DATE: November 17, 2015
SUBJECT:
Title
ORDINANCE AUTHORIZING AGREEMENT FOR AMENDMENT OF LEASE AMENDMENT NO. 1 TO THE LEASE WITH THE CITY OF CORONADO FOR THE GLORIETTA BAY MARINA LOCATED AT 1715 STRAND WAY IN THE CITY OF CORONADO AMENDING RENT TERMS, REVISING THE LEASEHOLD DESCRIPTION, AND UPDATING CERTAIN LEASE PROVISIONS
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EXECUTIVE SUMMARY:
In August 2012, the Board approved a 40-year lease agreement1 (Lease) with the City of Coronado (City) for a public boat rental dock and approximately 100-slip marina, commonly known as Glorietta Bay Marina. The Lease covers approximately 144,555 square feet of water area and 4,948 square feet of land area located in Glorietta Bay at 1715 Strand Way in the City of Coronado (Attachment A).
In 2007, the City invested $3.6 million in waterside improvements on the District’s parcel, which included the replacement of two of the three docks, known as Docks A and B. The third dock, known as Dock C, was not part of the initial redevelopment but the City plans to invest an additional $3 million to replace and reconfigure Dock C. Due to unexpected potential litigation and environmental review, the construction of Dock C has been delayed.
The Lease requires a fixed annual rent payment of $11,616 with no percentage rent through June 30, 2015. Effective July 1, 2015 through June 30, 2022, rent is based on percentage rents with Minimum Annual Rent (MAR) of $95,000. The City is requesting a continuation of the fixed annual rent for two additional years through June 30, 2017 to provide the City with financial relief during the anticipated construction period for Dock C. In exchange for continuation of the fixed annual rent, the City has agreed to an increase in the percentage rate for boat slip income from 11% to 16% for the period of July 1, 2017 through June 30, 2022.
Staff has analyzed the City’s request and believes increasing the percentage rate for boat slip income from 11% to 16% for the period of July 1, 2017 through June 30, 2022 would fairly compensate the District for granting two (2) additional years of fixed annual rent. In addition, the City has agreed to update certain lease provisions to reflect current District practices. Therefore, staff is recommending the Board approve the Agreement for Amendment of Lease Amendment No. 1 (Amendment No. 1) (Attachment B) to the Lease.
RECOMMENDATION:
Recommendation
Adopt an Ordinance Authorizing the Agreement for Amendment of Lease Amendment No. 1 to the Lease with the City of Coronado for the Glorietta Bay Marina amending rent terms, revising the leasehold description and updating certain lease provisions.
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FISCAL IMPACT:
Approximately $200,000 in rent will be deferred for the period of July 1, 2015 through June 30, 2017 by continuing the fixed annual rent of $11,616. However, over the course of the remaining five years of the rental period (July 1, 2017 through June 30, 2022), increasing the percentage rate for the boat slip income from 11% to 16% would reimburse the District for the $200,000 in deferred rent, plus interest. Staff has analyzed the City’s request and believes this would fairly compensate the District for continuing the fixed annual rent for two (2) additional years.
This agenda item is subject to Board Policy No. 106-Cost Recovery User Fee Policy.
Compass Strategic Goals:
This agenda item supports the following Strategic Goal(s).
• A vibrant waterfront destination where residents and visitors converge.
• A Port with a healthy and sustainable bay and its environment.
• A Port with a comprehensive vision for Port land and water uses integrated to regional plans.
• A financially sustainable Port that drives job creation and regional economic vitality.
DISCUSSION:
The Glorietta Bay Marina encompasses approximately 6.3 acres of tidelands area located at 1715 Strand Way in the City of Coronado, split roughly in half between submerged land owned by the District (approximately 3.3 acres) and land owned by the City (approximately 3 acres). In August 2012, the Board approved a 40-year Lease with the City for a public boat rental dock and approximately 100-slip marina, commonly known as Glorietta Bay Marina.
In 2007, the City invested $3.6 million in waterside improvements on the District parcel, which included the replacement of two of the three docks, known as Docks A and B, a new gangway, public recreational boat dock, dredging, and revetment replacement. The improvements resulted in a modernized and like-new marina serving to increase the revenue generating capacity of the asset.
Dock C
The third dock in the Glorietta Bay Marina, which comprises approximately 30% of the marina slips, known as Dock C, was not part of the initial redevelopment. However, the City plans on investing an additional $3 million to replace and reconfigure Dock C. This additional redevelopment will result in a $6.6 million total capital investment by the City and a complete replacement of all improvements on the District’s waterside parcel.
