HomeMy WebLinkAbout2021-03-16; Public Financing Authority; ; First Amendment to the Ground Lease Agreement with Grand Pacific Hotel, L.P. for the Property Known as The Crossings at Carlsbad West View Lot 9Meeting Date: March 16, 2021
To: Chair and Board Members
From: Scott Chadwick, City Manager
Staff Contact: Gary T. Barberio, Deputy City Manager, Community Services Branch
gary.barberio@carlsbadca.gov, 760-434-2822
Curtis M. Jackson, Real Estate Manager
curtis.jackson@carlsbadca.gov, 760-434-2836
Subject: First Amendment to the Ground Lease Agreement with Grand Pacific
Hotel, L.P. for the Property Known as The Crossings at Carlsbad West
View Lot 9
District: 2
Recommended Action
Adopt a resolution (Exhibit 1) approving the First Amendment to the Ground Lease Agreement
(Attachment A to Exhibit 1) with Grand Pacific Carlsbad Hotel, LP to:
1)Reduce the number of Sheraton hotel rooms required in Phase 2 from 31 rooms to 25
junior suites
2)Extend the additional Sheraton building’s “outside completion date” from Aug. 31,
2022, to Dec. 31, 2026
3)Add a provision for early construction of Phase 2 if certain metrics are met for the
property known as The Crossings at Carlsbad West View Lot 9 and authorize the city
manager to execute the First Amendment to the Agreement and any related future
actions
Executive Summary
Because of the impacts associated with the COVID-19 pandemic, Grand Pacific Carlsbad Hotel,
LP has requested an amendment to their ground lease agreement to:
1)Reduce the number of Sheraton hotel rooms required in Phase 2 from 31 rooms to 25
junior suites
2)Extend the additional Sheraton building’s outside completion date from Aug. 31, 2022,
to Dec. 31, 2026
3)Add a provision that if market conditions improve before July 1, 2024, to the point that
the new Sheraton and Westin hotels combined obtain an average daily rate of $230 per
night, as adjusted by an index, and achieve average occupancy rates of a minimum 80%
on a trailing 12-month basis, then Grand Pacific shall complete construction of Phase 2
within 24 months.
March 16, 2021 Item #2 Page 1 of 25
Grand Pacific has satisfied all other terms of the agreement and city staff recommends that the
Public Financing Authority Executive Board grant Grand Pacific’s requests to amend the
agreement and authorize the city manager to execute the First Amendment to the Agreement
and any related future actions.
Discussion
Requirements of the agreement
The City Council executed a 55-year ground lease agreement with Grand Pacific on Dec. 15,
2016, for Grand Pacific to construct and operate a Westin hotel, The Westin Carlsbad Resort &
Spa, and timeshare units, MarBrisa Carlsbad Resort, on the property known as The Crossings at
Carlsbad West View Lot 9, as well as operate a Sheraton hotel, the Sheraton Carlsbad Resort &
Spa, on the property owned by Grand Pacific. The current agreement requires Grand Pacific to
ultimately develop at least 400 total hotel rooms, 200 Westin and 200 Sheraton rooms, and at
least 32 timeshare units on Lot 9 and on property owned by Grand Pacific in two phases as
follows:
Phase 1 – Lot 9
In Phase 1, Grand Pacific was required to convert at least 129 existing Sheraton hotel rooms on
Grand Pacific’s property to Westin hotel rooms and construct at least 71 new Westin hotel
rooms on Lot 9, for a total of 200 Westin rooms, by Feb. 28, 2021. Grand Pacific met this
requirement by converting 1290 existing Sheraton rooms to 130 Westin rooms and
constructing 78 new Westin rooms on Lot 9, for a total of 208 Westin branded rooms, or eight
more Westin rooms than required under the agreement, with one more on Grand Pacific’s
property and seven more on Lot 9. The new Westin hotel rooms opened on Aug. 9, 2018, more
than two-and-a-half years earlier than required.
In addition, in Phase 1, Grand Pacific was also required to commence construction of at least 32
new timeshare units on Lot 9 by Dec. 15, 2018, with construction to be completed within 18-
months of commencement, or by June 15, 2020. Grand Pacific met this requirement by
constructing 36 new timeshare units on Lot 9, four more than required. These units were
completed on June 28, 2019, approximately one year earlier than required.
