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SR-06-27-1978-11GSanta Monica, California June 19,1978 TO: Mayor and City Council FROM: City Staff JUN 2 7 1978 SUBJECT: Lease addendum, Hamburger Haven, Santa Monica Pier Introduction On January 24, 1978 City Council approved in concept the proposal of Mr. Jack Knight, lessee on the Santa Monica Pier of the Hamburger Haven to expand his restaurant operation into "Captain Jack Knight's" with 285 seats, two floors, and three patios. On April 25, 1978 City Council questioned the impact of the intended 3% building and pier maintenance fund upon the master pier lease in addition to asking if the proposed restaurant would be located totally on the pier structure. This report answers these questions and covers the specifics of the addendum to this lease which is attached as Exhibit "A ". Discussion Restaurant Location: The new "Captain Jack Knight's" restaurant will be totally located on the pier structure and does not encroach onto the promenade. (See attached map) Building & Pier Maintenance Fund': The concept of creating a fund for the ongoing maintenance of the pier structure and restaurant building has been abandoned because an addenda regarding normal pier maintenance would be in conflict with the master pier lease and also because of the difficulties involved in maintaining separate ear- marked funds over a long period of time. The master pier lease spec- ifically states (Sec. 7.1), "Lessee shall not be obligated to repair, maintain or replace pier pilings or understructure except... (Sec. 16.1) lessee shall be liable to lessor for all damages resulting from such destruction caused by Lessee's negligence or the negligence of its agents, servants, employees, sub lessees, concessionaires or licensees." As far as the restaurant building is concerned, the master pier lease (Sec. 7.1) requires the Lessee "at its sole cost and expense..." to maintain the building and its equipment and improvements. There is no minimum or maximum limitation on the dollar amount of the repairs that the City may require. if JUN 2 7 1978 -2- Lease Term: A straight twenty years, to June 30, 1998 - with no option to extend beyond this period. Rental Off -set: All rent due the City after payment of the min- imum rental shall be off -set until all pier decking and pilings ex- penses, to be advanced by lessee, (estimated at $50,000) are re- imbursed, probably within four years. (see exhibit "B ") Architectural Review Board: On November 16, 1977 the Arch- itectural Review Board discussed the plans and concept of "Captain Jack Knight's" at some length and voted its approval. Landmarks Commission: On March 7, 1978 the City Landmarks Commission voted a Certificate of Appropriateness for the proposed construction since the site is on a designated City Landmark. Plans: The plans of the lessee are for an expansion to a 285 seat restaurant with three patios and include an upper deck. See "What We Propose to Do ", exhibit "C ". Income to the City: The City shall be assured of the same rental as it now receives for the area included in the lease, $8,196 per year. Since the recommended rental percentage is 10%, sales of $81,960.00 are needed to be generated before any additional rental percentage will accrue. However, to re- imburse the lessee for his pay- ment of the pier decking and supports - -- normally a City financial responsibility - - -all monies thus accrued shall, under the proposed addendum, if approved by City Council, go to the lessee. Once these costs are re- imbursed, the City shall be paid 10% of the gross sales, under the terms of the standard Pier Lease. Recommendation It is the recommendation of staff that the City Council approve the attached addendum to the lease with Hamburger Haven and authorize the City Manager to execute the addendum. Exhibit "A!': Lease Addendum No. 1 "B ": Revenue Projections "C": "What We Propose to Do" Prepared by: Jeremy B. Ferris Peter Kipp ADDENDUM NO. 1 This Addendum shall be attached to and become part of .Contract Number 2262 (City Council Series) b eing . the lease and agreement entered into between the City of Santa Monica and Hamburger�Haven, a sole proprietor. Suc)a Addendum is made with reference to the following facts: A_ -On February.2,.1977, the City `of Santa Monica, a municipal corporation .