City Council
Report
City Council Meeting: August 27, 2024
Agenda Item: 5.I
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Authorize Proposed Assignment, Certain Lease Amendments, and Waiver of Certain Pier Leasing Guidelines for Leasehold Located at 256 Santa Monica Pier
Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of categorical exemption pursuant to Section 15301 of the California Environmental Quality Act (CEQA) Guidelines and a finding of no possibility of significant effect pursuant to Section 15061(b)(3) of the CEQA Guidelines;
2. Authorize the City Manager to transfer the leasehold for the Rusty’s Surf Ranch restaurant located on 256 Santa Monica Pier and amend the lease consistent with the terms and conditions that are negotiated by the parties; and
3. Waive certain Pier Leasing Guidelines that apply to leases on the Pier.
Summary
Staff recommends that the City Council authorize the City Manager to (a) assign the lease for the Rusty’s Surf Ranch restaurant located at 256 Santa Monica Pier from Hospitality Industry Management Group (Assignor) to Dogtown SM Pier, Inc (Assignee); (b) amend the lease consistent with the terms and conditions that have been negotiated by the City and Assignee, including the extension of the lease term by two-years and the change of tradename from Rusty’s Surf Ranch to Dogtown; and (c) waive certain provisions of the Santa Monica Pier Leasing Guidelines to permit the proposed assignment and amendments, including waiving the requirement that upon the expiration of a Pier lease, the City conduct a competitive and open procurement process to select a winning proposer, as well as waiving the merchant diversity 2 of 6
requirement for the Pier that limits existing Pier tenants from operating more than one leasehold on the Pier.
Discussion
The property located at 256 Santa Monica Pier, known as Rusty’s Surf Ranch, is currently leased to Hospitality Industry Management Group (Assignor). The lease between the City and Assignor expires on September 30, 2024. Since 2018, Rusty’s Surf Ranch has been managed by Greg Morena, who is also the lessee of the premises where The Albright restaurant is located (258 Santa Monica Pier). Morena and the Assignor proposed that the City authorize the transfer of the lease to Morena’s company, Dogtown SM Pier, Inc. and extend the lease. City Council has directed staff to proceed with lease negotiations with Assignee provided that the final lease terms are consistent with the terms that City Council approved in closed session on May 28, 2024, and provided that the City Council approves such terms and waives certain Santa Monica Pier Leasing Guidelines, as outlined below, in open session. All properties located on the Santa Monica Pier are owned by the City and subject to these Leasing Guidelines.
The following are the major lease terms that have been negotiated by the parties and which will require lease amendments:
• A two-year lease extension. The current lease expires on September 30, 2024.
Under an amended lease, the term will expire on September 30, 2026. Upon expiration, the lease will be subject to an open and competitive bidding process consistent with the Pier Leasing Guidelines. The City may initiate the competitive bidding process as early as September 30, 2025. Prior to the lease expiration, the City will have authority to show property to potential lessees, licensees, and others to facilitate competitive process.
• Monthly base rent will be increased from $21,971 to $27,464 effective October 1, 2024, and adjusted by consumer price index (CPI) annually effective October 1, 2025
• Percentage rent would remain unchanged at 6%.
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• Name Change – The lease will be amended to reflect a name change from “Rusty’s Surf Ranch” to “Dogtown”.
• No transfer fee will apply.
• Assignee agrees that Rusty’s and Albright will not be physically integrated and will remain separate and distinct fully functional restaurants. • Assignee and Assignor acknowledge that Tenant will not receive any additional rent credits other than those that City already issued to Assignor. • The lease amendments will eliminate Assignee’s obligations to complete certain tenant improvements. Current lease requires Tenant to construct, among other improvements, a second-floor dining area.
• In lieu of completing the Phase II tenant improvements, Assignee agreed to complete a Certified Access Specialist (CASp) review of the premises for compliance with various state and federal accessibility requirements including the Americans with Disability Act (ADA), pay for any ADA required improvements to the building’s bathrooms and doors; and agreed to defend, hold harmless, and indemnify the City for any non-compliant ADA claims or other similar claims pertaining to the leased premises.
