HomeMy WebLinkAboutStaff Report 3.A 12/19/2011 A g- wla'Ite4n #3 .A
1859
DATE:. December 19, 2011
TO: Honorable Mayor and Members.of the City Council through City Manager
FROM: Scott Brodhun, Assistant City Manager
SUBJECT: Resolution Approving Fourth Amendment to Lease Agreementwith Rooster Run
Golf Club, LLC
RECOMMENDATION
It is:recommended that the CityCouncil adopt the attached Resolution Approving Fourth
Amendment to Lease Agreement with Rooster Run Golf Club, LLC.
BACKGROUND
d In 1991, the City entered into a lease with Empire Golf, Inc., to construct and operate what is
now the Rooster Run Golf Course'near the Petaluma Municipal Airport. The Lease was
amended in 1994-to accept:assignment to a-new entity,Cottonwood Golf Club, Inc.,;setting
revised terms for construction,.requiring the contributionof an additional 33 acres to the site by
Cottonwood and, by terms which later became 'a matter of dispute between the City and Lessee,
modified a provision in the original lease by which the City would.provide its land as security for
course financing (subordination). In 1996, the lease was again amended to add'additional land
formerly leased to Redwood Empire-Sports Associates (RESA), extend construction dates and
set parameters for resident greens fees. In 1997, the City,_Lessee and Exchange Bank entered
into a comprehensive;Lender's Agreement and''Third Amendment to Lease (Third Amendment)
under which the City, Lessee and the Bank agreed to detailedconditions to enable Lessee to
receive a construction loan for the course. In the Third Amendment, Lessee also granted
limitations (avigationrights of way),necessary to protect City Airport approach and landing ,
areas. No-subordination of the City's land was required by the Third.Amendment. 1
RoosterRun Golf Course;LLC is the current lessee. In 2010, its managers approached the City
asking:to renegotiate rent terms over the remainder,of the lease because the course was seriously
affected by economic downturn. Richard Coombs and,Larry Wasem, representing Rooster
Run, provided financial data and general economic;.trend information regarding golf course
oPerations regionally and nationally that showed the extent of the effect of current economic
conditions on Rooster Run. Imorderto refinance its mortgage with Exchange Bank, rent
concessions were requested.from the City.
Agenda Review:
City Attomey Finance Director City-Manager
Lessee also insisted that despite the First Amendment modification in language, the City was
required to subordinate its fee interest in the land to a new loan withExchange Bank, which if
correct, could have placed the City's land at risk in the event of a foreclosure or bankruptcy. The
City strongly disagreed on the subordination.issue.
Under the Third Amendment, in the event of Lessee's bankruptcy or a foreclosure, Exchange
Bank would have the right to assign the'lease to a new operator under the same terms, but was
entitled to a six month period before the bank would have to operate the course itself. In that
time period, the course could be closed.
The lease is currently in its 14`h year of an initial 40 year term, with an option for an additional
20 years.
DISCUSSION
During initial discussion and negotiation the Rooster Run partners proposed an amendment to
lease rates that would have resulted in a 30 year flat rate paytnentstructure and an estimated
reduction in lease revenue,of more than 50% when compared to the current schedule of
percentage based rent. Subsequent proposals included 10, 2Qand 30 year terms for flat rate and
percentage payments and reduced estimated or potential revenue similarly. Each proposal
included elimination of the subordination issue for the period of the amendmentonly. After
extended investigation and months of negotiations, a revised-rent schedule was arrived at which
is considered by staff to respond'to the economic threat to continued course,operations and also
preserve as much•revenue as possible in percentage rent for the City. As well, the Fourth
Amendment removes permanently the question of subordination of any City interest in the land.
or otherwise to an Exchange Bank refinancing or any subsequent financing thereby eliminating
any risk of losing the real property.
FINANCIAL IMPACTS
•
The amendment that is recommended and illustrated below includes revisions to the current
percent rent payment schedule beginning in operational year 14 (effective 11/1/11), and
continuing through operational year 32, and is patterned after the existing rent structure.
Amended Schedule of Percent Rent
Years (14)15 16-20 21.-23 24-28. 29 30 31 32 33-40 4.1=60*
G_een Fees 3% 4% 5% 7.5% 8% 8.5% 9% 9.5% 10% 16%
Carts' 3% 4% 5% 7.5% 8% 8:5% 9% 9.5% 10% 10%
Range 3% 4% 5% 7.5% 8% 8.5% 9% 9.5% 10% 10%
Existing Schedule of Percent Rent
Years 11-15 16-20 21-25 26-40 41+*
Green Fees 5% 7.5% 10% 10% 16%
Carts 5% 7.5% 7.5% 10% 10%
Range 5% 7.5% 7.5% 10% 10%
Other 0.0% 0.0% 2.5% 5% 5%
*/f Lessee exercises option to extend
While difficult to project,.the revision provides an estimated 20% reduction in total rent, or
approximately $830;000 over the remaining life of the agreement (26.6 yrs) without.extension.
