January 28, 2025
Agenda Item No. 12
TO:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM:
Seimone Jurjis, Assistant City Manager/Community Development Director - 949-644-3232, [email protected] PREPARED BY:
Lauren Wooding Whitlinger, Real Property Administrator - 949-644-3236, [email protected] TITLE:
Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive ABSTRACT:
The City of Newport Beach owns and operates the property known as the Balboa Yacht Basin. Constructed in the early 1940s, the Balboa Yacht Basin consists of a marina, shipyard and other commercial uses. The shipyard and marine store, operated by Basin Marine, Inc., has leased a portion of the Balboa Yacht Basin property since it was first constructed. With the current lease term expiring in 2026, the tenant requested a new agreement to continue its business operations at the property. For the City Council’s consideration is a new lease agreement with Basin Marine, Inc., for use of a portion of the Balboa Yacht Basin for a term of 20 years, including a request to waive City Council Policy F-7.
RECOMMENDATIONS:
a) Find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment; b) Authorize the City Manager and City Clerk to execute the Lease Agreement Between the City of Newport Beach and Basin Marine, Inc. for use of a portion of the City property known as the Balboa Yacht Basin at 829 Harbor Island Drive, in a form substantially similar to the attached agreement; and c) Approve a waiver of City Council Policy F-7 – Income and Other Property based on the findings contained in this staff report and the lease agreement, that conducting an open bid process or changing the tenant would result in excessive vacancy, and that charging less than fair market rent promotes the City of Newport Beach’s goals to provide essential or unique services to the community, that cannot otherwise be provided if full market rates were charged, and based on the unique services provided by the tenant.
DISCUSSION:
The Balboa Yacht Basin (BYB) is located at 829 Harbor Island Drive, Newport Beach, and includes a 172-slip marina, a shipyard and marine store, a restaurant, offices, three residential apartments, storage garages, a small 0.05-acre park, and on-site parking. The shipyard and marine store occupy approximately 42,062 square feet of dry land and tidelands along the east side of the property (Premises) as shown in Figure 1 below.
Figure 1
The BYB consists of City-owned land and State of California (State) owned filled tide and submerged lands. The tidelands are subject to the trust statutes and managed by the City on the State’s behalf under the terms of the Beacon Bay Bill.
Basin Marine, Inc.
Basin Marine, Inc. (Tenant) is a family owned and operated shipyard and marine store and provides a variety of boat repair and maintenance services. The operation also employs more than 30 highly skilled employees with a combined experience of more than 375 years, as well as uses more than 50 unique trade subcontractors. With the location and size of the Premises, the Tenant is able to offer services such as vessel haul-outs for boats of up to 70 feet and 100,000 pounds, and a telescoping forklift to provide additional services like picking up an engine or generator to allow for repair. Services like fiberglass and gel coat repairs, bottom paint and other painting detail and varnish services are also available.
The marine store also sells boat parts and supplies to meet the needs of the boating community in Newport Harbor. The Tenant services more than 3,000 boats per year, or one-third of the number of vessels in the harbor. Additionally, Basin Marine maintains compliance with numerous environmental and regulatory requirements.
The Tenant has operated the Premises under various agreements since the 1940s, and the current agreement, dated January 1, 2001, is set to expire December 31, 2026. The Tenant desires to perform capital improvements and repairs to the Premises, including purchasing a new travel lift for vessel haul-outs. A new lease term of 20-years will allow the Tenant to continue its operations of the shipyard, marine store, and boat repair facility at the BYB pursuant to its request letter, dated June 28, 2023 (Attachment C).
Lease Agreement
Subject to the existing lease (Attachment B) the Tenant currently pays a base rent of $167,000 per year with percentage rent. Rent payments to the City for the last couple of years total approximately $290,000 per year.
