HomeMy WebLinkAboutC-8004-1 - East Balboa Boulevard, 707-709 - Exclusive Negotiating Agreement (for Negotiation of Terms of the Sale of the Balboa Theater Property)Q EXCLUSIVE NEGOTIATING AGREEMENT
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This EXCLUSIVE NEGOTIATING AGREEMENT ("Agreement") is made and entered
into as of RP91�_ 1Z , 2016 ("Effective Date"), by and between the City of Newport
Beach, a California charter city and municipal corporation ("City"), and Lab Holding, LLC, a
California limited liability company ("Lab Holding"). City and Lab Holding are sometimes
hereinafter individually referred to as a "Party" and collectively as the "Parties."
RECITALS:
The following Recitals are a substantive part of this Agreement and are incorporated
herein:
A. City is a municipal corporation duly organized and validly existing under the laws
of the State of California with the power to carry on its business as it is now being conducted
under the statutes of the State of California and the Charter of the City.
B. Pursuant to the Newport Beach Municipal Code and City Council Policy F-7, the
City conducted an analysis to determine the maximum or open market value of the property that
is the subject of this Agreement, using an appraisal by a reputable and independent professional
appraiser to determine the highest and best use of the property, and the highest value of the
property.
C. In seeking revenue equivalent to the open market value of the highest and best use
of the property, the City conducted an open bid or proposal process to ensure the highest
financial return on the property that is the subject of this Agreement.
D. City desires to sell to Lab Holding certain real property in need of design,
redevelopment, and improvements, which property consists of approximately 5,200 square feet
located at 707-709 East Balboa Boulevard in Newport Beach, California 92661 (A.P.N. 048-135-
02), and is depicted on Exhibit "A" attached hereto and incorporated herein ("Site").
E. Lab Holding is an experienced firm in restoration of historic structures and
operating event/performance venues who has proposed the restoration and operation of the
Balboa Theater as a multi-purpose events/performance venue on the Site ("Proposal"). The
Proposal, which may be subject to refinement and modification as mutually agreed to by the
Parties during negotiations, is generally described in the Proposal Description attached hereto
and incorporated herein as Exhibit `B."
F. The Parties desire to enter into this Agreement to establish a period during which
they will cooperate to explore the feasibility of developing the Proposal on the Site and during
which time Lab Holding shall have the exclusive right to negotiate with City with respect to the
terms of an agreement or agreements to provide for the Proposal ("Definitive Agreement").
COVENANTS:
Based upon the foregoing Recitals, which are incorporated herein by this reference, and
for good and valuable consideration, the receipt and sufficiency of which is acknowledged by
both Parties, City and Lab Holding agree as follows:
1. Good Faith Negotiations. During the entire Negotiation Period (defined in
Section 2), City and Lab Holding shall negotiate in good faith pursuant to the terms set forth
herein to achieve the objectives and accomplish the tasks described in this Agreement. Nothing
herein shall be deemed a covenant, promise, or commitment by either Party to approve or enter
into a Definitive Agreement with the other Party on any particular terms or conditions. The
Parties' approval and execution of this Agreement is merely an agreement with respect to certain
tasks preliminary to the drafting and execution of the Definitive Agreement and an agreement to
enter into a period of negotiations according to the concepts presented herein, reserving full and
final discretion with City and Lab Holding as to the final terns of the Definitive Agreement as
required by law. If for any reason City and Lab Holding have not each executed a mutually
acceptable Definitive Agreement by the expiration of the Negotiation Period, and provided that
the Parties have not committed a material default hereunder, this Agreement shall automatically
terminate and shall be of no fiuther force or effect.
During the period of exclusive negotiation, the City covenants and agrees to negotiate
exclusively with the Lab Holding and shall not solicit another party for the Site or enter into any
agreement with any other party regarding the development of the Site. The City acknowledges
and agrees that but for this exclusivity, Lab Holding would not have entered into this Agreement.
2. Term of Agreement. The term of this Agreement ("Negotiation Period") shall be
nine (9) months after the Effective Date; provided, however, that the City Manager, on behalf of
the City, and Lab Holding shall have the right to approve an extension of the Negotiation Period
for a cumulative maximum of three (3) months without the requirement of any official action by
the City Council or an amendment of this Agreement, if the City Manager and Lab Holding
determine, in their sole and absolute discretion, that satisfactory progress is being made to
achieve the objectives and complete the tasks set forth herein but such extension is necessary to
finalize discussions or negotiations on mutually satisfactory terms.