Total revised tent revenue over the satne;period is estimated to be approximately $3;200,000.
The amended,sehedule of percent rent:provides the greatest=relief to.the operator in the first 10
years, helping to assure continued.operations and revenue-to the City; assures the potential to
increase City revenue if play.atthe course increases; includes periodic increases in percentage
rent,eliminates subordination completely from the agreement;;and,:increases incrementally each
year, for the last 5 years of the revision,at which pointrent'is equal to the existing schedule of
percent rent for the remainder of the agreement.
The revenue reductions;proposed imthe FourthAmendment should be viewed in the context of a
worst case.scenario.which•would involve.potential.closure of the:golf course and loss of all
income to.,theCity for,either an extended period,or pernianently, and in the context of the risk
created'by the references to subordination of the City's property.
ATTACHMENTS'
1. Resolution Approving Fourth Amendment to Lease,Agreement with Rooster-Run Golf
Club, LLC, with Exhibit A;Fourth Amendment to`LeaseAgreement
Z Items listed below are large in volume and are not attached to this report,but may viewed in the
City Clerk'soffice.
1. Lease Agreement(1991)
2. Amendment to Lease Agreement(1994)
3. Second Amendment.to'Lease Agreement(1996)
4. Lender's Agreement and Third Amendment to Lease Agreement
ATTACHMENT 1
RESOLUTION OF THE'CITY COUNCIL-OF THE CITY.OF`PETALUMA
APPROVING FOURTILAMENDMENT TOCEASE AGREEMENT
WITH ROOSTER RUN GOLF CLUB, LLC.
WHEREAS, the City of Petalurna,(City) and Empire Golf, Inc.,.a California;corporation
("Empire"), entered intma Lease:Agreement dated January 7, 1991 (the "Lease"), concerning the
construction and-operation of a golf course on approximately 126;acres located on or near the
Petaluma Municipal.Airport, Sonoma-County, California;,and
WHEREAS, in 1994, Empire assigned-its interest in'the.Lease to Cottonwood Golf Club,
Inc. ("Cottonwood") and City approved said,assignment;.and
WHEREAS, City and Cottonwood amended thelease pursuant to the terms of that
certain.Amendment to Lease.Agreemeht dated December 8„1994(First Amendment); and
WHEREAS, City and'Cottonwood amended the.Lease pursuant to the terms of that
certain Second Amendment to-Lease Agreement dated.June 5,1 996'(Second Amendment),
pursuant to which the.Leased'.P.r'emises were:redemised'to cover-the teal property described in
the Second Amendment; and
WHEREAS, prior to September=1997, Cottonwood''assigned-its interest in the Lease to
Rooster Run Golf Club, a California Limited Partnership ("Rooster Run LP"), pursuant to the
teens of the Lease, the First Amendment and the Second.Amendment;.and
WHEREAS,Rooster Run LP mortgaged its interest in,the;Lease to Exchange Bank
pursuant to that.certain Deedof Trust and Assignment of Rents"dated.September 17, 1997, and
recorded October 10, 1997, as'Docum_enf No. 97-92917, Sonoma County Records (the
"Mortgage"); and
WHEREAS, with the express agreement of Exchange'Bank, City and Rooster Run LP
amended the Lease pursuantto thatLender's Agreement-and Third Amendment to Lea se
Agreement dated as December 19, 1997 (the "Third Amendment"); and
WHEREAS, on or,about April.24, 1998, Rooster Run LP assigned its interest:in the
Lease to Rooster Run Golf Club, LLC ("Rooster Run") pursuant to the terms of the Lease, the
First Amendment, the Second Arhendment,and;the Third Amendment;and
WHEREAS, Roos`terrRun is operating,the,golf course on the terms and conditions set
forth in the Lease, the First Amendment, the Second Amendment and the Third Amendment
subject to the Mortgage; and -
WHEREAS, the economic downturn has affected the ability of Rooster Run to operate
the golf course in a manner which is economically sustainable; and
`I
WHEREAS, Rooster.Run has'requested, and the City:has agreed,,to.modify certain
provisions of the Lease related to percentage rent♦payable to the City,as stated in the Fourth
Amendment to Lease-.Agreement.(Fourth,Am'endment)';attached to thistResolution as Exhibit A
and incorporated herein by reference; and
WHEREAS,_Exchange Bank hasragreed`to the modifications presented:in the Fourth
Amendment, including modifications to the'terms ofthe Third-Amendment which affect
Exchange Bank; and
WHEREAS, the Fourth Amendment-removes,anypresent or future claim that Rooster
Run is entitled to demand that the Cit "subordinateits�int r " i premises
y ereshmthe,leased : o any
existing or subsequent obligation of Rooster Run, including but not limited,to existing and/or
subsequent financing from Exchange Bank or:any other investor or fender; and
WHEREAS, CityandRoosterRun wish to amend further the terms of the Lease, the
First Amendment, the Second Amendment, and the Third Amendment in the manner set forth in
this Fourth Amendment.
