HomeMy WebLinkAbout10 - Land Use Entitlement Applications for the Residences at 4400 Von Karman Project (PA2020-061) - Correspondence - Picerne Group AttorneyHolland & Knight
50 California Street, Suite 2800 1 San Francisco, CA 94111 1 T I F 415.743.6910
Holland & Knight LLP I www.hkiaw.com
Jennifer L. Hernandez
+1 415-743-6927
Jennifer.Hernandez@hklaw.com
January 11, 2021
Via Email
City Council of Newport Beach
City of Newport Beach
100 Civic Center Drive
Newport Beach, CA 92660
Re: Residences at 4400 Von Karmen
Mayor Brad Avery and Members of the City Council:
Received After Agenda Printed
January 12, 2021
Item No. 10
On behalf of our client, The Picerne Group, we would like to take this opportunity to briefly
respond to some of the legal arguments raised by neighboring office owners to the Residences at
4400 Von Karman (Project). None of these arguments have legal merit.
1. The Project t Fully Complies with the Covenants, Conditions and Restrictions (CC&Rs)
for the Koll Center. A few parties have questioned whether residential development is permitted
on this surface parking lot location, and whether Koll and/or Picerne may replace surface parking
spaces with covered parking spaces in nearby but different locations.
Both issues were raised in an unsuccessful challenge filed in 2015 by Olen Properties
Corp. against the prior residential project applicant. Following submittal of various court
pleadings, that lawsuit was settled and all parties (KCN A Management (Koll), Shopoff Land
Fund II and Olen) agreed that residential construction was permissible provided that it complied
with the applicable City zoning standards, and common area surface parking lots could, in fact,
be sold by Koll for residential redevelopment in compliance with CC&R requirements.
2. Nearby Office Occupants are Pursuing a Private Economic Dispute. In
correspondence dated October 28, 2020, Olen asserted that it was entitled to a payment from
Picerne of $121,781 per month for temporary construction impacts. (Attachment 1). The
residential component of the Project, including the 1 -acre adjacent public park, is anticipated to
be under construction for approximately 24 months. The Olen demand would add nearly $3
million ($2,922,744) to the total Project cost. Even pre-COVID, the Olen building had
occupancy levels significantly below the Newport Beach/Irvine average, and Olen's
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City Council of Newport Beach
January 11, 2021
Page 2
representatives also agreed that the Project would ultimately enhance the value of their building
such that they were planning to make substantial capital improvements to their building to
capitalize on this increased value. Although Picerne was and remains willing to take measures to
minimize tenant inconvenience during construction, and consider compensation for any actual
harm, Olen declined in several rounds of subsequent requests to provide third party reports to
support the various components of its economic demand. Further, in the City of Brea, Olen itself
completed a similar residential project on a surface parking lot adjacent to its own office
buildings, which would have provided some comparable data on the claimed tenancy and/or
rental losses during temporary construction, and Olen declined to provide that information as
well. The demand for a $3 million cash payment in exchange for withdrawing objections to this
Project is evidence that Olen's objections are based on economics, not environmental or land use
zoning law, issues.
Olen and other commenters have also demanded new contractual and property interest
rights to replacement parking, demanded guarantees that common area fees would not increase,
and made other claims that fall far outside the property rights they purchased (or leased) in this
business park. All such economic and management raised to the attention of Koll (the Declarant
for the Koll Center Newport CC&Rs) have been addressed, and found to be without merit. (See
Attachment 2, KCN A Management letter dated January 4, 2021, submitted independently to the
City.)
3. California Environmental Quality Act Objectives. Neighboring property owners have
raised concerns about potential "impacts" based on changes to nearby surface parking lots and
replacement parking, and changes to private office views.
