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Home My WebLink About10/25/1982 Item #F-2c! C- L4-13 (ND ad 2 X62 By. caY CO MIL CITY OP Now KWM OFFICE OF THE CITY-ATTORNEY Agenda Item No. F2 (c) October 20, 1982 To: Honorable Mayor & Members of the City Council From: Robert H. Burnham - Assistant City Attorney Re: Consent.te- .slgnment of Balboa Bay Club Lease BACKGROUND 'On March 24, 1948, the City of Newport Beach leased the property now known as the Balboa Bay Club to predecessors-in - interest to the current Lessee, International Bay Clubs, Inc. This Lease, which expires in 1998, prohibits any assignment without the written consent of the City of Newport Beach. The City Council has, since 1971, given its consent to assignments of portions of the Balboa Bay Club Lease to secure financing obtained by the Lessee. We are recycling an October 12, 1976 Memorandum from Dennis O'Neil which summarizes significant transactions that predate his memo. Subsequent to October, 1976, the City Council, by Resolution No. 9643, gave its consent to an assignment of the Bay Club leasehhold - but a review of correspondence in our files indicates that the transaction referenced in that Resolution was never consummated. international Bay Clubs, Inc., now proposes to again refinance the indebtedness that encumbers its leasehold interest, and seeks the written consent of the City Council for an assignment of its leasehold interest to accomplish the refinancing. DISCUSSION The City first received the request of International Bay Clubs, Inc., for written consent to the proposed assignment on October 19, 1982. In their request for written consent it is indicated that their request should be expedited due to a pressing need to obtain financing to retire loans that soon payable in full. While we have had a very short period of time to review the request, it appears consistent with previous actions of the City Council, and it does not appear that the interests of the City will be adversely affected if the consent is given. Nonetheless, out of an abundance of caution, we have phrased the Resolution giving consent such that the Lessee, and proposed assignee, are required to provide the City with sufficient commitments to ensure that the City will not suffer financially by giving its consent to the assignment. RECOMMENDATION It is recommended that the City Council adopt the Resolution which is attached to this Memorandum, granting its consent to the proposed assignment subject to certain terms and conditions. i obert H. Burnham RHB/ pr Attachment MMP- BayClub a s CITY OF NEWPORT BEACH Office of CITY ATTORNEY October 12, 1976 To: The Honorable Mayor and Members of the City Council G,> _ 3 From: City.Attorney Subject: Balboa Bay Club - Refinancing Pursuant to the terms of the lease agreement between the City of Newport Beach and the Balboa Bay Club, the Balboa Bay Club cannot assign its leasehold interest without the consent of the City Council. Over the past ten years, the Balboa Bay Club has obtained various loans by using the leasehold estate as security for the purpose of paying off existing debts and in order to expand the Club facilities. The loans were made with the prior consent of the City Council. A summary of the more recent refinancing transactions are as follows: 1. In December, 1971, the City Council consented to and authorized the assignment of all or a portion of the Balboa Bay Club (BBC) leasehold estate and improvements.thereon for an amount not to exceed $13,200,000. 2. In February, 1972, a loan in the amount of $6,650,000 was made by Independence Mortgage Trust (IMT) to the BBC secured by the Terrace Apartments portion of the Bay Club property. Only $3,054,000 was actually funded, the difference being held in reserve in order to pay off other existing encumbrances should it become necessary. 3. In February, 1973, a loan in the was made by Fidelity Mortgage Investors to the remainder of the Bay Club property. amount of $4,594,000 the BBC secured by The Honorable Mayor and Members of the City Council October 12, 1976 Balboa Bay Club - Refinancing 4. In December, 1974, the City Council consented to the transfer of IMT's interest ($3,054,000) to Citinational Develop- ment Trust. This transaction was never consummated and the terms of the original loan between IMT and the BBC were subse= quently renegotiated. 