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SR-802-001-03 RMD:EDD:DM:F:\RESOURCE\STAFFREPORTS\Pier Restoration Corporation.doc City Council Meeting: February 13, 2001 Santa Monica, California To: Mayor and City Council From: City Staff Subject: Recommendation to Approve the Proposed Guidelines for Leasehold Management of City Property on Santa Monica Pier for Fiscal Year 2000-01. Introduction This report recommends that Council approve the proposed guidelines for leasehold management of City property on the Santa Monica Pier for Fiscal Year 2000-01. Background In November 1983 City Council created the Santa Monica Pier Restoration Corporation (PRC) as a non-profit, public benefit corporation to oversee the reconstruction and revitalization of the Pier. The responsibilities and authority of the PRC were broadened and formalized in December 1985, with City Council approval of a Services Agreement with the PRC and by-laws for the corporation. The relationship between the City and PRC was reaffirmed and modified upon Council approval of a new Services Agreement on December 19, 2000, transferring to City Economic Development Division staff, supported by the Office of the City Attorney, responsibility for lease negotiations and lease administration. City Council oversight and review of PRC activities continues through its appointment of members to the PRC Board of Directors and through annual review and approval of a plan of work and budget proposed by the PRC. The Plan of Work sets forth the goals and objectives of the PRC for the ensuing fiscal year, and through its allocation of budget resources, the City funds the PRC?s activities and program implementation. The PRC formulated a set of public policy statements, goals and objectives for future development and use of property on the Pier. These guidelines were set forth in the General Use and Development Plan adopted by the PRC in September 1987 and approved by City Council in February 1988. The 1988 Plan set forth a multi-step development program for the commercial revitalization of the Pier through attraction of a diversity of products and services offering a broad range of public appeal. The appropriate tenant mix distribution identified at that time included retail, restaurant and entertainment/amusement uses. A primary objective of the PRC?s development program was to revitalize the Pier in a manner that preserved its character while serving the future recreational needs of the community and the economic requirements of the City. The Pier?s economic position was to be improved by increasing the commercial area available for lease and improving the quality of products and services offered while preserving it as an affordable destination. 2 Highlights of the 1988 Development Plan and the progress to date toward implementation of the Plan are summarized as follows: ? Total commercial development program on the Pier will consist of approximately 150,000 square feet of leased building and deck area. As of November 1, 2000, total leased commercial area on the Pier consists of 122,870 square feet of building and deck area. ? Diversity of products and services offered on the Pier will appeal to a broad range of incomes, ages and lifestyles. The 1988 proposed tenant distribution was 40% amusements, 40% dining and music entertainment venues and 20% retail. As of November 1, 2000, the Pier tenant mix is 61% amusements, 35% dining and music entertainment venues, 1% retail and 4% educational. This change in tenant distribution reflects the growth in retail popularity and density of the nearby Third Street Promenade. ? Opportunity is provided for all existing Pier tenants to participate in the Development Program provided that the operations meet reasonable standards of quality and service. Existing tenants will be given priority in the 3 selection process for new leases if their leasehold concepts and standards are equal to or better than those of competing applicants. The PRC and City staff have provided the opportunity for existing Pier tenants to present their development concepts consistent with the Development Program. ? Design Guidelines will be prepared and implemented as the method by which the eclectic appearance and important design elements of the Pier are retained, preserved and enhanced. Design Guidelines have been adopted and continue to serve as a standard by which any proposed structural modifications and tenant improvements on the Pier are reviewed. ? The Pier?s economic position will be improved by increasing the amount of leased commercial area and providing quality tenancies and services, consistent with the character, scale and role of the Pier to the community. Leasehold uses and operations on the Pier remain eclectic, casual and reasonably unique to Santa Monica, while providing enhanced rental income and recapture of common area maintenance costs. 