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2002 04 09 CC�a�Qc ti5 City Council Agendas are OF9 available on the City's web page @www.la-quinta.org City Council Agenda CITY COUNCIL CHAMBERS 78-495 Calle Tampico - La Quinta, California 92253 SPECIAL MEETING Tuesday, April 9, 2002 10:30 A.M. 1. CALL TO ORDER Beginning Res. No. 2002-54 Ord. No. 370 ROLL CALL: Council Members: Adolph, Henderson, Perkins, Sniff, Mayor Pena II. PLEDGE OF ALLEGIANCE III. PUBLIC COMMENT At this time, members of the public may address the City Council on any matter not listed on the agenda. Please complete a "request to speak" form and limit your comments to three minutes. Please watch the timing device on the podium. IV. CLOSED SESSION - NONE V. CONFIRMATION OF AGENDA VI. PRESENTATIONS - NONE City Council Agenda (Special Meeting) Page 1 April 9, 2002 VII. BUSINESS SESSION 1. CONSIDERATION OF AN OPTION AGREEMENT BY AND BETWEEN THE LA QUINTA REDEVELOPMENT AGENCY AND KSL LAND HOLDINGS, INC., .PERTAINING TO THE PURCHASE OF 525 ACRES OF PROPERTY KNOWN AS THE RANCH AND GENERALLY BOUNDED BY THE CORAL REEF MOUNTAINS, AVENUE 52, JEFFERSON STREET, AND AVENUE 54; AND ADOPTION OF A RESOLUTION MAKING FINDINGS PURSUANT TO HEALTH AND SAFETY CODE SECTION 33445. A. MINUTE ORDER ACTION B. RESOLUTION ACTION VIII. ADJOURNMENT Adjourn to the regularly scheduled City Council Meeting, commencing with closed session at 2:00 P.M. and open session at 3:00 p.m., Tuesday, April 16, 2002, in the City Council Chambers, 78-495 Calle Tampico, La Quinta, CA 92253. City Council Agenda (Special Meeting) Page 2 April 9, 2002 DECLARATION OF POSTING I, June S. Greek, City Clerk of the City of La Quinta, do hereby declare that the foregoing agenda for the La Quinta City Council Special meeting of Tuesday, April 9, 2002, was posted on the outside entry to the Council Chamber, 78-495 Calle Tampico and on the bulletin board at the La Quinta Chamber of Commerce and at Stater Bros. 78-630 Highway 111, on Friday, April 5, 2002. DATED: April 5, 2002 JUNE S. GREEK, CMC City Clerk, City of La Quinta, California PUBLIC NOTICES The La Quinta City Council Chamber is handicapped accessible. If special equipment is needed for the hearing impaired, please call the City Clerk's Office at 777-7025, 24-hours in advance of the meeting and accommodations will be made If special electronic equipment is needed to make presentations to the City Council, arrangements should be made in advance by contacting the City Clerk's Office at 777-7025. A one (1) week notice is required. If background material is to be presented to the City Council during a City Council Meeting, please be advised that eight (8) copies of all documents, exhibits, etc., must be provided to the City Clerk. It is requested that this take place prior to the 7:00 p.m session for distribution. City Council Agenda (Special Meeting) Page 3 April 9, 2002 T a iiy�l 4 AGENDA CATEGORY: BUSINESS SESSION: COUNCIL/RDA MEETING DATE: April 9, 2002 CONSENT CALENDAR: Consideration of an Option Agreement by and Between the La Quinta Redevelopment Agency and KSL Land Holdings, Inc., Pertaining to the Purchase of 525 Acres of Property Known as the Ranch and Generally Bounded by the Coral Reef Mountains, Avenue 52, Jefferson Street, and Avenue 54, and Adoption of a Resolution Making Findings Pursuant to Health and Safety Code Section 33445 RECOMMENDATION: STUDY SESSION: PUBLIC HEARING: Adopt a Resolution of the City Council making certain findings pursuant to Health and Safety Code 33445 to approve use of funds from the La Quinta Redevelopment Project Area No. 1 for an Option Agreement by and between the La Quinta Redevelopment Agency and KSL Land Holdings, Inc.; and approve the Option Agreement and authorize the appropriate parties to execute the necessary documents. FISCAL IMPLICATIONS: This action would result in the expenditure of up to $42,500,000 to purchase the Ranch property if escrow closes by July 2, 2002. The Option Agreement requires an expenditure of $100,000, non-refundable but applied toward the purchase price, for an option on the property through May 22, 2002. The Agreement provides for closing extensions until October 31, 2002. These extensions would cost the Agency $212,500 per month for every month after July 2002. If escrow did not close until October 31, 2002, then the total purchase price would be $43,350,000. Ultimately, the funds used to underwrite this purchase will be $20,000,000 of existing Project No. 1 bond proceeds, and $22,500,000 of new bond proceeds derived from the sale of additional Project No. 1 Tax Allocation Bonds. BACKGROUND AND OVERVIEW: Since 1996 the Agency has been working to implement the City's Economic Development Plan that calls for: • enhancing City General Fund revenue by attracting retail and hospitality