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Date: January 27, 2026
To: Honorable Mayor and Members of the City Council
From: Aram Chaparyan, City Manager
By: Carlos Huizar, Management Associate | [email protected] Subject: City Manager – Adopt RESOLUTION Determining Certain City-Owned Property is Not Required for City Purposes and that Leasing the Property Is In the Public Interest, Adopt Categorical Exemption Under California Environmental Quality Act (CEQA) Section 15301, Approve Seventh Amendment to Lease and Ground Lessor Estoppel Certificate for City-Owned Property Located at 3455, 3511 and 3525 Pacific Coast Highway. Expenditure: None.
RECOMMENDATION
Recommendation of the City Manager that City Council:
1. Adopt a California Environmental Quality Act (CEQA) Categorical Exemption pursuant to Guideline Section 15301 (Existing Facilities); and
2. Adopt RESOLUTION determining that certain City-owned property located at 3455, 3511 and 3525 Pacific Coast Highway is not required for City purposes and that leasing the property is in the public interest; and
3. Approve a seventh amendment to lease with KLM Madison, LLC (C-2738); and
4. Approve a Ground Lessor Estoppel Certificate to KLM Madison, LLC for lease of City- owned property located at 3455, 3511 and 3525 Pacific Coast Highway.
FUNDING
None required.
DISCUSSION
The subject property, known as Madison Park, is a prominent neighborhood shopping center strategically located along Pacific Coast Highway. The center is currently improved with a diverse mix of high-quality commercial uses, including a standalone medical office building occupied by UCLA Health and two in-line retail buildings that provide local amenities and services.
The center serves as a key economic asset for the City, blending professional medical services with neighborhood-serving retail.
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January 27, 2026
Background
The City of Torrance (“City”) and the Lessee’s predecessors-in-interest entered into a ground lease on February 20, 1987, for the City-owned property at 3455, 3511, and 3525 Pacific Coast Highway (“Lease”). Over the years, the Lease has been amended to modernize rent structures and operational provisions.
On August 5, 2025, the Lease was assigned to KLM Madison, LLC (“Lessee”). The current term is set to expire on February 8, 2054. To facilitate long-term investment and the potential for future parcel-specific management, the Lessee has requested a Seventh Amendment to the Lease.
Lease Extension and Fiscal Consideration
The Seventh Amendment extends the Lease term by thirty-two (32) years, establishing a new expiration date of February 8, 2086. In consideration for this extension, the Lessee will provide the City with a Lease Extension Payment totaling $3,000,000. This payment is structured to be fulfilled either in full on or before April 1, 2026, or through a two-step installment plan consisting of $1,000,000 within twelve (12) months of the Effective Date and the remaining $2,000,000 within eighteen (18) months. This upfront consideration provides both immediate and deferred fiscal benefits to the City without requiring any municipal expenditure.
Bifurcation and Operational Continuity
The Amendment further authorizes the bifurcation of the leased premises into Parcel A and Parcel B, as specifically depicted in the attached Exhibits. This structural change is intended solely to facilitate future assignments to bona fide third-party purchasers of either parcel independently, while ensuring both parcels remain subject to all existing Lease provisions and City approval requirements. Following any such assignment, the assignee will assume full responsibility for compliance with all obligations applicable to their respective parcel. To preserve the integrity and coordinated operation of the site, the Lessee is required to execute and record a Reciprocal Easement and Operating Agreement (REA). This agreement, which must be approved by the City Manager and City Attorney prior to recordation, will govern shared access, infrastructure, and operational responsibilities between occupants and may not be amended or terminated without express City approval.
Profit Participation and Revenue Modernization
To ensure the City participates in future value realization, the Amendment establishes a new profit participation provision triggered by any sale, transfer, or assignment of the premises. The City will receive 1.5% of net proceeds if the conveyance occurs within the first 24 months of the Effective Date, increasing to 3.0% for any conveyance occurring thereafter. While this provision excludes standard financing transactions, it ensures the City benefits from the property's appreciation while maintaining operational flexibility for the Lessee.
Furthermore, the Amendment modernizes the rent structure by refining the Minimum Basic Rent adjustment methodology, including annual CPI-based adjustments subject to specific thresholds and fair market recalculations over nine-year periods. Notably, the Amendment reinstates Percentage Rent provisions, establishing a graduated scale of 10% to 15% of Gross Receipts over the extended term. These updates, paired with enhanced reporting and audit requirements, ensure long-term transparency and maximize the City's revenue-generating potential. 2 City Council
January 27, 2026
Ground Lessor Estoppel Certificate
The Estoppel Certificate is a statement by the City that the Lease is in full force and effect and that there is no material defaults against the Lease. The Certificate also verifies that certain salient points of the Lease are valid, such as:
Tenant is current on the rent
That the Ground Lease commenced on February 20, 1987 and the extended term will expire on February 8, 2086
Memorializes all prior Amendments
Conclusion
The Seventh Amendment to the Lease with KLM Madison, LLC advances the City’s financial and asset management objectives by securing substantial immediate consideration, extending long- term revenue streams, and modernizing administrative provisions. By preserving City control over future assignments and ensuring the continued cohesive operation of Madison Park, staff believes this Amendment serves the best interests of the community. Therefore, staff recommends that the City Council adopt the CEQA exemption and approve the Amendment and the Ground Lessor Estoppel Certificate.
