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CITY COUNCIL AGENDA ITEM NO. 02

Meeting Date: May 13, 2003

Subject/Title: Issue a Resolution Regarding the John Muir Medical Center to be located on Balfour Road and the Hwy 4 Bypass: (a) Authorizing the City Manager to Execute a Notice of Compliance with the Development Agreement; (b) Authorizing the City Manager to Execute a Consent to Ground Lease; and (c) Acknowledging that the Ground Lease is Exempt From the Requirements of the California Subdivision Map Act.

Submitted by: Mitch Oshinsky, AICP, Community Development Director
Dennis Beougher, City Attorney

RECOMMENDATION
Issue a Resolution: (a) Authorizing the City Manager to Execute a Notice of Compliance with the Development Agreement, in substantially the form of the attached Exhibit A; (b) Authorizing the City Manager to Execute a Consent to Ground Lease in substantially the form of the attached Exhibit B; and (c) Acknowledging that the Ground Lease is Exempt From the Requirements of the California Subdivision Map Act.

BACKGROUND
In August 2001, the City approved and executed a Development Agreement (“Agreement”) with John Muir/Mt. Diablo Health System (“JMMD”) applicable to JMMD's 58-acre property located near the intersection of Balfour Road and the Highway 4 Bypass. The Agreement provides for JMMD to develop certain medical facilities, including emergency care and urgent care facilities, medical offices, and wellness center, on the 37.4 acre eastern portion of the property (the "Eastern Site"); and to develop mixed uses, such as professional offices, commercial uses, and medium and high density residential on the remaining 20.2 acre western portion of the property (the "Western Site").

Under Section 8.05 of the Agreement, the City is required, within 30 days of JMMD's written request, to execute and deliver to JMMD a written “Notice of Compliance,” in recordable form, duly executed and acknowledged by the City, certifying that: (a) the Agreement is unmodified and in full force an effect, or the Agreement is in full force and effect as modified and stating the dates and nature of the modifications; and (b) there are no current uncured defaults under the Agreement, or specifying the dates and nature of any defaults.

There are no defaults and the Agreement remains in full force and effect without modifications. Therefore, staff recommends that the City Council authorize the City Manager to execute a Notice of Compliance, in substantially the form of the attached Exhibit A.

As part of its development of medical facilities on the Eastern Site, JMMD proposes to lease a portion of the Eastern Site (the "Ground Lease") to Brentwood MOB Owners LLC. To protect the City’s interest in ensuring that it realizes the benefits of the Agreement, Section 8.02 of the Agreement requires that the City consent to certain transfers of JMMD's interest in the Eastern Site. (All parcels on the Western Site are exempt from the City’s consent requirement.) The City’s consent is required so that the City will have an opportunity to determine, to its satisfaction, that the transferee is capable of performing any of JMMD’s obligations under the Agreement that the transferee may be required to perform. JMMD and the City have determined that JMMD's proposed Ground Lease with Brentwood MOB Owners LLC requires the City's consent under Section 8.02 of the Agreement.

Under Section 8.02, the City may refuse to give its consent only if, in light of Brentwood MOB Owners LLC’s reputation and financial resources, Brentwood MOB Owners LLC would not in City’s reasonable opinion be able to perform any Agreement obligations that Brentwood MOB Owners LLC may be required to perform under the Ground Lease (such obligations are hereafter referred to as “LLC Obligations”). The determination of whether the Brentwood MOB Owners LLC can perform any LLC obligations shall be made by the Community Development Director.

Brentwood MOB Owners LLC is being formed as a subsidiary of the DASCO Companies (“DASCO”), one of the nation’s leading medical real estate development and acquisition companies. DASCO has a long and successful history of providing health care providers such as JMMD with a wide range of professional services, including construction and development services, financing, project management and property management services. The investment banking firm of Lehman Brothers is an investor on DASCO’s medical facility projects such as JMMD’s Brentwood medical campus, and will provide DASCO, Brentwood MOB Owners LLC, and JMMD with access to funding for the Brentwood medical facility. Further information on DASCO can be found on their website at http://www.dascomed.com/.

The Community Development Director has found that Brentwood MOB Owners LLC will be able to perform any LLC Obligations, as required by Section 8.02. Therefore, staff recommends that the City Council authorize the City Manager to execute a Consent to Ground Lease, in substantially the form of the attached Exhibit B.

JMMD's legal counsel has determined that the Ground Lease with Brentwood MOB Owners LLC is not subject to the requirements of the Subdivision Map Act (the "Act"), because the Ground Lease comes within the exemption to the Act set forth at Government Code section 66412.1(a). This is because the Ground Lease is in conjunction with the construction of commercial or industrial buildings on a single parcel, and the construction of such buildings is subject to the City's review under its local ordinances regulating design and improvement. The City Attorney concurs with JMMD's determination that the cited exemption to the Act applies to the Ground Lease, and that the Ground Lease is not subject to the requirements of the Act. Therefore, staff recommends that the City Council issue a resolution acknowledging that the Ground Lease is exempt from the requirements of the Act under Government Code section 66412.1(a).