Upon the opening of the 78 new Westin hotel rooms and the 36 timeshare units on Lot 9, the
agreement required Grand Pacific to make ground lease payments of $159,966 per year to the
city for the first five years of the 55-year agreement, with certain rent escalators imposed in
agreement’s remaining 50 years.
Phase 1 – Sheraton
In Phase 1, Grand Pacific was required to maintain 121 existing Sheraton hotel rooms on its
property and to construct 48 new Phase 1 Sheraton hotel rooms on its property which were to
be completed and open for business to the public on or before Feb. 28, 2021. Grand Pacific met
this requirement by constructing 48 new Sheraton hotel rooms, for a total of 169 existing
Sheraton hotel rooms. These rooms opened on May 31, 2018, almost three years earlier than
required.
March 16, 2021 Item #2 Page 2 of 25
Phase 1 - Combined Lot 9 and Sheraton results
Grand Pacific satisfied or exceeded all requirements of Phase 1 of the agreement significantly
earlier than required by the agreement. The completion of Phase 1 resulted in a total of 377
hotel rooms, 208 of them Westin and 169 Sheraton, and 36 timeshare units for the MarBrisa
Carlsbad Resort. Seventy-eight of the 208 Westin rooms and the 36 MarBrisa timeshare units
were constructed on Lot 9, with the remainder of 299 hotel rooms –130 Westin and 169
Sheraton – located on property owned by Grand Pacific. The 377 hotel rooms completed in
Phase 1 represent 94% of the 400 hotel rooms expected under the agreement, which called for
200 Westin and 200 Sheraton rooms.
Phase 1 also resulted in 208 Westin hotel rooms, eight more than the 200 required by the
agreement, and 36 timeshare units, four more than required. This resulted in the city receiving
greater transient occupancy tax (TOT), sales tax and property tax than expected, due to the
greater Westin hotel room count and timeshare unit count, and the city received these taxes
earlier than expected as a result of the early opening dates of Phase 1.
In addition, Grand Pacific has continued to make the Lot 9 ground lease payments to the city
throughout the life of the agreement, including throughout the pandemic. The Westin Carlsbad
Resort & Spa has been closed since March 2020, and the sales center for the timeshare units
has been closed for a similar period as the Westin hotel. Even with these closures, Grand Pacific
has been timely in its ground lease payments to the city. It has also been diligent in abiding by
all state and county health orders.
Phase 2 – Sheraton
In Phase 2, under the existing terms of the agreement, Grand Pacific is required to construct 31
new Phase 2 Sheraton hotel rooms on property owned by Grand Pacific by Aug. 31, 2022, for a
Phase 1 and Phase 2 combined total of 200 Sheraton rooms. It is important to note that the
agreement did not specify the type of Sheraton hotel room, that is, a standard room versus a
suite, to be built in either Phase 1 or Phase 2.
Current hotel and tourism conditions
Since early 2020, the COVID 19 pandemic has severely impacted the hotel and tourism industry.
Two of the leading hospitality valuation firms in the country, CBRE and Hospitality Valuation
Consultants, are indicating that the combined average daily rate1 and occupancy rates will not
return to 2019 levels until the end of 2024, or possibly until 2025. Smith Travel Research, the
firm that tabulates and publishes historical hotel average daily rate and occupancy results
nationwide, reports that the total hotel room revenue in Carlsbad was 59.4% lower in 2020
than in 2019. The recovery for the hotel industry is expected to be slow for the next few years.
The impacts from the COVID 19 pandemic have been equally severe on the Grand Pacific
properties that are subject to the agreement, the Sheraton Carlsbad Resort & Spa, Westin
Carlsbad Resort & Spa and the MarBrisa Carlsbad Resort. As mentioned above, the Westin hotel
1 The average daily rate represents the average rental income per paid occupied room in a given time
period. It is used along with occupancy rates as the basic measure of financial performance in the lodging industry.
March 16, 2021 Item #2 Page 3 of 25
has been closed since March 2020 and the sales center for the timeshare units has been closed
for a similar period. While the Sheraton hotel has remained open, the pandemic’s impacts,
including the state and county health orders, have greatly reduced the hotel’s average daily
rate and occupancy rates.
It was the impacts of the COVID 19 pandemic on the hotel industry that led Grand Pacific to
approach the city requesting amendments to the Phase 2 - Sheraton requirements of the
agreement.
