07.02 North Cypress Street Negotiating Agreement �
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March 12, 2019. ::
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TO; Honorable Mayor and Members of the City Council
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FROM:. Rick Otto, City Manager
REVIEW:_ y g inance.
Cit Mana / ���
1. UBJ'E T
Agreement to Negotiate Exclusively with Break of Dawn, LLC for 171 and 177 North .
Cypr:ess Street.
2. SUMMARY
. .
Exclusive Negotiating Agreement witli::Break of Dawn., LLC to negotiate the sale of 171 ..
and 177 North Gypress:Street for the:purpose of adaptively re-using these:two properties:
as a mixed-use restaurant and residence.
; .
3: . : RECOMMENDED ACTION ,
Approve the..agreement with Break of Dawn, LLC and authorize..the Mayor and the City
Clerk to execute the agreement;on behalf of the City.
4. FISCAL .IM:PACT
None.
5. STRATEGIC PLAN GOALS .
Goal 2: Be a fiscally healthy community
d. Effectively manage.and:develop City assets: -
e. Create an environment to attract; retain, and expand economic opportunities.
_
- 6. DISCUSSION AND BACKGROUND
In July 2017,�the City purchased two historic homes at 171 and 177 North Cypress Street � .
for $1,100,000. The t_wo houses are located adjacent to the Old Towne 1N_est Metrolink
Parking Stru.cture, and the purpose of the aequisition was to mainta'in control of the
properties:during construction:and then e�entually sell or lease them to a new owner or
lessee that would preserve and adaptively reuse them: The properties are contributing
structures to the Old Towne Historic Disfrict and are zoned Old Towne Mixed Use, which
allows for_ a variety of uses..W:ith the parking .structure looming_over the back of the
properties and much.of the 100 block of North Cypress being commercial, industrial, and
office uses, long-term .use of the site would suggest a conversion to office; commercial,
or restaurant use.
ITEM� •� � 03/19/2019
During construction of the parking structure, the City leased the properties for residential
use while it assessed future uses. Last fall, the City received an unsolicited offer from
Dee Nguyen to lease or buy the properties.
Chef and restauranteur Dee Nguyen has been interested for years in bringing his chef-
driven breakfast and lunch concept "Break of Dawn"to Old Towne Orange and has been
looking for the right property that will allow him to live and work in the same location. Dee
is the former executive sous chef of the Ritz-Carlton Laguna Niguel and has operated the
Break of Dawn restaurant in Laguna.Hills since 2006. He also hosts popular pop-up
dinners on a regular basis, and has been involved in the Orange community by
participating as the featured chef for Farm-to-Table dinners hosted by Orange Home
Grown.
Mr. Nguyen is proposing to rehabilitate the two contributing structures, maintaining one
� house as a residence while converting the other house into a restaurant by adding on a �
dining area to the existing building. The restaurant would also feature patio dining and an
herb garden in the rear of the property. Staff believes the proposed use would be a
significant enhancement to the Old Towne area and would further improve the 100 block
of North Cypress Street.
The proposed Agreement to Negotiate Exclusively would allow staff to negotiate
exclusively with Break of Dawn, LLC for a period of six months for the disposition and
development of 171 and 177 North Cypress Street. During this time, Break of Dawn, LLC
would be able to pursue entitlements to develop the properties. The agreement also gives
the City Manager authority to extend the exclusive negotiation period in 45-day
increments, as he deems necessary. Any disposition agreement negotiated with staff
would require City Council approval. It is important to note that no lease or purchase price
has been negotiated for the two properties. Ultimately, the price will be based on the .
entitlements received and fair market value at that time of the transaction.
