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HomeMy WebLinkAboutL026-11 - Other - Goodman Real Estate, Inc. - Letter of Intent to Lease With Option to Purchase - 08/23/2011 August 23, 2011 Mr. Kurt f Janson Economic Development Manager City or Kent 220 4"' Avenue South Kent, Washington 98032 RE: Kent City Center This letter of intent ("Letter") outlines the fundamental business terms under which Goodman Real Estate, Inc. ("Lessee") would enter into a ground lease with option to purchase ("Lease Agreement") with the City of Kent ("Lessor") with respect to following property (the "Property"). PROPERTY LOCATION DESCRIPTION The Property subject to the Lease Agreement contains approximately 1.72 acres, as outlined on the map annexed 430 Smith St., Kent, Washington 98032 hereto as Exhibit A. The portion of the Property that will be subject to the option to purchase shall not include that portion of Lot C cross-hatched in red on Exhibit A 1. Lease with Option to Purchase Lessor and Lessee would sign a Lease Agreement for the Property that would take effect not later than the conclusion of the Inspection Period as defined in Section 3 of this Letter. Upon the effective date of the Lease Agreement, the Lessee would pay Lessor a non-refundable lump sum rent payment of$100,000 as picpaid rent for the lease. The term of the Lease Agreement would be two years from its effective date (subject to extension to accommodate permitting for the Proposed Project(defined below) on terms to be set forth in the Lease Agreement. Under the Lease Agreement, the Lessee would further agree to demolish all of the existing Improvements on the Property For the purposes of this Letter, the Improvements will consist of the existing unfinished parking structure including all personal property within that structure. Subject to Lessee obtaining a demolition permit acceptable to Lessee, Lessee would start demolition of such Improvements on or before November 1, 2011, and subject to force majeure, will complete such demolition within ninety (90) days of the date the demolition is commenced. Lessee agrees to apply for the demolition permit during the Inspection Period, Page 1 of 6 and the Lease Agreement will not become effective unless and until a demolition permit has been issued for the demolition of the Improvements The Lease Agreement will also contain an option to purchase the Property in favor of Lessee and/or its permitted assignees to be defined in the Lease Agreement. The option to purchase the Property would be exercisable by Lessee at any time during the term of the Lease Agreement (and would automatically expire upon expiration of the term of the Lease Agreement). Lessee will be entitled to purchase the Property under the option to purchase only if, as of the date of closing of the purchase, Lessee has obtained the discretionary permits and the first construction related permit (an excavation permit and/or a budding permit) authoiizing Lessee to develop an apartment building on the Property containing approximately 164 residential units approximately 3700 square feet of ground floor retail space and approximately 35 parking spaces available for public parking during normal business hours (the "Proposed Project'') and has secured all financing necessary to develop the Project and has committed to commence construction of the Proposed Project within thirty days following purchase of the Property. Lessee will agree to (i) make application for the discretionary permits for the Proposed Project in accordance with agreed Project development milestones to be set forth in the Lease Agreement, and (n) once the discretionary permits for the Proposed Project have been issued and all appeal periods have expired without an appeal having been filed, or if an appeal has been filed, the appeal has been finally resolved, make application for construction permits for the Proposed Project, in accordance with the agreed Project development milestones to be set forth in the Lease Agreement. If Lessee has made applications for the discretionary permits (and thereafter the construction related permits) in accordance with the agreed Project development milestones to be set forth in the Lease Agreement, and provided that Lessee thereafter pursues the issuance of such permits diligently and in good faith. Lessee shall have the option to extend the term of the Lease Agreement to accommodate the permitting process on terms to be set forth in the Lease Agreement. 