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SR 04-25-2023 5D City Council Report City Council Meeting: April 25, 2023 Agenda Item: 5.D 1 of 5 To: Mayor and City Council From: Rick Valte, Public Works Director, Public Works, Airport Subject: Approval of Airport Lease with Ruskin Group Theatre Company Recommended Action Staff recommends that Council: 1. Authorize the City Manager to negotiate and execute a Lease with Ruskin Group Theatre Company (Ruskin) for live theater and educational use s located at 2800 Airport Avenue, reflecting the general terms and conditions below: and 2. Adopt a finding of Categorical Exemption pursuant to Section 15301 (Existing Facilities), of the California Environmental Quality Act (CEQA) Guidelines . Summary Ruskin Group Theatre Company (Ruskin) proposes to lease 5,525 square feet of building and portable unit space (“Premises”) for live theater and educational use s at 2800 Airport Avenue, located at the Santa Monica Airport. The 2800 Airport Avenue property has been vacant since April 1, 2023, to allow for extensive building renovations that are expected to be completed in January 2024. The proposed lease with Ruskin would include an initial term of 10.5 years and one renewal option for five years. The initial term includes six months of tenant’s additional construction work. The term of this lease would extend beyond December 31, 2028, and is thus outside the parameters set forth in the current Airport Leasing and Licensing Policy (Attachment A) and as such requires City Council approval.  Securing a tenant for the vacant space at 2800 Airport Avenue helps ensure the Airport Fund’s financial self -sufficiency and aligns with the City’s priorities of economic recovery and expanding community and cultural 5.D Packet Pg. 99 2 of 5 offerings. The recommended lease with Ruskin will generate an estimated $1,671,653 over the initial 10.5-year term. Discussion Ruskin has operated as a 49-seat performance theater and theater arts education venue at 3000 Airport Avenue since 2002. Ruskin seeks to relocate its operations to 2800 Airport Avenue to expand its operations and ensure the stability of its arts and educational offerings to the community. 2800 Airport Avenue was previously leased to Santa Monica College. However, that lease ended on March 31, 2023. The City proposes a new lease with Ruskin for 5,525 square feet representing a portion of 2800 Airport Avenue main building and five portable units. The new lease represents a 50% increase in area for Ruskin compared to their previous location. The City and Ruskin would finalize negotiations and execute a lease agreement based on the following proposed terms and conditions. • The proposed lease is a 10.5-year term that includes a 4% annual escalation provision. • A security deposit equal to one months’ rent would be due at the execution of the lease agreement. • The proposed monthly rent of $12,107 reflects fair market value. The 10.5-year term of the proposed lease is estimated to begin on or about July 1, 2023, and expire on December 31, 2033, with an option to renew for an additional five years. If exercised, the renewal term would expire on or about December 31, 2038, and would be set at the market rate at the beginning of the option period. The 2800 Airport Avenue property consists of a main building , 12 portable units varying in size and a building with kilns that will continue to be used by Santa Monica College under a lease that is currently being negotiated with the College. Ruskin proposes to lease a portion of the main building and five of the portable units. The main building and 5.D Packet Pg. 100 3 of 5 the portable units are currently vacant to allow for the City to complete substantial and necessary facility improvements. The funds to cover the costs of these improvements are included in the current CIP budget. Staff anticipates this work to be completed by January 2024, at which point Ruskin would undertake additional construction for an additional six months. Ruskin’s construction is anticipated to conclude by July 1, 2024. Ruskin will receive a six-month tenant improvement credit for their improvements to the space subject to their completion of the work. Ruskin proposes to invest approximately $500,000 to improve the City’s building. The proposed improvements include a live theater for performances, rehearsals, and acting classes. Ruskin will be responsible for all costs associated with the design, engineering, and construction of the capital improvements which include but are not limited to all interior buildouts, electrical, mechanical (HVAC), furniture, fixtures, accessories, and finishes. Any improvements undertaken by Ruskin would revert to the City at the conclusion of the lease term. The proposed lease would be Triple Net wherein the tenant is required to pay all property taxes and assessments (including possessory interest tax), insurances and utilities. Additionally, Ruskin would be responsible for all services, repairs, replacements, maintenance, improvements, or items related to compliance associated with the premises. Ruskin would be required to comply with all City building code regulations, planning standards, and any applicable FAA regulation, as a condition of the lease. Ruskin will employ approximately four workers on-site. Therefore, Ruskin will not be subject to the Transportation Demand Management (TDM) requirements of the City to address any transportation and/or parking management issues. 