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May 10, 2022
ITEM TITLE
Bayfront Financing: Public Hearing to Consider Various Actions for the Financing of a Resort Hotel, Convention Center, Parking Structure, and Related Public Improvements on and Adjacent to Parcel H -3 within the Chula Vista Bayfront Master Plan Area
Report Number: 22-0049
Location: Parcel H-3 of the Chula Vista Bayfront Master Plan Area Department: Development Services
Environmental Notice: The Director of Development Services has reviewed the proposed approvals for compliance with the California Environmental Quality Act (CEQA) and has determined that the activities involved with such approvals were covered in previously adopted Environmental Impact Report UPD#83356-EIR-65B/SCH#2005081077, and the addendums thereto. The proposed City Council actions are merely a step -in furtherance of the original project for which environmental review was performed. No circumstances have arisen triggering any supplemental o r subsequent CEQA analysis requirements.
Accordingly, no further environmental review is required for this item.
Recommended Action
Conduct a public hearing, consider all testimony presented and adopt A) a resolution approving an additional $9.0 million contribution to the planned convention center project on the Chula Vista Bayfront using one - time General Fund monies, approving a Fourth Amended and Restated Revenue Sharing Agreement between the City and the San Diego Unified Port District, approving a Convention Center Agreement, a subordination, non-disturbance, and attornment agreement with Marriott International, Inc., the operator of the Resort Hotel and Declaration of Reciprocal Easements , approving an initial lease term of 37 years for the F acility Lease and Sublease, terminating a Financing Agreement between the City and the Port District, and accepting an economic development subsidy report regarding same (4/5 Vote Required); B) a resolution approving an agreement with RIDA Chula Vista, LLC for deferral of certain development impact and sewer capacity fees; and C) a resolution appropriating additional sewer funds to pay for certain sewer improvements on the Chula Vista Bayfront (4/5 Vote Required).
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SUMMARY
The Chula Vista Bayfront Master Plan (the “CVBMP”) represents the last significant waterfront development opportunity in Southern California and is the result of a decade-long joint planning effort by a broad coalition of stakeholders, including the San Diego Uni fied Port District (the “Port District”), the City, and Pacifica Companies. Tonight’s action is the final step in the City’s participation in the financing of a large -scale destination resort and convention center (the “RHCC Project”) on parcel H -3 of the CVBMP (the “RHCC Project Site”).
On May 14, 2014, the Port District selected RIDA Development Corporation to enter into negotiations for development of the RHCC Project. On February 10, 2015, the Port District approved an Exclusive Negotiating Agreement with RIDA Development Corporation, establishing a timeline of deliverables during the term of the agreement, including programming the type and size of the hotel and convention center. On June 20, 2017, the Port District, RIDA Chula Vista, LLC (“RIDA”), and the City entered into a non -binding Letter of Intent that established basic business terms. On April 24, 2018, the City Council and the Port District Board of Port Commissioners (the “Port Board”) held a joint meeting, at which the City Council conducted a public hearing, took public testimony, accepted an Economic Subsidy Report, and approved a Disposition and Development Agreement and a Revenue Sharing Agreement (the “Original RSA”), contingent on approval of the associated economic development subsidy, which was approved at a regular meeting of the City Council held later that same day.
On June 15, 2021, the City Council approved all related financing agreements , real estate transactional documents, and implementing agreements that the City is a party to. The agreements approved reflected the following key business terms:
1. City and Port District will finance a $265 million contribution toward the construction of the Convention Center (as defined below) (the “Project Public Investment”) using debt financing;
2. City and Port District will finance certain ancillary public infrastructure ( the “Phase 1A Infrastructure Improvements”), through a combination of funds on hand and debt financing;
3. City and Port District will each be responsible for construction of certain Phase 1A Infrastructure Improvements;
4. RIDA will construct a 1,570 to 1,600 room resort hotel on the RHCC Project Site, to be operated by the Gaylord division of Marriott (the “Resort Hotel”);
5. RIDA will construct a 275,000 net square foot convention center on the RHCC Project Site (the “Convention Center”);
6. RIDA will construct a 1,600 -space parking structure on the RHCC Project Site (the “Parking Structure”); and
7. RIDA will construct the Phase 1A Infrastructure Improvements not constructed by the publ ic agencies (the “Developer’s Phase 1A Infrastructure Improvements”).
Documents approved at the June 2021 City Council meeting include:
1. a Convention Center facility lease, conveying a sub-leasehold interest in the Convention Center Site from the Authority to the City (the “Facility Lease”);
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2. a Convention Center sublease, conveying a sub- sub-leasehold interest in the Convention Center Site and the Convention Center from the City to RIDA (the “Sublease”);
3. a project implementation agreement , among the City, th e Bayfront Financing District, the Port District, the Authority and RIDA, obligating RIDA to cause the development and construction of the Convention Center and certain Phase IA Infrastructure Improvements (the “Project Implementation Agreement”);
4. a mutual lease and sub lease enforcement agreement with the Port District (the “Enforcement Agreement”);
5. a bond purchase agreement among the City, the Authority, the Port District, the Bayfront Financing District, and J.P. Morgan Securities, LLC (“JPM”) (the “Bond Purchase Agreement”);
6. an amendment to the Amended and Restated Joint Exercise of Powers Agreement between the City and the Port District (the “A&R JEPA Agreement”); and
7. a loan agreement with the Authority (acting as the legislative body of the Bayfront Pro ject Special Tax Financing District) (the “Loan Agreement”).
Additional related agreements, to which the City is not a party, were also provided for the information of the City Council and the public. These include a ground lease between the Port District and RIDA for the Hotel and Parking Structure land (the “Ground Lease”), a Convention Center site lease between the Port District and the Authority (the “Site Lease”) , an indenture of trust between the Authority and Wilmington Trust, National Association ( the “Trustee”) (the “ Authority Indenture”), and a management agreement with Marriott (the “Management Agreement”). The June 2021 actions delegated limited authority to certain City officers (the “Authorized Officers”) to consent to specified changes to the various financing agreements, real estate transactional documents and implementing agreements that the City is party to.
Adopting Resolution A before you tonight: 1) approves an additional contribution by the City toward the cost of constructing the Convention Center in the amount of $9.0 million ; 2) approves a Fourth Amended and Restated Revenue Sharing Agreement; 3) approves a Convention Center Agreement among the City, the Port District, the Authority, Marriott International, Inc., and RIDA (the “C onvention Center Agreement”); and 4) terminates the Amended and Restated Chula Vista Bayfront Master Plan Financing Agreement between the City and the Port District (the “Financing Agreement”) . An economic development subsidy report has been prepared and m ade available to the public in advance of this meeting in accordance with state law (the “Economic Development Subsidy Report”), and the City Council is also asked to approve an economic development subsidy for the project as described in the Economic Development Subsidy Report.
Adopting Resolution B approves entering into an agreement with RIDA to defer certain development impact and sewer capacity fees due for the RHCC Project, while Resolution C appropriates additional sewer funds to fund construction of certain sewer improvements on the Bayfront, consistent with existing agreements.
Amendments to the previously approved Project Implementation Agreement, Authority Indenture, Ground Lease, Facility Lease, Site Lease, and Sublease being made pursuant to previously delegated authority are described in this report, and the amended documents are provided for the information of the City Council and public. Mortgagee Protection Agreements with the private lenders and a Bond Purchase and Continuing Covenant Agreement between the Authority and JPM (the “BPCCA”) are also presented for informational purposes.
