SR-08-13-2013-3ECity Council Meeting: August 13, 2013
Agenda Item: -f-
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Bergamot Station Arts Center Lease Modification
Recommended Action
Staff recommends that the City Council authorize the City Manage to:
1) Negotiate and execute a lease modification with Bergamot Station, Ltd., a Santa
Monica -based company, to provide a two -year lease term option extending the
lease to December 31, 2017 with an accompanied rent reduction of $3,664.43
per month for a new monthly rent of $44,000; and
2) Authorize the budget changes as outlined in the Financial Impacts and Budget
Actions section of this report.
Executive Summary
Bergamot Station Arts Center is located on 5.5 acres of City -owned land and is
comprised of over 30 art galleries, creative businesses, and a non - profit theater
company. The art center is managed by Bergamot Station, Ltd., with a lease term that
expires December 31, 2015. To facilitate the center's ongoing role as a cultural hub
and anchor for the larger Bergamot Transit Village and Mixed -Use Creative districts,
staff recommends that the City modify the lease agreement with Bergamot Station, Ltd.
to allow for a two -year lease term option that would extend the lease until
December 31, 2017 and revise the rent payment retroactively from $47,664.43 per
month to $44,000 per month, effective from the Exposition Light Rail land taking on the
site of December 7, 2012. This action would generate an additional two years of
revenue totaling approximately $1 million.
Background
Bergamot Station Arts Center ( "Bergamot ") is located on approximately 5.5 acres of
City -owned land. The site was acquired in 1989 with City transit funds to accommodate
future light rail operations. The arts center is managed by Bergamot Station, Ltd. and
rental income from the site is deposited in the Big Blue Bus fund. In 1994, the City
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entered into a lease agreement with Bergamot Station, Ltd. on a month -to -month basis.
On July 13, 2004, the City Council authorized a five -year lease with five one -year
options. The lease option period expires on December 31, 2015.
Discussion
Bergamot is Southern California's largest art gallery complex and is a center of Santa
Monica's creative arts community. A key component of the City's Land Use and
Circulation Element calls for preserving and enhancing Bergamot as an economically
sustainable arts center and transit hub. The site is immediately adjacent to a planned
station of the Exposition Light Rail and is included in the draft Bergamot Area Plan,
which outlines goals to preserve the arts, provide quality access to transit options,
expand open space and community access, and create commercial amenities such as a
hotel and neighborhood - serving retail to produce lease revenue for the Big Blue Bus.
To facilitate the long -term viability of Bergamot Station as an arts center and transit site,
on January 29, 2013, the City issued a Request for Proposals (RFP) to three selected
development teams to develop Bergamot consistent with the Area Plan, while
preserving the character and tenants that have defined Bergamot as a world- renowned
fine arts center. Bergamot Station, Ltd. is one of the three development teams invited to
submit a proposal, along with teams from Lionstone /Industry and ReThink/Kor. The City
received proposals from all three teams on May 1, 2013. It is anticipated that a
development team will be selected by the end of 2013. In accordance with the RFP,
development at Bergamot will include a hotel and additional infill creative workspace,
along with infrastructure enhancements. It is anticipated that development activity would
not commence until early 2018 due to timing required for lease negotiations, community
outreach, environmental review, planning, design, entitlements, and financing.
To facilitate the center's ongoing role as a cultural hub and arts destination during this
transition period, staff recommends extending the lease with Bergamot Station, Ltd. for
two years, through December 31, 2017. The extension would allow
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Bergamot Station, Ltd. to offer its tenants standard sub - leases of up to nearly five years
within the framework of the master lease.
The existing arts center operations have also been impacted by Exposition Light Rail
construction activity. On December 7, 2012, there was a site reduction of approximately
19,389 square feet due to the Metropolitan Transit Authority's taking for the Exposition
Light Rail station development. This resulted in the demolition of a 13,294- square foot
building that housed Track 16 gallery, book store and event space. The remaining City
portion of the complex currently has several warehouses that total approximately 62,000
square feet of gallery and creative space, housing over 30 fine art galleries, creative
businesses, and a cafe.
Staff recommends reducing the lease payment in recognition of the loss of leasable
building, parking and event space. Bergamot Station, Ltd. currently pays a rent of
$47,664.43 per month with annual consumer price index (CPI) increases not to exceed
five percent. In recognition of the Metro taking, including the loss of the Track 16 gallery
building, associated event space, and ancillary surface parking, staff recommends a
revised monthly rent amount of $44,000, subject to the existing CPI increases and
existing lease conditions. The lease does not state how rent is calculated nor how to
adjust the rent amount in the event of a property taking or partial taking of the site. Staff
analyzed the rent reduction through a variety of approaches (including income, square
footage, usage and improvements) to establish the recommended rent amount agreed
to by the parties. The revised rent amount would take effect upon execution of the lease
modification and would be applied retroactively to the date of the Metro taking on
December 7, 2012. The recommended actions would result in continued revenue for the
Big Blue Bus for two additional years, at which point implementation of the Bergamot
Area Plan and on -site development are expected to commence. The lease extension
would also help ensure the retention of the art uses and cultural activities at Bergamot
Station during the transition period and would help retain local businesses that currently
generate over $10.5 million in taxable sales each year.
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Financial Impacts and Budget Actions
The lease modification will result in a reduction in current lease revenues for Big Blue
Bus of approximately $44,000 for FY 2013 -14 and FY 2014 -15, as well as a retroactive
rent reduction of approximately $23,811 for FY 2012 -13. To reflect the loss of revenue,
the revenue budgets at account 41642.404090 will be reduced by $44,000 for
FY 2013 -14 and FY 2014 -15. These revenue reductions to the Big Blue Bus would be
more than covered by sales proceeds from the Metro taking, which the Big Blue Bus
received in FY 2012 -13. Approving a lease extension would generate two additional
years of lease revenue for the Big Blue Bus in the amount of approximately $528,000
annually in FY 2015 -16 and FY 2016 -17. These amounts would be included in future
year revenue budgets.
Prepared by: Jennifer Taylor, Economic Development Administrator
Andy Agle, DirectT" 1
Housing and Economic Development
Forwarded to Council:
Rod Gould
City Manager
Reference:
Lease No.8371 (CCS)