4 ? The Pier will attract and serve visitors from a broad range of sources, income groups and lifestyles, and provide a vital entertainment and recreational outlet for Santa Monica residents and visitors. In addition to accommodating a relatively low density, eclectic mix of commercial operations, the PRC has promoted the Pier to the Santa Monica community and visitors through annual operation of the Twilight Dance Series, various special public promotional events, private events and filming. As part of its budget considerations in June 1999, City Council concluded that, with the exception of on-going negotiations between the PRC and Pacific Park for a comprehensive lease amendment, new lease negotiations and lease management responsibilities were to be transferred to the City Economic Development Division (EDD) staff supported by the Office of the City Attorney. The revised relationship between the City and PRC was formalized upon the December 19, 2000 approval by City Council of the new Services Agreement, the Fiscal Year 2000 PRC Plan of Work, and revised PRC by-laws. 5 Discussion Leasing Guidelines and Operations Guidelines for design and future development and use of property on the Pier were set forth as public policy statements, goals and objectives in the 1988 General Use and Development Plan. As called for in section 5.1 of the Services Agreement, draft leasing guidelines for the Santa Monica Pier were presented to and reviewed with the Leasing Committee of the PRC on October 26, 2000, and were recommended for approval by the PRC Board. At its meeting held December 6, 2000, the PRC Board adopted a motion recommending approval of the Leasing Guidelines, and approval was reaffirmed by the PRC Board at its meeting held January 10, 2001. The Leasing Guidelines are conveyed as Attachment A. The PRC Board has reviewed and approved concepts for development of opportunity sites on the Pier which may become available due to lease expiration, lease termination or as part of implementation of the 1988 Plan, in accordance with the approved Fiscal year 2001 Plan of Work. The Board considered alternative uses for leaseable sites, established design and operations standards for Pier lessees, and set general policies for solicitation of tenants and review of leasehold proposals. Any lease or lease modification recommended to the PRC Board by City staff for approval will be consistent with the Plan of Work and Leasing Guidelines, and will be subject to review and approval by the Board prior to execution by the City Manager. The Leasing Guidelines will also be subject to annual review by the PRC Board in conjunction 6 with each fiscal year?s proposed Plan of Work. The annual Plan and any related modifications to the Leasing Guidelines would then be submitted to City Council for its consideration. For its part, the City is obligated to use commercially reasonable efforts to solicit proposals and identify qualified prospective tenants for leasehold occupancy of available space on the Pier for purposes consistent with the 1988 Plan and Leasing Guidelines. Leases negotiated for use of Pier space will be reasonably consistent with the Plan of Work and Leasing Guidelines, and must be submitted to the PRC Board in the form of a recommended action for approval prior to implementation. The City EDD staff will also monitor tenant and City compliance with the terms and conditions of approved leases, and enforce lease provisions, respond to tenant and visitor complaints and requests related to Pier leases, bill and collect rents and other tenant assessments which may become due, and pursue legal actions as necessary for the defense and prosecution of leasehold disputes. The PRC Board expressed serious concern for the identification and preservation of preferred uses for each leasehold site on the Pier, and the establishment of pricing for leasehold occupancy consistent with supporting the unique character of Pier uses and optimizing the preferred uses while assisting in the fiscal self- sufficiency of the Pier Fund. Uniqueness and diversity of Pier Leases will be 7 maintained, focused on those purposes that support the historic character of the Pier and offer choices of services and pricing within the general use categories. The controlled scope of commercial development and casual recreational ambiance are also important factors in defining the unique character of Santa Monica Pier. Leasing and licensing of buildings and Pier deck area will be subject to a preference for local independent businesses that are financially and operationally capable of providing the preferred uses for each leasehold site. Staff recommends that automatic lease renewals or options to extend occupancy not be offered to existing or future tenants, with two current exceptions. As vacancies arise either by lease expiration or earlier termination, recruitment for occupancy will be conducted in accordance with the Leasing Guidelines, thereby assuring periodic public access to Pier leasing opportunities. The two exceptions are recommended short term interim leases with present month-to-month tenants of