REPORT TO COUNCIL AND SUCCESSOR AGENCY TO THE FORMER REDEVELOPMENT AGENCY OF THE CITY OF SANTA CLARA
SUBJECT
Title
Action on Resolution Approving a Purchase and Sale Agreement and Other Documents and Actions Necessary to Implement the Sale of the Hyatt Building Parcel Located at 5101 Great America Parkway [APN: 104-55-012] to XHR Acquisitions LLC at a Sales Price of $25 million
Report
BACKGROUND
California Redevelopment Dissolution Laws require all successor agencies to sell all of their assets pursuant to a Department of Finance approved Long Range Property Management Plan (LRPMP). The Successor Agency to the Former Redevelopment Agency of the City of Santa Clara (Successor Agency) has sold several parcels as required by law including: Santa Clara Gateway Parcel #2, Santa Clara Hilton, the North South parcel, and Great America Theme Park. Proceeds from the sale of these assets were first used to retire Successor Agency debt. Now that all Successor Agency debt has been retired, all land sale proceeds are being distributed to taxing agencies upon closing.
As provided in Health and Safety Code Section 34179(j), on July 1, 2016, oversight of Successor Agency activities was transferred to the Countywide Oversight Board (Oversight Board). The Oversight Board appointed two of its members (Glen Williams, County of Santa Clara and Ngoc Chim, West Valley-Mission Community College District) as a subcommittee to work with the Successor Agency to complete the sale of all its properties.
The Successor Agency owns approximately 1.75 acres of land located at 5101 Great America Parkway [APN: 104-55-012] (Property). The Property is encumbered by a long-term ground lease with I.A. Lodging Santa Clara LLC (Tenant) and is currently being operated as the Hyatt Hotel. The Successor Agency owns the land and the Tenant owns the building improvements.
The Ground Lease was first executed by the Redevelopment Agency in 1985.
The existing Ground Lease provides for several terms of note:
• The primary term of the lease expires in April 2035. There are four additional 10-year options to extend the term and 1 9-year option. The remaining term of the lease plus extensions is approximately 60 years (2084).
• Expansion Rights: Hyatt has a right to lease additional space to expand hotel for up to an additional 283 hotel rooms.
• The operation of the Property is supported by the property owned by the City of Santa Clara (Common Area). The Common Area includes the Convention Center Garage, all surface parking areas, sidewalks and driveways within the Convention Center Complex. The Lease provides the Tenant with rights to 500 parking spaces within the Common Area.
As part of the 2016 Settlement Agreement with the County of Santa Clara, Santa Clara Unified School District, et al., the Tenant’s Common Area rights per the Lease were to be documented in Covenants, Conditions and Restrictions (CC&Rs). Under the oversight of the Superior Court, CC&Rs were prepared and recorded on the City-owned Common Area property on December 21, 2020.
In compliance with the Surplus Land Act, Gov’t Code § 54220 et seq., on October 19, 2021, the City Council, acting as the governing body of the Successor Agency, adopted Resolution 21-1 declaring the Property as surplus pursuant to Government Code Section 54221(b)(1) and authorized the issuance of a Notice of Availability (NOA). On January 22, 2022, the NOA was issued to provide sixty (60) days for affordable housing interests to notify the Successor Agency of their interest in acquiring the Property. The Successor Agency did not receive any notifications of interest by the March 26, 2022 deadline.
With the concurrence of the Countywide Oversight Board subcommittee, in June 2023, the Successor Agency’s broker, Eastdil Secured, commenced marketing the site to potential buyers. In July and August 2023, two bidding rounds were conducted. At the conclusion of the first round, potential buyers were requested to provide the Successor Agency with their highest and best offer.
Final offers from three firms were submitted in September 2023. The highest offer submitted was from XHR Acquisitions LLC with a purchase price of $25,000,000. XHR Acquisitions LLC is an affiliate of the current Tenant, I.A. Lodging Santa Clara LLC.
DISCUSSION
Key terms of the proposed Purchase and Sale Agreement (Agreement) between the Successor Agency and XHR Acquisitions LLC, a Delaware limited liability company. (Buyer) for the Property include:
Purchase Price: $25,000,000
Deposit: A deposit of $1,000,000 (Deposit) to be deposited into escrow, three days following the execution of Purchase and Sale Agreement. The Deposit will become non-refundable after the expiration of the Diligence Period.
Diligence Period: Approximately twenty (20) days following the execution of the Agreement.
Reps and Warranties: Buyer is purchasing property “as is” with all faults and limitations. Buyer warrants and represents that it is in good standing and has authority to enter into the purchase sale agreement.
Seller represents and warrants to Buyer the authority sell the property and that the property’s existing lease and agreements are in good standing. Additionally, Seller warrants that it has not aware of any violation of Hazardous Material Laws.
Closing: Closing to fifteen (15) days following the expiration of the Diligence Period.
Estoppel: Seller will deliver a Seller’s Estoppel prior to Closing. Buyer has requested that Seller deliver a Tenant Estoppel prior to Closing. Successor Agency will work with Hudson Pacific to deliver the Tenant in a form acceptable to Buyer.
Replacement Declaration: CC&Rs will be amended to update the references to the City obligations.
Ballroom License: Ballroom License will be amended to remove the Successor Agency as being referenced as a party to the Hyatt Lease.
The Surplus Land Act also requires that all dispositions of surplus land record an affordability covenant against the land. As no entity responded to the Successor Agency’s NOA in 2022, an affordability covenant is required to be recorded against the Property providing that 15% of the units for any future housing project on the Property must be set aside for lower income households as defined by Section 50079.5 of the California Health and Safety Code for a period of 55 years. The Successor Agency’s requirement to record this covenant prior to the close of escrow is included in the Agreement.
A draft form of Agreement is attached to this Report. Final execution of the Agreement is subject to the approval of the Countywide Oversight Board anticipated to occur in May 2024.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to the CEQA Guidelines section 15378(a) as it has no potential for resulting in either direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
The sale of the Hyatt Parcel will provide $25,000,000 in sales proceeds (less customary closing costs and broker fees) to the Successor Agency. Sale proceeds will be distributed from the County to the taxing entities. The City of Santa Clara, as a taxing entity will receive approximately 10% of any sale proceeds. Once received, those funds would be included for recommended allocation as part of a future budget process.
COORDINATION
This report has been coordinated with the Finance Department and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
That the City Council, acting as the governing board of the Successor Agency to the Redevelopment Agency of the City of Santa Clara, adopt a Resolution authorizing the City Manager/Executive Officer to negotiate and execute a Purchase and Sale Agreement between the Successor Agency to the Redevelopment Agency of the City of Santa Clara and XHR Acquisitions LLC for the Hyatt Parcel located at 5101 Great America Parkway (APN: 104-55-012) at a purchase price of $25,000,000 and authorizing the City Manager to execute all documents necessary, including a replacement declaration, amendment to the ballroom lease, affordability covenant and minor modifying amendments, in final forms approved by the City Attorney, to implement the Purchase and Sale Agreement and close escrow.
Staff
Reviewed by: Liz Klotz, City Attorney’s Office
Approved by: Jovan D. Grogan, City Manager/Executive Officer
ATTACHMENTS
1. Form of Purchase and Sale Agreement
2. Resolution