HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCILC ITY MANAGU1 FROM: OFFICE OF THE CITY MANAGER
BY: CRYSTAL , INTERIM DIRECTORI
DEVELOPMENT
DATE: MAY 10, 2022
SUBJECT: ASSIGNMENT OF SALE AGREEMENT AND ESCROW INSTRUCTIONS (IRG AND KAISER)
RECOMMENDATION
That the City Council approve the Assignment of Sale Agreement and Escrow Instructions; authorize the Mayor to execute the Assignment; and find that no further CEQA analysis is required.
This Report introduces an Assignment of Sale Agreement and Escrow Instructions ("Assignment") to facilitate consummation of the sale of certain City -owned land, currently being leased by the City to IRG Downey, LLC ("IRG') and Holdings Downey, LLC ("Holdings" and together with IRG, the "Developers") under that certain long-term Ground Lease, dated as of December 4, 2003 and recorded in the Official Records of Los Angeles County as Document No. 04-0645103 (as amended, the "Ground Lease").
On May 12, 2020, the City Council adopted Resolution No. 20-7939, approving the Sale Agreement and Escrow Instructions (the "City Purchase Agreement") between the City (as Seller) and IRG (as Buyer) with respect to approximately 8.75 acres of land that is subject to the Ground Lease (the "South Parcel Property"). The purchase price for the South Parcel Property is $10,600,000. (the "Purchase Price")
On February 22, 2022, in anticipation of the sale of the South Parcel Property, the City Council adopted Resolution No. 22-8054, which approved the Fifth Amendment to the Ground Lease (the "Ground Lease Fifth Amendment"), which, among other things, modifies the Ground Lease, as of the Closing Date (as that term is defined in the City Purchase Agreement), to take the South Parcel Property out of the property that is the subject of the Ground Lease.
ASSIGNMENT OF SALE AGREEMENT AND ESCROW INSTRUCTIONS (IRG AND KAISER) MAY 10, 2022
PAGE 2
The South Parcel Property is comprised of (i) that certain approximately 5.67 acres of land, which is to be sold to Kaiser Foundation Hospitals ("Kaiser," and the land, the "Kaiser Parcel"); and (ii) that certain 3.08 acres of land, which will be retained by IRG (the "IRG Parcel") — both as more particularly described and depicted in Exhibit A to the Ground Lease Fifth Amendment.
The City Purchase Agreement, first approved in May 2020, contemplated sale of the entirety of the South Parcel Property to IRG — with the understanding that a portion of the South Parcel Property would ultimately be sold to Kaiser. See City Purchase Agreement at Sec. 2.3.
As an accommodation to IRG, which seeks to use Internal Revenue Code Section 1031 to realize tax benefits in connection with its purchase of the South Parcel Property and sale of the Kaiser Parcel to Kaiser, IRG requests that the City sell the Kaiser Parcel directly to Kaiser and the IRG Parcel to IRG, in accordance with the terms of the Assignment. Under this arrangement, Kaiser will pay $6,900,000 to the City in exchange for the Grant Deed to the Kaiser Parcel, and IRG will pay $3,700,000 (i.e., the remainder of the Purchase Price) to the City for the Grant Deed to the IRG Parcel. Ultimately, the City will realize the same Purchase Price it initially contemplated under the City Purchase Agreement.
As a protective measure, IRG has agreed to indemnify and release the City from any and all claims that may arise out of this "direct deed" arrangement to Kaiser. In addition, IRG has agreed to cover half of the documentary transfer tax on the "direct deed" transaction with Kaiser. -�;
Approval of the Assignment is not a project within the meaning of Section 15378 of the State of California Environmental Quality Act ("CEQA") Guidelines, because it has no potential for resulting in physical change in the environment, directly or indirectly. This Assignment merely changes the source of funds for the Purchase Price and the ultimate grantees of the South Parcel Property. This action does not authorize any specific development or installation on any specific piece of property within the City's boundaries, and is simply a means to facilitate and consummate the sale approved by the City Council in May 2020. Alternatively, even if the approval of this Assignment is a "project" within the meaning of State CEQA Guidelines section 15378, the action is exempt from CEQA because of the general rule that CEQA applies only to projects which have the potential for causing a significant effect on the environment, which this action would not. (State CEQA Guidelines, § 15061(b)(3)).