uses; • increasing recreation opportunities for La Quinta residents by purchasing properties for golf and other recreation uses; and preserving the natural resources and features that make La Quinta a unique place. During this time, the Agency has explored purchasing a variety of properties that could be developed with public golf and other recreation uses, and which could accommodate additional hospitality uses. In January 2002, Agency staff contacted KSL Recreation, Inc., regarding the disposition of KSL's Ranch property. After much discussion, KSL offered to sell 525 acres to the Agency. Preliminary site planning efforts indicate that this property could accommodate two public golf courses, a driving range, hotel and related retail uses, passive recreation and open space amenities, and additional trails. The Agency Board reviewed KSL's offer in February 2002, and directed staff to initiate negotiations that generated the Option Agreement. If the Option Agreement is approved, the Agency will have the opportunity to conclude due diligence and environmental assessment activities, sell tax allocation bonds, and pursue activities to close escrow and purchase this property by July 2, 2002. If the Agency would exercise the option and close the escrow by July 2, 2002, it would expend $42,500,000, or $80,952 per acre, to purchase the property. Every effort will be taken to close by this time. If, however, the close is delayed due to unknown challenges, the Option Agreement provides for monthly extensions until October 31, 2002. These extensions would cost the Agency $212,500 per month, which would be added to the purchase price. Public Golf, Resort/Commercial Development as Part of a Comprehensive Economic Development Program The City of La Quinta and its Redevelopment Agency are committed to funding community improvements, including basic infrastructure (sewer, drainage, roads, etc.), public safety (new fire station), recreation (The La Quinta Park, trail enhancements, numerous recreation improvements, etc.), and cultural facilities (new library, museum, etc.). The City's Redevelopment Agency has provided the capital funding for the vast majority of these improvements in La Quinta. The Agency is legally restricted, however, from financing the ongoing operating costs for these new and improved facilities. Furthermore, the Agency is precluded from paying for public safety, recreation and other ongoing municipal expenses. Accordingly, the Agency must ensure that its expenditures include endeavors that will generate and sustain economic activity to support the institutional improvements and municipal services outlined above. As the City matures, it will rely primarily upon sales and transient occupancy taxes to fund municipal services. The City is a low property tax City and receives less than seven cents on the dollar from property taxes paid by its citizens. Today, the City receives approximately half of its revenues from sales and transient occupancy taxes and relies upon these revenues to provide all municipal services. Recognizing the need to enhance General Fund revenues in a strategic manner, while preserving the unique environmental features that comprise La Quinta's landscape, the City Council directed staff to develop a strategic plan to guide City and Agency economic development activities. This document, the City's Economic Development Plan, presents policies and implementation initiatives that are designed to increase General Fund revenues by attracting retail and hotel users. One implementation initiative is to develop a public golf course or courses in order to provide golf packages that attract additional hotels to La Quinta, while offering affordable golf to La Quinta residents. The Agency has been evaluating properties that could accommodate one, if not two golf courses, hotel and restaurant uses, and other passive recreation uses. Discussions with various property owners revealed few viable options. Other properties were either not located near the City's population center, or would involve less acceptable environmental impacts if developed with golf, recreation and hotel uses. The Ranch represents the last centrally located property in La Quinta that can support these uses with minimal environmental impacts at a price that fairly represents market value for comparable property. Further, it is the last accessible property of its kind, in that it is centrally located and adjacent to the mountains. If purchased by the Agency, the public would have access to these resources on this property. Projected Financial Returns The Agency's economic consultant, the Rosenow Spevacek Group (RSG), has prepared cost and revenue projections for both the golf and hotel components. Assuming two golf courses, income was estimated