SR 08-08-2017 3M
City Council Report
City Council Meeting: August 8, 2017
Agenda Item: 3.M
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To: Mayor and City Council
From: Rick Cole, City Manager, City Manager's Office, Administration
Subject: Santa Monica Airport Leasing and Licensing Policy
Recommended Action
Staff recommends that the City Council:
1. Approve the attached Santa Monica Airport Leasing and Licensing Policy for the
leasehold and license management of properties at the Santa Monica Airport
(Airport or SMO).
2. Authorize the City Manager to negotiate and execute leases at the Santa Monica
Airport in accordance with this Policy.
Executive Summary
On March 22, 2016, the City Council adopted an Airport Leasing and Licensing Policy
(Attachment A). Over the past year and a half, the Policy provided staff critical
guidance for pursuing the Council’s Strategic Goal of regaining local land use control
over the property presently occupied by the Santa Monica Airport. Moreover, the
existing Leasing Policy has been a financial success. As a direct consequence of the
Council’s decision to adopt the Airport Leasing Policy, the Airport is positioned to repay
the millions owed the City, repair and maintain facilities, and achieve long-term financial
self-sufficiency until it closes in 2028. Specifically, the Council’s decision to terminate
master tenants and charge market rates have produced a significantly increased
revenue stream.
Staff is recommending changes in the Leasing Policy that reflect changed
circumstances due to the Consent Decree with the Federal Government:
Terms:
Term for Aeronautical Service Providers. As stipulated by the Consent Decree
aeronautical service providers must be offered three-year lease terms.
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Term for Non-Aviation Tenants. Lease terms may be month-to-month or longer.
However, no lease shall have a term that goes beyond December 31, 2028.
Lease Approvals & Delegation of Authority
The existing Policy grants the City Manager the authority to negotiate and
execute leases with terms ending no later than June 30, 2018. The proposed
policy would extend the same authority to the City Manager for leases
terminating on or before December 31, 2022.
The Airport Commission has voted to support these changes.
Background
Airport lands are divided into two categories: aviation and non-aviation. The Santa
Monica Airport has 187 acres designated and used for aviation activities and 40 acres
designated and used for non-aviation purposes. As of July 1, 2017, there are 383
tenants at the Airport. This includes a combination of offices, hangars, storage, land
leases, and tie-down tenant. There are approximately 60 vacant leasable spaces.
Lease and license revenues account for approximately 70% of total annual Airport
revenues. The revenue derived from Airport leasing supports the City’s goals of
achieving a financially self-sufficient airport, eliminating subsidies from the General
Fund, and repaying the principal and interest of past General Fund subsidies. In the
past, the Airport's operation, maintenance, and capital expenditures were subsidized by
the General Fund. As of June 30, 2017, the Airport has a debt obligation to the General
Fund of over $10M. Since FY 2013-14, the Airport Fund has no longer required an
operating subsidy from the General Fund.
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On March 22, 2016, the City Council adopted an Airport Leasing and Licensing Policy
(Attachment A). Over the last 16 months, the Policy provided staff critical guidance
used to position the Airport into a much stronger financial condition.
On January 28, 2017, the City of Santa Monica and the U.S. Department of Justice, on
behalf of the Federal Aviation Administration, signed a settlement agreement regarding
the airport. On February 1st, U.S. Judge Walters approved the settlement agreement
thereby converting it into a Consent Decree (Attachment B). The Consent Decree
imposes two obligations that are relevant to leasing policy. First, the Consent Decree
requires the City to offer aeronautical service providers, such as Atlantic Aviation and
Kim Davidson Aviation, three-year lease terms based on market rates. Aeronautical
service providers offer a range of services, including flight schools, fueling,
maintenance, etc. The Consent Decree also obligates the City to adhere to FAA grant
assurance 22. FAA grant assurance 22 requires airport sponsor/owners to lease to
aviation users based on reasonable commercial terms.