3. Certain Parameters for Negotiation. The following nonexclusive list of items
related to the Proposal shall be the subject of negotiations during the Negotiation Period:
(a) Scope of development and improvements for a multi-purpose
events/performance venue of approximately 5,200 square feet;
(b) Scope of the entitlements required for the project (including, but not
limited to, City of Newport Beach, California Coastal Commission, California
Environmental Quality Act, and California Alcohol Beverage Control);
(c) Development schedule for the Proposal;
Lab Holding, LLC Exclusive Negotiating Agreement Page 2
(d) The fair market purchase price which Lab Holding will pay for a fee
simple interest in the Site and terms and conditions of the conveyance of the fee simple
interest to Lab Holding;
(e) Deed restrictions to be recorded against the Site by City, including but not
limited to, a deed restriction on title limiting the use of the Site to any of the following
listed uses: theater, cultural center, event center, or other related performing arts uses.
Ancillary commercial use of the property shall be permitted;
(f) City's first right of repurchase option to repurchase the property from Lab
Holding, should Lab Holding elect not to redevelop property as theater use; and
(g) Escrow instructions and conditions for the closing of escrow.
4. Reserved.
5. Land Use & Environmental Requirements. The development of the Proposal
shall be subject to all rules, regulations, standards, and criteria required by law and as set forth in
the City's General Plan, Coastal Land Use Plan, zoning regulations, this Agreement, and the
Definitive Agreement. Lab Holding shall be responsible for all costs related to the Proposal
incurred after the Effective Date, including, but not limited to, consultant fees and Architectural
Services ("Costs").
6. Physical Condition of the Site. City and Lab Holding shall cooperate and
exchange such information as may be available to either of them regarding the physical condition
of the Site (or applicable portions thereof).
7. Hazardous Material Assessment. Within ten (10) days of the Effective Date, the
City shall provide Lab Holding without charge, copies of reports, studies, surveys and other data
and information on the physical condition of the Site. The Definitive Agreement may address
applicable clean-up issues, if any. In the event an environmental audit evidences a need for
clean-up of any portion of the Site, the City, by this Agreement, does not agree in any respect to
undertake or complete such clean-up. In the event that during the Negotiating Period Lab
Holding conducts or causes to be conducted any environmental audits and/or testing on any
portion of the Site, Lab Holding shall submit copies of any reports resulting from such tests or
studies to the City. Such environmental audits and/or testing shall be conducted at the sole cost
and expense of Lab Holding. Neither Party makes any representation or warranty as to the
accuracy or completeness of reports prepared by third parties and delivered to the other Party.
Lab Holding shall indemnify, defend and hold harmless City from and against all claims,
liabilities or damages, and including expert witness fees and reasonable attorneys' fees and costs,
arising out of any such testing, inspection or investigatory activity on the Site by Lab Holding.
hi addition, following any such testing, inspection or investigatory activity, Lab Holding shall
return, and repair if necessary, the Site to the condition it was in prior to the Lab Holding's
investigatory activities.
Lab Holding, LLC Exclusive Negotiating Agreement Page 3
Miscellaneous.