Surf View Café, where changes to portions of the Pier deck may arise within the ensuing three years, and Santa Monica Pier Bait & Tackle, which will be affected by the anticipated restoration of a portion of the breakwater and installation of commercial vessel moorings and vessel landing. Rents will be established based upon independently estimated fair market rates or in accordance with responses received to any public Request for Proposal 8 process. Lease rates are considered secondary to implementing or retaining a preferred site use, and pricing may be adjusted as necessary for that purpose. Tenant recruitment will be in accordance with the procedures set forth in the proposed Leasing Guidelines. Leasehold tenants will also pay, as a condition of occupancy on the Pier, a proportionate share of the City?s cost to manage, maintain and provide security to Santa Monica Pier. As of January 1, 2000, the applied Common Area Maintenance cost is $5.00 per leased square foot per year, increasing with CPI adjusted as of July 1 biennially. A well-publicized process to market and solicit interest by prospective tenants and licensees with appropriate financial and experience qualifications to successfully implement the preferred uses will be conducted for any available leasehold opportunity on the Pier. Requests for Proposals will be prepared by City staff and approved by the Leasing Committee of the PRC prior to dissemination. Responses to the public solicitation will be analyzed and rated by a review team comprised of City staff and the Executive Director of the PRC. Representatives of City Engineering and/or Planning and Community Development may be included as appropriate. The lease proposal review team will provide its analysis and recommendation as to a preferred respondent to the Leasing Committee of the PRC. The staff recommendation may be to reject all responses, solicit additional information from one or more respondents, or to enter exclusive lease or license negotiations with a preferred respondent. 9 The Leasing Committee will consider the review team analysis and make its recommendation to the PRC Board. The Board may authorize City staff to enter exclusive negotiations with a preferred respondent on terms consistent with the Leasing Guidelines, or it may reject all responses or direct that additional information be solicited. City staff will conduct any negotiations as authorized by the PRC Board, and any proposed agreement will be prepared and subsequently approved as to form by the City Attorney. If a proposed lease or license is consistent with the authorization to enter exclusive negotiations, the Leasing Committee and PRC Board will approve and transmit the lease to the City Manager for execution on behalf of the City. Budget and Financial Impact The City currently budgets for and funds anticipated costs of the Pier Restoration Corporation including salaries, supplies and other basic operating expenses through Economic Development Division, Resource Management Department Account Number 30625.577300. Approval of the proposed Leasing Guidelines would not affect the fiscal year 2000-01 budgeted amount. Recommendation Staff recommends that City Council approve the proposed Leasing Guidelines for Fiscal Year 2001 for use of Santa Monica Pier commercial areas, and that the City Manager be authorized to implement the Leasing Guidelines as approved. 10 Attachments: A. Santa Monica Pier Leasing Guidelines Prepared by: Jeff Mathieu, Director of Resource Management Mark H. Richter, Economic Development Manager JoAnne Brosi, Senior Administrative Analyst 11 ATTACHMENT A Santa Monica Pier Leasing Guidelines 12 SANTA MONICA PIER LEASING GUIDELINES GUIDELINE OBJECTIVES Promote and maintain the compatibility of use of City-owned property located on the Santa Monica Pier in a manner supporting an attractive, safe and accessible environment for visitors and the residential community; preserve and enhance the Preferred Uses through operation of the facility in a manner supporting diverse and affordable public recreational and community asset; establish the pricing of leasehold occupancy consistent with optimizing the Preferred Uses and assisting in the support of fiscal self-sufficiency of the Pier Fund; and assure access to and use of City-owned properties by the general public for the Preferred Uses through a leasing program that promotes the orderly management of tenancies. PREFERRED USES Current uses of City-owned structures and deck area on Santa Monica Pier are diverse, and have been intended to preserve the Pier as a unique community recreational resource. The Pier is an internationally recognized attraction serving residents and visitors representing a broad range of incomes, ages and lifestyles. The current lease and license agreements represent the implementation of the Santa Monica Pier Development Program adopted in 1988. Diversity will be maintained but focused on those purposes that support the historic character of the Pier and offer choices of services and pricing within the general use categories while retaining the intended emphasis on low density, unique recreational and entertainment-oriented activities. Preferred Uses include, but are not limited to, a range of entertainment and commercial products and services that will appeal to and serve both the residential community and area visitors. Buildings and deck area on Santa Monica Pier that are and will be available for lease or license, and associated Preferred Uses for each, consist of the following: ? 