May 24, 2022
City Attorney's Office
DATE: May 24, 2022
TO: Mayor Butt and Members of the City Council
FROM:
Dave Aleshire, Interim City Attorney
Subject:
Point Molate DDA closing issues - Resolution finding
closing conditions not satisfied
FINANCIAL IMPACT: The sale price is $45M with half going to the City and half to Upstream and Guidiville Rancheria of California
(Upstream/Tribe). The timely closing of Disposition and Development Agreement with Winehaven Legacy LLC
(“Developer”) will result in the City receiving $22.5M and $2M+ for reimbursement from Developer of City costs.
Additionally, with the payment to Upstream/Tribe, various claims are resolved, and the lis pendens is released.
Failure to close will result in sale of development areas to Upstream/Tribe for $400.
PREVIOUS COUNCIL
ACTION:
At the May 17, 2022, City Council meeting, the Council
determined that Winehaven had not submitted proper
documentation or satisfied all closing conditions , and directed the City Attorney to prepare a confirming
resolution giving the reasons for not closing.
STATEMENT OF THE
ISSUE:
At the prior Council meeting, City Attorney reported that critical closing conditions of the DDA have not been met by Winehaven including: (i) master financial plan not
based on a CFD supported by the General Fund; (ii)
submission of sufficient bonds or financial statements
concerning MSD Capital as Guarantor; (iii) submission of a funding commitment, and (iv) payment of outstanding
legal fees and costs. The Council determined not to close and directed preparation of a resolution at the next
meeting (May 24).
AGENDA
REPORT
May 24, 2022
RECOMMENDED ACTION:
ADOPT a resolution determining that closing
conditions have not been satisfied and the sale of
property to Winehaven Legacy LLC should not close,
and giving notice to Winehaven Legacy LLC and
Upstream/Tribe – City Attorney’s Office (Dave
Aleshire 510-620-6509).
The following discussion was included in the May 17, 2022 , staff report. The status of closing issues is updated in the chart on page 4 of this staff report.
DISCUSSION:
This staff report provides a (i) brief history of the acquisition of the Point Molate Property, (ii) the lawsuit and settlement with Upstream and Guidiville Tribe pursu ant to the Amended Judgment; (iii) status of closing of the sale to Winehaven Legacy LLC pursuant to the Disposition and Development Agreemen t, and (iv) a resolution finding condition s to close unsatisfied.
PROPERTY HISTORY
In 2003, the US Navy transferred certain real property consisting of 270 acres of upland and 134 acres of tidal and submerged real property (“Property”) to the City of Richmond (“City”).
In 2004, the City and Guidiville Rancheria of California and Upstream Point M olate LLC (jointly “ Plaintiffs”) executed that certain Land Disposition Agreement which was subsequently amended (“ LDA”). In 2012 , the Plaintiffs filed a lawsuit in Federal court against the City alleging , among other things, that the City breached that LD A and the covenant of good faith and fair dealing and for unjust enrichment . In November of 2019, after 7 long years of expensive litigation, the lawsuit was finally amicably resolved by the parties pursuant to an “Amended Judgment” issued by the Federal Court (“Judgment”).
The Judgment was entered by the Court on November 21, 2019 (“Effective Date”) and is binding on the Property.
JUDGMENT REQUIREMENTS
The Judgment mandates that 270 acres of upland area, thirty percent (30%) was to be “development areas” and seventy percent (70%) was to be open space. The Judgment also defines four (4) areas within the Property as “Development Areas.” The City was provided the opportunity to market the Development Areas with an outside sale date being the earlier of (i) 30 months from the Effective Date; or (ii) 24 months after issuing the last discretionary approval (“Outside Sale Date”).
If the City successfully sells the Property, “net” revenues from the sale are to be split equally between the City and the Plaintiffs. “Net” revenues are determined as the gross sales price less all costs incurred by the City with respect to the Sale.
If the City does not consummate the sale of the Development Areas by the Outside Sale Date, Plaintiffs have the option to acquire (“Option”) all or any portion of the Development
May 24, 2022
Areas (“Option Property”) from the City for $100 per Development Area (for a maximum amount of $400).
If the Option is exercised by the Plaintiffs, the Plaintiffs must thereafter market and sell the Option Property within 5 years. The Plaintiffs or their transferees can pursue alternate development of the Acquired Option Property (or portions thereof) although new approvals would be subject to the City’s discretion.
Upon Plaintiffs ultimately selling t he Option Property, Plaintiffs are obligated to transfer 50% of the net proceeds to the City. The Judgment provides for various reporting obligations of the Parties as well as auditing rights with respect to the calculation of the “Net Revenues.”
WINEHAVEN DDA
The principal goal of the Judgment was to induce the sale of the Property, preferably to a capable developer, and use the proceeds to satisfy Upstream/Tribe claims. This occurred on September 30, 2020, when the City executed that certain Di sposition and Development Agreement (“ DDA”) with Winehaven Legacy, LLC (“ Developer”) for the sale of all the Development Areas for $45M (“Sale Price”).
Concurrently with the DDA, the City and Developer also executed that certain Development Agreement dat ed October 20, 2020, which was recorded against the Property on October 23, 2020, as Instrument No. 2020-247749 in the Official Records of Contra Costa County. The proposed project anticipates 1,260 new residential units plus a mix of uses in rehabilitated historic buildings and 250,000 square feet of new construction in the Winehaven Historic District.
