- Approve Consent to Assignment of Ground Sublease (pertaining to the assignment of leasehold interest by Nesbitt Partners Brea Venture, Ltd. to Brea PropCo LLC, with respect to the land occupied by the Embassy Suites hotel)
- Approve Consent to Sublease (pertaining to a sublease by Brea PropCo LLC to Brea OpCo LLC of the Embassy Suites hotel)
- Authorize each of the Mayor (or in the Mayor’s absence, the Mayor Pro Tem), and the City Manager to execute, on behalf and in the name of the City, the Consent to Assignment of Ground Sublease and the Consent to Sublease, each substantially in the form presented to the City Council and, in consultation with the City Attorney, other documents relating to such assignment and sublease.
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History Relating to Embassy Suites Hotel Sublease
The City of Brea owns the land currently occupied by the Embassy Suites hotel and the Embassy Court retail property. Pursuant to a Development Agreement executed in 1989, the land was leased to the former Brea Redevelopment Agency (the “Former RDA”), pursuant to a Ground Lease. The Former RDA subleased the land to Brea Hotel Joint Venture under two Ground Subleases, one for the part of the property to be used as a hotel (the “Hotel Sublease”) and one for the part to be used as a retail court (the “Retail Sublease”).
In 1995, Nesbitt Partners Brea Venture, Ltd, assumed Brea Hotel Joint Venture’s interest under the subleases. Nesbitt Partners Brea Venture, Ltd. is an indirect subsidiary of Windsor Capital Group, Inc. (“WCG”). WCG is owned and primarily managed by Patrick M. Nesbitt, Sr. and Patrick Nesbitt, Jr. According to WCG’s website, WCG is the largest private owner and operator of Embassy Suites by Hilton hotels, and also owns and manages other hospitality assets.
In 2015, because of the Former RDA’s dissolution, the City and the Successor Agency (acting as the successor to the Former RDA) needed to terminate the Ground Lease. The City and WCG cooperated to execute an Attornment Agreement, pursuant to which the Hotel Sublease and the Retail Sublease became direct leases between the City, as the landlord, and Nesbitt Partners Brea Venture, Ltd., as the tenant.
WCG’s Request for Consent and Corporate Restructuring
WCG is now requesting the City to consent to: (i) an assignment of the Hotel Sublease by Nesbitt Partners Brea Venture, Ltd. to a newly formed company named “Brea PropCo LLC,” and (ii) a sublease of the hotel by Brea PropCo LLC to another newly formed company named “Brea OpCo LLC.” These requests pertain to the property subject to the Hotel Sublease only. No such request is being made with respect to the property subject to the Retail Sublease at this time.
The WCG representatives have informed Staff as follows:
WCG is implementing a strategic plan to upgrade and reorganize its holdings. The on-going $8 million renovation of the Brea Embassy Suites and Embassy Court is part of this strategic plan. Another part of the strategic plan involves the raising of capital through a public bond offering in Israel. This bond offering requires a restructuring of the corporate organization. A new company, called “WCG Properties Ltd,” has been incorporated in the British Virgin Islands, and will issue the bonds.
With respect to the Brea Embassy Suites property (hotel portion only), two separate new subsidiaries – Brea PropCo LLC and Brea OpCo LLC – will be formed. Brea PropCo LLC will assume Nesbitt Partners Brea Venture, Ltd.’s leasehold interest under the Hotel Sublease. However, the separately formed Brea OpCo LLC will be the hotel operator. In that connection, Brea PropCo LLC will sublease the hotel property to Brea OpCo. Brea PropCo LLC will be an indirect subsidiary of WCG Properties Ltd.and Brea OpCo LLC will be an indirect subsidiary of Windsor Properties Parent LLC, a Delaware limited liability company, the 100% owner of WCG Properties Ltd.
According to the WCG representatives, the creation of Brea PropCo LLC and Brea OpCo LLC, the leasehold assignment and sublease are all necessary for the bond offering, and Patrick M. Nesbitt, Sr. and Patrick Nesbitt, Jr., will retain ownership and control of the Brea Embassy Suites operations and the new companies.
DISCUSSION
Pursuant to the Hotel Sublease, the City’s consent is necessary before Nesbitt Partners Brea Venture, Ltd. assigns its leasehold interest to Brea PropCo LLC. The City’s consent is also necessary before Brea PropCo LLC subleases to Brea OpCo LLC.
Attached to this Report are four documents prepared by WCG:
- Consent to Assignment of Ground Sublease (to be executed by the City, after City Council approval),
- Consent to Sub-sublease (Hotel Parcel) (to be executed by the City, after City Council approval),
- (for reference) Assignment and Assumption Agreement (by and between Brea Nesbitt Partners Brea Venture, Ltd and Brea PropCo LLC), and
- (for reference) Lease (which is the sublease by Brea PropCo LLC to Brea OpCo LLC).
Under the Assignment and Assumption Agreement, Brea PropCo LLC will assume all of Nesbitt Partners Brea Venture, Ltd.’s obligations under the Hotel Sublease, including all accrued or incurred but unpaid obligations and liabilities under the Hotel Sublease.
Critically, all the proposed actions retain all the core lease terms and protections which the City has for the hotel and its operations. Staff's discussions with Patrick Nesbitt Sr. (the longstanding face of the Brea hotel lease) assure us that he and his family will continue in their traditional roles and remain committed to providing Brea the quality hotel operations we have historically enjoyed. .
After review of these documents, in consultation with the City Attorney’s office, Staff recommends that the City Council approve these Consents and authorize the Mayor (or in the Mayor’s absence, the Mayor Pro Tem), and the the City Manager, the Consent to Assignment of Ground Sublease and the Consent to Sublease, each substantially in the form presented to the City Council and, in consultation with the City Attorney, other documents relating to such assignment and sublease. |