1600 Oceanfront Walk ? 4,533 s.f. enclosed structure area Current Operation: UCLA Ocean Discovery Center Lease Term: 8 years, commencing 7-1-95 Preferred Use: marine research and educational facility accessible to the public ? 200 Santa Monica Pier ? 8,236 s.f. enclosed structure area Current Operation: Carousel and related retail activities Lease Term: Month-to-month. Trafton Operating Agreement expired 6-30-00 Preferred Use: public access to Carousel at supported pricing, and evening/off-hours use of the Carousel building for parties, receptions and special events ? 250 Santa Monica Pier ? 5,015 s.f. enclosed structure and 1,064 s.f. patio area Current Operation: The Arcadia Lease Term: 20 years, commencing 10-27-98 Preferred Use: music and entertainment venue with food and beverage service ? 256 Santa Monica Pier ? 3,035 s.f. enclosed structure and 1,073 s.f. patio area Current Operation: Rusty?s Surf Ranch Lease Term: 20 years, commencing 11-1-94 Preferred Use: full service restaurant with music and entertainment ? 258 Santa Monica Pier ? 2,557 s.f. enclosed structure and 1,392 s.f. patio area Current Operation: Santa Monica Pier Seafood Lease Term: 23 years, commencing 5-1-91 Preferred Use: limited or full service family-oriented restaurant ? 301 Santa Monica Pier ? 4,534 s.f. enclosed structure and 2,198 s.f. patio area Current Operation: Boathouse Restaurant Lease Term: Month-to-month. Lease expired 6-30-98 Preferred Use: limited or full service family-oriented restaurant ? 310 Santa Monica Pier ? 1,292 s.f. enclosed structure Current Operation: Blazing Saddles Bicycle Rentals and Sales Lease Term: 43 months, commencing 4-1-00 Preferred Use: recreation-oriented rentals and sales ? 330 Santa Monica Pier ? 1,525 s.f. enclosed structure and 584 s.f. patio area Current Operation: Surf View Café Lease Term: Month-to-month Preferred Use: limited service convenience restaurant ? 350 Santa Monica Pier ? 8,603 s.f. enclosed structure and 641 s.f. patio area Current Operation: Playland Arcade Lease Term: Twenty years, expiring June 30, 2010 Preferred Use: amusement and self-operated games arcade with ancillary retail sales ? 370 Santa Monica Pier ? 12,085 s.f. gross deck area Current Operation: Club Route 66 (not yet constructed) Lease Term: 40 years, not yet commenced Preferred Use: full service restaurant with music and entertainment ? 380 Santa Monica Pier ? 75,000 s.f. gross (56,891 s.f. net) deck area Current Operation: Pacific Park Lease Term: 50 years, commencing 5-26-96 Preferred Use: amusement rides and games with ancillary retail sales and fast food ? 401 Santa Monica Pier ? 6,204 s.f. enclosed structure and 2,217 s.f. patio area Current Operation: Mariasol Restaurant Lease Term: 35 years, commencing 1-1-91 Preferred Use: limited or full service family-oriented restaurant ? 404 Santa Monica Pier ? 292 s.f. enclosed structure Current Operation: Santa Monica Pier Bait & Tackle Lease Term: Month-to-month. Lease expired 6-30-98 Preferred Use: fishing bait and tackle sales with ancillary retail sales and fast food ? Municipal Pier Deck Area Current Operation: Promenade Services Vending Cart Program License Term: Month-to-month Preferred Use: Pier and/or beach-oriented retail sales and services ? Santa Monica Harbor Moorings Current Operation: 12 vessel moorings, with at least eight available for commercial boating activities, one for public safety, three for transient/harbor of refuge (project subject to EIR; not yet constructed) License Term: commercial vessels, one year; transient, 72-hours Preferred Use: sportfishing, scuba, and harbor tour vessel operations DESIGN GUIDELINES The historic character and eclectic appearance of the Pier are important aesthetic elements to be retained, preserved and enhanced. The City has previously adopted Design Guidelines to serve as a standard for the Pier. All structural modifications and other improvements both public and private proposed for implementation on the Pier will be subject to review for consistency with the Design Guidelines, without exception. If tenants must make improvements to structures on the Pier deck or build new structures to implement the Preferred Uses as a mutually agreed condition of a lease, the City must first review and approve the proposed scope of work and improvement design in accordance with the Design Guidelines. All necessary architectural reviews and building permits must be obtained, and the work inspected for compliance with