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1996 02 20 RDA Minutes LA QUINTA REDEVELOPMENT AGENCY MINUTES February 20, 1996 Regular meeting of the La Quinta Redevelopment Agency was called to order by Chairman Sniff. PRESENT: Board Members Adolph, Bangerter, Henderson, Perkins, Chairman Sniff ABSENT: None CONFIRMATION OF AGENDA Chairman Sniff asked that Consent Calendar Item No.3 be pulled for discussion. APPROVAL OF MINUTES MOTION It was moved by Board Members Adolph/Bangerter to approve Minutes of February 6, 1996 as submitted. Motion carried unanimously. PUBLIC COMMENT Ms. Audrey Ostrowsky, P.O. Box 351, said she understood that The Village Economic Development Plan would be on the agenda. Mr. Genovese, Executive Director, advised that it would be discussed at a special meeting at the Senior Center on March 9th and that property owners would be notified. BUSINESS SESSION None CONSENT CALENDAR Consent Calendar Item No.3 was pulled for discussion. 1. APPROVAL OF DEMAND REGISTER, DATED FEBRUARY 20, 1996. 2. TRANSMITTAL OF TREASURY REPORT, DATED DECEMBER 31, 1995. BIB] 07-02-1996-U01 12:27:49PM-U01 RDAMIN-U02 02-U02 20-U02 1996-U02 Redevelopment Agency Minutes 2 February 20, 1996 3. APPROVAL OF AN OWNER PARTICIPATION AGREEMENT BETWEEN THE REDEVELOPMENT AGENCY AND MR. & MRS. HAROLD HARRIS FOR FINANCIAL ASSISTANCE TO DEVELOP AN 11-ROOM, 9,000 SQUARE-FOOT BED AND BREAKFAST INN ON APPROXIMATELY ONE ACRE OF PROPERTY LOCATED ADJACENT TO LAKE LA QUINTA. MOTION- It was moved by Board Members Adolph/Bangerter that the Consent Calendar be approved as recommended with the exception of Item No. 3. Motion carried unanimously. lt?mNo.3 Mr. Herman, Community Development Director, advised that the proposed Owner Participation Agreement between the Redevelopment Agency and Mr. & Mrs. Harold Harris is for financial assistance up to $100,000 for development of a previously-approved Bed & Breakfast Inn that will be located adjacent to Lake La Quinta. Chairman Sniff stated that he understood that some of the Agency's questions would be answered prior to this matter being brought back to them for a decision. Mr. Spevacek, Planning Consultant for Rosenow Spevacek Group, Inc., advised that one of the questions was in regard to the financial viability as it relates to the bank's lending requirements and the financial capability of Mr. & Mrs. Harris to construct and operate the establishment. He advised that a construction loan of $1 7 million has been approved by Valley Independent Bank and will convert to a First and Second Trust Deed. The Small Business Administration SBA) who will be funding the Second Trust Deed for $650,000, has issued a letter of approval to the Valley Independent Bank. Research into the financial viability of the Inn and innkeepers has proved to be very positive. Chairman?an Sniff questioned the staff report's reference to potential" positive cash flow. Mr. Spevacek advised that staff prepared a construction and 25-year operating pro forma for the Inn during review of this project, using very conservative cost factors concerning occupancy rates and some additional start-up costs. The review indicated a positive cash flow, but potentials for unforeseen factors always exist. BIB] 07-02-1996-U01 12:27:49PM-U01 RDAMIN-U02 02-U02 20-U02 1996-U02 9 Redevelopment Agency Minutes 3 February 20, 1996 In response to Chairman Sniff, Mr. Spevacek advised that the pro forma did not include a review of similar inns in Palm Desert and Palm Springs. The structure of the Owner Participation Agreement allows for a reduction in the owner's obligation to repay the $100,000 loan if the occupancy rate is less than 30% for the first two years of operation. The agreement was structured in this manner to accommodate the legal requirements of Redevelopment Law for this type of loan. Ms. Honeywell, Agency Legal Counsel, advised that the loan will actually be forgiven if a 30%-occupancy rate is not reached. She advised that the purpose of redevelopment funds is to assist businesses that the Agency would like to see develop in the project area that wouldn't be able to make it without the Agency's financial assistance. Therefore, if repayment is required without the business making a profit, the Agency would be acting as a lender as opposed to its designed purpose. In response to Board Member Henderson, Ms. Honeywell advised that the loan must be repaid within two years from when it's received, but the 30%- occupancy rate is based on the two-year period following the official opening of the business. In response to Board Member Adolph, Mr. Spevacek advised that the loan would be secured by the Second Trust Deed and remain a second during the construction-loan phase of the project, but would be in a third position behind the SBA loan after the Inn opens. Board Member Adolph understood that the funds wouldn't be given to Mr. & Mrs. Harris, but rather used to pay permit fees. Mr. Spevacek advised that the City's permit fees would be paid through a paper transfer, but a check will be given to Mr. & Mrs. Harris to pay the other governmental agency fees. He referred to Attachment 3 of the agreement which lists the appropriate fees and pointed out that the Fire Department plan check fee and the electrical and gas hook-up fees are still yet unknown. The fees that are paid at the end of the project will set off the final payments and the two-year repayment schedule. Board Member Henderson felt that the reduction in the obligation to pay was an incentive to fail. Mr. Spevacek