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ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed approvals for compliance with the California Envi ronmental Quality Act (CEQA) and has determined that the activities involved with such approvals were covered in previously adopted Environmental Impact Report UPD#83356 -EIR- 65B/SCH#2005081077, and the addendums thereto (collectively, the “Project FEIR”). The proposed City Council actions are merely a step-in furtherance of the original project for which environmental review was performed. No circumstances have arisen triggering any supplemental or subsequent CEQA analysis requirements. Accordingly, no further environmental review is required for this item.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
In 2002, the City and the Port District began a collaborative planning process to create a master plan for the approximately 535-acre Chula Vista Bayfront area. The master plan was designed to transform Chula Vista’s underutilized industrial Bayfront landscape into a thriving residentia l and world-class waterfront resort destination. The planning process included an award -winning public participation program with the CVBMP Citizen Advisory Committee, which established three primary goals for the master plan: 1) develop a world -class waterfront; 2) create a plan that is supported by sound planning and economics; and 3) to create a plan that has broad-based community support.
The CVBMP has great significance not only for the City of Chula Vista and the Port District, but for the greater San Diego County region as well. The CVBMP will create thousands of new jobs, create new public parks, protect natural coastal resources, provide conference and visitor-serving amenities, and build an important asset for the San Diego region, the South Bay, Chula Vista residents, and coastal visitors. At buildout, more than 40% of the CVBMP project area will be dedicated to parks, open space, and habitat restoration/preservation. Anticipated economic benefits include the creation of approximately 3,900 permanent jobs, approximately 3,480 temporary construction jobs, and numerous indirect jobs in the regional economy.
The CVBMP will be implemented jointly by the City and the Port District in four major phases over an expected 24-year period. Phase one of implementation includes the development of the previously described resort hotel and convention center project by RIDA on the 36.5 -acre RHCC Project Site, development of an RV park (Sun Outdoors San Diego Bay opened April 2021), the creation of public parks and open space, the restoration of habitat areas, a mixed-use residential development (Amara Bay, by Pacifica Companies), and the Phase 1A Infrastructure Improvements (together with the RHCC Project, the “Project”).
Key City Council actions and approvals to da te supporting the development of the CVBMP are summarized in Attachment 1 (not an exhaustive list).
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The City Council’s last action related to the Project occurred on June 15, 2021. At that time, the City Council adopted resolutions approving the Facility Lease, the Sublease, the Project Implementation Agreement, the Lease Enforcement Agreement, the Bond Purchase Agreement, the A&R JEPA Agreement, the Continuing Disclosure Certificate, and the Loan Agreement (acting as the legislative body of the Bayfront Project Special Tax Financing Distric t (the “Special Tax District”) ). In addition, economic development opportunity and economic development investment reports were presented in accordance with state law (the “Economic Development Investment Reports”), and the City Council approved an economic development investment for the project.
Immediately following the June 2021 action, planned validation proceedings were filed (July 6, 2021). The validation action concluded on October 26, 2021 and the challenge period ended November 29, 2021 with no challenges filed against the Project. The following documents were included in the validation action:
1. Ground Lease
2. Site Lease
3. Facility Lease
4. Sublease
5. Project Implementation Agreement
6. Authority Indenture
7. Support Agreement
8. Bond Purchase Agreement
9. Loan Agreement
The actions before you tonight are consistent with and implementing of the terms of these previously approved documents. These documents have been modified since their initial approval, but only in ways consistent with the authority that was delegated to staff at the time of their initial approval and in such a manner as to be consistent with the terms of the completed validation proceedings.
Proposed Actions
Following the June 2021 action, RIDA initiated guaranteed maximum price (“GMP”) negotiations with their approved prime contractor for the Project, Mortenson McCarthy Joint Venture (“MMJV”). These negotiations, and associated subcontractor bids, have meaningfully increased the expected cost of construc ting the Convention Center. These cost increases are generally attributable to labor cost increases and commodity cost increases due to supply chain impacts of the COVID -19 pandemic, compounded by the rapid inflation experienced in early 20221. These increases are consistent with the City’s recent experiences on other capital projects and are being experienced throughout the construction sector.
1 Guilford, G. (2022, February 10). U.S. Inflation Rate Accelerates to a 40 -Year High of 7.5%: Strong consumer demand and pandemic -related supply constraints continued to push up prices in January. The Wall Street Journal. https://www.wsj.com/articles/us-inflation-consumer-price-index-january-2022-11644452274.
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In January of 2022, RIDA requested that the public entities increase the Project Public Investment, in order to move forward with the construction of the RHCC Project . Port and City staff believe that an additional contribution of $18 .0 million toward the Convention Center is appropriate due to the factors previously discussed and RIDA has accepted this amount (the “Additional Convention Center Contribution”). RIDA has further requested that a previously approved commitment to reimburse them for certain costs incurred in the amount of $1.0 million be advanced from construction completion to Close of Escrow. If approved, the Additional Convention Center Contribution and the advanced $1.0 million reimbursement would increase the Project Public Investment to $284.0 million.
The public agency financing team, including representatives of the City, Port District, Bond & Disclosure Counsel, and JP Morgan (as underwriter) determined that the re was insufficient capacity in the planned financing of the $265.0 million Project Public Investment to finance the $18.0 million Additional Convention Center Contribution. As a result, it is necessary for the public entities to identify alternative funding for the Additional Convention Center Contribution. Shared equally, this equates to an additional contribution by each agency of $9.0 million . The Port Board will consider contributing their additional $9.0 million toward the Additional Convention Center Contribution on May 10th and a verbal update will be provided by staff with this item . A proposal for funding the City’s share of the Additional Convention Center Contribution is discussed later in this report.
Shortly after RIDA approached the public entities regarding the need for additional construction funds , the financing team also identified substantial challenges bringing the planned public financing to market. The February 2022 Russian invasion of Ukraine introduced significant volatility to the global financial market, severely impacting the potential inve stor pool for this financing. If public bonds could be sold, projections indicated financing costs would be so high that the project objectives could not be met ( i.e., we would be unable to generate the full $265.0 million Project Public Investment nor would proceeds be available to fund the Developer’s Phase 1A Infrastructure Improvements). As a result, the financing team pivoted from a traditional long-term municipal bond structure to a two-part financing structure, which is very common for this type of major capital project and is described in greater detail below.
In addition to changing the structure of the financing, it was also necessary to reduce project costs to be financed. The deferred funding of the first phase of Harbor Park is recommended in order to achieve this cost reduction. While construction of Harbor Park is not a condition of developing the RHCC Project and deferring its construction has no notable collateral impacts on the Project itself, Harbor Park remains a highly valued Bayfront amenity, and all parties are committed to pursuing alternative funding sources in order to cause the first phase of this park to be completed concurrent with, or shortly after, the completion of the Project.
The new financing structure, recommended funding for the City’s Additional Convention Center Contribution, other significant changes to deal terms , and proposed revisions to the revenue sharing agreement between the City and Port District are described below. This is followed by an overview of the Phase 1A Infrastructure Improvements and the associated funding. Finally, the proposed economic development investment and the proposed fee deferral for the RHCC Project are described.