Fiscal Responsibility
Economic Vibrancy
ASSIGNMENT OF SALE AGREEMENT AND ESCROW INSTRUCTIONS (IRG AND KAISER) MAY 10, 2022
PAGE 3
FISCAL IMPACT
The approval of the Assignment will facilitate consummation of the sale of the South Parcel � �. � •': i � i'-- i is i
r t *
A. ' r and -i into that certain Sale Agreememi
Agreementand Escrow Instructions, dated May 13, 2020, as amended by the First Amendment to Sal i Escrow Instructions dated November1 the SecondAmendment tf Sa Agreement and Escrow Instructions dated June 16, 2021, and the Third Amendment to Sa - Agreement and Escrow Instructions dated November 2021, (collectively, the "City Purch ,i a]
The City Purchase Agreement provides for the sale by City to IRG of approximate
8.75 acres of land more particularly described in the City Purchase ■ •i. Agreement
' ii. i MIME • =- Usitalmort• . i
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f OP 0 0 ODA
to Purchase and Sale Agreement dated February 23, 202 1, the Third Amendment to Purchase a Sale Agreement dated June . 2021,and the Fourth Amendmentto the Purchase a Sa Agreement dated i i and
certain 3.08 acres of land as more Darticularlv described in the Citv Purchase Aureement (the "IR C. The parties desire for the City to sell (i) the Kaiser Parcel to Kaiser and (ii) the IRG Parcel to IRG,
E. Pursuant to that certain Fourth Amendment to Purchase and Sale Agreement, dat agrees to accept a grant i-ca directly ♦ the City forKaiser Parcel andI
quitclaim deed from IRG for IRG's leasehold interest in the Kaiser Parcel.
F. The City Purchase Agreement contains certain representations and warranties, reme,iies.aT&ob1i2-atf a + r i " it i • • . i :.WNW I v-e c ose of escrow- ,4pprovedOy Y` W T egaf- 94ay 4, 2022
in favor of IRG with respect to the City Property. Given that the Kaiser Parcel is a portion of the City Property, • . • warranties, remedies, and obligations under the City Purchase Agreement pertain to the Kaiser Parcel, as well as the IRG Parcel.
G. Given the IRG-Kaiser r t I th Amendment,parties seek to partially PurchaseCity Agreementwith respect to the Kaiser Parcelonly, to r. r... " f . ` • . • • •
... _Aumment
rhereby .assigns to Kaiser IRG's
rights to purchase the Kaiser Parcel pursuant to the City Purchase Agreement, and hereby PurchaseYaw- With Ib*qgettqfiei
substitutes Kaiser as buyer of the Kaiser Parcel. The parties accept the partial assignment of the City Agreement and the addition of buyer of Parcel.agrees to purchase the Kaiser Parcelim the City in accordance with the terms and conditions set forth Purchasein the City Agreement, #'f hereby.
partial assignmentof Purchase
assignmentshall pertain to the Kaiser Parcel and shall be paid directly by Kaiser to the City. The parties hereby agree that Kaiser has replaced IRG with regard to the contractual obligation of IRG to acquire the fee interest in the Kaiser Parcel from the City. Nothing with respect to the partial provided • obligate Kaiser to purchase the IRG Parcel, pay more than $6,900,000 of the Purchase Price for the fee interest in the Kaiser Parcel, pay more than $3,967,348.80 of the Purchase Price for IRG's leaschold interest in the Kaiser Parcel, or obligate Kaiser with respect to any obligations pertaining to the IRG Parcel or any matter not pertaining to the Kaiser Parcel. In no event shall IRG be relieved of all of its obligations under the City Purchase with the City Purchase Agreement.
Indemnification3. f Release. IRG, on own behalf and on behalf of its heirs, emgloyees- directors. officers and-agents5 agrees to release. indemnif-, hold harmless and defend City, its elected and appointed officials, employees, and agents (together, the from and against all claims, remedies and causes of actions by third parties for damages, liabilities, losses or injuries, including court costs and reasonable attorneys' fees (collectively, "Claims"), arising out of or resulting from the direct transfer of the Kaiser Parcel to Kaiser (the "PiLeq Deed The parties agree, and IRG acknowledges, that the Direct Deed Transfer is an transfer to Kaiser withoxt•.. • • release. NotwithstandLng anpithing contained in this Assignment to the contrary, this Paragraph 3 shall not be applicable to Claims that (i) would have occurred if City would have provided a grant deed and any other necessary and appropriate to IRG or • or `• fromgross negligenceor • findemnity
and release in this Paragraph 3 shall survive the Close of Escrow, expiration, or earlier termination of PurchaseAgreement.
,4rave (By KIEWP Legal - f4lay 4, 2022
4. Close of Escrow. Close of Escrow on Kaiser's purchase of the Kaiser Parcel under the City Purchase Agreement shall occur simultaneously with close of escrow under the Kaiser Purchase Agreement, as provided for in the IRG-Kaiser PSA 4th Amendment.
