MEMORANDUM OF UNDERSTANDING
October ___, 2005
Ram Development Company
5555 Anglers Avenue – Suite 21
Ft. Lauderdale, Florida 33312
Attn: Keith L. “Casey” Cummings, President
Re: Memorandum of Understanding - Redevelopment of Lot 5 and Wallace Parking Deck Chapel Hill, North Carolina
On May 2, 2005, Ram Development Company (the “Developer”) submitted a proposal (the “Proposal”) in response to a Request For Proposal (the “RFP”) from the Town of Chapel Hill (the “Town”) to develop an urban mixed use development on two downtown development sites, “Lot 5”and the “Wallace Deck Site”. On June 15, 2005, the Chapel Hill Town Council (the “Town Council”) adopted a resolution authorizing the Town Manager (the “Manager”) to enter into negotiations with the Developer as to the specific terms of a proposed arrangement between the Town and the Developer respecting the development of these sites. The purpose of this Memorandum of Understanding is to outline the basic terms and conditions of the relationship between the parties.
Description of the Development Sites
The Town owns an approximate 1.73-acre tract of land presently maintained and operated by the Town as a public parking facility with approximately 173 surface parking spaces (referred to herein as “Lot 5”). Additionally, the Town is the owner of an approximately 1.2-acre site on East Rosemary Street on which a 309-space multi-floor municipal parking deck and related public space has been constructed (the “Wallace Parking Deck”). An approximate .29-acre vacant parcel of land adjoins the Wallace Parking Deck at the southwest corner of East Rosemary Street and Henderson Street behind the old Post Office (the “Rosemary Street Lot”). The Wallace Parking Deck and the Rosemary Street Lot are referred to herein collectively as the “Wallace Deck Site”. The Town Council has concluded that the Wallace Deck Site and Lot 5 are currently underdeveloped and anticipates that the redevelopment of such properties to include quality urban designed mixed-use projects will promote the economic development, revitalization and long term viability of the Town’s downtown area and generally improve the quality of life in the Town.
Description of the Lot 5 Project
The Developer shall be responsible for designing and constructing the following improvements on Lot 5:
At least 400 parking spaces of which not less than 375 will be in an underground parking garage (the “Lot 5 Parking Garage”);
Approximately 31,000 square feet of public open space as shown on the Developer’s proposal dated May 2, 2005 including the “upper mall” and “lower mall,” sidewalks and other public spaces but not the area between the Rosemary Building and the high-rise building (the “Lot 5 Public Space”);
Three buildings (the “Lot 5 Buildings”) which will include approximately 24,000 square feet of net leasable retail/commercial space on the ground level and approximately 124 “for sale” residential units above the same;and
Streetscape, landscape and hardscaped open space approximately 10 to 15 feet in width abutting the Lot 5 Buildings to facilitate access to and provide outdoor dining and shopping areas.
The Lot 5 Parking Garage and the Lot 5 Public Space will be owned by the Town and all other improvements constructed on Lot 5 will be owned by the Developer subject to the Town’s “Lot 5 Lease” as hereinafter described.
Description of the Wallace Deck Project
The Developer shall be responsible for designing and constructing the following improvements on the Wallace Deck Site all of which will be owned by Developer subject to the Town’s “Wallace Site Lease” hereinafter described:
Two buildings (one on top of and adjacent to the Wallace Parking Deck) and one on the Rosemary Street Lot (collectively the “Wallace Buildings”) which will collectively include approximately 109 “for sale” residential units and adjacent private courtyards (the “Wallace Residences”) and approximately 6,000 square feet of net leasable retail/commercial space (the “Wallace Retail Space”); and
Streetscape, landscape, and hardscaped open space in an amount
necessary to facilitate access to and provide outdoor dining and shopping areas
adjacent to the Wallace Buildings.
The Lot 5 Project and the Wallace Deck Project are collectively referred to as the “Projects”. The specific configuration of the public and private spaces, the total number of units, amount of retail/commercial space and allocation and configuration of parking and other details regarding the Projects will be subject to further modification, review and refinement by the Town and the Developer as design of the Project progresses.