7. ATTACHMENT -
• Agreement to Negotiate Exclusively
ITEM 2 03/19/2019
AGREEMENT TO NEGOTIATE EXCLUSIVELY
This Agreement to Negotiate Exclusively (the "Agreement") is entered into as of
, 2019 (herein referred to as the "Effective Date") by and between the CTTY
OF ORANGE, a municipal corporation (the "City"), and BREAK OF DAWN, LLC, a California
limited liability company (the "Developer"), on the terms and provisions set forth below, and
with reference to the following:
A. The City desires to encourage and effectuate the development of that certain real
property commonly known as 171 and 177 North Cypress Street in the City of Orange, which
consists of approximately 11,900 square feet and is generally depicted on the map attached hereto
as Exhibit A and more particularly described on Exhibit B attached hereto (the "Site"). The City
currently owns the Site, which has two homes which are contributing structures to the Old
Towne Historic District; and
B. The Developer desires the City to convey the Site to the Developer for the
development of a restaurant (the "Project"); and
C. The parties desire to enter into this Agreement in order to permit the parties to
negotiate the terms and conditions of a disposition and development agreement or such other
type of agreement as the parties may deem appropriate to specify the rights and obligations of the
parties with respect to the disposition and development of the Site (herein referred to as a
"Disposition Agreement"). �
NOW, THEREFORE, the City and the Developer hereby agree as follows:
Section 1. Good Faith Ne�otiations.
The City and the Developer agree for the period set forth below to negotiate diligently
and in good faith to prepare a Disposition Agreement to be entered into between the City and the
Developer with respect to the sale and development of the Site. The City agrees for the period
set forth below not to negotiate with any other person or entity to enter into any agreement
regarding the acquisition, disposition or development of the Site. "Good faith negotiations" shall
mean that the Developer and the City shall use their best efforts to communicate frequently and
follow reasonable negotiation procedures to develop a Disposition Agreement mutually
acceptable to the Developer and the City.
Section 2. Period of Ne�otiations.
The City agrees to negotiate with the Developer for a 180-day period (herein referred to
as the "Negotiation Period"), commencing on the Effective Date. If, upon the expiration of the
Negotiation Period, the Developer has not signed and submitted a Disposition Agreement to the
City, then this Agreement shall automatically terminate unless the Negotiation Period has been
mutually extended in writing by the City and the Developer. If a Disposition Agreement is so
signed and submitted by the Developer within the Negotiation Period, then this Agreement is
extended for forty-five (45) days from the date of such submittal to enable the City to (i)
determine whether it desires to enter into such Disposition Agreement, (ii) take the actions
necessary to authorize the City to sign the Disposition Agreement, if the City desires to do so,
and (iii) sign the Disposition Agreement.
If the City has not signed the Disposition Agreement by such 45th day, then this
Agreement shall automatically terminate unless the Negotiation Period has been mutually
extended in writing by the City and the Developer.
Section 3. Developer's Obli�ations Durin�the Ne�otiation Period.
Unless sooner specified hereinbelow, the Developer shall make good faith efforts within
the Negotiation Period (and any mutually agreed upon extensions) to:
A. Secure any and all entitlements (other than grading or building permits or
approvals which are simply ministerial and nondiscretionary in nature) (the
"Entitlements"), which may be required by the City or any other governmental
agency affected by construction and development of the Project (the
"Governmental Authorities") to allow development of the Project;
B. Provide a development schedule for the proposed Project for City review;
C. Submit a copy of an executed partnership, limited liability or other entity
formation agreement between or among the principals, partners or joint venturers
of the Developer, along with current financial statements of the development
entity chosen to acquire and develop the Site with the Project, including full
disclosure to the City of the developing entity's principals, officers, stockholders,
partners, joint venturers, employees, and other associates, and all other pertinent
information concerning the make-up of the developing entity;
D. Make and maintain full disclosure to the City of the methods of financing
expected to be used for acquisition of the Site and development of the Project.
The Developer's construction financing for the Project shall be determined during
the Negotiation Period or during such period of time as may be allowed under a
Disposition Agreement;
E. Upon the preparation thereof by the City, review, execute and submit a
Disposition Agreement to the City for its consideration within the time provided
herein;
F. As from time-to-time requested by the City, the Developer agrees to make oral
and written progress reports advising City staff on all matters and all studies being
made; and
G. Provide such other and further information and assistance as deemed reasonably
appropriate by the City and/or its staff in order to fulfill the objectives of this
Agreement.
