SR-08-14-2012-8A10
City of City Council Report
Santa Monica
City Council Meeting: August 14, 2012
Agenda Item: 8 -A
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: 256 Santa Monica Pier Leasehold
Recommended Action
Staff recommends that the City Council:
1. direct staff to reopen the tenant recruitment process to solicit additional interest
under the recently approved open recruitment process; and /or
2. consider choosing between the finalists obtained through a Request for Proposal
(RFP) process for the leasehold opportunity at 256 Santa Monica Pier;
Executive Summary
In the fall of 2011, the City issued a Request for Proposal to lease a 4,309- square foot
restaurant/nightclub located at 256 Santa Monica Pier, The evaluation committee
completed its review of the eight proposals submitted and narrowed the field to two
candidates. The proposals were solicited under the procedures outlined in the Pier
Leasing Guidelines adopted by Council on August 8, 2006 which required tenant
recruitment to be done though an RFP process. On February 28, 2012, while proposals
were under review, Council amended the Pier Leasing Guidelines and removed the
requirement to issue an RFP in favor of practices more typical of commercial leasing,
including using commercial brokers. The amended Guidelines also transferred approval
of new Pier leases and licenses from the Pier Restoration Corporation (PRC) to Council.
Council may consider entering into exclusive negotiations for a lease with one of the two
finalists obtained through the RFP process or may direct staff to extend the tenant
recruitment process with the assistance of a commercial broker in order to broaden the
exposure of this property. Due to the many existing long -term leases on the Pier, there
are limited opportunities to approve new ones. The next long -term lease does not
become available until 2020.
Background
The property at 256 Santa Monica Pier is located within a multi- tenant building known
as the Billiard's Building on the historic Santa Monica Pier. The current tenant, Rusty's
Surf Ranch ( Rusty's), has operated from the space since 1994. The other tenants in the
building include Santa Monica Pier Seafood and Al Mare, a new restaurant that is
currently under construction and is scheduled to open in the fall of 2012.
1
Rusty's lease will expire on September 30, 2014. Under the Leasing Guidelines, lease
renewals or options to extend the terms of occupancy are not offered to existing tenants
upon expiration of agreements. As vacancies arise either by natural expiration or earlier
termination, recruitment for a tenant must be conducted in accordance with the Leasing
Guidelines.
In 2011, Rusty's requested that the PRC authorize the City to issue a Request for
Proposals (RFP) prior to the expiration of the lease. If Rusty's was selected following a
competitive public process, a new lease would be negotiated. If not selected, Rusty's
agreed to consent to an early termination of its lease.
The RFP was approved by the PRC Board for release and was advertised on
LoopNet.com (a leasing site), posted on PlanetBid (the City's online bidding site), the
Economic Development Division's "Space Available" website and the PRC website.
Proposals were also distributed to people and organizations who had previously
requested to be notified of new leasing opportunities on the Santa Monica Pier.
The RFP indicated that the preferred use for the leasehold was for a lunch and dinner
restaurant with alcohol service, evening music, and entertainment. The RFP noted that
the proposed exterior and interior presentation of the space should contribute to the
Pier's festive ambience and vitality, enhance the current offerings available on the Pier
and appeal to both visitors and locals.
Discussion
The City received eight responses by the October 12, 2011 deadline. An evaluation
panel comprised of the Economic Development Division, Office of Pier Management
and Pier Restoration Corporation staff, as well as a restaurant consultant from Fessel
International, reviewed the proposals. Submittals were evaluated based on the criteria
established in the RFP including responsiveness to the RFP, operational capability and
experience, general concept and compatibility with the Pier, quality of service, financial
resources and economic terms. In accordance with the Leasing Guidelines, evaluation
preference was given to independent, non - formula (non- chain) businesses, as well as to
2
the existing Pier tenants. Of the eight submittals, each of the five candidates were
invited to meet with the panel to present their concept, management team and interest.