Grand Pacific’s lease amendment request
On January 25, 2021 (Exhibit 2), Grand Pacific requested that the agreement be amended to:
1) Reduce the number of hotel rooms required in Phase 2 – Sheraton from 31 non-
specified room types to 25 junior suite rooms that will be of approximately 370 to 420
square feet per room
2) Extend the “outside completion date” for the Phase 2 – Sheraton rooms from Aug. 31,
2022 to Dec. 31, 2026
3) Add a provision that if conditions in the hotel market improve before July 1, 2024, such
that the new Sheraton and Westin hotels combined obtain an average daily rate of $230
per night, as adjusted by an index, and achieve average occupancy rates of a minimum
of 80% on a trailing 12-month basis, then Grand Pacific shall complete construction of
the Phase 2 – Sheraton rooms within 24 months, provided that Grand Pacific may
request one, three-month extension to the 24-month time period, which may be
granted by the city manager.
Phase 2 – Sheraton room count reduction request
Under the terms of the agreement, Grand Pacific was to construct at least 31 new Sheraton
hotel rooms on its property in Phase 2 for a total at least 200 Sheraton hotel rooms and an
overall combined total of at least 400 Westin and Sheraton hotel rooms. The agreement did not
specify the type of room to be constructed in Phase 2. Grand Pacific is requesting that the
agreement be amended to reduce the required Phase 2 room count by six rooms, from 31
rooms to 25 rooms, with the 25 new rooms specified to be junior suites of about 370 to 420
square feet per room.
This lease amendment request is supportable for two reasons. First, the agreement was silent
on the type of room to be constructed in Phase 2. Grand Pacific could build 31 standard rooms
of about 240 square feet and still be compliant with the agreement. Grand Pacific has prepared
an analysis comparing the projected results of building 31 standard rooms versus the 25 junior
suites of approximately 370 to 420 square feet that it is proposing (Exhibit B to Staff Report
Exhibit 2). The 25 junior suites will generate about $336,880 more annual room revenue than
will the 31 standard rooms. This would equate to $33,688 more TOT revenue to the city a year,
or, over the remaining lease period with no increase in room rates, between approximately
$966,000 to $1,684,000 more city TOT.
The second reason the Phase 2 room count reduction request is supportable is that the
agreement anticipated an overall combined Westin and Sheraton hotel room count of at least
400 rooms. The completion of Phase 1 resulted in a total of 377 hotel rooms, with 208 Westin
March 16, 2021 Item #2 Page 4 of 25
rooms and 169 Sheraton rooms. With the completion of the 25 requested Phase 2 Sheraton
rooms, the combined Westin and Sheraton hotel room count would be 402, with 208 Westin
rooms and 194 Sheraton rooms, or two more than the total hotel room count of 400 expected
under the agreement. In addition, the Westin’s 208 hotel room count exceeds the 200 rooms
expected under the agreement. The average daily room rates at the Westin are higher than the
rates at the Sheraton, so the overall revenue generated at the Westin hotel is higher, as is the
TOT revenue to the city.
Phase 2 – Sheraton outside completion date extension
The agreement requires Grand Pacific to complete construction of 31 new Phase 2 Sheraton
hotel rooms by Aug. 31, 2022. Grand Pacific is requesting that the “outside completion date”
specified in the agreement be extended from Aug. 31, 2022, to Dec. 31, 2026.
This lease amendment request is supportable due to the severe impacts the COVID-19
pandemic has had on the hotel and tourism industry since early 2020, as detailed above. Grand
Pacific believes that if the required Phase 2 - Sheraton rooms are built sooner than 2026, they
would not only sit vacant, but would erode the average daily rates of both the existing Sheraton
and Westin hotel rooms, which would result in lower overall revenue for Grand Pacific – and
lower TOT revenues for the city – for a longer period of time than if the Phase 2 - Sheraton
rooms were not built until the overall hotel market recovers.
The requested outside completion date extension also does not impact the Lot 9 ground lease
payments the city receives annually from Grand Pacific. As stated above, under the agreement,
Grand Pacific is required to make ground lease payments of $159,966 per year to the city for
the first five years of the 55-year agreement, with certain rent escalators imposed in the
remaining 50 years of the agreement. These ground lease payment requirements will remain in
place even if the outside completion date extension request is approved. Grand Pacific has
been timely in its ground lease payments to the city throughout the COVID 19 pandemic. In
addition, in the First Amendment to the Ground Lease Agreement (Attachment A to Exhibit 1),
Grand Pacific has agreed to not request rent relief or deferral from the city for rent previously
paid or owed to city or for rent which will become due within nine months from the effective
date of the amended agreement.