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In addition, within sixty (60) days of the Effective Date of this Agreement by the City, the
Developer shall prepare and submit to the City for its review:
A. A preliminary site plan and architectural/design concept for the proposed
development of the Site;
B. A pro-forma estimate of project income and project return;
C. A schedule of the development of all structures and improvements proposed and
an estimate of development costs including construction and non-construction
costs;
D. An estimate of project income and a proforma statement of project return
adequate to enable the City to evaluate the economic feasibility of the proposed
development; and
E. A description of the proposed method of financing and amounts and sources of
equity and debt capital.
Section 4. City's Obli�ations.
The City shall make good faith efforts within the Negotiation Period (and any mutually
agreed upon extensions) to:
A. Arrange for and obtain a real estate appraisal of the Site conducted in accordance
with the Uniform Standards of Professional Appraisal Practice and undertaken by
an independent appraisal firm satisfactory to the City Manager (the "Appraisal" or
the "Updated Appraisal", as such latter term is defined below), which shall (i)
provide an assessment of the "AS IS" fair market value of the Site to the extent
that the Site consists of the Entitlements (the "Appraised Value"), and (ii) (a) in
the case of the Appraisal, have an effective date of value not more than sixty (60)
days prior to the effective date of the Entitlements, or (b) in the case of the
Updated Appraisal, have an effective date of value not more than six (6) months
prior to the date of a public hearing for consideration of the Disposition
Agreement;
B. Negotiate exclusively through its staff with the Developer for the development of
the Site for the Project;
C. Determine and process any CEQA documentation required in connection with the
sale of the Site to the Developer and the City's approval of a Disposition
Agreement;
D. Review Site plans and use its best efforts to assist the Developer in securing any
and all Project Entitlements, which may be required by the City or any other
Governmental Authorities;
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E. Review the Developer's proposal; and
F. Cooperate fully in providing the Developer with appropriate information and
assistance.
Section 5. Site Plan and Design Concept.
It is understood by the Developer that design and architectural approval by the City will
be required for the development and that sketches, plans, working drawings, specifications and
similar documents will be required to be submitted for approval pursuant to the terms and
provisions in the Disposition Agreement.
Section 6. Purchase Price.
The purchase price to be paid by the Developer to the City for the Site under the
Disposition Agreement will be the "Appraised Value", as said Appraised Value shall be
established in the Appraisal. The Developer's execution of a Disposition Agreement is expressly
conditioned on its approval, in its sole discretion, of the Appraised Value of the Site. The
Developer shall have the period from the date the Appraisal is delivered to the Developer by the
City until the date that is fifteen (15) days after delivery of the Appraisal to review the Appraisal
and to decide whether to approve the Appraised Value as the purchase price to be paid to the City
for the Site (the "Contingency Date"). On or before the Contingency Date, the Developer shall
notify the City in writing either accepting the Appraised Value as the purchase price for the Site
or terminating this Agreement. If the Developer fails to give notice on or before the Contingency
Date, the Developer shall be deemed to have elected to purchase the Site for the Appraised Value
and shall execute and submit a Disposition Agreement to the City once the Developer and City
staff shall have otherwise mutually agreed upon all of the other terms and provisions thereof.
If, through no fault of the Developer, the City is unable to schedule and hold a public
hearing for consideration of the Disposition Agreement within six (6) months of the effective
date of value established by the Appraisal, the City hereby agrees to and shall obtain, at the
City's sole cost and expense, an updated Appraisal (the "Updated Appraisal").
In such event, if the Appraised Value established by the Updated Appraisal is less than or
equal to the Appraised Value established in the Appraisal, the purchase price to be paid to the
City for the Site shall be the Appraised Value established in the Updated Appraisal.