Following the interviews, the panel identified two candidates as finalists: the current
tenant, Rusty's Surf Ranch, and The Quintessential Group with a trade name to be
determined.
Both finalists were given an opportunity to further refine their concept and asked to
present their final best offer for this opportunity (see Attachment A: Summary of
Finalists) and provide evidence of financing. While close, neither was able to completely
meet (without conditions) the City's economic floor of an annual $200,000 base rent
with six percent of gross revenues in excess of base rent.
While both operators, including the existing tenant, demonstrated strong operational
qualifications and provided evidence of financial capacity to carry out their respective
concepts, the evaluation committee did not want to 'under sell' this distinct opportunity
on the Pier, especially in light of the recent changes in the City's solicitation of Pier
tenants and the limited long -term lease opportunities. Previously, the pool of candidates
was strictly limited to those who responded to the City's RFP process and had
prohibited the payment of broker's commissions.
The more traditional private sector approach of engaging real estate professionals and
paying brokers' commission could allow for improved marketing and exposure of the
property and better access to a pool of tenants who typically only lease space through
brokers. Commissions, which are typically paid by the landlord, could range from 2.5
percent to 6 percent of rent anticipated for the primary rental term of the lease. The
lower percentage is more common if the broker does not split the commission with the
counterparty's broker. For example, if the City only utilized the services of the tenant's
broker, it could negotiate a lower percentage commission. If brokers are utilized, the
City might expect to receive more interest from operators of formula /chain
establishments.
The evaluation panel believes it would be in the City's best interest to retain one or both
of the top candidates as finalists, while also seeking out additional prospective tenants
3
through the employment of a restaurant broker that may be able to better meet the
City's financial terms.
Alternatives
Council could authorize staff to enter into exclusive negotiations with one of the finalists
selected through the RFP process and return with the proposed lease terms for
approval at a future meeting.
Next Steps
Upon Council's approval of proposed lease terms with a selected tenant, the City
Attorney would prepare a lease for execution by the City Manager and tenant.
Financial Impacts & Budget Actions
If the City utilizes real estate brokers to represent the City and /or the tenant, the City
would incur the cost of the brokers' commission. The actual amount of the commission
is unknown at this time. The commission would be a negotiated amount yet to be
determined. Currently no funding has been established for the brokers' commission. If
necessary, staff will return to Council at a later time to request funding for the brokers'
commission.
Prepared by: Elana Buegoff, Sr. Development Analyst
roved:
Forwarded to Council:
Andy Agle, Director Rod Gould
Housing and Economic evelopment City Manager
Attachments:
Attachment A- Summary of Top Candidates
0
Attachment A
Summary of Top Candidates
Proposer
Hospitality Industry Management
The Quintessential Group
Group
Trade Name
Rusty's Surf Ranch
TBD
Principal Contact
Russell Barnard - General Manager
Mario Guddemi - Managing Partner
and Chief Operating Officer
Salvatore Aurora - Managing Partner
Other
Rusty's Surf Ranch has been on the
The Happy Ending Bar and Restaurant -
CurrentlRest.
Pier 17 years. In Santa Monica,
Hollywood, CA, has been opened for 5
Operations
developed "Tavern on Main ", and
years; the Local Peasant in Sherman Oaks
owned The Omelet Parlor for 5
has been open since October 2010; and
years.
the Black Market Liquor Bar opened in
Studio City in June 2011.
Concept/Use
Casual, non - formula restaurant/bar
A gastro -pub with a sports bar and live
with live entertainment. Concept will
entertainment. Will create a new concept
remain unchanged: California
for pier - not to be duplicated elsewhere.
surf /water sports - themed restaurant
and nightclub.
Menu
Current menu — offers a variety of
Gastro- bistro offerings to be developed by
burgers, sandwiches, soups, salads.
Chef Antonia Lofaso, of Top Chef fame.
