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SR-410-001-02 (13) RMD:EDD:F:\RESOURCE\SHARE\STAFFREPORTS\Provenzano LicenseAgreement.doc Council Meeting: June 14, 2005 Santa Monica, California To: Mayor and City Council From: City Staff Subject: License Agreement with Provenzano Resources, Inc. for Operation of the Third Street Promenade Vending Cart Program INTRODUCTION This report recommends that the Santa Monica City Council authorize the City Manager to execute a License Agreement with Provenzano Resources, Inc. (“PRI”) for operation of the Third Street Promenade Vending Cart Program. BACKGROUND The Third Street Promenade is a successful and vibrant shopping, dining and entertainment areas, drawing visitors from around the world. A Vending Cart Program has been an integral part of the overall ambiance and unique character of the Promenade since its inception in 1989, and has been provided by Promenade Services. Their License Agreement expired in 2003 and has been in effect on a month-to-month basis since that time. Consistent with Council guidelines for leasing and operation of the Bayside District, in 2003, staff developed a Request for Proposals (“RFP”) and advertised the Vending Cart Program opportunity. A review team of representatives from the Resource Management Department and Bayside District Corporation reviewed the applications, but determined that additional information was required. The RFP was reissued in 2003, and again the responses were found lacking. 1 After conducting additional research about vending cart programs, staff issued a third RFP in November 2004 and received ten responses (See Attachment A for list of all proposals received). The review committee evaluated the proposals, interviewed the most qualified responders, checked references, and recommend Provenzano Resources, Inc. as the most qualified and responsive proposer. DISCUSSION PRI is a full service retail real estate consulting firm specializing in creating, managing, and leasing common area and short term retail programs for clients. The managing partners and principals, Ross V. Provenzano and Deborah S. Kravitz, have over 50 years of combined experience in this and related fields, as well as a network of highly qualified specialists serving in support of these functions. PRI has been in business for over eight years, and their clients included Fashion Island and Irvine Spectrum Center in Orange County, The Grove in Los Angeles, Paseo Colorado in Pasadena, and numerous other clients across the country. PRI offers custom designed carts, merchant training and development, and programs that reach out to local entrepreneurs. They also have an extensive network of artisan and handicraft vendors. They adhere to high standards of quality in terms of merchandise selection, cart design, and accountability. PRI’s references are outstanding, and their selection is recommended by staff as well as the BDC. 2 PRI will partner with Creations at Dallas to fabricate new carts in accordance with a design to be approved by the City after consultation with the Bayside District Corporation. The new carts will reflect quality, contemporary design, use sturdy materials, include features designed for safety and ease of operation, and will be practical and attractive for display purposes. PRI’s initial capital investment is expected to exceed $600,000. The average life expectancy of a cart is five to seven years in outdoor conditions, and there will be a need for reinvestment of additional capital in order to maintain a high level of quality over the term of the proposed ten year Agreement. The purpose of the License Agreement is to set forth roles and responsibilities of the City and PRI. Terms of the proposed License Agreement include the following: Number and Location of Carts: PRI is expected to provide a minimum of 17 retail units, plus a concierge cart, five food units, and three weekend/artist units for a total of 26 carts, which will be strategically located throughout the three-block length of the Promenade. Currently, there are approximately 22 carts on the Promenade on most days; because the artist units are weekend-only, the overall number of carts is about the same as those currently in use. Due to storage restrictions, the size of the carts is also expected to be about the same as those currently in use. Cart locations may vary from the current configuration, depending upon the optimal placement as determined by PRI and public safety personnel. Street performer spaces as currently assigned will not be affected by a new cart placement plan and, as is currently the case, carts will not be placed near in-line retailers selling the same or similar merchandise. 3 Effective Date of Agreement: The anticipated effective date of the contract will be July 1, 2005, with roll-out of the new carts expected to take place in November 2005, so that the operational transition is completed in time for the holiday shopping season. The License Agreement contains a Performance Schedule that will ensure this timeframe is met. Immediately after execution of the Agreement, PRI will submit cart designs to the City and, upon approval, fabricate the carts and have them delivered. PRI will also be working with existing vendors and recruiting new vendors for the program. Transition: Promenade Services will continue its operations through the summer and fall; every effort will be made to limit “down time,” so that carts are in constant operation on the Promenade. Hours of Operation: As with the existing program, carts will be in operation seven days per week. Closures are permitted for Easter, Thanksgiving, Christmas, and New Year’s days. The minimum hours of operation will be 11 a.m. – 9 p.m., Monday through Thursday, 10 a.m. – 10 p.m., Friday and Saturday, and 11 a.m. – 8 p.m. on Sundays. This ensures a consistent and visible level of operation at all times. Existing Individual Cart Operators: PRI will be required to invite all existing individual cart operators (“ICOs”) to apply to participate in PRI’s program. If the ICOs are willing and able to comply with PRI’s operating standards regarding license fees, customer relations, insurance, and merchandise selection, among other issues, they will be retained. 4 License Fees to be charged ICOs: PRI will set individual license fees with each of the ICOs based on PRI’s knowledge of the product being sold and expected profit margin. PRI will set a base license fee with the ICOs and a percentage license fee for revenues generated above the “breakpoint.” License Fees to be Paid to the City: PRI will pay the City 30% of the revenues collected or the base license fee, whichever is greater. PRI will be subject to periodic audits, at the City’s direction. Term and Termination Without Cause: In recognition of the substantial capital investment, a term of ten years is proposed, with one option to renew for an additional five years. The License Agreement provides for the City’s right to terminate the agreement without cause upon 180 days written notice. Should the City opt to terminate without cause, the City will be required to repay PRI the unamortized portion of their capital investment. Other Downtown Vending Cart Locations: This proposed Vending Cart Program only applies to vending carts on the Promenade. Currently, there is one other license for a th vending cart that is located at 5 and Arizona. The license for this cart expires June 30, 2005. Staff will continue to manage vending carts outside the Promenade on an individual basis. 5 BUDGET/FINANCIAL IMPACT Approval of this License Agreement will result in minimum revenue to the City of approximately $162,800 per year, for the first five years of the term. This is based on 22 carts at $600/month/cart, plus 3 weekend artist carts prorated at $125/month/cart. These funds are deposited to General Fund revenue account 01263.400771. This minimum will increase to $189,300 per year for years five through 10, which is based on $700/month/cart, plus 3 weekend artist carts prorated at $125/month/cart. If the option is exercised for an additional five years, annual revenue will increase to a minimum of $215,700 per year, which is based on $800/month/cart, plus 3 weekend artist carts prorated at $125/month/cart. Additionally, the aforementioned rents are base rents, against a consistent percentage of 30% of revenues collected, with the greater of 30% or the base being paid to the City, and we anticipate some additional revenues from the percentage rents. There are no additional budget or financial impact on the City. RECOMMENDATION Staff recommends that the City Council authorize the City Manager to execute a License Agreement with Provenzano Resources, Inc. for operation of the Third Street Promenade Vending Cart Program, as described above. Prepared by: Jeff Mathieu, Director, Resource Management Department Miriam Mack, Economic Development Manager Gretchen Kubacky, Senior Real Estate Analyst Attachment A: List of firms who responded to the Request for Proposal on January 27, 2005 Reference Contract No. 8480 (CCS). 6 ATTACHMENT A List of Firms Who Responded to the Request for Proposals on January 27, 2005 Coast Carriage Management Edge One Vending Company General Growth Properties L.A. Beach Management Martin Rodriguez Events Mukul Ram Promenade Carts Promenade Services, Inc. Provenzano Resources, Inc. Retail Details 7