On the other hand, if the Appraised Value established by the Updated Appraisal is greater
than the Appraised Value established in the Appraisal, the City will deliver the Updated
Appraisal to the Developer. Upon receipt of the Updated Appraisal, the Developer shall have
fifteen (15) days to decide whether to approve the Appraised Value established by the Updated
Appraisal as the purchase price to be paid to the City. On or before expiration of said fifteen-day
period, the Developer shall notify the City in writing either accepting the Appraised Value
established by the Updated Appraisal as the purchase price for the Site or terminating this
Agreement. If the Developer fails to give notice on or before said fifteen-day period, the
Developer shall be deemed to have elected to purchase the Site for the Appraised Value
established in the Updated Appraisal and shall execute and submit a Disposition Agreement to
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the City once the Developer and City staff have otherwise mutually agreed upon all of the other
terms and provisions thereof.
Section 7. Environmental Repuirements.
Certain State and local environmental requirements under CEQA may be applicable to
the proposed Project. Since the Developer will submit an application to the City for the
Entitlements prior in time to the City Council's consideration of a Disposition Agreement, the �
City will act as the "Lead Agency" under CEQA. Accordingly, the Developer agrees to supply
information and otherwise cooperate with the City, as requested by the City to determine the
environmental impact of the proposed Project, and to allow the City to prepare such
environmental documents as the City may determine to be necessary pursuant to CEQA and the
City's guidelines and procedures.
Section 8. Citv Expenses.
The Developer hereby agrees to provide, in the form of cash or a check payable to the
City and promptly upon written demand therefor by the City Manager, such sums of money as
the City Manager may reasonably determine, to be used by the City to pay certain costs incurred
by the City (as described below) in connection with the Disposition Agreement.
In the event that the Developer shall fail or refuse to remit such sums to the City
Manager, all processing by the City of the proceedings for the Disposition Agreement shall, at
the discretion of the City Manager, cease until such time as the amounts so requested are paid to
the City.
The City may use such sums of money to pay (i) the fees and expenses of any consultants
to the City employed in connection with the preparation of the requisite environmental
documentation for the proposed Project under CEQA; (ii) the costs of the Appraisal; (iii) the
costs of the entitlements; and (iv) the costs of publication of notices of the public hearing for
consideration of the Disposition Agreement.
In the event the City and the Developer execute a Disposition Agreement, that portion of
any sums of money then remaining on deposit with the City after the deduction of City expenses
shall be applied toward the purchase price of the Site. If this Agreement terminates without the
Developer having submitted a Disposition Agreement to the City or if, upon submittal thereof,
the City Council thereafter fail to approve the Disposition Agreement after a public hearing, the
City shall return any unexpended sums of money on deposit with the City to the Developer
without interest within ten (10) business days, less an amount equal to any costs which have been
incurred or committed, but not yet paid by the City.
Section 9. Condition of Property.
The Developer will assume the full and complete responsibility to make all investigations
of surface and subsurface conditions as may be necessary or appropriate and to evaluate the
suitability of the Site for the proposed Project. The City does not make any representations or
warranties concerning the Site, its suitability for the use intended by the Developer, or the surface
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or subsurface conditions of the Site; provided, however, that the City shall deliver to the
Developer any Environmental Reports within ten (10) business days following the Effective Date
of this Agreement.
The City shall, to the greatest extent-legally allowable, assign to the Developer all rights,
claims, actions and/or causes of action the City may have against prior owners of the Site and
tenants and/or anyone who has occupied the Site or any portion thereof. The Disposition
Agreement shall contain other provisions regarding the environmental condition of the Site as
mutually determined by the City and the Developer.
Section 10. Ri�ht of Entry.
The City hereby grants to Developer and its employees, agents and contractors (herein
referred to collectively as the "Developer's Designees") the nonexclusive right to enter upon the
Site at any time during the Negotiation Period to perform certain work, consisting of
geotechnical investigation, a Phase I Environmental Assessment prepared in compliance with the
most recent published American Society for Testing and Materials Phase I Environmental Site
Assessment Standard, a Phase II Environmental Investigation and Report, if required, and other
due diligence related activities (collectively, the "Work"), and for no other purposes without the
prior written approval of the City Manager.