Minimum Capital
$500,000
$800,000
Improvement
If a rooftop p patio is permitted, increase
minimum capital investment to over $1
million.
Architect/
Douglas Barnard, consulting Interior
Gino Paino, architect. Local projects:
Designer
Designer
Shores Hotel
Base Rent
$200,000 /yr. ($16,666/mo.)
$138,144/yr. ($11,512/mo.).
conditioned on the approval of
second level patio seating and
mezzanine. If unable to build, would
need to renegotiate rent downward.
Term
10 year term with 1 five -year option.
10 year term with 2 five -year options.
New term to commence at the
conclusion of existing term.
Percentage Rent
Six (6) Percent of gross revenues
The percentage rent shall commence after
after the breaking point of $2.3
reimbursement of build out expenses
million in excess of base rent.
(amount to be negotiated).
TI Rent Credit
$250,000 plus $50,000 for rent
$215,000 plus reimbursement of 50%
abatement during construction.
reasonable broker's fee.
Term
When existing lease expires Oct 1,
Upon opening for business.
Commencement
2014.
Deal breakers
Paying base rent at $200,000 if
Failure to secure CUP allowing alcohol
second floor seating is not
sales for a bar /nightclub.
approved /constructed.
August 14, 2012
Re: Item 8 -A
Hon. Mayor Bloom, Councilmembers, City Manager Rod Gould:
My name is Jeff Jarow and I am a 35 -year resident of Santa Monica.
I am writing in support of the proposal submitted by Hospitality Industry Management Group, dba
Rusty's Surf Ranch. Rusty's, a local institution, an obvious choice for many reasons:
#1 - Rusty's Surf Ranch has been in operation on the Pier for close to 20 years.
#2 - Rusty's has weathered the ups and downs of a very volatile restaurant industry.
#3 - Rusty's has the creative and financial resources to significantly improve the restaurant — reconfigure
the interior to better serve its customers and employees, enhance the dining experience and decrease its
impacts on our environment. A new exterior treatment will retain the Pier "flavor ", while at the same time
continuing the family - friendly and fun atmosphere within.
#4 - Rusty's is owned and operated by a Local company with deep family roots in our Santa Monica
community. The firm has operated restaurants in our city for over 25 years !, and has earned the respect of
our local residents, businesses and non - profits by giving back to our community.
45 - Music is an important part of Rusty's history. The owners have created a respected musical venue for
musicians ranging from students to established acts. They are sponsors of the Thursday night Summer
Twilight Dance series, a fantastic event popular with both visitors and Santa Monica residents. When
their proposal is accepted, Rusty's will offer free musical performances open to the public.
And most importantly.... In an atmosphere of change... Rusty's represents both continuity for our
residents and an understanding of our unique beach culture.
I respectfully ask you to weigh Rusty's Surf Ranch's history and their investment in the Pier, and its
tremendous potential to create increased revenues for the City. If you do, I trust you will select Rusty's.
Thank you
Jeff Jarow
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EXISTING FACADE —THE RESTAURANT
EXITING FACADE
PROPOSED FACADE
THE SITE
The building that will house The Albatross Club is a
wood frame structure currently operated by
Rusty's Surf Ranch and two other food service
establishments.
Our management team has plans to completely reno-
vate the space, adding two additional floors, two
bowling Panes and a more pronounced live music
component. The tenant immediately to the east of
the space has been approved for and is constructing
a similar multi story structure.
The restaurant will have three distinct exterior
identities:
1.The 300 sq. ft. ground floor, north facing outdoor
seating area. Guests can enjoy drinks and food in an
outdoor lounge area.
2.The 800 sq. ft. second floor dining patio evoking a
Montauk dinner picnic.
3. The 1800 sq. ft. third floor patio lounge with
un- obstructed 180- degree views of the Pacific Ocean
and Santa Monica Pier.
