r o 1n t 1ty , l, e1 o , , t Agency of the CITY OF L OS ANGELES

354 South Spring Street Suite 800 Los Angeles ' Ca lifornia 90013-1258

Honorable Council of the City of Los Angeles John Ferraro Council Chamber 200 N. Spring Street Room 340, City Hall Los Angeles, CA. 90012

COUNCIL TRANSMITTAL:

DATE/ .JUL - 1 2010 FILe. COD~ ,

2n J71 1600 F 213 977 1665

I www.crala.org

CRA Fi le No. fJ2.21 Council District: 9

Contact Person: Calvin Hol lis (213) 977-1859

Transmitted herewith, is a Board Memorandum adopted by the Agency Board on July 1 2010, for City Council review and approval in accordance with the "Community Redevelopment Agency Oversight Ordinance" entitled:

VARIOUS ACTIONS RELATED TO: Agreements between (1) CRA/LA and Auto Center, LLC and (2) CRA/LA, BYD Motor Corp and BYD Company Ltd. to facilitate the lease transaction between BYD and Auto Center LLC to locate BYD's Los Angeles headquarters at 1800 S. Figueroa Street in the Counci l District Nine Corridors South of the Santa Monica Freeway Recovery Redevelopment Project Area

RECOMMENDATION That City Council approve(s) recommendation(s) on the attached Board Memorandum.

ENVIRONMENTAL REVIEW The recommended action does not constitute a "project" as defined by the Californ ia Environmental Quality Act "CEQA")

FISCAL IMPACT STATEMENT There is no fiscal impact to the City's General Fund, as a result of this action.

Christine Essel, Chief Executive Officer

cc: Alan Alietti, Office of the City Clerk (Original & 3 Copies on 3-hole punch) Lisa Johnson Smith, Office of the CAO lvania Sobalvarro, Office of the CLA Steve Ongele, Office of the Mayor Noreen Vincent, Office of the City Attorney

THE COMMUNITY REDEVEU..1~MENT AGENCY OF THE CITY OF LCJ~ ANGELES, CALIFORNIA

DATE:

TO:

FROM:

RESPONSIBLE PARTIES:

SUBJECT:

MEMORANDUM

JULY 1, 2010

CRAILA BOARD OF COMMISSIONERS

CHRISTINE ESSEL, CHIEF EXECUTIVE OFFICER

CALVIN HOLLIS, CHIEF OPERATING OFFICER GLENN WASSERMAN, CHIEF OPERATING OFFICER

2 CN6400

AGREEMENTS BETWEEN (1) CRAJLA AND AUTO CENTER, LLC AND (2) CRAILA, BYD MOTOR CORP AND BYD COMPANY LTD. TO FACILITATE THE LEASE TRANSACTION BETWEEN BYD AND AUTO CENTER LLC TO LOCATE BYD'S LOS ANGELES HEADQUARTERS AT 1800 S. FIGUEROA STREET IN THE COUNCIL DISTRICT NINE CORRIDORS SOUTH OF THE SANTA MONICA FREEWAY RECOVERY REDEVELOPMENT PROJECT AREA DOWNTOWN REGION (CD 9)

RECOMMENDATIONS

That the CRA/LA Board of Commissioners, subject to City Council review and approval:

1. Authorize the Chief Executive Officer, or designee, to execute an Agreement with Auto Center LLC ("Owner") that allows CRAILA to either assume the lease agreement between Owner and BYD Motor, Inc. ("BYD Motor") or pay a termination fee of $2,396,332.50, reduced over ten years based on an amortization schedule, in the event that BYD defaults on its obligation to pay rent under its lease agreement with the Owner;

2. Authorize the Chief Executive Officer, or designee, to execute a Conditional Lease Assignment, Reimbursement and Indemnity Agreement with BYD Motor and BYD Company Ltd . (collectively "BYD") that allows CRAILA to assume the lease between BYD Motor and Owner and requires BYD to indemnify CRAILA, reimburse or pay damages to CRAILA in the event that CRAILA must exercise its agreement with the Owner;

3. Determine that the Construction Careers and Project Stabilization Policy shall only be applicable to any future CRAILA sublessees in the event that CRA/LA assumes the Lease between Owner and BYD Motor.

SUMMARY

The recommended actions would allow CRAILA to enter into two agreements, one with Auto Center, LLC, a California Limited Liability Corporation ("Owner"), owner of the property at 1800 S.

AGREEMENTS TO FACILriATE LEASE BETWEEN BYD AND AUTO CENTER, LLC 2

Figueroa Street (the "Property") and one with BYD Motor, Inc ("BYD Motor"), a Wyoming Corporation and BYD COMPANY L TO., a joint stock company organized under the laws of the People's Republic of China. BYD Motor and BYD COMPANY L TO. are referred to collectively as "BYD". CRAJLA is entering into these agreements to faci li tate the lease agreement between the Owner and BYD. BYD is locating its United States headquarters in Los Angeles, at the Property, which is within the Counci l District Nine Corridors South of the Santa Monica Freeway Recovery Redevelopment Project Area ("CD9 Project Area"), and will complete a $5.65 million tenant improvement to the 30,000 square foot build ing. BYD's new headquarters will include light research and development, sa les and marketing and a showroom for BYD's plug-in hybrid vehicles and other "green" products. BYD is expected to locate 50 jobs within a year of opening and create a total of 102 jobs by 2013, with future expansion opportunities into fabrication and manufacturing.

