2024-09-02 Declaration - McMillen to BK Delaware CourtIN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re:
SilverRock Development LLC, et al.,
Debtors.
Chapter 11
Case No. 24-11647 (MFW)
(Jointly Administered)
Hearing Date: September 3, 2024 at 2:00 p.m. (ET)
Objection Deadline: At or before the Hearing
Related to Docket No. 55
DECLARATION OF JON MCMILLEN IN SUPPORT OF CITY OF
LA QUINTA'S OPPOSITION TO MOTION OF
DEBTORS PURSUANT TO SECTIONS 105, 361, 362, 363, 364, AND 507
OF THE BANKRUPTCY CODE, BANKRUPTCY RULE 4001, AND LOCAL
RULE 4001-2, FOR INTERIM AND FINAL ORDERS (I) AUTHORIZING
DEBTORS TO OBTAIN POSTPETITION FINANCING; (II) GRANTING
DIP LENDER LIENS AND SUPER -PRIORITY CLAIMS; (III) SCHEDULING
A FINAL HEARING; AND (IV) GRANTING RELATED RELIEF
I, Jon McMillen, under penalty of perjury, declare and state as follows:
1. I am over the age of 18 years and not personally a party to this case. I have
personal knowledge of the facts set forth in this Declaration and, if called as a witness, could and
would testify competently to such facts under oath.
2. I make this Declaration in support of City Of La Quinta's Opposition To Motion
Of Debtors Pursuant To Sections 105, 361, 362, 363, 364, And 507 Of The Bankruptcy Code,
Bankruptcy Rule 4001, And Local Rule 4001-2, For Interim And Final Orders (I) Authorizing
Debtors To Obtain Postpetition Financing; (1I) Granting Dip Lender Liens And Super -Priority
Claims; (111) Scheduling A Final Hearing; And (IV) Granting Related Relief, clerk's docket no.
55 (the "DIP Motion").
3. I am the City Manager for the City of La Quinta, California ("City") and serve the
City in that official capacity. I have held this position since July 1, 2019. Prior to that time, I
was an independent consultant that was retained by the City for, among other job responsibilities,
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the negotiations on behalf of the City of the purchase, sale, development, use, and operation of
various project components for the SilverRock Resort Area (as defined in ¶ 17 below), and I
have been integrally and knowledgably involved in the planning and development of the
SilverRock Resort Area since at least the dissolution of redevelopment agencies in California,
which occurred on February 1, 2012.
EXECUTIVE SUMMARY AND CORRECTIONS TO DECLARATION OF ROBERT GREEN IN
SUPPORT OF DEBTORS' CHAPTER 11 PETITIONS AND FIRST DAY PLEADINGS
4. The SilverRock, later renamed "Talus," Project has a long history, which the City
believes the Court must know to understand the full context of this bankruptcy case.
5. As far as the City is concerned, and contrary to Robert Green's Declaration, this is
not merely a case of "hard times" befalling a developer of a hotel project. Rather, the City, as
current owner of all of the land surrounding portions of property currently held by SilverRock
Development Company, LLC ("SDC"), as well as the prior owner of (with repurchase options
for) all properties currently held by SDC, has significant contractual rights governing this
development. Indeed, no development can occur under the operative agreements without a
developer approved by the City, and virtually all value attributable to this project and the real
property assets currently held by Debtors is based on those operative agreements with the City.
In other words, the City has a major —if not the major —interest in the quick and effective
resolution of this bankruptcy case.
6. In this regard, it is appropriate for the City to let this Court know that the City has
declared the Debtors in full breach with no contractual rights as the "Developer" under the
operative agreements, as more specifically detailed below.
7. The City specifically refutes any representations by Debtors that they are entitled
to or should have any more time (let alone a 15 month -long period) to obtain financing to move
the project forward. The Debtors have repeatedly shown they are incapable of obtaining that
financing and, when Debtors have obtained financing that has been approved by the City as
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required by the operative agreements, Debtors have repeatedly shown they cannot perform the
development of the project under an agreed -upon schedule.
8. Contrary to Robert Green's Declaration, the City has become convinced by its
years of dealings with the Debtors that Debtors do not have the experience and skillset to
successfully re -start and complete this project. The City makes this statement having given
Debtors multiple extensions on the schedules for performance and, more relevant here, multiple
amendments to allow for restructured capitalization. With all of that, Debtors have failed to pay
reputable contractors and subcontractors, which had to stop work and leave partially built
structures with exposed plywood, exposed electrical wiring, exposed water pipes, and multiple
other unfinished improvements that were not —and have not been —properly "sealed and
stabilized" to best preserve that construction that has been partially completed.
9. Moreover, and making Debtors' failure to keep the funds sufficient to complete
the project more significant, the partially completed structures, with all of the exposed
infrastructure, are intermingled throughout, and surrounded by, a public golf course, public park,
public street, and other areas with property owned by the City and accessible to the general
public. The public health and safety is a top priority for the City, and protecting and preserving
the public health and safety requires an extraordinarily quick resolution to this bankruptcy
proceeding.
10. The Talus project is subject to its own land use plan adopted in accordance with
California law. The project is an asset of the City and always intended to be a source of revenue
for the City. Most importantly, the project is governed by operative agreements that require the
City's regulatory and contractual approvals. Given the longstanding and massive breaches and
performance shortfalls by the Debtors, the City does not foresee granting the regulatory and
contractual approvals for the project while it is operating directly or indirectly under the control
of Robert Green.
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11. That said, the City's prime objective with respect to the project is to see it
reorganized under the control of a new, and competent, developer. As discussed below, the City
and other creditors have worked extensively to reorganize the project outside of bankruptcy. The
City believes that such reorganization can continue in this bankruptcy case. But reorganization
under Mr. Green's control is not part of the solution.
12. The DIP Motion — and in particular the budget that has been proposed — reflects
business as usual by Mr. Green. Rather than seeking funding for necessary protective advances,
the DIP Motion seeks excessive compensation for Mr. Green and other insiders, all at the
expense of the City and other creditors.
13. Further, the DIP Motion is based on the unsupportable assertion that the Debtors
have substantial equity in the project. The Debtors' assertion in this regard falsely assumes that
the Debtors retain the right to develop the project under the control of Mr. Green, and that the
City will acquiesce in the Debtors' game plan. The City does not foresee that outcome.
14. The City is located in Southern California, in an area known as the Coachella
Valley on the eastern end of Riverside County, nearby such other world -class desert resort
communities and destinations, such as Palm Springs and the Coachella Music and Arts Festival.
The City incorporated on May 1, 1982, and it was named for the historic La Quinta Resort,
which was established in 1926. Currently, the City is booming with a growing population
(approximately 38,000 and steadily increasing every year), as well as a large seasonal population
of "snow birds," and an even Iarger number of tourists and visitors. In this regard, the
SilverRock Resort Area plays a very important role in the City's future, not only in increasing
the City's ability to accommodate residents and tourists, but also by substantially increasing the
City's revenue base. I know this well, as I prepared the Economic Development Subsidy Report
back in November 2014. According to that report, the City's new revenues from the
development project was estimated to be $47,700,000 over a 15-year period in 2014. This new
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stream of revenues would be generated from the two (luxury and lifestyle) hotel Transient
Occupancy Tax ("TOT"), residential TOT, sales tax, and property tax.
15. To put this in perspective, for the project to be delayed approximately two years,
while this and other litigation is pending, the City is expected to lose $6,360,000 in new revenues
that it could have generated from the development of the project in that two year period.
Adjusting for inflation, the new revenues total $8,458,481.40 lost during this two years. This
amount was calculated by taking the total net new City revenues over 15-year period
($47,700,000) divided by 15 years, which equals $3,180,000 a year or $6,360,000 for two years,
and adjusting for inflation based on the applicable Consumer Price Index ("CPI"). The total
amount of lost new revenues total $8,458,481.40. To calculate this amount, I used the CPI
Inflation Calculator provided by the U.S. Bureau of Labor Statistics to determine how the
purchasing power of money has changed over time due to inflation. By comparing the CPI at
two different points in time, the calculator estimates how much a certain amount of money from
the past is worth in present-day terms or vice versa. Thus, the daily amount of revenues
estimated as of 2014 was $8,712.33. This amount was calculated by dividing $47,700,000 by 15
years, which equals $3,180,000 per year or $8,712.33 per day ($3,180,000 ± 365 days).