using 35,000 annual rounds per course, with a per -round resident fee of $45 and an average non-resident per - round fee of $80. Further, a per -hole annual maintenance cost, not including management and clubhouse operations, of $80,000 was used. The assumptions also included revenues and expenses for clubhouse and food/beverage operations. Using these assumptions, RSG estimates that the two courses would generate a net annual income of $1.1 million. This occurs because the courses would not be burdened by debt service costs associated with property acquisition and facility development expenses. These expenses would be funded by one-time Redevelopment Agency funds. If a 250-room hotel and 300 condo -hotel units (with 500 keys) were built in conjunction with the golf courses, it is estimated that these hospitality units could generate $2,000,000 in annual transient occupancy tax revenue to the General Fund. These projections assume 750 rooms at a 65% annual occupancy rate, and an average annual room rate of $1 15. Combined, the annual net income from the golf and hotel operations could be $3,200,000, using conservative assumptions. The Agency has retained Economics Research Associates (ERA) to refine the golf and hotel revenue and expenditure projections, and to further evaluate the market feasibility of locating golf and hotel uses on the Ranch property. ERA's report is due by May 6, 2002. The Ranch Property The subject property is approximately 525 acres in size. An additional 182 acres + /- of mountainous land adjacent to this property is also owned by KSL. Staff has initiated discussions with KSL to acquire this acreage for purposes of permanent preservation. The site is bounded by Jefferson Street to the east, Avenue 52 to the north, the Coral Reef Mountains and the Tradition to the west, and Avenue 54 to the south. The All American Canal traverses a portion of the site. Surrounding uses entail the Tradition, Citrus, Country Club of the Desert and PGA West Golf Communities, and the Coral Reef Mountains. This land is primarily vacant. The Pelz Golf School and the desert offices of M DS Consulting are the only uses currently on the site, which are housed in the old Ahmanson Ranch structures. The Agency will acquire these structures with this purchase. The property has an approved 1985 Specific Plan that permits a private residential golf community. During subsequent years, the property has been evaluated for use as a major destination golf resort, and for other private resort, residential and retail uses. The Agency has commissioned an MAI appraiser from Capital Reality to prepare an appraisal that verifies the property's value based upon public golf and private resort uses. Using comparable sales, this work generated a per acre value range of $75,000 to $83,000 for the Ranch site, rounded to $80,000 per acre, which compares to the $80,952 per -acre actual purchase price. The Financing Strategy As part of the annual strategic planning effort, the City Council and staff have been implementing measures that judiciously allocate resources to maintain City service levels and invest in community resources. Annually, the City reviews all revenues and expenditures, and forecasts operations and capital improvement program cash flows for a five-year period. These strategic planning efforts have paid off in that the City is in a position that it can afford to make community- 0 J 4 building investments in both amenities for La Quinta residents, and in initiatives that generate additional General Fund resources. At this point, the City has reserved sufficient funds to cover one year's General Fund operating expenses. Further, the City and Agency have secured resources to fund over $19,000,000 in Citywide capital improvements during the next five years. The Agency has reserved over $6,000,000 for investment in non -golf economic development initiatives. Finally, the Agency has an existing financing capacity to issue $60,000,000 in tax allocation bonds over the coming four years. In order to fund the purchase and development activities the Option Agreement would initiate, the City will use the Agency's Project No. 1 resources. This property is located in Project No. 1, and when this redevelopment project was amended in 1994 to increase its financial capacity, the Agency contemplated investing some of Project No. 1's redevelopment resources in public golf activities. It should be noted that in allocating the non -housing revenue from Project No. 1, the Agency first reserved funds to cover infrastructure and public facility improvements. At this point, all programmed infrastructure and public facility improvements are funded. Only after fully funding these improvements did the Agency reserve funds for golf and hotel initiatives. The