NOW, THEREFORE, BEIT RESOLVED that the City Council of the City of
Petaluma approves the Fourth Amendment to Lease Agreement=with'Rooster-Run Golf Club,
LLC attached hereto as Exhibit A.
6
EXHIBIT A.
THIS FOURTH AMENDMENT TO,LEASErAGREEMENT (the"Fourth
Amendment"), ismade and entered intoaas of the:first'(1st)day of November, 2011 (the
"Effective Date"),,brand between THE:CITY OF PETALUMA, a public body, corporate and
politic of the,State of California("Lessor"), and ROOSTER;RUN GOLF CLUB, LLC, a
California limited liability company("Lessee").
RECITALS:
This Fourth Amendment is_made"with feference:to the following facts:
A. Lessor and a certain third party not party hereto,namely Empire Golf, Inc., a
California,corporation ("Empire"),.have:entered`into that certain Lease Agreement dated January
7, 1991 (the "Lease"); concerning the construction,and:operation of a,golf courses on
approximately 126 acres located on or near the Petaluma Municipal Airport; Sonoma County,
California.
B. In 1994, Empire assigned its interest in-the Lease to,Cottonwood Golf Club, Inc.
("Cottonwood"),and;Lessor has:approved`said assignment.
C. Lessor and Cottonwood have amended the Lease pursuant to the terms of that
certain Amendment to;LeaserAgreement dated December 8, 1994,.(the "First.Amendment").
D. Lessor'and Cottonwood have again amended the Lease pursuant to the terms of
that certain Second.Amendment to Lease Agreement-dated June 5, 1996, (the"Second
Amendment")pursuant to which the Leased Premises were redemised to cover the real property
described in the Second Amendment. As used herein, the+term "Leased Premises" shall refer to
the-Leased Premises.defined-in the Second-Amendment.
E. Prior'to September 1997, Cottonwood has assigned its interest in the Lease to
Rooster'Run.Golf Club, a California,Liniiited-Partnership.("RoostenRun LP"), pursuant the
termsfof the Lease, the First Amendment and the Second Amendment.
F. Rooster Run LP has mortgaged its interest in'the Lease to"Exchange Bank"
(herein so;called) pursuant to.that certain Deed of TrusEand;Assignment of Rents dated
September 17, 1997;,and recorded October 10;,199.7, as.DocumentNo: 97 92917, Sonoma
County-Records (the"Mortgage").
G. Lessor, Rooster Run LP=and Exchange Bank have.amended the Leak :pursuant<ao
that Lender's Agreement and Third Amendment to.Lease Agreement'-dated as of December 19,
1997 (the "Third Amendment").
H. On or-about April 24 .199$„Rooster Run LP-assigned its interest in the Lease-to
Lessee:pursuantto the terms of the,Lease, the•First Amendment,,`the'Second Amendment and the
Third Amendment.
I. Lessee is the current occupant of the Leased Premises and is operating the golf
course on the terms,and conditions set forth in the Lease, the First Amendment, the Second
Amendment and the Third Amendment subject to the Mortgage.
J. Lessee represents that Exchange:Bank:is,willing to amend the terms of the
Mortgage and the promissory note secured thereby, including, without limitation, the extension
of the maturity date andthe,promissory note.to September 1, 202-1, with a.further commitment
for a ten (10) year extension at a fixed rate of 2.75% over the then current ten (10) year treasury
rate, but only if the Lease is amended in the manner described in this Fourth Amendment.
K. Lessor and'Lessee wish-to amend further the terms of the Lease, the First
Amendment, the•Second Amendment, and the Third Amendment in the manner set forth in this
Fourth Amendment.
ACCORDINGLY,for good and valuable consideration, the receiptand sufficiency of
which is,hereby acknowledged, Lessor and Lessee herebyy agree lo amend the Lease, the First
Amendment,the Second Amendment and the Third Amendment as follows:
1. Status of Lease. Lessor.and Lessee agree•and acknowledge that the Lease, the
First Amendment, the Second Amendment, and the Third Amendment are in full force and
effect and, except for this Fourth Amendment, have not been otherwise modified or amended.