The Lot 5 Parking Garage will be owned by the Town and the parking spaces will be allocated as follows:
173 parking spaces will be public spaces controlled by the Town;
The Lot 5 Lease (as hereinafter defined) will include (in addition to land area for construction of the Developer-owned Lot 5 improvements) 150 spaces that the Developer can utilize as it deems appropriate for owners of residential units and tenants of commercial space in the Lot 5 Project and 35 additional spaces for affordable housing (one per unit) at Lot 5 and the Wallace Deck Site; and
Any additional parking spaces in the Lot 5 Parking Garage will be operated as a part of the Town’s public spaces, but with the revenue shared by the Developer and the Town based on occupancy of all public parking spaces in the Lot 5 Parking Garage;
Additional parking for the Projects will be provided as follows:
The Town will reserve 55 parking spaces at the Wallace Parking Deck for lease to residents and patrons of the Wallace Deck Project in cooperation with the Developer, upon payment of a monthly fee of $85 subject to annual CPI adjustments during the first ten (10) years; thereafter such fee to be charged will be consistent with the then applicable monthly parking fees for other spaces in the Wallace Parking Deck.
Financial Investment by the Town
In accordance with chapter 961, session laws of 1984, and in furtherance of the Town Council’s decision to improve downtown development, and as a consideration for Developer’s investment in the Project, the Town will make a financial investment as follows:
A fixed amount of $7,900,000 for the cost to design, permit and construct the Lot 5 Parking Garage and other Town owned improvements; and
$500,000 to support parking for affordable housing units as hereinafter described.
The total of the items above are hereinafter referred to as the “Town Investment”. The Town Investment shall be a fixed aggregate amount of $8,400,000, unless the Town specifically requires Developer to add additional improvements in connection with the Projects. All risk of cost overruns, including increased construction costs, shall be borne by the Developer.
Funding of Town Investment
The obligation of the Town to make the Town Investment is contingent upon the Developer undertaking the construction and development of both the Lot 5 Project and Wallace Deck Project. The Town shall deposit the Town Investment into an escrow account (the “Town Escrow”) to be disbursed in accordance with a tri-party agreement between the Developer, the Town and the Developer’s Lender and providing for disbursement of funds on a pro rata basis in proportion to the relative funds provided by the Developer and the Town for each specific improvement in the Projects. The Town’s obligation to fund the Town Escrow is conditioned upon the Town being satisfied as to:
The Developer’s financial capacity to complete the Projects;
Receipt by the Town of a final detailed development, construction and upfitting budget for the Projects and loan commitment(s) and equity commitments by financial institution(s) and/or investors in an amount equal to or greater than such budget; and
Execution of all agreements as contemplated by this Memorandum of Understanding and payment by the Developer to the Town of the required prepaid rent for the Wallace Site Lease and Lot 5 Lease totaling $7,900,000.
Conditions Precedent to Developer’s Obligations
The Developer’s obligations are contingent upon:
Developer being issued all permits required for the Projects;
Execution by the Town of all agreements contemplated by this Memorandum of Understanding;
Confirmation that the Town has secured such approvals, if any, as required by the North Carolina Local Government Commission;
Confirmation that the Town has obtained a release of the Rosemary Street Lot and the air rights over the Wallace Parking Deck from the lien of a deed of trust securing various Town-issued certificates of participation and agreement of the lender to grant necessary easements reasonably required for the project; and
Evidence of the Town’s ability to lease to the Developer an approximately five to seven foot wide strip adjacent to the Wallace Parking Deck and intruding into a lane of Rosemary Street.
The Town will continue to own fee simple title to all of the land comprising Lot 5 and the Wallace Deck Site. The Town will lease to the Developer:
Portions of the land at Lot 5 necessary to develop the privately owned components of the Lot 5 Project (the “Lot 5 Lease”); and
The air rights over the Wallace Parking Deck, the adjacent Rosemary Street Lot and an area extending approximately five to seven feet beyond the now existing property line into a lane of Rosemary Street (the “Wallace Site Lease”).
