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2010120607 - 20 Dittos Lane - Amendment to first amended and restated exclusive right to negotiate agreementI oW N o,� MEETING DATE: 12/06/10 ITEM NO: !p AGENCY AGENDA REPORT DATE: NOVEMBER 19, 2010 TO: CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY FROM: GREG LARSON, EXECUTIVE DIRECTOR SUBJECT: 20 DITTOS LANE STAFF RECOMMENDS THAT THE AGENCY BOARD ADOPT RESOLUTION APPROVING FIRST AMENDMENT TO FIRSTAMENDED AND RESTATED EXCLUSIVE RIGHT TO NEGOTIATE AGREEMENT THAT WOULD FACILITATE AN EFFORT TO REDEVELOP THE APPROXIMATELY 1.58 -ACRE PARCEL AT 20 DITTOS LANE RECOMMENDATION Staff recommends that the Agency Board adopt resolution approving the First Amendment to First Amended and Restated Exclusive Right to Negotiate Agreement that would facilitate an effort to redevelop the approximately 1.58 -acre parcel at 20 Dittos Lane. Staff recommends this action in order to extend the Negotiating Period under the Agreement through March 31, 2011 and to authorize an update of the ERNA Schedule. BACKGROUND In 2008 ROEM Development Corporation approached Town staff indicating an interest in developing affordable housing in Los Gatos. In April 2009, ROEM Development Corporation submitted a Statement of Qualifications and a Development Proposal for potential affordable apartments at 20 Dittos Lane. Since that time staff has held extensive discussions with ROEM and the Town Council to determine the feasibility of the proposal. The initial development proposal is available for review at the Town Clerk's office. PREPARED BY : BUD LORTZ Project Manager Reviewed by: ` Assistant Town Manager /Deputy Director Town Attorney /General Counsel Clerk Administrator /Secretary Finance Community Development 1151 \04\910950.2 NAMGR \AdminWorkFiles\2010 Council Repoits \12 -06 -10 Dittos Lane doc (Bud).doc PAGE 2 NOVEMBER 19, 2010 CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: 20 DITTOS LANE BACKGROUND(cont'd: ROEM initially requested a loan of $5,333,000 (4.0% - 33 year) from the Los Gatos Redevelopment Agency, Funding would come from the Agency's Affordable Housing Fund. Staff has had an opportunity to conduct a detailed analysis of the terms of the loan and the financing structure described in the proposal but the terms of the loan have not yet been negotiated. A subsidy of approximately $200,000 /unit to create affordable housing in Los Gatos is considered reasonable and appropriate. DISCUSSION: Staff prepared two related agreements that would facilitate acquisition and redevelopment in the Central Los Gatos Redevelopment Project Area for use consistent with the Town's General Plan and the Redevelopment Plan for the Project Area. Subject to future planning and approvals as discussed below, the acquisition for eventual redevelopment of the Property would help to eliminate blighting conditions on the site and in the Project Area and would provide an opportunity to develop an appropriate number of low and moderate income affordable housing units for the benefit of the community and in satisfaction of various Community Redevelopment Law affordable housing requirements. These two agreements were presented for consideration by the Redevelopment Agency Board and were subsequently approved on September 21, 2009, include an Assignment and Assumption Agreement (Assignment Agreement) and an Exclusive Right to Negotiate Agreement (ERNA) which was subsequently amended in February 2010. The terms of the Assignment Agreement were fulfilled and the property at 20 Dittos Lane was eventually purchased by the Los Gatos Redevelopment Agency on December 13, 2009. The ERNA as described below needs to be extended to March 31, 2011 to allow sufficient time for completing a mutually acceptable Disposition and Development Agreement (DDA) and to adequately process the EIR and Town land use entitlements. The ERNA as amended in February 2010 includes a milestone schedule exhibit of key actions and dates to complete and approve a DDA within the negotiating period deadline of December 20, 2010. Section 2 of the First Amendment now before the Agency Board for consideration authorizes Agency staff to work with the developer to update the milestone schedule exhibit to reflect the proposed new negotiating period deadline of March 31, 2011. ERNA The ERNA that was entered into is between the Agency and a controlled affiliate of ROEM, Dittos Lane Family Housing, L.P. (ROEM Affiliate). The ERNA established a 270 -day period which will expire on December 20, 2010. During this time the parties have negotiated exclusively with each other to seek agreement on the terms of a DDA, under which the Agency would convey the Property to the ROEM Affiliate, and the ROEM Affiliate would design, construct and operate an agreed upon development on the Property (Development). The DDA to be negotiated during the ERNA period would establish, among other matters: (l) the nature, scope and conceptual design of the Development to be constructed on the Property by the ROEM Affiliate, including standards, requirements and schedules for timely and high quality design, construction and operation of the Development, and the number and affordability levels for the affordable residential units the Development; (2) the pre - conditions (firm financing 1151\04\910950.2 PAGE 3 