City staff and the Tenant have negotiated the terms of a new a lease agreement (Lease) (Attachment A). The proposed terms of the Lease, for use of the Premises, are summarized below:
The initial term is 20 years, with four 5-year extension options, for a total possible term of 40 years, unless terminated earlier as provided by the Lease. The Existing Lease shall terminate concurrently with execution of the new Lease.
Annual base rent of $300,000, or $25,000 per month, shall be paid by the Tenant. Base rent shall be adjusted every three years by the cumulative change in the Consumer Price Index (CPI), and shall not be less than 3% or greater than 21% for the three-year period.
Percentage rent of the monthly gross sales (less the amount paid in base rent) shall be paid by the Tenant for the following sales categories:
Sales Category
Percentage Rates
Shipyard/Boat Repair (including labor and services)
4% of Gross Sales
Outside Labor and Materials (performed or furnished by 3rd parties) 10% of Gross Markup, Commission and Fees received by Tenant Equipment and Hardware Sales at Marine Store (includes internal sale) 5% of Gross Sales
In addition to the payment of rent, each year - free of charge - the Tenant shall provide the City haul-out and re-launch of up to 12 City-owned vessels. The Tenant shall also provide transport and storage of the hauled-out City-owned vessels on the Premises (to facilitate repairs or maintenance) for up to 7 days each.
In consideration of the City’s potential redevelopment of a portion of the BYB, the Lease reserves the City’s right to access the Premises to conduct studies or tests in connection with the redevelopment. The City may also temporarily occupy a portion of the Premises to facilitate the redevelopment project.
The Tenant must keep the Premises in good condition at its sole cost and expense.
In consideration of the Tenant’s proposed capital improvements to the Premises, a one-time rent abatement in the amount of $25,000 will be applied to the Tenant’s account.
The Tenant shall provide certificates of insurance to the satisfaction of the City’s risk manager, naming the City as additional insured.
The Lease has been reviewed by the City Attorney’s Office and has been approved as to form. The Tenant has reviewed and approved the terms of the Lease.
City Council Policy F-7, Income and Other Property
Due to the Tenant’s long-term use of the Premises, the unique services provided to the marine industry, and the very limited number of similar marine-related services, staff did not conduct an open bid process to solicit proposals from other operators, as is typically required by City Council Policy F-7, Income and Other Property (Policy) (Attachment D).
An appraisal of the fair market rental value for the building and property on the Premises was conducted by Curtis-Rosenthal, Inc. (Attachment E). The appraisal concluded annual fair market rent to be $492,000.
Staff believes the following findings can be made, as required by the Policy, when an open bid is not conducted, and when less than fair market value rent is received, and a waiver is requested:
1. Converting the property to another use or changing the operator of the property would result in excessive vacancy, which would outweigh other financial benefits;
2. The Tenant provides an essential or unique service to the community that might not otherwise be provided where full market value of the property is required; and
3. With the proposed rent charged at less than fair market value, the use provides an important marine-oriented business on Newport Harbor, provides marine-related services to the City, and is of statewide benefit and might not otherwise be provided were an open bid or full fair market value of the property is required.
California Surplus Land Act
Assembly Bill 1486 was signed into law in 2019, went into effect in 2020, and made significant changes to the California Surplus Land Act (SLA) (Government Code §54220, et seq.). With further updates to the legislation in 2024, and in compliance with the updated SLA, the Lease is not subject to the SLA as its terms do not provide for a “disposition of surplus land” as the Tenant is limited to tenant improvements and no development or demolition of the Premises shall occur.
FISCAL IMPACT:
Revenues collected pursuant to the proposed Lease will be posted to the Tidelands Fund (10050505), Tidelands Capital Fund (10103), and General Fund (01050505) accounts in the Community Development Department and will be included in future years’ budgets. The revenues collected from the existing lease agreement are included in the budget for Fiscal Year 2024-25.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A – Lease Agreement
Attachment B – Existing Lease Agreement
Attachment C – Lease Renewal Request Letter
Attachment D – City Council Policy F-7 – Income and Other Property Attachment E – Appraisal Report
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Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive January 28, 2025
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