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Agenda Item - 2022-11-15 - Number 04.1 - Amendment to the North Anchor Agreement 4.1 o o� REDEVELOPMENT AGENCY REPORT U AUF 0 oRr_Gov' Subject: North Anchor Project— First Amendment to the Disposition and Development Agreement Meeting Date: November 15, 2022 Staff Member: Sidaro Sin, Redevelopment Manager Report Date: October 31, 2022 Department: Redevelopment Agency Action Required Advisory Board/Commission Recommendation ❑X Motion ❑ Approval ❑ Public Hearing ❑ Denial ❑ Ordinance ❑ None Forwarded ❑ Resolution ❑X Not Applicable ❑ Information Only Comments: ❑ Council Direction ❑ Consent Agenda Staff Recommendation: Approve the first amendment to the December 7, 2021 Disposition and Development Agreement of the North Anchor Properties. Recommended Language for Motion: Move to authorize the Executive Director to execute the first amendment to the December 7, 2021 Agreement for the Disposition and Development of the North Anchor Properties to allow for a six-month extension to close on the residential/commercial component and other related deadlines. Project/ Issue Relates To: NA Issue before Board (Highlight Policy Question): ❑Council Goals/Priorities ❑X Adopted Master Plan(s) ❑Not Applicable ISSUE BEFORE BOARD Should the LORA Board extend the mixed-use (residential and ground floor commercial) closing and other associated deadlines by six months in the North Anchor Disposition and Development Agreement with Urban Development Partner due to the currently challenging economic environment? Respect. Excellence. Trust. Service. 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO,OR 97034 WWW.LAKEOSWEGO.CITY Page 2 BACKGROUND On December 7, 2021 the Lake Oswego Redevelopment Agency (LORA) entered into a Disposition and Development Agreement (DDA) with Urban Development Partners (UDP) for the redevelopment of the North Anchor properties located at First Street and B Avenue. UDP's redevelopment proposal includes two components; an 83-room boutique hotel with a restaurant and a mixed-use 67-unit apartment with approximately 6,000 square feet of ground floor retail. Both components include on and off-street parking. DISCUSSION Hotel: This request does not change the hotel component's closing date of December 31, 2023 or the beginning of construction date of January 7, 2024. Mixed-Use (Residential, with Ground Floor Commercial): The DDA requires that UDP close by December 31, 2022 and begin construction by January 7, 2023. On October 21, LORA received a request from UDP for a six-month extension on the deadline to close and begin construction on the mixed-use component (Attachment 1). The extension would change the closing date to June 30, 2023 and the construction date to July 7, 2023. Specifically, the sections affected of the DDA include: DDA Original Proposed Section Deadline Deadline Task Date Date 2.2 UDP to provide written notice of election to execute phased 12/11/22 6/11/23 conveyance of properties 2.8.3.3 UDP provides evidence of funding capacity to meet prevailing 12/1/22 6/1/23 wage indemnity obligation to LORA 2.8.3.6 UDP provides evidence of necessary funding commitments to 12/1/22 6/1/23 complete the project, including budgets and pro-formas 2.7 UDP to close on acquisition of the property for the first project 12/31/22 6/30/23 component 2.7 UDP to commence construction on first project component 1/7/23 7/7/23 3.1.1.1 UDP to complete all work set forth in DEQ-approved Hazard 3/31/23 9/30/23 Mitigation Plan and Contaminated Media Management Plan 3.1.1.1 UDP to obtain "No Further Action" letter from DEQ 4/20/23 10/20/23 7.2 UPD to complete construction of the first project component, 6/30/24 12/30/24 including associated public improvements UDP is seeking the extension due to unprecedented economic challenges, including escalation of construction costs and rising interest rates. Despite these challenges, over the last year, UDP has been able to overcome these issues and continue moving forward with the project. To date, their efforts represent a $3.25m investment for a project that is nearly "shovel ready". Respect. Excellence. Trust. Service. 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO,OR 97034 WWW.LAKEOSWEGO.CITY Page 3 While the request is for a six-month extension, UDP's highest priority is on closing and beginning construction before the deadlines. ATTACHMENTS 1. UDP request to amend the Disposition and Development Agreement (10/21/22) Respect. Excellence. Trust. Service. 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO,OR 97034 WWW.LAKEOSWEGO.CITY UD ± P URBAN DEVELOPMENT PARTNERS October 21, 2022 Martha Bennett Executive Director City of Lake Oswego Redevelopment Agency PO Box 369 Lake Oswego, OR 97034 RE: North Anchor Disposition and Development Agreement Request for Extension Dear Martha, I am writing to respectfully request that the Lake Oswego Redevelopment Agency ("LORA") grant Urban Development Partners ("UDP") a six-month extension on its requirement to purchase the land and commence construction on the residential component of the project. Original Closing Date: December 31, 2022 Revised Closing Date: June 30, 2022 Original Construction Start: January 7, 2023 Revised Construction Start: July 7, 2023 This request does not change the dates for the closing or construction start date for the hotel component of the project. UDP has made a lot of excellent progress towards the deadlines set forth in the DDA. The residential project is on track to have a building permit before the end of the year. The hotel project will submit drawings for permit by mid-November, with an anticipated permit issuance before the end of the first quarter of 2023. UDP has invested approximately $3.25M in the two projects to date to bring them to this point. As you are aware, we have been in a challenging economic environment for real estate development. Over the past year, we have dealt with an unpredictable and rapidly escalating cost environment that has rendered many projects infeasible or caused significant delays. The North Anchor projects were not without their challenges, and we spent several months on both projects examining several different strategies and 116 NE 6th Avenue,Suite 400 Portland,OR 97232 /TEL 503-946-3265 / FAX 503-961-169U /www.udplp.com UD ± P URBAN DEVELOPMENT PARTNERS opportunities to reduce costs. At this point we feel that we have addressed cost concerns to the extent possible,but this work did delay our timeline by several months. Secondly, the rising interest rate environment has created new challenges in financing construction projects, and the uncertainty around concerns about additional rate hikes and a potential economic recession are causing lenders and investors alike to revise their outlooks for the coming year. This has led to slower-than-anticipated velocity on identifying and securing both debt and equity for the project. We remain very optimistic about our ability to put together financing for both projects. We are highly focused on this project and the identification of capital for these projects is our top company priority for the next 2 quarters. Now that we are nearly "shovel ready" on both projects, we are able to make a very strong case for the investment thesis on these projects and will be able to talk to many investors and lenders who may have been waiting on the sidelines until the project was further along in the predevelopment cycle. We will be able to cast a wide net of outreach and are confident in our underwriting and that these projects will represent an excellent opportunity for investors. We look forward to a continued strong partnership with the city on the North Anchor projects and to bringing them both across the finish line for UDP and for LORA and the community. Sincerely, ,-,, ,01,-,—C---- Sarah Zahn Chief Operating Officer Urban Development Partners, NW 116 NE 6th Avenue,Suite 400 Portland,OR 97232 /TEL 503-946-3265 / FAX 503-961-169E / www.udplp.com