Attachments:
City Council Resolution
Exhibit A -- Notice of Compliance
Exhibit B -- Consent to Ground Lease Resolution

RESOLUTION NO.

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD: (A) AUTHORIZING THE CITY MANAGER TO EXECUTE A NOTICE OF COMPLIANCE WITH THE DEVELOPMENT AGREEMENT; (B) AUTHORIZING THE CITY MANAGER TO EXECUTE A CONSENT TO GROUND LEASE; AND (C) ACKNOWLEDGING THAT THE GROUND LEASE IS EXEMPT FROM THE REQUIREMENTS OF THE SUBDIVISION MAP ACT, FOR THE JOHN MUIR MEDICAL CENTER LOCATED AT BALFOUR ROAD AND THE HWY. 4 BYPASS.

WHEREAS, on August 23, 2002, the City Council approved and executed a Development Agreement ("Agreement") with John Muir/Mt. Diablo Health System (“JMMD”) concerning real property consisting of approximately 58 acres bounded by Balfour Road on the north and the State Route 4 Bypass on the east (hereinafter “Parcel”);

WHEREAS, Section 8.05 of the Agreement requires the City to, within 30 days of JMMD's written request, execute and deliver to JMMD a written “Notice of Compliance,” in recordable form, duly executed and acknowledged by City, certifying, as appropriate, that the Agreement is unmodified and in full force and effect, and that there are currently no uncured defaults under the Agreement;

WHEREAS, the Agreement is unmodified and in full force and effect, and there are currently no uncured defaults under the Agreement;

WHEREAS, the Agreement divided the 58-acre Parcel into two subareas, the Eastern Site (consisting of approximately 37.4 acres, intended primarily for health care land uses), and the Western Site (consisting of the remainder 20.2 acres, intended for one or a combination of land uses);

WHEREAS, in conjunction with its development of health care land uses on the Eastern Site, JMMD proposes to lease a portion of the Eastern Site (the “Ground Lease”) to Brentwood MOB Owners LLC;

WHEREAS, to protect the City’s interest in ensuring that it realizes the benefits of the Agreement, Section 8.02 of the Agreement requires that the City consent to certain transfers by JMMD of an interest in the Eastern Site (all parcels on the Western Site are exempt from the City’s consent requirement), so that the City will have an opportunity to determine, to its satisfaction, that the transferee is capable of performing any of JMMD's obligations under the Agreement that the transferee may be required to perform;

WHEREAS, JMMD and the City have determined that JMMD's execution of the Ground Lease requires the City's consent under Section 8.02 of the Agreement, and JMMD has requested that the City consent to its execution of the Ground Lease;

WHEREAS, under Section 8.02 of the Agreement, the City may refuse to give its consent to the Ground Lease only if, in light of Brentwood MOB Owners LLC's reputation and financial resources, Brentwood MOB Owners LLC would not in the City’s reasonable opinion be able to perform any Agreement obligations that Brentwood MOB Owners LLC may be required to perform under the Ground Lease (such obligations are hereafter referred to as "LLC Obligations");
WHEREAS, under Section 8.02 of the Agreement, the determination of whether Brentwood MOB Owners LLC can perform any LLC Obligations shall be made by the Community Development Director;

WHEREAS, the Community Development Director has determined that Brentwood MOB Owners LLC is being formed as a subsidiary of the DASCO Companies (“DASCO”); that DASCO is one of the nation’s leading medical real estate development and acquisition companies; that DASCO has a long and successful history of providing health care providers such as JMMD with a wide range of professional services, including construction and development services, financing, project management and property management services; and that the investment banking firm of Lehman Brothers is an investor on DASCO’s medical facility projects such as JMMD’s Brentwood medical campus, and will provide DASCO, Brentwood MOB Owners LLC, and JMMD with access to funding for the Brentwood medical facility;

WHEREAS, the Community Development Director has found that Brentwood MOB Owners LLC will be able to perform the Agreement obligations, as required by Section 8.02;

WHEREAS, JMMD has asked the City to acknowledge that the Ground Lease is not subject to the requirements of the Subdivision Map Act (the "Act"), because it comes within the exemption to the Act set forth at Government Code section 66412.1(a); and

WHEREAS, the City Attorney has determined that the requirements of the Act do not apply to the Ground Lease because the Ground Lease is exempt from the Act under Government Code section 66412.1(a).