Adjusting for inflation based on the CPI, the daily amount of new revenues estimated as of May
2024 is $11,586.96 per day. In other words, for each day that the development is delayed, the
City will lose $11,586.96 in estimated new revenues.
16. Needless to say, the completion of this project without any further undue delays is
of paramount importance to the City.
FACTUAL BACKGROUND — CONTRACTS FOR THE SILVERROCK (LATER RE -NAMED
"TALUS") DEVELOPMENT PROJECT AND ITS PROJECT COMPONENTS
17. As of 2014, the City owned approximately 525 acres of land within the City of La
Quinta generally referred to and known as the "SilverRock Resort Area" and subject to a
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Specific Plan adopted by the La Quinta City Council ("City Council") and enforceable as a land
use governing document pursuant to the Planning and Zoning Law, California Government Code
section 65000 et seq.
18. On or about November 19, 2014, the City and Debtor Silverrock Development
Company ("SDC" or "Debtor" and, for convenience, all affiliated entities of SDC are referred to
herein as either "SDC (and its affiliate(s)/affiliated entitites" or "Debtors") entered into that
certain Purchase, Sale and Development Agreement (the "Original PSDA") pursuant to which
the City agreed to convey to SDC, and SDC agreed to purchase, specified "Parcels" and
"Planning Areas" (or "PAs") that constitute portions of the real property in the SilverRock
Resort Area, consisting of what was referred to as the "Phase 1 Property" and "Phase 2
Property" in the Original PSDA.1
19. In addition to agreeing to purchase specified Parcels with corresponding Project
Areas, SDC was as the developer under the Original PSDA (as used in herein, "Developer"
means a party under contracts with the City, including the Original PSDA, to develop portions of
the SilverRock Resort Area). As the Developer, SDC agreed to construct a destination resort,
residential and commercial project, consisting of the following "Project Components" as
described in the Original PSDA:
a. A "Luxury Hotel" which means the Project Component that consists of
Developer's construction and subsequent operation of an upscale, luxury, full -service single -
story hotel containing not less than one hundred twenty (120) luxury hotel rooms, that offers
luxury amenities, full service accommodations, a full -service sit-down restaurant, a first class spa
and fitness facility, and pools, also further described in the Scope of Development and Specific
Plan;
1 Due to the length of applicable agreements and documents, no attachments are included with
my Declaration here because this Declaration is targeted for Responding to the emergency,
interim relief. Prior to the final hearing on the DIP Motion, the City will file the agreements and
documents referenced in my Declaration.
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b. A "Luxury Branded Residential Development" which means the Project
Component that consists of Developer's construction of approximately thirty-five (35) luxury
single-family detached Resort Residential Dwelling Units;
c. A "Lifestyle Hotel" which means the Project Component that consists of
Developer's construction and subsequent operation of a modern -style hotel containing not less
than a sufficient number of hotel guest rooms that, when added to the number of hotel guest
rooms at the Luxury Hotel, will result in the Project having an aggregate of at least three hundred
forty (340) total hotel guest rooms, and providing food and beverage services, a pool, a surface
parking lot, and other related amenities;
d. A "Lifestyle Branded Residential Development" which means the Project
Component that consists of Developer's construction of approximately sixty (60) one and/or
two-story luxury, condominium -style Resort Residential Dwelling Units that would be
developed and subsequently operated in conjunction with the Lifestyle Hotel;
e. A "Conference and Shared Service Facility" which means the Project
Component that consists of Developer's development and subsequent operation of a conference
and shared service facility containing space designed and designated for conferences and
banquets, back -of -house support services, and management function space shared by the
Lifestyle Hotel and Luxury Hotel, and a surface parking lot, all as further described in the Scope
of Development and Specific Plan;
f. A "Permanent Golf Clubhouse" which means the Project Component that
consists of Developer's development of a permanent public clubhouse to serve the Golf Course;
g. A "Promenade Mixed -Use Village" which means the Project Component
consisting of Developer's development of up to two hundred twenty-five thousand (225,000)
salable square feet of residential space containing between one hundred ten (110) and two
hundred twenty-five (225) Resort Residential Dwelling Units, together with commercial space
comprising between twelve thousand nine hundred (12,900) and forty thousand (40,000) square
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feet of mixed -use space comprised of permanent retail and seasonable stand-alone "pop-up"
space, all as further described in the Scope of Development and Specific Plan;
h. A "Resort Residential Village" which means the Project Component that
consists of Developer's development and subsequent operation of approximately one hundred
sixty (160 Residential Dwelling Units, an on -site amenity center consisting of a clubhouse and a
reception and concierge desk, all as further described in the Scope of Development and Specific
Plan;
i. "Master Site Infrastructure Improvements" which means the Project
Component consisting of Developer's construction and installation of all of the backbone
infrastructure improvements required to serve the respective Project Components, including
those identified in Subparagraphs (a)-(h) above and their respective Planning Areas; and
j. A "Golf Course Realignment" which means the Project Component that
consisted of Developer's realignment of certain portions of the existing Gold Course (as defined
in the PSDA) to facilitate the development of the Luxury Hotel and Luxury Branded Residential
Project Components and affecting those Project Areas pursuant to the PSDA and other project
approvals; Developer has completed the Golf Course Realignment Project Component, and the
City retained ownership of, and still owns, fee title to all of the real property that consists of the
Golf Course covering approximately 179 acres of the SilverRock Resort Area.
20. Per the terms of the Original PSDA, the original Phase 1 Property consisted of the
Luxury Hotel and the Luxury Branded Residential Development, and the original Phase 2
Property, consisted of the Lifestyle Hotel and the Lifestyle Branded Residential Development,
among other specified Project Components.
21. Per the teuiis of the Original PSDA, including Section 612 therein, the City and
SDC had the authority to amend the Original PSDA by mutual agreement of the parties.
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22. Per Section 605 of the Original PSDA, I as the City Manager have the authority,
on behalf of the City, to enter "implementing agreements" and take other related contractual
actions under the PSDA with the implementation and development of the Project Components.
23. Concurrently with the Original PSDA, on or about November 19, 2014, the City
and SDC entered into that certain Development Agreement 2014-1001 ("Development
Agreement") pursuant to state law (California Government Code section 65864 et seq., and
referred to as the "Statutory Development Agreement Law"), vesting certain development
obligations with SDC and subjecting SDC to the City's rights and oversight for those portions of
the SilverRock Resort Area to be conveyed to SDC. Among other terms and conditions, the
Development Agreement required SDC to develop the specified Planning Areas and Project
Components to be conveyed to SDC in accordance with the PSDA. The Development
Agreement specifies that (at that time) approximately 145 acres of the total SilverRock Resort
Area would be conveyed to SDC, covering Planning Areas (PAs) 2, 3, 4, 5, 6, 7, 8, 9, and portion
of 10A, and corresponding parcels of property with those Planning Areas.
24. At the time of recording the Development Agreement, the SilverRock Resort Area
was subdivided by then -existing "Parcel Map No. 33367," and the entire SilverRock Resort
Area consisted of Parcels 1-22 and Parcels A-N of Parcel Map 33367. Pursuant to the State
Development Agreement Law, the Development Agreement was recorded in the Official
Records for Riverside County, California ("Recorder's Office") on December 18, 2014, as
Document No. 2014-0484106. With the recording of the Development Agreement over the
entire SilverRock Resort Area, which includes the approximately 145 acres covering PAs 2, 3, 4,
5, 6, 7, 8, 9, and portion of 10A, the terms and conditions of the Development Agreement, as
well as the obligation to develop these to -be conveyed parcels of property of approximately 145
acres to SDC pursuant to the PSDA, run with the land and place all parties on constructive notice
of those terms and conditions. Indeed, pursuant to the Development Agreement, the Original
PSDA was incorporated by reference into the Development Agreement, and where there is a
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conflict between the Development Agreement and the Original PSDA, the Original PSDA (and
any amendments mutually agreed upon by the parties pursuant to the Original PSDA) would
control.