8.1 Notices. Any notices, requests or approvals given under this Agreement
from one Party to another may be personally delivered, or deposited with the United States
Postal Service for mailing, postage prepaid, to the address of the other Party as stated in this
paragraph, and shall be deemed to have been given at the time of personal delivery or, if mailed,
on the third day following the date of deposit in the course of transmission with the United States
Postal Service. Notices shall be sent as follows: notices between the Parties shall be delivered in
writing to the following addresses:
To City: Dave Kiff
City Manager
100 Civic Center Drive
Newport Beach, CA 92660
With a copy to: Lauren Wooding Whitlinger
Real Property Administrator
100 Civic Center Drive
Newport Beach, CA 92660
To Lab Holding: Lab Holding, LLC
Attn: Shaheen Sadeghi
709 Randolph Avenue
Costa Mesa, CA 92626
8.2 Termination. Each Party reserves the right to terminate this Agreement,
with or without cause, upon thirty (30) calendar days' prior written notice to the other Party,
thereby withdrawing from such negotiations without any liability to the other Party, except that
(i) each Party shall be obligated to promptly return to the other Party all information and
materials which such Party has received from the other Party pursuant to this Agreement, (ii) Lab
Holding shall be responsible for payment of any work Lab Holding contracted to have performed
under this Agreement, and (iii) the rights and obligations of the Parties set forth in Section 8 shall
remain in full force and effect. The Parties, by their respective execution hereof, knowingly
agree, notwithstanding anything herein to the contrary, that, except with respect to the rights and
obligations set forth in Section 8 hereof, neither of them shall have any right to specific
performance of this Agreement, nor any other equitable or damage remedies under the law. Each
Party makes such release with full knowledge of Civil Code Section 1542 and hereby waive any
and all rights thereunder to the extent of this release, if such Section 1542 is applicable. Section
1542 of the Civil Code provides as follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his or her favor at the time of
executing the release, which if known bi him or her must have
materially y f ctgd his or her settlem btor.,,
Ci 's Initials Lab olding's Initials
Lab Holding, LLC Exclusive Negotiating Agreement Page 4
8.3 Lab Holding Documents. In the event of termination of this Agreement,
for any reason including, but not limited to, expiration, termination or breach of this Agreement,
Lab Holding shall deliver to the City, within ten (10) business days, a copy of all surveys,
soils/environmental reports, site plans, pro formas, and other documents prepared by Lab
Holding or third parties that are associated in any way with this Agreement. Notwithstanding the
foregoing, in no event, however, shall Lab Holding be obligated to make available (or cause to
be made available) any proprietary or confidential documents including reports or studies that
have been superseded by subsequent reports or studies, or any of the following confidential and
proprietary materials: (1) information contained in financial analyses or projections (including
Lab Holding's budgets, and capital account information); (2) material that is subject to attorney-
client privilege or that is attorney work product; (4) organizational, financial and other
documents relating to Lab Holding or its affiliates (other than evidence of due authorization and
organization, and the financing plan required under this Agreement); or (5) material that Lab
Holding is legally required not to disclose other than by reason of legal requirements voluntarily
assumed by Lab Holding after the Effective Date. Lab Holding makes no representation or
warranty as to the accuracy or completeness of reports prepared by third parties and delivered to
the City.
8.4 Cooperation. The Parties agree to cooperate with each other in promptly
supplying information and analyses relating to the Proposal.
8.5 Assignment. Neither Party shall have the right to assign any of their rights
or obligations set forth in this Agreement without the written consent of the other Party, which
consent may be withheld in such other Party's sole and absolute discretion. Any assignment
must be in writing and executed by both assignor and assignee to be enforceable and after the
effective date of the assignment the assignor shall be released and discharged from any liability
or responsibility hereunder.
8.6 Entire Agreement, Amendments, and Waivers. This Agreement sets forth
the entire agreement between the Parties with respect to the subject matter set forth herein and
supersedes all prior discussions and negotiations between the Parties with respect thereto. No
amendment to this Agreement shall be effective unless set forth in a writing signed by an
authorized signator of each Party. No waiver of any provision of this Agreement shall be
enforceable against a Party unless it is set forth in a writing executed by such Party. For purposes
of amendments, the City Manager is an authorized signatory on behalf of the City.
8.7 Administrative Costs and Expenses, Lab Holding De osit. Lab Holding
shall be responsible for all costs and expenses incurred by the City and/or Lab Holding related to
this Agreement including, but not limited to, architectural and consultant fees, costs of City staff
time related to any applications, other fees and permits, and attorney fees.
8.8 Assurances to Act in Good Faith. The City and Lab Holding each agree to
take all actions contemplated by this Agreement, and shall use their respective best efforts to
negotiate a Definitive Agreement in accordance with the provisions of this Agreement.
Lab Holding, LLC Exclusive Negotiating Agreement Page 5
8.8 Attorney's Fees. In the event of any litigation or legal action between the
Parties arising out of or concerning this Agreement, the prevailing Party shall not be entitled to
recover from the other Party its attorney's fees and costs.
8.9 Interpretation. This Agreement shall be interpreted as a whole and in
accordance with its fair meaning and as if each Party participated equally in its drafting. Captions
are for reference only and are not to be used in construing meaning.
8.10 Governing Law. This Agreement shall be governed by the laws of the
State of California. Any legal action brought under this Agreement must be instituted in the
Superior Court of Orange County, State of California, in an appropriate court in that county, or
in the Federal District Court in the Central District of California.