The Property is improved with a 30,000 square foot two-story bui lding. The existing structure requires substantial repairs and major renovation to prepare it for use by a world-class tenant, such · as BYD.

In February 2010, Mayor Villaraigosa, Governor Schwarznegger and BYD representatives announced that BYO would establish its US Headquarters at the Property. The headquarters will include research and development of clean technology applications as well as BYD's existing hybrid vehicle products. The Mayor announced a City assistance package to support BYD's LA headquarters, including:

• $1,600,000 in CDBG funds to support tenant improvements for the Property; • $400,000 in additional public improvements; • Agreements between CRA/LA and Auto Center LLC and between CRA/LA and BYD

to facilitate the transaction between BYD and the· ·owner.

The Agreement between CRAJLA and Auto Center LLC This agreement is structured to facilitate the lease transaction between BYD and the Owner. If BYD defaults on its rent obligations under its lease agreement with the Owner, the CRA agrees to either:

• Assume the Industrial/Commercial Sing le Tenant Lease between BYD and Owner, cure defaults, and begin making the monthly lease payments, or

• Pay a termination fee, based on damages to which Owner is entitled under its lease agreement with BYD, in an amount not to exceed $2,396,332.50 in the first year; decreasing over a ten-year period . The termination fee shall be amortized over the period of the lease and the CRA/LA- Owner agreement ( 10 years), at the rate of eight percent per annum.

The lease agreement between BYD and the Auto Center LLC is a 1 0-year lease, with a triple net lease rate of $43,500 per month for 30,000 square feet, or about $1.45 per square foot. Similar lease agreements for nearby auto dealersh ips are comparable, supporting the BYD - Auto Center Lease rate as a fair market rent.

Cond itional Lease Agreement, Reimbursement and Indemnity Agreement between CRA/LA and BYD This agreement has two components:

AGREEMENTS TO FACILITATE LEASE BETWEEN BYD AND AUTO CENTER, LLC 3

1. If BYD commits a rent default under its lease agreement with the Owner, BYD formally allows CRAILA to assume the BYD I Auto Center LLC lease agreement;

2. BYD commits to reimburse and indemnify CRA/LA against all losses and damages that result from such a rent default, except damages caused by CRA/LA's active negligence or willful misconduct. In the event that CRAILA opts to pay the termination fee allowed under the CRAILA - Auto Center Agreement, BYD must reimburse CRAILA. In the case that CRAILA opts to take on the lease for the Property, BYD must reimburse CRAILA for any losses or damages incurred, including any losses equal to the difference, if any, between the rent that CRAILA must pay to the Owner and the amount that CRAILA can reasonably expect to receive by subleasing the Property.

CRA/LA Policies CRAILA Management has determined that the two subject agreements do not require application of several CRAILA policies to the Auto Center LLC - BYD lease agreement or the tenant improvements to be completed at the Property, for the following reasons. CRAILA is not making a f inancia l investment or providing financial assistance to the transaction between BYD and Auto Center LLC. CRAILA is faci litating the transaction through an agreement to assume a lease or make a payment under certain future circumstances. In the case that CRAILA must act under the lease assumption or pay a termination fee, BYD is obligated to repay CRAILA in fu ll. There is no actual investment of CRAILA funds into the BYD Headquarters project, therefore the Healthy Neighborhoods, Prevailing Wage, Living Wage and Public Art policies do not apply.

The CRAILA's Contractor Responsibi lity Policy wi ll apply to the CRAILA and BYD Agreement. However, since Auto Center LLS is an owner participant, the Contractor Responsibi li ty Policy does not apply to the CRAILA and Auto Center LLC Agreement.

Also, it should be noted that while the CRAILA Prevai ling Wage Policy does not apply, BYD wi ll be using CDBG funds to complete a portion of the tenant improvements to the Property, and therefore the higher of Davis Bacon or Prevail ing Wages will apply to the entire tenant improvement project.

It is not clear that the CRAILA Construction Careers Policy is triggered by the two transactions related to this project. Although CRAILA's agreement to assume the lease could be construed to constitute a contingent liability or guarantee under the Policy, the Board is requested to clarify the Policy so that its requirements are triggered only by CRAILA's actual assumption of the lease and does not apply to the agreements with Owner and BYD. The basis for such a clarification is that the CRAILA's actions with respect to the project do not constitute a CRAILA investment.

Should CRA/LA assume the lease between BYD and Auto Center LLC, all applicable CRAILA pol icies shall apply to any subsequent sub-tenants, including the Construction Careers, Healthy Neighborhood, Prevai ling Wage, Living Wage, Public Art and Responsible Contractor policies.

