City Council
MEETING DATE: 5/27/2015
TITLE:
Title
Purchase and Performance Agreement with VERANO RECOVERY, LLC
End
FROM:
Charlie McClendon, City Manager
RECOMMENDATION:
Recommendation
Staff recommends that the City Council approve a Purchase and Performance Agreement by and between the CITY OF CATHEDRAL CITY and VERANO RECOVERY, LLC.
Body
BACKGROUND:
On January 14, 1998, the City adopted Ordinance No. 471 approving Specific Plan 97-55, dated December 5, 1997, establishing land use and development standards for approximately 303 acres in the Rio Vista area. The original development known as Rio Vista Village was approved for 1,362 homes. Over the years since its approval only 137 homes were ever built. Although certain streets and other improvements were completed in Rio Vista Village, many improvements contemplated by the Specific Plan and the Tract have not been completed including the Club House, streets, alleys, curbs, gutters, sidewalks, streetlights, backbone infrastructure, water and drainage improvements, and "dry utilities"; repairs on certain streets are necessary; the fence along the perimeter of the Specific Plan is in a state of disrepair; and blown sand has accumulated on the property located in the Specific Plan.
A Community Facilities District was established for the area (CFD 2000-01) and $20 million in debt was authorized to be issued by the CFD for public improvements in the area. Of the debt authorized, approximately $12.2 million in debt was actually issued and $11 million in outstanding debt remains.
Over the ensuing years, due to developer defaults, the great recession and other factors, much of the total assessments due from property owners to the CFD went unpaid and ultimately the City, on behalf of the CFD, foreclosed on many of the parcels in the CFD. Others went into bankruptcy and subsequently became available for acquisition.
Verano Recovery LLC (the property owner) has acquired much of the property in the area that was not foreclosed by the City with the intent to bring the project back up to standard and develop the remaining lots and parcels for new home construction. Verano Recovery would like to acquire the parcels under City control to complete their acquisition of the project site.
Due to the high rate of non-payment of assessments in the CFD, the CFD has spent down its reserves and faces an uncertain financial future if it is not restored to financial health. Selling the City owned parcels will inject sufficient cash into the CFD to make current and future debt service payments and restore reserves to the required levels.
DISCUSSION:
Over the past year or so City staff have been working with the principals of Verano Recovery LLC on an agreement, which will transfer the City owned parcels to Verano Recovery in exchange for cash payments sufficient to restore the CFD to financial viability and meet the obligations of the City's credit bid made to get the parcels out of foreclosure.
Under the proposed agreement the obligations of Verano Recovery are as follows:
*Make a payment of $1,500,000 by July 15, 2015.
*Make an additional payment of $600,501 on or before June 25, 2016. This obligation will be secured by a deed of trust placed on the properties being acquired from the City.
*Restore the streets, sidewalks, curbs, gutters, landscape areas, clubhouse and other common areas to standards mutually agreed upon. The clubhouse will be restored and constructed in two phases.
*Remove sand, debris, and damaged perimeter fencing on the project property.
*Prepare the entire site for new home construction.
The obligations of the City are as follows:
*Cause all delinquent assessments, penalties and fees to be removed from all properties in the project owned by Verano or to be sold to Verano by August 10, 2015 (after receipt of payment from Verano).
*Transfer title to all the City owned parcels to Verano.
*Freeze building permit and other related fees at current levels for the initial five year term of the agreement.
*Assist the CFD in refinancing or issuing additional debt at the point that such can be supported by the condition of the project and is viable based on market conditions and other factors.
Successful execution of this agreement will restore a troubled CFD and neighborhood to financial health and allow the community to develop consistent with the original plans approved over 15 years ago.
FISCAL IMPACT:
The agreement will result in revenues of $2,100,501 to the Community Facilities District.
ATTACHMENTS:
Purchase and Performance Agreement by and between the CITY OF CATHEDRAL CITY and VERANO RECOVERY, LLC.