• To the extent that Assignee proposes, and City approves, any substantial tenant improvements that require issuance of a building permit, Assignee will obtain a performance bond to guarantee completion of such tenant improvements. • During tenancy, Tenant must remain in good standing, including compliance with all local laws.
• Assignor and Assignee, and their entities and agents, will sign a full release of any claims related to the tenancy concurrently with the execution of lease amendments.
Deviation from Pier Leasing Guidelines
The Council-approved Pier Leasing Guidelines (Attachment A) provide the framework for fair and consistent leasing and licensing of City-owned properties on the Santa Monica Pier. The Guidelines provide parameters and general policy on uses, standards and terms, and tenant recruitment and selection. When substantive terms or processes 4 of 6
deviate from the Guidelines, Council has the authority to grant exceptions and/or waive its requirements.
The proposed lease assignment and amendments will require substantive deviations from the Guidelines, including the following:
1. Section 6-I and II of the Guidelines state that leasing opportunities will be subject to an open and competitive process and that lease renewals will not be automatically offered to tenants.
Staff recommends waiving these requirements by delaying the competitive public process and approving the proposed assignment with a two-year extension of the lease, which would terminate September 30, 2026. The Tenant will then be invited to compete in a competitive recruitment process for a new lease. The City will have authority to show the property to potential lessees and others to facilitate a competitive process prior to the expiration of the new term.
2. Section 6-IV advises that given there are so few leasing opportunities on the Pier, merchant diversity should be promoted and the award of multiple leaseholds and/or licenses to an individual tenant is discouraged.
The proposed Assignee, Dogtown SM Pier, Inc. has been formed by Greg Morena, who also has an ownership interest in The Albright restaurant, located at 258 Santa Monica Pier. Staff recommends that Council waive the merchant diversity provision, which requires that a prospective tenant make certain findings in order for City to allow one tenant to hold multiple leases on the Pier. This waiver will allow the two leaseholds for the restaurants located at 256 and 258 Santa Monica Pier to be owned and operated by the same owner during the two-year extension term.
Commission Actions
At the Pier Corporation Board meeting on June 17, 2024, the Board supported the proposed recommendation to assign the lease to Dogtown SM Pier, Inc., amend the 5 of 6
lease consistent with the terms and conditions that have been negotiated by the parties, and the waiver of the Pier Leasing Guidelines, as outlined above.
Past Council Actions
Meeting Date Description
11/27/2012
(Attachment B)
Authorization to negotiate and execute an Amended and
Restated License Agreement with Hospitality Industry
Management Group LLC.
Environmental Review
The lease agreement is categorically exempt from CEQA pursuant to Section 15301 of the CEQA Guidelines. Section 15301 exempts Class 1 (Existing Facilities) projects from CEQA, which include the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of existing or former use. The agreement involves the leasing of the existing property located at 256 Santa Monica Pier and would not result in the expansion of this property. Therefore, the agreement is exempt from CEQA pursuant to Section 15301. Additionally, the agreement is exempt pursuant to Section 15061(b)(3) of the CEQA Guidelines which states that CEQA does not apply “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” The proposed assignment and extension of the lease would not result in a physical environmental effect on the environment, and as such is exempt from CEQA.
Financial Impacts and Budget Actions
The recommended action is estimated to result in an additional $49,435 in rent to the Pier Fund for FY 2024-25. If approved, the revenue adjustments will be included in the FY 2024-25 midyear budget process.
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Prepared By: Elana Buegoff, Pier Administrator
Approved Forwarded to Council
Attachments:
A. Pier Leasing Guidelines
B. Staff Report 11/27/2012
C. 2024_Levine Act Disclosure Form
D. 2024_OaksInitiativeForm
E. Written Comments