Agency proposes to fund property acquisition and improvement activities through a combination of existing and future Project No. 1 tax allocation bond revenue. To purchase the property, the Agency would use a combination of $20,000,000 of 1998 and 2001 Project No. 1 tax allocation bond proceeds, and $22,500,000 of bond proceeds from a tax allocation bond issue that the Agency would sell by May 2002. To build the golf courses and other passive recreation and open space improvements, Project No. 1 has the current capacity to issue an additional $37,500,000 in tax allocation bonds during the next 48 months. These financings are not based upon property assessments nor are they an obligation of the City of La Quinta. Instead, these financings are secured by the $2.5 billion of improvements that comprise Project No. 1's assessed value. Option Agreement The Option Agreement provides a vehicle to initiate property acquisition, as well as the environmental, due diligence, and financing activities. If approved, the Agency and KSL will open escrow and the Agency will make an initial deposit of $100,000. This deposit is non-refundable. With this deposit, KSL agrees not to market the property to other potential buyers. Attached to the Option Agreement is the Agreement of Purchase and Sale and Joint Escrow Instructions. This document presents the property purchase terms and the escrow instructions. The Agency would have until May 22, 2002 to exercise its purchase option which, if exercised, would require the Agency to deposit an additional $150,000 into escrow. Both the $100,000 and $150,000 deposits are credited toward the property purchase price. The Purchase and Sale Agreement and its associated In.� �;7 `/ attachments set the purchase terms and establish -property use restrictions for the first seven (7) years of Agency ownership. The terms are as follows: • A purchase price of $42,500,000 with the deposits credited toward the purchase price. • Escrow to close by July 2, 2002. • The ability to extend the closing date until October 31, 2002, provided that the Agency pays an additional $212,500 per month for every extension. This increases the purchase price and these payments are not credited toward the $42,500,000 purchase price. • The following use restrictions for the first seven (7) years of Agency ownership that limit the potential for hotel development on this site to directly compete with the La Quinta Resort and Club: o The maximum number of hotel rooms that can be constructed on -site is 250 during the first 7 years following Agency acquisition; o The maximum number of timeshare, fractional or condo -hotel units that can be constructed within the first 7 years following Agency acquisition is 300 with a maximum of 500 keys; o The maximum number of hotel associated conference space that can be constructed during the first 7 years following Agency acquisition is 10,000 square feet; o The maximum room rate the hotel and condo -hotel units may charge during the first 7 years following Agency acquisition is 70% of the advertised rate of the La Quinta Resort and Club, with a guaranteed minimum rate of $125; and o Through a separate agreement that does not encumber the property, KSL will have an equal opportunity to purchase golf packages that are offered to other La Quinta hotels and resorts; will have an equal opportunity to submit proposals to manage and rent the condo -hotel units as may be provided to other condo -hotel management firms, as provided by applicable laws; and will have an equal opportunity to use the civic. center meeting space. These restrictions would terminate prior to the expiration of 7 years should KSL sell its interest in the La Quinta Resort and Club Staff has evaluated these restrictions and does not believe that they unduly restrict the development of this property. First, the hotel, condo -hotel and 006 conference space restrictions expire 7 years after the close of escrow, or in 2009. Review of current market studies commissioned by the City, and discussions with hotel market consultants, indicate that the La Quinta resort and hospitality market will not have sufficient demand to support hotel and condo -hotel development on this site larger than 250 rooms and 300 rooms, respectively, without impacting existing and planned resort/commercial properties in La Quinta. In essence, instead of generating additional occupied rooms, if a resort larger than 250 rooms and 300 condo -hotel rooms were built on this site within the next seven years, it may reduce occupancy at other hotels rather than increasing the number of occupied rooms in La Quinta. The City would not benefit from this. After the restrictions expire, additional hotel, condo -hotel and conference facility development may be built, if the