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New Financing Structure
As presented in June 2021, t he public agencies previously contemplated financing, through the issuance of taxable bonded debt by the Authority, the Project Public Investment to be used to construct the Convention Center in the amount of $265 .0 million (the “202 2A Bonds”). The public agencies further contemplated financing, through the issuance of tax -exempt bonded debt by the Authority, Phase 1A Infrastructure Improvement costs in the not-to-exceed amount of $21.5 million (the “2022B Bonds”, together the “Authority Bonds”).
The Authority Bonds were planned to be sold to the qualified investors in the public bond market. Repayment of the Authority Bonds would be secured by the Port Support Agreement, the City lease revenues, and the Bayfront Financing District Loan Agreement (together, the “Financing Revenues”). The Authority Bonds were expected to be issued in two series, taxable bonds to pay for the Project Public Investment and tax -exempt bonds to pay for that portion of the Phase 1A Infrastructure Improvements costs that necessitated financing.
Each series of the Authority Bonds would be secured and payable “on parity” from the Financing Revenues (that is, it was not contemplated at that time that there would be a series of bonds payable with a first lien on the Financing Revenues and a series of bonds payable secured by a subordinate lien on the Financing Revenues).
As previously described, the original plan of securing permanent financing at Close of Escrow is no longer a realistic path to meet the project objectives. Financing the Project Public Investment and the portion of the Phase 1A Infrastructure Improvement costs required to be financed now necessitates a two (2) phase financing structure. Now, initially, the Authority Bonds will be sold through a private placement with JPM and one or more banks (together, the “Purchasers”) pursuant to a Bond Purchase and Continuing Covenant Agreement (the “Bond Purchase and Continuing Covenant Agreement”) to be entered into by the Authority, JPMorgan Chase Bank, National Association, as Administrative Agent (the “Administrative Agent”).
This change in the method of sale is recommended based on information provided to the Authority by the Underwriter that: (i) due to the extraordinary volatility in the debt markets there is no assurance that a public sale of the Authority Bonds will be successful, (ii) even if a public sale succeeded in attracting buyers, due to rising interest rates, a public sale will not produce the $265 .0 million of construction funds for the Convention Center previously agreed upon by the City, Port and RIDA, and (iii) a public sale will take longer to complete than a private sale.
The Authority Bonds will be issued with a final maturity in 37 years (June 1, 2059) as was originally planned in the public sale. However, given that the Purchasers are only willing to commit to own the Authority Bonds for a period of five (5) years, the Authority Bonds will be subject to a mandatory redemption on June 1, 2027 unless the Purchasers agree to waive that redem ption. This means that the Authority will need to make arrangements to pay to the Purchasers all amounts due on the Authority Bonds on or before June 1, 2027 either by finding new purchasers of the Authority Bonds or issuing new bonds to refund the Authority Bonds.
Under the terms of the Authority Bonds, the Authority has the right to pay -off the Purchasers, without any prepayment penalty, on any date on or after June 1, 2026. This provision gives the Authority a year to determine the best time and method to pay-off the Purchasers and secure permanent financing. For ease of reference, this report refers to the initial five (5) year financing as the “Construction Loan” and the future financing as the “Permanent Financing”.
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At the time Permanent Financing is secured, the Project is expected to be complete and operational, removing construction risk from the cost of financing. As a result of removing construction risk, at that time it is reasonably expected that the Authority will be able to secure a lower interest rate and a lower debt service coverage ratio. Actual rates and debt service requirements will vary based on market conditions at the time of take-out financing.
Based on the most recent estimates from the Administrative Agent, the Authority Bonds for the Convention Center (Series 2022A) will be issued in the approximate amount of $ 371,975,309, and the Authority Bonds for the Phase 1A Infrastructure Improvements (Series 2022B) will be issued in the approximate amount of $10,240,996. A combined all -in tr ue interest cost of 9.057053% per annum is projected . The estimated annual debt service schedule for the Authority Bonds to the June 1, 2027 mandatory redemption date based on the foregoing estimates is set forth in Attachment 2 to this report. Under the terms of the Bond Purchase and Continuing Covenant Agreement, there are a number of circumstances under which the interest rate on the Authority Bonds could increase to a Default Rate, which is the actual rate on each series of the Authority Bonds when issued plus 3% per annum.
A new feature of the private sale is that instead of having all funding available at the closing the Purchasers will make advances under the Bond Purchase and Continuing Covenant Agreement to purchase the Series 2022A Bonds over a pe riod of three years . Advances are scheduled to correspond to the construction schedule for the Convention Center. This feature reduces interest costs for the Authority as interest accrues only on the amount advanced. The risk of this approach is that under the Bond Purchase and Continuing Covenant Agreement, there are a number of conditions to each subsequent Advance being made ; therefore, it is possible that the funding of some portion of the $265.0 million of construction funds for the Convention Center could be delayed , fall behind the pace of construction , or not be made. The estimated schedule of advances is provided as Attachment 3 to this report (schedule will be finalized at closing).
Consistent with the validated financing structure, t he Construction Loan will include a taxable bond series that funds the Project Public Investment in the amount of $265.0 million (Series 2022A) and a tax -exempt series that funds certain Phase 1A Infrastructure Improvements in the amount of $10.0 million (Series 2022B). All debt payments will be funded through capitalized interest during the Construction Loan period.
As a result, existing revenues already committed to the Project financing (the “Existing Revenues” 2) will continue to accrue during the construction period but will not be needed to repay the Construction Loan .
This introduces new flexibility for the public agencies, as these funds can now be used for project related expenses that would have otherwise been General Fund obligations, as discussed below . All Existing Revenues remaining at Project completion will be applied to reduce long-term borrowing costs, as originally envisioned.
While the change to a private sale has clear advantages to the Authority, City and Port District in terms of allowing construction on the Convention Center and Hotel to begin soon, there are risks associated with this
2 As defined in the Revenue Sharing Agreement (as amended and restated), Existing Revenues include other Port leases on the Bayfront, City MSA contribution, and Transient Occupancy Taxes generated by the Sun Communities RV Park on the Bayfront.
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approach primarily related to the need to pay off the Purchasers on or before June 1, 2027 in the full amount of the Authority Bonds and accrued interest. It could be that market conditions or other factors, such as a failure of RIDA to complete and open the Hotel and Convention Center on time among others, will prevent the timely payoff of the debt, in which case the Authority Bonds would pay interest at the Default Rate until paid. It is also possible that interest rates will be higher at the time of payoff than now, so the Authority is also assuming some interest rate risk. Additionally, while the private sale to the Purchasers is allowing the full amount of the $2 65.0 million public agency contribution to be funded, the amount of bonds needed to pay off the Purchasers may be more than the $400 million maximum principal amount of Authority Bonds previously authorized to be issued. The exact amount of bonds necessary to accomplish the payoff of the Purchasers will depend upon market conditions at the time of payoff . Based on current interest rates the current payoff amount has been estimated by the Underwriter to be $382,765,000. The City’s General Fund exposure related to the Permanent Financing continues to be limited to the Project Generated Revenues and previously committed Existing Revenues. No new General Fund exposure is created with this financing structure.
