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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 March 16, 2021 Item #2 Page 16 of 25 EXHIBIT 1 QUARTERLY REPORT TRAILING 12 MONTH OCCUPANCY AND RATE CALCULATION March 16, 2021 Item #2 Page 17 of 25 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 March 16, 2021 Item #2 Page 19 of 25 March 16, 2021 Item #2 Page 20 of 25 March 16, 2021 Item #2 Page 21 of 25 March 16, 2021 Item #2 Page 22 of 25 March 16, 2021 Item #2 Page 23 of 25 March 16, 2021 Item #2 Page 24 of 25 March 16, 2021 Item #2 Page 25 of 25