Discussion
The City currently has a total of 383 tenants at the Santa Monica Airport that lease
hangars, tie-downs, office space, studio space, and storage. The Consent Decree
represents new circumstances at the Airport and therefore the Leasing and Licensing
Policy should evolve to reflect existing conditions. The proposed changes are
consistent with the Consent Decree:
Terms
For Aeronautical Service Providers: As stipulated by the Consent Decree
aeronautical service providers must be offered three-year lease terms.
For Non-Aviation Tenants: Lease terms may be month-to-month or longer;
however, no lease shall have a term that goes beyond December 31, 2028.
Lease Approvals & Delegation of Authority
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The existing Policy grants the City Manager the authority to negotiate and
execute leases with terms ending no later than June 30, 2018. The proposed
policy would extend the same authority to the City Manager for leases
terminating on or before December 31, 2022.
Leasing Policy Review: July 2015 – July 2017
The existing Leasing Policy has been a financial success. As a direct consequence of
the Council’s decision to adopt the Airport Leasing Policy, the Airport is positioned to
repay the estimated $10M+ it owes the City, repair and maintain facilities, and achieve
long-term financial self-sufficiency until it closes in 2028. Specifically, the Council
decisions to terminate master tenants and charge market rates are the reasons for the
success.
In FY 2015/16, prior to the Leasing Policy, the Airport generated approximately $5.9M in
annual rent revenue. For FY 2017-18, staff estimates the Airport will produce $12.2M in
rental revenue by eliminating master tenants Gunnell Properties, American Flyers,
Krueger Aviation, partial elimination of Atlantic Aviation as a master tenant, and raising
rents to reflect market rates.
Continued Phasing Out of Master Tenants is Likely to Result in Increases in
Leasing Revenues
There are three leftover master tenants subleasing a mix of facilities at Santa Monica
Airport. A master tenant is considered a landlord of subtenants, meaning that a master
tenant is able to evict a subtenant, collect rent, set terms, etc. The three master tenants
at Santa Monica Airport combined have approximately 147 subtenants. Below is a
breakdown of the master tenants and their sub-tenants:
MASTER TENANTS AND THEIR SUBTENANTS: JULY 2017
MASTER TENANTS Hangars Tie-Down Office/Studio Total
Atlantic Aviation 22 0 3 25
Santa Monica Air Center 12 47 27 86
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Santa Monica Art Studios 0 0 36 36
TOTAL 34 47 66 147
As directed by Council in March 2016, staff continues to eliminate all master tenancies
in a fair and reasonable manner for an orderly transition and to ensure the City has the
property management capacity required to assume the responsibilities. Of the three
remaining master tenants only Atlantic Aviation is an aviation master tenant. Staff
intends to phase out the remaining master tenants during FY 2017-18. An orderly
transition provides the City the time needed to build the management capacity required
to assume the added responsibilities.
Staff believes leasing revenues at the Airport will increase, albeit at a much slower pace
than over the last two years, during FY 17-18 due to several on-going lease
negotiations. For instance, assuming Atlantic Aviation and the City agree to terms on a
three-year lease for its facility per the Consent Decree, staff anticipates the City will
realize greater revenue from the premises occupied by Atlantic Aviation for two reasons.
First, Atlantic Aviation’s rent is likely to be adjusted upward to reflect market rates and
second the City will be transitioning Atlantic’s sub-tenants into direct tenants of the City.
In addition to lease negotiations with Atlantic Aviation, the City is or soon will be in lease
negotiations with Santa Monica College and Santa Monica Air Center. Santa Monica
Art Studios will also be renegotiated and the new terms may lead to an increase in
future revenues.
Operating and Capital Expenditures Are Projected to Increase
As forecast in March 2016, staff report, having the City take over as a direct landlord
has increased real estate brokerage fees, property management fees, and capital
expenditures. In response to the increase in property management responsibilities and
real estate brokerage duties, the City hired Aeroplex Property Management and
Commercial Management Group following the competitive bidding process. In FY
2017-18, staff has budgeted $500,000 to cover property management fees and real
estate brokerage fees.
