City Council
Report
City Council Meeting: May 28, 2024
Agenda Item: 5.E
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Approval of License Agreement with Santa Monica Amusement for 370 Santa Monica Pier
Recommended Action
Staff recommends that City Council:
1. Adopt a finding of categorical exemption pursuant to Section 15301 of the California Environmental Quality Act (CEQA) Guidelines.
2. Authorize the City Manager to negotiate and execute a License Agreement with Santa Monica Amusement for 370 Santa Monica Pier per the Pier Leasing Guidelines.
Summary
Santa Monica Amusements (SMA) currently operates Pacific Park on behalf of the City’s tenant EPR Parks, LLC (EPR). Due to the limited number of commercial opportunities on the Pier, operators are discouraged from having multiple pier leases or licenses per the Pier Leasing Guidelines unless a finding of exceptional community benefit is made. Staff finds that the proposal from SMA fulfills the exceptional community benefit provisions.
Staff recommends award of a 3-year license to SMA to operate a multi-attraction space consisting of rope courses, a climbing tower, an outdoor Pier history exhibit space, and an ancillary refreshment/souvenir stand. SMA’s working names are "Santa Monica Aerial Adventures" and "Santa Monica Pier History Museum." The license fee to be paid to the City will be a minimum of $300,000 per year plus percentage rent participation. 2 of 6
Discussion
The site, 370 Santa Monica Pier, is an approximately 10,000 square foot undeveloped area located between Pacific Park and Playland Arcade. The owners of the business currently operating from the site, Trapeze School New York (TSNY), notified the City of their intention to retire. The license for TSNY expired in April 2017 and TSNY has been effectively operating on a month-to-month basis.
The Council-approved Pier Leasing Guidelines (Guidelines) state that when leases and licenses expire or are terminated, opportunities must be made available to the public in an open and competitive process. The City engaged a real estate broker to advertise the opportunity and solicit proposals for a short-term use; a description of the recruitment and selection is provided below. The short duration of the term is owed to the upcoming Pier Bridge replacement project. The site has been identified for future development and the completion of the bridge project provides an opportunity for the City to work with stakeholders to reimagine uses on the Pier, including this site.
Following the recruitment and evaluation process, SMA’s proposal was recommended by the evaluation panel (Attachment A.). Under the Guidelines, license agreements of 36 months or less can be approved administratively by the City Manager following a competitive procurement process. Council’s authorization is being requested by staff because SMA currently operates Pacific Park on behalf of the City’s tenant EPR and the Guidelines discourage the award of multiple leases/licenses to an existing pier tenant or operator, unless a finding of exceptional community benefit is made.
Section 6. General Leasing Standards, subsection IV. states:
In order to promote merchant diversity on the Pier the award of multiple leaseholds and/or licenses to an individual tenant, licensee or operator is discouraged but may be allowed subject to conditions provided under Section 7.5.
Section 7.5. Modifications Based on Findings of Exceptional Community Benefit states:
Diversity of ownership in Section 6. IV…may be modified if all four of the following findings can be made and documented:
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I. The proposed project will provide an exceptional opportunity to fulfill a goal or objective of the Pier Guiding Principles and will enhance the unique character and the viability of the Pier.
II. The proposed project will require substantial capital investment and provide an exceptional return opportunity to the City.
III. The proposed project will enhance the mix of uses on the Pier while still being consistent with the Pier’s unique character.
IV. The proposed project will provide a significant enhancement to the visitor experience at the Pier.
Based upon Staff’s review and analysis, Staff finds that the proposal from SMA meets the exceptional community benefit requirements as follows:
• SMA’s inclusion of the Santa Monica History Museum into the project fulfills an objective of the Guidelines to preserve and promote the history of the Pier and enhance the Pier’s unique character.
• SMA is proposing a substantial capital investment estimated at $1,250,000 including $500,000 to build and program the Pier history museum and exhibits.
SMA’s financial offer provides an exceptional return opportunity that will contribute significantly to support the fiscal self-sufficiency of the Pier. The City’s minimum request for base rent was $120,000/year, subject to 4% annual escalation. SMA is offering base rent of $300,000/year, subject to 4% annual escalation. In addition, SMA is proposing percentage rent of 10% above $750,000 in sales. Staff projects the financial benefit to the City for the 3-year term to be $1.3 million.