With respect to parking, and as noted above, per the CC&Rs, Picerne was required to,
and has with this Project, replaced every single parking lot converted to park or residential use
by the Project. Further, parking is not an "environmental impact" under CEQA. San
Franciscans Upholding the Downtown Plan v. City and County of San Francisco ("SFUDP")
(1 st Dist. 2002) 102 Cal.AppAth 656. The Project also complies with the City's parking
standards for residential projects, and includes residential as well as guest parking, and
appropriate temporary parking for vendors, deliveries, and other vehicles. The City did, however,
thoroughly investigate parking — and guaranteed replacement parking is in the CC&Rs. The
parking study the City required to be conducted for this Project (referenced in the City's CEQA
Addendum) confirmed that, even pre-COVID, substantial numbers of parking stalls remained
empty even during peak occupancy periods, and no commenter has challenged the fact that all
displaced surface parking stalls are in fact replaced.
With respect to changes to private views, as is the case with parking these are not
"environmental impacts" under CEQA nor are any of the private views identified in General Plan
Figure NR3 as protected under policies 20.1 or 20.3 of the General Plan's Natural Resources
Element. In urbanized areas, aesthetic impacts are significant only to the extent a project
conflicts with "applicable zoning and other regulations protecting public resources." (See state
City Council of Newport Beach
January 11, 2021
Page 3
regulations implementing CEQA, Appendix G.l(c)). This Project complies with all applicable
zoning standards.
Finally, the requirement to consider alternatives under CEQA refers to alternatives that
would eliminate or substantially reduce a significant adverse project impact. No such impacts
exist with respect to the proposed project (including the freestanding garage), and a reasonable
range of alternatives was already considered in prior EIRs covering this project site. Further,
CEQA does not require a developer to analyze infeasible or speculative alternatives raised, such
as building on top of other, third -party privately owned improvements or real property over
which an applicant has no jurisdiction or control. This entire "relocate replacement parking in
this private business park" topic is outside the scope of CEQA (which excludes parking, per
above), and also subject to the owners' agreement to CC&Rs which leave the business park
owner in sole control of these internal business park parking management issues.
4. Delay Pending Resolution of Private Party Dispute. Several commenters have urged
the City to delay timely consideration of this project, even though the Project simply implements
the ICDP previously approved by the City Council. As I testified at the Planning Commission
hearing on the Project, the United States Supreme Court has definitively ruled that it is an
unconstitutional delegation of regulatory power for a city to require neighbor approval before
approving a project that is otherwise eligible for approval (e.g., by complying with applicable
zoning requirements). See, e.g., Eubank v. Richmond (1912) 226 U.S. 137, 143-144 and Seattle
Trust Co. v. Roberge (1928) 278 U.S. 116, 122.
5. Orderly Implementation of City -Approved Residential and Mixed -Use Development
Plans and Zoning Standards. This Project implements the ICDP, which was approved nearly a
decade ago and informed by a full Environmental Impact Report (EIR) prepared in relation to the
2002 General Plan Update. In compliance with CEQA, the City required updated studies for the
project that confirmed, as explained in detail in the Addendum, the Project complied with
applicable City standards and also caused no significant new or worse impacts than had been, or
could have been, included in the ICDP's certified EIR. Orderly implementation of planning and
zoning standards that have been informed by full EIRs is critical to adding new housing to meet
the existing City housing goals, and help address a significant housing shortfall in the region.
The Project also includes critically -needed housing for extremely low income households, which
will be managed by a respected affordable housing management company, in full compliance
with City requirements as well as the state Density Bonus Law.