City’s Additional Convention Center Contribution ($9.0 Million) Staff recommends funding the City’s Additional Convention Center Contribution of $9.0 million with unanticipated one-time General Fund revenues and expenditure savings . These General Fund dollars are available as a result of a combination of reimbursement of eligible personnel expenditures using Coronavirus State and Local Fiscal Recovery Funds , as established by the American Rescue Plan Act of 2021 (“ARPA”) , better than anticipated discretionary revenues, and “supplies and services” savings in the City’s current fiscal year budget. The use of these funds for this purpose has been assumed in the FY 2021-22 budget and will not impact the City’s ability to deliver services or General Fund reserves.
Other Significant Changes to Deal Terms
During negotiations with RIDA related to the Additional Convention Center Contribution, the following additional terms were agreed to by the parties.
Parking Rent
The Ground Lease currently obligates RIDA to pay percentage rent on parking revenues in the amount of five percent (5%) percent for lease years 1 – 37 and seven and a half percent (7.5%) in lease years 38 – 66 (the “Parking Rent”). The Parking Rent will include revenues from the Parking Structure and any premises parking spaces, including valet parking. In lease years 1 – 37, the Parking Rent will be split 50/50 between the City and Port District, pursuant to the Amended and Restated RSA.
Beginning in lease year 38, when the Authority Bonds are no longer projected to be outstanding, the rent structure for the ground lease will revert to the Port District’s standard percentage rent structure.
In conjunction with negotiating the Additional Convention Center Contribution, the parties have agreed to modify the Parking Rent structure, as summarized in Table 1 below.
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Table 1 – Parking Rent Increase
Lease
Year
Operating
Year3
Current
Ground Lease
New
Agreement
Change
4 1 5.0% 0.0% - 5.0%
5 - 13 2 – 10 5.0% 5.0% None
14 - 37 11 - 34 5.0% 9.0% + 4.0%
38 - 66 35 - 63 7.5% 7.5% None
While future performance is not guaranteed, current projections indicate that the increased rate in operating years 11 through 34 will generate sufficient incremental funds to repay the public entities in full for the Additional Convention Center Contribution.
Advancing Other Contributions
Section 13.4 of the approved Project Implementation Agreement committed the Authority to reimburs ing RIDA the lesser of $1.0 million, or the cost actually incurred by RIDA for procuring payment and performance bonds (the “Authority Bond Payment”) . This payment was to be made within thirty (30) days of RIDA providing the Authority with an invoice and reasonable supporting documentation showing the actual costs incurred procuring the subject bonds, such request to be made not later than one year after the last date on which a payment, performance, or warranty bond is required by the Project Implementation Agreement with respect to the Convention Center.
RIDA has asked, and staff recommends, that this obligation be modified to allow RIDA to request these funds upon the close of escrow for the financing (the “Close of Escrow”) , with the documentation requirement preserved. At Close of Escrow, the City and the Port District will each contribute $500,000 in Existing Revenues to the Project for this purpose, or such lesser amount as may be due based upon the documentation provided by RIDA . These are revenues that are already dedicated to the Project financing and do not represent an additional contribution. This action is within the previously approved delegated authority.
Availability of Convention Center Funds
As described above, the City and Port District are considering making an Additional Convention Center Contribution in the amount of $18 million ($9.0 million to be contributed by each agency) and advancing the availability of up to $1.0 million in Existing Revenues to Close of Escrow (together, the “Public Entity Convention Center Cash Contribution”) . These funds are in addition to the $265 .0 million Project Public Investment to be financed through the Series 2022A Bonds. In order to minimize borrowing costs, the Series 2022A Bonds have a set draw schedule, with funds being made available on a quarterly basis , with the first draw to be made at Close of Escrow ; subsequent draws start on August 15, 2022 and end on February 15, 2024.
3 Assumes a 36-month construction period.
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Out of an abundance of caution, RIDA has requested that the Public Entity Convention Center Cash Contribution of $19.0 million be held in a separate Trustee account, which may be accessed in certain specified circumstances. The first such circumstance would occur if the costs incurred for RIDA’s Convention Center work-in-place that are qualified for reimbursement exceeds the Series 2022A Bond draw schedule. If this were to occur, RIDA would be able to draw down the de lta from the $19.0 million as a temporary measure, and then a s future draws are funded, these monies would be replenished with the Trustee. This process would potentially repeat multiple times, until the final draw, when the Public Entity Convention Center Cash Contribution would be drawn down by RIDA for the final payment of the Project Public Investment.
The Public Entity Convention Center Cash Contribution of $19.0 million would also be available if a member of the Construction Loan syndicate were to default and not provide their committed funds, or if a dispute between JPM and the Authority causes a delay in the release of reimbursable funds to RIDA. Staff recommends agreeing to this mechanism, as it does not commit any additional dollars to the Project, but rather provides for enhanced cash flow efficiency and reduces the risk that actions outside the control of the public agencies and RIDA will impact RIDA’s timely access to reimbursable funds, ther eby keeping the construction of the project moving forward.
Developer’s Phase 1A Infrastructure Improvements Contingency Funds RIDA has committed to constructing certain public infrastructure improvements necessary for the operation of the RHCC Project on behalf of the public agencies. Because these are public improvements that are being constructed on behalf of the public agencies, it is appropriate for the public agencies to cover all costs associated with these projects (subject to appropriate approvals of work and costs incurred ). While a number of contingencies have been provided for in the Phase 1A Infrastructure Improvement Budget, due to rising costs RIDA has raised concerns regarding availability of funds if the project level contingencies are exhausted. In order to address these concerns, public agency staff have agreed that any optional change orders or project enhancements (i.e., owner -directed changes) should be funded by the public agency that directs the work. For those change orders that are u navoidable (e.g., unforeseen conditions, unable to procure specified materials, etc.), public agency staff has provided that these costs be shared equally by the two agencies . The first source of funds for such change orders would be a newly established Ph ase 1A Infrastructure Improvement program contingency in the amount of $2.0 million, to be included in the 2022B Bonds. This action is within the previously approved delegated authority.
While all parties are firmly committed to avoiding Developer’s Phase 1A Infrastructure Improvement change orders in excess of these contingency amounts, it is desirable to identify a funding source to backstop these expenses without further impact to the public agency’s respective General Funds. Staff recommends making certain Existing Revenues available for this purpose. As previously described, Existing Revenues will continue to accrue between Close of Escrow and completion of the Project. Per the Indenture, these funds will flow to the Trustee, where they will accumu late in the “Authority Existing Revenues Fund”. Document modifications under the previously approved delegated authority make these funds available to cover Developer’s Phase 1A Infrastructure Improvement cost overruns, after all other project and program -level contingencies have been exhausted.
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Public agency staff also desire to use these funds for certain project-related administrative expenses during the Project construction period. RIDA has requested that the public agencies cap access to these funds f or administrative expenses during the first eighteen (18) months of the Project construction period to $1.0 million. At that point, the Developer’s Phase 1A Infrastructure Improvements are expected to be approximately 75% complete. The cap would then be li fted, but RIDA requests that a minimum balance of $3.0 million in the Authority Existing Revenues Fund through the end of the expected thirty-six (36) month construction period be maintained. Staff has provided for these new authorized uses of the Existing Revenues and agreed to the limitations on administrative expenses requested by RIDA. This action is within the previously approved delegated authority.
Revenue Sharing Agreement
The City Council and Port Board first approved entering into a Revenue Sharin g Agreement for the RHCC Project in April of 2018 (the “Original RSA”). The Original RSA addressed funding commitments of each agency; the application of residual revenues after payment of the Project Public Investment and the Phase 1A Infrastructure Improvement debt including reimbursements to each agency (the “Residual Revenues”) ; and operating and maintenance responsibility for the Phase 1A Infrastructure Improvements.
