Title
Introduction of Ordinance Authorizing the City Manager to Execute a Third Lease Amendment with Faction Brewing Company, LLC, a California Limited Liability Company for Building 22, Suite 200, Located at 2501 Monarch Street at Alameda Point. [Requires 4 affirmative votes] (Base Reuse and Economic Development 29061822)
Body
To: Honorable Mayor and Members of the City Council
From: Gerry Beaudin, City Manager
EXECUTIVE SUMMARY
Staff recommends that City Council authorize the City Manager to execute a Third Amendment (Exhibit 1) to the Lease with Faction Brewing Company, LLC., a California limited liability company (Faction) for a portion of 2501 Monarch Street, Suite 200 (Building 22) at Alameda Point. The amendment would lengthen the initial term of the current lease to thirteen (13) years, replace the two 10-year options to renew with one 2-year option, and establish a revised repayment schedule for unpaid rent. Faction operates a brewery and tasting room hosting food trucks and events on the property and the recommended modifications to the lease are intended to support the continued success of this long-standing Alameda business.
BACKGROUND
Faction is known as Alameda Point’s first local brewery and consistently draws visitors to Spirit’s Alley seven days per week. Beginning in 2012, the City of Alameda (City) entered an initial short-term Lease with Faction at Building 22 and on April 17, 2018, the City executed a new longer-term ten (10) year lease with Faction (Current Lease) (Exhibit 2), which included two ten-year extension options for a total possible full duration of 30 years. Since its opening, Faction has established itself as a well-known Bay Area brewery drawing visitors from all over the region to enjoy their tasting room, attend the multitude of engaging events hosted on-site, and relish views of the San Francisco skyline from the expansive patio.
The COVID-19 pandemic and resulting Shelter in Place orders caused major economic impacts to businesses and manufacturers in California, particularly for businesses like Faction that depend on revenues from in-person tasting room sales and events. In October of 2020, City Council approved a rent relief program for seven non-profits and Spirits Alley tenants at Alameda Point, including Faction. The program allowed tenants to defer up to nine (9) months of rent and repay the deferred rent over a 3-year period. Tenants who paid a minimum of three months of deferred rent per year during the repayment period accrued a maximum rent credit up to three months of rent. Factions’ participation in the program was memorialized in a First Amendment to the Lease, executed on December 15, 2020 (Exhibit 3). Faction repaid all deferred rent and successfully met the repayment schedule.
In the winter of 2023-24, Faction’s business and tasting room sales were again deeply impacted by repeated atmospheric rivers and inclement weather, as well as road closures for necessary infrastructure improvements at Alameda Point that temporarily redirected traffic away from Monarch Street. Faction proactively approached the City with its concerns. In April 2024, City Council approved a Second Amendment to the Lease to alleviate some financial pressure for Faction by deferring three (3) months of base rent totaling $70,078, to be repaid over a twelve (12) month repayment schedule (Exhibit 4). Unfortunately, Faction was unable to meet the repayment obligations for a number of reasons, leaving $46,719 unpaid. Further, over the last two years, Faction has accrued an additional $164,000 in past due rent (collectively “Unpaid Base Rent”) and $11,317 in associated late fees for a total of $222,036 owed to the City.
The proposed Third Amendment includes a monthly Minimum Repayment Obligation to pay down the outstanding debt to the City, and Faction will also continue to pay their Monthly Base Rent, as it comes due. Faction has implemented a number of successful programs to increase business activity and feels they have the financial capacity to meet the proposed revised terms of the lease.
DISCUSSION
Staff have been in close communication with Faction over the last two years and twice engaged with City Council for direction in closed session. Direction from City Council was for staff to continue to work collaboratively with Faction on certain required actions, to support Faction’s effort to develop a feasible business plan, and for Faction to make specific improvements to their space, including improved signage and shade structures in the outdoor seating area, as a condition of consideration of a Third Amendment.