8.11 Purpose of Agreement. It is expressly understood and agreed by the
Parties that this is an Agreement regarding the conduct of exclusive good faith contract
negotiations only and does not convey any interest in the Site whatsoever. This Agreement is not
intended to constitute a binding agreement by the City to sell the Site or commit the City to
develop all or any portion of Site, to financially participate with Lab Holding in the development
of the Proposal, nor is it intended to constitute a binding agreement to enter into a Definitive
Agreement or any other contract. No Party shall be legally bound to consummate construction of
the Proposal unless and until a Definitive Agreement or other contract has been executed and
delivered by the Parties. Notwithstanding any other provision hereof, neither Lab Holding nor
the City shall be under any obligation to approve or execute any Definitive Agreement during or
upon conclusion of the Negotiating Period. Any Party may refuse to approve and execute any
Definitive Agreement at its sole and absolute discretion, with or without cause. In the event that
a Definitive Agreement is approved and executed by the Parties, this Agreement shall be
superseded by such Definitive Agreement. It is expressly understood that notwithstanding this
Agreement, the Proposal may be modified or not implemented at all depending on a number of
factors including but not limited to compliance with the California Environmental Quality Act.
8.12 No Commissions. The City shall not be liable for any real estate
commission or any broker's fees which may arise in relation to the Proposal. The City represents
that it has engaged no broker, agent, or finder in connection with this transaction, and Lab
Holding agrees to hold the City harmless from any claim by any broker, agent, or finder retained
by Lab Holding.
Agreement.
8.13 Time of Essence. Time is of the essence of each provision set forth in this
[SIGNATURES ON FOLLOWING PAGE]
Lab Holding, LLC Exclusive Negotiating Agreement Page 6
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to be
effective as of the date first set forth hereinabove.
APPROVED AS TO FORM:
Date: 1 i
Aaron C. Harp IIV
City Attorney
ATTEST:
Date: .2 .
Leilani I. Brown
City Clerk,0o0,!1
CITY OF NEWPORT BEACH,
a California munic1-1,6—A
corporation and
charter city
niate•
Mayor
LAB HOLDING, LLC: a California
limited liability. company
Date:
Name: ShaheetASadeghl
Title: President A Member
Lab Holding, LLC Exclusive Negotiating Agreement Page 7
EXHIBIT A
DEPICTION OF THE PROPERTY
Lab Holding, LLC Exclusive Negotiating Agreement Page A-1
EXHIBIT B
PROPOSAL DESCRIPTION
Lab Holding, LLC Exclusive Negotiating Agreement Page B-1
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NEWPORT BEACH
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October 17, W15 I a.b h o I d i n g I I c
Lauren Wooding Whitlinger
Real Property; Administrator
. City of Newport Beach,-
100 Civic Center Drive
01; .Newport Beach, CA 93660
. :Dear Ms. Wooding Whitlinger;
�. Thankyou for the opportunity to provide this additional. information on our offer to purchase
the Balboa Theatre. We are excited by the opportunity to resurrect this community amenity
for Balboa Village.
• Our firms. interest is in bringing the Theatre back and operating,as,a multi-purpose events/
. performance venue. As such, the two City: conditions placed on the purchase of the prop-
erty are acceptable. We will refer to the building as the BalboaTheatre, the Historic Balboa
. Theatre or The Balboa:
'Following, you will fin4 detailed information on our firm's .experience' in restoring historic
structures and in operating event/performance venues.
We understand the importance these landmarks play in our community and would be hon-
ored to have the opportunity to work with this building.
Please contact Chris Bennett from our office if you require further information. He can be
reached at 949.933.5296 or at chris@thelab.com.
�:.. Sincerely,
Shaheen Sadeghi
I President
0 LAB Holding
116
Using historic references, the LAB team will restore the original architecture of the
Balboa Theater with a prominent marquee. Further study will be made on the design of the
marquee and whether the original 20's wrought iron design or the historic neon design would
be suitable. The central entry will be restored with the two side bays re-established as store-
fronts for the on-ste cafe and box office.
Further study will be done on the historic interior to determine what can be brought
back while ensuring flexibility as a multi -use space. Interior colors, materials and finishes will
be in keeping with the period of the building.
