sr-121410-8cCity Council Meeting: December 14, 2010
Agenda Item:
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development.
Subject: Assignment of Santa Monica Amusements LLC Lease
Recommended Action
Staff recommends that the City Council:
1. authorize the City Manager to review and execute consent documents
associated with the sale and assignments of the Lease Agreement with Santa
Monica Amusements, LLC, and personal property used for Pacific Park
operations to subsidiaries of CNL Lifestyle Properties;
2. authorize the City Manager to review and execute consent documents
associated with a Sublease and Personal Property- Lease by CNL subsidiaries
back to Santa Monica Amusements, LLC, to operate the Park; and
3. authorize the City Manager to negotiate and execute other documents related to
the assignment and transfer.
Executive Summary
Santa Monica Amusements, LLC (SMA), doing business as Pacific Park, currently
operates an amusement park on the Santa Monica Pier. SMA has entered into an asset
purchase agreement for the sale of certain assets comprising Pacific Park and seeks
the City's consent to the transfer. The sale provides for SMA to continue to operate
Pacific Park as a subtenant with the existing management team. Under the terms of the
lease, the City, as the landlord, will receive a transfer premium payment from the asset
purchase agreement that is anticipated to be approximately $1.4 million.
Background
In September 2002, the City of Santa Monica and SMA entered into an Amended and
Restated Lease Agreement for the lease of 380 Santa Monica Pier for amusement
rides, midway games, games of skill, food and beverage .sales, and sales of
merchandise, among other approved uses. The Amended and Restated Lease
Agreement was executed by the City Manager, upon recommendation of the Santa
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Monica Pier Restoration Corporation (SMPRC), in accordance with the approved Santa
Monica Pier Leasing Guidelines. The lease sets forth the requirements for obtaining the.
City's consent to transfers or assignments of the lease.
Discussion
SMA has entered into an Asset Purchase Agreement with CNL Income Partners, LP for
the -gross purchase price of $34 million prior to deductions determining net proceeds. to
SMA. Pursuant to the purchase agreement, SMA seeks the City's consent for the
transfer of leasehold interest to CNL Income Pacific Park, LLC, as to the real property
(the lease). A second entity, CNL Income Pacific Park TRS Corp. has also been created
to receive a portion of the personal property used to operate the Park from SMA and
sublease this personal property back to SMA.
CNL Income Pacific Park, LLC, and CNL Income Pacific Park TRS Corp. are
subsidiaries of CNL Income Properties, L. P., which in turn is a subsidiary of CNL
Lifestyle Properties, Inc. Headquartered in Orlando, FL, CNL Lifestyle Properties is a
real estate investment trust (REIT) that acquires properties and leases them back to
tenants to operate the properties on its behalf. CNL's portfolio of properties includes
golf clubs, marinas, ski resorts and water and amusement parks. Notable amusement
parks held by CNL include Elitch Gardens in Denver, Darien Lakes in Buffalo, and
Magic Springs and Crystal Falls in Arkansas.
Because REITs must earn income primarily from the rental of real property, there are
restrictions on how much personal property a REIT can own and lease in relation to the
amount of real property it owns and leases. Because Pacific Park assets have a ratio of
personal property to real property that exceeds the limitations imposed on REITs, CNL
Income Pacific Park TRS Corp. was formed as a taxable subsidiary to own a portion of
the personal property assets of the Pacific Park.
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Under the structure of the Purchase Agreement, CNL Income Pacific Park, LLC will
enter into a sublease and CNL Income Pacific Park TRS Corp. will enter into a personal
property lease with SMA for the continued operation and management of Pacific Park.
This structure will provide for the continuity of the existing operations and rides,
continuity of SMA's management team, and creation of reserves for capital
expenditures and repairs. The proposed structure also provides the current .Executive
Director of SMA with an option to purchase the membership interests in SMA within a
year of closing.
Staff recommends Council approval of the assignment based on the financial resources
and experience of CNL as a REIT whose specialty is the ownership of lifestyle
properties, and based on the success of SMA, which will continue to operate Pacific
Park with the existing management team.
Alternatives
Council could choose to withhold consent to the assignment.. However, Section 12.2 of
the SMA Lease limits the basis upon which City consent may be withheld to the
following conditions: there is a continuing event of default; the proposed use conflicts
with the Permitted Use; the proposed use will result in materially heavier burden on the
Pier; the proposed management team has insufficient experience with amusement
parks; or the character or reputation of the proposed transferee in not reasonably
acceptable. Staff does not believe that any of these conditions exist.
Commission Action
The SMPRC Board held a special. meeting on December 6, 2010, and approved the
following motion: "Based on the information provided by City staff, we believe the lease
modification is consistent with the [SMPRC] Leasing Guidelines. We approve the
transaction subject to City staff's review and acceptance of the .conditions on lease
assignment contained in the existing lease contract."
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Financial Impacts & Budget Actions
The assignment of the lease will result in the one-time payment of a transfer premium to
the City which is estimated to be $1.4 million. The exact amount will be determined
after the close of the transaction and review of the itemized closing costs. An
independent auditor is under contract to evaluate the transfer and the associated
transfer premium to be paid to the City. Staff will prepare an information item for the
City Council regarding the final amount of the transfer premium.
Prepared by: Elana Buegoff, Sr. Development Analyst
Andy Agle, Director (~
Housing and Economic Development
Forwarded to Council:
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Rod Gould
City Manager
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