SR-11-27-2012-3ECity Council Meeting: November 27, 2012
Agenda Item:
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 authorize the City Manager to negotiate and
execute an Amended and Restated Lease Agreement with Hospitality Industry
Management Group, LLC d.b.a. Rusty's Surf Ranch for 256 Santa Monica Pier.
Executive Summary
This report recommends that Council authorize the City Manager to negotiate and
execute an Amended and Restated Lease Agreement with Hospitality Industry
Management Group, LLC d.b.a. Rusty's Surf Ranch to continue operation of a casual
restaurant/nightclub with live music on the Santa Monica Pier. The proposed lease
terms obligate the tenant to make both physical and operational upgrades to the
premises.
Background
In the fall of 2011, the City issued a Request for Proposals to lease a 4,309- square foot
restaurant /nightclub located at 256 Santa Monica Pier. On August 14 2012, Council
directed staff to enter into exclusive negotiations with Hospitality Industry Management
Group, LLC d.b.a. Rusty's Surf Ranch.
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. Rusty's Surf Ranch
( Rusty's), a surf - themed restaurant/bar with live entertainment and dancing, has
operated from the space since 1994. The other tenants in the building include Santa
Monica Pier Seafood and AI Mare, a new restaurant that is currently under construction
and is scheduled to open in late 2012.
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Rusty's original lease expires on September 30, 2014; however, the new lease, when
executed, would supersede the terms of the original lease. In order to allow the tenant
to commence its improvements to the premises expeditiously, the parties intend that the
new lease be executed within three months from Council's authorization.
Discussion
The execution of the new lease would obligate Rusty's to implement improvements to
the premises that would expand customer capacity, improve operations and enhance
aesthetics as illustrated in Attachments A and B. Proposed improvements to the front of
the restaurant include a new fagade, signage, and marque with a second -level dining
balcony above the ground -floor patio. The rear patio would also include a second -floor
dining deck to replace a large canvas awning, as well as a new patio enclosure, doors
and windows. Rusty's may also explore the possibility of a rooftop patio in lieu of the
rear, second -floor dining deck. All proposed fagade improvements would be subject to
Landmarks Commission approval. Functional improvements include expanded cooking
areas, restroom facilities, and HVAC systems, as well as remodeling of the entire
interior space. Completion of the improvements would be done in two phases within the
first two years of execution of the lease and in accordance with a detailed scope and
performance schedule to be included in the lease. The lease would require Rusty's to
make systematic efforts to improve quality of food offerings, including regular review of
the menu for adjustments.
The following is a summary of the recommended business terms
• The proposed term of the lease would be an initial 10 -year term. The new term
would commence upon execution of the lease and any unexpired portion of the
original lease term would be added to the 10 years of the initial term. Provided
that Rusty's is in full compliance with the lease, Rusty's may exercise one option
to extend the term for an additional period of five years.
® The base rent schedule outlined in the original lease would be maintained from
the execution of the lease through September 30, 2014 (the date Rusty's original
lease is to expire). After September 30, 2014, the base rent would be no less
than $200,000, subject to an annual rent adjustment based on CIP of no less
than three percent and no greater than five percent. Percentage rent would be
six percent of all gross sales commencing upon the execution of the lease. To
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support the continued programing of live performances, gross revenues from
ticket sales and cover charges would continue to be excluded from percentage
rent.
® Rusty's would make a minimum capital improvement investment in the remodel
of the premises of not less than $500,000. The City would provide rent credit of
50 percent of the tenant's construction cost not to exceed $250,000 against rents
due, to offset demonstrated expenditures on agreed -upon improvements. In
addition, the City would allow a performance -based rent abatement during
construction not to exceed $50,000 and Rusty's would take responsibility for the
expense and coordination of the roof repair in exchange for rent credit that would
not to exceed $15,000.
Financial Impacts & Budget Actions
The base rent revenue for the FY 2012/13 budget for 256 Santa Monica Pier is
$100,950 per year and would increase to $200,000 per year (adjusted by CPI) effective
October 1, 2014 under the proposed Amended and Restated Lease. The base rent
revenue would be reduced up to $315,000 over the next two years with the tenant's
application of tenant improvement rent credits.
