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HomeMy WebLinkAboutDisposition and Development Agreement - Fourth Amendment - WVC Rancho Mirage, Inc. - Westin Desert Willow VillasPALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: APPROVAL OF FOURTH AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT BETWEEN PALM DESERT REDEVELOPMENT AGENCY AND WVC RANCHO MIRAGE, INC. REGARDING MODIFICATION OF MINIMUM PROJECT AMENITY FEES FOR THE WESTIN DESERT WILLOW VILLAS TIMESHARE PROJECT SUBMITTED BY: Justin McCarthy, Assistant City Manager for Redevelopment DEVELOPER: WVC Rancho Mirage, Inc. Westin Desert Willow Villas 75 Willow Ridge Palm Desert, CA 92260 DATE: January 13, 2011 CONTENTS: Fourth Amendment Recommendation By Minute Motion: 1. Approve the Fourth Amendment with WVC Rancho Mirage, Inc.; and 2. Authorize the Executive Director to execute the Fourth Amendment. Executive Summary Approval of staff's recommendation will authorize the Executive Director to execute the Fourth Amendment to the Disposition and Development Agreement (DDA) between the Redevelopment Agency and WVC Rancho Mirage, Inc. The amendment will modify the Minimum Project Amenity Fee (PAF) payable during the period from 2010 through 2014 from a pre -determined schedule of payments based on an anticipated build -out of timeshares to minimum payments based on actual timeshares built to date, plus any new timeshares constructed. The effect of the modification, assuming no new timeshares are constructed, will be to reduce projected Minimum Project Amenity Fees from $4,993,728 to $2,247,092 during the period subject to the amendment. This represents an approximate $2,746,636 reduction in PAF to the 241 Fund. In 2015, the Minimum Project Amenity Fee will revert to the previously agreed upon schedule. Background WVC Rancho Mirage, Inc. is a Starwood entity that is the developer of the Westin Desert Willow Villas at the Desert Willow Golf Resort. WVC Rancho Mirage, Inc. acquired land Staff Report WVC Rancho Mirage, Inc Fourth Amendment to DDA January 13, 2011 Page 2 of 3 from Intrawest Resort Ownership and became the successor to the Disposition and Development Agreement between the Agency and Intrawest. The Agency approved an increase in the number of timeshares, modifications to the schedule of Minimum Project Amenity Fees and other terms of the pre-existing DDA in the Third Amendment to the DDA, which also approved the assignment of the DDA from Intrawest to WVC Rancho Mirage, Inc. The Third Amendment memorialized a new schedule of Minimum Project Amenity Fees that WVC Rancho Mirage would be required to pay. Project amenity fees (PAF) are used to fund the 241 Fund, which represents a capital fund created to fund improvements and long-term capital projects at Desert Willow Golf Resort. The agreed upon schedule of minimum PAF payments was negotiated in 2006 during the height of the economic boom. It was structured to accommodate two years for development of the Westin's clubhouse, project amenities, and the anticipated build -out and absorption of the 280 to 300 timeshares authorized. The absorption of timeshare units was projected to occur over a seven-year period commencing in 2009. In light of the economic slow -down and substantial competition from distressed timeshare markets, sales of timeshares at Desert Willow have slowed significantly. WVC Rancho Mirage has indicated that the current schedule of Minimum Project Amenity Fee payments is substantially in excess of what can be supported based on sale of units. Based on the Agency's mandatory minimum payments, the developer is put in the position where it will have to pay project amenity fees for units that have not yet been built; let alone sold. It is possible that the developer could be paying project amenity fees for timeshares for a number of years before the units are actually built and sold. This creates a direct economic burden for the timeshare project and puts the Westin Desert Willow Villas timeshare project at a competitive disadvantage when competing internally for corporate development funds needed to build more timeshares. Staff is recommending the five-year modification to the increases in Minimum Project Amenity Fees from a fixed schedule to payments based on actual construction of units. The five-year moratorium on mandatory increases is intended to give time for the economy and the market for timeshares to recover. The benefit to this approach is that it keeps the long- term structure and terms of the PAF payments intact