July 19, 2005

SUBJECT:  Resolution Authorizing Release of Asset in Connection with the 1998 Certificates of Participation issued for the Town Center Parking Facility

REPORT IN BRIEF

The Redevelopment Agency (RDA) is being asked to approve a resolution releasing the remaining portions of the Town Center parking facility as the leased asset for the 1998 Parking Facility Certificates of Participation.  This release is necessary because the Town Center parking facility is scheduled to be demolished as part of the new development scheduled to begin later this month.  (This parking facility is the two story structure located in front of the mall near Mathilda Ave.)  The value of the remaining assets (the Macy’s and Penney’s lots) is sufficient to allow this release.

BACKGROUND

In March 1998, the City issued its 1998 Parking Facility Certificates of Participation (1998 COPs) to refund the existing debt issued for the Town Center parking facility.  The 1998 COPs were structured as a lease of the Town Center parking facility with the RDA acting as lessor and the City acting as lessee.

The lease under the 1998 COPs allows for the removal of the asset and/or substitution of a different asset in its place.  The COP documents require that the fair rental value of the new (remaining) leased asset(s) be at least equal to maximum annual debt service on the 1998 COPs.  Generally, municipal borrowers can make this determination if the value of the leased assets is equal to or higher than the amount of debt the assets secure.

On April 6, 1999, the RDA authorized the removal of the middle portion of the Town Center parking facility as a leased asset for the 1998 COPs and the substitution of two parcels the City acquired from American Mall Properties (AMP).  The two parcels that were substituted consisted of the Macy’s surface lot and Penney’s surface lot.  Upon the substitution, the new assets under the 1998 Facility Lease were the remaining portions of the Town Center parking facility and the Macy’s and Penney’s parcels.  In late 2002, a four-story parking garage was built on the Penney’s parcel.

On August 17, 2004, the RDA approved a Disposition and Development and Owner Participation Agreement with Fourth Quarter Properties XLVIII, LLC for redevelopment of the Town Center Mall site (i.e. the Forum Development Group Project).  The Project includes the demolition of the Town Center parking facility, the two story structure located near Mathilda.  As a result, the City will need to remove the remaining portions of the Town Center parking facility as the asset that secures the 1998 Facility Lease. 

The land and improvements on the Macy’s and Penney’s parcels will remain as the assets under the 1998 Facility Lease.  Originally, the Penney’s lot was a surface parking lot.  As previously mentioned, a four story parking structure was built on the parcel in 2002. Based on an appraisal completed for the Macy’s and Penney’s parcels, the combined value of the land and improvements on both parcels is above par amount of the outstanding 1998 COPs.  The combined value of the land and improvements is $18,469,247.  (This includes the value of approximately $12.3 million for the four story parking structure built on the Penney’s parcel.)  The par amount of the outstanding bonds is $14,465,000.  As a result, the annual fair market rental value of the remaining assets can be determined to be above the maximum annual debt service on the 1998 COPs.  

Existing Policy

1998 Certificates of Participation – Article II, Section 2.06: Substitution or Removal of Leased Property allows the lease to be amended to remove assets.

DISCUSSION

To complete the removal of the remaining portions of the Town Center parking facility from the leased asset pledge, the 1998 COP documents require that the following items be executed by the City and the RDA.  A separate item came before the City Council at tonight’s City Council meeting.

1. Delivery of Officer’s Certificate of City

The Director of Finance must provide a certificate containing the following:

1. Legal Description - A description of the leased asset to be released.
2. Annual Rental Payments – Certifying that the annual fair market rental value of the leased property after the removal is at least equal to the maximum annual rental payments on the leased asset before the removal.
3. Rating Agency Letters – From Moody’s Investors Service and Standard & Poor’s affirming that the “Aaa” and “AAA” ratings on the 1998 COPs will not change as a result of the asset removal. 

2. Amendment of 1998 COP Documents 

Jones Hall, the Bond Counsel for the 1998 COPs, has prepared amendments to the following existing COP documents, to be executed by the City and the RDA:

1. Second Amendment to the Facility Lease – Further amends the 1998 Facility Lease to remove the remaining parcels of the existing Town Center parking facility from the leased property.
2. Assignment Agreement – Amendment of the original Assignment Agreement whereby the Agency transfers its right to receive Base Rental Payments to the Trustee.
3. Termination Agreement – Terminates the original 1998 COP Facility Lease and Assignment Agreement with respect to the property to be released, and puts into effect the amended Facility Lease and Assignment Agreement with respect to the remaining property.

3. Delivery of Bond Counsel Opinion 

Upon completion of the above actions the bond counsel, Jones Hall will deliver an opinion stating that the removal documents have been duly authorized and executed and serve as valid and binding obligations of the City and RDA. 

FISCAL IMPACT

There is no fiscal impact associated with the asset removal. The asset removal meets the requirements set forth by the COP documents.

Conclusion

Since the Forum Development Group Project includes demolition of the Town Center parking facility, the two story parking structure located near Mathilda, the City will need to remove the remaining portions of the Town Center parking facility as assets under the 1998 Facility Lease.  The Macy’s surface parking lot and the Penney’s land and the four story improvement provide sufficient value to allow this release. 

PUBLIC CONTACT

Public contact was made through posting of the agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, and the availability of the report in the Library and the City Clerk’s Office.  

ALTERNATIVES

1. Adopt the resolution set forth in Attachment A which authorizes the asset removal and directs the appropriate parties to sign the necessary documents.

2. Do not authorize the asset removal.

RECOMMENDATION

Staff recommends Alternative 1.

Prepared by:

Therese B. Balbo
Finance Manager 

Reviewed by:

Mary J. Bradley
Agency Treasurer

Approved by:

Amy Chan
Executive Director

Attachments

A. Resolution Approving and Authorizing Execution of Documents in Connection with the Removal of Property under the 1998 Facility Lease with the Redevelopment Agency of the City of Sunnyvale (.pdf format)
B. Officer’s Certificate of City (.pdf format)
C. Second Amendment to Facility Lease (.pdf format)
D. Assignment Agreement (.pdf format)
E. Termination Agreement (.pdf format)