wvillage faculty housing term sheet 10-26-2006

8/6/2019 WVillage Faculty Housing Term Sheet 10-26-2006

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CONCEPTS FOR DISCUSSION

REVISED , OCTOBER 26, 2006

FACULTY/STAFF FOR-SALE HOUSING GROUND LEASE (Lease)WEST VILLAGE -- UNIVERSITY OF CALIFORNIA, DAVIS

Project Description (FH1): UC Davis seeks a development partner to

implement the portion of Phase I of the West Village master plan relating to for-salehousing for UC Davis faculty and staff. (Project). The faculty/staff housing element forPhase I will include capacity for a total of 312 units consisting of approximately thefollowing unit distribution:

o 139 detached single-family homes, a percentage of which will have second unitcottages, the percentage shall be determined by the University, at its discretion.o notwithstanding anything to contrary in this term sheet, no more than 40 marketrate detached single-family home with no resale price restrictions, but otherwise subject to allterms and conditions of the Lot Lease;o 133 townhouse or similar housing units.

Upon the request of Lessee/Developer and with the consent of University and inUniversitys sole discretion, the total number of units may be increased or decreased by10%.

Structure (FH2): This Term Sheet is an attachment to the Master Lease Term Sheetbetween the University and West Village Community Partnership, LLC. As eachSubphase of for-sale housing development occurs the site for each specific Subphase willdrop out of the Master Lease and will become the subject of a new Subphase for-salehousing ground lease. Ultimately, the parties intend that all for-sale housing land initiallyincluded in the Master Lease will drop into a series of individual Subphase for-salehousing ground leases.

Site (FH3): Defined parcel of land on the Davis campus suitable for faculty/staff housingwith good accessibility to the general public should broader marketing ever be required asshown on Exhibit A.

Lessee/Developer (FH4): Lessee/Developer shall be affiliates of West VillageCommunity Partnership, LLC.

Lessor (FH5): The Regents of the University of California (University).

Term/Ground Rent (FH6): Construction of the for-sale units must be completedwithin 36 months from either (i) the effective date of the applicable SubphaseLeaseagreement or (ii) date of completion of the University Infrastructure Obligations (ML9),whichever is later, with the opportunity for two one-year extensions upon mutual

agreement. There will be no Lease fee or Ground rent payable by Lessee/Developerduring the term of the Lease agreement.

Notwithstanding anything in this agreement, any partially or fully completed homes, thatare not sold by the end of the Term, may be converted to lot leases, in the name of theLessee/Developer, in terms as defined in FH22. For finished lots, the University canextend the Term or purchase lots pursuant to Exhibit H of the Master Lease.

Subphase (FH6.1): Lessee/Developer shall construct homes in scheduled phases(adjusted to reasonable construction and market constraints). Prior to commencing a


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Preliminary Faculty/Staff Housing Ground Lease Business TermsRevised October 24, 2006

subphase, Lessee/Developer shall arrange to have prepared an independent marketstudy of UC Davis faculty and staff eligible for West Village for-sale housing documentingthat demand exists for a phase the size and unit types planned for such subphase, at thehome prices proposed for such subphase, and assuming the homes are sold subject tothe Universitys price and resale restricted Lot Lease. The initial phase shall consist of nomore than 50 homes. Subsequent phases shall consist of not more that 50 homes.

Lessee/Developer shall not commence construction of the next phase until 70% of theprevious phase homes (excluding market rate homes) have been sold to University facultyand staff (i.e., subject to an executed purchase and sale agreement), or as otherwiseagreed by University. Lessee/Developer shall start no more than four (4), market ratehomes, at any given time, that have not been reserved or contracted by third party buyers.

Ground Lease (FH6.2): Universitys interest in the site and in the Lease shall besuperior and prior in interest to any loans or encumbrances placed on the Project byLessee/Developer.

