SR-06-09-2015 -3NCity Council Meeting: June 9, 2015
Agenda Item:
To: Mayor and City Council
From: Susan Cline, Interim Public Works Director
Subject: Airport Leases with Volkswagen of America, Milstein Adelman LLP and
Museum of Flying
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute leases on Airport property with Volkswagen of America, Milstein Adelman LLP
and the Museum of Flying on the terms outlined in this report, consistent with the
preliminary approvals and direction previously given by Council.
Executive Summary
All three leases recommended by staff for final Council approval received preliminary
conceptual approval for three year terms at market rate on March 24, 2015.
Negotiations have proceeded on all three leases and proposed terms have been
finalized. However, the terms of a fourth lease (Atlantic Aviation) that Council
considered on March 24, 2015 are still under discussion. Staff anticipates bringing that
lease back to Council for final consideration on July 14, 2015.
The three leases recommended at this time comport with Council's preliminary
approvals and other guidance. The leases with the Milstein law group and with
Volkswagen Audi are at market rate. Since both are currently subtenants at the Airport,
making these direct leases would increase City revenues from the Airport and thereby
help to ensure that it remains self - supporting and does not require a subsidy from the
General Fund. The lease with The Museum of Flying will ensure the preservation of a
cultural amenity, which preserves and explains an important aspect of the City's history.
Background
The Airport leases all expire June 30, 2015, as will the 1984 Settlement Agreement with
the federal government. The exact significance of that important date has been
discussed and debated for many years and with increasing intensity in the recent past.
Questions remain about the extent of the City's authority to control the use of its Airport
land. Ultimately, issues relating to the City's control over the use of the land will be
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resolved through legal proceedings. But, while the City awaits resolution, it remains
responsible for the operation and maintenance of its Airport.
Faced with the legal and practical realities, Council has repeatedly directed that the
Airport must be self- supporting and should not be a drain on the General Fund. Stated
otherwise, Council has made clear that the costs of operating the Airport must be borne
by Airport users and businesses and not by the community.
To that end, Council has given various directions relating to Airport leases, most
recently at its meeting of March 24, 2015.
Discussion
The recommended leases were all preliminarily approved on March 24th, and the terms
of each comport with Council's previous action and directions.
The lease with Volkswagen of America would be for 43,471 square feet of office space
at 2772 Donald Douglas Loop North, which is Volkswagen's current location as a
subtenant of Atlantic Aviation. Additionally, the proposed leasehold would include four
currently- occupied hangars on the Airport field. The lease would be for a term of three
years, beginning July 1, 2015 at a rate of $132,733 per month. Rents would be
adjusted annually, in an amount between two percent and five percent to reflect the Los
Angeles Consumer Price Index.
As to Milstein Adelman LLP, staff is recommending a month -to -month lease of 23,130
square feet on the second and third floors at 2800 Donald Douglas Loop North, which is
Millstein's current location as a subtenant. The proposed lease would be for $75,173
per month. Milstein had originally requested a three year term, but has since changed
its request to month -to -month because it may move to another location within the year.
The recommended lease with the Museum of Flying would be for approximately 21,940
square feet of building space and about 18,500 of adjacent land, which would be used
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for static aircraft display and parking. The base term would be three years beginning
July 1, 2015 and expiring on June 30, 2018. The rental rate for the museum would be
$2,000 per month, which is below market. However, the museum is a cultural and
historic amenity; and the federal governments' Airport Compliance Manual authorizes
reduced rental rates for aviation museums. Additionally, the City would receive six
percent of the museum's gross sales (approximately $11,000 per year) including, but
not limited to, revenues received from event rentals, the museum store and arcade
games.
All three leases would begin on July 1, 2015. All three leases would be triple net,
meaning that the tenants would be responsible for utilities, insurance and taxes. All
three properties would be leased "as is" with the tenant paying a security deposit equal
to one month's rent.
As explained in the staff report for March 24, 2015, Volkswagen and Millstein are
currently subtenants of Atlantic Aviation. Establishing tenancies with the City would
enhance Airport revenues and thereby help ensure that the Airport remains self -
supporting and does not require a subsidy from the City's General Fund for so long as
the land is devoted to airport use.
Staffs discussions with Atlantic Aviation continue according to the guidance Council
supplied on March 24 2015. However, basic proposed terms are not yet finalized and
that lease could not be brought to Council for final approval at this time. Staff
anticipates bringing the proposed Atlantic Aviation lease to Council for final
consideration on July 14, 2015.
At the Council meeting of March 24, 2015, staff also recommended a three -year lease
with Krueger Aviation. Council did not approve proceeding with that lease. Krueger and
the City are currently under discussions for a month -to -month lease term. Krueger is
evaluating the option of staying or vacating the premises. If Krueger decides to vacate
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the premises, then staff anticipates authorizing the City's private leasing agent to
manage the property.
Next Steps
Staff will continue its ongoing work to secure market rate rents for Airport leases as of
July 1, 2015 and will return to Council with additional leases on July 14, 2015.
Financial Impacts & Budget Actions
The recommended leases with Volkswagen of America, Milstein Adelman LLP and the
Museum of Flying will generate an estimated $2,529,872 in Airport revenues for FY
2015 -16 at account 33431.402120. Revenue increases associated with the new lease
agreements are included in the FY 2015 -17 Proposed Biennial Budget.
Prepared by: Stelios Makrides, Airport Manager
Approved:
Susan Cline
Interim Public Works Director
Forwarded to Council:
Elaine M. Polachek
Interim City Manager
Reference:
Lease No. 10075
(CCS)
E19
Lease No. 10076
(CCS)
0
Lease No. 10077
(CCS)