(hereinafter referred .to as "City "), entered into a lease and agreement with Hamburger Haven, Inc, a sole proprietor (hereinafter referred to as.. "Lessee ") whereby the City leased certain property located within the corporate boundaries of the City of Santa I;anica„ to, Lessee for the operation of a restaurant. B. On or about September 15, 1978,-the Lessee agrees to expand the Premises and agrees to incur substantial capital costs for the improvement of the Premises. This Addendum, therefor,,sets forth the terms and conditions for the modification of the Lease. THE PARTIES HERETO AGREE AS FOLL6ws: 1. Paragraph 1 is hereby amended and as amended shall read as follows: / 1. TERM The term of this lease, hereinafter r I CA 3 -14 -78 referred to as the "Lease Term" shall be twenty (20) years, commencing July 1, 1978, and expiring on June 30, 1998,unless sooner terminated as provided below. 2. Paragraph 2.1 is hereby amended as follows. "Four.thousand nine hundred and eighteen dollars" is deleted, and "Eight thousand one hundred ninety -six dollars" is.substituted in lieu of the deleted amount. 3. Paragraph 2.2 is hereby amended and as amended shall read as followsa ° 2.2 ADDITIONAL PERCENTAGE RENTAL Initially no'additional percentage rental shall be paid by the Lessee to the Lessor until a rental of:c "set has been received equal to the cost incurred by the Lessee of the repairs to the pier decking, stringers, caps, pilings and associated supports within, underneath and appurtenant to the area covered by this Lease. (See addendum map which shall be considered a part of this Addendum No. 1)0 Lessee agrees that the City Engineer or his representative shall be the sole determining authority as to what pier repair work is required, who shall be awarded the repair contract, when the work has been done to the satisfaction of the City, verifying actilal costs for 'the purposes 6f ' this.rental'off -set and all other matters regarding such repairs. Upon the Lessee having been - reimbursed through a . rental off -set (as above) in full for pier repairs, in addition to the minimum monthly rental, Lessee shall pay to -2- CA 3 -14 -78 Lessor percentage rental due and payable on or before the tenth (10th) day of the month immediately following the month in which the cumulative gross sales exceeds the minimum annual sales. Said minimum annual: sales shall be determined by dividing the minimum annual rental by the percentage established below. •Said percentage rental shall be in the amount of ten percent .(10 %) of said.cumulative gross sales which are in excess of said minimum annual sales. 'Thereafter during each and every month of the Lease Year, Lessee shall pay to•Lessor percentage .rental in the amount of ten percent (10 %) of the gross sales made during each month. Said Percentage rental shall be due and. payable, -on or before the tenth (10th) day p£ the month immediately following said month. For purposes of this Article 2.2, said cumulative gross sales shall only be accumulated during each and every Lease Year of the Lease Term and not from Lease Year to Lease Year. follows: 4. Paragraph 2.8(a) (2) is hereby amended as 2.8(a)(2) ADJUSTMENT OF MINIMUM ANNUAL RENTAL The minimum annual rental shall be increased pursuant to the percentage increase, if any, in the Consumer Price •Index (C.P.I.) as determined by the following calcul- ation: The base.of computing the adjustment is the index figure for the month of April, 1978, as shown in the -3- O CAPTAIN JACK'S REVENUE PROJECTIONS Several similar but smaller restaurants in Venice are reporting gross sales between $ 350,000. and $ 750,000: Captain .lack's Name ' seats Number o 'Seats :Annual' G'ross' Sales E's'timate• Gross Sales Sidewalk Cafe 210 $ 750,000 $ 947;300. Sea & Shore Bistro 105 375,000. 611,800. Earth`s End 115 350,000. 558;800: * Based on their operation, but making; an allowance for a more popular location by the Santa Monica Pier and a larger seating capacity, City staff conservatively estimates "Captain Jack's" possible gross sales to be: (see column "c") (a) (b) Year Rental Percentage 1 2 3 4 5 (c) (d) Estimated City Gross Rent Sales 9 10% 10% $ 200,000 $ 20,000 10% 10% 10% 10% 400,000 500,000 600,000 600,000 40,000 (e) Less Off -set per year (100% pier repairs) $ 11,804. 31,804. (f) Total Recaptured by Lessee $ 11,804 $ 43,608. (S) City Rent Paid 8,196 8,196 (h) Total Recd by City 58,196. (1) Rent $ /sa ft per yr $ 1.86 1.86 50,000. 