Prior to each entry onto the Site, the Developer (i) shall provide twenty-four (24) hours
notice to the City, (ii) arrange for access, and, if requested by the City, (iii) will allow oversight
of all on-site activities.
Prior to any entry onto the Site for the taking of environmental samples or testing, the
Developer shall provide the City with a work plan for on-site activity, including but not limited
to a copy of its sampling and testing procedures and a list of constituents to be analyzed. Such
work plan shall be provided not less than forty-eight (48) hours in advance of any activity
contemplated under this Agreement.
The Developer shall provide to the City a copy of all results generated by the sampling
and testing performed pursuant to this Agreement. The Developer agrees for itself and on the
behalf of the Developer's Designees as follows:
A. That Developer will not permit any dangerous condition to be created on the Site;
and
B. That all acts and things done by the Developer on the Site will be done in a careful
and reasonable manner, in accordance with all federal, state and local laws; and
C. That Developer will enter the Site entirely at its own cost, risk and expense; and
D. That prior to the Developer's entry upon the Site and during the term of this
Agreement, the Developer shall require each and all of Developer's Designees
responsible for the work under this Agreement to maintain, in full force and
effect, statutory workers' compensation insurance coverage and a commercial
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general liability policy in the amount of at least One Million Dollars ($1,000,000)
combined single limit policy. Prior to entry on the Site, the Developer shall cause
Developer's Designees, and each of them, to provide certificates evidencing such
coverage and naming the City as an insured, as its interests may appear; and
E. That Developer shall not have any interest in the Site or be entitled to any
reimbursement or repayment for any Work performed upon the Site pursuant to
this Agreement; and
F. The Developer shall take all necessary precautions to prevent the import and/or
release into the environment of any hazardous materials which are imported to, in,
on or under the Site during the performance of the Work. If hazardous materials
are imported onto the Site as a result of the performance of the Work, the
Developer shall be solely responsible for removing such imported hazardous
materials in conformance with all governmental requirements. The Developer
shall report to the City, as soon as possible after each incident, any unusual or
potentially important incidents with respect to the environmental condition of the
Site; and
G. The Developer shall obtain and maintain all governmental permits and approvals
required for the Work conducted under this Agreement and shall comply with all
statutes, ordinances, rules, regulations, orders and requirements now in effect or
that become effective during the term of this Agreement applicable to its sampling
and other activities pursuant to the access granted by this Agreement.
Developer hereby agrees to defend, indemnify and hold the City and its officers, officials,
members, employees, agents and representatives, harmless from and against any and all
obligations, losses, damages, injuries, liabilities, claims, demands, penalties, investigation costs,
or causes of action (including, without limitation, reasonable attorneys' fees, expert witness fees,
court costs, and expenses incurred in connection with any of the foregoing) arising from or
attributable to the activities of Developer or any of Developer's Designees, or in any way
connected with the Developer's or Developer's Designees' entry or sampling activity upon the
Site pursuant to this Agreement. All use of and entry upon the Site shall be at the sole cost, risk
and expense of the Developer. Notwithstanding the foregoing, the Developer shall not be liable
for and this indemnity obligation shall not apply to property damage or bodily injury occasioned
by the sole negligence or willful misconduct of the City and its officers, employees, or agents.
This indemnity shall survive the termination or expiration of this Agreement.
Section 11. Real Estate Commissions.
The City shall not be liable for any real estate commissions, closing costs or brokerage
fees which may arise here from. The City and Developer each represents that it has engaged no
broker, agent or finder in connection with this transaction, and each party agrees to hold the other
party harmless from any claim by any broker, agent or finder which it has retained.
Section 12. Limits of this Agreement.
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If the negotiations hereunder culminate in a Disposition Agreement, such Disposition
Agreement will become effective only after and if it has been considered and approved by the
City Council after public hearing, as required by law.