Alfredo's - Long Island, NY
The Happy Ending - Hollywood, CA
Black Market - Studio City, CA
>a
The Local Peasant - Sherman Oaks, CA
Mario Guddemi
& Salvatore Aurora
A Family Tradition of Service
For Mario Guddemi and Salvatore Aurora,
growing up in a New York family dedicated to the
restaurant business proved to be both fascinating
and challenging. Many years of living this routine
engrained in them the foundation of smart busi-
ness practices as well as the philosophy of great
customer service. it was only natural that these
two cousins would combine their skills and knowl-
edge to form a successful partnership that over
time developed into various prosperous business-
es in Southern California. Mario and Sal have suc-
cessfully acquired, restored and managed three
separate operations in Los Angeles; The Happy
Ending Bar and Restaurant in Hollywood, The
Local Peasant in Sherman Oaks and Black Market
in Studio City along side partners Antonia Lofaso,
Pablo Moix and Steve Livigni, Currently, Mario
and Sal have plans to develop projects in down-
town Los Angeles, Long Beach and on the histor-
ic Santa Monica Pier. with a proven track record
and unique business style, this partnership has at-
tracted and secured sufficient financing for all
future projects.,
Antonia Lofaso - Executive Chef
Television audiences first met celebrity chef Antonia in 2008 on season four of Bravo's hit show, Top Chef. Long
before her vault into national attention Antonia graduated from The French Culinary Institute followed by nine
years learning and cooking under Wolfgang puck at Spago in Beverly Hills. Later, she was tapped by SBE
Restaurant Group to serve as Executive Chef for the launch of their Los Angeles supper club Foxtail. At Foxtail,
SBE executives suggested Antonia audition for Top Chef. It was the beginning of a new phase in which she
would combine her culinary expertise with a growing interest in the world of entertainment. Since her appear-
ance in the Finals of Top Chef, Antonia has been a finalist on Top Chef All Stars and a Culinary Producer for
America's Next Great Restaurant. Antonia currently serves as Executive Chef for Black Market Liquor Bar and
has recently published her first cookbook entitled "The Busy Mom's Cookbook"
Pablo Moix - Beverage Director
Pablo is a internationally recognized mixologist with over 20 years in the beverage industry.
Over the last decade Pablo has overseen beverage programs for some of the industrys biggest
hospitality groups such as SSE, One Group and Gansevoot Hotel Group, As Western Portfolio
Ambassador for Bacardi USA, Pablo designed and implemented hundreds of cocktail programs, menus and train -
ings across Califonia, Nevada and Arizona. Pablo's work alongside collaborator Steve Livigni at La Descarga,
Harvard & Stone, Pour Vous, Melisse and Black Market have garnered him multiple LA bartender of the year
nominations, top 10 mentions in Esquire and GQ Magazines and nominations for Best American Cocktail Bar at
this years prestigious Tales of the Cocktail Conference. Pablo will be overseeing all beverage related matters
related to the business.
Steve Livigni - Director of Operations
With over a decade of experience opening and operating succesful restaurants and bars in Los Angeles, Steve
Livigni will be overseeing all business matters at The Albatross Club. Steve has held management positions with
The Four Seasons Hotel Group, 213 Inc and Houston Hospitality group. Over the last five years Steve has been
involved with more restaurant and nightlife openings than anyone else in Los Angeles. Many of these venues
including The Doheny, La Descarga, Harvard & Stone, Black Market and Plan Check have won numerous design
and beverage related awards. Most recently as Director of Operations for Houston Hospitality, Steves work has
been awarded with such accolades as Best New Bar (La Descarga - Los Angeles Magazine), Top 10 Coolest Bars
in the World (Harvard & Stone - Conde Nast) and Top 10 Bars in America (La Descarga - GQ).
