SR-417-004-07 (5)
.
LjI?-aJt/-o?, AI~
ra G-9
1
~
REVISED
CjED:EDD:PC:JPM:RS:pW
cceasmnt
Council Meeting: November 21, 1989
JlQV ~ 1 tll9
NOV 2 8 1989
!-i ' ., ~ ('" r '; / ('.-~
,
. -,
Santa Monica, California
TO:
The Mayor and city council
FROM:
city staff
SUBJECT: Recommendation to Authorize City Manager to Negotiate
and Execute an Easement Agreement with OAB Corporation
INTRODUCTION
This report recommends that city Council authorize the City
Manager to negotiate and execute an Easement Agreement with OAB
Corporation, doing business as I cugini Restaurant, at 1501 Ocean
Avenue for its outdoor dining area which extends into public
right-of-way.
BACKGROUND
Restaurant operators have recognized the market demand for
outdoor dining areas in a beach communi ty and have expressed
interest in providing attractive, semi-enclosed outdoor dining
areas for patrons using public right-of-way.
However, the
remodeling and construction of such areas requires a significant
financial investment for whiCh they have requested longer-term
Agreements with the City.
In exchange for this privilege,
restaurant operators are willing to pay fair market rental fees
to the city.
The city currently charges restaurant operatcrs
rental rates of $0.50 per square foot per month on Third Street
Promenade.
The most recent easement agreement for the Fennel
- 1 -
AeJD -h 6-B
NOV 2 8 1989 MQV 2 i 1189 ~
.
.
,
~
restaurant provided a rental rate of $0.87 per square foot per
month on Ocean Avenue for outdoor dining.
DISCUSSION
To ensure the establishment of appropriate rates for the two
primary locales where outdoor dining is feasible - Ocean Avenue
and Third street Promenade - an independent real estate appraiser
was retained for a professional opinion of the fair rental rate
of the pUblicly-owned right-of-way for such private use. The
consultant's investigation consisted of the following: (1)
survey and analysis of other governmental agencies for their
experience with similar uses of public property: and (2) survey
and analysis of sales of commercially-zoned properties located in
the vicinity of the subject areas within the last two and
one-half years.
The appraisal consultant concluded that land value was the most
applicable indicator upon which to determine a fair rental rate.
However, the appraisal consultant recognized that both the Third
street Promenade and Ocean Avenue were undergoing significant
transitions in use and infrastructure and consequently
recommended rental rates for outdoor dining which included the
following: (a) gradual step increases in rental rates over a
five year stabilization period that escalated rent rates up to
$1.50 per square foot on Ocean Avenue, (b) Consumer Price Index
increases or percentage of gross receipts participation in the
later years of the easement agreement, (c) revaluation of
property value at the end of the easement term.
- 2 -
.
.
-'
.J.
In preparing this Easement Agreement, City staff considered all
these recommendations. A summary of the outdoor dining Easement
Agreement's terms and conditions is provided below:
I Cugini Restaurant
1501 Ocean Avenue
c/o Jeffrey M. King
878.025 square feet abutting their restaurant tenant space
currently being constructed
stepped up rate increases:
1st year $ .90 per s. f.
2nd year $1. 05 per s. f.
3rd year $1.20 per s. f.
4th year $1.35 per s.f.
5th year $1. 50 per s.f.
Years 6-20 - $1. 50 per s. f. plus annual CPI increases
20-year Term, no options
These rates establish the benchmarks by which future Agreements
will be negotiated for other outdoor dining opportunities.
Tenant is not going to be provided with tenant improvements and
tenant is required to restore the public right-of-way to original
condition at the termination of the Agreement.
In addition, a
security deposit approximately equivalent to two months' rent
will be collected from the tenant to ensure the faithful
performance of tenant's obligations during and at completion of
the easement term.
BUDGETARY/FISCAL IMPACT
The security deposit from OAB Corporation totaling $2,000,00 will
be held and recorded in the General Fund balance sheet. Rental
income in FY 1990-91, the first year the restaurant will
- 3 -
.
.
~
.
operating, is estimated al $7,907.60.1 All revenue income is to
be deposited in revenue account #01-200-263-00000-0087-10000.
RECOMMENDATION
staff respectfully recommends that the City council authorize the
City Manager to negotiate and execute an Easement Agreement with
OAB Corporation for I Cugini Restaurant at 1501 Ocean Avenue for
its outdoor dining area.
Prepared by:
Peggy Curran, Director
Community and Economic Development Department
Jeff Mathieu, Manager
Economic Development Division
Ruta Skirius, senior Administrative Analyst
Economic Development Division
cceasmnt
- 4 -