Since its approval in 2018, the Original RSA has been subject to multiple amendments a nd restatements, including the Amended and Restated Revenue Sharing Agreement approved by the City Council on November 19, 2019; the Second Amended and Restated Revenue Sharing Agreement approved by the City Council on September 15, 2020; and the Third Amended and Restated Revenue Sharing Agreement approved by the City Council on February 16, 2021 (the “Third Amended and Restated RSA”).
Pursuant to the Third Amended and Restated RSA, the revenues to be contributed by each agency prior to the issuance of the Authority Bonds to the project costs, and after issuance of the Authority Bonds toward the payment of the Authority Bond s debt service, are as follows (capitalized terms not otherwise defined herein have the meanings provided in the Third Amended and Restated RSA):
Port District Contributions
1. Ground lease revenues derived from:
a. Other Ground Leases (as set forth in Exhibit 1 to the Third Amended and Restated RSA); b. less a credit equal to the actual amount of the existing RV Park lease buyout, in an amount not to exceed $3,283,970, to be amortized over a period of 8 years, commencing July 1, 2018, pursuant to the following schedule (as may be amended by mutual consent of the parties):
Table 2 – RV Park Buyout Credit
Fiscal Year (FY) RV Park Buyout Credit Cumulative Credit FY 19 $410,500 $410,500
FY 20 $410,500 $821,000
FY 21 $410,500 $1,231,500
FY 22 $410,500 $1,642,000
FY 23 $410,500 $2,052,500
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Fiscal Year (FY) RV Park Buyout Credit Cumulative Credit FY 24 $410,500 $2,463,000
FY 25 $410,500 $2,873,500
FY 26 $410,470 $3,283,970
2. Port District Support Payments, in an amount not to exceed the following schedule:
Lease Years 1 – 4 $ 0
Lease Years 5 – 14 $5.0 million
Lease Years 15 – 19 $6.0 million
Lease Years 20 – 24 $3.0 million
Lease Years 25 – 38 $3.5 million
City Contributions
1. TOT generated by the RHCC Project, the RV Park Tidelands Use and Occupancy Permit (the “RV Park TUOP”), and the Replacement RV Park.
2. Sales tax generated by the RHCC Project, the RV Park TUOP, and the Replacement RV Park. This commitment excludes any locally approved sales and use taxes, such as Measure P or Measure A.
3. Incremental property tax (including property tax in-lieu of motor vehicle license fees) generated by the RHCC Project.
4. An amount equal to the funds received from the Port District in fiscal year 2016 ($986,625), pursuant to the Municipal Services Agreement (the “MSA”) in place at that time. Starting on July 1, 2017, the contribution amount will increase 3 % annually. This amount is owed regardless of actual payments under the MSA and will not change based on future MSAs that may be negotiated between the City and Port District.
5. Special tax proceeds of the Bayfront Financing District, limited to the amount used to pay debt service on the Authority Bonds (see Bayfront Project Special Tax Financing District discussion below for additional information).
The Third Amended and Restated RSA reflects the following prioritization for use of the Residual Revenues, together with all revenues received by the Port District from RIDA pursuant to the ground lease expected to be executed at close of escrow (except the Parking Payments , as described below ) (the “RIDA Lease Payments”):
1. To reimburse the Port District for the cu mulative amount of District Support Payments actually contributed by the Port District and not previously reimbursed to the Port District by the Authority; then
2. To reimburse the City and the Port District pari passu for any amounts either party actually paid or contributed to the County pursuant to the County Funding Agreement; then
3. To reimburse the City for 73.6% of the cumulative actual, direct costs incurred by the City to provide fire service within the CVB, which 73.6% amount reflects costs for which t he City is entitled to reimbursement above and beyond any payments the City receives pursuant to any municipal services agreement between the City and the District in effect at the time such reimbursement is being made P a g e | 14
and which is the proportionate share of costs attributable to the Convention Center and the Hotel and not previously reimbursed to the City or paid through special tax revenues; then
4. To reimburse the City and the Port District on a proportionate, pro -rata basis, for each party’s contribution of the Existing Revenues, as of the Closing Date; then
5. To reimburse the City and the Port District on a proportionate, pro -rata basis, for each party’s contribution of Existing Revenues after the Closing Date, continuing to the Termination Date of the RSA; then
6. If desirable, and agreed to by the parties, to fund an additional reserve fund or reserve fund insurance policy in the amount of one year’s debt service for the Authority Bonds; and finally
7. Any Revenues remaining after the payments described in Items (1) through (6) above will be equally distributed between the City and the Port District.
Tonight, you are presented with the Fourth Amended and Restated Revenue Sharing Agreement (the “Fourth Amended and Restated RSA”) (Attachment 4). The Fourth Amended and Restated RSA includes updates to reflect the new two-phase financing structure and to clarify the commitment of the Port District to contribute all funds generated by existing leasehold interests within the CVBMP Area (the “Original Premises ”), however the Original Premises leases may be amended, restated, expanded, reduced, or extended in the future. In addition, contractual commitments by each agency to make their $9.0 million Additional Convention Center Contribution are proposed, as well as language explicitly allowing each agency to use their respective Existing Revenues for purposes of advancing their half of the previously agreed to $1.0 million Authority Bond Payment to Close of Escrow. Lastly, the funding of an additional debt service reserve or reserve fund policy has been removed as a priority use of the Residual Revenues.
Phase 1A Infrastructure Improvements
The construction of the Phase 1A Infrastructure Improvements is estimated to cost a total of $78.35 million.
Portions of the Phase 1A Inf rastructure Improvements are to be constructed by RIDA, the City, the Port District and Sun Communities, as summarized in Tables 3 and 4 below.
Table 3
Description 2022 Cost Estimate
Developer's Phase 1A Infrastructure Improvements
1 E Street (G Street to H Street) $ 14,322,000
2 G Street Connection 2,427,000
3 H Street (Bay Blvd to Street A) 2,271,000
4 H Street (Marina Pkwy to E Street) 8,782,000
5 H-3 Utility Corridor 5,850,000
6 H-3 Site Prep 5,406,000
7 Harbor Park (Initial) Funds to be Identified
Phase 1A Infrastructure Constructed by Sun
8 E Street (Bay Blvd to F Street) 4,087,000
9 F Street (Bay Blvd to E Street) 1,309,000
10 F Street (E Street to Gunpowder Pt Dr) 913,000
11 Gunpowder Point Drive Relocation 1,216,000
12 SP-1 Sweetwater Buffer (for S-1) 2,908,000
13 SP-1 Sweetwater Buffer (for S-2) 1,302,000
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Description 2022 Cost Estimate
14 SP-2 Seasonal Wetlands 1,013,000
15 SP-4 SDG&E 62,000
Phase 1A Infrastructure to be Constructed by City
16 G Street Sewer Pump Station 2,786,000
Phase 1A Infrastructure to be Constructed by Port
17 S-2 Sweetwater Signature Park (Initial) 18,000,000
Project Cost Estimate Subtotal $ 72,654,000
Program Level Contingencies
Developer Phase 1A Program Contingency 2,000,000
Port Phase 1A Program Contingency 3,698,000
Grand Total $ 78,352,000
Table 4
Category
Constructed by
RIDA
Constructed
by City
Constructed by
Port District
Constructed by
Sun Comm.