• SMA expects to serve more than 70,000 guests in its first year of operation and create approximately 45 new hires.
• SMA’s multi-use proposal will enhance and complement the current mix of uses on the Pier by providing new experiential and educational activities. The climbing 4 of 6
concepts and Pier history museum are unique and not duplicative of uses already on the pier.
• SMA’s climbing concepts provide an opportunity for a wide range of Pier visitors to enjoy new physical activities on the pier, as there will be options for different age groups and experience levels.
Recruitment and Selection Process:
A summary of the recruitment and selection process is as follows:
• The City engaged real estate broker Craig Zund of Corporate Realty Group to publicly market this opportunity. Mr. Zund was on the City’s pre-approved list of qualified brokers, obtained from a Request for Qualifications issued by the City in 2023. These brokers were invited to submit proposals for leasing the site and Mr. Zund was selected by the City’s Economic Development Team based on his proposal and relevant experience. The broker received approximately 40 inquiries and 12 applications.
• The evaluation panel consisted of representatives from the Pier Corporation, Downtown Santa Monica Inc., and the City’s Economic Development Division.
The panel reviewed and ranked the applications based on uniform criteria and requested the broker seek additional/clarifying information from five candidates that passed the initial review.
• Two of the five candidates responded to the broker’s request for information. The other three either did not respond or responded with inadequate information. • The Pier Corporation’s representative recused himself from the evaluation panel due to a potential conflict.
• The evaluation panel conducted interviews with the two remaining candidates, SMA and Santa Monica Trapeze School. Santa Monica Trapeze School currently manages the Trapeze School operations on behalf of TSNY, the owner and current licensee.
• The candidates were asked if they could improve their financial offer to the City.
The minimum request for base rent was $120,000 per year. Santa Monica Trapeze School proposed $83,065 per year (which fell short of the City’s minimum request) and revenue projections showed percentage rent would be 5 of 6
unlikely. SMA proposed $300,000/year and modified its percentage rent threshold from $1M to $750K. SMA’s revenue projections showed percentage rent to be expected.
• The evaluation panel unanimously recommended the SMA proposal for the award of a 3-year license agreement for 370 Santa Monica Pier. The evaluation panel considered the SMA proposal the strongest in terms of experience, investment, use, financial return to the city and benefit to pier visitors. • Pier Corporation’s leasing committee recommended the selection of SMA’s proposal on March 4, 2024, and the Pier Corporation Board recommended the selection at its March 18, 2024, meeting.
Transition between Uses
To support the continued activation of the site during the summer months while the transition takes place, TSNY, the City’s current licensee, may continue to operate the existing Trapeze School under a short-term management agreement with Santa Monica Trapeze School (the entity currently managing the site operations on behalf of TSNY).
Concurrently, the Santa Monica Trapeze School will proceed through the approval process, execute a short-term license with the City, and procure the required permits to operate the site as the City’s short term licensee. The City’s Economic Development Division has also been providing assistance to the Trapeze School to help identify other potential relocation sites within the City.
Commission Action
At the Pier Corporation board meeting on March 18, 2024, the Board supported the proposed recommendation and requested the City’s Economic Development division assist the Trapeze School to relocate its operations elsewhere in Santa Monica.
Environmental Analysis
The licensing agreement is exempt from California Environmental Quality Act (CEQ) pursuant to Section 15301 (Existing Facilities) of the CEQA Guidelines. Section 15301 provides exemption for the operation, repair, maintenance, permitting, or minor alteration of existing public or private structures, facilities, mechanical equipment, or 6 of 6
topographical features, involving negligible or no expansion of use beyond that existing at the time of the lead agency's determination. This approval involves a license agreement with a negligible change which would replace a trapeze with new climbing structures and pier history exhibit area. Therefore, the approval is therefore categorially exempt from CEQA.
Financial Impacts and Budget Action
The recommended action is estimated to result in an increase of $300,000 annually in rent to the Pier Fund. If approved, the revenue adjustments will be included in the FY 2024-25 Budget that will be proposed for adoption in June.
Prepared By: Elana Buegoff, Pier Administrator
Approved Forwarded to Council
Attachments:
A. SMA 370 SMP Proposal
B. Pier Leasing Guidelines
C. Levine Form
D. Oaks. SMA. 5.10.24
E. Oaks. EPR.5.8.2024
F. Written Comments
G. PowerPoint Presentation