while giving the developer short-term flexibility to attract capital to continue building timeshares. The continuation of timeshare construction promotes a number of City interests. It assists Desert Willow through the support of golf revenue. It helps the Redevelopment Agency replace lost assessed property values and property taxes. And, it also promotes growth in the City's General Fund through transient occupancy taxes and sales taxes paid by timeshare guests. Fiscal Analysis Assuming the developer builds no additional timeshare units through 2014 and only pays PAF on units built to date, payments by the Westin project to the 241 Fund will be limited to $2,247,092 during the five-year period. This represents a $2,746,636 reduction to the Agency's original projections. Over the next 30 years, the Fourth Amendment would G:\rda\Monica Loredo\Word\McCarthy\2011\Staff Reports\Stanwood 4th Amendemnt 1-13-11.docx Staff Report WVC Rancho Mirage, Inc Fourth Amendment to DDA January 13, 2011 Page 3 of 3 represent an adjustment in the present value of projected PAF to $32,351,304 versus $34,608,083 based on the DDA and Third Amendment. Should the developer build additional units during the five years, as anticipated, revenues would be higher. Since Desert Willow projects using the 241 Fund are budgeted based on the availability of funds, staff does not anticipate any kind of shortfall between needs and resources. However, it should be noted that 241 Funds are available to the General Fund, and thus the amendment does reduce potential funds available. Submitted By: CITY COUNCIL ACTION �! APPROVED ✓ DENTED McCarthy, ACM fol_k-evelopment RECEIVED OTHER. Department Head: AVES:ri�j rf 11►- Kt-C,(-,Oe„ 1 NOES: ll�awae_� ABSENT: C71P ABSTAIN: Pau S. Gibson, Finance Director VERIFIED BY: C Original on File with City lerk's Office G ' BY RDA ON t 13�l VERIFIED BY UX 2 a Original on file with City C rk's Office GArdalMonica Loredo\Word\McCarthy\2011\Staff Reports\Stanwood 4th Amendemnt 1-13-11.docx SVO DRAFT 10-27-10 FOURTH AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT THIS FOURTH AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT ("Fourth Amendment") dated as of , 2010 ("Effective Date") is entered into by and between the PALM DESERT REDEVELOPMENT AGENCY, a public body, corporate and politic (the "Agency") and WVC RANCHO MIRAGE, INC., a Delaware corporation ("Starwood"). RECITALS: This Fourth Amendment is entered into with reference to the following facts: A. Agency and Intrawest Resort Ownership Corporation, a corporation organized and existing under the laws of the Province of British Columbia, Canada ("IROC"), entered into a Disposition and Development Agreement dated February 13, 1997 (as amended by that certain First Amendment to Disposition and Development Agreement dated August 1, 1997 and as further amended by that certain Second Amendment to Disposition and Development Agreement dated January 23, 2003, the "Original DDA"); B. Starwood acquired a portion of the property subject to the Original DDA and, in connection therewith, the Agency and Starwood entered into a Third Amendment to Disposition and Development Agreement dated March 22, 2007; C. Starwood has developed 74 two -bedroom lock -off units on the project, swimming pool, club house and other amenities and operates the project as the Westin Desert Willow Resort; D. Due to the unprecedented and unanticipated economic conditions facing the country, further development of the Starwood Property has not occurred as originally contemplated and the obligations imposed on the undeveloped portion of the Starwood Property by the Original DDA as amended by the Third Amendment have unintentionally created undue burdens on the property such that continued development of the property is in question; E. Starwood and the Agency agree that continued development of the Starwood Property it is in the best interests of Starwood and the City; F. Agency and Starwood now desire to amend the DDA as it applies to the Starwood Property to reflect the changes needed in light of the economic circumstances (the Original DDA as amended by the Third Amendment and this Fourth Amendment is referred to as the "DDA"). All capitalized terms used herein without definition when first used shall have the definitions set forth in the DDA; and G. The Agency is a public body, corporate and politic, exercising governmental functions and powers, and organized and existing under the Community Redevelopment Law of the State of California. SVO