NOW, THEREFORE BE IT RESOLVED THAT,

The City Council finds that the Agreement is unmodified and in full force and effect, and that there are no uncured defaults under the Agreement;

The City Council authorizes the City Manager to execute a Notice of Compliance with the Development Agreement in substantially the form of Exhibit A to the staff report;

The City Council concurs with the Community Development Directors determination and finds that Brentwood MOB Owners LLC's reputation and financial resources are such that, in City’s reasonable opinion, Brentwood MOB Owners LLC is capable of performing any LLC Obligations;

The City Council authorizes the City Manager to execute a Consent to Ground Lease, in substantially the form of Exhibit B to the staff report; and

The City Council finds that the Ground Lease is not subject to the requirements of the Subdivision Map Act, because the Ground Lease is exempt from the Act under Government Code section 66412.1(a).

PASSED, APPROVED AND ADOPTED by the City Council of the City of Brentwood at a regular meeting held on the 13th day of May, 2003 by the following vote:

RECORDING REQUESTED BY AND WHEN
RECORDED MAIL TO:

John Muir/Mt. Diablo Health System
1400 Treat Boulevard
Walnut Creek, California 94597
Att’n: Chief Financial Officer

NOTICE OF COMPLIANCE
WITH DEVELOPMENT AGREEMENT

This Notice of Compliance with Development Agreement is dated as of __________, 2003 and is executed and delivered by the City of Brentwood, a California municipal corporation ("City") to John Muir/Mt. Diablo Health System, a California not-for-profit corporation, the DASCO Companies, LLC, a Florida limited liability partnership, and Brentwood MOB Owners, LLC, a Delaware limited liability company.

Reference is hereby made to the certain Development Agreement between the City of Brentwood and John Muir/Mt. Diablo Health System (the "Development Agreement"), effective as of August 23, 2001. Pursuant to Section 8.05 of the Development Agreement, the City hereby certifies that, as of the date first written above:
1. The Development Agreement is in full force and effect, without modification or amendment.
2. There are no uncured defaults under the Development Agreement.
IN WITNESS WHEREOF, the City has executed this Notice as of the date first written above.
CITY OF BRENTWOOD
a California municipal corporation

By:
Name:
Title:

STATE OF

COUNTY OF

On ________________________, before me, ,
Date Name, Title of Officer

personally appeared ,
Name(s) of Signer(s)

• personally known to me OR • proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument, the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Signature of Notary

CONSENT TO GROUND LEASE

This Consent to Ground Lease (“Consent”) is dated as of ______________, 2003 and is executed and delivered by THE CITY OF BRENTWOOD, a California municipal corporation ("City") to JOHN MUIR/MT. DIABLO HEALTH SYSTEM, a California not-for-profit corporation ("JMMD"), The DASCO Companies, LLC, a Florida limited liability company (“DASCO”), and Brentwood MOB Owners, LLC, a Delaware limited liability company (“MOB LLC”).

Reference is hereby made to that certain Development Agreement between the City of Brentwood and John Muir/Mt. Diablo Health System (the "Development Agreement"), effective as of August 23, 2001. Pursuant to and in satisfaction of the requirements of Section 8.02 of the Development Agreement, City hereby consents to the execution and delivery of a Ground Lease between JMMD and MOB LLC in substantially the form of the draft Ground Lease dated April 23, 2003 (the “April 23 Draft Lease”) provided to the Community Development Director and City Attorney on April 24, 2003, provided that any changes to the April 23 Draft Lease that do not relate to the LLC Obligations, as that term is defined in the City Council Resolution ____ authorizing the City Manager to execute this Consent, shall be deemed to be in substantial conformance with the April 23 Draft Lease. City acknowledges that the consent of City is not required to any amendment, modification or termination of the Ground Lease.

City further acknowledges that JMMD has reserved all rights under the Development Agreement, including with respect to the land subject to the Ground Lease and that the parties do not intend by virtue of the Ground Lease to authorize MOB LLC or its successors to obtain any amendment, modification, or termination of the Development Agreement without first obtaining the written consent of JMMD, which may be withheld in JMMD’s sole discretion.

City further acknowledges that, on or about even date with the Ground Lease, JMMD and DASCO are entering into that certain Project Development Agreement (“Project Agreement”) providing for the construction of a medical office building on the premises subject to the Ground Lease, and that under the Project Agreement, JMMD has agreed not to apply to the City for approval of, or to enter into, any modifications or amendments to the Development Agreement that would materially alter the terms of the Project Agreement, or that can reasonably be expected to materially increase the cost of development, use or operation of the Project, as defined in the Project Agreement, without first obtaining MOB LLC’s consent or deemed consent, in accordance with the Project Agreement.

IN WITNESS WHEREOF, the City has executed this Consent as of the date first written above.

CITY OF BRENTWOOD
a California municipal corporation

By:
Name:
Title:

City Administration
City of Brentwood City Council
150 City Park Way
Brentwood, CA 94513
(925) 516-5440
Fax (925) 516-5441
E-mail allcouncil@brentwoodca.gov