25. Except for portions of land conveyed as described in this Declaration, the City,
prior to 2014, has owned and continues to own fee title to the approximately 525 acres that
constitute the SilverRock Resort Area (a general depiction in the "Site Map" and corresponding
"Schedule of Acreage" are in the Original PSDA and Amendment No. 3 (defined below)).
Importantly, the real property conveyed to SDC (and/or SDC affiliated entities) is completely
surrounded by this City -owned real property; moreover, much of this City -owned real property,
including the public Golf Course, access via SilverRock Way, and adjacent City -owned public
park (known as "SilverRock Park"), has been and remains open and available for use by the
general public.
26. Not long after the entering into of the Original PSDA and recording of the
Development Agreement, the City and SDC entered into subsequent agreements, including City -
required Consents to assignments and assumptions of the rights and obligations under the
Original PSDA as well as amendments to the Original PSDA and implementing agreements
relating thereto.
27. On or about July 20, 2015, an ownership and control restructuring of SDC
occurred. When the Original PSDA and Development Agreement were entered into, that certain
Limited Liability Operating Agreement for SDC had MC SilverRock LLC—a Colorado limited
liability company and subsidiary of the Meriwether Companies known for their development and
operation of hospitality projects —as owner of a 70% membership interest in SDC. Similarly,
RGC La Quinta LLC—a Delaware limited liability company and subsidiary of The Robert Green
Company, a California corporation ("Robert Green Company" or "RGC") and known to the
City Council as recently being the lead developer for a Montage -branded Pendry Hotel in the
City of San Diego —owned no more than 30% membership interest in SDC. Pursuant to that
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certain Assignment and Assumption Agreement, as corrected by the CONSENT attached thereto,
which was executed on or about July 20, 2015 (and not recorded per City instruction as the entity
SDC remained the "Developer" under the Original PSDA) (the "July 2015 Assignment
Agreement"), the City Consented to the assignment of the MC SilverRock LLC (Meriwether)
ownership and membership interest in SDC to the designated assignee, RGC La Quinta II LLC, a
Delaware limited liability company and subsidiary of the Robert Green Company.
28. Since the recording of the July 2015 Assignment Agreement, confirming the
City's consent, the Robert Green Company had the City's consent to be and serve as the sole
manager of SDC (and its affiliated entities).
29. Subsequently, the City and SDC entered into several amendments to the Original
PSDA between October 29, 2015, and November 16, 2023. While each amendment varied in its
scope and purpose, in general, all amendments addressed, or had to address, modifications to the
"Schedule of performance" in the Original PSDA, which, as the defined term suggests, has the
dates and periods by which SDC was either to commence or complete, or both, performance of
the pre -construction, construction, and completion of construction, for the various Project
Components.
30. For instance, the City and SDC entered into Amendment No. 1 to the Original
PSDA ("First Amendment" or "Amendment No. 1"), dated October 29, 2015 to, among other
things, update the Site Map and the various timeframes (the Schedule of Performance) within the
Original PSDA.
31. On or about April 18, 2017, the City and SDC entered into Amendment No. 2 to
the Original PSDA ("Second Amendment" or "Amendment No. 2") to modify from the Phase
1 Property and Phase 2 Property in the Original PSDA (and the associated phased development
obligations) to the "Phase lA Property" and the "Phase 1B Property" as defined in the Second
Amendment. In addition to those properties, additional phased properties were created: "Phase
1 C (Golf Course) Property," "Phase 1D (Ahmanson Ranch House) Property," and "Phase 1 E
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(Perimeter Landscaping and Trails) Property." Furthermore, and in connection with proposed
modifications by SDC for the phasing of development of the Project Components tied to
Planning Areas 2, 3, 4, 5, 6, 7, 8, 9, and portion of 10A (see above), the City processed and
approved, pursuant to the California Subdivision Map Act (Government Code section 66410 et
seq., and referred to as the "Map Act") and applicable City law, "Parcel Map No. 37207,"
which re -subdivided the SilverRock Resort Area in the following parcels: Parcels 1-20 inclusive
and Parcels A-G inclusive. With the adoption of Parcel Map No. 37207 and approval of the
Second Amendment, the Parcels applicable to the respective Planning Areas, for purposes of
SDC's development of the various Project Components, were tied to the Parcels identified in
Parcel Map No. 37207.
32. As a part of this Second Amendment, the City and SDC modified the property
subject to the Original PSDA, as amended, to include the Phase lA Property and Phase 1B
Property, which comprised approximately 44.6 acres and 84.2 acres, respectively, and
approximately 130 acres total. The Phase 1A Property consists of Parcels 1, 3, 4, 5, and 6 of
Parcel Map No. 37207, and Phase 1B Property consists of Parcels 7, 8, 9, 10, 11, and 1 2, and
Parcels D, E, F, and G , of Parcel Map No. 37207. Together, the Phase 1 A Property and Phase
1B Property roughly correspond, with some modifications to parcel boundaries and acreage, to
the Project Components and acreage attached to Planning Areas 2, 3, 4, 5, 6, 7, 8, 9, and portion
of 10A from the Original PSDA.
33. Also as part of the Second Amendment, the Original PSDA, as amended, was
modified to: (i) Modify the Schedule of Performance; (ii) Specify the terms and conditions for
the Golf Course Realignment (as defined in the Original PSDA); and (iii) Grant to SDC a
contingent option to purchase the "Future Resort Property" according to "Developer's Future
Resort Option" (as defined in Amendment No. 2) upon SDC meeting certain terms and
conditions, as more particularly described therein. Since 2014 and for all relevant periods, the
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City retained ownership of, and still owns, fee title to all of the real property that consists of the
Future Resort Property. Among other relevant terms and conditions:
a. The Future Resort Property corresponds (roughly) with the following
Planning Areas, Parcels, and acreage: PAs 10A-2 and 10A-3 on Parcels 15 and 16, comprised of
approximately 85.5 acres; and PAs 10B-1 through 10B-6 on Parcels 13 and 14 (with a small
portion with Parcel 20), comprised of approximately 105.4 acres. Pursuant to the Second
Amendment, the Future Development Property, if ever SDC's option to purchase were created
after meeting the specified terms and conditions, at that time was authorized to include the
following allowable uses: another golf course of no less than nine holes open to the public with
residential uses surrounding and integrated into the development of the new golf course on the
Future Development Property.
b. With respect to the Future Resort Property and Developer's Future Resort
Option (item (iii) in 1133, above), Developer's Future Resort Option is not even created unless
and until SDC completed the following Project Components as evidenced by certificates of
occupancy with continuous public ability to use: the Luxury Hotel, Lifestyle Hotel, and
Permanent Golf Clubhouse. Since entering into the Original PSDA and Development
Agreement, SDC never did and, to this day, has not met the terms and conditions for even having
an option created under the Developer's Future Resort Option. For reasons elaborated more in
this Declaration in ¶¶ 73-88 below, SDC cannot meet the terms and conditions for having an
option created under the Developer's Future Resort Option.
34. By way of Grant Deed dated May 3, 2017, and recorded on November 6, 2017 as
Document No. 2017-0463950 in the Recorder's Office, as amended by that certain Amendment
to Grant Deed, recorded on November 28, 2018 as Document No. 2018-0464670 in the
Recorder's Office, the City conveyed the Phase lA Property to SDC (collectively, the
"Phase lA Property Grant Deed").
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35. Thereafter, SDC assigned to Silverrock Phase I, LLC ("SRPI" and a SDC
affiliated entity), and SRPI assumed from SDC, with the consent of the City, all of Developer's
right, title, and interest in the Phase 1A Property and the "Project Agreements" (which include
the Development Agreement and PSDA, as amended) as they pertain to the Phase IA Property
by that certain Assignment and Assumption Agreement, recorded on November 28, 2018 as
Document No. 2018-0465379, and SDC transferred to SRPI the Phase lA Property by Grant
Deed recorded on November 28, 2018 as Document No. 2018-0464673 in the Recorder's Office.