2. Rent. As:and for,rent forthe Leased Premises, Tenant.shall pay percentage rental
for the period beginning,November 1, 2011, for the balance of the Lease term in the manner
described in this Fourth Amendment.
(a) Paragraphs 7.1(a) and 7r2(a),ofthe Lease are deleted in,their entirety:
(b) For purposes of this Fourth Amendment the term, "Gross.Revenue" shall
mean only money received by Lessee from green fees, cart rentals and driving range fees and
• from no other source or activity and shall not include the items set forth in subsections 8(1)
through 8(14) of the Lease, inclusive. All othersources of income received_by Lessee from the
operation of the golf course and ownership of Lessee's interests in the golf course shallbe
excluded from Gross Revenue.
(c) From and after the Effective Date, the term "Lease Year" means a twelve
(12t month period commencing:each and every• 1 thereafter occurring and terminating'on'
each and every June 30 thereafter occurring. Lease Year 15 shall commence on-July 1,2012.
(d) From November 1, 2011 until June:30,2012,'Lessee shall pay rent
payments to Lessor'in arrears on°.the115th day of each calendar month in the amount of three
percent (3%) of Gross Revenue.
(e) From and;.after July 1, 2012 (the comniencement of Lease Year 15),
Lessee shall pay rent payments to Lessor in arrears on the 15th'day'of each calendar month, in
accordance with the following schedule:
LEASE
YEARS 15' 16-20 21-23 24-28 '29 30 31 32 33-40 41-60*
GREEN.
FEES 3% 4% 5M% 7:5% 8% 8.5% 9% 9.5% 10M% 16.0%
CARTS 3% 4% 5.0% " 7.5% 8% 8:5% 9% 9.5% 10.0% 10.0%
RANGE 3% 4% 5.0% 7.5% 8% 8.5% 9% 9.5% 10.0% 10.0%
*If Lessee exercises option to extend described in Paragraph 4.2 of the Lease.
(t) The phrase: "On or before the 15th day of each calendar month starting in
the second (2nd) month of the eleventh (11th) year ofthe`Lease" shall be deleted from the
beginning of Paragraph 7'.2(b)of the Lease and replaced with the following:
"Commencing on December 15, 2011 and on'the fifteenth day of
each and every calendar month for the balance of the term of the
Lease....."
3. Elimination of Subordination by Lessor: Paragraph 6.1(C) of the Lease;
Paragraph 2 of the First.Amendment and the last sentence of the first grammatical paragraph of
Paragraph 4 of the Third Amendment are:all deleted in their.entirety. Lessor shall have no
obligation to subordinate its fee interest or any interest in the Leased.Premises to any existing or
future indebtedness or obligation of Lessee or any assigns, transferees or successors'to Lessee's
interests in the Lease, including Lender and any assigns, transferees or successors of Lender,
whether said indebtedness.or obligation is to Lender or to-other persons or entities.
4. Exchange Bank. This Fourth Amendment is conditioned upon the execution by
Exchange Bank in the space provided below by a date no later than.December 31, 2011..
5. Capitalized Terms:. All capitalized terms and phrases used in this Fourth
Amendment-shall be given the same meaning ascribed to that term or phrase in the Lease and
.First Amendment, the Second-Amendment and the Third Amendment, except as otherwise,
provided'in'this Fourth Amendment.
6. Recording. Neither the Lease, the First Amendment„the Second Amendment, the
Third Amendment nor this Fourth Amendment shall be recorded, provided, however, a
Memorandum of Lease and the First Amendment,the Second Amendment, the Third
Amendment and this Fourth Amendment.in a form reasonably acceptable to the City Manager
and Lessee may be recorded at;any.time by either partyinthe,OfficialRecords of Sonoma
County.
7. Conflicts. In the event of any conflict between the terms of the Lease, and.the
First Amendment, the Second.Amendment.and the Third Amendment on one hand and the terms
of this Fourth Amendment on the other hand, the terms of this Fourth Amendment shall govern
and prevail.
0
8. Counterparts. This Fourth Amendment maybe executed in identical counterparts
and each counterpart together shall constitute,a single integrated document.
IN WITNESS WHEREOF, the parties hereto have set their hand, effective as of the
Effective Date.
LESSOR: CITY OF PETALUMA
By: •
City Manager
ATTEST:
City Clerk.
APPROVED AS TO FORM:
City Attorney
Finance Director
Risk Manager
LESSEE: ROOSTER RUN GOLF CLUB, LLC,
a California limited liability company
By: ROOSTER RUN GENERAL PARTNERS,
a California general partnership, Manager
By:
RICHARD A. COOMBS,
General Partner
The undersigned hereby accepts and approves the terms of this Fourth
Amendment.
EXCHANGE BANK
By:
Name:
Its:
1758994.1