DRAFT 10-27-10 AGREEMENT NOW, THEREFORE, in consideration of the above recitals and of the mutual covenants contained herein the parties agree as follows: 1. Starwood Minimum Project Amenity Fee. Notwithstanding the provisions of Section 5.4.4 of the DDA, the Starwood Minimum Project Amenity Fee for the 14th Payment Period (2010) through the l 8th Payment Period (2014) shall be equal to the Project Amenity Fees actually paid or payable on Completed Units located on the Starwood Property for such periods. The foregoing modification of Section 5.4.4 of the DDA shall terminate at the end of the 18"' Payment Period (2014) and thereafter, commencing with the 19"' Payment Period (2015), the Starwood Minimum Project Amenity Fee shall be payable in the amounts as provided in Section 5.4.4 of the DDA as it existed prior to this Fourth Amendment. 2. Amendment of DDA Agreements. The parties hereto shall cause all DDA Agreements and related documents to be modified, as necessary, to reflect the terms and conditions of this Fourth Amendment. The Agency shall cause the City to take any and all appropriate actions with respect to any Project agreements to which the City is a party to reflect the terms and conditions in this Fourth Amendment. The Agency shall further cause any purchaser of the Resort Golf Course to be advised of the terms of the DDA. I Bindiniz Effect. This Fourth Amendment shall bind and benefit the heirs, successors, and assigns of Starwood and the Agency, respectively. 4. No Waiver. None of the terms or provisions of this Fourth Amendment may be waived, altered, modified, limited, or amended except by an agreement expressly referring hereto and to which the parties to be bound consent in writing. 5. Governing Law, This Fourth Amendment shall be governed by the laws of the State of California. 6. Reliance on Counsel/Entire Agreement. In executing this Fourth Amendment, no party has relied on any inducements, promises, or representations by any other party or its attorney, other than those set out in this Fourth Amendment and the Consent and Estoppel Certificate dated June 19, 2006. This instrument constitutes the entire, integrated understanding of the parties with respect to the subject matter contained herein, and there are no other prior or contemporaneous oral or written agreements or understandings except as expressly set forth herein. 7. Severability. Each and every provision of this Fourth Amendment is and shall be construed as a separate and independent covenant and agreement. If any term or provision of this Fourth Amendment or the application thereof shall to any extent be held to be invalid or unenforceable, the remainder of this Fourth Amendment, or the application of such term or provision to circumstances other than those to which it is invalid or unenforceable, shall not be affected hereby, and each term and provision of this Fourth Amendment shall be valid and shall be enforced to the extent permitted by law. SVO DRAFT 10-27-10 8. No Default/Waiver of Default. Agency acknowledges and agrees that as of the date hereof (i) it hereby waives any default under the DDA which could affect Starwood, the Starwood Property or any of the obligations assumed hereunder by Starwood, and (ii) neither the Agency nor the City is presently in default under the DDA or the related Project Agreements in any manner that would affect Starwood,. the Starwood Property or any of the obligations of Starwood under the DDA, nor does any circumstance exist as of the date hereof which, with the giving of notice and/or the passage of time, would constitute such a default. 9. Execution in Counterparts. This Fourth Amendment may be executed in two or more counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. 10. Effect of Fourth Amendment. This Fourth Amendment is effective as to the Starwood Property and to the relationship between Agency and Starwood. Except as modified by this Fourth Amendment, the DDA, and each term contained therein remains in full force and effect. In the event of a conflict between the DDA and the terms of this Fourth Amendment relating to the Starwood Property or the relationship between the Agency and Starwood, this Fourth Amendment shall control. SVO DRAFT 10-27-10 IN WITNESS WHEREOF, the parties hereto have entered into this Fourth Amendment as of the day and year first written above. "STARWOOD" WVC RANCHO MIRAGE, INC., a Delaware Corporation By: Its: By: Its: "AGENCY" PALM DESERT REDEVELOPMENTAGENCY, a public body, corporate and Politic By: ATTEST: