City Council
Report
City Council Meeting: April 25, 2023
Agenda Item: 5.F
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To: Mayor and City Council
From: Rick Valte, Public Works Director, Public Works, Airport Subject: Approval of Airport Restaurant Lease with Clover Restaurants, Inc. and First Modification to Agreement CCS# 10713 with Corporate Realty Group Recommended Action
Staff recommends that Council:
1. Authorize the City Manager to negotiate and execute a Lease with Clover Restaurants, Inc. (Clover) for restaurant, outdoor patio and parking space, located at 3200 Airport Avenue, and reflecting the general terms and conditions below;
2. Authorize the City Manager to negotiate and execute the first modification to professional services agreement No. 10713 (CCS) in the amount of $107,377 with Corporate Realty Group (“CRG”), a California-based corporation, to provide additional commercial real estate broker and consulting services for the Santa Monica Airport and extend the term of the agreement. This will result in an amended agreement expiring on December 31, 2024, for a total agreement term of 6 years and 4 months, with a new total amount not to exceed $1,252,416 with future year funding contingent on Council budget approval; and
3. Adopt a finding of Categorical Exemption pursuant to Section 15301 (Existing Facilities), of the California Environmental Quality Act (CEQA) Guidelines.
Summary
Clover Restaurants, Inc. (“Clover”) proposes to lease approximately 8,500 square feet of building, outdoor patio, and parking space (“Premises”) for restaurant use located at 3200 Airport Avenue at the Santa Monica Airport. The proposed restaurant would be located next door to the existing Cloverfield Restaurant located at 3300 Airport Ave, which is leased by the owners of Clover. The 3200 Airport Avenue property has been vacant since January 31, 2023, to allow for extensive building renovations that are expected to be completed by Summer 2024. The proposed lease with Clover would 2 of 6
include an initial term of 11.5 years and one renewal option for five years. The initial term includes one year of City’s building renovations and six months of tenant’s additional construction work. The term of this lease would extend beyond December 31, 2028, and is thus outside the parameters set forth in the current Airport Leasing and Licensing Policy (Attachment A) and as such requires City Council approval. Securing a tenant for the vacant space at 3200 Airport Avenue helps ensure the Airport Fund’s financial self-sufficiency and aligns with the City’s priority of economic recovery. The recommended lease with Clover will generate an estimated $5.015 million over the initial 11.5-year term.
Corporate Realty Group (“CRG”), the City’s current real estate broker, will provide the City with commercial real estate brokerage and consulting services for the proposed lease agreement. A first modification to Agreement No.10713 (CCS) with CRG is recommended to (1) provide for the additional commission associated with the proposed lease and (2) extend the term of the contract to allow for payments of the additional commission when they become due.
Discussion
Lease Term and Conditions
Clover seeks restaurant, outdoor patio, and parking space to create a commercial operation with food and alcoholic beverages. Clover proposes to lease a portion of the property at 3200 Airport Avenue. The lease would be for approximately 8,500 square feet of restaurant space representing about half of the rentable area of the 3200 Airport Avenue building. The proposed restaurant would be located next door to The Cloverfield Restaurant located at 3300 Airport Ave and would be approximately 50% larger. The City and Clover would finalize negotiations and execute a lease agreement based on the following proposed terms and conditions.
• The proposed lease is a 11.5-year term that includes a 4% annual escalation provision beginning at Year Two of the term of the lease (January 2025). 3 of 6
• A security deposit equal to three months’ rent plus the first month’s rent would be due at the execution of the lease agreement.
• The proposed monthly rent of $36,325 reflects market rate.
The building located at 3200 Airport Avenue is currently vacant to allow for the City to complete substantial and necessary facility improvements on the building that was built in 1947. Staff anticipates this work to last about a year and will be completed by July 2024, at which point Clover will perform additional construction for the restaurant for an additional six months. Clover’s construction of the space is anticipated to conclude by January 2025.
The Clover lease is expected to be executed in July 2023. The City will provide Clover with 12 months of rent credit during the time that the City is occupying and working on the premises (July 2023 through June 2024). Clover will be given an additional 12 months of rent credit (from July 2024 to June 2025) to cover the time that it spends improving the City’s property and for the investment they will have made in the building to improve the space. In all, under the proposed lease, Clover will be given a total of 24 months of rent credit. Any improvements undertaken by Clover would revert to the City at the conclusion of the lease term.
