DATE: October 13, 2016
SUBJECT:
Title
RESOLUTION ESTABLISHING RENT FOR CRAB ADDISON, INC. DBA JOE’S CRAB SHACK AT THE ROWING CLUB, LOCATED AT 525 EAST HARBOR DRIVE IN THE CITY OF SAN DIEGO FOR THE PERIOD OF NOVEMBER 1, 2016 THROUGH OCTOBER 31, 2021
Body
EXECUTIVE SUMMARY:
The District has a lease1 (Lease) with Crab Addison, Inc. dba Joe’s Crab Shack at the Rowing Club (Joe’s Crab Shack) located at 525 East Harbor Drive in the City of San Diego. The Lease provides for an initial twenty-one (21) year term, and ten (10) options to extend the term of two (2) years each, for a total potential term of forty-one (41) years. The Lease commenced on November 1, 1981 and will end on October 31, 2022 if the remaining two options are exercised. The Lease comprises approximately 1.2 acres and includes a 275 seat restaurant (Attachment A). Pursuant to the Lease, a rent review is required for the period of November 1, 2016 through October 31, 2021.
The existing percentage rental rates in the Lease are consistent with the Board of Port Commissioners (Board) adopted rental rates and are proposed to remain unchanged. Concession rent calculated on current percentage rental rates exceeds the existing Minimum Annual Rent (MAR) of $77,200. Joe’s Crab Shack has agreed to an increase in the MAR from $77,200 to $88,729, effective November 1, 2016. The increased MAR represents an increase from 75% to 77% of the average percentage rent paid during the last three accounting years of the previous rental period. BPC Policy No. 355 states that MAR should be set at no less than 75% of market rent as determined by the average of the tenant’s previous three accounting years’ rental payments.
RECOMMENDATION:
Recommendation
Adopt a Resolution establishing rent for Crab Addison, Inc. dba Joe’s Crab Shack at the Rowing Club, located at 525 East Harbor Drive in the city of San Diego for the period of November 1, 2016 through October 31, 2021.
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FISCAL IMPACT:
The proposed Board action is not expected to result in a direct fiscal impact to the District since existing percentage rental rates are proposed to remain unchanged and concession rent exceeds the proposed MAR of $88,729 per year.
Compass Strategic Goals:
This agenda item supports the following Strategic Goal(s).
• A financially sustainable Port that drives job creation and regional economic vitality.
DISCUSSION:
Joe’s Crab Shack leases approximately 23,824 square feet of land area and 29,833 square feet of water area to operate a 275 seat restaurant which includes parking and a boat dock. The Lease and proposed rent are summarized on the attached Existing and Proposed Lease Information Summary (Attachment B). The Lease commenced on November 1, 1981 and was originally between CHE Inc., dba Chart House and the District, and was later assigned to Crab Addison, Inc. on April 10, 2007. The Lease provides for a base term of twenty-one (21) years with ten (10) options to extend the term for two (2) years each, for a total potential term of forty-one (41) years expiring October 31, 2022. Under the Lease, rent reviews occur every five years with the last rent review covering only the last year of the Lease (assuming the final term extension option is exercised).
The Lease requires a rent review for the period of November 1, 2016 through October 31, 2021. The existing percentage rental rates are in accordance with the Board’s adopted rental rates and are proposed to remain unchanged. Concession rent calculated on current percentage rates exceeds the existing MAR of $77,200. Joe’s Crab Shack has agreed to an increase in the MAR from $77,200 to $88,729 per year, effective November 1, 2016. The adjustment represents an increase from 75% to 77% of the average percentage rental paid during the last three accounting years of the previous rental period. Joe’s Crab Shack has paid an average of $115,232 in concession rent over the past three accounting years and the agreed-upon adjustment of the MAR to $88,729 per year represents a 15% increase over the previous MAR of $77,200.
Staff recommends the Board adopt a Resolution establishing new MAR for Joe’s Crab Shack for the period of November 1, 2016 through October 31, 2021.
General Counsel’s Comments:
The Office of the General Counsel has reviewed the rent review issues presented in the agenda sheet and approves 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 have a potential to result in a direct or indirect physical change in the environment and is, therefore, not subject to CEQA. No further action under CEQA is required.
In addition, the proposed action allows for the District to implement its obligations under the Port Act and/or other laws. The Port Act was enacted by the California Legislature and is consistent with the Public Trust Doctrine. Consequently, the proposed action is consistent with the Public Trust Doctrine.
Finally, 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 Regulations. Therefore, issuance of a Coastal Development Permit or exclusion is not required.
Equal Opportunity Program:
Not Applicable.
PREPARED BY:
Alexa Paulus
Assistant Asset Manager, Real Estate Development
James Hammel
Asset Manager, Real Estate Development
Attachment(s):
Attachment A: Location Map
Attachment B: Existing and Proposed Lease Information Summary
1 Lease Agreement between San Diego Unified Port District, a public corporation and Crab Addison, Inc. dba Joe’s Crab Shack at the Rowing Club, a Texas corporation, (originally granted to CHE Inc. and assigned to Crab Addison Inc. on April 10, 2007) filed in the Office of the District Clerk on November 17, 1981 as Document No. 14282.