NOVEMBER 19, 2010 CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: 20 DITTOS LANE DISCUSSION (cont'd): commitments, development entitlements, executed construction contract, etc.) that the ROEM Affiliate must satisfy to assure the Agency, prior to the Agency's obligation to convey the Property to the ROEM Affiliate, that it is ready, willing and able to construct and operate the Development in accordance with the DDA; and (3) the purchase price or lease terms to be paid by the ROEM Affiliate for the Property and any financially justified Agency monetary assistance to the Development. During the ERNA period, Town/Agency staff and the ROEM Affiliate have sought to prepare mutually acceptable conceptual designs and a workable financing plan for the Development. Also during the ERNA period, the Agency has.been in the process of preparing the appropriate environmental review document in accordance with the California Environmental Quality Act (CEQA) to evaluate the potential environmental effects of the development of the Development under the DDA. If staff and the ROEM Affiliate succeed in negotiating the terms of a DDA, the DDA would be presented to the Agency Board for consideration at a duly noticed public hearing, along with the accompanying CEQA document and a Community Redevelopment Law- mandated financial report that evaluates the necessity and appropriateness of the proposed purchase price or lease terms and any Agency financial assistance in order to enable a financially feasible project. At the same time the DDA and CEQA document are presented to the Agency Board, it is anticipated that the basic Town land use entitlements for the Development would be presented for consideration of approval by the Town Council. If the DDA is approved by the Agency Board and the basic Town land use entitlements are granted by the Town Council, then ROEM would proceed to prepare detailed plans and specifications, seek all necessary remaining Town and other development permits and approvals, and seek formal financial commitments for the Development. During this ERNA extension period, staff proposes to coordinate the Town land use entitlements process and the preparation of the DDA so that both the land use entitlements and DDA may be considered and, if appropriate, approved concurrently. This concurrent approach to coordinating the required actions, in no way, commits or compels the Town to approve the proposed project or the DDA. Extending the ERNA to March 31., 2011 and possible execution of the DDA will not limit, in any way, the Town's normal land use approval authority over the Property. If, at the end of the ERNA period, the Agency Board does not approve a DDA, then the ERNA obligations to the ROEM Affiliate would terminate and the Agency would be free to seek other means to develop the Property, including soliciting interest in redeveloping the Property from the broader development community. 1151 \04 \910950.2 �7. Q '1 NOVEMBER 19, 2010 CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: 20 DITTOS LANE CONCLUSION: Because ROEM has invested considerable time and effort in evaluating development options for the Property, staff believes that it would be most efficient and effective to continue to seek to negotiate a DDA for the Property with the ROEM Affiliate. Staff recommends that the Agency Board adopt the attached resolution approving the First Amendment to First Amended and Restated Exclusive Right to Negotiate Agreement that would facilitate an effort to redevelop the approximately 1.58 -acre parcel at 20 Dittos Lane and allow for the extension of the Negotiating Period under the Agreement through March 31, 2011. The Redevelopment Agency has purchased the property which allows for future redevelopment using other means if an acceptable DDA is not reached with the ROEM Affiliate. ENVIRONMENTAL ASSESSMENT Approval of the First Amendment Agreement does not have the potential to result in a direct or reasonably foreseeable physical change in the environment. The details regarding subsequent redevelopment of the property are currently unknown and will not be clear until the ROEM completes the necessary land use entitlement process, at which time the Town will evaluate the impact, if any, of the project on the environment. FISCAL IMPACT Funding for the acquisition of this property was made available through the Los Gatos Redevelopment Agency's Low and Moderate Housing Fund. The current unrestricted balance of this fund is approximately $4.7 million, all of which is available for appropriation. Attachment: Resolution of the Los Gatos Redevelopment Agency Approving the First Amendment to Tirst Amended and Restated Exclusive Right to Negotiate Agreement related to 20 Dittos Lane. Distribution: ROEM - 1650 Lafayette St., Santa Clara, CA 95050 1151\04\910950.2 FIRST AMENDMENT TO FIRST AMENDED AND RESTATED EXCLUSIVE RIGHT TO NEGOTIATE AGREEMENT (20 DITTOS LANE DEVELOPMENT) This First Amendment (the "First Amendment ") to the First Amended and Restated Exclusive Right To Negotiate Agreement For 20 Dittos Lane Development is entered into as of December 6, 2010 by and between the Redevelopment Agency of the Town of Los Gatos (the "Agency ") and Dittos Lane Family Housing, L.P., a California limited partnership (the "Developer "), on the basis of the following