Agenda Report
Fullerton City Council
MEETING DATE: APRIL 19, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: Jeffrey W. collier, ACTING City Manager
PREPARED BY: MEG McWADE, PUBLIC WORKS DIRECTOR
BRENDAN O’REILLY, AIRPORT MANAGER
SUBJECT: DONATION AND AVIATION FACILITIES INC. LEASE AMENDMENT NO. 5 TO PURCHASE EXISTING BUILDING
SUMMARY
Consideration of Amendment No. 5 between the City of Fullerton and Aviation Facilities, Inc. allowing the City to purchase the current Aviation Facilities Incorporated (AFI) building located at 4119 West Commonwealth Avenue for development of airport administration offices and corresponding reduction in the leased area. The City has secured a $2.3 million donation to offset property acquisition and project costs.
RECOMMENDATION
Adopt Resolution No. 2022-XXX.
RESOLUTION NO. 2022-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, APPROVING AMENDMENT NO. 5 TO FBO LEASE WITH AVIATION FACILITIES INCORPORATED Accept and appropriate receipt and use of donated funds to Project No. 49016 – AFI Building Renovation and authorize City Manager, or designee, to execute documents related to acceptance of $2.3 million donation.
Authorize budget adjustment to transfer appropriated project funds in Airport Fund (Fund 40) from Project No. 49009 – Airport Terminal / Admin Building Phase II to Project No. 49016 – AFI Building Renovation.
After receipt of donated funds, authorize City Manager, or designee, to execute all documents related to the acquisition of the building, in a form approved by City Attorney
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statement:
Infrastructure and City Assets.
FISCAL IMPACT
No impact to the City’s General Fund. Staff anticipates the cost of the purchase and improvements to total $2.665 million, as shown in the attached estimated Project Budget. Staff anticipates a donation from an anonymous airport user to largely offset these costs. Staff will work with the City Attorney’s Office to effectuate this action, if approved. The current CIP appropriation for the Airport Terminal Building Project (Project No. 49009) will fund the remaining amount through a transfer to Project No. 49016 – AFI Building Renovation.
The attached Proposed Operating Budget indicates pursuing this project will provide for operation of the new space and a nominal increase in ongoing revenues. The project will provide additional office space and community space without the larger capital expense of the previously planned terminal expansion, saving the City money and providing future partnership opportunities for development of the terminal expansion. Staff anticipates utilizing the designs for the terminal expansion (30% complete) in future development discussions.
DISCUSSION
Airport staff commissioned our on-call architectural engineering consultant in 2018 to develop plans, specifications and cost estimates for a new, two-story airport administration building. This building would be located adjacent to the existing building and contain new office space, a lobby and a large multipurpose meeting room. The City would fund the building with a construction loan paid by the Airport Enterprise Fund. The cost estimate for the building totaled $7.9 million in 2020, with anticipated annual loan payment above $600,000.
The City put the project on hold at the 30% design stage as the global pandemic severely impacted airport revenues. The cost for materials and labor has risen drastically since that time, to the point that current airport revenues can no longer sustain this project. A conservative cost estimate for the same project today would total well over $12 million.
Bill Griggs, Jr., the owner of Aviation Facilities Incorporated (AFI), recently approached the City regarding an opportunity to buy the AFI building located at 4119 West Commonwealth Avenue for airport operations. AFI has conducted flight training at the airport for over 50 years. Mr. Griggs decided to retire from the flight training business effective late spring 2022 and no longer has use for these improvements.
AFI built the subject building in 1994. It consists of approximately 1,460 square feet of office space and a 2,475 square foot aviation hangar. The building is one component of a larger land lease area consisting of a 3.57-acre parcel, located on the southwest portion of the airport. The City of Fullerton owns the land and leases to AFI. The City desires to purchase the AFI building and attached airport hangar and assume control of contiguous land areas, as shown in the following image:
The City and AFI entered into the original land lease in December 1993 for a 30-year term. They amended the document in August 1997 to increase the land area. Additional amendments occurred in December 1997 and October 1998 to increase the land footage. The City approved Amendment No. 4 in 2018, which removed some of the land area added previously and included a ten-year extension through December 2033 with a five-year right to extend through December 2038. Effectively, the current contract is in place for approximately 17 years.
AFI’s current land lease covers 139,252 square feet at a rental rate of $0.078 per square foot. The rent paid to the City totals $10,862 per month. This is a raw land lease rate as all the tenant paid for and performed the property improvements. The recommended lease modification will reduce the AFI leasehold by 29,719 square feet, thereby reducing monthly rent by $2,318 to the new rate of $8,544 per month. The remaining portion of this leasehold consists of aircraft hangars and tiedowns which Mr. Griggs will continue to manage until the lease ends in 2038, at which time all improvements will revert to City ownership.
If purchased, the property could become the new Airport Administration Building. The improvement project would allow the buildout of more suitable office space for airport staff or leasing to other aviation businesses. The City would lease additional office spaces to an existing airport flight school or business(es) to further increase the airport revenues. The maintenance hangar served as a meeting space and various airport associations and community groups would continue to use it after hours and on weekends.
Final build out will dictate the amount of office space available for lease. The City will issue a Request for Proposals to find the best and highest use lessee to occupy this space. As shown in the attached operating budget, staff anticipates greater lease revenue for the new office and ramp space lease than the reduction in the current rent paid by AFI.
This project will improve the airport and provide community and meeting space. An anonymous donor will provide most of the funding for this project (purchase and improvements) with the project’s activation contingent upon receipt of those funds. This approach reduces the need for a sizable annual debt payment related to the original proposed terminal expansion and provides more future airport partnership opportunities as the aviation industry advances.
Amendment No. 5 to the Flight Base Operations (FBO) Lease with AFI provides for the following essential terms:
Reduce the AFI leasehold by 29,719 square feet, thereby reducing monthly rent by $2,318 to the new rate of $8,544 per month.
The purchase price for 1) the Improvements and associated rights, title and interests to the Improvements, 2) early termination of AFI’s right to Lease the Property and 3) all property described and listed in the Bill of Sale, totals One Million Three Hundred Thousand and 00/100 Dollars ($1,300,000.00) City, or City’s designee, will pay AFI the purchase price in full within 30 calendar days of the full execution of this Fifth Amendment.
This agreement will transfer property with clear title and no encumbrances, liens or mortgages.
AFI will deliver to City a Bill of Sale listing all property purchased by the City.
Attachments:
Attachment 1 – Resolution No. 2022-XX
Attachment 2 – Pro Forma Budget
Aviation Facilities Inc. Lease Amendment No. 5
April 19, 2022 – Page 4