City of Sacramento
City Council - 2PM Report
915 I Street Sacramento, CA 95814
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File ID: 2025-01423 10/7/2025
[Redevelopment Agency Successor Agency] Amendment of Ebner Hotel and Empire House Loan Documents
File ID: 2025-01423
Location: 116 and 118 K Street, Old Sacramento, District 4 Recommendation: Pass a Motion: 1) authorizing the Interim City Manager or designee to execute the Second Amendment to the Construction and Permanent Loan Agreement for the Ebner Empire Redevelopment Project at 116-118 K Street; and 2) approving amendment of the Promissory Note associated with such Construction and Permanent Loan Agreement for the Ebner Empire Redevelopment Project so the terms of both documents align.
Contact: Leslie Fritzsche, Economic Investment Manager, 916 808-5450, [email protected], City Manager’s Office of Innovation and Economic Development Presenter: None
Attachments:
1-Description/Analysis
2-Second Amendment to Ebner Empire Loan Agreement
3-First Amendment to Ebner Empire Promissory Note
Description/Analysis
Issue Detail: The Sacramento City Redevelopment Agency Successor Agency (“RASA”) is responsible for winding down the obligations of the dissolved Redevelopment Agency of the City of Sacramento (“Agency”) under the review of the Sacramento Countywide Oversight Board (“Oversight Board”), the State of California (“State”) Department of Finance (“DOF”), the State Controller’s Office, and the Sacramento County Auditor-Controller. The City Council for the City of Sacramento (“City”) serves as the governing body for RASA and City employees staff RASA’s activities. Other cities in the County with redevelopment agencies also have successor agencies with these same obligations. The obligations of successor agencies include collection of loan payments under Agency loans pursuant to Health and Safety Code section 34177(f) and determining whether any loan agreements should be terminated or renegotiated to reduce liabilities and increase net revenues to the taxing entities pursuant to Health and Safety Code section 34181 (e).
File ID: 2025-01423 10/7/2025
This report requests approval of modification of an existing Agency loan and corresponding Promissory Note in the amount of $1 million with Ebner/Empire, LLC ("E/E”) for the Ebner Hotel and Empire House Redevelopment Project (“Project”), which involved reconstruction of the Ebner Hotel and Ebner House located at 116 and 118 K Street in Old Sacramento (collectively the “Property”).
The Ebner Hotel is located at the corner of K Street and Firehouse Alley in the Old Sacramento Historic District. After efforts to stabilize the building in 2002, it was determined that reinforcement of the existing structure would be too expensive, dangerous, and would result in the replacement of almost all the original materials. The decision was then made to demolish the building. To address the blighted condition of the demolished building, the City’s Economic Development Department, acting as the agent of the Agency, issued a RFQ to developers to reconstruct the Ebner Hotel and the adjacent Empire House building (demolished in the 1970s). The team of Carson Development and Scurfield Company were selected in 2005. Together they formed Ebner/Empire, LLC (“E/E”) and entered into a Disposition and Development Agreement with the Agency for reconstruction of the Ebner Hotel and Empire House buildings. Completion of the Project occurred in 2009 with ground floor retail space, two floors of office space, and a subterranean parking garage. The Project resulted in conversion of a blighted site to a beautiful historical reconstruction of the 1850’s era buildings.
Due to the significant gap between construction costs and financial viability, the Project required two loans from the Agency: one for $2.35 million and one for $1 million ($3.35 million total). The total Project cost was estimated to be $5.85 million. The first Agency loan in the amount of $2.35 million had a term of 25 years with a maturity date of February 14, 2035 and an interest rate of 4% with annual payments only made if there was a return on the Project greater than 12% (this has never been reached so the entire amount remains outstanding and is envisioned to be paid as part of a refinancing upon maturation of E/E’s primary loan with Farmers & Merchants Bank (“Farmers”) ).The second Agency loan was in the amount of $1 million and had a 10-year term that matured on October 22, 2020. The balance of the Project’s funding came from Farmers in the amount of $1,249,000 and cash equity from E/E in the amount of $1,251,000. E/E has had to make additional contributions over time with a total of $1,480,000 invested in the Project.
The $1 million Agency loan was issued to E/E on May 29, 2009, and carried no interest. The maturity date was October 22, 2020. No payments have ever been made on the $1 million loan.
On February 18, 2023, E/E sought a modification of the $1 million Agency loan as it was trying to refinance its private loan on the Property with Farmers. The 2023 request was for an extension of the loan maturity date on the $1 million Agency loan until February 14, 2035 with an immediate payment of $100,000 towards the loan. This request was approved by the Oversight Board on April 17, 2023 by Resolution # 2023-0007, but was subsequently denied by DOF.
Currently, E/E owes $825,000 on its Farmers loan plus the entire balance of the two Agency loans, which is $3.35 million. Farmers engaged an independent appraiser in November 2022 to provide an
File ID: 2025-01423 10/7/2025
appraisal of the Property. This appraisal indicated a current market value of $4 million for the Property. This was the same value the Property had at project completion in 2009. Accordingly, the value of the Property has not increased and the Property does not support the existing debt.
