• On October 21, 2019, City Council approved a Disposition and Development Agreement (DDA) between Holland Acquisition Co., LLC (Holland) and the City of Vancouver to facilitate the construction of a large mixed use project on Block 10 to include Holland's corporate headquarters, located northeast of the intersection of Columbia and Eighth Streets, to be leased by Holland for up to 99 years with opportunities to purchase the property at years 60, 80 and after year 99;
• Under the current terms of the Agreement, the closing date on the ground lease must occur no later than May 29, 2020;
• In late April, Holland expressed that the onset of the novel coronavirus (COVID-19) has posed challenges in meeting the projected closing in May and requesting a one-month extension to Closing date;
• Holland and the City negotiating team have proposed two amendments for City Council’s consideration on May 18, 2020:
  
  

Third Amended DDA: if approved, the attached Third Amended DDA would:

• Grant Holland a one-month extension for closing;
• Revise the terms of the Performance Guaranty triggered in the event of an event of default that is (i) uncured within the time permitted, and (ii) not forgiven by way of the parties’ force majeure clause. In exchange, Holland will increase the amount of its security deposit (from $250,000 to $500,000) and allow the City to hold the full security deposit through the issuance of a temporary certificate of occupancy;
  
  

Fourth Amended DDA: if approved, the attached Fourth Amended DDA would:

• Provide Holland with an Option to Purchase Block 10 for $3,330,000 under specified terms.

Goal 8: Strengthen commercial, retail and community districts throughout the City.

Objective 8.1: Surplus Block 10 and issue an RFP to solicit a use that will contribute to downtown vitality.

Background: On October 21, 2019, City Council approved a Disposition and Development Agreement (DDA) between Holland Acquisition Co., LLC (Holland) and the City of Vancouver to facilitate the construction of a large mixed use project on Block 10 to include Holland's corporate headquarters, located northeast of the intersection of Columbia and Eighth Streets, to be leased by Holland for up to 99 years with opportunities to purchase the property at years 60, 80 and after year 99. The First Amendment to the DDA, approved by Council on December 16, 2019, extended Holland's due diligence term to January 27, 2020, and the closing date to execute the ground lease to March 31, 2020. The Second Amendment to the DDA, approved by City Council on February 3, 2020, extended the closing date to execute the ground lease to no later than May 29, 2020.

Since execution of the Second Amended DDA, Holland has obtained land use approval for the building, and currently has a permit application for the podium (lower two floors) in the City's permit review process; a building permit is expected to be issued later this month. In recent discussions with Holland, City staff was made aware that the sudden onset of the novel coronavirus (COVID-19) has posed challenges in meeting the projected closing before May 29, 2020, therefore Holland has requested a one-month extension of the closing deadline. Notably, Section 7.3 "Force Majeure Delay" of the parties' DDA expressly contemplates that certain delays caused by epidemics and quarantine restrictions shall not constitute grounds for default. Accordingly, City staff believe that given the current environment, Holland's request for a one-month extension warrants consideration and recommends that the closing date be extended by one month. City staff and Holland agree that a closing on the property can be accomplished no later than June 26, 2020. There will be no changes to the target dates for submitting permit applications or commencing and completing construction, therefore City staff is in support of the request to extend the closing date to a date selected by Holland but not later than June 26, 2020.

In consultation with its Equity Partners, Holland has also requested changes to the terms of the Performance Guaranty that would be triggered in the event of an event of default that is (i) uncured within the time permitted, and (ii) not forgiven by way of the parties’ force majeure clause. In exchange, Holland is willing to increase the amount of its security deposit from $250,000 to $500,000 and allow the City to hold the security deposit through the issuance of a temporary certificate of occupancy (rather than requiring the City to release the security deposit after proof of five million dollars of improvements as currently agreed). No changes to the target dates for submitting permit applications, commencing construction or completing construction are requested or granted by way of this amendment to the DDA.

Separate from the above (and proposed by way of a Fourth Amendment to the DDA), Holland has expressed interest in entering discussions with its lenders and equity partners to explore the purchase of Block 10 outright in lieu of entering into a 99-year ground lease. Given the current economic climate, City staff recommend that Council grant Holland a limited-term Option to Purchase Block 10 at the previously appraised price of $3,330,000. If the Option were exercised, closing on the sale would occur within the next month and Holland would remain responsible for compensating the City on an on-going basis for the value of the airspace used by the building that is to be constructed pursuant to the terms of the parties’ DDA.

1. The requested changes to the Disposition and Development Agreement for Block 10 are needed to accommodate a new closing date in light of the present pandemic and state of emergency;
2. The Developer will increase the amount and duration that earnest money will be held by the City to ensure the project proceeds;
3. An option would be granted for possible sale of Block 10 resulting in quicker return on on the City’s real property investment;
4. The permitting and construction timeline as outlined in the initial DDA will remain in effect.