Laserfiche WebLink
To the Honorable Mayor and City Council <br /> From the City Manager <br /> <br /> agreed to purchase and sell back to Shores Childcare, L. LC the real property <br /> improvements. These changes include: <br /> <br /> 1. Change the terms of the interest rate charged by the City on the Promissory <br /> Note to one of three options: <br /> a. The LAIF rate + 0.0% (recommended option); <br /> b. 4.57% fixed rate for 10 years (current/AIF rate + 1.50%); or <br /> c. 4.57% fixed for five years with the next five years at LAIF + 0.0%. <br /> <br /> 2. Eliminate the prohibition on subordinate loans secured by the Leasehold <br /> Improvements, and <br /> <br /> 3. Eliminate the due-on-sale clause which requires Mr. Keech to pay off the loan <br /> from the City should he sell the project. <br /> <br />Staff has reviewed Mr. Keech's proposed changes with several knowledgeable <br />public finance professionals and, strictly from a financial and legal perspective, is <br />comfortable with the Council accepting the first interest rate option (-a-) along with <br />the other two changes to the agreement. In making a decision to eliminate the <br />prohibition on subordinate loans and to eliminate the due-on-sale clause, the Council <br />should be comfortable with the fact that doing so creates the likelihood that someone <br />other than Mr. Keech may own this facility in the future. It is too speculative for staff <br />to offer an opinion as to how an owner other than Mr. Keech will or will not affect the <br />delivery of childcare services at this facility. <br /> <br />Staff and Mr. Keech have identified two options for the City to select from, each of <br />which is designed to further limit the profits generated by this project: <br /> <br /> 1. Reduce the monthly rental rate at which the City and Mr. Keech equally share <br /> in excess revenues from $4.50 per square foot to $3.50 per square foot; or <br /> <br /> 2. Maintain the existing lease rate of $4.50 per square foot and increase the City <br /> share of the participation from 50% to 70%. <br /> <br />It is staff's recommendation to elect the first of these two options (participation <br />begins at $3.50 per square foot). Although this is a significant reduction from the <br />current $4.50 per square foot, this amount continues to be increased annually (as is <br />provided in the current agreement) by the Bay Area consumer price index. With <br />current market rates at approximately $2.00 per square foot, local commercial real <br />estate markets will need to experience a substantial upswing in demand before the <br />City will begin receiving any revenue under this provision. <br /> <br /> Page 2 of 7 <br /> <br /> <br />