Temporary construction activities are a routine, foreseeable, and completely lawful condition in
urban areas, and all owner/tenant commenters were on notice both as to their rights under the
private CC&Rs, and the City's approved ICDP zoning standards for this site. Further, under the
promulgated conditions of approval, a City -approved construction management plan will be
required prior to the issuance of a building permit. Nevertheless, too often neighbors abuse
environmental law to challenge infill housing projects. Unfortunately, housing is the most
City Council of Newport Beach
January 11, 2021
Page 4
frequent target of CEQA lawsuits statewide, and multi -family infill housing is the most
frequently challenged type of housing project, as documented in the Hastings Law Journal I
authored in 2018 (California Environmental Quality Act Lawsuits and California's Housing
Crisis, https://repository.uchastings.edu/hastings_environmental_law ournal/vo124/issl/3/ ). As
the same article describes, CEQA projects can delay even a CEQA-compliant project for many
years. Anti -housing abuse of CEQA prompted adoption of another state law which requires
neighbors and others who attempt to delay or derail a project that includes affordable housing to
post a $500,000 bond. This bond requirement was intended to encourage neighbors objecting to
the project to resolve their economic concerns through private party negotiations and/or
property/contracts litigation, instead of abusive CEQA lawsuits, which should be the outcome
here.
In conclusion, there are no claims raised by commenters that warrant delaying the
Council's meeting to consider the Project, and any claims raised alleging CEQA or land use
objections are without merit.
Sincerely yours,
HOLLAND & KNIGHT LLP
Jennifer L. Hernandez
JLH:mlm
Attachments:
1 - 10/8/20 Olen Correspondence
2 - 1/4/20 KCN Correspondence
Mr. Greg Nakahira
The Picerne Group
Transmittal via Email
Greg,
October 28, 2020
Enclosed please find additional questions and feedback regarding the proposed Residences at
Von Karman project adjacent to our property at 4910 Birch Street.
As previously discussed with you, due to our inability to receive from Picerne a complete set of
plans, our response herein continues to be incomplete and may be added to in the near future.
In addition, I'd like to reiterate that our questions, concerns and feedback herein do not
constitute any indication of implied or potential support for your project. This document is an
informal and confidential dialogue with Picerne and is not intended for submittal to the City
process.
We have the following feedback and questions:
General Concerns
1. Marketability of Our Building During Construction. We have discussed with you how the,
noise, dust, commotion, unattractive sight lines, distant parking, and other material issues of
your construction will severely limit our ability to successfully lease our property at market
rates. The construction will negate us attracting new tenants and will also result in rent
reduction or early -termination requests from existing tenants. The financial impacts to Olen
from your proposed construction scope are significant and merit compensation to Olen to
mitigate them. Our Leasing Department has analyzed the financial ramifications of your
construction and the following is an outline of our analysis:
4910 Birch Leasable Square Footage
Tenant Occupied:
Vacant:
Assumptions:
$0.60 sq. ft. discount to Existing Tenants
Remaining space will be unleasable:
62,168 sq. ft.
22,875 sq. ft.
39,293 sq. ft.
$13,725/month
$108,056/month ($2.75/sq. ft. per month)
Total: $121,781/month during construction
Seven Corporate Plaza Newport Beach, CA 92660
(949) 644-OLEN Fax (949) 719-720
www.olenproperties.com
You have expressed confidence in your construction schedule being completed reasonably on
time, so we have structured this analysis in a monthly manner. In addition, we are committed
to being fair about only requesting compensation for direct economic impacts to us. For
example, it is fine to exclude the construction of the standalone parking garage and the
restriping of the adjacent lot from this proposed compensation. And we would be willing to
deduct an 8% vacancy rate (which has been our typical OC office portfolio vacancy rate) from
the above analysis, which does not yet include that. We are willing to also consider other cost -
mitigating approaches you may come up with, such as ceasing monthly compensation if you can
obtain a partial CO for our tenant use of the office parking structure while you complete
interior finish work en route to your full CO. We are willing to reasonably discuss various
approaches in good faith, but a solution that is fair to us must be worked out in this area if
litigation and the associated multi-year project delay is to be avoided.
2. Parking Ratios. Your parking analysis has not yet provided adequate detail on the parking
needs of the existing businesses (whose parking you are substantially impacting during and
after construction) and the geographic proximity of the proposed new parking to those existing
businesses. Please provide the relevant parking studies that indicate you have studied the
parking allocations for each building and the proximity needs of all existing businesses you are
impacting, and which demonstrate those needs are met by your parking plan. Your parking plan
should clearly show existing parking allocations according to the square footage of each
building and the CC&Rs — and should not merely be based on Summer 2019 peak use data. Peak
use data is not accurate when you consider that the buildings were not fully occupied during
your study. Parking calculations should factor the full parking rights of each building — and those
rights entail adequate parking for a fully occupied building.
