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SR-07-22-2014-8B4 j Agenda Item: To: Mayor and City Council From: Karen Ginsberg, Director of Community and Cultural Services Subject: Future Use of Beach Property Leased by the Beach Club Recommended Action Staff recommends that City Council: 1. Approve findings that there has been no material change in the need for public use of two beach parcels currently leased to the Beach Club for private use. 2. Authorize the City Manager to negotiate and execute two lease extensions, each for an additional ten years with a five option, for the two beach parcels. 3. Appropriate the budget increase as outlined in the Financial Impacts and Budget Actions section of this report. Executive Summary The Beach Club, located at 201 Palisades Beach Road, leases two beach parcels, totaling about 74,000 square feet. The lease agreements expire January 8, 2015, and the Club wishes to exercise a ten year renewal option in each of the two leases. The leases condition exercise of that option upon findings by both the City and the State that there has been no material change in the need for public use of the parcels, and the leases require six month notice as to the availability of the option. This staff report provides information about the parcels, access to them, and to the public beach, beach usage, recreational needs, and the City's current planning policies relating to the beach. It also provides information about the financial impact of allowing the leases to expire or extending them, as well as discussions between the City and the State with regard to bringing all leases on the public beach to a consistent term and recommends a ten year extension with a five year option for each lease. Background In 1990, two leases were executed by the State of California and The Beach Club: one is for an approximately 53,000 square foot parcel located on Santa Monica State Beach and includes the City of Santa Monica as a signatory; the other lease is for an adjacent approximately 21,000 square foot parcel across the Santa Monica boundary. Administration of this lease was transferred to the City in 1991 under the Tri -Party Agreement between the City, State Lands Commission, Department of Parks and Recreation, and the Attorney General. The parcels are shown on Attachment A. As the lease recitals state, the State, City and Club had been involved in litigation concerning the boundary between the tidelands and submerged lands, which are owned in trust by the public, and the uplands, which are privately owned by the Club. The three parties to this litigation opted to resolve their dispute by agreeing upon a boundary line between the publicly and privately owned land and executing the leases. Each lease term is 25 years, with an exclusive option to the Club to lease the parcels for an additional ten years subject to specified conditions. A prior written finding must be made by the State and City that there has been no material change in the need of the State or City for the use of each of the parcels. Each lease provides that use of the parcels "shall be limited to beach recreational uses related solely to the conduct of a private beach club," and permitted the existing improvements, including wooden walkways, portions of the paddle tennis courts, overhang from the club house, and fencing to remain. The rent for both parcels was $1500 per year for the first ten years. It was adjusted to $.65 per square foot per year for the next five years ($48,433) and is currently $1.05 per square foot for a total of $78,239 per year. Discussion The Council followed a similar process on _Au r st 1 „1, 2009, when Council considered whether there was a material change in the need for public use of the parcels leased by the Jonathan Club. At that time, staff recommended that the Council consider changes in use since the year the lease was executed and make a determination of whether or not the City needs the lease parcels for public use, based on a number of factors that are relevant to the determination of need. This section will address these factors. 2 City Policy Related to the Beach Much has happened with regard to the beach since the leases were made in 1990. Council has adopted several new plans and policies that chart the course for beach usage in the years to come. For example, the 2010 Land Use and Circulation Element (LUCE) explains that the City's form and character are derived from its physical and cultural relationship with the Pacific Ocean. The LUCE considers the different character of South and North Beach and highlights the need for better connections between the City and the Beach. Policies include: (1) extending the pedestrian and bicycle paths the length of the beachfront; (2) exploring additional routes to the beach from the bluffs in Palisades Park; and (3) creating new beach parks north of the Pier. Similarly, the Open Space Element (OSE) adopted in 1997, notes that the shoreline holds great potential for enhanced public use and calls for "taking fuller advantage of the beach and strengthening its connections with the city." The OSE establishes the need to "develop new beach parks" north of the Pier, which would create recreational destinations along the beach. It also calls for increasing the accessibility of open spaces by, among other things, providing more ways for everyone, including those with special needs, to physically access them. Moreover, the Parks and Recreation Master Plan, also adopted in 1997, calls for enhanced public use of the beach. The Plan notes that the north beach is underutilized because it is isolated by the bluffs and the traffic on Pacific Coast Highway. To better utilize this space for the benefit of the public, the Master Plan envisions beach parks on the north beach and enhancement of the pedestrian bridges connecting the beach and Palisades Park. The Master Plan also calls for facilitating pedestrian beach access and reducing user conflicts by expanding the beach trail and promenade