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Expenditures for capital improvements, repairs, maintenance and replacement now, and
will into the foreseeable future, consume significant capital due to the poor condition of
the facilities formerly managed by the above master tenants. In order to determine the
magnitude of the problem, staff intends to perform a comprehensive facilities condition
assessment (FCA) in FY 17-18. The runway shortening project will also require
significant funding. With proper management, vigilant oversight, and prudent fiscal
restraint, staff is confident the Airport will be able to maintain aviation facilities up to
standard, repay its debt, and maintain a safe airport, until it closes in 2028.
Alternatives
Staff identifies three possible alternatives:
1. The City Council may consider not adopting the proposed Leasing Policy. If the
new amended policy is not adopted, the City Manager would be prohibited from
offering leases beyond June 30, 2018.
2. The City Council may consider amending the Leasing Policy as it deems
appropriate.
3. The City Council may consider returning the Leasing Policy to the Airport
Commission, if necessary, and as appropriate, for additional input..
Actions of the Airport Commission
At its August 1, 2017 special meeting, the Airport Commission voted to recommend that
City Council adopt the Airport Leasing Policy as presented to the Airport Commission.
Financial Impacts and Budget
There are no immediate financial impacts or budget authorization required as a result of
adopting the Santa Monica Airport Leasing and Licensing Policy. However, staff will
return to Council during FY 17-18 mid-year budget cycle if specific budget changes are
required.
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Prepared By: Nelson Hernandez, Senior Advisor for Airport Affairs
Approved
Forwarded to Council
Attachments:
A. Airport Leasing and Licensing Policy
B. Consent Decree
C. Written Comments
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SANTA MONICA CITY COUNCIL AIRPORT LEASING AND LICENSING POLICY
The purpose of this Airport Leasing and Licensing policy is to establish and declare
City policy on matters related to airport leasing. This Leasing Policy shall be used
by the City Manager to analyze leasing and licensing issues, to present leasing and
licensing recommendations to the City Council, and to render leasing and
licensing decisions under the authority granted by the City Council.
By adopting the Airport Lease Policy, the City Council seeks to have an airport
tenant mix that:
Is harmonious with the nearby built environment by protecting the health
and safety of Airport neighbors.
Maintains a sustainable Airport Fund that is independent from the General
Fund and other subsidies.
Comports with any applicable legal requirements and protects the City’s
rights that relate to leases at the Airport.
Continues to provide opportunities for arts, education, and culture,
including, but not limited to, the Artist Space Program administered in
conjunction with Cultural Affairs Division.
Establishes practices and procedures for evaluating potential leasehold
interests, and for lease management and administration.
Fosters uses and practices that are sensitive to the environment and
protect the health of Airport neighbors and users and protect the City from
future environmental damage exposure.
General Provisions. The majority of the Airport revenue is derived from leases.
To help support the Airport’s fiscal self-sufficiency, all rents, fees, and charges
must reflect fair market value. To achieve the goals of the Leasing Policy, the
policy shall be managed in a manner consistent with the following standards:
SECTION A: USES
1. Authorized Uses: Authorized uses include: (a) low intensity uses that are
compatible with surrounding uses, serve the adjacent community, and are
consistent with the City's environmental goals and policies. Examples of
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uses in category (a) include, but are not limited to: parks and open space,
arts/cultural, creative space, professional theaters, museums, artist studios,
art galleries, photograph studios, uses customary or incidental to the
production or distribution of motion pictures, educational facilities,
professional and general offices, public or private schools existing prior to
September of 1984, warehouses, self-storage/public mini-warehouses, and
restaurants with 500 square feet of floor area or less; and b) uses required
by the Consent Decree signed by the City of Santa Monica and the U.S.