36. City and SDC entered into that certain Amendment No. 3 to Purchase, Sale, and
Development Agreement dated November 28, 2018 ("Third Amendment" or "Amendment
No. 3") to, among other things: (i) Set forth amended and restated modifications for the
development of the Phase 1 A Property and set forth the terms and conditions for the conveyance
and sale of the Phase 1B Property from the City to SDC; (ii) Modify the Master Site
Infrastructure Improvements (MSII) (as defined in the Original PSDA) Phasing Plan; (iii)
Modify the Schedule of Performance; (iv) Specify assignment and assumptions of interests from
SDC (and any Developer entity); and (v) Incorporate provisions allowing for the closing of the
construction loan for the Phase 1A Property and Phase 1B Property, as more particularly
described in the Third Amendment.
37. Pursuant to the Original PSDA and Third Amendment, the City conveyed to SRPI
the Phase 1B Property by Grant Deed, dated November 28, 2018 and recorded on November 28,
2018, as Document No. 2018-0464674 in the Recorder's Office (the "Phase 1B Property Grant
Deed").
38. Thereafter, SRPI assigned to SilverRock Land, LLC (an SDC affiliated entity, and
periodically referred to as "SRL"), and Silver Rock Land, LLC assumed from SRPI, all of
SDC's right, title, and interest in a portion of the Phase 1B Property —and specifically Parcels 10
and 11 identified in Amendment No. 3 for the Project Component known as the Promenade
Mixed -Use Village —and the "Project Agreements" (which include the PSDA) as they pertain to
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Parcels 10 and 11/Promenade Mixed -Use Village by that certain Assignment and Assumption
Agreement, recorded on April 10, 2019 as Document No. 2019-0120800, and SRPI transferred
to SilverRock Land, LLC these Parcels 10 and 11/Promenade Mixed -Use Village by Quitclaim
Deed recorded on April 10, 2019 as Document No. 2019-0120799 in the Recorder's Office. By
quitclaim deed dated October 21, 2021 and recorded on October 25, 2021 as Document No.
2021-0628128 in the Recorder's Office, SilverRock Land, LLC quitclaimed Parcels 10 and 11 to
SDC. By quitclaim deed dated April 12, 2023 and recorded on April 13, 2023 as Document No.
2023-0105886 in the Recorder's Office (the "April 2023 Quitclaim Deed"), SDC granted to
SRL (a SDC affiliated entity) a 42.8% undivided interest in Parcel 10.
39. City and SDC entered into that certain Amendment No. 4 to Purchase, Sale, and
Development Agreement dated October 12, 2021 ("Fourth Amendment" or "Amendment
No. 4") to, among other things: (i) Set forth terms and conditions agreed upon by the City and
SDC for the "Revised Capitalization" (as defined therein) to cover the then -projected remaining
costs, and financing of those costs, to develop the Phase lA Property and Phase 1B Property and
all Project Components thereon (excluding the Promenade Mixed -Use Village and Resort
Residential Village); (ii) Modify the Master Site Infrastructure Improvements (MSII) Phasing
Plan; (iii) Modify the Schedule of Performance; (iv) Specify the operation by a single hotel
operator of short-term vacation rentals at the Luxury Branded Residential Development and
Lifestyle Branded Residential Development; (v) Modify the rebate amount that SDC may receive
by imposing a reduction on the amounts of transient occupancy tax (TOT) receipts that may be
considered for SDC's rebate; (vi) Identify "Project Milestones" (as defined therein) of which
failing to meet would result in increases to the purchase price for the Future Resort Property
Phase if and when there is an ability for SDC to validly exercise the option to purchase the
Future Resort Property (as set forth therein); (vii) If and when a valid exercise by SDC of the
option to purchase the Future Resort Property occurs, clarify allowable uses on the Future Resort
Property; and (viii) Incorporate provisions allowing for the closing of the construction loan
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financing for the Phase 1A Property and Phase 1B Property, as more particularly described in the
Fourth Amendment.
40. City and SDC then entered into that certain Amendment No. 5 to Purchase, Sale,
and Development Agreement dated November 16, 2023 ("Fifth Amendment" or "Amendment
No. 5"). The Fifth Amendment was entered into to avoid a SDC default under the Original
PSDA, as amended, and to otherwise: (i) memorialize revised terms and conditions, agreed upon
by the City and SDC, for new "Recapitalization Loans" and "Recapitalization Lenders" (as
defined therein) to revise and update the City -approved financing for the development of the
Phase 1A Property and Phase 1B Property, provided SDC closed on the updated financing by
June 30, 2024; (ii) modify the Schedule of Performance and phasing of development, with the
requirement that SDC and the Recapitalization Loans immediately resume construction of and
diligently continue until completion the "Core Project Components" (as defined therein and
meaning the Luxury Hotel, Lifestyle Hotel, Permanent Golf Clubhouse, and Conference and
Shared Services Facility, and their respective Master Site Infrastructure Improvements (MSII));
(iii) memorialize SDC's missed Project Milestones (as identified therein) and establish a new
daily reduction in the amount of the rebate based on TOT receipts for delayed completion of the
Luxury Hotel and Lifestyle Hotel, respectively; and (iv) make additional clarifications pertaining
to the Original PSDA, as amended through the Fourth Amendment.
41. Pursuant to the Original PSDA, as amended through the Fifth Amendment, the
City's rights and remedies against SDC (and its affiliated entities) have been and remain
cumulative, such that the exercise or non -exercise by the City of any right or remedy available at
law or in equity, including any right or remedy under the Original PSDA as amended, did not
and does not exclude the ability of the City to assert any other right or remedy against SDC (or
any Developer entity).
42. Collectively, the Original PSDA, and the First, Second, Third, Fourth and Fifth
Amendments are referred to in this Complaint as the "PSDA."
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RELATED RECORDED DOCUMENTS ENTERED INTO, PURSUANT TO THE PSDA,
WITH SDC AND THE CITY
43. In accordance with the PSDA and Development Agreement, several related and
integral agreements have been executed by and between the City and SDC, all of which were and
remain intended to (a) Protect the City's interests in the real property conveyed to SDC,
(b) Protect the City's interests in completing the development of the various Project
Components, and in particular the Core Project Components (as defined in the Fifth
Amendment) that constitute the primary revenue generating operations in the form of transient
occupancy taxes (TOT) and sales and use/sales and transactions taxes {collectively, referred to
generally as "sales tax"), and (c) Protect the public's interest in keeping various uses intact with
the development and ultimate use of the various Project Components, including the continuous
use of the SilverRock Golf Course as a golf course and ability for the public to use trails and
passive open space, and (d) Provide an incentive for SDC to fund, finance, and complete the
development of the Phase lA Property and Phase 1B Property in the form of a rebate to the
Developer based on the amount of TOT received from the Luxury and Lifestyle Hotels after their
opening and on the back -end after completion of construction. Among other relevant and
integral agreements relating to these purposes are the following:
a. Options for the City to Re -Purchase Phase 1A and Phase 1B Properties.
Pursuant to the PSDA, the City has an option to re -purchase and right of first refusal to re-
purchase, all or portions of the Phase 1A Property and Phase 1B Property in the event SDC (or
its assignees) are in default of the PSDA and fail to cure within the allowed cure period, pursuant
to (respectively) that certain Option Agreement Phase lA Property and Phase 1B Property
{Excluding Planning Areas 7, 8, and 9) And Termination Of Prior Phase lA Option Agreement
dated November 28, 2018 and recorded on even date as Document No. 2018-0464676 in the
Recorder's Office (the "Phases 1A and 1B Properties Repurchase Option Agreement"), and
that certain Option Agreement (Phase 1B Property — PA 7, 8, and 9) dated November 28, 2018
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and recorded on even date as Document No. 2018-0464677 in the Recorder's Office (the "PA 7-
9 Repurchase Option Agreement"). The Phases lA and 1B Properties Repurchase Option
Agreement and PA 7-9 Repurchase Option Agreement are collectively referred to as the "City's
Repurchase Option Agreements." As set forth in Amendment No. 3 and the City's Repurchase
Option Agreements, Planning Areas 7, 8, and 9 are Parcels 10, 11, and 12 on the Parcel Map
constitute the Project Components identified as the Promenade Mixed -Use Village and Resort
Residential Village. Among other terms and conditions, the City's Repurchase Option
Agreements set forth the calculation of a purchase price if the City decides, in its sole discretion,
to exercise an option or right of first refusal to repurchase all or any portions of the Phase lA
Property and/or Phase 1B Property for an uncured default and breach of the PSDA.