The Property is currently fully leased, however the top two floors of the Property are occupied by one office tenant that is on a month-to-month lease based on its intention to move out of the space. The tenant represents 2/3 of the total leased space for the Property and given the current office leasing environment is very soft, it will most likely take significant time to re-lease the office space and make the necessary tenant improvements. Accordingly, E/E has again requested modification of its $1 million Agency loan terms.
Staff is seeking approval of the following proposed loan modification as included in the attached Second Amendment to the Ebner Empire Loan Agreement and First Amendment to the Promissory Note: an annual loan payment to RASA in the amount of $40,000 from the Project’s cash flow until the $1 million Agency loan is paid off at or before the maturity date; a maturity date of March 1, 2033 for the $1 million Agency loan to correspond with the maturity date of E/E’s Farmers loan; and a one-time payment of $50,000 (in addition to the $1 million loan amount) paid to RASA on or before the maturity date of the $1 million Agency loan. This modification was approved by the Oversight Board on May 12, 2025 by Resolution No. 2025-0008 and by DOF on July 3, 2025.
Policy Considerations: The proposed loan modification will help stabilize a building in the Old Sacramento historic district consistent with the 2030 General Plan goal of preserving Sacramento’s historic assets and districts.
Economic Impacts: None.
Environmental Considerations: The recommendations in this report are government fiscal activities which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment and thus do not constitute a “project” under the California Environmental Quality Act (CEQA Guidelines 15378(b)(4).
Sustainability: There are no sustainability considerations associated with the actions outlined in this report.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: This loan modification would help stabilize the financial position of the Project and provide E/E with the ability to pay the debt service on its existing senior loan with Farmers. Such modification would also increase the total amount the Taxing Entities (as that term is defined in Health and Safety Code section 34171(k)) would receive (from $1 million to $1,050,000)
File ID: 2025-01423 10/7/2025
and provide some income for the taxing entities immediately. By allowing this increased flexibility in the loan repayment terms, RASA enhances the likelihood that its loan does not go into default and that full repayment of the indebtedness will occur. The turbulent nature of the office and retail market combined with the challenging location of Old Sacramento have resulted in uneven cash flows and no market appreciation for the Project and provide support for changing the terms of the $1 million Agency loan to reflect the Project’s financial condition.
Financial Considerations: The $1 million Agency loan to E/E utilized former Downtown redevelopment funds. If the loan modification is approved, the City’s Redevelopment Property Tax Trust Fund (“RPTTF”) will receive its share of the $40,000 annual payments, estimated to be approximately $10,000 annually until the maturity date of 2033 at which time it will receive its proportional share of the remaining balance and its share of the one-time $50,000 payment. Funds received by the City would go into the Innovation and Growth Fund (Fund 2031).
Local Business Enterprise (LBE): The developers and owners of the Ebner Hotel and Empire House are a local enterprise.
FIRST AMENDMENT TO PROMISSORY NOTE
CONSTRUCTION AND PERMANENT LOAN AGREEMENT
EBNER EMPIRE REDEVELOPMENT PROJECT
LOAN TWO
This Amendment of Promissory Note (referred to as the “ First Amendment”) is executed as of October 8, 2025 (“Effective Date”), by EBNER/EMPIRE LLC, a California limited liability company (“Borrower”), relating to the buildings at 116 and 118 K Street in Sacramento, California, 95814, referred to as Assessor Parcel Number (“APN”) 006-0072-048 (the “ Property”) on which the Ebner Hotel and Empire House are located.
Background
A. California Assembly Bill 26 (primarily codified in California Health and Safety Code section 34170 et seq. and referred to as the “Dissolution Law”) dissolved California redevelopment agencies as of February 1, 2012. On January 31, 2012, the City Council of the City of Sacramento (“City”) adopted Resolution No. 2012-018, electing to serve as the successor agency (called the “Sacramento City Redevelopment Agency Successor Agency” or “RASA”) to the former Redevelopment Agency of the City of Sacramento (“ Agency”) pursuant to H ealth and Safety Code section 34173. H ealth and Safety section 34173(g) provides that RASA is a separate legal entity from the City. Accordingly, RASA is now managed by the City and the City Council serves as the governing board for RASA.
B. RASA is responsible for winding down operations of the former Agency, with review of such actions by the Sacramento Countywide Oversight Board (“Oversight Board”) and the State of California Department of Finance (“DOF”). On January 31, 2012, the Board of Directors of the Agency adopted Resolution No. 2012 -001, transferring and assigning certain Agency assets and agreements to RASA. Regarding implementation of outstanding Agency agreements that were transferred to RASA, Health and Safety Code section 34177(c) requires RASA to “[p]erform obligations required pursuant to any enforceable obligations” and “enforceable obligations” in Health and Safety Code section 34171(d)(1)(E) include “[a]ny legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy.”
C. One duty of successor agencies though is to determine whether any agreements should be terminated or renegotiated to reduce liabilities and increase net revenues to the Taxing Entities (as that term is defined in Health & Safety Code section 34171(k)) pursuant to Health and Safety Code section 34181(e). The Oversight Board and DOF may then approve termination or renegotiation of those agreements if such action would be in the best interests of the Taxing Entities.
