Title
Introduction of Ordinance Authorizing the City Manager to Execute a Lease for a Portion of Building 41 with DOER Marine Operations, Located at 650 West Tower Avenue, at Alameda Point, Alameda California, for a Term of Eighteen Months with One Extension Option for Six Months. [Requires 4 affirmative votes]
In accordance with the California Environmental Quality Act (CEQA), this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15301 (Existing Facilities). (Base Reuse and Economic Development 29061822)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Staff recommends that the City Council authorize the City Manager to execute a lease with DOER Marine Operations, a California corporation (DOER) for a portion of Building 41 at Alameda Point for a term of eighteen months with one six-month extension option. DOER is the current occupant under a 1-year License Agreement with the City of Alameda (City) that will expire on September 1, 2024. DOER, a long-standing Alameda business, is a marine consulting firm that also specializes in design, engineering, and fabrication of equipment for undersea exploration. They have a mix of office, retail, and workshop uses in the building. The recommended new lease will help support this maritime use at Alameda Point, while a formal timeline and plan for the disposition of Building 41 by the City is finalized.
BACKGROUND
The City controls the former US Navy structure (Building 41) at 650 West Tower Avenue in Alameda Point under a Lease in Furtherance of Conveyance from the Navy (LIFOC). Built in 1945, Building 41 includes approximately 118,041 square feet, with 50’ height ceilings, hangar doors, high power and ceiling cranes. It was fully occupied by another master tenant with DOER as a subtenant, but upon that master tenant’s departure in 2023, the City agreed to license a portion of the space to DOER directly to allow them to remain in place. DOER occupies approximately 30,000 square feet of interior space of the building and some vehicle parking in the yard.
DOER was founded in 1992 as a marine consulting firm that also specializes in design, engineering, and fabrication of equipment for undersea exploration. DOER located to Alameda Marina in 2003 and relocated to Building 41 in 2017. Building 41 houses office space for DOER’s consulting, design, research and development functions, fabrication workshop for prototyping, including assembly of undersea marine vehicles and components, educational activities, and a retail dive shop that services and repairs equipment.
Given Building 41’s central location within the Waterfront Town Center Precise Plan at the entrance to the Adaptive Reuse area, it is a highly desirable building that is adjacent to new infrastructure installed as part of the City’s Master Infrastructure Plan. During the January 16, 2024, City Council Study Session on Upcoming Alameda Point Leasing and Sale Activity, staff recommended the sale of certain buildings in Reuse Area, including Building 41, with a plan to maximize value and sale proceeds by selling assets adjacent to new infrastructure. At that meeting, staff recommended disposition through a Request for Proposals (RFP) process offering a long-term lease with purchase option as the Navy conveyance process is on hold until the City and Navy can come to terms of agreement around handling the presence of per- and polyfluoroalkyl substances (PFAS) near the Building 41 property.
While Building 41 is a desirable asset for the City to sell, staff is prioritizing the disposition of Buildings 92, 101 and 114 before commencing with the Building 41 RFP, due to the higher operating costs and risks associated with holding those properties. Additionally, the Environmental Protection Agency has issued a draft ruling to determine that PFAS is a contaminant under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which provides some clarity to the City and Navy about the conveyance process. Staff have commenced negotiations with the Navy around the conveyance of properties including Building 41, which may offer a clearer path in the next several months to a direct sale to a private entity, rather than the more complex lease / sale process recommended to City Council in January. These negotiations are ongoing and staff will continue to update City Council.
DISCUSSION
The recommended lease would commence September 1, 2024, for an initial term of 18 months, with an option for one, 6-month extension during which either party could terminate the lease with 60-days’ written notice to the other. The intent of this termination clause is to offer the City greater flexibility when the Building is ready to be sold.
Over the initial 12-month term of the lease the rent would begin at $0.65 per square foot and increase to $0.70 for the remaining 6 months and the option period (if exercised). There is also an ability to expand the space by 10,000 square feet to 40,000 square feet in total, if DOER elects to do so. At the current 30,000 square foot building footprint, the lease revenue is $19,500 per month and the total value of the lease over an 18-month period is $360,000. Although fair market value hangar lease rates elsewhere along West Tower Avenue and Monarch Street are closer to $1.00 to $1.25, staff believe this lower rate reflects an adequate fair market value for the shorter-term duration of this lease.
The lease establishes a lease premises that includes exclusive parking along West Tower Avenue and an exclusive yard area within the existing fenced space to the west of the building (shown in Exhibit A-1). The yard area has been fenced and screened for many years and is used by DOER for parking employee vehicles, and a small boat, and securing their trailer for transporting submersible vessels and equipment. No changes to the fence are proposed as part of this transaction.
In conclusion, staff believes that a lease with DOER is an acceptable interim use of Building 41, while the City sells other priority assets and seeks to clarify the timing of Navy conveyance to allow for a cleaner direct sale of the property through an RFP process.
ALTERNATIVES
After opening the public hearing and considering all of the documents and testimony, City Council may consider several alternative courses of action, including:
• Approve the first reading of the ordinance authorizing the City Manager to execute a lease with DOER on the terms described in this staff report.
• Choose not to approve the first reading and direct the City Manager to terminate negotiations with DOER and notify DOER to vacate as soon as possible.
• Elect not to approve the first reading and direct the City Manager to continue negotiations with DOER. In this scenario, the City Council should identify the specific lease terms or conditions that require further negotiation.
FINANCIAL IMPACT
The lease will contribute modest annual revenues (approximately $378,000 over the 18-month period) but will also ensure Building 41 is partially occupied which helps to provide security and minimize opportunities for vandalism of the premises and trespassing. These funds will be deposited into the Alameda Point Fund (Fund 290) and will assist with the operating expenses for City-owned Alameda Point properties and may also be allocated in part to funding the infrastructure requirements in the Alameda Point Master Infrastructure Plan.
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
In accordance with CEQA, this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15301 (Existing Facilities).
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Hold a public hearing and approve the first reading of the ordinance authorizing the City Manager to execute a lease with DOER Marine Operations, at 650 West Tower Avenue, Building 41, at Alameda Point for a term of eighteen months with one, six-month extension option.
Respectfully submitted,
Abigail Thorne-Lyman, Base Reuse and Economic Development Director
By,
Alesia Strauch, Base Reuse Manager
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Proposed Lease
2. Existing License