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Recommendation to Approve an Amendment to the Construction Ground Lease Deed of Trust (with Security Agreement, Fixture Filing and Assignment of Rents and Leases) for the Alameda Theater Allowing Alameda Entertainment Associates, L.P. to Incur Additional Debt in the Amount of $1.6 Million for Theatre Upgrades and Allowing the Successor Agency’s Outstanding Loan to be Subordinate to Such Additional Debt. [SACIC] (Base Reuse and Community Development 207)
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To: Honorable Chair and Members of the Successor Agency to the Community Improvement Commission
From: David L. Rudat, Interim City Manager
EXECUTIVE SUMMARY
In 2005, the Community Improvement Commission (CIC) of the City of Alameda (City) (now the Successor Agency to the CIC) entered into a Disposition and Development Agreement (DDA) with Alameda Entertainment Associates, L.P., a California limited partnership, for the redevelopment of the Alameda Theater. As part of the DDA, a number of documents were executed in support of project implementation. One of these documents is a Construction Ground Lease Deed of Trust (with Security Agreement, Fixture Filing and Assignment of Rents and Leases) (Deed of Trust). (Exhibit 1). This requested action would amend the Deed of Trust to allow Alameda Entertainment Associates, L.P. to assume additional private debt in the amount of $1.6 million, to which the Successor Agency would subordinate its outstanding loan balance of approximately $1.2 million. Alameda Entertainment Associates, L.P. proposes to use the funds to upgrade the theater and cineplex’s seating and institute reserved seating.
BACKGROUND
Restoration of the Alameda Theater and construction of the cineplex and downtown parking garage was a major redevelopment project that anchored the revitalization of Park Street and the surrounding downtown neighborhood. This redevelopment project was a partnership between the CIC and Alameda Entertainment Associates, L.P. and has been successfully operating for the past ten years. Kyle Conner, the General Partner for Alameda Entertainment Associates, L.P., is an active member of Alameda’s business community, serving in a leadership capacity in the Downtown Alameda Business Association, supporting numerous non-profit organizations, and sponsoring free community screenings for events such as the America’s Cup, the NBA play-offs, and Oscar Night.
In January 2019, Mr. Conner approached the City to request that the Successor Agency agree to subordinate its outstanding loan to additional bank financing. Mr. Conner proposes to secure a new $1.6 million loan to upgrade the theater and cineplex seating. The bank is requiring that the Successor Agency subordinate its loan to this new financing. An amendment to the Deed of Trust is required to approve the requested new loan and the Successor Agency’s subordination to that additional debt. The Amendment to the Deed of Trust, substantially in the form that will be executed is attached as Exhibit 2.
DISCUSSION
The Alameda Theater DDA states that Alameda Entertainment Associates, L.P. may borrow $4.2 million in private debt for construction and furniture, fixtures and equipment (FF&E) financing, and that the CIC will provide a $1.4 million loan for the theatre project for total debt of $5.6 million. The DDA also allows the Successor Agency’s $1.4 million loan to be subordinated to the $4.2 million in private financing. However, the deed of trust that secures the Successor Agency’s loan requires that the Successor Agency consent to Alameda Entertainment Associates, L.P. taking on any additional debt, and does not permit subordination by the Successor Agency to any debt beyond what is described above.
Over the past ten years, Alameda Entertainment Associates, L.P. has paid down its private debt to $2.8 million and its Successor Agency loan to approximately $1.2 million. Based on the language of the DDA described above, there is currently capacity for Alameda Entertainment Associates, L.P. to take on an additional $1.6 million in private debt.
Though the new outstanding private debt will total $4.4 million, the Successor Agency loan has been paid down by $200,000 to approximately $1.2 million. As a result, the total new debt will not exceed $5.6 million, which is consistent with the maximum debt contemplated in the DDA. Similarly, the Successor Agency’s subordination of its now reduced loan sum to this total debt sum remains consistent with the language of the DDA.
As described above, the deed of trust is the instrument that secures the promissory note memorializing the Successor Agency’s loan. Since the deed of trust requires that the Successor Agency consent to Alameda Entertainment Associates, L.P. taking on any additional debt and does not permit subordination by the Successor Agency to any debt/lien beyond what is described above, staff is recommending approval of Alameda Entertainment Associates, L.P. incurring additional debt in the amount of $1.6 million for theatre upgrades and approval of an amendment to the deed of trust allowing the Successor Agency’s outstanding loan to be subordinated to this additional debt and lien.
Mr. Conner has diligently performed on his obligations pursuant to the DDA and related documents. He has paid off one Successor Agency loan and continues to pay down the remaining loans, he pays his rent timely, and the Successor Agency shares in percentage rent arising from the success of the theater. Mr. Conner now proposes to reinvest in the theater to continue to improve his business and remain competitive in the market. This reinvestment will benefit his business and downtown Park Street and allow for continued compliance with DDA requirements. Approval of the amendment to the deed of trust will permit the proposed theater upgrades to proceed.
FINANCIAL IMPACT
Approving an amendment to the deed of trust for the Alameda Theater project to allow subordination of the existing Successor Agency loan to an additional bank loan has no impact on the General Fund. The original $1.4 million loan is subordinate to $4.2 million in private debt. The original loan has been reduced to approximately $1.2 million, and will now be subordinate to $4.4 million in private debt ($2.8 million original remaining debt + $1.6 million in new debt). The Successor Agency is in substantially the same position as when it initially subordinated its loan.
MUNICIPAL CODE/POLICY CROSS-REFERENCE
This action(s) is consistent with the approved Alameda Municipal Code and the DDA referred to herein.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, pursuant to CEQA Guidelines section 15378.
RECOMMENDATION
Approve an amendment to the Construction Ground Lease Deed of Trust (with Security Agreement, Fixture Filing and Assignment of Rents and Leases) for the Alameda Theater allowing Alameda Entertainment Associates, L.P. to incur additional debt in the amount of $1.6 million for Theatre upgrades and allowing the Successor Agency’s outstanding loan to be subordinate to such additional debt.
Respectfully submitted,
Debbie Potter, Base Reuse and Community Development Director
Financial impact section reviewed by,
Elena Adair, Finance Director
Exhibits:
1. Construction Ground Lease Deed of Trust
2. Amendment to Deed of Trust