THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CA MEMORANDUM

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CI2140 100033

DATE: TO: FROM: STAFF:

NOVEMBER 3, 2011 CRA/LA BOARD OF COMMISSIONERS CHRISTINE ESSEL, CHIEF EXECUTIVE OFFICER

JENNY SCANLIN, REGIONAL ADMINISTRATOR ALEX PAXTON, PROJECT MANAGER CHRISTINE KALAMAROS, SENIOR REAL ESTATE DEVELOPMENT AGENT Cleantech Manufacturing Center Purchase and Sale Agreement. Public Hearing, Purchase and Sale Agreement (PSA) with Trammell Crow Company for potential disposition of CleanTech Manufacturing Center (CTMC) site at 2425-2455 East Washington Boulevard for $15.4 million, for redevelopment of the CTMC site in the Central Industrial Redevelopment Project Area. DOWNTOWN REGION (CD 14)

SUBJECT:

RECOMMENDATIONS The CRA/LA Board of Commissioners acknowledges and understands that the California Supreme Court in the case entitled California Redevelopment Association v. Matosantos stayed certain portions of California Assembly Bills x1-26 and x1-27. Given the Courts stay and the uncertain status of such legislation, and given that CRA/LA is, and the City Council may be, approving the recommendations and actions described herein, to the extent that such actions are stayed then CRA/LA shall not execute agreements or take such actions, notwithstanding their approval hereof, until the Supreme Court has decided the case on the merits or the action is no longer stayed. That the CRA/LA Board of Commissioners take the following actions: 1. Hold a Public Hearing as required by Health and Safety Code Section 33431 regarding the proposed disposition of the Cleantech Manufacturing Center (CTMC) Site located at 2425-2455 East Washington Boulevard (the Site) in the Central Industrial Redevelopment Project Area;

And that the CRA/LA Board of Commissioners, subject to City Council approval: 2. Authorize the Chief Executive Officer (CEO) or designee to negotiate as to environmental issues and any related escrow instructions and to execute a Purchase and Sale Agreement (PSA) with Trammell Crow Company for the potential disposition of the CTMC Site for $15.4 million and to take such other actions as may be necessary to complete the transaction and pay off the loan when due; and Amend the Fiscal Year 2012 Budget and Work Program to accept the proceeds from the sale of the Site, if needed, and authorize the CEO or designee to use these proceeds to pay off the $15.4 million East West Bank acquisition loan; and deposit any balance in an escrow account to be held for environmental remediation of the CTMC Site.

3.

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CTMC PSA | TRAMMELL CROW

SUMMARY The recommended actions will facilitate the development of the CTMC project consistent with CRA/LAs cleantech vision that includes creation of family-supporting jobs. These actions will allow for the execution of a PSA with Grant Deed disposing of the Site for $15.4 million to Trammell Crow Company (the Buyer). The CMTC Site was the subject of a Request For Proposals (RFP) in 2010 and the limited reopening of the same RFP on June 29, 2011 for proposals to redevelop and construct a cleantech industrial manufacturing or assembly facility. The recommended actions will also allow repayment of a $15.4 million loan from East West Bank, obtained in 2007 to purchase the Site from the State of California. The loan is secured by a first lien on the Site. The full repayment was originally due May 1, 2011, but the repayment date was extended first to August 1, 2011 and then to February 1, 2012. PREVIOUS ACTIONS August 18, 2011 Update to the Board on the limited reopening of the Request For Proposal for the CleanTech Manufacturing Center and related negotiations with respect to price and terms. Staff recommended moving forward with exclusive negotiations of a Purchase and Sale Agreement with one selected bidder, Trammell Crow Company. June 3, 2011 Report to CRA/LA Board of Commissioners on the status of East West Bank Loan and escrow closing with Genton Property Group regarding the Purchase and Sale Agreement of the CleanTech Manufacturing Center (former Crown Coach site) March 17, 2011 - Public Hearing, selection of Genton Property Group, top respondent, and Trammell Crow Company, second place respondent, to the CleanTech Manufacturing Center Request for Proposals; Purchase and Sale Agreement with the top respondent and contingent PSA with the second place respondent for potential disposition of CTMC site at 2425-2455 East Washington Boulevard for $15.4 million, subject to compliance with CRA/LA development requirements, for redevelopment of the CTMC Site. September 2, 2010 Report to CRA/LA Board of Commissioners on Intent to Issue Request for Proposals For Development of CleanTech Manufacturing Center.

