DATE: August 18, 2020
SUBJECT:
Title
ORDINANCE GRANTING A LEASE TO LOUISIANA CHARLIE’S, LLC FOR A FAST-CASUAL RESTAURANT AT SEAPORT VILLAGE LOCATED AT 849 W. HARBOR DRIVE, SUITE W-11B FOR A TOTAL 10-YEAR TERM
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EXECUTIVE SUMMARY:
Seaport Village is a tourist-oriented retail shopping center consisting of approximately 90,000 square feet of specialty retailers, restaurants, outdoor entertainment, and parking on an approximately 14-acre bayfront site located at 849 West Harbor Drive in San Diego, California. On October 1, 2018, the District assumed ownership of the Seaport Village assets, which consists of 32 buildings, including one over-water structure. Since then, the District has made strategic operational and financial investments to improve the overall experience and success of the shopping center for both locals and visitors alike. An essential component to this success is the District’s ability to secure tenancies quickly to increase occupancy, attract additional foot traffic, and generate higher revenue to the District. As a result, one of staff’s primary objectives has been to fill the existing vacancies at Seaport Village with new high-caliber tenants with Public Trust compliant uses.
Since assuming ownership of Seaport Village, in collaboration with the District’s broker, Retail Insite, staff has successfully filled 11 vacant spaces. Staff has also engaged with dozens of prospective tenants, resulting in several competitive letters of intent (LOI) for the District’s consideration. Today, staff seeks the Board of Port Commissioner’s (Board) approval of an ordinance granting a lease to Louisiana Charlie’s, LLC (Louisiana Charlie’s) an experienced, exceptional fast casual barbeque operator to fill a vacant space located in the Carousel District at Seaport Village. This prospective tenant will fill a key vacancy and generate a positive fiscal impact for the District, increase market demand for the remaining vacancies, and generate momentum and energy for the shopping center as a vibrant, waterfront destination with new and exciting offerings for its visitors.
This lease is projected to generate cumulative cash flow to the District of $517,889 in rent over a 10-year term, a highly competitive internal rate of return (IRR) to the District of 22% with a net present value (NPV) of $230,797. Consistent with past Board feedback to staff, the proposed lease includes a termination provision which would enable the District to terminate the lease after the fifth lease year in the event of future redevelopment of the Central Embarcadero. Therefore, staff recommends the Board adopt the ordinance granting a lease to Louisiana Charlie’s.
RECOMMENDATION:
Recommendation
Adopt an Ordinance Granting a Lease to Louisiana Charlie’s, LLC for a Fast-Casual Restaurant at Seaport Village located at 849 W. Harbor Drive, Suite W-11B in San Diego for a Total 10-Year Term
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FISCAL IMPACT:
If this ordinance is adopted, staff anticipates a cumulative cash flow to the District of approximately $517,889 in rent over the 10-year term of this lease. Incorporating all the cash inflows and outflows, staff estimates a 10-year IRR of 22% and an NPV of $230,797 (using an 8% discount rate). If approved, the District will incur cash outflows for broker commissions as well as a tenant improvement (TI) allowance. Staff anticipates broker commission will be approximately $31,700, which will be paid during FY21 and funded by the approved Seaport Village FY21 Operating Budget. Total TI allowance would be $250,000. Due to lease structure and tenant construction timeline, staff anticipates this TI allowance would be paid during FY21. Any TI allowance paid out would be drawn from the $2.8 million TI allowance in the approved FY21 budget for Equipment Outlay and Other Capital Projects. Please see Attachment B for the economic terms and projections of this lease.
Compass Strategic Goals:
This agenda item supports the following Strategic Goal(s).
• A Port that the public understands and trusts.
• A vibrant waterfront destination where residents and visitors converge.
• A Port that is a safe place to visit, work and play.
• A financially sustainable Port that drives job creation and regional economic vitality.
DISCUSSION:
Background
On October 1, 2018, the District assumed ownership of the Seaport Village assets. To date, the District has lease agreements in place with 60 tenants at Seaport Village and approximately 13 vacancies. Most of these vacancies are concentrated in the Lighthouse District area of Seaport Village. Staff has made great strides in seeking out quality tenants to reinvent Seaport Village and reposition it for the future. In collaboration with Retail Insite, staff has continued to actively market and list the existing vacancies to identify and source high caliber tenants with Public Trust compliant uses.