b. Hotel Operations and TOT Sharing Agreements. Pursuant to the Original
PSDA and Amendment No. 2, SDC as "Participant" and City executed that certain Agreement to
Share Transient Occupancy Tax Revenue (Luxury Hotel) dated on or about November 19, 2014
("Luxury Hotel TOT Sharing Agreement") to, among other things, require the Participant to
enter into a "Hotel Management Agreement" with a City -approved "Hotel Manager" (as defined
in the Luxury Hotel TOT Sharing Agreement) for continuous operation as the Luxury Hotel, and
in exchange the City would make periodic payments to the Participant in specified amounts
based on amounts of transient occupancy tax (TOT) collected from the Luxury Hotel as set forth
in that certain Agreement Containing Covenants, Conditions, and Restrictions Affecting Real
Property (Luxury Hotel) dated May 3, 2017 and recorded on November 6, 2017 as Document
No. 2017-0463952, as amended by that certain Amended and Restated Agreement Containing
Covenants, Conditions, and Restrictions Affecting Real Property (Luxury Hotel) dated
November 28, 2018 and recorded on even date as Document No. 2018-0464671, Amendment
No. 1 to Amended and Restated Agreement Containing Covenants, Conditions, and Restrictions
Affecting Real Property (Luxury Hotel) recorded on October 13, 2021, as Document No. 2021-
0606108, and Amendment No. 2 to Amended and Restated Agreement Containing Covenants,
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Conditions, and Restrictions Affecting Real Property (Luxury Hotel) recorded on November 21,
2023, as Document No. 2023-0350295 (collectively, the "Luxury Hotel TOT Covenant
Agreement") in the Recorder's Office. Similarly, pursuant to the Original PSDA and
Amendment No. 2, SDC (as "Participant") and City executed that certain Agreement to Share
Transient Occupancy Tax Revenue (Lifestyle Hotel) dated on or about November 28, 2018
("Lifestyle Hotel TOT Sharing Agreement") to, among other things, require the Participant to
enter into a "Hotel Management Agreement" with a City -approved "Hotel Manager" (as defined
in the Lifestyle Hotel TOT Sharing Agreement) for continuous operation as the Lifestyle Hotel,
and in exchange the City would make periodic payments to the Participant in specified amounts
based on amounts of TOT collected from the Lifestyle Hotel as set forth in that certain
Agreement Containing Covenants, Conditions, and Restrictions Affecting Real Property
(Lifestyle Hotel), dated November 28, 2018 and recorded on even date as Document No. 2018-
0464678, as amended by that certain Amendment No. 1 to Agreement Containing Covenants,
Conditions, and Restrictions Affecting Real Property (Lifestyle Hotel) recorded on October 13,
2021, as Document No. 2021-0606083, and Amendment No. 2 to Agreement Containing
Covenants, Conditions, and Restrictions Affecting Real Property (Lifestyle Hotel) recorded on
November 21, 2023, as Document No. 2023-0350339 (the "Lifestyle Hotel TOT Covenant
Agreement") in the Recorder's Office. The Luxury Hotel TOT Sharing Agreement and
Lifestyle Hotel TOT Sharing Agreement are collectively referred to as the "TOT Sharing
Agreements" (and track that definition in the Original PSDA), and the Luxury Hotel TOT
Covenant Agreement, as amended, and Lifestyle Hotel TOT Covenant Agreement, as amended,
are collectively referred to as the "TOT Covenant Agreements" (and generally track that
definition in the Original PSDA). Generally, the TOT Sharing Agreements and TOT Covenant
Agreements require the Parcels improved with the completed Luxury and Lifestyle Hotels to
continuously operate and be maintained as first-class hotels, and in exchange, the City would
provide to SDC, for a period of 15 years, an amount in the form of a rebate, based on
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calculations relating to the amount of TOT received by the City, on an annual basis, from the
Luxury and Lifestyle Hotels, respectively. As for the amendments to the TOT Covenant
Agreements, as more fully set forth in the Fourth and Fifth Amendments to the PSDA, the City
reduced the rebate amount that SDC would be entitled to receive upon completion of the Luxury
Hotel and Lifestyle Hotel, respectively, and the City established a daily reduction in the amount
of the rebate based on TOT receipts for delayed completion of the Luxury Hotel and Lifestyle
Hotel, respectively, because SDC failed to timely perform under the then -applicable Schedules
of Performance.
c. Covenants, Easements, and Reservations for the Benefit of City. Pursuant to
the PSDA, the City declared and retained for public utility purposes an easement in and over
portions for the Phase 1B Property. Additionally SRPI granted to City for public utility purposes
an easement in and over portions of the Phase IA Property. Additionally pursuant to the PSDA
(and specifically Amendment No. 2), the City retains in perpetuity benefits for the public by
requiring and designating specific uses for the Phase 1 C (Golf Course) Property, Phase 1 D
(Ahmanson Ranch House) Property, and Phase 1 E (Perimeter Landscaping and Trails) Property.
LOT LINE ADJUSTMENTS, FINAL TRACT MAP, AND PARCELS COMPRISING THE
"SDC-HELD PROPERTIES"
44. The Second Amendment to the PSDA established Phase lA and Phase 1B for
development of the project, with phasing for corresponding Planning Areas with the Phase I
Property and Phase 1B Property conveyances to SDC. After the conveyances of the Phase 1A
Property and Phase 1B Property, SDC applied for, and the City processed and approved pursuant
to the Map Act and applicable City law, a series of "Lot -Line Adjustments" or "LLAs" so that
Parcel boundary lines and acreage could further be modified to comply with the build -out of PAs
2, 3, 4, 5, 6, 7, 8, 9, and portion of 10A, pursuant to the PSDA.
45. The Phase 1 A Property covers the Planning Areas identified on the Site Map as
"PA 2," PA 3," and "PA 4," and the corresponding parcels for these planning areas are identified
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as Parcels 1, 3, 4, 5, and 6 from Parcel Map No. 37207, and has these Project Components:
Luxury Hotel (with spa and parking site), Luxury Branded Residential Development, and
Conference and Shared Service Facility.
46. The Phase 1B Property covers the Planning Areas identified as "PA 5," "PA 6,"
"PA 7," "PA 8," "PA 9," and "PA 10A-1" and the corresponding parcels for these Planning
Areas are identified as Parcels 7, 8, 9, 10, 11, and 12, and Parcels D, E, F, and G of Parcel Map
No. 37207, and has these Project Components: Permanent Golf Clubhouse, Lifestyle Hotel,
Lifestyle Branded Residential Development, Promenade Mixed -Use Village (covering two PAs),
and Resort Residential Village.
47. For the purpose of preparing and constructing the Project Components, SDC
submitted and the City approved four (4) Lot Line Adjustments (LLAs) to adjust acreage and
portions of Parcels and Parcel boundaries within and/or immediately adjacent to the Phase 1A
Property and Phase 1B Property, as more particularly described and depicted in those Lot Line
Adjustments (collectively, the "City -Approved LLAs"), which are: (i) Lot Line Adjustment
(LLA) 2020-0005, (ii) Lot Line Adjustment (LLA) 2020-0007, (iii) Lot Line Adjustment (LLA)
2020-0010, and (iv) Lot Line Adjustment 2023-0003, all of which are public records on file with
the City and referenced in recorded documents in the Recorder's Office when such LLA touches
and concerns the legal description and boundary line for a Parcel that was conveyed to SDC by
as either part of the Phase lA Property or Phase 1B Property. The City -Approved LLAs added a
few acres to the approximately 130 acres (i.e., 128.8 acres) conveyed to SDC by the Phase lA
Property Grant Deed and Phase 1B Property Grant Deed.
48. For the purpose of preparing and constructing the Luxury Branded Residential
Development Project Component, SDC applied for and the City processed and approved,
pursuant to the Map Act and applicable City law, "Final Tract Map No. 37730," which is a
subdivision of Parcel 1 and portion of Parcel 17 of Parcel Map. No. 37207. Final Tract Map No.