Food culture is an important par of the Los Angeles IrTestyle. For the first time ever, Los .Angeles is being considered a world class
dining destination. That iovel of quality and passion about food should exist on the Santa Monica Pier. Currently no business on the
pier represents the eating habits of Angelenos or the progressive, mindful cooking techniques of celebrated local chefs. Chet
Antonia Lotaso will take that challenge head on to create a menu that represents modern Los Angeles dining that will not only
impress visiting tourists but attract local residents as well_ Santa Monica in particular has led the charge in farmers market inspired i
farm to table restaurants. The Albatross Club will stay true to that ethos. The current offerings on the pier are neirhe, inspired,
eflecfive of Los Angeles cooking or neccesorily healthy. Our plan is to create a menu that highlights fresh, local produce, proteins
and seafood using creative techniques at an affordable price point. Seafood E, ill naturally play a roll but the menu will also incorpo-
rate other native influences like Latin and Asian flavors.
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The history of the space goes back to 1917 when the 'Billiards Building" originally opened. That opening was celebrated with a
friendly bowling match between the cities of Santa Monica and Los Angeles. To commemorate that period the ground level of the
Albatross Club will feature two retro blue and white duckpin bowling alleys for guest use throughout the day and night. The alleys will
be available for walk -in guests, reservations and small parties at an affordable rate and will provide custom top -sider inspired shoes,
nautical balls and a dedicated server keeping score by hand. The nature of duckpin bowling (smaller pins and balls, shorter lanes)
along with adequate sound proofing will give a hint of the excitement to passing by guests withouth disturbing our diners or
neighboring businesses. This aspect of the business could provide for numerous merchandising opportunities.
Ground Floor - Lounge / Bowling / Stage
Second Floor - Dining Room 1 Kitchen
Third floor - Rooftop Bar
a__
BOOT
CAMPAIGN' "^ ,
s dl
To the honorable Mayor Richard Bloom and Members of the Santa Monica City Council
We are writing this letter in support of the Quintessential Group and their proposal to operate a
restaurant and sports bar on the Santa Monica pier.
The Quintessential Group is an elite venue operations team and for the last two years they have
been a valued partner to our organization, "The Boot Campaign ".
The Boot Campaign is a tax deductable charity started by five women from Texas known as the
Boot Girls. The campaign provides an easy and tangible way for all Americans to show their ap-
preciation for our troops (both past and present), cultivate awareness of the challenges they face
upon their return from service and to raise funds which we donate to military programs meeting
the physical and emotional needs of our troops.
Last August The Boot Campaign held its inaugural Boot Ride & Rally, a charity motorcycle ride
that started at the Route 66 Classic Grill in Canyon Country, traversed through the scenic hills of
southern California and ended with a rally in support of our troops at the Happy Ending Bar and
Restaurant on Sunset Blvd. in Hollywood. The Boot Rally featured a celebrity red carpet includ-
ing stars from the hit series "Sons of Anarchy ", food, drinks and live entertainment. The event
was a massive success and allowed our organization to donate $35,000 to the Call of Duty En-
dowment, a non - profit public benefit corporation which helps soldiers transition to civilian ca-
reers after their military service.
The Boot Campaign is excited to build on the success of our first event with our 2nd Annual Boot
Ride & Rally this August 26th 2012. We offer our sincerest gratitude and appreciation for the
help and support from the owners, staff and patrons of The Happy Ending Bar and Restaurant.
Once again, the owners of the Quintessential Group have been our partners for the second year in
sponsoring this event and once they are open, we look forward to having future fundraising
events at their new location on the iconic Santa Monica Pier.
Please feel free to contact us if you would like additional information about our organization and
or our experiences working with the partners of the Quintessential Group.