Faction has met all required actions to the best of their ability, has secured a façade improvement grant from the City to partially pay for the signage costs, and is proceeding with necessary permits to install signage and shade structures. There have been unanticipated delays in installing the shade structures, as the United States Department of Fish and Wildlife granted permission for the design in late March, but prohibited the construction until after the California Least Tern nesting season concludes (April to August). The exterior signage improvements will increase visibility for visitors to the Faction’s taproom, and the shade structure should increase business by creating a more comfortable outdoor space for customers to enjoy the San Fransico skyline.
As stated above of August 2026, Faction has an outstanding balance of $222,036 in unpaid rent. The Third Amendment (that has a rent credit of $11,317) will implement a schedule to repay this back rent over a five year period.
The proposed Third Amendment to the Lease (Exhibit 1) will:
• Extend initial Lease term by three (3) years, providing a longer “runway” for repayment of the Unpaid Base Rent;
• Memorialize a monthly Minimum Repayment Obligation of $3,763 to pay off the outstanding Unpaid Base Rent owed under the Lease by April 30, 2031;
• Help reduce annual operating costs for Faction, by shortening the potential full duration of the Lease, by replacing existing two 10-year Lease Renewal Options with one 2-year renewal option to allow for recalibration of the possessory interest tax calculated and charged directly to Faction by the County of Alameda; and
• Issue a one-time credit equal to the accrued the late fees assessed on Unpaid Base Rent in the amount of $11,317, as an incentive for the successful installation of new shade structure and exterior signage.
• Insert Transportation Demand Management Fee and Benefit language that is now standard in the City’s new lease template, making collection of these fees - which were approved by City Council in 2017 for all Alameda Point tenants - more directly enforceable under the Lease.
In consideration of Faction’s long tenancy, contributions to attract visitors to Alameda Point, and their honest and collaborative approach to addressing issues, City staff recommend City Council authorize the Third Amendment to the Lease. It documents a negotiated repayment schedule, adjusted lease term and renewal option that staff believe will support the Faction’s financial recovery and future success, while ensuring the City’s interests are protected.
ALTERNATIVES
• Approve first reading of the Ordinance authorizing the City Manager to execute the proposed Third Amendment to the Lease with Faction on the terms described in this staff report.
• Choose not to approve the first reading and direct the City Manager to terminate negotiations with Faction.
• Elect not to approve the first reading and direct the City Manager to continue negotiations with Faction. In this scenario, the City Council should identify the specific lease terms or conditions that require further negotiation.
FINANCIAL IMPACT
The Lease would continue to contribute Base Monthly Rent revenues from October 1, 2026, through April 30, 2031, totaling $1,802,628, all funds are deposited into the Alameda Point Fund (Fund 290). The proposed Third Amendment to the Lease also provides a mechanism and repayment schedule to also recover approximately $210,719 in unpaid past due rent that is deposited into the Alameda Point Fund (Fund 290). There is no impact to the General Fund (Fund 100).
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The proposed uses for the building are consistent with General Plan policies for Alameda Point and the Adaptive Reuse subdistrict and consistent with the Alameda Municipal Code zoning requirements for the property. The recommended lease is also consistent with the 2023 Keyser Marston Property Disposition Framework Analysis and in alignment with the Strategic Plan Goal to “Invest in Transportation, Infrastructure, Economic Opportunities and Historic Resources.” This action is subject to the Levine Act.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in CEQA Guidelines Section 15378 and therefore no further CEQA analysis is required.
On a separate and independent basis, this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15301 (Existing Facilities) and 15061(b)(3) (Common Sense).
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Introduce an ordinance authorizing the City Manager to execute a third lease amendment with Faction Brewing Company, LLC, for Building 22, Suite 200, Located at 2501 Monarch Street at Alameda Point.
Respectfully submitted,
Abigail Thorne-Lyman, Base Reuse and Economic Development Director
By,
Annie Cox, Administrative Management Analyst
Financial Impact section reviewed,
Ross McCarthy, Finance Director
Exhibits:
1. Third Amendment to the Lease
2. 2018 Lease Agreement
3. 2020 First Amendment to the Lease
4. 2024 Second Amendment to the Lease