3. Unit Density Reduction. Given our concerns regarding your proposal to park the project at a
ratio below City standards, we would like to see a moderate reduction in the number of units in
order to reduce the likely parking impacts to our building.
4. Moving Our Common Area Parking onto Picerne Property. In our meeting with you, we
emphasized the critical importance of your showing us the legal mechanism between Olen, Koll
and Picerne that secures our parking on Picerne property. This document should also protect us
against unreasonable price increases and should Additionally Insure Olen and its tenants. Other
information may need to be included in the document, following our review. Please provide
this urgent document.
Specific Requested Project Changes
1. A Reasonable Number of Assigned Spaces for Our Building During and After Construction.
As previously noted, the financial consequences to us from your construction are significant.
One of the key components of that impact is the potential for our building's visitors and
employees to be forced to shuttle from the distant standalone parking structure. Prospective or
Seven Corporate Plaza Newport Beach, CA 92660
(949) 644-OLEN Fax (949) 719-720
www.olenproperties.com
existing tenants can easily lease elsewhere and not have that inconveniece. In addition,
following construction, we remain convinced that your parking ratio (which is below City code)
underparks the project. In order for us to consider how such impacts can be mitigated, we
request that 30 visitor spaces and 30 executive spaces be allocated to our building during and
after construction, in mutually agreed locations in surface and structured lots.
2. Controlling Resident vs. Office Parking. To prevent residents from parking in the structured
office parking, we request that pay -to -park access to this lot be prohibited and that Office
Tenant Monthly Passes be the sole means of access. Office visitor parking can be provided in
the surface lots, in a combination of assigned and open spaces.
3. Circulation of Parking. Problems with circulation appear to exist. Further revisions to garage
connectivity with surface lots, fire turnarounds/hammerheads for dead end fire lanes, and
other circulation issues must be made. Please clarify whether you have satisfied all public safety
and fire code requirements for the project.
4. Incorporate Retail. To reiterate our prior comment, the Airport Area is already deficient in
retail, cafe's and restaurants. City policies are clear on the need for retail in projects such as
yours. It is important that you incorporate a reasonable retail element, such as a small cafe or
coffee shop, preferably with an outdoor seating component.
5. Office Elevator/Lobby. Please provide additional detail showing the exterior and interior
finishes of this location. Please optimize the amount of glass and enhanced finishes on this
elevator/lobby.
6. Landscape Tree Sizing and Species to Screen Building Massing. We request that you upsize
the box size and select tall -growing tree species for the areas of your building facing our
property. Please provide additional detail on how you will do so.
Questions
1. Pro Rata Share of Association Expenses. Please explain if Shopoff, the current owner of the
parcel, is paying into the shared common area KCN expenses. If he is not, please clarify why and
also how that is compliant with the CC&Rs. During our recent meeting, you indicated that
Picerne would pay into the shared common area KCN expenses once you have acquired the
project. Please clarify what your prorata share of these expenses would be and whether your
contributions would begin upon acquiring the parcel or upon completion of construction, and
for either scenario how that aligns with the CC&Rs. Importantly, we want to know that your
project will not seek to be excluded from KCN common area expenses.
2. Residential vs. Office Use. Residential uses in such close proximity to Office creates
potential use conflicts. Please address the following questions:
Seven Corporate Plaza Newport Beach, CA 92660
(949) 644-OLEN Fax (949) 719-720
www.olenproperties.com
a) Security. In our recent meeting, Derek Picerne described generally how security will
be handled at the Park outside our building, and surrounding grounds. Please
provide specificity, including the night schedule of the security guard and also the
number and location of security cameras you'll be providing at the park and in the
office parking structures. Simply put, 400 — 550 new residential tenants will create
more security problems for our tenants than currently exist and we need to mitigate
that impact with reasonable enhanced protections.
b) Night lighting. Please provide additional detail on night lighting— how it is designed
to minimize impact to our office tenants, how the park will be lit at night, and so
forth. We need to avoid bright lights shining into office tenant space.
c) Balconies. Please provide the lease language that enables you to keep resident
balconies uncluttered and befitting a Class A commercial park.