Redevelopment of Dock C was anticipated to commence in late 2012 and be completed in early 2015. However, due to unexpected potential litigation and environmental review, construction was unable to commence. The City continues to move forward with the redevelopment, but is now projecting the redevelopment of Dock C to be completed in mid-2017.
Current Rent
The Lease with the City requires a fixed annual rent of $11,616 for the first three years of the term (July 1, 2012 through June 30, 2015). The fixed annual rent was continued from the previous lease to allow for loan restructuring following the demise of the redevelopment agency, and for downtime during construction of Dock C. Effective July 1, 2015, the Lease requires MAR of $95,000 with percentage rents calculated as follows:
The reduced percentage rental rate for boat slip rentals reflects the fact that the marina is roughly split in half between the City and District’s jurisdiction; therefore, the rental rate of 11% in the Lease is half of the typical rate of 22%.
Proposed Rent Terms
According to the City, increasing the fixed rent now, as required by the Lease, would impede the City’s ability to pay for the replacement of Dock C solely from the City’s Marina Fund, and may further delay the construction. The City has requested that the District continue the fixed annual rent of $11,616 for two additional years ending June 30, 2017. Beginning July 1, 2017, the City would increase the percentage rate paid to the District on boat slip rentals from 11% to 16% for the remainder of the rental period, which ends on June 30, 2022. The City is projecting the replacement and reconfiguration of Dock C will commence in November 2016 and end in June 2017. Granting the City’s request to keep the fixed annual rent at $11,616 for two (2) additional years and increasing the percentage rate thereafter, requires amending the existing Lease. Additional details pertaining to the proposed Amendment No. 1 are included in the “Current and Proposed Amendment Information Summary” (Attachment C).
Staff has analyzed the City’s request and has estimated approximately $200,000 in rent will be deferred for the period July 1, 2015 through June 30, 2017 by continuing the fixed annual rent of $11,616. However, over the course of the remaining five years of the rental period, increasing the percentage rate paid to the District on boat slip rental income from 11% to 16% would reimburse the District for the $200,000 in deferred rent, plus interest. Staff has analyzed the City’s request and believes this would fairly compensate the District for continuing the fixed rent for two additional years.
Proposed Updated Lease Provisions
The Lease with the City is being updated to reflect the District’s current practices. Additionally, the description of the leased premises in the Lease is being revised to accurately reflect the square footage of the leased land and water area. Staff is recommending amending the Lease and updating the following lease provisions:
• Rent
• Description of Leased Premises
• Insurance
• Conformance with Laws and Regulations-Sustainable Leasing
• Compliance with Prevailing Wage Laws
Conclusion
Under its Lease with the District, the City has requested to maintain the fixed annual rent of $11,616 for an additional two (2) years, from July 1, 2015 through June 30, 2017, and has agreed to update the Lease provisions mentioned above via Amendment No. 1. The City is a tenant in good standing and staff believes both the economic terms and the updated Lease provisions will benefit the District; therefore, staff recommends that the Board adopt an ordinance authorizing Amendment No. 1 to the Lease with the City of Coronado for the Glorietta Bay Marina amending rent terms, revising the leasehold description and updating certain lease provisions.
General Counsel’s Comments:
The General Counsel’s Office has reviewed the agenda sheet and attachments as presented to it and approves them as to form and legality.
Environmental Review:
The proposed Board action does not constitute a “project” under the definition set forth in California Environmental Quality Act (CEQA) Guidelines Section 15378 because it will not increase the size of the leasehold premises above what is currently existing and have a potential to result in a direct or indirect physical change in the environment. Therefore it is not subject to CEQA. No further action under CEQA is required.
The proposed Board action does not allow for “development,” as defined in Section 30106 of the California Coastal Act, or “new development,” pursuant to Section 1.a. of the District’s Coastal Development Permit (CDP) Regulations. Therefore, issuance of a CDP or exclusion is not required.
Equal Opportunity Program:
Not applicable.
PREPARED BY:
Christian Anderson
Senior Asset Manager, Real Estate
Amber Jensen
Assistant Asset Manager, Real Estate
Attachment(s):
Attachment A: Location Map
Attachment B: Proposed Amendment No. 1 to Lease
Attachment C: Current and Proposed Amendment Information Summary
1Lease by and between San Diego Unified Port District and City of Coronado, dated August 14, 2012 and filed on August 21, 2012 in the Office of the District Clerk as Document No. 59251