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sr-081010-1fCity Council Meeting: August 10, 2010 Agenda Item: ~`~ To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: Lease Assignment and Modification for 1334 5th Street Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute documents relating to a lease at 1334 Fifth Street, authorizing: 1. An Assignment of the Lease between the City and Angelo's Pawn Shop to Angelo's Pawn Shop II, Inc.; and 2. A First Modification of the Lease to extend the term until December 31, 2012, provide for three two-year options with the ability of either party to terminate the lease within the option period with nine-months prior notice, and increase the rent to $5,141 per month in the first year, with annual increases thereafter. Executive Summary Angelo Garzieri, owner of Angelo's Pawn Shop, one of three tenants in the City-owned property at 1334 5th Street, has sold his business and is requesting that the City assign the lease to Angelo's Pawn Shop II, Inc., owned by Michael Klass. Staff recommends that upon assignment of the lease, the City Council authorize a First Modification of the Lease to adjust the term, termination provisions, and the rental rate. The First Modification would extend the term until December 31, 2012; and provide for three two- year options, with either party being able to terminate the Lease within the option periods with nine months' notice. The First Modification would increase the rent to $5,141 per month in the first year, with annual CPI increases not less than 2 percent or more than 5 percent, thereafter. Background On January 27, 2009, the City authorized the purchase of property at 1334 5th Street. The property is a 7,500 sq. ft. parcel and is improved with a 9,943 sq. ft. building. At the time of the purchase, the building was occupied by Hershey Associates, a firm whose 1 lease expires December 31, 2012, Ezai Florists, a shop which is on a month-to-month lease and a third tenant space of 1,985 sq: ft., which was vacant On March 24, 2009, the City Council directed staff to recruit a tenant to fill the vacancy subject to specified leasing preferences for independent retailers, retailers that are already located in downtown Santa Monica and are facing expiring leases, pedestrian- oriented retailers, retailers who provide goods and services that are under-represented in downtown Santa Monica and retailers whose goods and services provide special assistance in these economically challenging times. On April 14, 2009, the City Council introduced an interim ordinance allowing pawnbrokers as permitted uses in the C3 Downtown Commercial and C3-C Downtown Overlay districts. On Mav 26, 2009, Council authorized a lease with Angelo's Pawn Shop. Discussion The City's lease with Angelo's Pawn Shop terminates December 31, 2010. The owner, Angelo Garzieri, has notified the City of his plans to sell his business to Michael Klass, President of Angelo's Pawn Shop II, Inc., and requests that the City approve an assignment of the Lease. Mr. Klass and his brother have experience with pawn shops and have owned and operated Platinum Jewelry & Loan, a 6,000-sq. ft. store in the Antelope Valley, for four years. Given that the City has not yet begun the planning process for the recently acquired properties along Fifth Street, assigning and extending the term of the lease would allow the City to continue to earn income from this property during the planning period. It is not expected that any development on the site would occur before December 2012. Other City leases in the area also extend through 2012. Staff recommends that the Council authorize assignment of the Lease and approve a First Modification fo: 2 1. Extend the term until December 31, 2012; 2. Provide for three two-year options, with either party being able to terminate the Lease within the option periods with nine months' notice; and 3. Increase the rent from $3,970 to $5,141 per month in the first year, with CPI increases annually thereafter, of not less than 2% nor more than 5%. The recommended monthly lease payment beginning at $5,141 in the first year is equivalent to a monthly lease rate of $2.59 per square foot, the same rate that was set for the recently approved lease with Carlson's Appliance, the City's tenant at 1338 Fifth Street. The recommended monthly rent exceeds the existing rent by approximately $1,171 per month. Financial Impacts & Budget Actions Rental income to Account No. 01263.400770 would increase by approximately $10,000 for FY 2010-11. Prepared by: Jennifer Taylor, Senior Development Analyst Forwarded to Council: Rod Gould City Manager 3 Housing and Economic Development Reference Contract No. 9257 (CCS) and Amended Contract No. 9069 (CCS).