ENVIRONMENTAL FINDINGS
Pursuant to the California Environmental Quality Act (CEQA), the Seventh Amendment to Lease is exempt under CEQA (2025) Categorical Exemption 15301, Class 1 – Existing Facilities. The subject request, the Seventh Amendment to Lease is the letting of property involving existing facilities with no expansion of use is planned at this time.
ATTACHMENTS
1. Resolution
2. Seventh Amendment to Lease (C-2738) (Material Available)
3. Ground Lessor Estoppel Certificate (Material Available) 3 RESOLUTION NO. 2026-
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF TORRANCE DETERMINING CERTAIN
CITY-OWNED PROPERTY NOT REQUIRED FOR
CITY PURPOSES AND THAT LEASING THE
PROPERTY IS IN THE PUBLIC INTEREST FOR
CITY-OWNED PROPERTY LOCATED AT 3455,
3511 AND 3525 PACIFIC COAST HIGHWAY.
WHEREAS, the City of Torrance (“City”) and the Lessee’s predecessors-in-interest are parties to that certain Lease dated February 20, 1987 (“Original Lease”), as amended by a First Amendment dated July 12, 1991, a Second Amendment dated February 6, 1992, a letter dated December 8, 1993, a Third Amendment dated March 21, 1995, a Fourth Amendment dated August 24, 1995, a Fifth Amendment dated March 21, 1996, a Sixth Amendment dated February 9, 1999, and an Assignment and Assumption of Ground Lease dated July 15, 2005 (collectively, the “Lease”), pursuant to which the City leases to Lessee the property located at 3455, 3511, and 3525 Pacific Coast Highway (“Property”); and
WHEREAS , the Lease was duly assigned to KLM Madison, LLC (“Lessee”), and Lessee assumed all rights and obligations thereunder pursuant to that certain Assignment and Assumption of Ground Lease dated August 5, 2025, and recorded as Instrument No. 20250577738 in the Official Records of Los Angeles County; and WHEREAS , the City and Lessee desire to enter into a Seventh Amendment to the Lease to (a) extend the Lease term by thirty-two (32) years to February 8, 2086, (b) provide the Lessee the right to bifurcate the Leased Premises into Parcel A and Parcel B to facilitate future assignments, and (c) modernize rent, profit participation, and consideration provisions; and WHEREAS , the Property, known as Madison Park, is currently developed as a neighborhood shopping center improved with in-line retail buildings and a medical office building anchored by UCLA Health, which provide essential healthcare services and retail amenities to the community; and
WHEREAS , the continued lease of the Property benefits the City by providing local services, employment opportunities, and sustained municipal revenue; and WHEREAS , the City has negotiated the Seventh Amendment (“Amendment”) and determined it to be in the best economic interest of the City, providing for a $3,000,000 lease extension payment, reinstated percentage rent, scheduled fair market adjustments and profit participation in future transfers.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TORRANCE HEREBY FINDS AND DETERMINES AS FOLLOWS:
1. That pursuant to the California Environmental Quality Act (CEQA), the Seventh Amendment to Lease is exempt under CEQA (2026) Categorical Exemption 15301, Class 1 (Existing Facilities), as the action involves the leasing of property consisting of existing facilities with no expansion of an existing use planned at this time. 4 ATTACHMENT 1
2. That the Property is not currently required for City-specific municipal purposes.
3. That it is in the best interest of the public and the City that the Seventh Amendment between the City and KLM Madison, LLC be executed, as it secures substantial capital consideration and ensures long-term rental revenue growth for the City.
4. That, pursuant to California Government Code Section 37280(b)(1), the Amendment’s percentage rent provisions allow City rental revenue to appropriately respond to market conditions.
5. That the Mayor is authorized to execute the Seventh Amendment on behalf of the City, and the City Clerk shall attest to the Mayor's signature and deliver the Amendment to the Lessee.
INTRODUCED, APPROVED, AND ADOPTED this 27th day of January 2026.
ATTEST:
____________________________ __________________________ George K. Chen Rebecca Poirier, MMC
Mayor City Clerk
APPROVED AS TO FORM:
PATRICK Q. SULLIVAN
CITY ATTORNEY
By _________________________________
Tatia Y. Strader, Assistant City Attorney
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