Streets & Roadways $ 33,652,000 $ - $ - $ 7,525,000 Parks & Open Space - - 18,000,000 5,285,000
Sewer Pump Station - 2,786,000 - -
RHCC Site Development $ 5,406,000 - - -
Phase 1A Program Contingency 2,000,000 - 3,698,000 -
Subtotal $ 41,058,000 $ 2,786,000 $ 21,698,000 $ 12,810,000 Grand Total $ 78,352,000
The construction of the Phase 1A Infrastructure Improvements will be funded through a combination of funds on hand and debt financing, as further described below.
Bayfront Development Impact Fee (BFDIF)
A portion of the street and roadway improvements to be constructed by RIDA will be eligible for credit against RIDA’s BFDIF obligation. BFDIF credits are anticipated to offset $ 15,529,000 of RIDA’s Phase 1A Infrastructure Improvements (streets and roadways). An additional $4,93 2,000 in BFDIF credits and reimbursements are anticipated to offset the cost of street and roadway improvements constructed by Sun Communities. Actual BFDIF credits and reimbursements to be awarded to RIDA and Sun Communities will be determined upon final audit of each facility’s Development Costs. The City has entered into an agreement to allow for the reimbursement of eligible BFDIF expenses with Sun Communities, approved via Chula Vista City Council Resolution No. 2019 -158. This contribution shall not be eligible for reimbursement from the Authority Bonds.
Sewer Facility Contribution
The street and roadway improvement cost estimate displayed in Table 4 includes the construction of in-road sewer facilities, estimated to total $ 4,801,000. The City has entered into agreements to allow for the P a g e | 16
reimbursement of eligible sewer facility expenses with both RIDA and Sun Communities, approved via Chula Vista City Council Resolution Nos. 2019-170 and 2019-158, respectively.
Of the total estimated expense of $4.8 million, $4,426,000 is expected to be expended by RIDA, and $374,000 is estimated to have been expended to date by Sun Communities. Appropriations to date for these purposes total $1,195,000 and $390,000, respectively.
The in-road sewer facilities, along with a sewer pump station to be constructed by the City at an estimated cost of $2,786,000, are being funded by the City’s Sewer Facility Contribution . The City’s Sew er Facility Contribution is currently estimated to total $7,587,000.
The Sewer Facility Contribution may increase or decrease depending upon the actual cost of constructing the sewer facilities. The Sewer Facility Contribution toward in-road sewer improvements is currently estimated to total $4,801,000. Of this amount, $1,585,000 has been appropriated to date from the City’s Sewer Income Fund. Based on the new construction cost estimate provided by RIDA , an additional appropriation of $3,231,000 from the Trunk Sewer Capital Reserve Fund is recommended ($4,426,000 estimated cost, less $1,195,000 previously appropriated) . This contribution shall not be eligible for reimbursement from the Authority Bonds.
The Sewer Facility Contribution toward the sewer pump station (currently estimated to total $2,786,000) is being made from the City’s Sewer Service Fund. This contribution shall not be eligible for reimbursement from the Authority Bonds.
Sun Communities Contribution
Pursuant to the Sun Communities Lease, Sun Communities constructed a portion of the street and roadway improvements and a portion of the parks and open space improvements, at its sole cost and expense. The Sun Communities Contribution is currently estimate d to fund $7,504,000 in Phase 1A Infrastructure Improvements costs. This contribution shall not be eligible for reimbursement from the Authority Bonds.
Park Grant Funds
The Port District has contributed park grant funds received in the amount of $4,800,000 to the design and construction of park improvements and bike pathways within the CVBMP Project Area. This contribution shall not be eligible for reimbursement from the Authority Bonds.
Port Land Exchange Payment
The Port District shall contribute the Port Land Exchange Payment in the amount of $3,000,000 to the construction of the Sweetwater Park Phase 1A Infrastructure Improvements. This contribution shall not be eligible for reimbursement from the Authority Bonds.
County Participation Funds
The County ha s committed to contribute up to $25,000,000 toward the construction of the Phase 1A Infrastructure Improvements. This contribution shall not be eligible for reimbursement from the Authority Bonds.
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Necessity to Issue Debt
After application of the BFDIF cred it and reimbursement offsets, Sewer Facility Contribution, Sun Communities Contribution, Port Land Exchange Payment, County Participation Funds, the Authority will issue debt to finance the remaining Phase 1A Infrastructure Costs, as summarized in Table 5 below.
Table 5
Total Phase 1A Infrastructure Costs $ 72,654,000
Less BFDIF credits & reimbursements (20,461,000)
Less Sewer Facility Contribution (7,587,000)
Less Sun Communities Contribution (7,504,000)
Less Park Grant Funds (4,800,000)
Less Port Land Exchange Payment (3,000,000)
Less County Participation Funds (25,000,000)
Plus Contingency 5,698,000
Phase 1A Infrastructure Costs to be Financed $ 10,000,000
Economic Development Investment
The City’s participation in the financing of the Convention Center and the Phase 1A Infrastructure Improvements will result in “economic development subsidy” to the project as defined in Government Code Section 53083(a) (the “Economic Development Investment”). The required report has been prepared and made available to the public in accordance with all legal requirements. A previous version of this report with then available information was considered and approved by the City Council back in June 2021. The City Council should review and consider the presented updated version of this report and its findings in making their decision regarding approval of the additional City funded public investment in the Project. This report is provided as Attachment 5. Some key findings from the report are as follows:
Development of the Project is expected to assist the City in achieving its economic development goals and objectives for development of the CVBMP. Industry standard return on investment (“ROI”) targets for development of large-scale, new resort hotel/convention centers are estimated to range from 10% to 11% (unleveraged ROI in stabilized year of operations). Given the level of risk associated with undertaking such a major new investment on the relatively undeveloped CVB MP in a single phase, as well as the ex tensive benefits outlined herein, the upper end of this range is warranted for the proposed RHCC Project.
Assuming the Port District and City’s contributions toward the Phase 1A Infrastructure Improvements (including site preparation), and the Project Public Investment toward the Convention Center, the Developer will be responsible for an estimated capital investment of approximately $989.0 million (budget for the Resort Hotel, Convention Center and Parking Structure is estimated to total $1 .273 billion). At this level of capital outlay, the proposed Economic Development Investment is estimated to generate an ROI to the Developer of 9.30% in Lease Year 8, which is within acceptable industry standard ROI range for similar projects. But for the Economic Development Investment, the RHCC Project would not generate sufficient ROI to the Developer and would therefore be financially infeasible. The Economic Development Investment as proposed will enhance the RHCC Project’s feasibility, but in a manner and amount that is projected not to P a g e | 18
generate an excessive return for the Developer. The Developer’s commitment to pay Additional Rent to the City and the Port District on net operating income (“NOI”) above an ROI threshold of 11% further ensures that the Developer will not generate excess returns on the Project.
In addition, the RHCC Project will generate substantial benefits to the local and regional community in the form of increased tax and land lease revenues, permanent and temporary jobs, and the provision of significant public amenities and public infrastructure. The RHCC Project is also anticipated to be the development catalyst for the CVBMP and is consistent with the policies outlined in the City’s Economic Development Element of the General Plan in order to achieve its economic development goals and objectives.