Justice Department on behalf of the Federal Aviation Administration.
2. Conditionally permitted uses: Parking and automobile storage lots and
structures. Restaurants with over 500 square feet of floor area. Theaters.
New public or private schools or educational institutions.
3. Prohibited Uses: Prohibited uses include: any use involving the
manufacture, processing, storage, or treatment of products, which by
nature of the operation is likely to be obnoxious or offensive to the
surrounding environment; construction of new general office buildings; any
use not specifically authorized as a permitted or conditionally permitted
use; and high intensity uses that are incompatible with the surrounding
residential uses.
SECTION B: TERMS AND CONDITIONS
1. Term for Hangars. All hangars shall be leased on a month-to-month basis.
2. Term for Tie-Downs. All tie-downs shall be leased on a month-to-month
basis.
3. Term for Aeronautical Service Providers. As stipulated by the Consent
Decree aeronautical service providers may be offered three year lease
terms.
4. Term for Non-Aviation Tenants. Lease terms may be month-to-month or
longer. However, no lease shall have a term that goes beyond December
31, 2028.
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5. Environmental Responsibility. New requests to lease and existing leases
shall be reviewed to assess potential negative effects on the environment.
The City may require environmental studies or testing as appropriate and
necessary, and any needed remediation shall be performed prior to
establishment of new uses. All lessees shall be responsible for any
environmental contamination, resulting from their prior use, as a condition
to a renewed or extended lease. Environmental clean-up will be required
as a condition of any renewal or extension. At the time of the application,
an assessment of the proposed use will be conducted, and appropriate
insurance and/or remediation requirements will be incorporated into the
lease based on proposed usage.
6. Rates. All new and renewed leases will be leased at prevailing market rates
and rates will be adjusted to stay current with market conditions and as
new/renewed leases arise.
7. Percentage Rent Provision. In addition to a base rent, the City may elect to
require that certain leases include a percentage rent provision, which can
be differentiated by categories of sales. The City shall have the right to
audit tenant's financial records to ascertain that the gross sales figures
reported by the tenant are accurate.
8. Existing Tenants. All existing airport tenants will be given the opportunity
to submit a lease application to the City. The City is under no obligation to
offer lease agreements. Submitting an application to the City does not
obligate the City to enter into lease negotiations, offer a lease agreement,
or execute a lease agreement. The decision to execute a lease agreement
will be made solely within the City’s discretion as landlord and property
owner.
9. Whole Building Leases. Whole building leases may, at the City’s discretion,
be subject to public Requests for Proposals intended to optimize leasehold
occupancy and the self-sustainability of the airport. Tenants under a whole
building lease shall be responsible for maintenance and repair of said
buildings.
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10. Transfer of Interest. Space sharing is prohibited without the written
consent of the City, and granting or withholding consent will be conditioned
on express standards and conditions set forth in the lease.
11. Lease and License Areas. Operation and improvements to lease and license
areas are subject to the City’s standard regulatory rules, review and
approval process.
12. Triple Net Leases. The City may require tenants to pay all property taxes
and assessments (including Possessory Interest Tax), insurance, and
utilities.
13. Commercial Operations Permit (COP). Prospective tenants proposing to
use the Santa Monica Airport to engage in an activity that requires a
business license from the City, are required to acquire a commercial
operations permit issued by the City Manager. All COPs will be presented
to the Airport Commission for their recommendation and comment prior to
City Manager’s approval.
14. Master Tenants. Master tenant agreements are to be phased out in an
orderly transition.
15. Sub-Leasing. New sub-leasing shall be prohibited. Existing sub-tenancies
shall be subject to an orderly phase-out at the sole discretion of the City.
16. Insurance. Airport lease agreements shall minimize the City’s financial and
economic risk, by incorporating reasonable indemnification and insurance
provisions.