DISCUSSION & BACKGROUND Status of East West Bank Acquisition Loan, No. 29182 (the EWB Loan) When Genton did not acquire the Site under the previously approved PSA, staff began working with East West Bank (EWB) to set the terms for an extension on the Loan. Initially, at the request of Genton, staff worked out a 90-day loan extension with EWB, which matured on August 1, 2011, and then when the deal with Genton did not move forward a second 6-month extension, now maturing on February 1, 2012 was negotiated. EWB required that interest payments for the extension periods, amounting to $249,999, be paid by CRA/LA in advance.

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CTMC PSA | TRAMMELL CROW

Limited Reopening of RFP On March 17, 2011, the CRA/LA Board selected Genton Property Group and Trammell Crow Company as the top two respondents to the September 2010 CTMC RFP with whom to negotiate a PSA. In spite of two extensions of the escrow deadline to resolve environmental questions, first top respondent Genton was unable to successfully underwrite the transaction with investors under the negotiated and CRA/LA Board- and Council-approved PSA and Grant Deed Terms. Genton proposed an amendment to the PSA a day after the final expiration of escrow on June 21, 2011. The proposed PSA amendment by Genton materially deviated from the PSA terms approved by CRA/LA Board. Staff declined to agree to Gentons proposed PSA amendment and acknowledged the termination of the PSA with Genton Property Group. Staff then offered Trammell Crow, the second top respondent to the original RFP, an opportunity to execute the same CRA/LA Board-approved PSA and Grant Deed, which Trammell Crow declined. CRA/LA ended exclusive negotiations with Genton and Trammell Crow Company and reopened the proposal process on June 29, 2011 to the original seven respondents. To expedite the process and meet the relevant original objectives of the original RFP while at the same time providing each respondent the opportunity to respond on a point-by-point basis to the Boardapproved form of PSA and Grant Deed, staff requested the interested parties to submit their responses with redline edits to these documents together with a one-page outline of the revised proposal. The due date of this limited reopening was July 13, 2011. Five of the seven original proposers submitted revised deal terms by the deadline. After careful evaluation of the revised proposals, staff determined to proceed in negotiations with the overall strongest proposer, Trammell Crow Company. Trammell Crow Company, founded in 1948, is one of the nations premier integrated North American commercial real estate operators. Trammell Crow has developed or acquired over 2,500 buildings valued in excess of $60 billion. Trammell Crows Los Angeles Development and Investment Group provides more than 28 years of experience and expertise in development, investment and construction of 3.5 million square feet of office, mixed use, retail and industrial space valued in excess of $1.2 billion. Trammell Crow is headquartered in Dallas, Texas, with local offices in Los Angeles, and is wholly owned by Los Angeles-based CB Richard Ellis, a publicly-traded company. Terms of Proposed Revised Agreement Using the March 17, 2011 CRA/LA Board-approved PSA and Grant Deed terms as a starting point, staff and Trammell Crow negotiated further and reached agreement on the PSA and Grant Deed containing covenants. A list summarizing key PSA terms and Grant Deed covenants is in Attachment B. CRA/LA will be responsible for out of pocket expenses with respect to environmental obligations that are necessary to secure a No Further Action determination as defined in the Environmental Matter Plan (EMP). Details of the EMP are still being negotiated; however, CRA/LA and Trammell Crow have a revised environmental remediation work plan already approved by the California Department of Toxic Substances Control (DTSC). Staff and Buyer feel confident that the EMP can be finalized by early December.