applicable codes. LOCAL PREFERENCE The controlled scope of commercial development and casual recreational ambiance are important factors in defining the unique character of Santa Monica Pier. Leasing and licensing of City-owned buildings and Pier deck area will be subject to a preference for local independent, non-formula businesses and activities that are financially and operationally capable of providing the Preferred Uses. A formula business is that which requires by contractual or other arrangement the maintenance of standardized services, décor, uniforms, facility design and format substantially identical to another operation. RENEWAL OPTIONS Lease renewals or options to extend the terms of occupancy will not be offered to existing tenants or to new tenants, with two current exceptions. As vacancies arise either by lease expiration or earlier termination, recruitment for occupancy will be conducted in accordance with the Leasing Guidelines. Changes to portions of the Pier deck area, including the site of Surf View Café, may occur within the ensuing three years. Restoration of a portion of Santa Monica Breakwater and installation of 12 commercial vessel moorings and landing may also occur within the ensuing three years, prospectively affecting operation of Santa Monica Pier Bait & Tackle. It is recommended that the two current tenants be offered leases terminating June 30, 2003, conditioned upon cosmetic structural and signage improvements to the premises. TERM OF YEARS As vacancies arise either by lease/license expiration or earlier termination, available space will be offered for lease for Preferred Uses for non-renewable five-year terms if substantial new capital investment in structures, structural improvements or equipment is not warranted. If a tenant is required to make substantial new capital investment in structures, structural improvements or equipment to implement the Preferred Use consistent with intended purposes of the premises, lease terms of ten years to twenty-five years varying with financial requirements of the investment. Prospective tenants for licenses or leasing of vacant space will be selected from responses to public Requests for Qualifications and/or Requests for Proposals. City staff pursuant to Tenant Recruitment procedures will receive applications for each Preferred Use. Prospective tenants will be screened for responsiveness to the public solicitation, confirmation of credit-worthiness, confirmation of operational capability, anticipated effect on parking space ratios, anticipated effect on the Pier substructure and related issues. EXPANSION OF LEASEHOLDS In order to provide access to and use of the leasehold opportunities of Santa Monica Pier buildings and deck to as many prospective tenants as possible, physical expansion of existing and leasehold occupancies will not be accommodated if the number or diversity of commercial activities are adversely affected. PERIODIC REVIEW OF RENTAL RATES Minimum rents and participation by City in percentage rents based on gross receipts from commercial lease and license activities will be established at estimated fair market rates and set forth in any public Request for Qualifications and/or Request for Proposals issued for any available leasehold or license opportunities. Responses received for lease and license opportunities may exceed the minimum and percentage rents set forth in the Requests. Leaseholds with Preferred Uses for research and public educational purposes (e.g. UCLA Ocean Discovery Center) and Operating Agreements subject to supported pricing standards (e.g. Carousel) will be maintained without application of fair market rental rates. The City will seek to reasonably minimize its costs associated with these activities by recovering Common Area Maintenance costs from leaseholds and participating in ancillary gross receipts from commercial activities at educational facilities and the Carousel. COMMON AREA MAINTENANCE COSTS Leasehold tenants will pay as a condition of occupancy of Pier building or deck areas a proportionate share of the City?s cost to manage, maintain and provide security to Santa Monica Pier. As of January 1, 2000, the applied Common Area Maintenance cost is $5.00 per leased square foot per year, increasing with CPI adjusted as of July 1 biennially. Monthly payment of Common Area Maintenance costs as additional rent will be a condition of each lease granted for the Pier. The Common Area Maintenance cost will be reanalyzed and adjusted on five-year intervals, commencing with July 1, 2000. FACILITY CONDITION REVIEW All City-owned structures and deck area available for lease will be inspected prior to new leasehold occupancy and brought by the City or new tenant to a decent, safe and sanitary condition appropriate for the Preferred Use. If tenants must make improvements to a building or deck area to implement the Preferred Uses as a mutually agreed condition of a lease, City staff will first review and approve the proposed scope of work and