SR 11-27-2018 3F
City Council
Report
City Council Meeting: November 27, 2018
Agenda Item: 3.F
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To: Mayor and City Council
From: Karen Ginsberg, Director, Community & Cultural Services
Subject: Approval of First Modification of Concession Agreement No. 9201 with Hot
Dog on a Stick (HDOS) Enterprises
Recommended Action
Staff recommends that City Council authorize the City Manager to negotiate and
execute a first modification to agreement # 9201 (CCS) with Hot Dog on a Stick (HDOS)
Acquisition, LLC, a Georgia-based company for the operation of food stand concession
on Santa Monica State Beach. This will result in a five year extension of the original
term to September 1, 2025.
Summary
The current concession agreement with HDOS Acquisition, LLC for operation of Hot
Dog on a Stick (HDOS) expires on September 1, 2020. The agreement requires capital
improvement investment to remodel and expand the building. As the result of
bankruptcy by the original concessionaire in 2014, and the acquisition by a new entity,
the renovation plans have been delayed and will not be completed until late in the lease
term. The California Public Resources Code, which governs this State -owned property,
permits the Director of State Parks and Recreation to approve an extension of an
existing agreement if the extended agreement provides for substantial and additional
concession facilities. Due to a significant change in the scope and cost of the
improvements, State Parks staff has approved a five year extension to the agreement.
Discussion
The City Council approved a ten year Concession Agreement with HDOS Enterprises
on April 27, 2010. HDOS has been operating in the location at 1633 Ocean Front Walk
since 1945. The agreement with HDOS Enterprises includes spending $400,000 to
remodel and expand the current building by five feet. HDOS began the design process
and determined that the building conditions would make remodeling infeasible, and
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proposed demolishing the building and replacing it with a building that would recapture
the look of the original 1946 store’s exterior façade and signage. Staff worked with
HDOS to secure required permits in 2013, including demolition permit, Parking
Variance, Architectural Review Board (ARB) approval, and a Coastal Development
Permit (CDP).
Unfortunately, employee-owned HDOS filed for bankruptcy in 2014 and was
subsequently acquired by HDOS Acquisitions, LLC, which is based in Atlanta, Georgia.
It took some time for the new owners to resume the planning process, and the
entitlements had expired. A new round of permits (demolition, Parking Variance, ARB
approval, CDP) was secured in 2016. As the new owners moved forward with the
improvement plans, the learning curve and cross country distance slowed down the
process. As time advanced on the lease term, the owners expressed concern about
their ability to amortize the improvements. The estimated co st to demolish and rebuild is
over $600,000, which is a substantial increase over the original $400,000 estimate. Staff
contacted State Parks staff to discuss the possibility of extending the lease term.
California Public Resources Code Section 5080.16 permits the Director of State Parks
and Recreation to approve an extension of an existing agreement if the extended
contract provides for substantial and additional concession facilities. State Parks has
agreed that the demolition and rebuilding and the addit ional cost is a substantial
addition, and has approved a five year extension to the agreement.
The proposed modification would extend the lease term to September 1, 2025 and
require a minimum investment of $600,000. If the concession fails to expend the
minimum investment on capital improvements, the concessionaire is required to submit
the unspent balance to the City as rent. All other terms of the agreement remain the
same; minimum annual rent is $75,000 or fifteen (15) percent of gross sales, whichever
is higher.
Most of the planning permits have expired so HDOS must go through that process
again. Staff has applied for an extension of the Coastal Development Permit. HDOS has
hired new staff that are dedicated to the project and is committed to completing the
improvements within a year.
Past Council Actions
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Meeting Date Description
04/27/10 (attachment A) Concession Agreement with HDOS Enterprises
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of
recommended action. Lease revenue estimates will be included in the FY 2019 -21
Proposed Budget.
Prepared By: Judith Meister, Beach Manager
Approved
Forwarded to Council
Attachments:
A. Attachment A: Approval of HDOS Agreeent (Web Link)
REFERENCE:
Modified Agreement
No. 9201
(CCS)