The 11.5-year term of the proposed lease is estimated to begin in July 2023 and expires on December 31, 2034. An option to renew for an additional five years, if exercised, would expire on December 31, 2039, and would be set at the market rate at the beginning of the option period. The term of the lease extends beyond the anticipated closure date of the Airport and thus requires City Council approval.
The proposed lease would be Triple Net wherein the tenant is required to pay all property taxes and assessments (including possessory interest tax), insurances and utilities. Additionally, Clover would be responsible for all services, repairs, replacements, maintenance, improvements, or items related to compliance associated with the premises. Clover would be required to comply with all City building code 4 of 6
regulations, planning standards, and any applicable FAA regulation, as a condition of the lease.
Clover would employ approximately 30 workers on-site. Therefore, Clover would be subject to the Transportation Demand Management (TDM) requirements of the City to address any transportation and/or parking management issues.
Modification to CRG Contract
On July 24, 2018, the City authorized an agreement with CRG for commercial real estate brokerage and consulting services in an amount not to exceed $1,145,039 over a three-year period, plus two one-year options to renew. The final renewal option will expire on August 31, 2023.
CRG will provide the City with commercial real estate brokerage and consulting services for the proposed lease agreement. Should the proposed lease be approved and executed, the real estate commission fee due to CRG is estimated to be $107,377 based on a 3% commission for the initial five years of the term, and 1.5% for years six to ten. Half of the commission ($53,689) would be due upon execution of the lease on or about July 2023 (FY2023-24), and the remaining half paid when tenant begins construction of the restaurant space, estimated on or around July 2024 (FY2024-25).
There would be no commission obligation for the five-year renewal option if exercised.
The commission rates are consistent with the terms of CRG’s agreement with the City and conform to industry standards.
The commission amount, in addition to other pending commissions due to CRG, would exceed the current contract amount authorized in the City’s Agreement No. 10713 (CCS). Therefore, staff recommends a first modification to the agreement with CRG to increase compensation by $107,377 from funds available in the Airport Fund Budget.
Due to the timing of the City’s obligation for payment of the commissions, staff recommends that the term of the agreement be extended to December 31, 2024. 5 of 6
Environmental Review
The proposed lease is categorically exempt from the California Environmental Quality Act (CEQA) under Section 15301. Section 15301 of the CEQA State Guidelines provides Class 1 (existing facilities) exemption for projects that consists of the operation, repair, maintenance, leasing, licensing, permitting, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of the existing or former use. The lease would not result in any significant modifications to the existing space at 3200 Airport Avenue. Therefore, the project is categorically exempt as set forth in Section 15301 of the CEQA State Guidelines.
Past Council Actions
Meeting Date Description
8/14/2018
(Attachment A)
Santa Monica Airport Leasing and Licensing Policy
7/24/2018
(Attachment B)
Authorize Agreement to Corporate Realty Group, Inc. for Commercial Real Estate Broker Services at the Santa Monica Airport following RFP process
Financial Impacts and Budget Actions
The recommended lease with Clover would generate an estimated $5.015 million over the initial 11.5-year term. If executed in July 2023, the proposed lease would increase FY2023-24 Airport revenues by $191,429 (first month’s rent and three-month security deposit). Future revenues generated by the proposed lease would be included in the budget.
Staff seeks authority to approve available funding from the Airport Fund to increase the amount of the agreement with the Corporate Real Estate Group for commercial real estate leasing services. Future year funding is contingent on Council budget approval.
Agreement Modification Request
Agreement #
Current
Authorized
Amount
FY 2022-23
Request
Amount
Future Years Dept Account # Total Revised
Contract Amount
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10713 $1,145,039 0 $107,377 57500001.552010 $1,252,416
Prepared By: Kate Schlesinger, Senior Administrative Analyst Approved Forwarded to Council
Attachments:
A. AIRPORT LEASING AND LICENSING POLICY 2018-08 (1)
B. CRG SR 2878 7242018 meeting
C. 20220614_Con_CRG_FY22_OAKS_
D. 20221222_Oaks Clover Restaurants Inc.
E. 201809_Contract-CRG-10713- signed