37730 subdivided Parcel 1 and portion of Parcel 17 into Lots 1 through 29, and enumerated
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lettered lots for common area, where these lots would serve as custom homesites for the Luxury
Branded Residential Development to be developed as part of PA 3.
49. The real property, and any partial improvements thereon, that have been conveyed
by the City to SDC (or affiliate of SDC) as the Phase lA Property and Phase 1B Property, as
those Parcels therein have been modified by one or more of the City -Approved LLAs, which
includes Lots 1 through 29 and respective lettered Lots as shown on Final Tract Map No. 37730,
is collectively referred to in this Declaration as the "SDC-Held Properties" and individually
referred to as an "SDC-Held Property."
THE PSDA'S AND GRANT DEEDS' RESTRICTIONS ON REFINANCING AND
THE RECORDING OF DEEDS OF TRSUT AND/OR OTHER LIENS
50. Due to the unique location of the SDC-Held Properties, and the project to be
developed on the SDC-Held Properties, as confirmed by the PSDA itself, "[t]he qualifications
and identity of Developer [SDC] as the developer and operator of high quality commercial resort
developments are of particular importance to the City." (Original PSDA, § 603.) To that end,
the City and SDC agreed to a series of provisions in the PSDA to ensure that the City's interest
in this regard would be protected.
51. Section 603.1 of the Original PSDA generally prohibits the transfer of any of
SDC's interest in the SDC-Held Properties (defined generally as "Transfer[s]" in the PSDA),
unless the proposed Transfer is either (a) approved by the City, "in its sole and absolute
discretion," or (b) if the Transfer occurs as the result of a series of specifically defined
transactions and events. No other person or entity may own the fee interest to any portion or all
of the SDC-Held Properties without the City's prior consent.
52. Relevant to the bankruptcy petition filed by the Debtors, the Original PSDA
Section 603.1(b) and (c), restated by the Third Amendment ("Section 603.1"), authorize: (i) an
assigmnent to third parties, such as through the grant of a deed of trust necessary for land
acquisition, construction or permanent financing of the project, or (ii) a Transfer to a Iender that
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ultimately forecloses on such a deed of trust. However, for a deed of trust to be valid, Section
603.1 expressly requires that such financing agreements must be permitted pursuant to Section
311 of the Original PSDA.
53. Section 311.1 of the Original PSDA grants the City the right to review and either
approve or disapprove of the financing that SDC (or any Developer entity) wishes to utilize in
connection with the development of the project. Pursuant to Section 311.1, SDC (or any SDC
affiliated entity) has an affirmative obligation to notify the City of proposed financing and
obtain the City's prior approval for that financing. Moreover, other provisions in the PSDA
specifically require SDC (or any SDC affiliated entity) to receive the City's prior approval of any
financing for the construction of the project on the SDC-Held Properties. For instance, Section
211 of the PSDA requires SDC to obtain the City's prior approval for any financing of the
Master Site Infrastructure Improvements (MSII) that would attach to any Project Components,
and Section 304.4 of the PSDA expressly provides that SDC may not obtain building permits for
any Project Component until such time as SDC has satisfied, among other enumerated conditions
with respect to such Project Component, that the City has approved the Project Component
Financing pursuant to Section 311.1 and that financing has closed and available to SDC.
54. Additionally, both the Phase 1 A Property Grant Deed and Phase 1B Property
Grant Deed also include a similar restriction on the Grantee's ability to transfer the properties at
issue in those grant deeds, by prohibiting any transfer of ownership of the properties, unless the
transfer was the result of a transaction or agreement that was approved pursuant to Section 603
of the PSDA.
55. When the City has approved in the past or approves financing for future Project
Component and corresponding Master Site Infrastructure Improvements (MSII) construction,
said approved -financing is memorialized in writing, typically by an amendment to the PSDA.
For example, both the Fourth Amendment and Fifth Amendment reference the then City -
approved "Revised Recapitalization" and City -approved "Recapitalization Lenders."
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56. If SDC (or any SDC affiliated entity) fails to perform under the PSDA, as
amended, including by failing to notify and/or obtain financing approval for any Project
Component or corresponding Master Site Infrastructure Improvements, Section 501 of the
Original PSDA generally provides that (1) prior to the City initiating any proceedings against
SDC in connection with any "Default" (as defined), the City must deliver to SDC written notice
of the Default, and (2) SDC shall not be considered in such Default if SDC cures such Default in
thirty (30) days from the receipt of such notice or commences to cure said Default within thirty
days from the receipt of such notice. If SDC (or any Developer under the PSDA) fails to cure
within thirty (30) days, SDC is in full breach and no longer may claim rights or privileges under
the PSDA.
SDC DEFAULTS IN APRIL 2021 FOR FAILING TO PERFORM, BUT THE CITY ALLOWS
FOR ADDITIONAL TIME AND APPROVED NEW FINANCING
57. As noted above, the Fourth Amendment was entered into, in part, to remedy a
default under the Original PSDA, as amended at that time, with that default relating to the failure
by SDC to perform under the then -applicable Schedule of Performance. Also as noted above,
the Fourth Amendment included provisions where "Additional Funding" (as defined therein)
from the City -approved "Lender" (as defined therein and Third Amendment to be Mosaic
SilverRock, LLC c/o Mosaic Real Estate Investors, LLC) would provide sufficient
recapitalization to cover the projected remaining costs to develop the Project Components on the
Phase 1 A Property and Phase 1 B Property, excluding the Prominade Mixed -Use Village and
Resort Residential Village Project Components (i.e., PAs 7, 8, and 9). Based on the
confirmation of the Lender and the other terms and conditions set forth in the Fourth
Amendment, SDC was determined to have cured the default under the PSDA that was
specifically described in City's April 7, 2021 Notice of Default delivered to SDC on even date
("City's April 7, 2021 Notice of Default").
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58. At the time of the Fourth Amendment, on October 12, 2021, the City authorized
SDC to move forward, and SDC appeared to be teed -up to proceed, with sufficient funding for
the completion of construction for the Project Components on the Phase l A Property and Phase
1B Property (except the Prominade Mixed -Use Village and Resort Residential Village Project
Components.
CITY LEARNS OF SDC FAILING TO PAY CONTRACTORS, THE ABRUPT CEASING OF
CONSTRUCTION WITH PARTIALLY BUILT STRUCTURES, AND DEFAULTING ON
LOANS, LEADING TO FORECLOSURE PROCEEDINGS AGAINST SDC
59. As set forth in Recital K and Section 2 of the Fifth Amended, entered into
November 16, 2023, the summary for that amendment revolved around SDC disclosing to the
City that, subsequent to the approval of the Fourth Amendment and during construction of the
Luxury Hotel, Lifestyle Hotel, Permanent Golf Clubhouse, and Conference and Shared Services
Facility Project Components and their appurtenant Master Site Infrastructure Improvements
(MSII), the City -approved "Lender" from the Fourth Amendment (Mosaic SilverRock, LLC) no
longer was included in the "Revised Capitalization" approved by the City under the Fourth
Amendment and that construction had halted on these Project Components and MSII from
SDC's failure to pay contractors and subcontractors. To address the situation, SDC proposed,
and the City approved vis-a-vis the Fifth Amendment, the following creditors and
financing/funding sources: First Pathway Partners for EB-5 financing (which had closed on
December 9, 2022), Keillor Capital, Silver Arch Capital, Lieef Real Estate Energy Partners for
C-Pace funding, and Ziegler Investment Banking. These creditors, referred to as the
"Recapitalization Lenders" for "Recapitalization Loans," were specifically approved by the City
to pay unpaid debts to contractors, subcontractors, and an existing loan with Poppy Bank
("Poppy") secured by a deed of trust against portions of the SDC-Held Properties. Significantly,
SDC had an obligation to close on the Recapitalization Loans by January 1, 2024, with an
outside closing "drop dead" deadline of June 30, 2024, by which closing on all Recapitalization
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Loans had to occur so construction of these Project Components and related MSII would resume
by that date.