We appreciate you and your group addressing our concerns regarding this project and acknowledging
the extreme impact this development has had and will continue to have on our commercial operations
and property value. We look forward to continued discussions to work toward resolution of these
significant outstanding issues.
CI nrPFfaI%i
Seven Corporate Plaza Newport Beach, CA 92660
(949) 644-OLEN Fax (949) 719-720
www.olenproperties.com
January 4, 2021
Derek Ostensen
Julie A. Ault
Olen Properties
7 Corporate Plaza
Newport Beach, CA 92660
RE: Letter dated December 8, 2020 with respect to Proposed Residences at 4400 Von Karman
Apartment Project at Koll Center Newport
Dear Mr. Ostensen & Ms. Ault,
This letter is in response to the December 8, 2020 letter we received from Olen Properties,
Meyer Properties, Von Karman Condo Association and COMAC American Corporation
(collectively "Owners"), all owners of property within the complex know as Koll Center
Newport ("KCN"). The letter was sent to KCN A as the Declarant under the CC&R's which
govern the property (the "CC&Rs).
As I stated in my December 16, 2020 letter to you, we have been in communication with the
current applicant, Picerne, and have incorporated the information it has provided in this letter.
The Owners' December 8 letter raises a variety of issues and concerns. Before we address them,
we note that KCN A is in full compliance with the CC&Rs, including as to KCN A's sale of the
residential property and the development of that property by Picerne. Any claims by the Owners
to the contrary are meritless and disputed.
Our response to the issues and concerns below quotes each item and then gives our response in
in bold.
Common Area Parking and Proposed Construction Activities.
a) "It is our understanding that a large area of Common Area parking has been sold
to an entity controlled by The Shopoff Group (Shopoff). Please provide the legal document that
guarantees and protects our Common Area parking rights, given that such parking is now on
private property. Further, please advise as to how the proceeds Koll derived from the sale of the
Common Area were apportioned against the Common Area expenses given the proportional
ownership of such land by each of the Owners." The Owners' parking rights are provided in
the CC&Rs. All of the common area land is privately owned, and the sale proceeds go to
the common area owner just as they did when every other owner's parcel was sold and
developed. The sale of this parcel does not change your common area parking rights, as
each parking space displaced by the new residential project is to be replaced by a
Derek Ostensen
Julie A. Ault
Olen Properties
January 4, 2021
Page 2
combination of parking spaces within a new freestanding parking structure (to be built in
the initial phase) and a dedicated office parking area within the new residential project.
We understand that access to this office parking within the new residential project will be
from two locations, the first being a separate access for KCN users on the north side of the
new residential project and second from the main KCN drive on the south side of the new
residential project. This project also includes the required parking for new residents and
their guests once all construction is completed. The CC&Rs do not create any right by
existing owners or tenants to proceeds from the sale of common areas.
b) "During Phase 2 construction of the Picerne project, there would be a large
deficiency of 260+ parking stalls, creating a non-compliant allocation of parking rights per the
CC&R's and City code. As you are aware, the ability of an existing property owner to sell or
finance their building depends on compliance with parking requirements. Accordingly, such a
deficiency would potentially preclude them from doing so. Please describe how you intend to
address this issue." There is always some parking disruption during construction, which is
contemplated and permitted under the CC&Rs. The developer is responsible for
accommodating that parking, and to replace all impacted parking spaces as described
above. See also response to g) below.