5.D Packet Pg. 101 4 of 5 Past Council Actions Meeting Date Description 08/2018 (attachment A) Santa Monica Airport Leasing and Licensing Policy Environmental Review The lease is categorically exempt from CEQA pursuant to Section 15301 of CEQA. Section 15301 exempts Class 1 (Existing Facilities) projects from CEQA, which include the “the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of existing or former use”. The lease would allow reoccupation of existing airport space and would not result in the expansion of the airport such that a physical impact would occur. Therefore, the lease is categorically exempt pursuant to Section 15301 of CEQA. Financial Impacts and Budget Actions The recommended lease with Ruskin would generate an estimated $1,671,653 over the initial 10.5-year term. Revenues generated by the proposed lease would be included in future fiscal year budgets. There is no immediate financial impact or budget action necessary for the current fiscal year as a result of recommended action. Staff will include revenue budget actions in the Proposed FY 2023-25 Budget. Prepared By: Kate Schlesinger, Senior Administrative Analyst Approved Forwarded to Council 5.D Packet Pg. 102 5 of 5 Attachments: A. AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) B. 20230310 Ruskin Oaks Form 5.D Packet Pg. 103 1 SANTA MONICA CITY COUNCIL AIRPORT LEASING AND LICENSING POLICY Purpose. 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 the extent consistent with the Consent Decree signed by the City of Santa Monica and the U.S. Justice Department on behalf of the Federal Aviation Administration, 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: 5.D.a Packet Pg. 104 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 2 SECTION A: USES 1. Authorized Uses: Authorized uses include: (a) uses required by the Consent Decree; and (b) 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 uses in category (b) 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. 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. Consistent with the terms of the Consent Decree, aeronautical service providers may be offered up to three‐year lease terms that comport with this Leasing Policy and the Minimum Standards for Commercial Aeronautical Services at Santa Monica Municipal Airport (the “Minimum Standards”), so long as the 5.D.a Packet Pg. 105 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 3 expiration date of the lease does not extend beyond December 31, 2028. 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. 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. 5.D.a Packet Pg. 106 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 4 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. 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 5.D.a Packet Pg. 107 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 5 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; to establish practices that are sensitive to the environment and protect the City from future environmental exposure; and for aeronautical service providers, comply with the Minimum Standards. 2. 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. 3. 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. 4. 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. 5. 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 5.D.a Packet Pg. 108 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 6 life safety codes and all applicable environmental laws, ordinances, regulations and other city standards. 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 5.D.a Packet Pg. 109 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 7 to the City Manager for approval. Leases for terms greater than terms specified in these guidelines require City Council approval. 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 or on December 31, 2028, provided the City Manager finds the proposed use is consistent with this Leasing Policy, the Minimum Standards, 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 of more than five years or with an expiration date beyond December 31, 2028, 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. Updated August 2018 5.D.a Packet Pg. 110 Attachment: AIRPORT LEASING AND LICENSING POLICY 2018-08 (1) (5602 : Airport Lease Ruskin Group Theatre) 5.D.b Packet Pg. 111 Attachment: 20230310 Ruskin Oaks Form (5602 : Airport Lease Ruskin Group Theatre) 5.D.b Packet Pg. 112 Attachment: 20230310 Ruskin Oaks Form (5602 : Airport Lease Ruskin Group Theatre)