60. SDC failed to and did not close by June 30, 2024, on the City -approved
Recapitalization Loans, and as of June 30, 2024, was in default under the PSDA.
61. The reason for SDC having the contractual obligation, and the City having the
contractual right, to approve funding and financing sources proposed for the project, as outlined
in my Declaration above and in the PSDA, is so that SDC would not overburden the project with
excess debt or creditor claims —which is precisely where SDC failed here. The City had and
continues to have an interest in ensuring that the development of the project is not overloaded
with debt, and is not saddled with unapproved secured interests (deeds of trust) from either
unapproved lenders or from the conversion of an equity investor into a "secured creditor"
without the City's knowledge. Here, the unauthorized debt and over -leveraging of the project by
SDC, with equity investors that the City did not know about, led to foreclosure notices and
ultimately this bankruptcy case. These actions by SDC—namely, failing to keep in place City -
approved financing, and the soliciting of equity investors without the City's knowledge or
approval —have already significantly delayed progress on the project and have threatened its
viability to be completed as originally intended.
62. For reference, here is the recent history: before the June 30, 2024 deadline for
closing on the Recapitalization Loans, but after the November 16, 2023 effective date of the
Fifth Amendment, the City received information that an unknown and (at that time) unapproved
creditor, Cypress Point Holdings, LLC ("Cypress"), remained unpaid and owing, but SDC never
informed the City during negotiations of the Fifth Amendment of the significant amount of debt
owed by SDC to Cypress. Apparently, based on my understanding of events, Cypress originally
had agreed to provide SDC funding for one or more Project Components in the form of cash or
cash -equivalent equity that was not intended to be, nor originally was, secured by any portion of
the SDC-Held Properties; however, a dispute arose between SDC and Cypress that resulted in a
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settlement agreement between SDC and Cypress, converting the unsecured equity interest into a
secured loan arrangement that was then secured by a second deed of trust against a portion of the
SDC-Held Properties. At the time this dispute and settlement were negotiated and entered into,
SDC did not inform the City, let alone obtain the City's consent, of this financing arrangement,
as SDC was required to do pursuant to Sections 211, 304.4, and 311.1 of the PSDA.
63. Nevertheless, on or about January 10, 2024, the City received that certain
"Important Notice/Notice of Default and Election to Sell Under Deed of Trust," recorded in the
Recorder's Office as Document No. 2023-0363986 ("Cypress Default Notice"). The Cypress
Default Notice was caused to be recorded by Cypress, a creditor in this proceeding and,
relatedly, a party to that certain MOU (defined below), and Cypress and creditor Poppy Bank are
relevant to the immediate actions taken by the City, in and around January through May 2024, in
response to SDC's failure to disclose material information concerning the amount of unpaid
debts involved with the construction of the various Project Components.
64. Upon learning of and receiving the Cypress Default Notice, the City immediately
contacted SDC to determine what had transpired to date in connection with a debt -secured
interest held by Cypress. Among other responses in order to require SDC to immediately
address the Cypress Default Notice, SDC and the City entered into that certain Agreement to
Waive and Modify Notice and Cure Period, dated February 7, 2024 ("Notice and Cure
Agreement"), a PSDA implementing agreement whereby SDC agreed to waive the explicit
notice and cure requirements of Section 501 of the PSDA, and to modify those provisions such
that the City only needed to give SDC seven (7) days, instead of thirty (30) days, to cure any
default relating to the Cypress Default Notice. If SDC failed to cure within seven (7) days, under
the Notice and Cure Agreement, the City has the right to institute any proceedings pursuant to
the PSDA.
65. After the City received the Cypress Default Notice, the City received a notice
from Cypress that it intended to pursue a foreclosure sale and scheduled a foreclosure sale on a
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portion of the SDC-Held Properties. Additionally, another secured creditor, Poppy, who was to
be paid off by SDC with the closing of the Recapitalization Loans pursuant to the Fifth
Amendment, also issued a notice of its intent to pursue a foreclosure sale and scheduled a
foreclosure sale, on a portion of the SDC-Held Properties.
66. In response to the Cypress foreclosure and auction sale notice, the City
immediately issued to SDC a new NOTICE OF DEFAULT, dated April 17, 2024, requiring SDC
within seven (7) days to cure the default by either (a) paying off to Cypress all debts to remove
from title the Cypress Default Notice and prevent any future foreclosure auction sale, or (b) enter
into a forbearance agreement with Cypress and any other lienholders with a deed of trust to delay
any foreclosure auction sale to allow for payments of SDC's debt owed to Cypress.
67. SDC failed to cure within seven (7) days its default as provided in the City's April
17, 2024 Notice of Default, and the City memorialized that failure by that certain FAILURE TO
CURE NOTICE and CONFIRMATION OF DEFAULT, dated April 25, 2024 ("City's April 25,
2024 Failure to Cure Notice"), in which, among other provision, the City asserted it intends to
exercise its rights under the PSDA as outlined in the April 17, 2024 Notice of Default, to protect
the City's interests in the SDC-Held Properties and the resumption and completion of the
development and construction of the Project Components and appurtenant MSII.
68. Similarly, and in response to the Poppy foreclosure and auction sale notice, the
City immediately issued to SDC a separate NOTICE OF DEFAULT, dated May 14, 2024
("City's May 14, 2024 Notice of Default"), requiring SDC within seven (7) days to cure the
default by either (a) paying off to Poppy all debts to remove from title Poppy's default notices
and prevent any future foreclosure auction sale, or (b) enter into a forbearance agreement with
Poppy, Cypress, and any other lienholders with a deed of trust to delay any foreclosure auction
sale to allow for payments of SDC's debt owed to Cypress.
69. Based upon SDC identifying Poppy and Cypress as creditors in this bankruptcy
proceeding, and based upon the negotiations that I led with the MOU (as more fully described
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below), the City believes that SDC has not paid off either Poppy or Cypress for the entire
amounts of the debts owed to them that led to the grounds for their respective notices of
foreclosure auction sales.
70. Additionally, the prime contractors that SDC has engaged for the development of
the Talus (SilverRock) project, creditor RD Olson Construction Inc. ("Olson") and creditor
Granite Construction Company ("Granite"), indicated to me that they were still owed money
from SDC for work they had performed, and that they expected full payment from SDC on
remaining unpaid amounts for work completed and subject to mechanics liens recorded against
all or portion of the SDC-Held Properties and the subject of a pending (and currently stayed)
lawsuit in Riverside County (California) Superior Court (lead case number CVPS2301220).
71. Based upon SDC identifying Olson and Granite as creditors in this bankruptcy
proceeding, and based upon the negotiations that I led with the MOU (as more fully described
below), the City believes that SDC has not paid off either Olson or Granite for the entire amounts
of the debts owed to them that led to the recording of mechanics liens and the litigation (now
stayed) in Riverside County (California) Superior Court.
72. Additionally, and also after the City received the Cypress Notice of Default,
Montage North America, LLC ("Montage"), the parent company for the Montage and Pendry
branded hotels (i.e., the "Luxury Hotel" and "Lifestyle Hotel" Project Components,
respectively), have been engaged and part of the conversations that 1 have had with Montage's
representative in connection with the MOU (as more fully described below) to have the project
"jump start" given that construction had ceased for the Core Project Components for nearly two
years due to SDC's failure to pay the contractors.
THE MULTI -PARTY MEMORANDUM OF UNDERSTANDING (MOU) RELATING TO SDC'S
DEFAULTS AND DEVELOPMENT REQUIREMENTS
73. With foreclosures looming, and pursuant to the City authority to protect its
interests under the PSDA, the City and multiple parties —including SDC (and its affiliated
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entities) entered into the Memorandum of Understanding and Agreement relating to Default and
Developer Requirements (Purchase, Sale, And Development Agreement) [Implementing
Agreement], dated May 24, 2024 ("MOU") in order to prevent the SDC-Held Properties from
foreclosure and to provide a means to move forward with resuming project construction and
completion of the project.