facts, understandings and intentions of the parties: RECITALS A. The Agency and the Developer have entered into a First Amended and Restated Exclusive Right To Negotiate Agreement For 20 Dittos Lane Development, initially executed as of September 21, 2009, as fully amended and restated as of February 16, 2010 (the "Agreement "). Capitalized terms used but not defined in this First Amendment shall have the meanings set forth in the Agreement. B. The Agency and the Developer desire to enter into this First Amendment in order to extend the Negotiating Period under the Agreement through March 31, 2011 and to authorize an update of the ERNA Schedule attached to the Agreement as Exhibit B . NOW, THEREFORE, the Agency and the Developer agree as follows: Section 1. Extension of Negotiating Period The first sentence of Section 1.2 of the Agreement is revised in its entirety to read as follows: " Subject to earlier termination pursuant to specific provisions of this Agreement, the negotiating period (the "Negotiating Period ") under this Agreement commenced on the Effective Date (as set forth in the Opening Paragraph of this Agreement) and shall expire at midnight Pacific Standard Time on March 31, 2011. Section 2. Updated ERNA Schedule As further provided in Section 2.1 of the Agreement, the Developer and the Agency Executive Director, acting on behalf of the Agency, are authorized to update the ERNA Schedule attached to the Agreement as Exhibit B consistent with the extension of the Negotiating Period provided in Section 1 of this First Amendment. Section 3. Effect of First Amendment The provisions of this First Amendment shall be incorporated into the Agreement and shall become a part thereof. Except as provided in this First Amendment, all terms and conditions of the Agreement shall continue in full force and 1151 \04 \908581.1 effect. Only those provisions of the Agreement specifically amended herein shall be affected by this First Amendment. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. DEVELOPER: DITTOS LANE FAMILY HOUSING, L.P., a California limited partnership By: Roem Development Corporation, a California corporation, its General Partner No AGENCY: Jonathan Emami, Vice President REDEVELOPMENT AGENCY OF THE TOWN APPROVED AS TO FORM: OF LOS GATOS, a public body corporate and politic By: By:. Judith J. Propp, Agency Counsel Greg Larson, Executive Director 1151 \04 \908581.1 2 FIRST AMENDMENT TO FIRST AMENDED AND RESTATED EXCLUSIVE RIGHT TO NEGOTIATE AGREEMENT (20 DITTOS LANE DEVELOPMENT) This First Amendment (the "First Amendment ") to the First Amended and Restated Exclusive Right To Negotiate Agreement For 20 Dittos Lane Development is entered into as of December 6, 2010 by and between the Redevelopment Agency of the Town of Los Gatos (the "Agency ") and Dittos Lane Family Housing, L.P., a California limited partnership (the "Developer "), on the basis of the following facts, understandings and intentions of the parties: RECITALS A. The Agency and the Developer have entered into a First Amended and Restated Exclusive Right To Negotiate Agreement For 20 Dittos Lane Development, initially executed as of September 21, 2009, as fully amended and restated as of February 16, 2010 (the "Agreement "). Capitalized terms used but not defined in this First Amendment shall have the meanings set forth in the Agreement. B. The Agency and the Developer desire to enter into this First Amendment in order to extend the Negotiating Period under the Agreement through March 31, 2011 and to authorize an update of the ERNA Schedule attached to the Agreement as Exhibit B . NOW, THEREFORE, the Agency and the Developer agree as follows: Section 1. Extension of Negotiating Period The first sentence of Section 1.2 of the Agreement is revised in its entirety to read as follows: " Subject to earlier termination pursuant to specific provisions of this Agreement, the negotiating period (the "Negotiating Period ") under this Agreement commenced on the Effective Date (as set forth in the Opening Paragraph of this Agreement) and shall expire at midnight Pacific Standard Time on March 31, 2011. " Section 2. Updated ERNA Schedule As further provided in Section 2.1 of the Agreement, the Developer and the Agency Executive Director, acting on behalf of the Agency, are authorized to update the ERNA Schedule attached to the Agreement as Exhibit B consistent with the extension of the Negotiating Period provided in Section 1 of this First Amendment. Section 3. Effect of First Amendment The provisions of this First Amendment shall be incorporated into the Agreement and shall become a part thereof. Except as provided in this First Amendment, all terms and conditions of the Agreement shall continue in full force and 1151 \04\908581.1 effect. Only those provisions of the Agreement specifically amended herein shall be affected by this First Amendment. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. DEVELOPER: APPROVED AS TO FORM: Judith J. Propp, Agency Counsel DITTOS LANE FAMILY HOUSING, L.P., a California limited partnership By: Roem Development Corporation, a California corporation, its General Partner By: Jonathan Emami, Vice President AGENCY: REDEVELOPMENT AGENCY OF THE TOWN OF LOS GATOS, a public body corporate and politic 0 Greg Larson, Executive Director 1151 \04 \908581.1 2