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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 Q3 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 0 J �p NEWPORT BEACH I n LA I, 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% W-1 ,_ ILLUMINATED_''" RESTORE WINDOW'5 CORNER SIGN STANDOFF AND FRONT BUILDIND FACADE b I UKt tHUNI 140-0 -.#, STOREFRONT 0 --=�== F: . �f HAI.i, - rm � 711 .k� ItF KITACE COLORS ■■ ■ ■ 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.