimum Annual Threshold ") to Seven Hundred Ninety-Nine Thousand Nine Hundred Ninety- Nine and 99/100 Dollars ($799,999.99) in Gross Sales Tax Revenue during the Reporting Period. As used herein, the "Reporting Period" shall mean, collectively, the fiscal quarter being reported and the three (3) fiscal quarters immediately preceding such fiscal quarter. Within sixty (60) days following each Reporting Period, the Qualifying Tenant shall deliver to City a report evidencing Gross Sales Tax Revenue generated during such Reporting Period. If any such report discloses that Gross Sales Tax Revenue generated during the applicable Reporting Period does not meet or exceed the Minimum Annual Threshold, the Reimbursement Payments shall be suspended for the three (3) calendar month period immediately following City's receipt of such report ( "Suspension Period "); provided, however, that the Reimbursement Payments, in the applicable amounts, shall resume after any such Suspension Period if the Gross Sales Tax Revenue generated during the next Reporting Period meets or exceeds the Minimum Annual Threshold. {10632617.1} Subject to the foregoing, Reimbursement Payments shall continue to be paid monthly in advance of the first day of each calendar month. (b) Upon Developer's actual receipt of a Reimbursement Payment from City, Developer shall credit such amount toward the base rental due under the Qualifying Lease. (c) Subject to subsection (a) above, the Reimbursement Payments set forth herein shall continue through July 31, 2029. (d) Sections 2(a) and 3(a) of the First Amendment are hereby deleted in their entirety. -2- 88490.0055 n,) 6. Reconciliation. Section 2(d) of the Second Amendment, which replaced Section 2(d) of the First Amendment (replacing Section 13.i of the Original Development Agreement (Reconciliation)) shall be deleted in its entirety and replaced with the following: "Subject to the immediately following paragraph, if City does not, for any reason, cumulatively receive at least the "Minimum Cumulative Threshold" set forth below for the corresponding "Cumulative Review Period" set forth below, then the Qualifying Tenant shall pay to City, with respect to the applicable Cumulative Review Period, the amount by which such Gross Sales Tax Revenue is less than the applicable Minimum Cumulative Threshold within sixty (60) days after City has delivered to the Qualifying Tenant in writing a reconciliation, which shall be (A) delivered to the Qualifying Tenant and Developer within one hundred eighty (180) days following the end of each Cumulative Review Period and (B) accompanied by a reasonably detailed computation of any deficiency and amounts due from the Qualifying Tenant. Cumulative Review Period Minimum Cumulative Threshold January 1, 2018 — June 30, 2019 $1,500,000.00 July 1, 2019 — June 30, 2024 $5,000,000.00 July 1, 2024 — June 30, 2029 $5,000,000.00" 7. Statutory Compliance. Developer and City acknowledge that the Reimbursement Payments constitute an "economic development subsidy ", as such term is defined in subsection (g)(1) of California Government Code Section 53083. Developer agrees to use commercially reasonable efforts to cause the Qualifying Tenant to deliver to City information necessary for City to comply with its obligations under subsection (a)(6) of California Government Code Section 53083 or any equivalent statutory provision. 8. Hold Harmless and Indemnities. Section 25 of the Original Development Agreement is hereby deleted in its entirety. In lieu of the indemnity originally provided for in Section 25 of the Original Development Agreement, the parties hereby agree as follows: "Developer shall indemnify, defend and hold City harmless from and against any and all claims, demands, damages, causes of action, liens, liabilities, losses, damages, costs and expenses, including without limitation reasonable attorney and expert fees (collectively, "Claims "), assessed or awarded against City by way of judgment, settlement or stipulation arising from actions (including, without limitation, administrative actions) filed against City challenging City's approval of the terms of the Development Agreement, as amended by this Third Amendment." 9. No Further Modifications. Except as expressly amended by this Third Amendment, the Development Agreement shall remain unmodified and remains in full force and effect. 10. Effectiveness of Amendment. Sections 5 and 6 of this Third Amendment shall be effective on January 1, 2018; the remaining provisions hereof shall be effective on the earlier to occur of the following: (a) thirty (30) days following the date of adoption by the City Council of the ordinance approving the terms of this Third Amendment, and (b) January 1, 2018. 11. Counterparts. This Third Amendment may be executed in counterparts, each of which, after all the parties hereto have signed this Third Amendment, shall be deemed an original. {10632617.1} Remainder of Page Intentionally Blank -3- 88490.0055 Executed as of the date first above written. ATTEST: City Clerk Approved as to form: City Attorney { 10632617.1) DEVELOPER: Warland Investments Company, a California limited partnership By: Robertson Management Company, LLC, a California limited liability company, Co- Managing Director By: Carl W. Robertson, Jr., Manager By: Law Warschaw Management LLC, a California limited liability company, Co- Managing Director By: Hope I. Warschaw, Manager CITY: City of Cypress, a charter municipal corporation organized and existing under the laws of the State of California By: Mayor -4- 88490.0055