Priority List (FH7): The University encourages pre-sale of the units and willprovide priority lists of interested, eligible purchasers to Lessee/Developer.Lessee/Developer will be required to offer the for-sale units for designated periods of timeto successive groups of purchasers in order of priority as established by the University(see Exhibit B). If unsold units remain at the end of all the offering periods to prioritygroups of faculty and staff, the University will have the right, but not the obligation, topurchase the unsold units. Alternatively, the University may lease the homes (triple netlease) for annual periods of up to three years at a rent based on 10.25% of audited actualtotal costs of the home. If, at the end of all of the applicable periods, the University doesnot exercise its right to purchase or lease any unsold units, Lessee/Developer would thenbe allowed to sell the units to the general public, such sales otherwise subject to all otherprovisions of the Lease. University reserves the right to provide University buyers withfinancial assistance at its sole discretion.

Price Limit (FH8): The maximum sale price per unit and the minimum average

size of the homes (not including garages) shall be set forth as follows:

Townhomes 1,350 sqft $379,220 to $419,138, with an average price not to exceed$399,179, and at least 25% of the townhomes sold at $379,220.

Detached homes 1,500 sqft $410,998 to $454,260, with an average price not to exceed$432,269, and at least 25% of the homes sold at $410,998.

Cottages 500 sqft $86,142 to $107,677 (this additional price to be added toDetached or Main Street home prices if a cottage is included, it is estimated that 60% of thedetached homes will be purchased with cottages)

Market rate home FAR for the home (excluding cottage and garage)shall not exceed 50%, unless approved by the University. 50% ofproceeds in excess of $917,822 (price adjusted as noted below) perhome (excluding cottage and options) shall be paid to the University.

These prices are in May 2006 dollars (assumes 75% of 3.4% CPI increase from August2005), the prices will adjust with CPI or Marshall & Swift Construction Cost Index whichever isgreater.

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Lessee/Developer, with the consent of University and in Universitys sole discretion, mayincrease the sales price of the homes up to an additional 20%.

Lessee/Developer, with the consent of University and in Universitys sole discretion, mayincrease or decrease the size of the homes up to 20%.

Buyer Upgrade Options (FH8.1): Developer may offer home buyers optional upgrades.Such upgrades and the costs associated with each such upgrade shall be identified in anexhibit to each subphase lease. All options and related pricing are subject to Universitysreasonable approval. Buyer upgrades options pricing shall be in addition to the pricingnoted in FH8.

Entitlement of Project and CEQA Compliance (FH9): The Project entitlements maybe sufficiently established through the campus Long Range Development Plan (LRDP) inwhich case minimal review would be required pursuant to the California EnvironmentalQuality Act (CEQA). (The University is exempt from local planning and zoning and servesas lead agency under CEQA.) Changes to the location, size or scope of the Project mayrequire a full Environmental Impact Report (EIR). In the event that an EIR is required,Lessee/Developer shall negotiate with the campus to determine its appropriate share ofsuch costs based on the factors that led to the need for the EIR. Lessee/Developer shallbe responsible for complying with and implementing the Implementation Plan for WestVillage approved by The Regents (draft attached as Exhibit E) and all the applicablePhase 1, on-site, mitigation measures adopted in the Project environmentaldocumentation, including mitigation measures relating to the Project that were adoptedwith the November 2003 Regents approval of the LRDP.

Condition of Site (FH10): The site will be Leased as is and subject to all applicablelocal, state and federal government regulations. Lessee/Developer shall be responsiblefor regulatory approval and physical remediation of conditions identified in Phase 1, on-site, phase I and phase II environmental site assessments, if any. Lessee/Developer willbe responsible, not at Project expense, for any environmental conditions caused by

Lessee/Developer. Further, Lessee/Developer is responsible for confirming allgeotechnical, storm water, infrastructure, and other conditions of the property pertinent todevelopment of the Project and is responsible for all costs related thereto.