Pursuant to the Judgment, the Outside Sale Date for closing the sale to Developer is May 21, 2022.
Pursuant to the DDA, Developer is required to reimburse the City for all costs which it incurred including, but not limited to, attorney fees, reports, processing fees, etc. as set forth in the DDA (“Reimbursement Amounts ”). Furthermore, t he DDA requires Developer to pay all closing costs for the sale (title, escrow, documentary transfer taxes, etc.).
CFD AND GENERAL FUND IMPACT
The DDA included a tentative financing plan, which included the proposal for a Community Facilities District (CFD) to finance the extensive public facilities and services of police and fire needed for the development. The CFD was intended to prevent the Project from having an impact on the General Fund. Extensive finance projections and studies were prepared. The Developer made changes to try and eliminate financial impact on the General Fund. On March 18, 2022, the City Council concluded the impact could not be eliminated and disapproved the CFD. The Resolution is Attachment A.
STATUS OF DDA CLOSING REQUIREMENTS
On May 9, 2022, Interim City Attorney David Aleshire sent Developer a letter summarizing the pending issues required to be resolved prior to the Closing. See Attachment B. Most
May 24, 2022
items have been resolved but those below remain. This will be updated at the meeting if status changes occur.
CLOSING ISSUES AS OF MAY 18
Red comments were as of May 11 Staff Report
UPDATES ARE IN PURPLE
Closing Requirements
Per DDA Status as of Date of this Report
1. Parcel map filed Completed
2. Transfer of remediation
responsibility
Pending, but expected to be completed prior
to closing.
Form of agreement approved by counsel.
3. “Approved Guarantor” to be
reviewed and approved by
City.
Guaranty provides
completion security for the
Phase I Master
Improvements (rough
estimate of $130M)
Winehaven now does not want to provide any
security at all prior to closing which is failure
of a specific condition to closing under the
DDA.
On Friday Winehaven wanted to provide
bonds (its right under DDA). Bonds must be
reviewed and approved by City. Note: bonds
usually specify exact work and maximum
cost which cannot be done as construction
plans are not final. No bonds yet received.
City suggested proceeding with guarantee
pending receipt and approval of bonds.
Guarantor will be MSD Capital (a private
investment firm originally started by Michael Dell
of Dell Computer)
Requested audited financial statements to
determine if qualified. Pending receipt.
PENDING RECEIPT
Financial information will be reviewed by Mark
Northcross for City. City acceptance of
Approved Guarantor pending.
PENDING RECEIPT to Northcross who will
execute NDA and will review and advise City.
4. Conceptual plans for Phase
1 Developer submitted in March. Staff has
reviewed and made comments. Plans are not
finalized so guaranty will cover future approved
May 24, 2022
plans. City needs to move final approval to be
post-closing.
City staff states comments to plan comments
were provided on March 3. Nothing
Approval of plans is NOT a condition to closing,
only submittal of plans is a closing condition.
Developer submitted plans timely, so this
condition has been satisfied.
5. City approval of Master
Financing Plan
Developer must resubmit revised Financing Plan
to City. City approval pending receipt.
PENDING RECEIPT. Nothing yet received by
Northcross as of 10AM.
6. Evidence of availability of
funds.
MSD Capital (equity partner) to submit letter to
City confirming its commitment to invest equity
funds in Winehaven sufficient for Closing.
Pending receipt of letter.
Letter dated 5.16.22 received but inadequate.
PENDING RECEIPT of revised letter from the
source of funds (not from the Developer) and
financial documents evidencing funds are
available.
Received letter 5.17.22 from MSD Capital
(equity partner) with funding commitment
conditioned upon CFD. Advised Developer
the condition was not acceptable and to
resubmit.
7. Reimbursement obligations
(entitlement fund, litigation
fund, pre-development fund)
Developer is delinquent with respect to a number
of funding requirements, not all of which have
previously been invoiced by the City. Staff is
calculating amounts due which Developer has
agreed to pay through escrow at closing.
Pending determination of total amounts due.
8. FF&E for fire station
In process between City and Developer.
Pending but expected to be finalized before
closing.
Confirming with staff. Developer will concede
what City wants.
9. Architect/Engineer’s
Consent to Developer’s
Developer’s Assignment of Development
Documents is closing condition. Developer
has deposited into escrow but lacking
May 24, 2022
Assignment of
Development Documents
consents from any current
architects/engineers to the assignment of
plans.
PENDING RECEIPT FROM DEVELOPER.
Developer has advised they are working to
obtain the consents.
COUNCIL ACTION ON MAY 17, 2022
The City Attorney had anticipated submittal of the outstanding items by May 17, but there was no progress on any of the major outstanding items. The most important items on the above list w ere numbers (3) Approved Guarantor, (5) Master Financing Plan, (6) Availability of Funds, and (7) Reimbursement Obligations. As of the date of this report, no progress has been made and they remain outstanding. The Council determined that these conditions were material and not waivable and directed that a resolution be prepared finding that without the satisfaction of the conditions, the City would decline to proceed with the sale. That resolution is Attachment C . It also directs that we notify Upstream/Tribe and work on the closing with them of they chose to exercise their option.
The City Attorney has been working with them concurrently over the last several months and we have been advised that they would move quickly.
DOCUMENTS ATTACHED:
Attachment A – March 18 Resolution Disapproving CFD
Attachment B – Letter from Dave Aleshire to Developer
Attachment C – Resolution Funding Conditions of Closing Not Satisfied