Phase 2 – Sheraton early construction provision
As stated above, it is expected that the recovery from the COVID 19 pandemic’s impact on the
hotel industry is going to be slow for the next few years. However, due to the uncertain future
of the hotel industry, both the city and Grand Pacific are recommending that the lease
amendment request include a provision that, if the hotel market conditions improve before July
1, 2024, such that the combined New Sheraton Resort and Westin Hotel obtain an average daily
rate of $230 per night, as adjusted by an index, and achieve average occupancy rates of a
minimum of 80% on a trailing 12-month basis, then Grand Pacific shall complete construction of
the 25 Phase 2 – Sheraton rooms within 24 months, provided that Grand Pacific may request
one, three-month extension to the 24-month time period, which may be granted by the city
manager.
March 16, 2021 Item #2 Page 5 of 25
The early construction provision of the lease amendment request is supportable in that it
requires Grand Pacific to complete construction of the 25 Phase 2 Sheraton rooms sooner than
Dec. 31, 2026, should the hotel industry bounce back quicker than expected. The specific terms
are also reasonable in that the first full year of operations for the combined Phase 1, 377-rooms
of the Westin and Sheraton hotels was 2019.
Under the current agreement, Grand Pacific would have needed to start construction of the
Phase 2 Sheraton rooms by August 2020 to achieve the construction completion date of Aug.
31, 2022. Prior to the COVID-19 pandemic, Grand Pacific was on track to reach 80% occupancy
and a $230 average daily rate threshold for the combined hotels by end of 2021. The 2019
occupancy was 78%, with an average daily rate of $193. The 78% occupancy and $193 average
daily rate compares to an average occupancy of 82.5% and a rate of $174 at the original 250-
room Sheraton hotel between 2015-2018. An increase in average daily rate of $19, from $193
to $174, represents an 11% increase. Grand Pacific is confident that the average daily rate
would have increased by at least 9% per year for years 2020 and 2021 for the two hotels
combined had the COVID-19 pandemic not occurred, resulting in an average daily rate of $230.
Hitting these thresholds would have provided Grand Pacific the economic conditions needed to
start construction of the Phase 2 Sheraton rooms by August 2020. If the combined hotels hit
these numbers before July 1, 2024, then Grand Pacific will start and complete construction of
the 25 Phase 2 Sheraton rooms within 24 months, provided that Grand Pacific may request one,
three- month extension to the 24-month time period, which may be granted by the city
manager.
Recommendation
Staff is recommending that the City Council support all three provisions of Grand Pacific’s lease
amendment request and adopt a resolution (Exhibit 1) approving the First Amendment to the
Ground Lease Agreement with Grand Pacific Carlsbad Hotel, LP for the property known as The
Crossings at Carlsbad West View Lot 9 and authorize the city manager to execute the First
Amendment to the Ground Lease Agreement (Attachment A to Staff Report Exhibit 1) and any
related future actions.
Fiscal Analysis
Phase 2 - Sheraton room count reduction request
In its lease amendment request, Grand Pacific is committing to build 25 junior suites that are
approximately 370 to 420 square feet per room. Grand Pacific has prepared an analysis
comparing projected results of building 31 standard rooms versus 25 junior suites (Exhibit B to
Staff Report Exhibit 2). The 25 junior suites are projected to generate approximately $336,880
more annual room revenue than will 31 standard rooms. This would equate to $33,688 more
TOT revenue to the city annually, or, over the remaining lease period with no increase in room
rates, between approximately $966,000 to $1,684,000 more in TOT revenue to the city.
Phase 2 - Sheraton outside completion date extension request
Grand Pacific pays a flat rental fee to the city with 2% annual increases from years five through
55 and a percentage of rent tied to occupancy rates if the average annual occupancy for the
Westin hotel is over 98%. It is not anticipated that Grand Pacific will have occupancy above 98%
over the next four-years due to COVID-19’s impact on the hotel industry. Therefore, the
March 16, 2021 Item #2 Page 6 of 25
granting of the four-year outside completion date extension will not reduce the lease term
period, fixed annual rent or occupancy related percentage rent received over the lease term
period and there is no financial impact due to the extension of the outside completion date. In
addition, in the First Amendment to the Ground Lease Agreement (Attachment A to Exhibit 1),
Grand Pacific has agreed to not request rent relief or deferral from the city for rent previously
paid or owed to city or for rent which will become due within nine months from the effective
date of the amended agreement.
