DATE:
October 18, 2022
TO:
Adam Politzer, Interim City Manager
FROM:
Charles S. Bryant, Community Development Director
SUBJECT:
Resolution Of The City Council Of The City Of Emeryville Authorizing The City Manager To Execute A Lease With Hong Kong East Ocean Restaurant, Ltd. For 3199 Powell Street (Portion Of APN 049-1525-002-01)
RECOMMENDATION
Staff recommends that the City Council adopt the above-entitled resolution authorizing the City Manager to execute a lease with Hong Kong East Ocean Restaurant, Ltd. for the property at 3199 Powell Street.
BACKGROUND
In October 1971, the City entered into a lease agreement with Tia Maria, Inc. for the construction, operation and maintenance of a “major, first-class restaurant and cocktail lounge with facilities for a catering service…” on the City-owned property at 3199 Powell Street. Tia Maria, Inc. constructed a 11,823 square foot restaurant and associated parking at the property. In 1982, Tia Maria, Inc. assigned its lease to Oceanview Restaurant, Inc, and in 1987 Oceanview Restaurant, Inc. requested assignment of its lease to Hong Kong East Ocean Restaurant, Ltd. (“Hong Kong East Ocean”). The City requested a new lease agreement as a condition of approval of assignment to Hong Kong East Ocean, and the current lease was entered into on October 23, 1987, with a term of approximately 35 years, expiring on October 15, 2022.
Beginning in August 2021, staff responded to inquiries from the ownership of Hong Kong East Ocean regarding the impending lease expiration and Hong Kong East Ocean’s desire for an extension or a new lease. Over the ensuing months, staff and Hong Kong East Ocean negotiated the terms of a new lease (Exhibit A to the attached resolution) as outlined below.
DISCUSSION
The following section outlines the major provisions of the proposed lease with Hong Kong East Ocean.
Lease Term
In its initial communications with staff, Hong Kong East Ocean requested a long-term lease; however, the City may wish to evaluate other potential future uses of the property that may be in conflict with a long-term lease. Accordingly, the proposed lease provides for a term of five years commencing October 16, 2022, and expiring October 16, 2027. This term will allow for continued operation of the existing restaurant while the City evaluates long-term uses for the property.
Rent
The previous lease established a base rent of $6,000 per month and “percentage rent” of 4.5% of gross receipts inclusive of the base rent amount. Staff’s experience suggests that this rent rate is substantially below market rents, and accordingly the proposed lease requires base rent of $12,000 per month and percentage rent of 4.5% of gross receipts, inclusive of the base rent, until September 30, 2024, increasing to 5.25% from October 1, 2024 to September 30, 2026, and 6% from October 1, 2026 to October 16, 2027.
Alterations – City Review Threshold
The proposed lease defines alterations requiring City approval as any new buildings, substantial alterations, remodeling or rehabilitation of existing buildings or outdoor facilities, construction of additional spaces, or any other alteration, construction or remodeling with a cost in excess of $50,000.
Maintenance
The proposed lease requires Hong Kong East Ocean to maintain the property at its sole cost, subject to ordinary wear and tear. Repairs must be at least equal in quality and class to the original work, and building permits are required. The proposed lease provides that the City may inspect the property and, if maintenance deficiencies are found, cause the tenant to remediate those deficiencies.
Assignment/Subletting
The proposed lease requires the City’s prior written approval of any voluntary assignment or sublease of the property. The City’s approval of any assignment or sublease is subject to its sole, absolute discretion.
Summary
Overall, the proposed lease provides for Hong Kong East Ocean’s continued operation of the restaurant at 3199 Powell Street for five years, with percentage rent, which is inclusive of base rent, increasing incrementally beginning in 2024, and with lease terms modernized as compared to the previous lease. Hong Kong East Ocean has approved the proposed lease terms and has indicated that it is prepared to execute the proposed lease.
FISCAL IMPACT
Because the percentage rent typically exceeds $12,000 per month, the proposed lease is anticipated to maintain revenues to the City at approximately the same level as in prior years, despite the increase in base rent, with incremental increases in percentage rent beginning in October 2024. For reference, under the current 4.5% percentage rent rate, the prior lease resulted in revenues of approximately $15,000 per month for the period January to June 2022. Revenues from the lease of 3199 Powell Street are deposited in the Marina Fund (Fund 495), which funds capital improvements associated with the Emeryville Marina.
STAFF COMMUNICATION WITH THE PUBLIC
None.
CONFLICT OF INTEREST
None.
CONCLUSION
Staff recommends that the City Council adopt the attached resolution authorizing the City Manager to execute the proposed lease with Hong Kong East Ocean Ltd.
PREPARED BY: Chadrick Smalley, Deputy Director of Community Development
APPROVED AND FORWARDED TO THE
CITY COUNCIL OF THE CITY OF EMERYVILLE:
Adam Politzer, Interim City Manager
ATTACHMENTS
Attachment 1 – Draft Resolution, including Exhibit A: Lease with Hong Kong East Ocean Ltd. for 3199 Powell Street Lease of 3199 Powell Street to Hong Kong East Ocean Ltd.
City Council Meeting | October 18, 2022
City of Emeryville
CALIFORNIA
MEMORANDUM