6,392. 50,000. 8,196 (est. total + pier repair) 35,412 60,000 9.91 60,000 .-OR Prrn 60,000 120,000 13.64 60,000 -0- 60,000 180,000. 13.65 WHAT WE PROPOSE TO D0 We plan to remove both the Hamburger Haveri Restaurant and the International Cafe, including their associated patios. We will remove and rebuild the portion of the pier these two restaurants currently occupy, approximately 4,700, sq.ft. On this site will be constructed a beautiful new establishment called Captain Jack's Restaurant.. The exterior of Captain Jack's will be rough sawn cedar to blend with the wooden nature of the pier. Two of the three patios sur- rounding Captain Jack's will be shaded by umbrellas and the roof garden by awnings, all brightly colored to highlight the cheerful :atmosphere of the beach area. All three of the patios will be "land- scaped with potted trees and shrubs. The patio perimeter will be defined with three foot bollards made from piling stumps and connected with old anchor chain. The roof garden, in addition to being landscaped with potted trees and shrubs, will feature hanging plants, flowers, an aquarium and a lighted waterfall. Captain Jack's menu will remain essentially the same with emphasis on hand held fast food items high in quality, yet reasonably priced. However, some new additions will be made to the menu. A line of breakfast and brunch items as well as a limited number of- dinner se- lee tions will also be added. Every Sunday will feature a champaign brunch in the roof garden. For the sports enthusiasts all significant televised events will be shown in the roof garden on wide screen TV. To simulate a game site atmosphere, beer, lemonade, sodas, hot dogs, peanuts and popcorn will be sold at a reduced rate during the game or event. All holidays will be celebrated with a promotion tailored .- 1 - Page 2 of What We Propose To Do. to the specific day, i.e. Dinner for two for the price of one on Valentine's Day for lovers, a rose for Mother on Mother's Day; etc. The key to a successful restaurant is; 1. Location 2. Service 3. Good Food.' First, our location is excellent., Over 3 million people come to Santa Monica Pier each year. Second, to serve the 3 million people we just mentioned, we have designed a:faeility with em- phasis on maximum.output and comfort. Hamburger Haven and the International Cafe were designed to serve a relatively small number of people at a time, and had a combined seating capacity of 50 in very shabby surroundings. Captain Jack's will seat 285 people. The inside dining area will seat 56, the roof garden 100 and the patios 129 all in clean, beautiful surroundings that everyone will enjoy. .Third, Good food. We have always prided ourselves in serving well above average quality food. However, Captain Jack's will serve the very best food it is possible to produce'. We have added a butcher to our staff. We will cut our own meat on the premises. We will grind our own burger meat fresh each day. No canned or frozen food items will be used where fresh foods are.available. We are going back to the basics to build a reputation.for fine food. - 2 - i Page 3 of What We Propose To Do. Any one of these three keys to success can secure the future of a restaurant. We are.fortunate that we have'all three. In New York's Coney Island the place to go is Nathans. On the Santa Monica Pier it will be Captain Jack's. i is i :r y 3 Consumer Price Index (all items) Los Angeles -Long Beach, based on the period 1967 =100. The adjustment date shall be the month of April, 1981, and said index published for that month shall be com- puted as a percentage of the base figure. For example, assuming the index figure on the base date is 110 and the index figure on the, adjustment date is 121, the percentage to be applied is 121/110 = 1.10 = 110 percent. That percentage shall be applied to the minimum annual rent for the lease year commencing July 1, 1981. This Agreement represents the full and complete understanding of every kind or nature whatsoever between the parties hereto with respect to the Premises and all preliminary negotiations and agree- ments of whatsoever kind or nature are merged herein. No verbal agreement of implied covenant shall be he'.ld to vary the provisions hereof. ...;cr .' a t• �' CITY OF SANTA MONICA, a municipal corporation 0 CITY MANAGER (Lessor) HAMBURGER HAVEN, INC. By JACK KNIGHT (Lessee) -4-