Phase 2 – Sheraton early construction provision
As stated above, it is anticipated that hotel room demand will not rebound to 2019 levels for
several years, until 2024 or possibly until 2025, because of the pandemic’s impact on the hotel
industry. However, should the hotel market dramatically improve sooner than expected, the
city could receive the benefit of increased TOT revenue from the construction of the 25 Phase 2
Sheraton junior suites.
Next Steps
Grand Pacific and city staff will continue to implement the terms of the amended agreement.
Environmental Evaluation
An environmental impact report was prepared for the Westin Hotel and Timeshare in
accordance with the California Environmental Quality Act, the CEQA Guidelines, and the
Environmental Protection Procedures (Title 19) of the Carlsbad Municipal Code. The report
addressed the environmental impacts associated with all discretionary applications for the
proposed project, including ultimate build-out of the entire project. It concluded that all
environmental impacts would be mitigated to a less than significant impact. The City Council
certified the environmental impact report on Feb. 23, 2016. This project proposes a reduction
in the number of units to be constructed and would have less of an impact than the original
project scope that was analyzed. None of the conditions described in CEQA guidelines Section
15162 apply to this project in that the project will remain consistent with the previous
environmental impact report, the change will not cause significant effects on the environment
that were not examined in the previous report, and all public agencies that propose to carry out
or approve this change may utilize the prior environmental impact report to fulfill the
requirements of CEQA. Therefore, any potential environmental impacts caused by this project
were adequately examined by the previous environmental impact report and no further
environmental review is required.
Public Notification
Public notice of this item was posted in keeping with the state's Ralph M. Brown Act and it was
available for public viewing and review at least 72 hours before the scheduled meeting date.
Exhibits
1. Public Financing Authority resolution
2. Grand Pacific lease amendment request dated Jan. 25, 2021
March 16, 2021 Item #2 Page 7 of 25
RESOLUTION NO. 83
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CARLSBAD PUBLIC
FINANCING AUTHORITY OF THE CITY OF CARLSBAD, CALIFORNIA,
APPROVING THE FIRST AMENDMENT TO THE GROUND LEASE
AGREEMENT WITH GRAND PACIFIC CARLSBAD HOTEL, L.P. TO: 1) REDUCE
THE NUMBER OF SHERATON HOTEL ROOMS IN PHASE 2 FROM 31
ROOMS TO 25 JUNIOR SUITES; 2) EXTEND THE ADDITIONAL SHERATON
BUILDING OUTSIDE COMPLETION DATE FROM AUG. 31, 2022 TO DEC. 31,
2026; AND, 3) ADD A PROVISION FOR EARLY CONSTRUCTION OF PHASE 2
IF CERTAIN METRICS ARE MET, FOR THE PROPERTY KNOWN AS THE
CROSSINGS AT CARLSBAD WEST VIEW LOT 9, AND AUTHORIZE THE
EXECUTIVE DIRECTOR TO EXECUTE THE FIRST AMENDMENT TO THE
AGREEMENT AND ANY RELATED FUTURE ACTIONS
WHEREAS, the Public Financing Authority of the City of Carlsbad, California has determined that
on Dec. 15, 2016, the city entered into a 55-year Ground Lease Agreement (Agreement) with Grand
Pacific Carlsbad Hotel, L.P. (Grand Pacific), to construct and operate a Hotel at the property known as
The Crossings at Carlsbad West View Lot 9 (Lot 9) by Resolution No. 2016-228; and
WHEREAS, as part of Phase 1, Grand Pacific was required to convert at least 129 existing
Sheraton hotel rooms on Grand Pacific's property to Westin hotel rooms and construct at least 71 new
Westin hotel rooms on Lot 9, for a total of 200 Westin rooms, by Feb. 28, 2021.