advised that the owner would not be able to make a living, pay the loan payments, and meet the operational expenses if the occupancy rate BIB] 07-02-1996-U01 12:27:49PM-U01 RDAMIN-U02 02-U02 20-U02 1996-U02 Redevelopment Agency Minutes 4 February 20,1996 drops below 30%. It would be a financial disincentive to walk away from a $1.5 million loan to save $100,000. Board Member Perkins understood that approximately $35,000 of the loan would be for in-kind fees, etc. to which Mr. Spevacek responded yes. In response to Board Member Perkins, Mr. Spevacek advised that, basically, the inn would generate $53,000 in transient occupancy tax TOT) by Year 2 and $82,000-$92,000 by Year 4. Additionally, the Redevelopment Agency will receive approximately $5,000 in tax increment revenue from the inn. Board Member Perkins felt that redevelopment funds were meant for this type of project and was pleased and excited about it. Board Member Bangerter concurred. In response to Board Member Henderson, Ms. Honeywell advised that the owners may sell or transfer ownership of the property after a Certificate of Occupancy COC) is issued, but the loan obligation would be secured by the Deed of Trust. The recorded covenants require that it continue to be run as a bed and breakfast inn and new owners would have to comply with all the terms of the agreement. The minimal nature of this investment and the fact that the owners are paying the Agency back is why there's an allowance to sell the property after the COO is issued. The prohibition of sale can be extended until the Agency reconveys the Deed of Trust if the Agency wishes. Chairman Sniff was concerned that the owners aren't putting more of their own funds into this project because the three loans total approximately$1 6 million and it's potential value is only $1 8 million. In response to Board Member Bangerter, Mr. Spevacek advised that the agreement requires the loan to be repaid within two years or at the sale of their residence, whichever is sooner. Ms. Honeywell advised that the owners have a contractual agreement to repay the City as soon as they sell their home. Board Member Perkins pointed out that Valley Independent Bank must feel comfortable with the project to approve their loan. He felt that this project has a better chance of being successful than past projects have been and with a small amount of agency funding. BIB] 07-02-1996-U01 12:27:49PM-U01 RDAMIN-U02 02-U02 20-U02 1996-U02 Redevelopment Agency Minutes 5 February 20, 1996 Board Member Henderson asked if there was a consensus of the Council to prohibit the sale of the property until the end of the two-year period or repayment of the loan. Chairman Sniff didn?t have a problem with that and asked staff to amend the language in the agreement. Mr. Herman advised of an addition to the agreement in Section 13 of Attachment 6 Agreement Regarding Covenants to Develop, Use and Maintain the Site) which provides for the lender or purchaser to modify the agreement as long as the Agency is not adversely affected by such modification. Such modifications could include sale of the property or converting the use of the property. Mr. Spevacek advised that Redevelopment Law requires the Agency to impose certain covenants on any project that it assists and those covenants run for the life of the land-use controls of the Redevelopment Plan. In this case, for projects in Project Area No. 2, the covenants would run for 30 years and include such things as maintenance, use, discrimination, etc. Ms. Honeywell advised that the following changes would be made to the agreement: 1) The prohibition clause on Page 2 107) Prohibition) is amended to read....."Until the repayment of the Agency?v a?sist?nce pursuant to Section 201.... 2) The last sentence in the paragraph on Page 4, 201) Agency Assistance) is amended to include....from the official opening of the project as evidenced by the issuance of the Certificate of Occupancy. Ms. Audrey Ostrowsky, P. 0. Box 351, asked when the property was designated as commercial property. Mr. Herman advised that these two lots are part of an original designation in 1985, of Mixed-Regional Commercial. Ms. Ostrowsky questioned the proposed use of redevelopment funds when the downtown streets still need repair. MOTION It was moved by Board Members Adolph/Bangerter to adopt Resolution No. RDA 96-01 including modified language as provided by legal counsel. Motion carried unanimously. BIB] 07-02-1996-U01 12:27:49PM-U01 RDAMIN-U02 02-U02 20-U02 1996-U02 Redevelopment Agency Minutes 6 February 20, 1 996 DEPARTMENT REPORTS 1. TRANSMITTAL OF REVENUE AND EXPENDITURES REPORT. DATED DECEMBER 31, 1995. MOTION It was moved by Board Members Bangerter/Henderson to receive and file the Revenue and Expenditures Report, dated December 31, 1995. Motion carried unanimously. CHAIR AND BOARD MEMBERS' ITEMS None PUBLIC HEARINGS None Agency recessed to Closed Session. CLOSED SESSION 1 Conference with real property negotiator pursuant to Government Code Section 54956.9 concerning potential acquisition and disposition of real property located at the southeast corner of Simon Drive and Highway 111. Property Owner Negotiator: Richard Gattis. Agency Board reconvened with no decision being made which requires reporting pursuant to Section 54957.1 of the Government Code Brown Act). There being no further business, the meeting was adjourned. Res p?ctfuIly submitted, NDR$;?HoLA Secretary La Quinta Redevelopment Agency BIB] 07-02-1996-U01 12:27:49PM-U01 RDAMIN-U02 02-U02 20-U02 1996-U02