Pan Pacific Properties Inc. is in the process of purchasing Center Trusts' assets, which includes the Media City Mall project. They are also trying to sell the mall project. As owners, they will also be the Lessee under the Site Lease between the Redevelopment Agency of the City of Burbank (Lessor) and Pan Pacific Retail Properties, Inc. (Lessee) relating to the Media City Mall project.

They have asked that the Agency waive a future right under Section 6.2 of the Site Lease. That section of the Site Lease provides the Agency with a right to refuse a sale of the interest in the site to a prospective purchaser and allows the Agency to then buy the interest. This right does not exist unless the Lessee provides the Agency with written notice of a pending sale. No such notice has been delivered, but the Lessee has requested waiver of this provision to eliminate any potential concerns by prospective buyers.

In November, 1989, the City and Redevelopment Agency entered into a number of transactions with the then developer, Haagen-Burbank Partnership to develop a large commercial/retail/office development. One of those transactions was a ground lease whereby the Agency leased approximately 41.97 acres to the developer for fifty-five (55) years, with an additional forty (40) years of possible extensions (to be exercised as four ten-year options). Initially the lease provided for annual base rent payments of $1,000, plus annual payments equal to 50% of the project�s Net Operating Income after debt service of the project (the "Participating Rent"). In October, 1994, the Agency agreed to accept a payment from the developer of $10 million in exchange for the termination of the Participating Rent provision. Additionally, the Agency extinguished all approval and consent rights provided to it under the Site Lease.

While the Agency clearly waived any approval rights of potential buyers of the mall, it apparently retained a certain right in Section 6.2 of the lease. That right, referred to as the Right of First Refusal states that should the Lessee provide the Agency with a notice of a pending sale which includes the purchase price, then the Agency has the right to acquire the property on the same economic terms as those set forth in the sale notice by giving Lessee written notice of its exercise of such rights within thirty (30) days after receipt. When the lease was amended to eliminate any approval rights, it was not clear if the Agency's right to first refusal was eliminated. The genesis of the involvement of the Agency in a sales transaction was to eliminate Agency approval prior to a sale of the interest. The lease provides that no approval is needed if four things are met by the Lessee, one being the provision of this sale notice to the Agency. In any event, once the sale notice is provided to the Agency, then the Right of First Refusal is triggered.

Due to the uncertainty as to whether or not this provision has been eliminated through the 1994 lease amendment, and due to the fact that the Agency could not afford to purchase the mall at this time, Staff is recommending that the Right of First Refusal as discussed in the Site Lease, Section 6.2 be waived. Waiver of this possible right in a transaction by Pan Pacific Properties, Inc. provides additionally clarification of an ambiguous lease provision which any cautious purchaser would require.

Recommendation:

That the Executive Director provide a letter to Pacific Pan Properties, Inc. waiving provisions 6.2 of the Site lease.