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CTMC PSA | TRAMMELL CROW

Based on much discussion, negotiation, and feedback regarding what obligations financing sources are willing to take on, staff believes that this is the strongest offer that will meet the established CRA/LA redevelopment objectives and financial obligation to East West Bank. Unlike other proposals, this deal allows CRA/LA to pay off the loan at the earliest possible moment, achieve policy goals with regard to job creation, and secure from the purchaser a concerted effort and commitment towards recruiting cleantech users for the campus. CRA/LA will collaborate with the Buyer to recruit cleantech tenants to the Site, including the use of CRA/LA programs such as the Industrial Incentive Program, which supports capital equipment purchases, energy audits, and feasibility assistance for businesses engaged in the development or rehabilitation of an industrial or manufacturing property. Redevelopment Goals The Site is located within the Central Industrial Redevelopment Project Area. Redevelopment of the Site will meet several goals and objectives of the Central Industrial Redevelopment Plan adopted by the City Council on November 15, 2002, as follows: (i) fostering a healthy industrial environment and attracting new private investment to increase job opportunities, property values, and tax revenues; (ii) encouraging sustainable development in a manner that utilizes precepts of energy efficiency, renewable energy, water resource conservation and reuse, and waste/urban runoff management; and (iii) eliminating conditions of blight through the remediation of toxics and contaminated soils in order to provide sites for redevelopment. Additionally, by attracting clean technology companies and generating a significant number of family-supporting jobs, the proposed project will support the following objectives of the CRA/LA Strategic Plan: 1.1.1, Create 40,000 construction career-path jobs; 1.1.2, Invest in projects and programs to provide 2,000 familysupporting permanent jobs; 1.2.2, Assist 300 businesses a year through faade programs, marketing, permit expediting, public improvements, equipment purchases and other methods; and 1.3.1, Retain and grow employment in each regions key sectors. Environmental Status On October 15, 1997, the City Council approved the City Brownfields Executive Teams recommendation to designate the Site as a City Brownfields Demonstration Site. This designation resulted in the CRA/LA executing an Option Agreement with the State Department of General Services (DGS) to purchase the Site and an Environmental Oversight Agreement with DTSC to oversee the environmental investigation and cleanup of the Site. Since the Sites brownfields designation, CRA/LA has undertaken a long series of environmental investigations and conducted cleanup activities at the CTMC Site, resulting in a closure letter from DTSC for the shallow soil contamination (i.e. the upper 30 feet of soil). The remaining deep soil gases have been thoroughly characterized and a long-term remediation plan that will allow development to proceed has been approved by DTSC through a Project Environmental Oversight Agreement with the CRA/LA. An environmental remediation using Soil Vapor Extraction and Dual Phase Extraction (SVE/DPE) is currently being performed by the CRA/LA under the terms of that certain Project Environmental Oversight Agreement for the Crown Coach Industrial Redevelopment Project (CRA/LA Agreement Number 503063 / DTSC Agreement Number 06-T3185) dated January 8, 2007 (PEOA) with DTSC. This funding for the ongoing remediation comes from the State and

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CTMC PSA | TRAMMELL CROW

is held in escrow for this purpose by CRA/LA. The escrow account currently includes approximately $2,300,000, which is estimated by the CRA/LA consultant to be more than enough to complete the necessary remediation. The terms of the PEOA specify the conditions under which DTSC will clear the Site for immediate redevelopment. DTSC will require that the SVE/DPE system continue to operate until the treatment goals are achieved, and that certain prescribed measures be taken to manage any potential vapor intrusion into structures on the Site. The CRA/LAs activities at the Site have been and will continue to be undertaken under the provisions of the Polanco Redevelopment Act, which will provide certain State liability immunities to the CRA/LA for additional remediation actions at the Site. CRA/LAs immunities for past contamination may be passed on to future lessees of the Site. ECONOMIC IMPACT The following table* describes the economic impacts estimated to be created by this project assuming a 300,000 Square Foot Build out. Estimated Economic Impacts Created by this Project* Estimated Construction Jobs Created Estimated Permanent Jobs Created Estimated Gross Property Tax Increment (TI) Revenue
(Year 1 of Tax Increment Generated)

