Hotel Stockton & B&M Building Retail Space Agenda Item 6.14

Hotel Stockton & B&M Building Retail Space A resolution of the Redevelopment Agency of the City of Stockton (the “Agency”) Approving a Memorandum of Understanding (‘MOU”) between the Agency and Stockton City Center 16, LLC (“SCC 16”) as a framework for negotiating amendments to the Hotel Stockton Master Lease and to remove a commitment to the B&M Building, granted to Atlas Properties, Inc., a related entity to SCC 16, in a prior MOU, dated December 14, 2004.

Hotel Stockton & B&M Building

Background The Agency entered into an Amended and Restated Disposition, Development, Grant and Loan Agreement (the “DDA), dated as of July 9, 2002, with Hotel Stockton Investors, relating to the renovation of the Hotel Stockton, located at 133 East Weber Avenue, Stockton, California. Pursuant to the DDA, the Agency has the right to operate the approximately 25,000 square feet of retail space on the ground floor of the Hotel Stockton and related terrace space on the roof of the Hotel Stockton. The Agency entered into an Amended and Restated Disposition, Development, Grant and Loan Agreement (the “DDA), dated as of July 9, 2002, with Hotel Stockton Investors, relating to the renovation of the Hotel Stockton, located at 133 East Weber Avenue, Stockton, California. Pursuant to the DDA, the Agency has the right to operate the approximately 25,000 square feet of retail space on the ground floor of the Hotel Stockton and related terrace space on the roof of the Hotel Stockton.

Background (cont.) The Agency contracted with Stockton City Center 16, LLC (“SCC 16”), an entity related to Atlas, to provide management and leasing services for the ground floor and roof terrace spaces of the Hotel Stockton through a master lease with SCC 16 The Agency contracted with Stockton City Center 16, LLC (“SCC 16”), an entity related to Atlas, to provide management and leasing services for the ground floor and roof terrace spaces of the Hotel Stockton through a master lease with SCC 16

Background (cont.) The Agency also owns the B&M Building, located at 125 Bridge Place, Stockton, California. The Agency also owns the B&M Building, located at 125 Bridge Place, Stockton, California. The Agency granted Atlas Properties, Inc. (“Atlas”) an option to lease the B&M Building by a Memorandum of Understanding dated December 14, 2004 (the “Prior MOU”). The Agency granted Atlas Properties, Inc. (“Atlas”) an option to lease the B&M Building by a Memorandum of Understanding dated December 14, 2004 (the “Prior MOU”).

Present Situation With regard to the B&M Building, there are strong expressions of interest in the building by potential commercial tenants. Thus, Agency staff is interested in pursuing a master developer for the building. In order to do so, Agency staff would like the building to once again be under Agency control. With regard to the B&M Building, there are strong expressions of interest in the building by potential commercial tenants. Thus, Agency staff is interested in pursuing a master developer for the building. In order to do so, Agency staff would like the building to once again be under Agency control.

Present Situation The Master Lease financially obligated the Agency for the tenant improvements to the restaurant and left certain issues to be determined later regarding other retail space in the Hotel—including the need for a public restroom. The Master Lease financially obligated the Agency for the tenant improvements to the restaurant and left certain issues to be determined later regarding other retail space in the Hotel—including the need for a public restroom.

Proposal The Agency and SCC 16, now wish to extinguish the option to lease the B&M Building granted to SCC 16 (granted actually to Atlas) in the Prior MOU and to amend the Master Lease by written amendment (to be brought before the Agency in the near future) based on the negotiating framework described in the MOU, which is the subject of the proposed action. The Agency and SCC 16, now wish to extinguish the option to lease the B&M Building granted to SCC 16 (granted actually to Atlas) in the Prior MOU and to amend the Master Lease by written amendment (to be brought before the Agency in the near future) based on the negotiating framework described in the MOU, which is the subject of the proposed action.