2. Purchase Price. If Lessee exercises the option to purchase the Property, the purchase price shall be $802,000. At the closing of the purchase of the Property. the cash portion of the purchase price payable at closing shall be $802,000, less (i) the actual third party costs and expenses incurred by Lessee to demolish the existing improvements, or (n) Three Hundred Fifty-two Thousand and 00/100 dollars ($352,000 00), whichever is less. The remainder of the purchase price (equal to the actual third party costs and expenses incurred by Lessee to demolish the existing improvements) or Three hundred Fifty-two Thousand and 00/100 dollars ($352,000.00), whichever is less, will be deferred, will be contingent, will accrue interest at the rate of 5% per annum, and will be payable under the following circumstances: Following Lessee's purchase of the Property, and if there are any Amounts Realized by Lessee with respect to the Property, a pro-rata portion of such Amounts Realized shall be paid to the Lessor until the deferred portion of the purchase price, including all accrued interest, is paid in full.. For purposes hereof, Amounts Realized shall be all amounts actually distributed by Lessee to its owners with respect to the Property, including amounts distributed as return of capital or distributions from capital Page 2 of 6 events or operating cash, and Lessor's pro-rata portion shall be a fraction, the numerator of which is deferred portion of the price (including all accrued but unpaid interest) and the denominator of which is the sum of(i) the deferred portion of the purchase price (including all accrued but unpaid interest) and (ii) the combined amounts of all capital contributions and loans made by the owners of Lessee and their affiliates to Lessee in icspect of the Property. If the deferred portion of the purchase price has not been paid in full in connection with Lessee's final disposition of the Property, the remainder of the deferred portion of the purchase price shall not be due or owing to Lessor Lessee shall also have the right at any time to prepay the deferred portion of the purchase price (including all accrued interest thereof) to Lessor. 3. Due Diligence. Immediately upon receipt by Lessee of an executed copy of this Letter and the due diligence materials referenced below, Lessee shall begin detailed due diligence of the Property. Such due diligence will conclude no later than 5:00 p.m., PDT, Friday, September 30, 2011 (the "Inspection Period") If Lessee detennines that the Property is not suitable for Lessee's intended use, Lessee shall give Lessor written notice on or before the end of the Inspection Period, and the Lease Agreement will not become effective. Lessor will deliver to Lessee, in a timely manner after execution of this Letter, to the extent available or within Lessor's possession or control, and without any representation or warranty as to accuracy or completeness. the following documents relating to the Property: • Tax bills and assessment notices for the Property for the past three years, including any correspondence relating to tax appeals; and/or evidence all taxes are paid current; • All contracts and service agreements, including any space leases for use of Property entered into by the City; • Environmental, asbestos, soil, physical and engineering reports prepared at the request of the City or within the City's possession; • Existing Survey; • Copy of Lessor's title policy for the Property together with copies of all recorded documents referenced therein, • Business licenses and permits, and • Evidence that all utilities, including electricity, water, wastewater, storm drainage, gas, telephone and cable television arc available to the site. 4. Inspection of the Property. After the acceptance of this Letter and execution of a right of entry agreement in a form acceptable to Lessor, Lessee and its agents and consultants are to have access to- (a) the Property, and (b) the books and records relating to the ownership and operation of the Property, for the purpose of making such inspections, tests, copies and verifications as Lessee shall deem reasonably necessary. Page 3 of 6 5. Exclusivity. Lessor represents that no person or entity has a right of first refusal or other right to purchase or lease all or any part of the Property. In consideration of Lessee's effort and expense in analysing the proposed transaction, Lessor agrees to negotiate exclusively with Lessee and will not make, accept. negotiate, or otherwise pursue any offers for the sale or purchase or lease of the Property,until this Letter has been terminated. 6. Authority to Execute this Letter of Intent. Each of Lessor and Lessee represents and warrants to the other that it has full power and authority to enter into this Letter on behalf of, and to bind, itself and its subsidiaries and affiliates(if any) to its respective obligations set forth herein and each oC Lessor and Lessee has delivered to the other evidence satisfactory to the other that the person executing this Letter on its behalf has the legal capacity and authority to execute the Letter and to bind Lessor or Lessee, as applicable, to its terms. 