These policies include:
Promote economic development that fosters job availability, economic revitalization, and tax revenues.
Pursue actions to support development of tourism in the City. Develop and promote various portions of the City, such as the Chula Vista Bayfront, as regional visitor destinations that could include hotels, meeting spaces, and conference facilities. Encourage the opportunity for employment of local residents.
The operation of the RHCC Project will serve the City and the surrounding community by providing commercial facilities that are not currently available in the community. No luxury, AAA Four Diamond (or similar) hotel currently operates in the City. Further, the City currently lacks large, luxury conference facilities similar to the Convention Center component of the proposed Project that will accommodate community events and gatherings such as high school dances, meetings of local trade organizations, fundraisers, and other co mmunity events. The nature of the RHCC Project as a high -end, luxury resort is expected to bring a demand for additional luxury facilities and services in the community, encouraging related investment and development in the City and surrounding areas.
The development, opening, and operation of the RHCC Project will be of material benefit to the City and to the citizens of, and property owners in, the City and surrounding areas, because construction and operation of the RHCC Project will encourage and foste r the economic revitalization of the City for the people in the area and the general public as a whole; provide commercial facilities and services not currently available in the City; increase tax revenues available to the City and other taxing agencies; i ncrease sales tax revenues available to the City; increase Transient Occupancy Tax revenues available to the City; generate Additional Rent to the City; generate Parking Rent to the City; generate Ground and Sublease Revenues to the City; and create jobs within the City.
Through lease year 37, the City and Port District will receive a combined 20% of NOI above an 11% ROI threshold (Additional Rent, 14% to the City under the Sublease and 6% to the Port District under the Ground Lease). A preliminary projecti on of this potential future revenue stream is summarized in Table 6 below.
These amounts will be combined with the Residual Revenues after payment of debt service and then distributed to the City and Port District pursuant to the waterfall priorities established in the Third Amended and Restated RSA.
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Table 6 – Projected Additional Rent
Lease Year
Estimated Annual
NOI Participation Payment to City
and District
Years 1-3 (Construction) N/A
Years 4-14 $4.7 M
Year 15 $3.2 M
Year 20 $6.4 M
Year 30 $15.5 M
Year 35 $21.3 M
Development of the RHCC Project is estimated to generate a regional economic output of more than $475 .0 million, of which more than $325.0 million is expected to occur within Chula Vista. These projections reflect a single, stabilized year, expressed in 2021 dollars (i.e., this economic impact is anticipated to occur on an annual basis each year the RHCC Project operates). The Project is expected to create approximately 4,000 permanent jobs in the region, including approximately 2, 910 permanent jobs in Chula Vista. This is in addition to the significant number of temporary jobs that will be generated through the development and construction of the RHCC Project, currently estimated to total 3,580 in the region.
Beginning in the second year of operation of the RHCC Project, current projections show that the City will begin to receive amounts in excess of what is necessary to service the Authority Bond debt. Once the Authority Bonds are repaid and after the termination of the RSA, the City will begin to receive 100% of TOT, property tax, VLF in-lieu and sales tax revenues. Such monies will be available in the City’s General Fund and available to fund all City services to the community. Bayfront Financing District revenues will be restricted for the provision of City facilities and services within or outside the CVB MP, subject to the priorities established in that certain Amended and Restated Joint Community Facilities Agreement, previously entered into between the City and the Port District.
Impact and Capacity Fee Deferral
As a condition of developing the RHCC Project, RIDA is subject to certain development impact and capacity fees. Given the significant cost increases previously described, RIDA has requested a deferral of their Bayfront Development Impact Fee, Public Facilities Development Impact Fee, Sewer Capacity Fee, and Traffic Signal Fee. A deferral agreement has been negotiated and is provided as Attachment 6 for your consideration (the “Fee Deferral Agreement”). If approved, the Fee Deferral Agreement defers RIDA’s payment of fees that would otherwise be due upon building permit issuance or certificate of occupancy. The Fee Deferral Agreement provides for interest on the deferred amount at a rate of three percent (3%) per annum, compounded annually. Payments are due per the following incremental schedule:
20% of the principal deferred amount is due on the second anniversary of the Effective Date (the date of the issuance of the first certificate of occupancy for the RHCC Project); 10% of the principal deferred amount is due on the third anniversary of the Effective Date; 10% of the principal deferred amount is due on the fourth anniversary of the Effective Date; and P a g e | 20
The remaining 60% of the principal deferred amount, along with all interest accrued thereon, is due no later than the fifth anniversary of the Effective Date The estimated fees to be deferred are summarized in Table 7 below.
Table 7 – Projected Additional Rent
Fee Description Estimated Deferral Amount
Bayfront Development Impact Fee (BFDIF) $ 1,779,792
Public Facilities Development Impact Fee (PFDIF) 1,371,090 Sewer Capacity Fee 2,720,759
Traffic Signal Fee 703,200
Total $ 6,574,841
The BFDIF amount to be deferred reflects their total estimated BFDIF obligation of $17.3 million , less the $15.5 million in BFDIF fee credit they are anticipated to earn through the construction of certain of Developer’s Phase 1A Infrastructure Improvements, as previously described. All other fee deferral amounts reflect the total fees estimated to be due for the Project. Typical fee deferral agreements are recorded against the property with repayment secured by a Deed of Trust. Because the Project is being developed on Port tidelands, and because of the complexity of the public and private lease financing, that form traditional security is not possible. Instead, RIDA has proposed, and staff is comfortable with, a due on transfer provision and a payment guaranty from a RIDA affiliate entity to secure the deferred fee payment obligation.
The payment guarantee is similar to the performance guarantee being provided by RIDA to secure their commitment to complete the overall Project and includes minimum net worth and liquidity requirements for the guarantor entity.
The City is authorized to defer these fees based on findings of economic benefit set forth in CVMC Section s
3.50.160(C) (PFDIF) and 3.54.160(D) (BFDIF), and pursuant to general Charter City authority.
Approval of the proposed fee deferral agreement is recommended.
Next Steps
Assuming City Council and Port Board approval on May 10 th, the financing plan and associated documents will be presented to the Authority for final approval on May 11 th. If approved by all legislative bodies, a closing date of May 17 th is targeted, with closing estimated to occur no later than May 26th. Construction mobilization is anticipated to begin in earnest the first business day after closing.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council me mbers and has found no property holdings within 1,000 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property -related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(7) or (8), for purposes of the Political Reform Act (Cal. Gov’t Code §87100, et seq.).
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Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
The proposed City Additional Convention Center Contribution of $9.0 million will be funded from one-time unanticipated General Fund revenues and expenditure savings. All other General Fund contributions are already reflected in the baseline budget. An additional appropriation from the Trunk Sewer Capital Reserve Fund in the amount of $3,231,000 for Phase 1A sewer facility construction cost increases is recommended.
ONGOING FISCAL IMPACT
The City’s financial support for the Convention Center and the Phase 1A Infrastructure Improvements includes a combination of one-time and ongoing contributions. One-time contributions are generally tied to the Additional Convention Center Contribution and the construction of specific public infrastructure. In accordance with conditions imposed in the Project FEIR, much of the planned CVBMP infrastructure must be constructed prior to, or concurrent with, initial private development. Development impact and i n-lieu fee revenues will be generated over the entirety of the CVBMP buildout, creating an initial cash flow gap and necessitating the issuance of $10.0 million bonded debt for public improvements (202 2B Bonds). As previously described, debt will also be issued to finance the $265.0 million Project Public Investment toward the Convention Center (2022A Bonds).