MOU The key terms of the MOU include: The key terms of the MOU include: –SCC 16 (Atlas) relinquishes any rights under the Prior MOU to master lease the B&M Building. –The Agency and SCC 16 agree to amend the Master Lease.

Amendment of Master Lease The Agency and SCC 16 agree to amend the Master Lease as indicated below: –To provide for payment of the improvement costs pertaining to the Restaurant Lease with Paragary’s as follows:  Agency pays first $2,500,000 (in addition to expenditures to-date of about $325,000)  SCC 16 and Paragary’s will pay next $750,000 –If total costs are expected to exceed $3,250,000, and the Agency’s portion of costs are expected to exceed the $2,500,000 commitment outlined in the MOU, staff is directed to return to the Redevelopment Agency for approval of additional funding commitments.  All costs in excess of $3,250,000 will be paid 77% by the Agency with the remainder paid by SCC 16 and Paragary’s

Amendment of Master Lease (cont.) The Agency and SCC 16 agree to amend the Master Lease as indicated below: –To provide for SCC 16 to front the funds for the Paragary’s improvements, but for the Agency to agree to reimburse SCC 16 within 30 days, subject to a final audit at the end of the process. –To provide for SCC 16 to assume responsibility to repair the public areas adjoining the theater, the Hotel Stockton and the B&M Building, subject to reimbursement by the Agency for the actual cost. –To provide for the Agency agreeing to divide the central 6000 square feet of Hotel Stockton retail/office space into four separate spaces of approximately 1500 square feet each with common restroom facilities at a cost to the Agency not to exceed $350,000.

Summary The proposed MOU clarifies the financial commitments and shifts some of the financial burden from the Agency to others. The proposed MOU clarifies the financial commitments and shifts some of the financial burden from the Agency to others. If the MOU is approved, it will necessitate a formal amendment to the Master Lease which would be brought back for approval If the MOU is approved, it will necessitate a formal amendment to the Master Lease which would be brought back for approval

Benefits The MOU would facilitate construction of tenant improvements for the proposed Paragary’s restaurant and other retail uses within the Hotel Stockton and; The MOU would facilitate construction of tenant improvements for the proposed Paragary’s restaurant and other retail uses within the Hotel Stockton and; Expedite rehabilitation of the B&M Building Expedite rehabilitation of the B&M Building

Financial Summary There is no financial impact associated with the adoption of this MOU. The Agency is still operating under the terms of the Master Lease until such time as an amendment is brought forth for Agency consideration and approval. There is no financial impact associated with the adoption of this MOU. The Agency is still operating under the terms of the Master Lease until such time as an amendment is brought forth for Agency consideration and approval.

Financial Summary (cont.) Some additional tenant improvement work, including a restroom associated with the other retail space in the Hotel, has also been added under this MOU. Funds are currently allocated as part of the City’s Capital Improvement Fund (301) appropriations. Some additional tenant improvement work, including a restroom associated with the other retail space in the Hotel, has also been added under this MOU. Funds are currently allocated as part of the City’s Capital Improvement Fund (301) appropriations.

Hotel Stockton & B&M Building Retail Space A resolution of the Redevelopment Agency of the City of Stockton (the “Agency”) Approving a Memorandum of Understanding (‘MOU”) between the Agency and Stockton City Center 16, LLC (“SCC 16”) as a framework for negotiating amendments to the Hotel Stockton Master Lease and to remove a commitment to the B&M Building, granted to Atlas Properties, Inc., a related entity to SCC 16, in a prior MOU, dated December 14, A resolution of the Redevelopment Agency of the City of Stockton (the “Agency”) Approving a Memorandum of Understanding (‘MOU”) between the Agency and Stockton City Center 16, LLC (“SCC 16”) as a framework for negotiating amendments to the Hotel Stockton Master Lease and to remove a commitment to the B&M Building, granted to Atlas Properties, Inc., a related entity to SCC 16, in a prior MOU, dated December 14, 2004.