improvement design. The proposed scope of work and improvement design will be provided by the prospective tenant in accordance with Tenant Recruitment procedures. All improvements on the Pier shall be in accordance with the Design Guidelines. All necessary building permits must be obtained, and the work inspected for compliance with applicable codes. Appropriate rental credits for the approved work performed would be negotiated as part of the lease. TENANCY RELATIONSHIPS All City-owned buildings and deck areas on Santa Monica Pier appropriate and suitable for leasing or licensing by the City to individual tenancies or licensees for the Preferred Uses will be in accordance with agreements prepared by the City. Each tenant or licensee would be responsible for interior maintenance and repair and utility consumption at its expense, and the City would retain responsibility for maintenance and repair of roofs and exterior of its buildings. Structures constructed by tenants for the Preferred Uses would be subject to interior and exterior maintenance and repair by the tenant at its expense. Subletting of leased premises is explicitly prohibited. TENANT RECRUITMENT All City-owned buildings and deck areas on Santa Monica Pier appropriate and suitable for leasing or licensing will be subject to a public marketing and solicitation process to identify prospective tenants and licensees with financial and experience qualifications for the Preferred Use of the available space. Vacancies will be the subject of public Requests for Qualifications and/or Requests for Proposals publicized utilizing: ? Media advertising, including general circulation newspapers or local/limited circulation publications ? Direct mail to waiting list and/or other targeted individuals having expressed previous interest in leasehold occupancy or license operation for the available Preferred Use ? Posting notice on the Pier Restoration Corporation?s, City?s and Resource Management Department?s internet web site As appropriate, vacancies may also be publicized utilizing: ? Direct contact or outreach to prospective tenants ? Dissemination by fax, e-mail or telephone to local commercial real estate brokers ? Press releases and other direct marketing performed by the PRC Requests for Qualifications and/or Requests for Proposals will be drafted by City staff and approved prior to release by the Leasing Committee of the PRC. The Request for Qualifications and/or Request for Proposals will set forth the Preferred Uses of the available space, proposed terms and conditions for the leasehold or license opportunity, and criteria for reviewing and rating responses. All respondents and prospective tenants will file a Lease Application. Information contained in the Lease Application will be utilized for confirmation that the proposed tenancy is a Preferred Use for the available space, and verification of experience, references and financial capability to perform leasehold obligations. Responses will also state preliminary terms and conditions for the proposed lease or license. Responses to Request for Qualifications and/or Request for Proposals will be analyzed and rated by a review team comprised of City staff and the Executive Director of the PRC. Representatives of City Engineering Division and/or Planning and Community Development may be included as appropriate. The review team will provide its analysis and recommendation as to a preferred respondent to the Leasing Committee of the PRC. The recommendation may be to reject all responses, solicit additional information from one or more respondent, or to enter exclusive lease or license negotiations with a preferred respondent. The Leasing Committee will receive the review team analysis, and make its recommendation the PRC Board. The Board may authorize City staff to enter exclusive negotiations with a preferred respondent subject to specific terms and conditions, or it may reject all responses or direct that additional information be solicited from one or more respondent prior to making a determination. City staff will conduct exclusive negotiations with a preferred respondent as authorized by the PRC Board. All term sheets and lease or license agreements will be prepared by the City Attorney for review and execution by the prospective tenant or licensee. The executed agreement will be submitted to the Leasing Committee for its review in terms of consistency with the PRC Board authorization. If determined to be in accordance with the authorization to enter exclusive negotiations, the lease or license will be recommended to the PRC Board for approval. Upon approval of a lease or license by the PRC Board, the agreement will be approved as to form by the City Attorney and transmitted to the City Manager for execution. The City will neither pay nor receive commissions for leasing of City-owned property. Staff will cooperate with commercial real estate brokers who are authorized to negotiate leases and licenses on behalf of prospective tenants.