market can support the additional space. As summarized in the Projected Financial Returns section of this report, the total number of keys or transient occupancy tax generating rooms permitted under these restrictions have the potential of generating $2,000,000 in annual revenue to the General Fund. Next Activities The Option Agreement, as drafted, will include as Exhibit B - a Form of Agreement of Purchase and Sale, which will include terms of the actual property purchase. These documents are being finalized as of this writing. If the Option Agreement is approved, then additional environmental, due diligence and financing activities will take place. To get to this point, staff, and consultants have reviewed environmental, title, property valuation, infrastructure and other governmental agency costs, golf course development costs, market demand, financing and legal issues. The next activities include: • updating the environmental review completed in 2000 and processing a mitigated negative declaration to ensure that required environmental actions related to this transaction have been satisfied; • conducting a hazardous materials survey to ensure that no hazardous materials have been deposited on -site since the property was last surveyed in 2000; • obtaining title insurance; • finalizing the property valuation appraisal; • structuring and selling tax allocation bonds; • concluding the golf market demand analysis; • amending the Agency's Implementation Plan to include this and other projects; and • closing escrow by July 2, 2002. FINDINGS AND ALTERNATIVES: The alternatives available to the City Council include: 1 . Adopt a Resolution of the City Council making certain findings pursuant to Health and Safety Code 33445 to approve use of funds from the La Quinta Redevelopment Project Area No. 1 for an Option Agreement by and between the La Quinta Redevelopment Agency and KSL Land Holdings, Inc.; and approve the Option Agreement and authorize the appropriate parties to execute the necessary documents; or 2. Do not approve the Resolution, Option Agreement, and appropriation; or 3. Provide staff with alternative direction. Respectfully submitted, Mark Weiss Assistant City Manager Approved for submission by: %,v\ — m Thomas P. Genovese City Manager g:k'sdoc/mw/ksl/kslranchcs4202 t l �l RESOLUTION NO. 2002- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA QUINTA, CALIFORNIA, MAKING CERTAIN FINDINGS PURSUANT TO HEALTH AND SAFETY CODE SECTION 33445(a) WHEREAS, the City Council on May 15, 2001 approved the 2001-02 Economic Development Plan which includes implementation policies supporting economic diversification, business expansion, economic protection and preservation, and recreational opportunities; and WHEREAS, The Ranch property is located in Redevelopment Project Area 1, and includes 525 acres suitable to attain the aforementioned objectives; and WHEREAS, an Option Agreement is a suitable vehicle to allow the Agency an opportunity to complete due diligence activities prior to property acquisition; and WHEREAS, the lack of recreational opportunities and amenities is one of the conditions within the Project Area 1 which was found to create blight; and WHEREAS, there is inadequate funding within the City's General Fund or from other sources to acquire The Ranch; and WHEREAS, it would be in the best interest of the public to pursue acquisition of The Ranch property. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of La Quinta, California, as follows: SECTION 1. Pursuant to Health and Safety Code Section 33445 (a), the City Council finds that: (a) Entering into the Option Agreement for possible acquisition of The Ranch property will be of benefit to the Project Area and to the immediate neighborhood in which The Ranch is located. (b) No other reasonable means of financing the Option Agreement at this time exist and alternative funds will not accumulate for that purpose in the near future. (c) The payment of funds for the Option Agreement and possible purchase of The Ranch will assist in the elimination of one or more blighting conditions inside the project area, including the lack of recreational facilities and opportunities, and is consistent with the implementation plan adopted pursuant to Section 33490. SECTION 2. The City Council therefore consents to the La Quinta Redevelopment Agency appropriating funding for the Option Agreement for possible acquisition of The Ranch. PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta City Council held on this 9th day of April, 2002, by the vote to wit: AYES: NOES: ABSENT: ABSTAIN: JOHN L. PENA, Mayor City of La Quinta, California ATTEST: June S. Greek, City Clerk City of La Quinta, California APPROVED AS TO FORM: M. KATHERINE JENSON, City Attorney City of La Quinta, California 010