300 200 $350,000 $6,000,000

Estimated Net Present Value (NPV) of Net Property TI Generated

(Revenue to the CRA/LA Project Area through the last Tax Increment Receipt Date)

Estimated NPV of Property TI for Affordable Housing

(25% set-aside towards the CRA/LA Low and Moderate Income Housing Fund through the last Tax Increment Receipt Date)

n/a n/a n/a n/a

Estimated NPV of Utility User Tax Revenue

(Revenue to City of Los Angeles)

Estimated NPV of Sales Tax Revenue

(1% portion of taxable sales to City of Los Angeles)

Estimated NPV of Business Tax Revenue

(Revenue to City of Los Angeles)

*The figures provided in the table about are for estimation purposes only; actual fiscal impact or job creation may be higher or lower than these estimates. Standardized formulas were used to generate these figures and are based on accepted econometric practices and basic tax calculations taken from research performed by a variety of sources, including the Los Angeles Economic Roundtable, California Redevelopment Association, US Department of Housing and Urban Development, CRA/LA, and the City and County of Los Angeles.

SOURCE OF FUNDS No CRA/LA funds are required for this action. PROGRAM AND BUDGET IMPACT This action will amend the adopted Central Industrial FY2012 budget and work program to accept the proceeds from the sale of the CTMC Site. If the CRA/LA is successful in consummating an agreement with Trammell Crow, the current loan with East West Bank will be

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CTMC PSA | TRAMMELL CROW

retired from sale proceeds. If not, an alternate source of funds from the CRA/LA Budget and Work Program, or successful renegotiation of the loan, will be required. Labor costs for ongoing negotiations concerning the Purchase and Sale Agreement and continuing brownfields remediation and related issues at the Site are contained in Objectives CI2140 and CN3320, respectively. There is no fiscal impact to the Citys General Fund as a result of this project. ENVIRONMENTAL REVIEW Under CEQA Guideline 15004 (b) there is insufficient information available regarding any proposed project on the site to allow for a meaningful environmental assessment at this time. Any future governmental discretionary decisions for approval of a project on the site will be contingent on full compliance with the California Environmental Quality Act. AUTHORITY GRANTED TO CEO OR DESIGNEE If the Purchase and Sale Agreement is approved, the CRA/LA Chief Executive Officer or designee would be authorized to take such actions as may be necessary to carry out the PSA, including, but not limited to negotiating, executing, and approving certain non-material revisions to the terms of the PSA and escrow instructions and executing any ancillary documents reasonably necessary to sell the Site and repay the East West Bank loan. Christine Essel Chief Executive Officer By:

__________________________________ Dalila Sotelo Deputy Chief Executive Officer There is no conflict of interest known to me which exists with regard to any CRA/LA officer or employee concerning this action.

ATTACHMENTS Attachment A. Attachment B. Location/Site Map Summary PSA and Grant Deed Terms