WHEREAS, Grand Pacific met this requirement by converting 130 existing Sheraton rooms to
Westin rooms and constructing 78 new Westin rooms on Lot 9, for a total of 208 Westin branded
rooms, or eight more Westin rooms than required under the Agreement; and
WHEREAS, as part of Phase 1, Grand Pacific was required to maintain 121 existing Sheraton
hotel rooms on property owned by Grand Pacific and to construct 48 new Phase 1 Sheraton hotel rooms
to be completed and open for business to the public on or before Feb. 28, 2021; and
March 16, 2021 Item #2 Page 8 of 25
WHEREAS, in addition, in Phase 1 Grand Pacific was also required to commence construction of
at least 32 new timeshare units on Lot 9 by Dec. 15, 2018, with construction to be completed within
18-months of commencement, or by June 15, 2020; and
WHEREAS, Grand Pacific met this requirement by constructing 36 new timeshare units (four
more than required) on Lot 9 that were completed on June 28, 2019, approximately one year earlier
than required; and
WHEREAS, by June 1, 2018, all Phase 1 requirements were met by Grand Pacific; and
WHEREAS, as part of Phase 2, Grand Pacific was required to develop 31 new Sheraton Hotel
Rooms to be completed and open for business to the public on or before Aug. 31, 2022; and
WHEREAS, Grand Pacific anticipates that COVID-19 will impact the tourism industry so adversely
as to make it economically unfeasible to develop the 31 new rooms required in Phase 2 by Aug. 31,
2022, and anticipates room occupancy to not rebound for at least four years; and
WHEREAS, Jan. 25, 2021, Grand Pacific requested that the Agreement be amended as follows:
1) reduce the number of hotel rooms required in Phase 2 —Sheraton from 31 non-specified room types
to 25 junior suite rooms that will be of approximately 370 to 420 square feet per room; 2) extend the
Outside Completion Date for the Phase 2 — Sheraton rooms from Aug. 31, 2022 to Dec. 31, 2026; and
3) add a provision that if the hotel market conditions improve before July 1, 2024, such that the
combined New Sheraton Resort and Westin Hotel obtain an average daily rate (ADR) of $230 per night,
as adjusted by an index, and achieve average occupancy rates of a minimum of eighty percent (80%)
on a trailing 12-month basis, then Grand Pacific shall complete construction of the Phase 2 — Sheraton
rooms within twenty-four (24) months; and
WHEREAS, staff recommends that the Public Financing Authority support all three provisions of
Grand Pacific's lease amendment request and adopt a resolution approving the First Amendment to
March 16, 2021 Item #2 Page 9 of 25
the Ground Lease Agreement with Grand Pacific Carlsbad Hotel, L.P for the property known as The
Crossings at Carlsbad West View Lot 9, and authorize the executive director to execute the First
Amendment to the Ground Lease Agreement and any related future actions; and
WHEREAS, reducing the number of Sheraton Hotel Rooms in Phase 2 from 31 rooms to 25 junior
suites; 2) extending the Additional Sheraton Building Outside Completion Date from Aug. 31, 2022 to
Dec. 31, 2026; and, 3) adding a provision for early construction of Phase 2 if certain metrics are met,
will neither reduce the term of the entire Agreement nor the ground lease payments to be received
under the Agreement.
NOW, THEREFORE, BE IT RESOLVED by the Public Financing Authority Board of the City of
Carlsbad, California, as follows that:
1.The above recitations are true and correct.
2.That the First Amendment to the Ground Lease Agreement, attached hereto as Attachment
A, is hereby approved.
3.That the executive director, or his designee, is hereby authorized to execute the First
Amendment to the Ground Lease Agreement, attached hereto as Attachment A, and to act
on behalf of the Public Financing Authority in all future decisions and actions necessary to
implement the First Amendment to the Ground Lease Agreement, and to do so in full
compliance with the terms and conditions expressed in the aforementioned Agreement and
to the satisfaction of the General Counsel.
March 16, 2021 Item #2 Page 10 of 25
PASSED, APPROVED AND ADOPTED at a Special Meeting of the Public Financing Authority of
the City of Carlsbad on the 16th day of March, 2021, by the following vote, to wit:
AYES: Hall, Blackburn, Acosta, Bhat-Patel, Schumacher.
NAYS: None.
ABSENT: None.