Proposed Lease
Louisiana Charlie’s is a southern style casual restaurant offering barbeque and Cajun-style food with a unique Mardi-Gras themed atmosphere. Louisiana Charlie’s has built a successful brand and following since launching in 2013 with its location within the Shoreline Village along the Long Beach waterfront. Louisiana Charlie’s will lease a key food and beverage vacancy in the Carousel District’s W11-B (approximately 700 square feet plus patio area) and will provide both indoor and outdoor seating options. Staff has negotiated a 10-year lease with Louisiana Charlie’s, which staff estimates will result in a 10-year IRR of 22% and an NPV of $230,797 (using an 8% discount rate). The lease contemplates a TI allowance of $250,000 and District termination right after Lease Year Five with 180 days’ notice. In the event the District terminates the lease during Lease Years 6,7,8 or 9, the District would be responsible for paying the tenant a termination fee ($75,000, $50,000, $25,000, $10,000, respectively). No termination fee would be applicable after Lease Year 9. A summary of the economic terms and projections for the lease have been provided in Attachment B. A copy of the proposed lease with Louisiana Charlie’s is included as Attachment C.
Conclusion
The proposed lease would allow the District to continue to achieve its objectives of securing high-caliber, catalyst tenants to increase occupancy, generate greater momentum and energy for the shopping center, and secure higher revenue to the District. The Board’s adoption will also demonstrate to prospective tenants in the visitor serving commercial market that Seaport Village has viable and attractive leasing opportunities that are competitive and worth pursuing. For these reasons, staff recommends the Board adopt the ordinance granting a lease to Louisiana Charlie’s.
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 to approve an ordinance granting a lease to Louisiana Charlie’s, LLC, is within the scope of the Coastal Act Categorical Determination of Exclusion (Categorical Determination) issued by the District on August 9, 2018 and a revised Categorical Determination was issued on October 30, 2019 for lease agreements for the continuation of existing uses at the shopping center currently known as Seaport Village (the Seaport Leasing Project). The District concluded that the Seaport Leasing Project, as described in the Categorical Determination, was categorically exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15301 and/or Section 3.a. (Existing Facilities) of the District’s Guidelines for Compliance with CEQA. The proposed Board action is not a separate “project” for CEQA purposes but is a subsequent discretionary approval related to a previously approved project. (CEQA Guidelines § 15378(c); Van de Kamps Coalition v. Board of Trustees of Los Angeles Comm. College Dist. (2012) 206 Cal.App.4th 1036.) Accordingly, the proposed Board action is merely a step-in furtherance of the original project for which environmental review was performed, and no further environmental review is required.
The proposed Board action complies with sections 21, 35, and 87 of the Port Act, which allow the Board to pass ordinances and to do all acts necessary and convenient for the exercise of its powers, and for the use of tidelands for all visitor-serving commercial and industrial uses and purposes, and the construction, reconstruction, repair, and maintenance of commercial and industrial buildings, plants, and facilities. The Port Act was enacted by the California Legislature and is consistent with the Public Trust Doctrine. Consequently, the proposed Board action is consistent with the Public Trust Doctrine.
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 because they will not result in, without limitation, a physical change, change in use or increase the intensity of uses. A Categorical Determination was previously issued for this project on August 9, 2018, and a revised Categorical Determination was previously issued for this project on October 31, 2019; therefore, issuance of a Coastal Development Permit or subsequent Exclusion is not required for the proposed Board action. However, development within the District requires processing under the District’s CDP Regulations. Future development, as defined in Section 30106 of the Coastal Act, will remain subject to its own independent review pursuant to the District’s certified CDP Regulations, PMP, and Chapters 3 and 8 of the Coastal Act. The proposed Board action in no way limits the exercise of the District’s discretion under the District’s CDP Regulations.
Equal Opportunity Program:
Not applicable
PREPARED BY:
Lucy Contreras
Program Manager, Real Estate
James Hammel
Program Manager, Real Estate
Attachment(s):
Attachment A: Seaport Village Site Map and Proposed Premises Map
Attachment B: Lease Information Summary for Louisiana Charlie’s
Attachment C: Lease Agreement with Louisiana Charlie’s