so that pedestrians will be less likely to use the bike path. [c3 The Characteristics of North Beach and the Site The use of north beach has changed since 1990, particularly since the opening of the Annenberg Community Beach House (Beach House) in 2009. The Beach House attracts many families to use the pool and other facilities; many visitors also travel on the pedestrian walkway to get close to the water. Lifeguard visitor counts have increased at the water's edge directly west of the Beach House. The area to the south of the Beach House, around the 600 block, is also a good location for surf and sand camps given the breadth of the beach and access to parking lots for camper drop off. Ocean Front Walk ends at the 1100 block (Arizona Avenue) and at that point, the bicycle path becomes a shared path for pedestrians and cyclists. The usage of the bike path continues to grow and the single shared path is a source of conflict. The City has been working with the County of Los Angeles to secure grant funding to develop a pedestrian path parallel to the bike path north of the Pier but has not yet been successful. The 2014 -16 Capital Improvement Project (CIP) budget includes funding for initiating concept design plans for improvements to Ocean Front Walk and the extension of the pedestrian path but outside funding or another source of revenue to the Beach Fund will be required for construction. The 2014 -16 CIP budget also includes funds for expanding the playground at the Beach House as well as the design and construction of a new children's play area on the beach, at Montana Avenue. This location, identified in the North Beach Play Area Study as the first of a series of new play areas north of the Pier, is next to a large parking lot and public restroom, and at the foot of the Montana Avenue overpass. A new accessible walkway is also planned for the 1200 block of Ocean Front Walk. The Beach Club is at the far north end of Santa Monica State Beach in the 200 block. There are no public parking lots north of the Beach House. This section of the beach 51 has not been heavily used. There are no public restrooms adjacent to the site, nor other public amenities. The closest pedestrian overpass is at Montana Avenue; vehicular and pedestrian access to this portion of the beach continues to be limited. The leased parcels are sand and form the seaward boundary of the club. The parcels are used for the Beach Club's recreational activities and include the improvements that existed at the time of the lease execution: walkways, paddle tennis courts, and fences. Children's play equipment and volleyball courts have been added. Since the parcels are located in a section of the beach that has no public parking or restroom facilities, public use of this area is expected to remain low. Plans for new recreation facilities are focused on more easily accessible sections of north beach. These factors suggest that there has not been a material change in the need for public use of these parcels. Alternatives If Council determines that there has been a material change in the City's need for the use of the parcels, then staff will prepare findings in accordance with Council's direction and notify the Club as specified in the lease. Staff will also notify the State of the Council's determination, ascertain the State's position and share that information. If the lease is not extended, there would, of course, be consequences and costs for the City and members of the community. The City would lose rental income and might become embroiled in a legal dispute involving claims under the lease. The individual members of the Beach Club would still be able to use the property, in the same way that any other members of the public could use it, except that they could access it from the Club building. However, the Club would lose the private use of the beach parcels. Members of the public could use the sand portion but would not be able to enter the Club property. 5 On the other hand, if Council determines that there has been no material change in the need to make public use of the parcels, then staff will give notice of that determination to the Club. Additionally, staff will give notice of the proposed rental rate. Pursuant to the lease, it would be based on the fair market rates for beach recreational use. The City commissioned an appraisal in 2012 to determine the fair market value for the residential encroachment parcels. Thomas Erickson prepared the appraisal, which concluded the fair market value for beach recreation at $5.50 per square foot. Since this is the same designation required for the Beach Club appraisal, staff has consulted with Thomas Erickson and he confirmed that the $5.50 rate still applies. If the leases are extended, the projected annual rent to the Beach Fund would be $409,822. This represents an increase of $331,583 over the current annual lease payment, and an increase of $120,208 over the FY 2014 -15 Adopted Budget amount, as staff included an early estimate of the potential increase during the exception -based budgeting process. The City has been working with State Parks to bring all encroachment parcels on the beach to a consistent lease term. State Parks has authorized the City to enter into leases with the homeowners along Palisades Beach Road for a period of ten years, with a five year option. If the City and State determine that there is no material change in the need for public use of the Beach Club parcels, the State has approved adding a five year option to the ten year extension. 11 ..a, i. C aa —" 1 a.. The proposed lease extensions will increase annual revenues by $331,583 at account 11522.400770 and require an increase of $120,208 to the FY2014 -15 Adopted Budget. Prepared by: Judith Meister, Beach Administrator Approved: Forwarded to Council: Pan in erg Ro Gould , ommunity and Cultural City Manager Services Attachments: A. 2012 Aerial Photograph of Site, Showing Lease Parcels 7 Reference: Lease No. 9941 (CCS) E'?1 Lease No. 9942 (CCS)