The Lot 5 Lease and the Wallace Site Lease shall contain such terms as may be mutually agreed upon by the parties including the following:
The term will be 99 years but with the lessee having the option to extend each lease for an additional 25 years, exercisable between years 70 and 72 of the lease and upon payment of an extension payment of $2,000,000 for the Lot 5 Lease and $1,500,000 for the Wallace Site Lease payable in five equal annual installments without interest;
Rent for the initial term of the Lot 5 Lease will be prepaid on lease execution in the fixed amount of $4,750,000 and, except for the “Additional Rent” described below no further rent shall be required during the initial term;
Rent for the initial term of the Wallace Site Lease will be prepaid on lease execution in the fixed amount of $3,150,000 and, except for the “Additional Rent” described below no further rent shall be required during the initial term; and
The Town will be entitled to “Additional Rent” equal to 20 percent of the net profit of the Project after the Developer has received a 15 percent return on all costs with respect to the cumulative results of both the Lot 5 Project and Wallace Deck Project. Determination of the additional rental and the payment of same shall occur after 95 percent of the residential condominium units of the Project have been sold and at least 90 percent of the retail space has been occupied or leased.
Lot 5 will be subjected to a land condominium regime in order to permit multiple and differing ownerships of various components thereof (that is the Lot 5 Parking Garage, the Lot 5 Buildings and various public and semi-public spaces) and to permit the leasing of such horizontal land condominiums to Developer on the lease terms as described above. The condominium declaration creating such regime shall be subject to the reasonable approval of the Developer. All condominium documentation respecting the Lot 5 Buildings and improvements on the Wallace Deck Site prepared by Developer shall be subject to the reasonable approval of the Town.
The Developer will provide a minimum of 15 percent of the total Project residential units that will qualify as affordable housing through the Orange Community Housing and Land Trust (the “Land Trust”). In the event that the Developer constructs more than 233 residential units, 20 percent of the excess must be affordable housing. It is contemplated that the Land Trust will take title to one-third of the affordable housing units within 60 days after completion, an additional one-third of the units 12 months later, and the remainder 24 months thereafter. Pending delivery of affordable housing units to the Land Trust, the same may be rented by the Developer at market rates.
The Town shall, at its sole expense, be responsible for any environmental remediation required in connection with Lot 5 and the Wallace Deck Site.
The Developer agrees to focus its leasing efforts on the retail/commercial space towards obtaining tenants that will create a retail environment that is not substantially similar to the environment of traditional malls. Additionally, the Developer agrees to create a marketing program specifically targeted towards smaller, locally-owned businesses for the Lot 5 retail space that adjoins Rosemary Street.
The Lot 5 Public Space will consist of the “Lower Mall” (the area along Franklin Street and Church Street) and the “Upper Mall” (the area between the central and southernmost buildings to be constructed on Lot 5). The Lot 5 Public Space will be subject to the same restrictions and managed in the same manner as the existing public space at the Old Post Office in downtown Chapel Hill. The Town reserves the right, however, to prohibit in the Lot 5 Public Space specific acts that could be injurious to the public, such as the carrying or displaying of weapons. That portion of the Lot 5 Public Space identified as the “Upper Mall,” because of its proximity on three sides to residences, shall be subject to such regulations as may be agreed upon by the Town and the Developer and as enacted by the Town Council; provided that the Town reserves the right to exercise its statutory police power in all parts of the Lot 5 public space. All regulations applicable to the Lot 5 Public Space shall be enforced in the same manner as other regulations enacted under the Town’s police powers. The Town shall be responsible for all of the maintenance of the Lot 5 Public Space in keeping with the level of maintenance of other Town owned high quality public space. The Town and the Developer shall jointly create a funding and programming strategy for the Lot 5 Public Space in order to ensure that such programming enhances the overall quality of life within the Town and meets the needs of the Town and its citizens. For the first two (2) years following issuance of a certificate of occupancy for the Lot 5 Projects, the programming of the Lot 5 Public Space shall be managed jointly by the Town and the Developer; and thereafter the Town shall have primary responsibility for such programming but with input from the Developer. The Town will be responsible for hiring a qualified “event coordinator” who will be subject to the Developer’s reasonable approval and who will assist in the programming of the Lot 5 Public Space. Developer shall contribute $200,000 toward the programming of the Lot 5 Public Space. The Town will use its best efforts to assist the Developer in its efforts to enhance the lower level space in the northeast corner of the post office building adjoining the Rosemary Street Lot.