BA WIA s
FA!1 biOND MAN 'r4N%
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ILLUMINATED_''" RESTORE WINDOW'5
CORNER SIGN STANDOFF AND FRONT BUILDIND FACADE
b I UKt tHUNI
140-0 -.#,
STOREFRONT
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ItF KITACE COLORS
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The LAB team intends to restore the original facade of the Balboa Theatre bringing
back the historic marquee. We plan on simplifying the current proposed interior layout to
make the space more conducive and flexible for multi -use events and performances while
remaining within the currently approved development envelope. The main focus of our due
diligence will be understanding how we can remain within substantial conformance of the
current approved plans and due diligence to confirm construction estimations.
Once under contract, we will share detailed plans with City staff to confirm our con-
formance with approved plans and what plans may be required for building modifications.
We will also have our construction manager, architect and contractors on site to physically
inspect the building.
We are requesting a 45 day due diligence period to undertake this work.
The acquisition and construction will be financed with a construction loan. Following,
please find a draft proforma showing our construction assumptions. These assumptions will
be tested during the due diligence period and prior to closing escrow.
First and foremost, we view the Balboa Theater as a local historic treasure and as such
should be repurposed to serve the local community maintaining its original entertainment
mission. The LAB (Little American Business) therefore proposes the following in keeping
with our long tradition of celebrating small business and site specific community based proj-
ects.
We propose the following for the historic Balboa Theater based on our event venue
experience in the local marketplace. Amenities would include 3 •primary components: (t)
intimate neighborhood cafe open to the public and also serving as the catering kitchen for
events in the theater ; (2) small scale live music stage (standing room only) for patrons includ-
ing pub counter; (3) adjoining gathering room for rental by guests for private celebrations
(i.e. meetings, small weddings, etc.). We may propose a flexible connection between the two
event spaces allowing these to be combined into one larger space when more seating may be
required.
The inspiration for the core element of our model is the highly acclaimed Rockwood Mu-
sic Hall of New York City. (rockwoodmusichall.com). Having booked local musicians over the
course of the last 20 years at the LAB and CAMP properties, and now on a weekly basis for
the vibrant Anaheim Packing House, we believe the OC music scene needs a home with his-
torical soul. The Rockwood venue is unique in that it offers musicians a comfortable small
stage to debut new songs and material to a small audience with manageable short sets; and
patrons enjoy an entertaining rotation of various musicians without intimidating door/ticket
charges in an informal and relaxing environment.
MARKETING
The LAB boasts a strong marketing framework with more than 20 years of brand rec-
ognition to a local artistically inclined audience. We believe cross promotion between the
LAB, CAMP and Anaheim Packing House patrons via our social media networks and event
programming would be a natural fit and support for initial marketing efforts of the Balboa
Theater.
50
�1
We suggest allocating approximately 1500 sq.ft. for the primary music performance room;
with another 1500 sq.ft. for the private event space, which could also serve as a secondary
stage room for special event nights (i.e. jazz series, acoustic night, etc). The cafe could occu-
py approximately 2000 sq.ft. and pub counter within the entertainment rooms approximately
200 sq.ft.
Our team of event management professionals are already in place to conceptualize
various musical programs as well as cross promote via our existing private event and wedding
businesses. We have longstanding relationships with the AOCVCB, various local music pro-
moters, meeting management professionals as well as event vendors/suppliers for a smooth
transition to this new venue opportunity.
FINANCIAL
As with our various existing venue businesses, we believe the successful financial model
involves reliance on several components to provide a consistent income base. (1) The Balboa
Theater cafe would provide a consistent rental income source as an independent amenity i.e.
tenant. (2) the small stage room would generate income from the pub counter (with perhaps
a one drink minimum for the over 21 yrs. crowd. Potential ticket sales would only be enforced
if there were larger name musicians appearing, akin to the Rockwood model). (3) The primary
source of income would be in the rental of the 2nd stage room for private celebrations. We
have learned that being on site and word of mouth is paramount for the success of the pri-
vate rentals. Therefore, the exposure of the venue to the weekly musical guests would be a
natural opportunity to expose the public to the amenity of the private rental.
We would project rental of the cafe at market rents (approximately $2/sq.ft. plus percent-
age rent); pub counter (self owned and managed) income combined with approximately 4-8 pri-
vate room rentals per month which is highly achievable for this unique and historic property.
We would be happy to tour you through some of our existing operations so you can see
both the quality of building rehabilitation and the venue operations.