Prepared by: Elana Buegoff, Sr. Development Analyst
Andy Agle, Director(/
Housing and Economic Development
Attachments:
Forwarded to Council:
Rod Gould
City Manager
A. Scope of Work /Schedule of Performance
B. Tenant's Renderings
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Attachment A.
Rusty's Remodel
Scope of Work — REVISED 10 -30 -12
Phase I construction
Front fagade - Patio enclosure, including creation of dining balcony above (without access for
dining until Phase II), marquee and signage, and new deck.
Kitchen remodel - Expand hood; install 2 "d line position.
HVAC— Install two new 5 -ton units; ducts to new mezzanine and rear; kitchen swamp cooler.
Roof repair— Repairs as required on behalf of Landlord, as per Landlord's inspection report (to
be determined).
Phase 11 construction (Start date November 2013 at earliest — January 2014 target date.)
Restroom remodel - Relocate and remodel; add one toilet and one sink to women's and one
urinal and one sink to men's. (Low -flow urinals, hands -free lights, faucets and soap, air dry hand
driers.)
Kitchen remodel — relocate ice machine, create keg cooler, install new equipment, expand food
pass - through window.
Create floor manager office on ground floor - including secondary safe for cash check -outs.
Relocate stage - Remove partial wall at ground floor, open ceiling to rafters above new stage
location, rewire sound and lighting, R &M dining wall treatment, relocate sound booth.
Relocate management offices from above stage- Demo and relocate existing office; create
secondary kitchen /storage area /kitchen office at 2 "d floor.
Create mezzanine - Build out office and dining areas, add unisex toilet, and relocate sound
booth, lighting and stage storage.
Rebuild bar - Demo existing to install columns and stairs.
Misc. - Roof vents for new /expanded kitchen exhaust; wall unit in office; fire bowls in columns;
and new fireplaces; wall and floor surface treatments; internal A/V system.
Back Patio — R &R back patio enclosure and cover, with covered dining terrace above.
R &R doors and windows at front and rear facade — All new wood doors and windows to match
Landmark's recent approval of Al Mare.
Attachment A.
Rusty's Remodel
Preliminary Timeline — REVISED 10-30-12
Lease Agreement
Business terms agreed
Council approval
November 1, 2012
November 27, 2012
Design and Engineering
Design and engineering of both Phases has been underway since August 15, 2012.
Submittals
Phase I
Landmarks
Coastal
Health
Phase II
CUP
Coastal
Health /ABC
Landmarks
Construction
Start Phase I
Completion Phase I
Start Phase II
Completion Phase 11
December 1, 2012
December 1, 2012
December 15, 2012
March 1, 2013
March 1, 2013
August 1, 2013
August 1, 2013
January 14, 2013
March 15, 2013 (Easter Sunday is March 31)
October 1, 2013
April 1, 2014 (Easter Sunday is April 20)
Attachment A.
Rusty's Remodel
Preliminary Construction Budget* — REVISED 10 -30 -12
7alTm-
Design, engineering and permits
Leasehold improvements
FF &E, Small wares, Signage
Contingency
$ 50,000
$ 150 — 250,000
$ 100,000 — 150,000
$ 20,000
RUSTY'S EXPENDITURES, Phase I $ 320,000- 470,000
TI Allowance {$ 160,000 - 235,0001
Phase II
Design, engineering and permits
$ 50,000 - 75,000
Leasehold improvements
$ 300,000- 400,000
FF &E, Small wares, Signage
$ 50,000 — 75,000
Contingency
$ 50,000
RUSTY'S EXPENDITURES, Phase II
$ 450,000 - 600,000
TI Allowance
1$90,000 - 15,000}
Total Rusty's expenditures Phase I and 11 $ 770,000 - 1,070,000
Tenant credits due
Rent abatement $50,000
TI allowance $250,000
*Note: Figures shown do not include roof repairs to be undertaken by Tenant on Landlord's
behalf.
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ATTACHMENT B
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Reference
Agreement No. 9667
(CCS).