The Town will act in two distinct capacities relative to approval of the Projects. The Town, in its role as the municipal body charged with regulating development in accordance with various laws, rules and regulations, has various approval rights. The Town will exercise such approval rights consistent with how the same are applied to other comparable developments. The Town, in its capacity as landowner, shall have separate reasonable approval rights over (i) the architectural design, primary building materials and other elements of the Projects, and (ii) all plans, specifications, schedules, cost budgets and documents relating to improvements to be owned by the Town. Such approval rights of the Town in its capacity as landlord shall be exercised on a timely basis and generally within 30 days of the receipt of all information necessary in connection with the requested approval. Additionally, the Town shall have review rights (as distinguished from approval rights) of the Schematic Design Drawings, Design Development Documents, Construction Documents, and budget for the Projects and modifications thereto, for the limited purpose of determining that the same comply with the architectural drawings referred to in (i) above as previously approved by the Town. The Projects shall be an open-book development and the Town shall have full access to the books and records of the Developer solely with respect to the Project costs. Such review rights shall be exercised in a timely manner.
Collateral for Developer’s Obligations and Developer’s Financing
The Lot 5 Lease and Wallace Site Lease, will not be subordinated to financing secured by the Developer. However, the Town will consent to encumbrance of such leasehold estates and will provide to the Lender an appropriate non-disturbance agreement and estoppel agreement in form reasonably satisfactory to such Lender. Developer will not be permitted to encumber the fee simple title of the Town in Lot 5, the Rosemary Street Lot, or the Wallace Parking Deck, or any residual remainder interest of the Town.
The Projects will be constructed by a contractor or construction manager licensed to do business in North Carolina. The Town shall have reasonable approval rights of such contractor. The Town shall be provided with a payment and performance bond assuring completion of the Projects and payment of all costs of construction (subject to industry standard exceptions) with the Town, Developer and Developer’s Lender being named as the primary beneficiaries thereof. Additionally, Keith L. Cummings, President of the Developer will provide a personal guarantee of completion of construction of the Projects.
The Town has designated Stainback Public/Private Real Estate (“SPPRE”) to serve as the Town’s representative during construction of the Projects. Subject to the Developer’s reasonable approval of the agreement between SPPRE and the Town, Developer shall be responsible for payment of SPPRE’s fees as owner’s representative.
The Developer shall contribute one percent (1%) of the total development budget (with carve outs to the extent consistent with the Town’s “Percent for Public Art Program”) of the Projects in order to fund the purchase and incorporation of public art that will be sited on or incorporated into the Project.
The Projects shall be designed and constructed to be consistent with the requirements for LEED certification and shall upon completion by LEED Certified; and, if feasible within the Projects budgets, the projects shall comply with and achieve LEED Silver Certification.
Right of First Refusal
In the event that the Town should elect at any time to sell fee simple title to Lot 5, the Rosemary Street Lot, or the Wallace Parking Deck, or any portion of the same, the Developer shall, to the extent permitted by applicable law, have a right of first refusal to meet any bona fide offer to purchase on the same terms and conditions of such offer.
Scheduling Milestone Dates
Exhibit A hereto sets forth the preliminary development schedule and a list of milestone dates.
This Memorandum of Understanding shall not be binding upon the parties hereto in any way except to the extent that it reflects the intent to proceed and negotiate in good faith and execute a development agreement consistent with the business terms and conditions herein. Unless until such written agreements are duly executed by the parties, no party shall be under any obligation to any other party, and no contractual relationship so exists. The failure of the parties for any reason to enter into the development agreement as contemplated hereby on or prior to March 31, 2006 shall result in termination of this Memorandum of Understanding.
If the above represents your general understanding of our agreement with respect to the business items set forth above and reflects our discussions and expresses your intent to pursue a contract to implement these commitments, please indicate your acceptance in the space provided below.
TOWN OF CHAPEL HILL
W. Calvin Horton, Town Manager
Ram Development Company
Keith L. “Casey”Cummings, President
Preliminary Development Schedule and List of Milestone Dates