By its execution of this Agreement, the City is not committing itself to or agreeing to
undertake: (i) disposition of the Site (or any portion thereo fl to the Developer; or (ii) any other
acts or activities requiring the subsequent independent exercise of discretion by the City or any
department thereof. The parties recognize that one or more of the conditions to the Developer's
proposal set forth herein may fail to be met as a result of subsequent studies, reviews and
proceedings involving the exercise of discretion by the City or any department thereof.
This Agreement does not constitute a disposition of property or exercise of control over
property by the City, or the City, and does not require a public hearing. Execution of this
Agreement by the City is merely an agreement to enter into a period of exclusive negotiations
according to the terms hereof, reserving final discretion and approval by the City Council as to
the Entitlements and any Disposition Agreement and all proceedings and decisions in connection
therewith. By executing this Agreement, Developer acknowledges that the City has no obligation
to approve the Entitlements or a Disposition Agreement or to take any other discretionary action
relating to the Developer's proposal.
[Remainder of page intentionally left blank;signatures on next page]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth hereinabove.
"DEVELOPER" "CITY"
BREAK OF DAWN, LLC, a California CITY OF ORANGE, a municipal corporation
limited liability company
By: By:
Printed Name: Mark A. Murphy, Mayor
Title:
By: ATTEST:
Printed Name:
Title:
Pamela Coleman, City Clerk
APPROVED AS TO FORM:
Gary Sheatz, City Attorney
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EXHIBIT"A"
MAP DEPICTING THE SITE
[Subsequent to finalization of the agreement, a copy will be kept on file with the City Clerk's
Office.]
EXHIBIT"B"
LEGAL DESCRIPTION OF THE SITE
[Subsequent to finalization of the agreement, a copy will be kept on file with the City Clerk's
Office.]
CITY COUNCIL MINUTES MARCH 12, 2019
5. REPORTS FROM COLTNCILMEMBERS—None
6. REPORTS FROM BOARDS, COMNIITTEES, AND COMNIISSIONS—None
7. ADMINISTRATIVE REPORTS
7.1 Orange International Street Fair, Inc. update of Agreed Upon Procedures report.
(A2100.0; 1071.I.2)
Economic Development Manager Susan Galvan and Finance Assistant D'uector Katrin
Bandhauer provided the staff report noting that the audit did not reveal any significant
concems with the Orange International Street Fair's (OISF) policies and procedures;
however, there aze some areas of improvement such as cash management, segregation of
duties and retention of documents. In addition to the recommendations outlined in the
report, staff proposes that OISF hire a bookkeeper and that they consider expanding their
Boazd to include members of the Orange non-profit communiTy. OISF is prepared to
implement the recommendations presented in the repor[.
Public Speakers:
Cazole Walters —spoke in support of having an audit done more frequently and supports
non-profit groups benefitting from the street fair.
Adam Feliz, Orange International Street Fair Boazd President — answered CounciPs
questions regazding the recommendations proposed in the report and current policies and
procedures.
During discussion CouncIl discussed cash handling procedures and the Orange non-profit
organizations first policy.
City Manager Otto stated that staff will bring back a one year agreement in April that will
include the cash handling items discussed and a phase in process for the Orange fust policy.
7.2 Agreement to Negotiate exclusively with Break of Dawn,LLC for 171 and 177 North
Cypress Street. (A2100.0; AGR-6748)
Senior Administrative Analyst Aaron Schulze provided the staff report explaining that the
City received an unsolicited offer to lease or buy the two CiTy owned properties at 171 and
177 North Cypress Street.The two structures would be rehabilitated maintaining one house
as a residence and converting the other house into a restaurant by adding on a dining azea
to the existing building. If approved, the agreement would allow staff to negotiate
exclusively with Break of Dawn for six months for the disposition and development of 171
and 177 North Cypress Sh�eet. Any disposition agreement negotiated with staff would
require CiTy Council approval.
Public Speaker:
Robert Baca—expressed concerns with protecting the integrity of the historical homes in
the barrio and requested a design review process.
During discussion, City Manager Otto explained that the two properties aze within the Old
Towne Historic District and in the Depot Specific Plan.
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