08/08/2000 RA RPT 05 - Laserfiche WebLink

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. CITY OF RIVERSIDE REDEVELOPMENT AGENCY MEMORANDUM Honorable Mayor and Agency Board Date: Item No.: August 8, 2000 5 Subject: Authorization for the Executive Director to Execute an Agreement to Extend Assignment of Put Rights, Consent, Subordination and Agreement with the Bank of Hemet and Execute a Ground Lease Term Extension Agreement and Memorandum of Ground Lease Term Extension Agreement with IP Properties, Inc. for Property Located at 7500 Jurupa Avenue- Postal Encoding Center Background In 1995, the Agency executed a Development and Disposition Agreement (DDA) with IP Properties Inc., (Developer) which included a ground lease for Agency-owned and lease controlled property of approximately 4.1 acres located at 7500 Jurupa Avenue. The DDA required the Agency to provide a construction loan to the Developer and for IP Properties to construct a 21,600 square foot facility for lease by the United States Postal Service. The Agency assigned IP Properties an Agency lease it had secured previously with the United States Postal Service which ran for a period of 5 years, and allowed for an additional 5-year lease option extension. Upon completion of construction, the Developer obtained a commercial loan of approximately $1 million and received a tenant payment of $800,000, which was applied towards repayment of the Agency's construction note, leaving a balance of $700,000, which was converted to Agency equity in the project. The US Postal lease payment stream provided a source to the Developer to obtain the commercial loan and was used to pay debt service on the commercial loan and agreed building operating costs. Additional conditions of the DDA required that the Agency could be required to purchase the building improvements if called upon to do so by the Developer at the end of the five year lease, and again at the end of 10 years. The DDA also provided the Developer a purchase option to buyout the Agency's $700,000 equity in the project according to an agreed-upon formula. The formula provides a 9% return, or shared equity (whichever is greater), to the Agency. Current Issue The original term of the Postal Service lease assignment and Agency ground lease ended in late July 2000. The Postal Service has exercised their lease option with the Developer to extend the building lease an additional 5 years. This action, in turn, automatically triggers the Agency's obligation to grant the same extension of the ground lease to the Developer. The Developer did not call for the Agency to buy the building and is obtaining a new commercial loan to continue the financing of the building for the next five-year period. The Postal Service has indicated that they intend to vacate the building sometime in 200 1. This action does not relieve the Postal Service from their lease payment obligations through 2005. However, recognizing that a vacant building is highly undesirable despite the lease revenue stream, the Developer and Economic Development staff are jointly working with representatives of the Postal Service to attract suitable companies that might be considered to sublease the building. The Agency is still obligated under the terms of the DDA to extend the ground lease. Today, action is requested of the Agency, authorizing the extension of the ground lease with the Developer for an additional 5 years until JMly 26, 2005, subject to the same terms and conditions as the original ground lease. Additionally, a requirement of the commercial financing bank is that the Developer assign the sale (Put Rights to 5-1