5. In May, 1976, the City Council again consented to the assignment of the BBC leasehold estate to IMT for the original $3,054,000, plus $225,000 interest. In effect, this action merely reconfirmed the action of February, 1972, and took Citinational Development Trust out of the picture. This means that of the original $13,200,000 authorized, the City Council has consented to loans totaling $11,244,000. Now the BBC is requesting a sale of the Terrace Apartments to Oppenheimer Industries, Inc. and leaseback to BBC for a purchase price of $10,000,000, payable over a twenty -year term. The sale is subject to the existing encumbrances on the property and allows for further refinancing of the leasehold estate of an amount not to exceed 7.5 million dollars. This type of refinancing is referred to in the trade as "wrap around" refinancing, whereby the primary loan wraps around the underlying obligations and is inclusive of the existing encumbrances. In order to accomplish the sale and leaseback as proposed, the City Council would have to consent to an increase in the original $13,200,000 by $1,394,000 for a total of $14,594,000, as well as agree to the sale and leaseback to Oppenheimer. The BBC is requesting that this amount be rounded off to $14,600,000. This amount is computed as follows: -2- The Honorable Mayor and 5- Members of the City'Council October 12, 1976 Balboa Bay Club - Refinancing $13,200,000 - original authorization - 11,244,000 - existing loans 1,956,000 - balance remaining under original consent $10,000,000 - sale price of Terrace Apartments - 6,650,000 - existing encumbrance 3,350,000 - amount required - 1,956,000 - balance remaining under original consent 1,39 ,000 - .amount actually required $13,200,000 - original authorization + 1,394,000 14,594,000 - Total Consent Required + 6,000 1 ,600, 00 Rounded off Representatives of the Bay Club will be present at the Council meeting to answer any questions you may have. As a final note, the Council should keep in mind that all of these transactions are subordinate to the main lease and the City's fee interest in the property for the most part remains unaffected. DENNIS D. O`NEIL City Attorney DDO /bc cc: City Manager City Clerk i • RESOLUTION NO.. 82 -143 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH CONSENTING TO THE ASSIGNMENT, BY INTERNATIONAL BAY CLUBS, INC., OF ITS INTEREST IN THE BALBOA BAY CLUB LEASEHOLD'FOR PURPOSES OF FINANCING WHEREAS, the City of Newport Beach, on March 24, .1948, entered into a Lease Agreement with the predecessor -in- interest to International Bay Clubs, Inc., pursuant to which a leasehold interest, covering property commonly known as the Balboa Bay Club was created; and WHEREAS, International Bay Clubs, Inc., is desirous of assigning its interest in the Balboa Bay Club leasehold for pur- poses of securing an indebtedness; and WHEREAS, International Bay Clubs Inc., by terms of the _f Lease Agreement, may not assign its interests in the Lease with- out the prior written consent of the City Council; and WHEREAS, the City Council has previously consented to assignments in conjunction with loans, made to the Balboa Bay Club, totaling approximately $14.5 million dollars; and WHEREAS, the Balboa Bay Club has retired some of this indebtedness and wishes to refinance the remainder by obtaining a loan or loans totaling less than $14.5 million dollars; WHEREAS, in consenting to the assignment, the interests of the City of Newport Beach will not, in any way, be impaired; Now, THEREFORE, BE IT RESOLVED that the City Council of the City of Newport Beach hereby consents to the assignment, by International Bay Clubs, Inc., for purposes of financing, its leasehold interest in and to the Balboa Bay Club lease; BE IT FURTHER RESOLVED that the consent of the City to the proposed assignment be memorialized in a writing, approved as to form and content by the City Attorney of the City of Newport Beach, which contains sufficient commitments on the part of International: Bay Clubs, Inc., and the proposed assignee, to guarantee that the assignment in no way impairs or alters the rights of the City of Newport Beach; BE IT FURTHER RESOLVED that the Consent to Assignment shall be effective only to the extent that loans, secured by the leasehold interest do not exceed $14.5 million dollars; BE IT FURTHER RESOLVED that this. Consent to Assignment shall not be considered by the Lessee, or proposed assignee, as a commitment, by the City of Newport Beach, to consent to further assignments; and BE IT FURTHER RESOLVED that the City Attorney of the City of Newport Beach is authorized to execute the written docu- ment which memorializes this Consent to Assignment, provided that said document is consistent with the terms and conditions of this Resolution. Adopted this 25th day of October, 1982. ATTEST: W4nd0.. `P de,- City Clerk' RHB/ pr RSP- Balboa 10 -25 -82 2 SR4\1f2 Aept- lec Mayor