C) "Who would own the standalone parking structure? Please provide the legal
document that would guarantee and protect our Common Area parking rights in the standalone
parking structure." KCN A would own that structure for the benefit of the common area
just as the parking structure behind 4000 MacArthur is owned by KCN A. The CC&Rs
would apply.
d) "Clearly, Picerne would own the parking structure beneath its apartment project,
of which a portion is proposed to be used to fulfill Common Area parking needs. Please provide
the legal document (easement or other) that indicates how our Common Area parking rights
would be maintained and protected, and which details how matters such as insurance are
handled." No documents have been drafted at this time. To the extent the apartment
structure will have common area parking rights, those rights will be further documented
(e.g. by a perpetual access and use agreement) and managed as part of the common area
under the CC&Rs. This additional documentation will be finalized as part of the project
implementation process once the entitlement process is completed and include customary
operating and maintenance covenants and insurance requirements.
e) "Parking Structures can entail additional risks associated with theft, transients and
other safety issues. Would there be security cameras installed in the office parking areas to
address these risks? Would Picerne be solely responsible for their cost and maintenance given
that the proposed development fundamentally changes the existing common areas?" KCN A
intends to review and comment on the developers parking plans as affecting the common
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Derek Ostensen
Julie A. Ault
Olen Properties
January 4, 2021
Page 3
area, and will discuss with the developer the security camera concept. Additionally, KCN
security will patrol this parking as part of the common area. Picerne will simply become
an additional building owner within KCN, with the square footage of its building being
added to the denominator in determining the percentage allocations of the KCN, and
thereby lowering the overall common area costs for all of the existing KCN owners.
f) "The Parking Exhibit Picerne provided to the Planning Commission (see
enclosed) claims to address the Required Office Stalls Per Code for the existing buildings
adjacent to the project whose parking would be impacted. Yet the largest and most parking -
intensive affected building, 5000 Birch, is not included in the exhibit's analysis. This
shortcoming should be explained and fixed so we can have an accurate understanding of the
project's parking implications." The developer's parking plans call for each impacted
parking space to be replaced through a combination of the freestanding parking garage
and the designated office spaces in the apartment podium; hence, there is no resulting
change to the existing parking ratios.
g) "It seems highly doubtful that all construction workers and vehicles will be
parking solely on-site, as Picerne claims. Numerous construction projects promise this and then
fail to abide by it, resulting in severe parking constraints to existing businesses such as ours.
Please provide a construction plan that clearly indicates on-site parking locations and layouts.
Please also provide an explanation of how construction workers and vehicles will be prevented
from parking in office stalls, given that your current proposal does not indicate any mechanism
to do so besides an honor code (which rarely works with construction workers)." This is the
developer's responsibility, and it has provided the following response: "As you are aware,
it is within the general charge of the City to ensure the public safety and welfare of its
residents and to utilize applicable laws, rules and regulations to protect the same while also
promoting economic prosperity and respecting private owners' property rights. Of course,
as with any situation where development and construction is being completed, there will be
some resulting temporary inconveniences. In this case, the promulgated conditions of
approval require, prior to the issuance of a building permit, a City -approved construction
management plan addressing many topics, including project phasing, staging areas,
construction parking, haul routes and emergency access. A draft of the construction
management plan was attached to the November 5, 2020, Planning Commission Staff
Report as Attachment No. PC 5."
h) "Please provide an exhibit that shows where each of our buildings would park
during construction, including the number of stalls allocated to each building per its square
footage. Indicate how our respective parking allocations are fulfilled by each parking location
during each phase of construction." See response to g) above. This should or can be
ascertained from the developer's City -approved construction management plan, as it may
-3-
Derek Ostensen
Julie A. Ault
Olen Properties
January 4, 2021
Page 4
be updated. Also, as was the case with prior construction, some inconvenience comes with
construction, which the plan is designed to minimize.
i) Please explain how the parking stall allocation Koll has provided for existing
businesses is compliant with City Code for office space, which appears to require a higher
number of stalls than is allocated to us by Koll. The KCN A parking ratio is compliant with
the City -approved Planned Community Text, which allows for a lower parking ratio than
the general parking requirements set forth in the City Code.