Sherri ROuland
Executive Director, Boot Campaign
3603 Old Jacksonville Hwy. / Tyler, Texas 75701 info3bootcampaign.com
The Boot Campaign is a Federal 501(c(3 Non-Profit Corporation founded in 2009 / EIN 27- 4900936
8/14/12 Tile Happy Ending Bar & Restaurant - St. Baldricks
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By Phone:
VOLUNTEER EVENT
ORGANIZERS
Lauren Counter
323 -469 -7030
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LOCALSUPPORTERS
Me M,,rpy Endinq Par and
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Fvent ID: 1868
Event Details Photo Gallery Donor List Event Updates
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Be a hero for kids with ranoerl Join this St. Balddckss event, and
whether you decide to shawe your head, volunteer, or donate, we
hope you'll be a partofthe excitement The St Baldricks Foundation
Is a volunteer- driven charity that funds more In childhood cancer
research grants than anyorganl7ation en;epttha U.S. government
Get involved and you'l be gMng hope to Infants, children, teens and
young adults fighting childhood cancers.
This War join us as we honor one of our own, Jackson Sessa, who
is cunenflyfighting Leukemia.
FUNDRAISING
Raised: Goal:
$58,370 $50,000
MEWALU iFAMS SfgA.VL' -ES (25) VOLUN YEFRS
Top Participants:
Leonardo Seca ($33,337.G0)
Uahrnan M xfy ($5,266.00)
Top Teams:
F.:t SM's ($2,837.00)
• •-:. 1
Jackson S.
r -_ Age:t
Diagnosis
Acute lymphobfastic leukemia
(ALL)
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N .stbaldricks.org /events /Inypage /1858/2012 112
David Carlat
Political Consulting and Management
1017 N. La Cienega Blvd., Suite 103
West Hollywood, CA 90069
Office: (323) 463 -8777; Fax: (323) 463 8742
pollticakonsulting@comcast.net
August 14, 2012
Mayor Bloom & Hon. City Council members,
As a representative of The Quintessential Group I am writing to ask that you reconsider the recent position
taken by staff on the proposed lease of city property on the Santa Monica Pier. In the fall of 2011, the City of
Santa Monica issued a "Request for Proposal" to lease the restaurant /nightclub space located at 256 Santa
Monica Pier. Proposals were solicited and reviewed per the guidelines adopted by the Santa Monica City
Council in 2006. Eight candidates applied by the October 12, 2011 deadline. These candidates were evaluated
and two finalists were chosen by a panel comprised of the Economic Development Division, Office of Pier
Management and Pier Restoration Corporation staff as well as a restaurant consultant from the firm Fessel
International. The two finalists were then informed that a presentation of their proposed concept for the space
would be made at the City Council meeting on August 14' 2012.
Not until the staff report was issued for the August 10' Council hearing were the two finalists informed of the
evaluation panel's recommendation to "retain one or both of the top candidates as finalists, while also seeking
additional prospective tenants.,." The staff report further stated that due to an amendment of the Pier Leasing
Guidelines in February 2012, the RFP process was no longer required. Furthermore, the authority for approval
was transferred from the Pier Restoration Corporation to the City Council. This amendment and its
ramifications were not explicitly disclosed to the RFP finalists who continued to prepare materials, hire design
staff, and meet with the panel of evaluators per the original leasing guidelines.
In addition to their recommendation to reopen the tenant recruitment process, staff has now informed the two
finalists that they have no presentation time scheduled before the full Council, despite the fact that you and your
colleagues are the final decision making body. As stated in the staff report "both operators (the two finalists)
demonstrated strong operational qualifications and provided evidence of financial capacity to carry out their
respective concepts... ". In fact, The Quintessential Group is prepared to invest over two million dollars into the
restoration and re- launching of the space without any cost to the taxpayer for additional staff investigations,
hearings or brokerage fees.
To deny or postpone the decision after the finalists have spent nearly a year of effort and investment undergoing
an RFP procedure established by the City, is unfair and contrary to the best interest of the City of Santa Monica.
The finalists should be given the opportunity to present their concept to the City Council during their allotted
hearing time and the Council should authorize staff to enter into exclusive negotiations with one of the finalists
or vote to reject both proposals. We implore you to show fairness and respect for the efforts that both candidates
have earned by complying with the process as mandated in the original RFP.