Development Responsibilities (FH11): Lessee/Developer shall be responsible for alldesign and soft costs, the permitting costs, including University permitting, plan check andinspections fees described in FH14), Phase 1, on-site improvements, projectimprovements, government fees, assessments and taxes, and all other costs ofdeveloping the Project. Lessee/Developer shall be responsible for and shall usecommercially reasonable efforts in completing the Project by the completion date specifiedin the Lease without cost overruns. The construction contract and the architectsagreement shall be provided to the University for review and approval. Subject to

obtaining all CEQA approvals and Notice to Proceed, failure to complete the project within(to-be-determined) months from the commencement date, upon notice and expiration ofapplicable cure periods, shall be an event of default.

Construction (FH12): The Project must be constructed in accordance with all applicablecodes and governmental regulations, and applicable University policies and adherence toall Development Standards established by the University for the Project, all of which areidentified on Exhibit H. In addition, the Project shall be constructed in compliance withthe applicable CBC. Upon completion of the Project, the houses and lots will be soldsubject to lot leases on the individual lots.

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Home Quality Standards (FH12.1): Lessee/Developer shall construct all homes on thesite at quality levels comparable or exceeding the quality levels at Aggie Village (whennew) and based upon the standards identified in Exhibit C.

Home Warranty (FH12.2): Lessee/Developer shall provide all homebuyers with acustomer warranty package comparable to or better than offered at comparable new

home projects in the City of Davis or nearby communities.

Reserved (FH13):

Campus Development Expenses (FH14): Lessee/Developer shall pay the University forcampus development expenses associated with plan checking, construction inspections,campus project management, campus support and reviews, campus designated FireMarshal, special consultants and other expenses to be incurred by the University to obtainProject approvals and to support the Project through construction (University Fees).Such payments shall be as detailed in Exhibit D. With the exception of the paymentsdescribed in Exhibit D, the University shall use commercially reasonable efforts to exert itsexemptions to all government related development fees and expenses, where applicable,and shall reasonably cooperate with Lessee/Developer to ensure such exemptions areapplied to the Project, provided, however, University shall not be obliged to pursueadministrative or litigation proceedings or incur third party costs or expenses.

Financing (FH15): For purposes of securing Project financing, the Lessee/Developermay pledge the rights and privileges granted in the Lease. University, however, will notpledge its underlying fee simple interest in the land or its reversionary interest in theimprovements as security for the Projects financing and the University will not be liable orcontingently liable for repayment of Project financings. Project financing will not be cross-defaulted or cross-collateralized to other property loans. University shall have the right toapprove each Leasehold Mortgagee, however University shall not withhold its approval ofany proposed Leasehold Mortgagee which:

(a) has assets of five billion dollars or more; and(b) has experience in lending on real estate projects of this type and size; and(c) is either: (i) a national or state chartered bank or savings and loan association, (ii)

an insurance company which is licensed and authorized to do business in theState of California, or (iii) a pension fund which is licensed and authorized to dobusiness in the State of California.

Transfer and Assignment (FH16): Lessee/Developer must construct the Projectwithout transferring, assigning, or subleasing Lessee/Developers interest in the Project.

Mortgagee Protections (FH17): University agrees to provide commerciallyreasonable mortgagee protection rights in the Lease which would allow the

Lessee/Developers lender appropriate cure rights.

Financial Covenants (FH18): The University will establish a maximum amount of debtthat can be placed on the Project (not to exceed a 75% loan-to-construction cost ratio).Until all homes are constructed and sold, because the Lessee/Developer is a singlepurpose LLC, Lessee/Developer shall be required to provide a guarantee or directobligation of the parent entity which will be subject to a $100 million minimum tangible networth covenant. Guarantee to be cross-defaulted to the Lease.

