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sr-112310-3o~® City Council and Parking ~,tY °f Authority Report Santa Monica' City Council Meeting: November 23, 2010 Agenda Item: ~-O To: Mayor and City Council Chairperson and Parking Authority Members From: Andy Agle, Director of Housing and Economic Development Subject: 100 Wilshire -Fourth Amendment to Lease for Parking Structure No. 2 Recommended Action Staff recommends that the City Council and Parking Authority provide additional negotiating instructions to the City Manager/Executive Director to supplement the negotiating instructions provided on January 19, 2010, regarding a Fourth Amendment to Lease No.1828 with Douglas Emmett 1998, LLC, the Lessee, for parking in Parking Structure No. 2. The additional instructions provide for sharing with the Lessee $20 per parking space per month from the additional revenue the City will be receiving from the issuance of parking passes for spaces the Lessee relinquishes through January 1, 2026. Executive Summary The City and Parking Authority lease 155 parking spaces to the owner of the building at 100 Wilshire Boulevard during weekdays in a reserved area of Parking Structure No. 2. However, permit holders generally do not park in the reserved area, leaving most of the 155 parking spaces vacant. As recommended by the Walker Parking Study, Council authorized a lease amendment to remove the nested parking spaces. The negotiating instructions previously approved allowed the Lessee to pay only for those parking spaces used, which would allow the City to sell parking permits for the relinquished spaces and generate additional income. During the course of the negotiations, the Lessee requested that the City share with it some of the additional revenue the City would be receiving. The proposed negotiating instructions would allow the Lessee to share a portion of the increased parking revenues associated with relinquishment of its parking spaces. Under the proposed terms, the City would reimburse the Lessee $20 per month for each relinquished parking space through January 1, 2026. Following that date, the Lessee would be required to pay the full monthly parking charge, without a share of parking revenue from the relinquished spaces. Background On April 23, 1968, the City and Parking Authority entered into a 30-year lease to provide parking spaces in Parking Structure No. 2 to benefit a building to be constructed at 100 1 Wilshire Boulevard. The Planning Commission gave its approval to satisfy a portion of the building's parking requirement with off-site parking on August 29, 1968 through Variance Case No. 3014-Y. The Lease was assigned six times and is now with Douglas Emmett 1998, LLC. The Lease extended from August 27, 1971 through August 26, 2001, and provided for five five-year options. The Lease was first amended on April 22, 1986, to make the following changes: 1. Added three additional five-year options which extended the use of the parking spaces until December 31, 2040. During these additional option periods which begin on January 2,.2026; the Lessee would pay the average rate charged by the City for its public parking; 2. Allowed the Lessee permission to substitute parking in the City's parking structure with other private parking; and 3. Clarified that the City is not. obligated to make structural repairs to Parking Structure No. 2 or reconstruct the Parking Structure in the event of damage or destruction. On September 12 1989, the Council authorized a second amendment to the lease. The Second Amendment, executed May 18, 1990, provided for: 1. Up to 47 percent of the parking spaces provided by the City to be compact; and 2. An increase in the number of spaces to be provided by the City during the term of the Lease from 320 to 380, subject to the Lessee restriping the area used for parking. On December 30, 1998, the City Manager signed an Agreement authorizing preparation and execution of a Third Amendment. The Third Amendment, executed July 30, 2002, allowed the Lessee to reduce the number of leased parking spaces in Parking Structure No. 2 to 155 upon completion of construction of an adjacent building and repair of the subterranean garage under the building located at 1221 Ocean Avenue. The 155 2 parking spaces were to be located on the upper levels of Parking Structure No. 2, and this area was to be reserved for the Lessee Monday through Friday, until 6 pm. On January 19, 2010, the Council authorized preparation and execution of a Fourth Amendment. The Fourth Amendment was to remove the nesting area in Parking Structure No. 2, allowing the 155 permit holders to park anywhere in the structure. This amendment had been recommended by the Walker Parking Study because the permit holders did not park in the nested area, depriving the public from use of those spaces. The Fourth Amendment was to allow the Lessee to pay only for those parking spaces it needed, up to 155 in any one month. The City would then be able to resell the relinquished parking spaces to other parking users. Discussion During the course of negotiations of the Fourth Amendment, it became apparent that the City. would be generating additional revenue through the resale of the parking spaces that the Lessee, who was otherwise obligated to lease 155 parking spaces, would relinquish. As an incentive to give up a portion of their current lease obligation, the Lessee asked the City to consider sharing some of the net increased revenues. The additional negotiating instruction recommended in this report would- provide for the Lessee to be reimbursed $20 per relinquished space per month through January 1, 2026. After that date, the Lessee would continue to be allowed to lease up to 155 spaces per month at full price without a share of the revenue from the relinquished spaces. The $20 per month per space rate represents approximately half of the net revenue the City receives from renting a parking space to a monthly user, less the average cost to maintain a parking space, as follows: MONTHLY PARKING FEE $121 LESS PARKING TAX ($ 12) NET INCOME TO CITY $109 LESS OPERATIONAL COSTS/SPACE/MO ($ 71) NET INCOME TO CITY $38 SHARE WITH LESSEE (approximately half) $20 3 Financial Impacts & Budget Actions The Agreement requires the Lessee to pay the City $15 per month per space for 155 spaces or $27,900 per year. Under the Fourth Amendment, the Lessee would pay the City $15 per space per month for those spaces that it uses, up to 155 spaces per month, with the City reimbursing the Lessee $20 per month for each space that it relinquishes. At this time, the Lessee is using about 55 spaces per month and would be relinquishing about 100 spaces per month. If the City made the relinquished spaces available to monthly parkers, the City would generate $18 per space in net income, after sharing approximately half the net income with the Lessee. Parking spaces made available to daily parkers generate more income to the City per space than do monthly parkers. If the City made the relinquished spaces available to daily parkers, the net income to the City from each space, after sharing $20 with the Lessee and deducting for the parking tax and maintenance, would be $89 per month per space. Prepared by: Miriam Mack, Economic Development Manager Andy Agle, Director ~/ Housing and Economic Development Forwarded to City Council/ Parking Authority: Rod Gould City Manager 4 Reference Amended Contract No. 1828 (CCS).