Action consideration for this item was held over to the Board’s meeting of April 14 to allow staff to return with additional information. Staff will provide the Board an update on this request at the meeting of April 14. The following is the previous staff report and exhibits for the Board’s consideration.
With the elimination of redevelopment in California in 2012, successor agencies to the former redevelopment agencies have been tasked with the wind-down of the former redevelopment agencies’ affairs. The proposed actions are in furtherance of the expeditious wind-down of the affairs of the former Brea Redevelopment Agency (the “Former Agency”).
Pursuant to Health and Safety Code (“HSC”) Section 34191.5, the Successor Agency prepared a long range property management plan (the “LRPMP”) addressing the disposition of the real properties interests acquired by the Former Agency. As reflected on the LRPMP (as Property Interest #5), the Former Agency was, and now the Successor Agency is, the beneficiary under a Subordinated Deed of Trust and Assignment of Rents (the “Deed of Trust”). The Deed of Trust relates to a property commonly known as the “Gateway Center” (a shopping center located in Downtown Brea). The Deed of Trust secures certain periodic payments (the “Participation Payments”) which Brea Gateway Center LP is obligated to make to the Successor Agency pursuant to a Disposition and Development Agreement (the “DDA”). Under the DDA, the Successor Agency is also obligated to make certain payments to Brea Gateway Center LP, as described below.
The Former Agency entered into the DDA in 1991 with Brea Center Associates, the original developer. The DDA outlined the redevelopment of Downtown Brea and included several components commonly known today as the Gateway Center, Downtown Birch Street, and the Ash Street Cottages. There have been three amendments to the DDA, executed in November 1992, February 1994 and November 1994, respectively. The Gateway Center is identified in the DDA as the “Commercial Center Component.” The current tenants of the Gateway Center include Ralphs, Rite Aid, Cost Plus and other businesses.
Before Brea Gateway Center LP acquired fee ownership of the Gateway Center, the property was owned by the Former Agency. The Former Agency leased the property to Brea Gateway Center LP’s predecessor under a Ground Lease (the “Lease”). The Lease included terms for three categories of rent: participation rent, refinancing rent, and sale rent.
The DDA, as amended by its second amendment, contemplated the possible sale of the “Commercial Component”, i.e., the Gateway Center, to Brea Gateway Center LP, and provided that, in the event of such sale, Brea Gateway Center LP’s obligation to make payments under the provisions relating to the participation rent, refinancing rent, and sale rent would survive termination of the Lease. After Brea Gateway Center LP became the fee owner of the Gateway Center in 1994, it executed the Deed of Trust, in favor of the Former Agency, to provide security for the Brea Gateway Center LP’s payment obligations under the DDA.
Participation Payment to Successor Agency; Brea Gateway Center LP’s Offer for Early Payoff – Simply described, the periodic participation rent payments are calculated based on a percentage of the performance of shopping center income (e.g., tenant rents), less certain operating expenses. In contrast, the refinancing rent and sale rent would become payable only if Brea Gateway Center LP refinanced or sold the property to an unrelated third party. Historically, the Successor Agency has only received participation rent. No triggering of the refinancing rent or sale rent has ever occurred over the term of the agreement.
By the terms of the agreements, without any modification, the final participation rent payment would be made in 2048. The Successor Agency would have to continue to expend resources to administer the related DDA provisions.
When the LRPMP was being prepared, the State Department of Finance (the “DOF”) and Successor Agency Staff discussed the possibility of the Successor Agency disposing its interest under the Deed of Trust, through a sale to, or a pay-off by, the Brea Gateway Center LP. However, in light of the DOF’s deadline to finalize the LRPMP for approval (by the end of December 2015), the Successor Agency was not in a position to engage in, and complete the necessary negotiation with, Brea Gateway Center LP for such a transaction.
In the LRPMP, it is listed that the Successor Agency would continue to receive the Participation Payments under the DDA and the Deed of Trust. However, that does not prohibit the possibility of an early pay-off by Brea Gateway Center LP and a corresponding termination of the DDA with respect to the Commercial Center Component, if approved by the Successor Agency and the Oversight Board. HSC Section 34181(e) provides that the Oversight Board may approve any modification to or early termination of an agreement with a private party if the Oversight Board finds that such modification or early termination would be in the best interests of the taxing entities. Such Oversight Board action would be subject to the DOF’s approval.
At this time, Brea Gateway Center LP has put forth an offer to pay a lump sum of $8,050,000 for an early payoff of the Participation Payments. Brea Gateway Center LP calculated this payoff amount assuming a February 15, 2017 payoff date. However, the Successor Agency will not be able to consummate the transaction until the DOF has issued its approval. Brea Gateway Center LP has agreed to proceed with the agreement that, to the extent it pays any further scheduled participation rent between February 15, 2017 and the transaction closing date (the “Interim Participation Rent Amounts”), the payment otherwise due for the payoff will be reduced by the Interim Participation Rent Amounts.
Successor Agency Payment Obligation under DDA Pertaining to CFD – Section 201.9 of the DDA (as amended by the second amendment) provides that if the City or the Former Agency ever formed a community facilities district (a “CFD”) affecting the Commercial Center Component (i.e., Gateway Center site), then the Former Agency (and now the Successor Agency) would be obligated to make certain periodic payments to the Brea Gateway Center LP, calculated based on a portion of the amount that Brea Gateway Center LP must pay for the CFD special tax (attributable to the parcels where the Ralphs and Rite-Aid stores are located).
In 1996, a CFD was formed, triggering the Successor Agency’s obligation to make this CFD-related payment. Staff estimates that the Successor Agency’s CFD-related payments between now and the related final payment date in 2021 would total approximately $135,000 (the “CFD Offset”).
It is proposed that Brea Gateway Center LP’s payment otherwise due to the Successor Agency for the payoff be reduced by the $135,000 CFD Offset. This way, any further Successor Agency obligation to make payments under Section 201.9 of the DDA would be extinguished at the same time. |
Pursuant to Brea Gateway Center LP’s offer, the net amount to be received by the Successor Agency will be based on this $8,050,000 offer amount, minus the $135,000 CFD Offset and any offset for Interim Participation Rent Amounts, as discussed above.
The payoff will be implemented pursuant to a Payoff Agreement and Joint Escrow Instructions (the “Payoff Agreement”), in the form attached to the Resolution as an Exhibit. The termination of the DDA as to the Commercial Center Component will be effected by an Terminate Disposition and Development Agreement as to Commercial Center Component (the “DDA Termination Agreement”), in the form attached to the Payoff Agreement as Attachment A. The Successor Agency will also execute a Substitution of Trustee and Full Reconveyance (the “Deed of Trust Reconveyance”), to evidence the termination its rights and interests under the Deed of Trust upon the payoff.
By adopting the attached Resolution, the Oversight Board will take action to approve the Successor Agency’s execution and delivery of the Payoff Agreement, the DDA Termination Agreement and the Deed of Trust Reconveyance. Pursuant to law, the Oversight Board resolution will become effective only upon the DOF’s approval (or deemed approval).
It is contemplated that, upon receipt of the DOF’s approval, Successor Agency and Brea Gateway Center will work with a title and escrow company to open an escrow to complete the transaction. After the close of escrow, the Successor Agency will transmit the proceeds from the transaction to the County Auditor-Controller, who will disburse the money to the taxing entities, including the City.
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