Reporting Requirements (FH19): Prior to commencement of construction for anySubphase and until all homes are constructed and sold, Lessee/Developer shall provide

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the following statements to University for any lessee entity or guarantor entity: (i) the mostrecent quarterly unaudited operating statements, balance sheets, and cash flowstatements prepared in accordance with GAAP and (ii) the most recent annual completeaudited financial statements prepared in accordance with GAAP, including a statement ofNet Cash Flow. The audit shall be performed by an independent nationally recognizedcertified public accounting firm. Thereafter, as long as any Project financing is in effect,

Lessee/Developer and guarantor shall provide to the University statements, certified as toaccuracy by Lessee/Developer or guarantor, as applicable, and Lessee/Developers orguarantors, as applicable, nationally recognized certified public accountants, thatLessee/Developer is in compliance with the financial covenants in FH18. Such statementswill be delivered quarterly within 90 days of the end of the prior quarter. The University, atits cost, may audit Lessee/Developer and guarantor to verify the accuracy of suchstatements and compliance with the applicable financial covenants.

Prevailing Wage (FH20): There is no University requirement for payment ofprevailing wages on any component of the Project.

Reserved (FH21):

Lot Lease terms (FH22):Lessee/Developer, as well as any subsequent seller, will sell each for-sale unit, based ona lot lease between the University as landlord and the purchaser. The lot lease form willbe provided by the University and shall include, but not be limited to, the following termsand conditions for each buyer at the time of purchase:

Term (FH23): 99 years, subject to issuance of new lease as outlined inExhibit G.

Lot Lease Rental (FH24): A monthly rent will be payable by thehomeowner to the University, the rent shall be determined by the University andshall be sufficient to cover the fairly allocated cost of University services (fire,

police, night security) and administration, operating and maintenance costs for theroads, site utilities, landscaped areas, neighborhood parks, greenbelts and bicyclepaths including the transit green, habitat and drainage ponds and a finishedbuilding pad for an elementary school as well as reserves for major repairs orreplacement for such areas. It is estimated that the total lot lease rental andhomeowners association fees will be approximately $225 per month for UCaffiliates. Non-UC affiliates shall pay an additional monthly lot lease rental (Non-affiliate Additional Rental) of $300 initially, adjusted by CPI annually thereafter. Ifsuch Non-affiliate Additional Rental would cause the total of the (i) lot lease rental,(ii) homeowners association fees, and (iii) Non-affiliate Additional Rental, toexceed 2% of the residence assessed value, such Non-affiliate Additional Rentalshall be reduced so that such total is 2% of the residence assessed value.

Resale Price Restrictions (FH25): A prohibition on reselling the unit formore than the purchase price plus an adjustment for inflation and for approvedcapital improvements, as determined by the University, market rate lots shall beexcluded from this provision.

Resale Buyer Restrictions (FH26): A right of first offer that provides theUniversity with a first right to purchase the unit upon resale, the University mayassign their right to other faculty and staff

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Architectural Controls (FH27): Limits on alterations that can be made tothe size and/or exterior appearance of the unit and interior modifications to buildingsystems, subject to campus approval, not to unreasonably withheld. For allalterations, Homeowner to comply with all applicable building codes as well as theCBC. Homeowners to obtain all appropriate permits and pay all applicable feesfor any alterations.

Use & Occupancy (FH28): Land to be used for construction of faculty/staffhousing for University faculty, staff and others approved by the University.

Events of Default (FH29): Subject to University default or a Force Majeure,Default by Lessee/Developer shall be defined to include (i) failure to commence theProject by a date certain (to be mutually agreed to), (ii) failure to diligently pursuecompletion of the Project and (iii) failure to complete the Project by a date certain (to bemutually agreed to). Other defaults customary in agreements of this type shall bedocumented in the Lease.

Insurance Requirements (FH30): Lessee/Developershall provide proof ofinsurance at levels and with deductibles reasonably acceptable to the University.Required coverage will include, but not be limited to, comprehensive form general liability,business auto liability, property, workers compensation, garage operator, businessinterruption and construction insurance. Other insurance as is customary in this type ofproject may be required. University and Lessee/Developer shall be named as additionalinsured on all insurance policies. After casualty required to be insured, Lessee/Developershall be required to rebuild Project. After casualty not required to be insured, if sufficientfunds available from insurance, project reserves and Lessee/Developer contributions,Lessee/Developer to rebuild Project; if insufficient funds available to fully restore theproject, Lessee/Developer to restore the site to its original condition and Lease toterminate.