17. Daily and Transient Users. Daily and transient uses shall be permitted.
SECTION C: PERFORMANCE STANDARDS
1. Compatible and Harmonious. All lessees shall use the airport and any
airport property in a manner that is compatible with City policies and with
the adjacent residential uses; to encourage activities that complement
adjacent residential and commercial uses; and to establish practices that
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are sensitive to the environment and protect the City from future
environmental exposure.
2. Alternative Fuels. Maintenance facilities will be required to minimize their
environmental impact by ensuring that all vehicles used inside the Airport
Operations Area (AOA) are powered by alternative fuels.
3. All City‐owned buildings appropriate and suitable for leasing may be subject
to a public procurement and solicitation process to identify prospective
tenants and licensees whose financial and professional experience, and
products and/or services are consistent with the Leasing Standards set
forth herein.
4. All prospective tenants must submit a Lease or License Application to the
City. Information contained in the Lease Application shall describe the
proposed use for the available space; provide information about the
respondent; provide references; describe in detail the financial capability of
the respondent to perform; and set forth preliminary terms and conditions.
5. Hangars
a. Hangars that have a land lease agreement with the City will be on a
month to month tenancy under a City approved lease agreement which
will be updated as deemed necessary by the City.
6. Recruitment for artist day studios will adhere to the criteria set forth by the
Cultural Affairs Division of Community and Cultural Services Department.
Candidate tenants for available Artist Day Studio space are required to file
Program applications for screening purposes, and qualifying artists are
selected only from the screened waiting list.
SECTION D: MAINTENANCE AND TENANT IMPROVEMENTS
1. All leaseholders shall be responsible for maintaining their facilities in
attractive and safe condition, in compliance with applicable building and
life safety codes and all applicable environmental laws, ordinances,
regulations and other city standards.
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2. Facilities will be inspected prior to new or extended leasehold occupancy
and refurbished, by the City or tenant (at the City’s election), to a decent,
safe and sanitary condition appropriate for use. If tenant makes
improvements to the facility as a mutually agreed upon condition of a
lease, the City must first review and approve the proposed design and
scope of work. All necessary building permits must be obtained and the
work must be inspected for compliance with applicable code(s).
Appropriate rental credits for the approved work performed may be
negotiated as part of the lease. Any Tenant Improvement Credit that
exceeds two months’ worth of tenant monthly rent must be approved by
the Airport Director.
3. Each tenant or licensee will be responsible for interior maintenance and
repair at its sole expense, and the City generally will retain responsibility for
maintenance and repair of roofs, building exteriors, landscaping and
common use parking for all Airport-managed leaseholds unless otherwise
specified in the lease or license. Tenants who lease whole buildings from
the City will be responsible for any and all maintenance, repair and
improvements including roofs, building equipment and exteriors of the
facilities as well as interior maintenance and repairs.
4. Tenants shall respond to the City’s written inquiries regarding any
complaints or issues. Tenant will provide an action plan for improvement if
so requested by the City.
5. As applicable, the above requirements may be incorporated in leases,
licenses and other agreements. In addition, the City may add to any Lease
or License further or different or additional operational and performance
standards as the City concludes are appropriate to the particular Tenant’s
operation.
6. Upon confirmation that the proposed tenancy is consistent with this
Leasing Policy, a lease agreement will be prepared for review by the City
Attorney and execution by the prospective tenant before being referred to
the City Manager for approval. Leases for terms greater than terms
specified in these guidelines require City Council approval.
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SECTION E: LEASE APPROVALS AND & DELEGATION OF AUTHORITY
1. The City Manager has the authority to negotiate and execute month-to-
month leases, leases with aeronautical service providers, and leases that
expire prior to December 31, 2020, provided the City Manager finds the
proposed use is consistent with this Leasing Policy and the Consent Decree.
To be valid, such leases must be on the basis of written agreements
prepared and approved as to form by the City Attorney. Leases for terms of
occupancy beyond December 31, 2022, or otherwise outside the
parameters established by this Policy, will require City Council approval.