RE

Initial Action

AGREEMENTS TO FACILlt ATE LEASE BETWEEN BYD AND AUl 0 CENTER, LLC 4

SOURCE OF FUNDS

CRA/LA General Revenue

PROGRAM AND BUDGET IMPACT

The recommended action is contingent and subject to approval by the City Council and the CRAILA's subsequent ratification of the Proposed FY11 Work Program and Budget. If approved, the recommended action would forward commit the annual rent payment requ ired under the BYD -Auto Center LLC lease. That lease begins Feb 1, 2011, therefore the FY11 funds committed on a contingency basis in FY11 are $43,500 x 5 months or $217,500, and shall be set aside from CRA/LA General Revenues. Sufficient funds are avai lable to make any lega lly-required State ERAF payments in FY11. There is no impact on the City's General Fund.

ENVIRONMENTAL REVIEW

The recommended actions are not a project as defined by the California Environmenta l Quality Act (CEQA). The tenant improvements to the building are categorically exempt from CEQA pursuant to Section 15301 (a) of the CRAILA CEQA Guidel ines. ·

BACKGROUND

About BYD BYD, or "Build Your Dreams" produces technology advancements that allow consumers to make a green life without much change to their current lifestyles, from transportation to green bui lding to stormwater capture to battery technology. BYD was founded in 1995 in China, with 20 employees and $300,000 of private capital. BYD's business has grown to a workforce of 160,000 with $3.1 Billion in annual revenue. Their business can be classified into four major categories: (1) rechargeab le batteries, for which BYD has 70% of the global market share in nickel-cadmium batteries, (2) Automobile group; BYD is the fourth largest auto manufacturer in China, and has recent ly launched a plug-in hybrid veh icle that can operate without gasoline if being driven 50 miles or less per day, (3) Green energy group, which focuses on solar panel technologies and production ; and (4) Components; BYD produces parts of, or develops and produces entire products for, large consumer product brands such as Nokia, Apple and Sony Ericsson. BYD's US HeadqUarters will focus on research and development as wel l as sales and marketing. BYD has proposed a three-phase expansion into the US:

• Phase I (mid to late 2011 ): Establ ish US headquarters. 50 jobs comprised of 25% management, 25% light research and development and 50% sales and marketing;

• Phase II: (mid to late 2013): Establish distribution and logistics center. Create an additional 52 jobs, mostly in sales and marketing.

• Phase Il l (post 2013): Establish assembly faci lity. Potential creation of 5,000 jobs, plus.

Pro ject Description Total project costs for the BYD Headquarters tenant improvements include $5.25 million: $2.25 mill ion funded through the Owner, $1.6 mill ion funded through CDBG, $1.4 mil lion provided by BYD.

In addition, Auto Center LLC wi ll be completing improvements on the sidewalk of 181h Street and

completing the abandonment of 3 underground storage tanks.

AGREEMENTS TO FACILITA 1 E LEASE BETWEEN BYD AND AUTO ~ENTER, LLC 5

The benefits associated with the BYD project include: • Headquarters will be in Los Angeles, in the CD9 Project Area; • An estimated 100 high level professional jobs by 2013; • BYD will use the Port of Los Angeles for importing goods; • BYD will make reasonable efforts to locate any future logistics facilities and assembly and

manufacturing centers in the City of Los Angeles.

CD9 Project Area Redevelopment Plan Goals & CRAILA Strategic Plan The BYD Headquarters will be located in the CD9 Project Area's Figueroa/Washington Auto Row, home to the Downtown Los Angeles car dealerships. This area is one of the few remaining urban auto centers in the nation. The dealerships serve the residents living in and around Los Angeles' urban core and draw people to Downtown. The CD9 Project Area FY09 - FY14 Five-Year Implementation Plan identifies the Figueroa Corridor Auto Row as an area targeted for assistance through streetscape improvements, signage and assistance with business expansion and retention. Promoting the Auto Row ensures that services and amenities· remain accessible and avai lable to residents of the Project Area and new business attraction maintains the vitality of the auto row as a hub for the auto industry.

The BYD Headquarters project eliminates blight by supporting the redevelopment of older properties, renovating a bui lding that has been vacant for a number of years, expanding businesses with the Project Area, and generating new jobs.

The recommended actions will support the following objectives of the CRA/LA Strategic Plan: • 1.1.2. Invest in projects and programs to provide 2,000 family-supporting permanent jobs; • 1.3.1. Retain and grow employment in each region's key sectors (such as cleantech. bio­

med, entertainment); • 1.3.2. Grow firms by 20% in each region's key sectors; and

The BYD Headquarters project will be presented to the CD9 Project Area Community Advisory Committee (CAC) in August 2010.

Christine Essel Chief Executive Officer

By

~~ngOfficer Real Estate and Economic Development

There is no conflict of interest known to me that exists with regard to any CRA/LA officer or employee concerning this action.