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CTMC PSA | TRAMMELL CROW

Attachment B to CTMC TCC PSA GD Board Memo - Summary PSA & Grent Deed Terms Buyer Purchase Price Opening Escrow Existing Loan Payoff Review Period / Due Diligence Closing Date Excess Funds after Existing Loan Payoff Trammell Crow Company $15,400,000 5 business days following the mutual execution of PSA Payable to EWB upon Close of Escrow (5) business days following the later of (A) the Opening of Escrow, or (B) January 16, 2012 5 business days following the expiration of Due diligence All funds remaining after the East West Bank loan has been fully paid off ("Excess Funds") shall be held back by Escrow Holder pursuant to an Environmental Holdback Escrow Account Agreement to be executed between the parties, pursuant to which all Excess Funds must be used only for the fees and expenses incurred with respect to the fulfillment of Sellers Environmental Obligations as stated in the Environmental Matters Plan. Excess Funds remaining after the fulfillment of Sellers Environmental Obligations shall be promptly released to Seller within 5 days. Provided, however, prior to the fulfillment of Sellers Environmental Obligations, upon Seller's and Buyers written mutual agreement, the Excess Funds may be allocated or distributed for the following two objectives in addition to Sellers Environmental Obligations: 1) Industrial Incentive Program specifically for attracting clean-tech tenants to locate at the Property; and 2) the Los Angeles Clean Tech Incubator. Propose to negotiate their own Environmental Matters to be executed and deposit into escrow before closing. CRA/LA will be responsible for out of pocket expenses with respect to the fulfillment of environmental obligations that are necessary to secure No Further Action as defined in the Environmental Matter Plan (EMP). Agreed to a defined Commercially Reasonable efforts to secure Clean Tech users in the Clean Tech covenant as follows: i. Buyer is covenant to spend One Hundred Thousand Dollars ($100,000.00) on a cooperative marketing and tenant incentive effort with CRA/LA for the purpose of attracting Clean Tech tenants, users and other commercial enterprises for a period equal to the longer of: a) the first eighteen (18) months after the Closing Date; or b) a period beginning on the Closing Date and ending on the date Grantee received all Entitlements for a the Site. ii. Buyer is covenant to, within 24 months after the Certificate of Occupancy has been issued, cause at least 140,000 leasable square feet of the leasable space at the Site to be sold or leased to Clean Tech companies for the Clean Tech uses specified by CRA/LA. iii. In the event of the natural expiration of any tenant lease during the first ten (10) years, Trammell Crow shall covenant to market the available space for potential Clean Tech uses exclusively for a minimum active marketing period of three months before opening the lease up to any other users and tenants. Living Wage Covenants Agreed to be accountable for the following Living Wage Jobs covenants: i. Buyer shall comply with and pay wages to all of its employees and contracted workers working at the Site at the levels set forth in the CRA/LA Living Wage Policy. ii. In addition, Buyer covenants and agrees that it shall ensure that within twenty-four (24) months after the first certificate of occupancy is issued to Grantee, there are a minimum of one hundred (100) employees or contracted employees working on the site, paid at a CRA/LA Living Wage salary. Local Hire Buyer agrees that it shall disseminate to all employers of onsite workers, no later than the time of their commitment to the property via signed lease or deed, materials provided by CRA/LA that describe the various workforce recruitment, training, placement, and subsidy resources of the City of Los Angeles. In addition, Buyer agrees to provide reasonable accommodation to CRA/LA or its designee to hold periodic onsite informational meetings regarding workforce resources for onsite employers. All policy-related covenants in grant deed will obligate Trammell Crow and its successors in ownership for the period the policies apply. The policies shall not be binding on tenants or lenders. If Buyer fails to perform the Living Wage covenant, Grantee shall pay to the Grantor, as Grantor's sole and exclusive remedy, the amount of Fifteen Thousand U.S. Dollars ($15,000) per job that the total number of Living Wage jobs falls below the one hundred (100) job requirement, up to a maximum payment of One Million U.S. Dollars ($1,000,000.00). If Buyer fails to perform the CleanTech covenant, Grantee or it successors or assigns shall pay to the CRA/LA, as Grantor's sole and exclusive remedy, the amount of One Million U.S. Dollars ($1,000,000.00), which amount is inclusive of any amount paid to CRA/LA as penalty under the Living Wage covenant.

Site Environmental Clearance

Clean Tech Covenants

Other CRA/LA Policies Other