Indemnification & Hold Harmless (FH31): Each of Lessee/Developer and University

will defend, indemnify, and hold harmless the other, its officers, employees, and agents,and in the case of University, the Regents, from and against any and all liability, claims,liens, judgments, expenses, and costs to the extent such amounts result from, or in anyway arise out of, or in connection with Lessee/Developers or Universitys, as applicable,development, construction, ownership, management or operation of the Projectimprovements. Neither party will be obligated to indemnify the other for consequentialdamages.

Property or Possessory Interest Taxes (FH31.1): Lessee/Developer has assumed thatthe Lessee/Developers interest in the Project will not be subject to property or possessoryinterest taxes by the County. However, the University has informed Lessee/Developerthat it is possible the County will assess the Project for Property or Possessory Interest

Taxes. Lessee/Developer shall diligently pursue any appropriate tax exemptions basedon the use of the project. The University shall reasonably cooperate withLessee/Developer to pursue appropriate tax exemptions. The Lease terms are based onthe assumption that one hundred percent of the net benefits of any such exemption flowsdirectly to the University, provided, however, University shall not be obliged to pursueadministrative or litigation proceedings or incur third party costs or expenses..

Equal Opportunity (FH32): During the term, the Lessee/Developer shall notdiscriminate against any person employed or seeking employment in the Project orpurchasing a unit in the Project because of race, color, marital status, religion, sex, sexualorientation, handicap or national origin.

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Future Campus Development (FH32.1): So long as there is no default under the MasterLeases or any Subphase lease, for a five year period after the later of the Effective Date ofthe Master Lease or date of completion of the University Infrastructure Obligations (ML9)and prior to Lessee/Developer selling 95% of the Faculty/Staff for-sale homes in theProject (+/- 312 units), where the University has determined a need for construction of

additional Faculty/Staff for-sale homes, to the extent such need can be accommodated byLessee/Developer, the University shall negotiate in good faith for a period of no more than90 days, with the Lessee/Developer to accommodate, as reasonably determined byUniversity, such needs at the Project prior to the University developing or constructingadditional Faculty/Staff for-sale homes. Notwithstanding the above, University may pursuenew condominium projects, donor driven projects, purchases of existing inventory,rehabilitation of existing units, whether owned by the University or not, faculty or staffrental projects or any project where University may be precluded from such negotiations inorder to comply with laws.

Other Terms (FH33): The Lease shall contain such other conditions as are customaryin transactions of this type.

The parties do not intend this term sheet to be a contract or to be bound hereby. A contract willnot exist unless and until the parties have executed a formal agreement approved by theirrespective counsel regarding the subject matter of this term sheet and containing all otheressential terms of an agreed upon transaction. The parties acknowledge that they have not setforth herein nor agreed upon all essential terms of the subject matter of an agreed transaction,and that such essential terms will be the subject of further negotiations.

The parties acknowledge that neither of them intends to enter or has entered into any agreementto negotiate a definitive future agreement pursuant to the terms of this document. Both partiesagree that the terms mentioned herein impose no burden to negotiate further terms, until adefinitive future agreement has been drafted, discussed and executed. Either party may, at anytime prior to execution of a definitive agreement, propose different terms from those summarized

here. Either party may also unilaterally terminate all negotiations. In either instance, such partyshall have no liability of any kind to the other party.

Exhibit A: SiteExhibit B: For-sale Buyer Tranche and Offering TimeframesExhibit C: Home Quality StandardsExhibit D: University Fees Note: remove reference to school district and County fees.Exhibit E: Implementation PlanExhibit F: Fees for Upgrades/options

Exhibit G: Term ExtensionsExhibit H: Policies and Regulations

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wvillage faculty housing term sheet 10-26-2006

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