7. Contingencies & Conditions to Closing. Lessee and Lessor acknowledge that the closing of this transaction is contingent on several factors: 1) Approval of the Lease Agreement (and the option to purchase contained therein) by the Kent City Council; 2) Execution of the Lease Agreement; and 3) Lessee's waiver of any City of Kent multifamily property tax exemption that might otherwise be available with respect to the Proposed Project. S. Closing. The Lease Agreement will be executed and become effective no later than 5.00 p.m., PDT, September 30, 2011, unless Lessor and Lessee agree to a later closing date. 9. Representations and Warranties. Lessor obtained the Property through foreclosure sale and, accordingly, will transfer the Property AS IS with no representations or warranties as to physical condition matters other than that the Lessor will convey all rights it obtained through foreclosure sale, but no more. The Property will be conveyed by quitclaim or special warranty (bargain and sale) deed and not by statutory warranty deed. 10. Closing Costs. If Lessee exercises the option to purchase the Property under the Lease Agreement, Lessor shall be responsible for the costs of a standard coverage (i.e. without any endorsements) Owner's Policy of Title Insurance issued by First American Title Insurance Company with liability in the amount of the Purchase Price Lessee shall be responsible for the difference in premium between standard coverage and extended coverage owner's policy of title insurance, if Lessee elects to obtain an extended coverage as well as the costs of any endorsements it Page 4 of 6 requests. Upon closing of the sale of the Property (if the option to purchase the Property is exercised) the closing costs for the purchase of the Property by Lessee shall be allocated between Lessor and Lessee in a manner consistent with customary practices for commercial real estate transactions in King County Lessor and Lessee shall pay the fees and expenses of their respective legal counsel incurred in connection with the transaction. 11. Payment of Commissions. Lessor and Lessee represent and warrant to each other that there have been no brokers or salespeople involved in this transaction and to the extent there are, the party who engaged same shall indemnify and hold the other party free and harmless from any demand for any such commission or fee, which indemnification shall survive termination of this Letter or the Lease Agreement or the sale of the Property (if the option to purchase the Property is exercised in a timely fashion). 12. Duration of Letter. This Letter shall remain open unless withdrawn or extended, until 5:00 p.m., PDT, on August 26, 2011. If this letter is not accepted by that time, it shall expire, unless extended by agreement of the parties 13. Lease Agreement. Lessee and Lessor agree to negotiate diligently and in good faith in an attempt to reach agreement on the terns of the Lease Agreement during the Inspection Period. Lessee and Lessor agree to use all reasonable efforts to finalize all material terms of the Lease Agreement in time for presentation of the Lease Agreement to the Kent City Council at the September 20, 2011 council meeting. 14. Non-Binding. Notwithstanding anything herein to the contrary, with the exception of Paragraph 5 (Exclusivity), Paragraph 6 (Authority), Paragraph 11 (Payment of Commissions) above and this Paragraph 14, this Letter is not intended to be binding on either party and will not give rise to any right or obligation based on any legal or equitable theory (including any right to continue negotiations), it being intended that only a subsequent Lease Agreement, if executed and delivered by both parties, will bind the parties or create any right or obligation as to any matter which is the subject of this Letter (other than Paragraph 4 (Exclusivity), Paragraph 5 (Authority), Paragraph 1 I (Payment of Commissions) above and this Paragraph 14, which are intended to be binding) The consummation of any final transaction described in this Letter shall be subject to the negotiation and execution of definitive documents with respect to such proposed transaction satisfactory to Lessee and Lessor. This Letter is not intended to be a complete and definitive statement of all of the terms and conditions of the proposed lease agreement with option to purchase and does not contain all of the terms essential to the transaction contemplated hereby and a binding contract can only be affected by the execution of the Lease Agreement. Page 5 of 6 i If the contents of this Letter meet with your approval and you are willing to proceed with the proposed transaction in accordance with the fundamental business terms described above, please indicate your acceptance of the foregoing by executing a copy of this Letter and returning it to me as promptly as is possible. Sincerely, Agreed to by: Gooaealnc. City of Kent Geog Su e ooke President ay 'ity of Kent Page 6 of 6 4th Ave N f g -1 340, y .� .. 3. NO cn CD Lill {{ v a. _a 3 2nd Ave N a