2. The City may cooperate with commercial real estate brokers who are
authorized to negotiate leases on behalf of prospective tenants.
SECTION F: GENERAL PROVISIONS
This Leasing Policy may be altered by the City at any time, in its sole discretion,
and shall not create any right or reliance interest for any person.
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Vernice Hankins
From:Elin Katz <butrpg55@gmail.com>
Sent:Monday, August 07, 2017 12:36 PM
To:jetairpollution@earthlink.net; info@nojets.org; Ted Winterer; Gleam Davis; Sue
Himmelrich; councilmtgitems; Councilmember Kevin McKeown; Pam OConnor; Nelson
Hernandez; Terry O’Day; Tony Vazquez; Rick Cole; Susan Cline
Subject:SO MANY JETS!
Dear Everyone,
I live 1 block from the blast-off of jets at the Santa Monica Airport, and NEVER has there been such an amount
of jet traffic!! This weekend was an absolute deluge of taking off and landing or idling on the runway. I thought
this would end with the weekend, but NO! Today at 7:30am, it starts all over again, and I cannot go out of my
house without noticing the high pitched squeal of yet another jet waiting to take off.
What has opened the floodgates to this incursion on my breathable air and quality of life?! Is the 40% reduction
in air traffic after the runway is shortened based on THIS amount of jet activity?
Here comes another one!
Holy Moley...
Elin Katz
3017 Dahlgren Avenue
Lops Angeles CA 90066
310-801-4429
Item 3-M
08/08/17
1 of 3 Item 3-M 08/08/17
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Vernice Hankins
From:info@nojets.org
Sent:Monday, August 07, 2017 3:36 PM
To:Elin Katz
Cc:jetairpollution@earthlink.net; Ted Winterer; Gleam Davis; Sue Himmelrich;
councilmtgitems; Councilmember Kevin McKeown; Pam OConnor; Nelson Hernandez;
Terry O’Day; Tony Vazquez; Rick Cole; Susan Cline
Subject:RE: SO MANY JETS!
Thanks Elin.
The city of SM has helped make this travesty continue and get worse, as our lives and health continue to be impacted.
The cement at the ends of the runway must come out and the noise ordinances must get enforced. The airport and city
attorney have been very lenient in administering the noise penalties. This leniency needs to end, but they will likely look
for ways to continue the leniency and hide behind legal fears and threats. Same old story.
Alan Levenson
-----Original Message-----
From: "Elin Katz" <butrpg55@gmail.com>
Sent: Monday, August 7, 2017 12:35pm
To: jetairpollution@earthlink.net, info@nojets.org, "Ted Winterer" <Ted.Winterer@smgov.net>, Gleam.Davis@smgov.net,
Sue.Himmelrich@smgov.net, councilmtgitems@smgov.net, Kevin.McKeown@smgov.net, Pam.OConnor@smgov.net,
Nelson.Hernandez@smgov.net, Terry.Oday@smgov.net, Tony.Vazquez@smgov.net, Rick.Cole@smgov.net,
Susan.Cline@smgov.net
Subject: SO MANY JETS!
Dear Everyone,
I live 1 block from the blast-off of jets at the Santa Monica Airport, and NEVER has there been such an amount of jet
traffic!! This weekend was an absolute deluge of taking off and landing or idling on the runway. I thought this would end
with the weekend, but NO! Today at 7:30am, it starts all over again, and I cannot go out of my house without noticing the
high pitched squeal of yet another jet waiting to take off.
What has opened the floodgates to this incursion on my breathable air and quality of life?! Is the 40% reduction in air
traffic after the runway is shortened based on THIS amount of jet activity?
Here comes another one!
Holy Moley...
Elin Katz
3017 Dahlgren Avenue
Lops Angeles CA 90066
310-801-4429
"A drop of effort can create an ocean of change"
NO JETS Santa Monica Airport
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