j) "Please provide the agreement between Koll and Picerne which would guarantee
parking shuttle service for affected building owners, if the project is built." Currently, there is
no such agreement. However, KCN A intends to review and comment on the developer's
parking plans as affecting the common area, including shuttle. See responses to d) and g)
above.
k) "If the project proceeds, hundreds of thousands of cubic yards of soil would be
exported from the site. Thousands of new vehicle trips from construction workers, heavy
equipment and material deliveries would occur. You appear to have given little thought to how
significantly such activities would congest and impair Koll Center circulation. What is your plan
for minimizing impacts of such activities to existing businesses, whose financial viability
depends on their workers being able to access their offices?" Construction activities are
directly regulated by the City as part of the entitlement approval process, and are covered
by the developer's construction management plan. See g) above.
2. Common Areas Expenses
a) "We firmly object to any increase in our Common Area expenses from the
proposed project and its numerous related impacts. Please confirm that our Common Area
expenses would not increase as a result of this project, if it is built." The common area
expenses will be charged in accordance with the CC&Rs. We note that the last budget for
the Shopoff plan showed a decrease for existing owners due to the decrease in maintenance
requirements and increase of the number of owners paying into the common area. The
updated budget based on the Picerne plan will be prepared once all the details of the
Picerne plan are finalized.
b) "Has Shopoff been paying into the pro rata share of the KCN Expenses for their
new parcel? If not, please indicate why and how that is allowable under the CC&Rs." No, our
practice has been to not start charging until construction starts, because until then nothing
has changed in the common area.
-4-
Derek Ostensen
Julie A. Ault
Olen Properties
January 4, 2021
Page 5
C) "If Picerne proceeds with constructing their project, what would their pro rata
share of KCN expenses be? Please confirm that Picerne would be a fully paying participant in
overall KCN expenses and would not be excluded from sharing such expenses." Yes, Picerne
would be paying their pro rata share of common area expenses.
d) "For the proposed 1 -acre park, would Picerne be solely responsible for all public
park costs, including all equipment replacement and maintenance. Existing KCN property
owners should not be responsible for any of these costs." Yes, Picerne will be responsible for
the park maintenance.
e) "Would Picerne be solely responsible for the costs of maintaining the Office
Lobby elevator that provides office parking service from the proposed subterranean structure?"
Yes, Picerne will be responsible for maintaining the elevator, and will be reimbursed by the
common area in accordance the CC&Rs.
f) "Would the new proposed "internal street" be a public street whose maintenance
and liability costs are borne by the City? If not, how do you intend to deal with the significant
associated costs and liability of this street? Being that it would primarily serve the apartment
building, its substantial maintenance and liability costs should not be shouldered by the existing
office buildings." This open drive will operate the same as the other open (non -gated)
drives in KCN (i.e., the road between MacArthurNon KarmanBirch adjacent to the
Renaissance hotel and the surrounding office buildings and the road which connects
MacArthur and Jamboree in front of 4000 MacArthur). It will be a common drive and the
expenses will continue to be shared as a portion of the common area.
g) "Structured parking often entails higher costs for maintenance and management.
Would Koll be guaranteeing that existing properties will not have their parking rates or shared
maintenance costs increase above what is currently paid, excepting routine CPI increases? The
proposed structured parking would be imposed on us, and our tenants generally prefer the
convenience of surface parking, hence we should not be forced to pay higher costs." The
common area expenses will be charged in accordance with the CC&Rs. The new
standalone structure will be maintained by the common area. We note that as a
standalone, non -ventilated, concrete structure, it may be less costly in the long run to the
common area than the existing asphalt surface parking and landscaped areas.
h) "Large-scale construction will clearly damage and degrade Common Area drive
aisles, planters and other items. Following major construction, drive aisles typically need to be
repaved, curbs repaired and planters replanted, among numerous other cost items. What
agreement with Koll requires Picerne to pay for such repairs, given they would be directly
caused by their construction?" Picerne will be responsible for any damage done as a result of
its construction.