D. On February 14, 2006, the Agency made a loan to Borrower for reconstruction of the Property in the amount of $1 million (the “Loan”). The terms and conditions of the Loan
are specified in a Construction and Permanent Loan Agreement dated November 11, 2006 (the “Loan Agreement”). The Loan was secured by a Promissory Note effective as of May 29, 2009 (the “Note”) and a Deed of Trust and Assignment of Rents effective as of May 25, 2010.
E. In 2025, Borrower requested modification of the Loan as follows: (i) a maturity date of March 1, 2033; (ii) annual payments of $40,000 towards the Loan until it is paid off; and (iii) a one-time payment from Borrower in the amount of $50,000 (in addition to the $1 million outstanding Loan balance) on or before the maturity date. Such modification would help stabilize Borrower’s financial position for the Property and allow Borrower to pay debt service on its private loan associated with the Property.
F. Pursuant to Health and Safety Code section 341818(e), it is in the best interests of the Taxing Entities to modify the Loan because such modification increases the total amount the Taxing Entities will receive (from $1 million to $1,050,000), provides some income for the Taxing Entities immediately, and reduces the likelihood of default by Borrower on the Loan.
G. On May 12, 2025, the Oversight Board approved amendment of the Loan Agreement as proposed by RASA and Borrower (Resolution No. 2025-0008). On July 3, 2025, DOF also approved amendment of the Loan Agreement as proposed by RASA and Borrower. RASA and Borrower now desire to have this Note amended to align with the modified Loan Agreement.
Based on the facts in the foregoing Background, Borrower agrees as follows:
1. Defined Terms. All capitalized terms not defined herein have the meanings ascribed to them in the Note.
2. Special Terms and Repayment . The second paragraph within the definition of “ Special Terms and Repayment ” on Page 1 of the Note is hereby deleted and replaced with the following:
“Payments Due: Borrower will make annual payments to the Sacramento City Redevelopment Agency Successor Agency (“RASA”) in the amount of $40,000 on or before December 1 of each year. Such payments will be applied to the loan principal. On or before the Maturity Date, Borrower shall pay the remaining unpaid Loan balance ($680,000) to RASA. In addition to repayment of the $1 million loan amount, Borrower will pay $60,000 to RASA on or before the Maturity Date (which includes the $50,000 payment owed as a condition of extending the Maturity Date in the Second Amendment to the Loan Agreement plus the 1% loan fee specified in the “Special Terms” definition in Article I of the Loan Agreement).”
3. Maturity Date. The definition of “Maturity Date” on Page 1 of the Note is hereby deleted and replaced with the following:
“The Maturity Date is March 1, 2033.”
4. Payment Amount. The definition of “Payment Amount(s)” on Page 1 of the Note is hereby deleted and replaced with the following:
“Payment amount shall be the Principal Amount plus: (i) a loan fee of 1% of the Principal Amount; and (ii) a $50,000 payment owed as a condition of extending the Maturity Date.
There is no prepayment penalty.”
5. Notices. Any notices related to this First Amendment shall be addressed as follows:
To RASA:
Sacramento City Redevelopment Agency Successor Agency
915 I Street, 3rd Floor
Sacramento, California 95814
Attention: Economic Investment Manager
Email: [email protected]
Phone: 916-808-5450
To Borrower:
Ebner/Empire LLC
c/o Scurfield Company
1014 2nd Street, Suite 300
Sacramento, CA 95814
Attention: Dave Scurfield
Email: [email protected]
Phone: 916-446-7211
6. Entire Agreement. This First Amendment sets forth the entire understanding regarding the matters set forth above and is intended to be the final, complete, and exclusive expression of those matters. It supersedes all prior or contemporaneous agreements, representations, and negotiations—written, oral, express, or implied.
7. Successors and Assigns. This First Amendment and the terms and provisions hereof shall be binding upon the heirs, successors, and assigns of Borrower in accordance with the terms of the Loan Agreement, including without limitation Article II, Section 12.11 of the Loan Agreement.
8. Governing Law. This First Amendment shall be construed in accordance with the law of the State of California, and venue for any action under this First Amendment shall be in Sacramento County, California.
9. Compliance with Laws. Borrower shall comply with all applicable federal, state, and local laws, regulations, and requirements in performing its obligations under this First Amendment.
10. Counterparts. This First Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and same instrument. This document may be executed with electronic signatures.
11. Severability. If any term, covenant or condition of this First Amendment is held to be invalid, illegal or unenforceable in any respect, this First Amendment shall be construed without such term, covenant or condition and the validity or enforceability of the remaining terms, covenants or conditions shall not in any way be affected.
12. Authorization. By executing this First Amendment, each of the signatories represents and warrants, respectively, that they are authorized to execute this First Amendment.
[Signature Page Follows]
This First Amendment has been entered into as of the Effective Date stated above.
EBNER/EMPIRE LLC,
A California limited liability company
By: ____________________________
Johan Otto, Member
Carson Development
By: ____________________________
Dave Scurfield, Member
The Scurfield Company
Cal. Bus. Entity No. 200601910180___
[Notary Page Follows]