SR 10-25-2016 3F
Ci ty Council
Report
City C ouncil Meeting : October 25, 2016
Agenda Item: 3.F
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To: Mayor and City Council
From: Susan Cline, Director , Public Works, Airport
Subject: Airport Lease Approval for Campclar Corporation, DBA Spitfire Grill
Restaurant, at 3300 Airport Avenue
Recommended Action
Staff recommends that the Council :
1. Autho rize the City Manager to negotiate and execute a lease agreement with
Campclar Corporation, DBA Spitfire Grill Restaurant (Campclar), for restaurant
space located at 3300 Airport Avenue , Suite 1, reflecting the ge neral terms and
conditions in the report ; a nd
2. Authorize budget changes as outlined in the Financial Impacts & Budget Actions
section of the report.
Executive Summary
In accordance with the recently adopted Santa Monica Airport (SMO) Leasing Policy,
the City is moving forward with leasing city -o wned properties. The City owns the
building at 3300 Airport Avenue , Suite 1 , which currently houses Spitfire Grill Restaurant
(operating under Campclar Corporation). The proposed lease agreement with
Campclar is for approximately 5,844 rentable square fe et, comprised of 4,782 rentable
square feet of interior dining and office space, and 1,062 square feet of exclusive use of
outdoor dining space.
The proposed lease agreement with Campclar is for a period of five years, with an
option to extend for an addi tional five year period. The base rent begins in year one at
$2.74/sq . ft.
Background
Spitfire Grill Restaurant, operating under Campclar, has been located at 3300 Airport
Avenue, Suite 1 , since 1992. The Spitfire Grill Restaurant provides breakfast, lun ch and
dinner service for Airport tenants and the surrounding community. It features indoor
dining and a large outdoor dining patio abutting Airport Avenue.
In April 1992, the City entered into a month -to -month lease agreement with Campclar
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for the prop erty located at 3300 Airport Avenue.
On December 5, 2000 (Attachment A), Council approved Santa Monica Airport Non -
Aviation Leasing Guidelines for specified properties including 3300 Airport Avenue,
Suite 1, allowing for long -term leases at the Airport. On March 1, 2001 the City entered
into a ten -year lease agreement with Campclar to operate the Spitfire Grill Restaurant
with a term ending in Feb 28, 2011.
On May 09, 2006 (Attachment B), the City entered into a new lease agreement with
Campclar, for a period of nine years, terminating on June 30, 2015. The new lease was
necessary because a section of the outdoor dining area leased by Campclar had to be
relocate d due to the construction of Airport Park. Additionally, the new lease included
leasehold i mprovements to the restrooms, outdoor patio dining area, exterior façade,
lighting, and kitchen area.
On June 30, 2015, all Airport leases expired, including the lease for Campclar, which
has been operating under a holdover agreement since that date.
On July 14, 2015 (Attachment C), the City Council authorized the City Manager to
negotiate and execute an agreement with Campclar for a term not to exceed June 30,
2018. Negotiations were unsuccessful due to the short lease term, which was deemed
unfeasible by Campclar.
On March 22, 2016 (Attachment D), the City Council approved the Santa Monica Airport
Leasing and Licensing Policy for the leasehold and license management of properties at
the Santa Monica Airport, and authorized the City Manager to negoti ate and execute
leases at the Santa Monica Airport in accordance with the policy.
Discussion
In August 2016, the City’s broker, Commercial Realty Group (CRG), notified staff that it
had an offer from Campclar to lease the subject property. The proposed lease with
Campclar is for the Spitfire Grill to continue its operation as a full service restaurant.
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The total rentable square feet is 5,844, comprised of 4,782 rentable square feet of interior
dining room, office space, and common area bathrooms; and 1,062 square feet of
exclusive use of outdoor dining space. The proposed lease would be for a term not to
exceed five years with a monthly rental rate of $12,958.10 per month adjusted annually
by 3%. This proposal includes an option to renew for an addition al five years at fair
market value, however the increase in rent shall be no less than 3% greater than the rent
in the last year of the initial lease term.
Additionally, the City would authorize a rent credit in the amount of up to six months rent
followi ng the tenant’s completion of tenant improvements within the premises.
Tenant must complete the tenant improvements within the first twelve months of the
lease in order to receive the tenant improvement credit.
It should be noted that the space is curre ntly occupied and operated by Campclar,
hence there is no change in use. Although Campclar would modify the building with
interior tenant improvements, Campclar does not propose to expand the building.
Campclar would be required to comply with all City b uilding code regulations and
planning standards as a condition of the lease. Finally, the lease is consistent with the
terms of the voter -approved Measure LC passed in 2014 to regulate future use of Santa
Monica Airport property.
Annual rent paid by Cam pclar to the City would be between $155,497 for year one and
$175,013 for year five, before rent credits. The proposed rent reflects market price.
Securing this tenant helps ensure the Airport Fund’s financial self -sufficiency and allows
it to repay its debt obligation to the City.
Commencement Date: Upon execution of lease document or November 1, 2016,
whichever comes later.
Term Ends: 60 months from the date of lease execution; slated for
October 31, 2021.
Options: Option to renew for an additional f ive years at fair market
value.
Base Rental Rate: $12,958.10 per month Modified Gross
Rent Breakdown as follows:
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Interior Restaurant: 3,471 square feet @ $3.15 /sq . ft .
Office Space: 322 square feet @ $2.75 /sq . ft .
Common Area Bathroom / Hallwa y Space: 470 square feet @
$0.00
Closet Outside Bathrooms: 135 square feet @ $1.75 /sq . ft .
Outdoor Dining Space: 1,062 square feet @ $0 .85 /sq . ft .
Escalations: 3% per year starting at the anniversary of the execution date
of the lease.
Tenan t Improvement Credit: Tenant shall receive a rent credit that is equal to up to six
months rent , based on second year base rent, for a total not
to exceed $80,081 for improvements completed within the
first 12 months of the lease.
Real Estate Commission
A real estate commission fee of $14,909 based on 2% of the value of the total 5 -year
lease term, would be due to Corporate Realty Group (CRG) upon execution of the
proposed lease agreement.
It should be noted that if Campclar exercises its option to ren ew for an additional five -
year lease at fair market value, the City would have a future commission obligation to
CRG. This obligation would be based on 1.5% of the value of the total lease term for
years six through year ten.
Financial Impacts & Budget Actions
The recommended lease agreement with Campclar Corporation will generate an
estimated $103,655 (base monthly rent x 8 months) in Airport revenues for FY2016 -17
in account 33431.402120, if the lease is executed on November 1, 2016. The FY 2016 -
17 r evenue budget assumed a lower lease amount from the property due to the m onth
to m onth h old over lease . T he new lease is estimated to increase revenues by $27,107.
Revenue account #33431.402120 should be increased by $27,107 for the FY 2016 -17
budget.
A real estate commission fee of $14,909 would be due to Corporate Realty Group
(CRG) upon execution of the proposed lease agreement. Funds are available in the FY
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2016 -17 budget in the Public Works Department and will be charged to account
33431.555060.
P repared By: Kate Schlesinger, Administrative Analyst
Approved
Forwarded to Council
Attachments:
A. Dec 5, 2000 Staff Report
B. May 9, 2006 Staff Report
C. July 14, 2015 Staff Report
D. March 22, 2016 Staff Report
Reference:
Agreement No. 10372
(CCS)