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sr-042710-1fCity Council Meeting: April 27, 2010 Agenda Item: 0 To: Mayor and City Council From: Barbara Stinchfield, Community and Cultural Services Director Subject: Concession Agreement with HDOS Enterprises (Hot Dog on a Stick) Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute a Concession Agreement with HDOS Enterprises (Hot Dog on a Stick) for operation of a food concession at 1633 Ocean Front Walk. Executive Summary Santa Monica State Beach includes the food concession stand on Ocean Front Walk, across from the Santa Monica Pier, that has been operated as Hot Dog on a Stick (HDOS) since 1945. The current lease with HDOS expired on June 30, 2009.A month- to-month arrangement is now in place. Under State law, the City must request approval from the State Legislature before issuing a Request for Proposal (RFP) for concessions on State Beach. This approval was granted in August 2009 and the City issued an RFP to parties interested in providing a food service concession at that location in October 2009. Staff received two proposals: one proposal from the current operator, HDOS Enterprises, and one from a newly formed company. Based on its proposal and rental offer, staff is recommending the selection of HDOS Enterprises to operate the food concession stand for a ten year term. The City's Beach Fund is expected to receive $75,000 in minimum annual rent or 15 percent of gross sales from HDOS, whichever is greater, to provide essential financial support for ongoing beach maintenance and operations. Background Hot Dog on a Stick (HDOS), located at 1633 Ocean Front Walk, is the original concession in the chain founded by David Barham in 1945. In 1958, the State of California acquired the property and the lease with Hot Dog on a Stick continued to be managed by the City under the State Operating Agreement. In 1998, City staff contracted for an appraisal of HDOS to establish current market rate rent. The City did 1 not seek a new use or tenant for the location since the original HDOS concession had become closely associated with the Santa Monica beachfront. The current Beach Lease and Concession Agreement No. 8135 (CCS) with HDOS expired on June 30, 2009 and HDOS is currently operating on a month-to-month arrangement with the City. On December 2, 2008, prior to issuing. a Request for Proposals (RFP), Council approved a minimum bid rental requirement of $75,000 per year or 15% of gross annual sales, whichever is greater. The recommended rental bid is based on a Complete Appraisal Development submitted in April 2008 by Thomas W. Erickson, MAI, Real Estate Appraiser and Consultant. The minimum percentage rent is consistent with the percentage rent paid by the concessionaire of the other beach concession stands, Perry's Cafe. Staff recommended a contract term of up to ten years, which also is consistent with the Perry's Cafe contract. Additionally, Council approved selection criteria that gave preference to high performing incumbents and small businesses as well as consideration of experience, financial resources, proposed capital improvements, compatibility of the operation with the beach and the Pier, and competitiveness of the proposed rental bid. The rental structure was submitted to the State Legislature and was approved by the State in August 2009. Discussion Contractor/Consultant Selection Notices about the RFP opportunity were posted on Planet Bids and the City's website in October 2009; proposals were due on November 30, 2009. Eighty-four potential bidders downloaded the RFP from Planet Bids. Two proposals were received and evaluated by staff in the Community and Cultural Services Department based on the extent to which the proposals addressed the specified review criteria. The proposal submitted by HDOS Enterprises is being recommended due to the long and successful tenure of Hot Dog On a Stick on Santa Monica State Beach, its demonstrated expertise in managing a food service operation, its financial ability to 2 complete proposed capital improvements and sustain high quality food concession, and the proven customer service and commitment of the staff as a result of it being a 100% employee-owned company, stipulated in Mr. Barham's will at the time of his death in 1991. The rental bid submitted by HDOS Enterprises meets the minimum financial requirements of the RFP. The proven operation of HDOS Enterprises is a key factor in its recommendation over the other proposal which is from a newly formed entity with no operating history or demonstrated financial stability. In addition, the unique menu of HDOS is more compatible with the beach and Pier as compared to the other proposal for food items that are offered by nearby concessions. Terms and Conditions The annual rent proposed by HDOS Enterprises is $75,000, or 15% of gross receipts, whichever is greater for a ten year lease term, subject to an annual increase in CPI. In addition, HDOS Enterprises has proposed spending up to $400,000 in capital improvements to recapture the look of the original 1946 store's exterior facade and signage as well as increase the footprint by approximately 225 square feet to bring the facility into compliance with current building and health codes and the Americans with Disabilities Act. The proposed improvements are subject to review by the California Coastal Commission and the City's Architectural Review Board. 3 Financial Impacts & Budget Actions Pursuant to its lease, in FY 08/09 HDOS Enterprises paid $33,300 in rent and is expected to pay $34,299 in FY 09/10. The proposed new terms will result in an annual rental payment of at least $75,000, an estimated net increase of at least $41,700. The FY 2010-11 revenue projection will reflect the new rental rate. No additional budget action is necessary. Prepared by: Judith Meister, Administrator roved: ~~. Barbara Stinchfield, Director, Community and Cultural Services Forwarded to Council: .~ Rod Gould City Manager 4 Reference Contract No. 9201 (CCS).