City of Santa Monica
California

Staff Report
2040

Airport Lease Approval for Campclar Corporation, DBA Spitfire Grill Restaurant, at 3300 Airport Avenue

Information

Department:Public Works, Airport DivisionSponsors:
Category:03. Consent Calendar

Recommended Action

Recommended Action

Staff recommends that the Council:

1.              Authorize the City Manager to negotiate and execute a lease agreement with Campclar Corporation, DBA Spitfire Grill Restaurant (Campclar), for restaurant space located at 3300 Airport Avenue, Suite 1, reflecting the general terms and conditions in the report; and

2.              Authorize budget changes as outlined in the Financial Impacts & Budget Actions section of the report.

 

Staff Report Body

Executive Summary

In accordance with the recently adopted Santa Monica Airport (SMO) Leasing Policy, the City is moving forward with leasing city-owned properties.  The City owns the building at 3300 Airport Avenue, Suite 1, which currently houses Spitfire Grill Restaurant (operating under Campclar Corporation).  The proposed lease agreement with Campclar is for approximately 5,844 rentable square feet, comprised of 4,782 rentable square feet of interior dining and office space, and 1,062 square feet of exclusive use of outdoor dining space.

 

The proposed lease agreement with Campclar is for a period of five years, with an option to extend for an additional five year period. The base rent begins in year one at $2.74/sq. ft.

 

Background

Spitfire Grill Restaurant, operating under Campclar, has been located at 3300 Airport Avenue, Suite 1, since 1992. The Spitfire Grill Restaurant provides breakfast, lunch and dinner service for Airport tenants and the surrounding community.  It features indoor dining and a large outdoor dining patio abutting Airport Avenue.

 

In April 1992, the City entered into a month-to-month lease agreement with Campclar for the property located at 3300 Airport Avenue.

 

On December 5, 2000 (Attachment A), Council approved Santa Monica Airport Non-Aviation Leasing Guidelines for specified properties including 3300 Airport Avenue, Suite 1, allowing for long-term leases at the Airport.  On March 1, 2001 the City entered into a ten-year lease agreement with Campclar to operate the Spitfire Grill Restaurant with a term ending in Feb 28, 2011. 

 

On May 09, 2006 (Attachment B), the City entered into a new lease agreement with Campclar, for a period of nine years, terminating on June 30, 2015. The new lease was necessary because a section of the outdoor dining area leased by Campclar had to be relocated due to the construction of Airport Park.  Additionally, the new lease included leasehold improvements to the restrooms, outdoor patio dining area, exterior façade, lighting, and kitchen area.

 

On June 30, 2015, all Airport leases expired, including the lease for Campclar, which has been operating under a holdover agreement since that date.

 

On July 14, 2015 (Attachment C), the City Council authorized the City Manager to negotiate and execute an agreement with Campclar for a term not to exceed June 30, 2018.  Negotiations were unsuccessful due to the short lease term, which was deemed unfeasible by Campclar. 

 

On March 22, 2016 (Attachment D), the City Council approved the Santa Monica Airport Leasing and Licensing Policy for the leasehold and license management of properties at the Santa Monica Airport, and authorized the City Manager to negotiate and execute leases at the Santa Monica Airport in accordance with the policy.

 

Discussion

In August 2016, the City’s broker, Commercial Realty Group (CRG), notified staff that it had an offer from Campclar to lease the subject property.  The proposed lease with Campclar is for the Spitfire Grill to continue its operation as a full service restaurant.  The total rentable square feet is 5,844, comprised of 4,782 rentable square feet of interior dining room, office space, and common area bathrooms; and 1,062 square feet of exclusive use of outdoor dining space. The proposed lease would be for a term not to exceed five years with a monthly rental rate of $12,958.10 per month adjusted annually by 3%.  This proposal includes an option to renew for an additional five years at fair market value, however the increase in rent shall be no less than 3% greater than the rent in the last year of the initial lease term.

 

Additionally, the City would authorize a rent credit in the amount of up to six months rent following the tenant’s completion of tenant improvements within the premises.

Tenant must complete the tenant improvements within the first twelve months of the lease in order to receive the tenant improvement credit. 

 

It should be noted that the space is currently occupied and operated by Campclar, hence there is no change in use.  Although Campclar would modify the building with interior tenant improvements, Campclar does not propose to expand the building.  Campclar would be required to comply with all City building code regulations and planning standards as a condition of the lease.  Finally, the lease is consistent with the terms of the voter-approved Measure LC passed in 2014 to regulate future use of Santa Monica Airport property.

 

Annual rent paid by Campclar to the City would be between $155,497 for year one and $175,013 for year five, before rent credits.  The proposed rent reflects market price.  Securing this tenant helps ensure the Airport Fund’s financial self-sufficiency and allows it to repay its debt obligation to the City.

 

Commencement Date:              Upon execution of lease document or November 1, 2016, whichever comes later.

Term Ends:              60 months from the date of lease execution; slated for October 31, 2021.

Options:               Option to renew for an additional five years at fair market value.

Base Rental Rate:              $12,958.10 per month Modified Gross

Rent Breakdown as follows:

                            Interior Restaurant: 3,471 square feet @ $3.15 /sq. ft. 

                            Office Space: 322 square feet @ $2.75 /sq. ft. 

                            Common Area Bathroom / Hallway Space: 470 square feet @ $0.00

                            Closet Outside Bathrooms: 135 square feet @ $1.75 /sq. ft.                                                                       

                            Outdoor Dining Space: 1,062 square feet @ $0.85 /sq. ft. 

Escalations:              3% per year starting at the anniversary of the execution date of the lease.

Tenant Improvement Credit: Tenant shall receive a rent credit that is equal to up to six months rent, based on second year base rent, for a total not to exceed $80,081 for improvements completed within the first 12 months of the lease.

 

 

Real Estate Commission

A real estate commission fee of $14,909 based on 2% of the value of the total 5-year lease term, would be due to Corporate Realty Group (CRG) upon execution of the proposed lease agreement.

 

It should be noted that if Campclar exercises its option to renew for an additional five-year lease at fair market value, the City would have a future commission obligation to CRG.  This obligation would be based on 1.5% of the value of the total lease term for years six through year ten.

 

Financial Impacts & Budget Actions

The recommended lease agreement with Campclar Corporation will generate an estimated $103,655 (base monthly rent x 8 months) in Airport revenues for FY2016-17 in account 33431.402120, if the lease is executed on November 1, 2016.  The FY 2016-17 revenue budget assumed a lower lease amount from the property due to the month to month hold over lease.  The new lease is estimated to increase revenues by $27,107. Revenue account #33431.402120 should be increased by $27,107 for the FY 2016-17 budget.

 

A real estate commission fee of $14,909 would be due to Corporate Realty Group (CRG) upon execution of the proposed lease agreement.  Funds are available in the FY 2016-17 budget in the Public Works Department and will be charged to account 33431.555060.

 

Meeting History

Oct 25, 2016 5:30 PM  City Council Regular and Special Joint Meeting
draft Draft