One-time contributions by the City include the following:
1. Bayfront Development Impact Fee (“BFDIF”) revenues in the form of fee credits and reimbursements ($20.5 million)
2. Sewer Facility Funding in the form of reimbursements and facility construction ($7.6 million)
3. General Fund funds toward the Additional Convention Center Contribution ($9.0 million) Anticipated ongoing contributions by the City include the following (net present value (“NPV”), assuming an 8% capitalization rate):
Estimated Existing Revenues
1. General Fund support in an amount equal to the TOT funds received from the RV Park TUOP and the Replacement RV Park ($10.3 million NPV)
2. General Fund support in an amount equal to the MSA Contribution ($18.5 million NPV) Estimated Project-Generated Revenues
1. The City’s portion of Property Tax and associated Property Tax In-Lieu of Motor Vehicle License Fees generated by the RHCC Project ($23.1 million NPV)
2. TOT generated by the RHCC Project ($117.3 million NPV)
3. Sales Tax generated by the RHCC Project and the Replacement RV Park ($13.7 million NPV)
4. Bayfront Financing District special tax revenues generated by the RHCC Project, the Replacement RV Park, and the Rambler Motel ($71.6 million NPV)
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Based on the most recent projections, it is anticipated that the City and Port District, through the Authority, will issue debt to secure approximately $275.0 million in project funds. This will be made up of $265.0 million in taxable bonds financing the Project Public Investment (202 2A Bonds) and $ 10.0 million in tax -exempt bonds (2022B Bonds) financing a portion of the Phase 1A Infrastructure Improvements. The financing will occur in two parts, the Construction Financing and the Permanent Financing.
After accounting for capitalized interest, reserve funds, and other financing related expenses, offset by pre - opening revenues being accumulated by the City and Port District (Existing Revenues), the total par amount anticipated to be issued for the Construction Financing totals just over $382 million. Projected sources and uses of funds for the Construction Financing, as estimated by JPM, are summarized in Table 8 below.
Table 8 – Construction Financing Sources and Uses of Funds Description
2022A Bonds
(Taxable)
2022B Bonds
(Tax-Exempt) Total
Sources
Par Amount $ 371,975,309 $ 10,240,996 $ 382,216,305
Fund Balance Contribution 7,732,124 212,876 7,945,000
Total Sources $ 379,707,433 $ 10,453,872 $ 390,161,305
Uses
Project Fund $ 265,000,000 $10,000,000 $275,000,000
Fee Reserve Account 9,209,942 5,580 9,215,522
Debt Service Reserve Fund (“DSRF”) 14,397,557 0 14,397,557 Capitalized Interest Fund 82,549,100 212,876 82,761,976 Cost of Issuance 2,971,200 81,801 3,053,001
Arranger Fee (0.5% of Par) 1,859,877 51,205 1,911,082
Up Front Fee (1.0% of Par) 3,719,753 102,410 3,822,163
Additional Proceeds 4 0 4
Total Uses $ 379,707,433 $ 10,453,872 $ 390,161,305
The City Council previously approved Resolution 2021 -127 authorizing the issuance of debt in a not to exceed amount of $400 million. The above assumes market conditions as of May 4, 2022, an all -in true interest cost of 9.05753%. A rate lock agreement between the Authority and JPM has been negotiated and is presented for your information as Attachment 7 (the “Rate Lock Agreement”). The Authority is anticipated to consider authorizing entering into the Rate Lock Agreement at its May 11 meeting.
While Permanent Financing has not yet been secured, and is subject to future market conditions and negotiations, a likely structure assuming current market conditions has been prepared by JPM, with the 2022A and 2022B Bonds being refinanced as the 2026A and 2026 B Bonds, respectively. Projected Sources and Uses for the anticipated Permanent Financing are provided for informational purposes in Table 9 below.
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Table 9 – Anticipated Permanent Financing Sources and Uses of Funds Description
2026A Bonds
(Taxable)
2026B Bonds
(Tax-Exempt) Total
Sources
Par Amount $ 373,185,000 $ 9,580,000 $ 382,765,000
Construction Financing DSRF 14,037,210 360,348 14,397,558 Accumulated Pre-Opening Revenues 12,577,133 322,866 12,900,000 Accumulated Post-Opening Revenues 31,394,085 805,915 32,200,000 Total Sources $ 431,193,428 $ 11,069,129 $ 442,262,557
Uses
Construction Loan Payoff $ 371,975,309 $10,240,996 $382,216,305 Debt Service Reserve Fund 26,029,548 668,202 26,697,750 Capitalized Interest Fund 27,015,758 0 27,015,758
Cost of Issuance 2,437,429 62,571 2,500,000
Underwriter’s Discount 3,731,850 95,800 3,827,650
Additional Proceeds 3,535 1,560 5,095
Total Uses $ 431,193,428 $ 11,069,129 $ 442,262,558
The City’s General Fund exposure related to the Permanent Financing continues to be limited to the Project Generated Revenues and previously committed Existing Revenues. No new General Fund exposure is created with this financing structure.
Current projections indicate that the C ity and Port District will each be made whole for all General Fund contributions to the Project during the term of the financing. In addition, the City will receive a reimbursement for 73.6% of the actual cost of providing fire services to the CVBMP, pursu ant to the RSA.
After reimbursing both the City and Port District for all General Fund expenditures , the Residual Revenues and RIDA lease payments will be distributed 50/50 to the City and Port District. Current projections indicate that each agency will r eceive a net additional $151 million over the 37 -year term of the RSA. Per the same agreement, the City will receive half of the Parking Rent during the first 37 years of the Ground Lease.
Upon repayment of the Authority Bonds and expiration of the RSA, t he City is anticipated to receive the following ongoing tax revenues ( Table 10 projects tax revenues for the 1st year following the expiration of the RSA term; such revenues are expected to escalate 3% annually (on average) thereafter).
Table 10 – Projected Ongoing Net Impact
Description Annual Amount
TOT – New RV Park $ 1.9 million
TOT – Resort Hotel $ 34.0 million
Sales Tax – RHCC $ 4.0 million
Property Tax - RHCC $ 5.0 million
Total $44.9 million
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The Port District is projected to generate a similar amount through their standard percentage rent, which will go into effect in lease year 38 (total of $45.5 million projected; $2.3 million from New RV Park Lease and $43.2 million from RHCC Lease).
ATTACHMENTS
1. Key City Council Actions
2. Authority Bonds Debt Service Schedule
3. Authority Bonds Schedule of Advances
4. Fourth Amended and Restated Revenue Sharing Agreement
5. Economic Development Investment Report
6. Fee Deferral Agreement
7. Rate Lock Agreement
8. Convention Center Agreement
9. Declaration of Reciprocal Easements
10. Project Implementation Agreement
11. Authority Indenture
12. Ground Lease
13. Facility Lease
14. Site Lease
15. Sublease
16. Mortgagee Protection Agreements with the private lenders
17. Bond Purchase and Continuing Covenant Agreement
18. Loan Agreement
19. Support Agreement
20. Form of Completion Guaranty
21. Ground Lessor Agreement
Staff Contact: Tiffany Allen, Deputy City Manager/Director of Development Services