MATT HALL, CHAIRMAN OF THE BOARD
ATTEST:
BARBARA ENGLESON, SECRETARY
(SEAL)
March 16, 2021 Item #2 Page 11 of 25
FIRST AMENDMENT TO GROUND LEASE
THIS FIRST AMENDMENT TO GROUND LEASE ("Amendment") is executed as
of ntqAtt 1.0 , 2021 ("Effective Date") by and between THE CARLSBAD PUBLIC
FINANCING AUTHORITY, a joint powers authority formed by the City of Carlsbad and the
Carlsbad Municipal Water District ("Landlord") and GRAM) PACIFIC CARLSBAD HOTEL,
L.P., a Delaware limited partnership ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant entered into that certain Ground Lease dated
December 15, 2016 ("Ground Lease"), as evidenced by that certain Memorandum of Lease dated
December 15, 2016 and recorded as Document No. 2016-0689339 in the Official Records of San
Diego County. All capitalized terms used in this Amendment and not otherwise defined shall have
the meanings assigned to them in the Ground Lease.
WHEREAS, GRAND PACIFIC CARLSBAD, L.P., a California limited partnership
("Guarantor"), has entered into that certain Guaranty of Completion and Limited Payment
Obligations wherein, Guarantor has guaranteed, among other things, the completion of the
Additional Sheraton Building ("Guaranty").
WHEREAS, Phase 1 of the Additional Sheraton Building consisting of 48 rooms has been
completed.
WHEREAS, in accordance with that certain Memorandum from Landlord to Tenant dated
May 2, 2019, the Additional Sheraton Building Outside Completion date is currently August 31,
2022.
WHEREAS, due to the global pandemic caused by the 2019 Novel Coronavirus Disease
("COVID-19"), Tenant has requested an extension of the Additional Sheraton Building Outside
Completion Date to December 31, 2026 and to modify the Phase 2 hotel room requirements of
the Additional Sheraton Building, and Landlord has agreed to grant such an extension and
modification, all on the terms and conditions set forth in this Amendment.
NOW, THEREFORE, for and in consideration of the mutual agreements hereinafter
contained and other good and valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, Landlord and Tenant agree as follows:
AGREEMENT
1. Modification of Rooms in Phase 2 of Additional Sheraton Building.
Notwithstanding anything to the contrary set forth in the Ground Lease, including Section 1.2,
Phase 2 of the Additional Sheraton Building is reduced from consisting of at least 31 hotel rooms
to at least 25 hotel rooms, all of which shall be junior suites of approximately 370 to 420 square
feet per room.
March 16, 2021 Item #2 Page 12 of 25
2. Additional Sheraton Building Outside Completion Date. Notwithstanding anything to the contrary set forth in the Ground Lease, the Additional Sheraton Building Outside
Completion Date shall be December 31, 2026.
3. Commencement of Construction of Additional Sheraton Building. Notwithstanding the Additional Sheraton Building Outside Completion Date defined in Section 2 of this Amendment, if the market conditions improve before July 1, 2024, such that the combined
New Sheraton Resort and Westin Hotel obtain an average daily rate (ADR) of $230 per night, as
adjusted by the Index (defined below), and achieve average occupancy rates of a minimum of eighty percent (80%) on a trailing 12-month basis (“Measurement Month”), then Tenant shall complete construction of Phase 2 of the Additional Sheraton Building within twenty-four (24) months. If requested by the Tenant in writing at least thirty (30) days prior to the end of the twenty-
four (24) month period, the City Manager of the City of Carlsbad may grant one (1), three (3)
month extension to the twenty-four (24) month time period. (a) Commencing with the quarter ending March 31, 2021 and continuing until the quarter ending June 30, 2024, Tenant will provide to Landlord on a
quarterly basis a report for each of the preceding three (3) months in the
form of Exhibit 1, attached and incorporated herein, within thirty (30) days after the end of each calendar quarter. By way of example, the first report is due April 30, 2021 for the months of January, February and March.
(b) As referenced herein, “Index” means the Consumer Price Index for All Urban Consumers for San Diego-Carlsbad, California, All Items (Base Period 1982-84=100) published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is changed so the base year differs
from that in effect for purposes of measuring market conditions the Index
will be converted in accordance with the conversion factor published by the U.S. Department of Labor, Bureau of Statistics.
(c) For purposes of measuring an adjustment of the ADR, ADR will be
adjusted to an amount equal to the product obtained by multiplying the
ADR by a fraction, the numerator of which is the Index published nearest but prior to the Measurement Month and the denominator of which is the average Index rate published for 2020 (CPI-Urban for San Diego-Carlsbad average for 2020 = 305.126).