74. In addition to SDC (and SDC affiliated entities), the MOU was signed by the
City, Cypress and Poppy, contractors Olson and Granite, Montage, and Christopher M. George
("CMG") (collectively, the "MOU Parties"). CMG, the founder of a mortgage bank and known
for responsible lending practices, expressed interest to the City and other MOU Parties that CMG
may be willing to pay the debts in exchange for having the right to have the development project
assigned to CMG. from SDC.
75. The MOU may be summarized as follows: (1) There would be forbearance on
Cypress' and Poppy's foreclosures, such that their auction sales would be postponed to allow
SDC, and then CMG, to perform under the MOU; (2) SDC had until June 30, 2024 to close on
the Recapitalization Loans (as defined and identified in the Fifth Amendment), which would
have allowed SDC to pay all debts owed by SDC and resume and complete construction of the
project; (3) if SDC failed to timely close by June 30, 2024, then CMG has specified rights and
obligations for approximately two months, including the obligations to pay off the secured
creditors and mechanics liens, while gaining the right to have the project and development
agreements with the City assigned to CMG.
76. Under the MOU, SDC and its affiliates agreed that, if SDC failed to obtain
funding, "SDC shall assign (per section 4.2) any and all interest in the PSDA, Development
Agreement, and all other valid agreements relating to the construction, completion, and operation
of the Talus project (including the hotel operator agreements), with the exception of the Olson
and Granite agreements and convey fee simple ownership interest to the Developer -Held
Properties [i.e., SDC-Held Properties]" to CMG.
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77. As noted above, SDC failed to obtain funding to pay off all the debts owed by
SDC by June 30, 2024, and as of 11:59 p.m. Pacific Standard Time on June 30, 2024, SDC was
again in default under the PSDA.
78. On July 1, 2024, the City issued to SDC another NOTICE OF DEFAULT under
the PSDA, and specifically the Fifth Amendment, because SDC failed to close on the
Recapitalization Loans by June 30, 2024. The Notice of Default gave SDC thirty (30) days to
close on the Recapitalization Loans pursuant to the 30-day cure period in Section 501 of the
PSDA, and the Notice of Default expressly provided that, as long as SDC complies with its
obligations under the MOU, then SDC would be deemed as taking actions to cure the default.
Concurrently, the City retained any and all rights and remedies, including judicial intervention
and enforcement of its rights under the MOU, Notice and Cure Agreement, and the PSDA
(including the Fifth Amendment).
79. Also on July 1, 2024, CMG exercised its rights to purchase and assume the SDC's
rights and obligations by sending the MOU Parties CMG's Notice Of Exercising Rights And To
Proceed.
UNAUTHORIZED DEEDS OF TRUST AND MECHANICS LIENS RECORDED
AGAINST THE SDC-HELD PROPERTIES TO THWART THE MOU
80. Based on SDC's filing of this bankruptcy petition, and based on information I
received from Robert Green and other creditors, the City believes that SDC and its affiliates have
over -leveraged SDC's holdings and valuation of the Talus project, and have many equity
investors with claims that were not approved by the City in accordance with the requirements of
the PSDA (as explained above).
81. Even more serious and significant, and unknown to the City at the time, and
without the City's authorization or approval as required under Section and 311 (among other
sections) in the Original PSDA, and contrary to the City -approved Recapitalization Loans and
Recapitalization Lenders in the Fifth Amendment, SDC executed and had recorded between July
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1 and July 5, 2024, multiple deeds of trust and mechanics liens against various portions of the
SDC-Held Properties.
82. As soon as the City learned, by other parties to the MOU, of SDC's unauthorized
and unapproved deeds of trust, and unenforceable and unapproved mechanics liens recorded by
SDC-affiliated entities against the SDC-Held Properties, the City delivered to SDC a Cease And
Desist Demand For Unauthorized Transactions, dated July 10, 2024 ("City's July 10, 2024
Cease And Desist Demand"), which commanded SDC and its affiliates, including The Robert
Green Company, immediately to cease -and -desist executing and recording deeds of trust,
mortgages, mechanics liens, fixture filings, assignments of rents, or any other instruments
purporting to evidence a secured interest in the SDC-Held Properties, and immediately to
terminate and release, and remove from title all purported deeds of trust and mechanics liens then
known to the City at that time, and recorded on July 1, 2024 and July 2, 2024.
83. Instead of complying with the City's Cease And Desist Demand, SDC blatantly
disregarded it, thereby not only frustrating the purpose and performance of the other parties to
the MOU but also failing to take the required actions to cure the City's July 1, 2024 Notice of
Default.
84. Given the clear intent of SDC and its principal manager, Robert Green, to entirely
disregard SDC's obligations not only under the PSDA and Development Agreement, but also
under the MOU, the City initiated litigation against SDC, the Robert Green Company, and
several other defendants by filing on July 24, 2024, a Complaint in Riverside County (California)
Superior Court (Case No. CVPS2404750) bringing causes of action for Breach of Contract,
Fraud, Slander of Title, Quiet Title, and Declaratory and Injunctive Relief. Since the filing of
this bankruptcy proceeding, however, the case has been subject to the automatic stay.
CITY DELIVERS TO SDC FAILURE TO CURE NOTICE, DECLARING SDC IN FULL
BREACH AND NO LONGER "DEVELOPER," WHILE THE CITY WAS PREPARED TO
MOVE FORWARD WITH A NEW DEVELOPER WHEN BANKRUPTCY WAS FILED
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85. On August 1, 2024, SDC (via the Robert Green Company) delivered to the MOU
Parties a letter titled "Notice of Termination of [MOU]," noting that CMG had not made the
payments required under the MOU, notwithstanding SDC's actions of recording unauthorized
and unapproved deeds of trust and mechanics liens against the SDC-Held Properties (the
"Robert Green Company August 1, 2024 Letter").
86. In response to the Robert Green Company August 1, 2024 Letter, the City
delivered to SDC, also on August 1, 2024, that certain Failure to Cure and Confirmation of
Default ("City's August 1, 2024 Failure to Cure Notice"), which found and declared (i) SDC
has not, and cannot, cure the Defaults noted in the City's July 1, 2024 Notice of Default, (ii)
SDC does not have the capacity or ability to perform the obligations of the "Developer" as
defined in the PSDA, (iii) SDC was in full breach of the PSDA, and (iv) SDC no longer has any
rights as "Developer" under the PSDA.
87. Notably, in the City's August 1, 2024 Failure to Cure Notice, the City corrected a
material misstatement made in the Robert Green Company August 1, 2024 Letter: SDC
incorrectly asserted that it had the authority to determine whether CMG, one of MOU Parties,
"has no further rights, liabilities, or obligations under the MOU or the PSDA or in connection
with the Developer -Held Properties." As clearly explained in the City's July 1, 2024 Notice of
Default, "Provided that [SDC] and [SDC] affiliated entities perform, and perform to completion,
under [MOU] ... , [SDC] shall be deemed by the City to be taking actions to cure the Defaults
identified in the Notice of Default." SDC did not perform under the MOU, which frustrated the
ability for not only SDC to complete its obligations for assignment of rights and properties to
CMG, but frustrated all parties' ability to perform. In fact, SDC willfully took unauthorized
actions by recording unauthorized mechanics liens and deeds of trust to prevent the other MOU
Parties from being able to perform under the MOU.
88. Given that SDC and SDC's affiliated entities were subject to the City's litigation
for Breach of Contract (among other causes of action), the City was preparing to move forward
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with the MOU Parties, except SDC and the SDC affiliated entities, and possibly additional
secured creditors, with a revised and more detailed "Multiparty Interim Agreement" that would
carry forward the purpose of the MOU, namely: (a) to have various major creditors paid by
CMG for the debts owed by SDC; (b) to assign to CMG the PSDA, Development Agreement,
and other related project agreements, as well as the SDC-Held Properties, upon CMG paying off
those creditors with secured interests in the SDC-Held Properties; and, most importantly, (c) to
resume the construction of the project with Olson and Granite with sufficient funding from CMG
to complete the Core Project Components.
89. Prior to moving forward with a revised and more detailed "Multiparty Interim
Agreement," SDC and Debtors filed their petitions for bankruptcy.
Executed this 2nd day of September, 2024, at La Quinta, California.
I declare under penalty of perjury that the foregoing is true and correct.
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Alen, City Manager
City of La Quinta
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