Administrative
Report
H.15., File # 23-6511 Meeting Date: 8/15/2023
To: MAYOR AND CITY COUNCIL
From: GREG KAPOVICH, WATERFRONT AND ECONOMIC DEVELOPMENT DIRECTOR TITLE
ADOPT BY TITLE ONLY RESOLUTION NO. CC-2308-084, A RESOLUTION OF THE CITY
COUNCIL OF THE CITY OF REDONDO BEACH, CALIFORNIA, LEASING CERTAIN PROPERTY
TO CALIFORNIA LOCAL, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY APPROVE THE LEASE WITH CALIFORNIA LOCAL, LLC FOR A RESTAURANT USE AT 245 NORTH HARBOR DRIVE FOR A MONTHLY MINIMUM RENT OF $13,066, OR 8 PERCENT OF GROSS SALES, WHICHEVER IS GREATER, AND THE TERM SEPTEMBER 1, 2023 THROUGH FEBRUARY 28, 2034
EXECUTIVE SUMMARY
In May 2014, the City of Redondo Beach (“the City”) completed its purchase of the Redondo Beach Marina leasehold, which includes restaurant and retail buildings, a small marina, a large surface parking lot and a public boat hoist. The building at 245 North Harbor Drive (“Premises”) was occupied by Ruby’s Diner from 1991 through October, 2020. In 2022, the City Council approved a lease with California Local, LLC (“Tenant”) for a restaurant specializing in Coastal California cuisine for a 70-month (5 year) term. The tenant approached the City in 2023 to renegotiate the lease and further renovate the building in exchange for a longer term. The additional term is sought to recuperate a planned investment in the property of approximately $1.5 million. The total lease space of approximately 8,000 square feet is comprised of approximately 5,066 interior square feet and 2,934 exterior square feet.
The proposed lease is for a 10.5-year term for the period September 1, 2023 through February 28, 2034. Minimum rent to the City’s Harbor Uplands Fund begins at a rate of $13,066 per month, or eight percent of total gross sales, whichever is greater. The minimum rent is subject to a three percent increase each year.
BACKGROUND
The building located at 245 North Harbor Drive was occupied by Ruby’s Diner for approximately 28 years before closing in October 2020 due to a combination of declining restaurant sales and increasing operational costs. The City’s leasing agent BC Urban started marketing the Ruby’s site in early 2021. The leasing team reached out to over 50 restaurant groups and individual operators, both local and national, that represented various types of cuisine including another Ruby’s operator.
After substantive discussions with a dozen restaurant companies, the City’s leasing agent, BC Urban, entered into negotiations with a short list of prospective owners/operators. On May 10, 2022, the City entered into a Lease with California Local, LLC to open a restaurant that would be unique to the area specializing in casual Coastal California cuisine. The 2021 lease was for a 70-month term. The
H.15., File # 23-6511 Meeting Date: 8/15/2023
specializing in casual Coastal California cuisine. The 2021 lease was for a 70-month term. The monthly minimum rent was $11,032, or 8% of gross sales, whichever is greater, with a 3 percent increase each anniversary of the May 10 Commencement Date.
California Local, LLC later approached the City requesting additional term beyond the initial five-year agreement. The proposed 10.5-year (126 month) lease term would commence on September 1, 2023 and extend to February 28, 2034. In exchange for the additional term (increasing from five years to 10.5 years), the tenant proposes building improvements to the interior and exterior of the building with an estimated cost of approximately $1.5 million. The tenant would be financially responsible for the improvements, which include structural improvements, interior tenant improvements, an exterior façade enhancement, and improved landscaping. As part of the proposed improvements, the tenant will convert underutilized exterior space into outdoor dining area.
As a result, the new lease proposes a minimum monthly rent based on size to capture the future improvements rather than the flat rate utilized in the previous lease. Specifically, the minimum rental rate is increased from a flat rate of $11,032 per month (or 8% of gross sales) to $2 per square foot of interior space and $1 per square foot of exterior space, or 8% of gross sales, whichever is greater.
Currently, the calculation results in a minimum monthly rent of $13,066, which is already an increase from the previous flat rate amount. Additionally, the minimum rent is subject to a three percent increase each year. The Tenant will be required to obtain approval from the City for any expansion plans in addition to obtaining any associated licenses and permits from any required or necessary agencies. The proposed lease also includes 12 employee parking passes without fee.
COORDINATION
The Waterfront and Economic Development Department coordinated with the City Attorney’s Office to prepare the lease document.
FISCAL IMPACT
Lease revenue from the property will accrue to the City’s Harbor Uplands Fund. Rent will begin on September 1, 2023 at a rate of $13,066 per month, or eight percent of gross sales, whichever is greater. The minimum rental rate is also subject to a three percent increase each year. Over the
10.5-year term of the lease, revenue to the Uplands Fund will be a minimum of $1,797,444.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
· Resolution No. CC-2308-084 - California Local 245 N. Harbor Drive · Agreement with California Local 245 N. Harbor Drive