4. No Relief for Payment of Annual Rent. Tenant shall at no time request rent relief
or deferral from Landlord for Rent previously paid or owed to Landlord or for Rent which will
become due within nine (9) months from the Effective Date of this Amendment. 5. Confirmation. Tenant represents and warrants to Landlord that: (i) Tenant is not in default of performing any of its obligations under the Ground Lease nor do there exist any events
which, given the passage of time or notice or both, would give rise to a default on the part of
Tenant in performing any of its obligations under the Ground Lease, (ii) to Tenant’s actual
March 16, 2021 Item #2 Page 13 of 25
knowledge as of the Effective Date there are no defaults existing on the part of Landlord in performing any of its obligations under the Ground Lease, nor any events which, given the passage
of time or notice or both, would give rise to a default on the part of Landlord in performing any of
its obligations under the Ground Lease, (iii) Tenant has no claim, defense or offset with respect to the Ground Lease or the payment of rent thereunder, and (iv) Tenant will continue to maintain payment of rent without rent relief as referenced in Section 4 above.
6. Ratification. Except as expressly amended hereby, all terms and conditions of the
Ground Lease are and shall continue to be in full force and effect and binding on the parties hereto, and the Ground Lease is hereby ratified and affirmed. All references to the Ground Lease shall mean the Ground Lease as amended hereby.
7. Miscellaneous. Whenever the term “include”, “including”, or “included” is used in
this Amendment, it shall mean “including without limiting the generality of the foregoing”. The headings of paragraphs and sub-paragraphs contained in this Amendment are merely for convenience of reference and shall not affect the interpretation of any of the provisions of this Amendment. The recitals to this Amendment are, and shall be construed to be, an integral part of
this Amendment. This Amendment is deemed to have been drafted jointly by the parties to this
Amendment, and any uncertainty or ambiguity shall not be construed for or against any party as an attribution of drafting to any party. If any provision of this Amendment is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Amendment shall nonetheless remain in full force and effect. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall constitute one and
the same instrument. Signatures transmitted by facsimile or as emailed PDF copies shall be binding as originals, and each party hereby waives any defenses to the enforcement of the terms of this Amendment sent by facsimile or emailed PDF based upon the manner of transmission or form of signature (electronic, facsimile or “ink original”). Landlord and Tenant hereby represent that each
party has the full power and authority to execute this Amendment and be bound by the terms hereof
without consent from any entity or person. [SIGNATURE PAGE FOLLOWS]
March 16, 2021 Item #2 Page 14 of 25
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date
first written above.
LANDLORD: THE CARLSBAD PUBLIC FINANCING
AUTHOR! , a oint powers authority formed by the
City of C lsbad d the Carlsbad Municipal Water
District
By:
Scott "dwick, City Manager
Attest:
Wvlitv
Barbara Engelson, City Clerk
(Seal)
Approved as to form and legality:
,
Celia Brewer, City Attorney 0.A...n • ..... IF &RN-0
TENANT: GRAND PACIFIC CARLSBAD HOTEL, L.P.,
a Delaware limited partnership
By: Grand Pacific Carlsbad Hotel, Inc.,
a Delaware corporation, its General Partner
imothy J. S pc, Ca-President
David S. Brown, Co-President
By:
By:
March 16, 2021 Item #2 Page 15 of 25
By:
Timothy J. Stri Co- resident
By:
David S. Brown, Co-President
ACKNOWLEDGMENT OF GUARANTOR
The undersigned hereby acknowledges the foregoing Amendment and agrees that the Guaranty
continues in full force and applies to the Ground Lease as amended hereby.
GUARANTOR:
GRAND PACIFIC CARLSBAD, L.P.,
a California limited partnership
By: Grand Pacific Development, Inc.,
a California corporation, its general partner
5
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EXHIBIT 1 QUARTERLY REPORT
TRAILING 12 MONTH OCCUPANCY AND RATE CALCULATION
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TRAILING 12 MONTH OCCUPANCY & RATE CALCULATIONWESTIN / SHERATON HOTELMonth / Year __________________Month Month Month Month Month Month Month Month Month Month Month Month12 Month123456789101112TotalProject Rooms377 377 377 377 377 377 377 377 377 377 377 377377Days in the MonthAvailable RoomsRooms OccupiedOccupancy %Total Room RevenueAverage Daily RateMarch 16, 2021Item #2 Page 18 of 25
Exhibit 2
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