City Council Memorandum
TO: HONORABLE MAYOR AND CITY COUNCIL DATE: SEPTEMBER 20, 2022 FROM: GENERAL SERVICES DEPARTMENT WARD: 6 SUBJECT: APPROVAL OF COMMERCIAL LEASE AGREEMENT WITH DUNN ENTERPRISES, INC. DBA ICE TOWN AT 10540 MAGNOLIA AVENUE, SUITE A THROUGH SEPTEMBER 30, 2032, WITH ONE FIVE-YEAR OPTION TO EXTEND ISSUE:
Approve a new commercial lease agreement with Dunn Enterprises, dba Ice Town, the anchor tenant for the Magnolia Place Shopping Center located at 10540 Magnolia Avenue through September 30, 2032, with one five-year option to extend.
RECOMMENDATION:
That the City Council:
Approve a new commercial lease agreement with Dunn Enterprises, Inc., dba Ice Town, of Riverside, CA, in the amount of $28,806.07 per month with 1.5% increases annually for the balance of the lease agreement; and Authorize the City Manager, or designee, to execute the commercial lease agreement and any other related documents.
BACKGROUND:
In 2003, the Magnolia Place Shopping Center was purchased by the City of Riverside (City) in order to establish the Magnolia Police Station on a portion of the property. At that time, Ice Town (Tenant) was an existing tenant and the City took over the lease.
On April 26, 2005, the City Council approved a first amendment to the lease with Ice Town, extending the lease term through April 30, 2016, with one five-year option to renew. On October, 19, 2006, a second lease amendment was approved removing the five-year option to extend in order to reduce Tenant’s possessory tax obligation.
On November 18, 2014, the City Council approved a new lease agreement with Ice Town in the amount of $31,392.80 per month, with 1.5% increases for the first three years and 2% increases per year for the balance of the lease agreement ending July 31, 2028.
DISCUSSION:
Ice Town currently leases 52,145 square feet of space adjacent to the police facility. In March 2020, Ice Town’s business was severely impacted by COVID-19 related business closures and restrictions on indoor sporting activities. As a result, Tenant fell behind on the monthly rent. As COVID-19 restrictions were lifted, Tenant’s operations resumed and in January 2022, Tenant began making partial monthly rent payments of $31,392.89, resulting in an unpaid rent balance of approximately $838,731.42.
In order to retain this anchor tenant and established ice-skating rink business for the Magnolia Place Shopping Center, and to address the unpaid rent balance, the City negotiated terms for a new commercial lease agreement to supersede the existing agreement, which expires July 31,2028.
New Ice Town Commercial Lease Agreement Key Terms
The Key Terms of the new Commercial Lease Agreement are as follows:
Term
October 1, 2022 – September 30, 2032
Options
One Five-year Option to Extend
Monthly Rent
$28,806.07, plus $2,373.52 Common Area Maintenance
Annual Increases
1.5%
Repayment of Prior Rent Owed
$6,989.43 monthly for a period of 10 years or until the balance of Prior Rent is satisfied. The outstanding balance of Prior Rent shall become immediately payable and due upon the expiration or early termination of this Agreement, or the bankruptcy or insolvency of Tenant.
Staff recommends acceptance of the proposed terms and conditions for a new commercial lease agreement with Ice Town and the 120 month rent repayment terms and schedule.
STRATEGIC PLAN ALIGNMENT:
This proposed commercial lease agreement supports Strategic Priority No. 3 Economic Opportunity and Goal No. 3.3 - cultivate a business climate that welcomes innovation, entrepreneurship and investment.
This item aligns with EACH of the five Cross-Cutting Threads as follows:
Community Trust – This new lease agreement is agendized for City Council consideration, ensuring public transparency.
Equity – Retaining a publicly accessible ice-skating facility at the Magnolia Place Shopping Center benefits the entire community.
Fiscal Responsibility – This new lease agreement will continue to generate fair market value rent revenue while also recouping the unpaid rent balance and generating common area maintenance fees.
Innovation – The new lease agreement demonstrates the City’s business-friendly approach to retaining a valued anchor tenant recovering from pandemic-related business closures.
Sustainability & Resiliency – This new lease agreement retains a valued anchor tenant who has made considerable investments in the leased space, including additional office space and installation of a large solar panel array on the roof to help improve energy efficiency, while demonstrating the City’s resiliency in weathering the economic impacts brought about from the pandemic.
FISCAL IMPACT:
The total fiscal impact of this agreement is $4,823,073.42 over the ten-year term, including repayment of prior rent owed. The new lease agreement with Ice Town will generate approximately $3,699,640 in rent revenue over the ten years term, as well as approximately $284,702 in common area maintenance fees and approximately $838,731.42 in repayment of prior rent owed. The rent income from this property will be deposited into General Fund, Land and Building Rental revenue account 7222000-373100.
Prepared by: Carl Carey, General Services Director
Certified as to
availability of funds: Edward Enriquez, Interim Assistant City Manager/Chief Financial Officer/Treasurer Approved by: Kris Martinez, Assistant City Manager Approved as to form: Phaedra A. Norton, City Attorney
Attachments: Agreement
Commercial Lease Agreement with Dunn Enterprises, Inc. ● Page 2