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Staff Report
City Council
Item No. 3.F
Meeting Date: June 8, 2022
From: Tami Scott, Administrative Services Director
Title: Approval of Settlement Agreement and Amended and Restated Purchase and Performance Agreement
City Council
RECOMMENDATION:
Approve the following:
1. Settlement Agreement, by and between the City of Cathedral City and Verano Recovery, LLC; and
2. Amended and Restated Purchase and Performance Agreement, by and between the City of Cathedral City and Verano Recovery, LLC, rela ting to the development of portions of Rio Vista Village.
BACKGROUND:
The City of Cathedral City (“City”), on behalf of Community Facilities District 2000 -01 (“CFD”) and Verano Recovery, LLC (“Developer”) previously entered into a Purchase and Performance Agreement (“Original Agreement”) dated June 2, 2015. Pursuant to the Original Agreement, the Developer purchased certain property from the City on which, in combination with Developer owned property, Developer agreed to develop residential single-family homes in the Rio Vista Village development (the "Project"), with the necessary infrastructure and amenities, in accordance with the Project approvals and amended plans.
Although certain streets and other improvements were completed in Rio Vista Village , many improvements contemplated by the Rio Vista Specific Plan and the TTM 28639 had not been completed (including the Club House, streets, alleys, curbs, gutters, ADA ramps, sidewalks, streetlights, backbone infrastructure, water and drainage improvements, and "dry utilities"); repairs on certain streets are still necessary; the fence along the perimeter of the Specific Plan is in a state of disrepair; and blown sand has accumulated on the Project property located in the Specific Plan.
Due to a variety o f performance issues, an Amendment to the Original Agreement was consummated on September 28, 2016 (the “First Amended Agreement”), providing among other terms, extensions of time to perform. Moreover, the Developer failed to pay its CFD special taxes for tax years 2015/16 and 2016/17 and those special taxes
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became delinquent. Accordingly, on July 19, 2017, the City filed a judicial foreclosure action against the Developer.
The Developer continued to have performance issues and on July 11, 2018, the City and the Developer entered into a Second Amendment to the Purchase and Performance Agreement (the “Second Amended Agreement”). Nonetheless, after entering into the Second Amended Agreement, the Developer’s failure to perform its obligations persisted. O n August 31, 2018, the City obtained judgment for the non - payment of the 2015/2016 & 2016/2017 special taxes.
In the meantime, and subsequently, the Developer defaulted on its 2017/2018, 2018/2019, 2019/2020 special tax obligations. Therefore, on April 3 0, 2021, the City filed further legal action, on behalf of the CFD, to seek a judgment authorizing the commencement of a Sheriff’s foreclosure sale. In addition, a lender to the Developer secured by the property, claimed a default and sued on its obligation.
However, prior to obtaining a second judgment for defaulted special taxes and just before the Sheriff’s foreclosure sale pursuant to the first judgment, the developer filed for Chapter 11 Bankruptcy protection thus stopping the disposition of any sale and any further collection activities of delinquent obligations.
DISCUSSION:
Staff is recommending the consideration and approval of both a Settlement Agreement and an Amended and Restated Purchase and Performance Agreement because of the Developer’s ban kruptcy filing. The approval of said agreements would be subject to minor modifications as agreed to by the parties legal representative and as directed and/or approved by the Bankruptcy Court . The Settlement Agreement will resolve the defaulted CFD specia l taxes and provide for prepayment of the bond amount apportioned to the Project’s defaulted property. The Amended and Restated Purchase and Performance Agreement will authorize the assignment to, and facilitate the completion of the Project by, Northligh t Capital Partners LLC (“Northlight”), the entity proposing to acquire the Project through the bankruptcy process.
The Settlement Agreement, by and between the City of Cathedral City and Verano Recovery, LLC, will be part of the reorganization plan submit ted to the Bankruptcy Court. As previously stated, the Developer/Debtor has entered into an agreement with Northlight Capital Partners LLC for the sale of the Project including property within CFD No. 2000 -1. The proposed sale is part of the Developer/De btor’s Chapter 11 Reorganization Plan currently under consideration by the Bankruptcy Court.
Northlight’s closing conditions include delivery of free and clear title to the Project property, and the extinguishment of the lien of the CFD No. 2000 -1 special taxes. The intent of the Settlement Agreement is to accomplish the proposed sale of the Property to Northlight, implement the goals under the approved Bankruptcy Court Confirmation Plan, and allow for the completion of the development of the Property by Northlight or its designee and address other related interests of the City. The Settlement Agreement memorializes the resolution of all claims filed by the City, on behalf of the CFD, including the release of the judgement and sheriff’s foreclosure sale in exchange for receipt of an amount to prepay the bonds that were secured by the delinquent special
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taxes and additional defaulted debt of $179,831, subject to approval by the Bankruptcy Court.
The Amended and Restated Purchase and Performance Agreement, b y and between the City of Cathedral City and Verano Recovery, LLC (the “PAPA”), expressly provides for the Developer to assign the PAPA to Northlight, as part of its bankruptcy reorganization. Northlight, and its assignee NCP Verano LLC, with offices in W estport, Connecticut and Charlotte, North Carolina, operates as an equity real estate investment firm. Northlight focuses on sourcing, acquiring, and managing bankruptcy related loans, distressed commercial mortgages, and real estate owned assets.
The PA PA eliminates the requirements for the improvements and infrastructure that were already completed under the Original and Amended Agreements and identifies the required improvements and infrastructure that remain to be completed. The PAPA contains timefra mes within which the improvements and infrastructure must be completed.
The PAPA also provides for the prepayment of the CFD bonds allocated to the portion of the Rio Vista Village subject to the PAPA. It also commits the City to supporting the formation of new CFDs and the issuance of bonds to fund remaining Project facilities and infrastructure.
FISCAL IMPACT:
The CFD would receive approximately $7.7 million dollars to prepay and call bonds on the defaulted Verano parcels subsequently reducing the outstanding CFD 2000-01 bond principal to approximately $2.1 million. The defaulted CFD special taxes would no longer be delinquent.
ATTACHMENTS:
AMENDED & RESTATED
PURCHASE_AND_PERFORMANCE_AGREEMENT_WITH_VERANO_RECOVERY_L LC_W EXHIBITS 06.02.2022
Settlement Agreement Verano Recovery Executed