5. Closi ind Transk _nj Ci!� o -,r T ��. Notwithstanding the partial assignment provided for herein, IRG and the City shall remain responsible for all closing costs and transfer taxes as provided for in the City Purchase Agreement. Notwithstanding anything to the contrary herein, in the City Purchase Agreement, or in the Kaiser Purchase Agreement, IRG shall pay 50% of the transfer tax on the conveyance of the Kaiser Parcel from City to Kaiser; City shall pay the other 50%.
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purchase the Uity ITopert ",uninc-ex
accordance with the terms and conditions set forth in the City Purchase Agreement, as amend hereby.
7. Representations and Warranties With Respect to Assignment to OES. (a) The parties to this transaction hereby acknowledge that QES will acquire certain rights to the City Purchase Agreement and a portion of the City Property, as provided for above, solely for the purpose of fulfilling its contractual obligation to IRG.
Accordingly, any and all representations, guarantees, warranties, obligations, covenants, and liabilities which may have been or will be made by IRG to City, or from City to IRG, w4vr shall survive the Closing and shall inure to the benefit of the ultimate party entitled thereto, as if made directly by such party to the other. (b) QES shall not and does not make any representations, guarantees, warranties, or covenants (express or implied), with respect to the City Property or the transactions contemplated by the City Purchase Agreement. The parties acknowledge that they are not relying on any representations, guarantees, warranties, or covenants of QES with respect to the City Property. Without limiting the foregoing, QES hereby disclaims and the parties hereby waive, as to QES, any representations, guarantees, warranties, or covenants with respect to the City Property, including, without limitation, matters relating cx�inses- or suitabilit]i of the Cit-,- Proyej:�i for any use or pur*.,ose.
The parties hereby release QES of and from any and all representations, guarantees, ��v-lt]L!Z.VlftaiWstolltgations-. covenants. and liabilities with res%sect to the CiUYA Pro�#,ertrA, qxce-&t for the obligations of QES to acquire the City Property.
8. Notices. All notices or other communications to the parties hereto shall be mad-, in writing and delivered to such parties at the following addresses:
,A roved XTYfPI Legal - 9ilay 4, 2022
I I I I I Santa Monica Boulevard, Suite 800
Los Angeles, California 90025
Attention: John A. Mase
Phone: (310) 806-4434
Email: [email protected]
INK61:0
I I I 11 Santa Monica Boulevard, Suite 8 10
Los Angeles, California 90025
Attention: Jerry A. Brown, Jr.
Phone: (310) 473-6400
Email:
Kaiser Foundation Hospitals
Real Estate Department
393 E. Walnut Street, 4 th Floor
Pasadena, CA 94118
Attn: Jason Gancarczyk
61"
wmm�•
Kaiser Foundation Hospitals
Legal Department
1800 Harrison Street I 9th Floor
Utrecht & Lenvin, LLP
109 Stevenson Street, 5" Fl.
San Francisco, CA 94105
Attn: Paul F. Utrecht
Phone: (415) 357-0600
-f
City of Downey
I I I I I Brookshire Avenus
Downey, CA 90241
Attn: City Manager
Phone: (562) 904-7168
ApprovedOy XTMPLegaf- Way 4, 2022
amm�- s
Best Best & Krieger LLP
500 Capitol Mall, Ste. 1700
Sacramento, CA 95814
Attn: Nancy Park
Phone: (916) 551-2849
9. Defined Terms. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the City Purchase Agreement. 10Assignment may be executed in
any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts shall together constitute but one and the same Assignment. Any party shall be entitled to sign and transmit electronic signatures to this Assignment (whether by facsimile, pdf, or i"Wimi i "? 1 11 limp r
ApprovedOy XTYIP Legal - may 4, 2022
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first written above.
KM
WKE UNWan .W - 4M
0 1 V I DU I I IF
By: Holdings SPE Manager, LLC,
a Delaware limited liability company-,
its Manager
Lb -A
[,,lame: John A. Mase
Uitle: CV.wf-ET.mTAive-6fficer-
IRG DOWNEY, LLC,
a California limited liability company
By: IRG 111, LLC,
a Delaware limited liability company,
its Managing Member
By:
Name:
Its:
Properties,
a Delaware corporation
Its: Manager
By:
Name: John A. Mase
Title: CVief Executive Offlic
I I 1. 1 0 1 ,
•I . 1 6• 0 G I IM I LOXO17-J I t7-J 119
,Approved (By KTYfP Legaf -!May 4, 2022
1111 ii 1 15111 '11111 11 !1! 1 i'
THE CITY OF DOWNEY,
..........
KM
a Delaware corporation
By:
Name: Jerry A. Brown, Jr.
Title: President
Approved(By XTY& Legaf - Way 4, 2022