-5-
Derek Ostensen
Julie A. Ault
Olen Properties
January 4, 2021
Page 6
3. Financial Viability of Our Properties During and after Construction
"Each of our companies has invested millions of dollars into our buildings with the
understanding that Koll Center Newport is an office park and would not be undergoing an
enormous residential construction project in the middle of our jointly owned Common Area that
will fundamentally degrade our properties' value, marketability and quality of life for several
years." We disagree. We also note that mixed-use parks that feature residential typically
out perform their market competition. In fact, many mixed-use developments within the
surrounding area i.e., Newport Beach, Irvine and Costa Mesa) have been adding
residential units and those properties have seen resulting increased occupancies and office
rental values.
"Koll has profited from its sale of our Common Area parking for a massive development and,
through the proposed construction and also its subsequent view blockages and other negative
property value impacts, Koll will impose substantial financial damages on our properties,
including proposed removal of on -grade parking as required by the CC&Rs, which reduces
the value and marketability of our buildings. Yet Koll has done little or nothing to address
these damages or even carefully coordinate with existing property owners to mitigate such
impacts." Your claim is not reasonable or correct. The concept of infill development
within KCN is nothing new, it has been going on since the project was started several
decades ago. All of the buildings built in KCN were added over time with many of the
buildings being built on the (privately owned) common area. The most recent being the
4450 MacArthur building which was built on an existing common area parking lot and
the development included an office building, below grade parking and new parking
spaces built on a common area landscape area. The common area owner has the right
to sell off and adjust boundaries of the common area. The long term concept after this
potential development will still provide all existing owners in the immediate area to have
access to both exposed surface parking and covered structured parking. Section 7.02 of
the CC&Rs clarifies that owner with Declarant can alter existing parking and drives to
accommodate the development. The precedent of this altering of parking and drives is
obvious by the number of existing parking structures and revised drive aisles present
within KCN.
"Consider for a moment that during the extremely noisy, congested and disruptive proposed
construction, we will not be able to lease vacant space in our buildings and will likely face rent
reduction and/or early lease termination requests from tenants. Brokers and their tenant clients
can lease space in numerous other Airport Area properties that will not be undergoing years of
noisy construction, parking deficiencies and circulation congestion — and they will surely do so,
materially impairing the financial viability of our properties as a direct result of Koll's conduct."
We question whether your claim is correct. In any event, we understand that there will be
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Derek Ostensen
Julie A. Ault
Olen Properties
January 4, 2021
Page 7
some short-term construction to work through, but that is to be expected from the
development permitted under the CC&Rs. Moreover, we believe that the value created
from an enhanced mixed-use park will be long term. It should also be noted that many of
the owners, including COMAC (4350 Von Karman) and Von Karman Condo Association
(4340 Von Karman) purchased their buildings with full knowledge that a residential
project was planned for this site.
"As existing property owners in Koll Center Newport, we deserve better — beginning with your
prompt response to the concerns detailed above, appointment of counsel to represent the owners'
interests in negotiations with Picerne as well as continuing with additional discussion on how
you intend to mitigate the financial damages you are imposing on our properties through the
proposed construction. Please be advised that this correspondence is an urgent attempt to prompt
action on behalf of the owners and does not constitute a full recitation of all opposition to the
proposed project."
We decline your request to appoint counsel for the Owners. There is no such obligation
under the CC&Rs. We are willing to discuss any reasonable mitigation measures you may
desire. However, we strongly disagree that the development will cause financial damages
to the Owners, to the contrary as noted above we believe that the development and the
associated improvements to the property will enhance the value of all properties within
KCN.
Let me know if you have any questions.
Regards,
Scott M. Meserve
The Koll Company
cc: Dana Haynes, VKOA
Jim Hasty, Meyer Properties
John Zhang, COMAC
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