Date:            December 7, 2004

From:           Jane Vaughan

To:               Bob Paternoster, City of Sunnyvale         

Re:               Sunnyvale Town Center Mall – DDA Revisions

As you know, Forum/Lehman thought that the start of the TIF funds as well as the cumulative aspect was different than what approved in August; and therefore, the economics of their project were lower than anticipated.  Given the added design costs associated with the underground parking, the enhancements to other buildings requested by the City and the big spike in construction costs in the last year, the financial attractiveness of this project deteriorated, impacting their ability to secure debt and equity financing.  Nevertheless, after much effort on Forum’s part, I am please to inform you that Inland Real Estate Group, a Midwestern based retail REIT is interested in providing the debt and equity for the project.  I am also pleased to inform you that Forum is no longer seeking to alter the business aspects of the DDA but merely to request changes based upon the delays that have already occurred and the complexities of building this multi-use project.

Therefore, Fourth Quarter Properties XLVIII, LLC would like to request that the Sunnyvale City Council considering approve the following changes to the DDA:

·        Section 2.01 (a) and (b).  Timing of acquisition of SLLC, WHL and Harvest properties needs to be extended by 180 days to March 31, 2005.  Forum is intending to close on the property on or before December 31, 2004, but to provide some contingency a later date is requested.

·        Section 2.03.  Agreement with Residential Developer.  No later than “January 30, 2005” should be changed to “Closing” to conform to Section 3.09.  There are a lot of complicating and overlapping construction issues that will have to be worked out between Forum and the residential developer that will only be able to be resolved as the plans are being done.   I have attached our schedule.  As you can see, the final CDs will not be fully done until 3Q05.  Hence, this date needs to be extended to allow us to make progress on those construction issues.

·        Section 3.01 (a) The Project is described and depicted in the staff report associated with the Special Development Permit 2004-0576 approved by the City on 8/17/04 attached hereto as the Exhibit C.

·        Section 3.02  Please state that BMR is 12.5%. 

·        Section 3.03  Reference to Section 8.06 needs to be altered to reflect the fact that we will not be using Mello-Roos bonds.  The timing and costs of securing the bonds outweighs the savings in interest.

·        Page 14:  Parcel Map shall not “materially” deviate.  As you know, the land swap exhibits are based upon our current information.  As the plans progress there will be minor adjustments to this land swap.   For example, we show streets and curb lines.  The City’s public works department may require that we make adjustments for one reason or another.  As long as the intent is met and the City gets at least as much land as it is giving, you should allow “minor” deviations.

·        Section 3.04 & 3.05 Construction Plans and Permits.  The date needed to be revised to December 31, 2005 and recognize the fact that the project will be designed, permitted and constructed in sections and phases as indicated in the attached schedule.  For example, we may not have the plans for the NW garage complete until late in 2005 but be under construction on the NE garage then (plans for NE complete and permitted).  We will also be requesting the permits incrementally – grading, foundation, structural and architectural permits as the plans for each building are done.   Hence, the date herein should be automatically extended if Developer is progressing the designing, permitting and construction of the Project in a manner consistent with this Agreement. 

·        Section 3.07.  Please delete “permanent” in front of financing because permanent financing will not be secured until the project is completed and fully leased.

·        Section 3.08.  Please delete the estimated costs.  The requirement is to bond the Public Improvements.  The building department assesses the costs of the Public Improvements based upon the plans as they always do.  This statement will be mistakenly taken for a $60M bond requirement. 

·        Section 4.04.  The Closing date needs to be moved back one year to April 30, 2006.  As we discussed in our meeting with you, the City’s Public Works estimated that it would take them some time to approve the tentative map (2 months) and then the final map (4 months).  Given that we have to prepare it based upon plans, respond to City Public Works comments twice, the approval of the parcel map will not likely be completed until year end 2005.  I have requested April 30, 2006 to allow for some contingency.   

·        Section 4.11 (iii) Should anyone bring a frivolous suit against the Agency or Developer, the land swap could not go forward.  No lender will lend construction funds for the Project given that the land swap could easily be delayed indefinitely given this wording. 

·        Section 4.11 (iv) We will be submitting for permits continually over the next two years as different portions of the project move forward.  Grading, foundation, structural and final building permits will requested for various buildings/garages over time.  The TI (tenant improvement or interior) permits will come even later.  The residential permits will have the same phasing issues.  For example, the residential permits on Washington will be much later due to the fact that we will be constructing the underground parking beneath this residential much later because Macy’s is parking on this location until Deck C is done.   Therefore, this needs to state that Developer will be building and permitting the project in phases over the next couple of years and as long as the Developer is diligently submitting plans for permits, they are in compliance.

·        Section 4.12 (iii) Same issue at 4.11 (iii)

·        Section 5.01.  We will likely commence construction before Closing because we need to begin construction on the NE garage immediately which will likely happen before we (Forum and the City) can get the parcel map that is required for the Close completed.  Hence, I would like the City to acknowledge that we will likely be doing demolition, sitework and construction on their parcels (and ours) prior to Closing. 

·        Section 5.06.  All union contractors pay prevailing wage.  Therefore I ask that requirement to keep prevailing wage records be required if and only if the contractor or subcontractor is non-union.  Otherwise, it is just unnecessary book keeping and then added expense for us since the accounting costs get passed on.  Also, some smaller contractors do not have the means to do the record keeping and will avoid the job.  

·        Section 5.09.  Developer to have 120 day grace period before any such bond is required.  This will allow us to get rid of frivolous liens.  I can’t tell you how many times United Rentals has placed a lien on my projects for $1,000 or less without us knowing about it since they are a vendor to a sub-sub-subcontractor. 

·        Section 6.03 and 9.04.  Inland Real Estate Group of Companies, Inc. (and its related entities http://www.inlandgroup.com/about/investor_relations.htm) needs to be inserted into the Agreement as a permitted debt and equity lender with right of transfer as is done with Lehman.  Please let us know what additional information you require concerning Inland.

·        Section 8.01.  Annual payments.  Please modify the residential to just include 50% of the total.  The residential will be built over time as we are able to complete the building shells.  To ask that 100% of all units be complete with a certificate of occupancy is not reasonable.  They could have some minor delay hold up one unit and this would delay our payments substantially.    

·        Section 8.06 – 8.11  Due to the high costs of securing these bonds as well as the timing, we will not be seeking Mello-Roos funding.

·        Section 9.04 (xiv)  Please change to 120 days and add clause that says subject to the provisions of Section 12.04.

·        Section 10.06  Consistent with the REA, we would like to request that the Macy’s and Target local managers have reasonable approval of the City’s use of the Plaza and that during all important Holiday season (Thanksgiving to January 10) the City’s use be coordinated within the merchants overall programs.  The Plaza is open to the public year round and there will be public Holiday events hosted by the Mall in conjunction with the retailers.  The issue is coordination of events between the City and the major retailers, especially during the Holidays.  The City has a relationship with the local managers and can easily “coordinate” with them so that everyone’s best interests are taken into account. 

The City and the community need Macy’s and Target to be successful if we are to have a successful Downtown.  Let’s not let our feelings about Macy’s taking a hard line on other REA issues cause us to enforce requirements that are not in everyone’s best interest nor create a situation where we make the local manager suffer for the sins of their corporate managers at Federated in Ohio.