Title
Introduction of Ordinance Authorizing the City Manager to Execute a Lease with Poseidon Tech Corporation, a Delaware Corporation, for a Term of Seven Years, with Two Additional Five-Year Extension Options for Building 11, Located at 1190 West Tower Avenue, at Alameda Point; [Requires four affirmative votes]
Adoption of Resolution to Appropriate $828,905 from the Fund 290 (Alameda Point) Fund Balance to Cover the Cost of Broker Commission; and
Adoption of Resolution to Declare Building 11, Located at 1190 West Tower Avenue, and Adjacent Land Area Totaling Approximately 130,00 Square Feet to be Exempt Surplus Land for the Purpose of Leasing Under the California Surplus Land Act.
This action is categorically exempt from further environmental review pursuant to California Environmental Quality Act Guidelines Section 15301 (Existing Facilities). (Base Reuse and Economic Development 29061822)
Body
To: Honorable Mayor and Members of the City Council
From: Gerry Beaudin, City Manager
EXECUTIVE SUMMARY
City of Alameda (City) staff recommend the City Council authorize the City Manager to execute a lease with Poseidon Tech Corporation, a Delaware Corporation (Poseidon), for Building 11 at 1190 West Tower Avenue in Alameda Point for a term of seven years with two, five-year extension options. Poseidon is a startup founded in 2023, currently located in San Francisco, that develops autonomous aircraft with a business plan to build and operate a logistics network using its own aircraft. The recommended lease will allow the company to expand its footprint to accommodate a growing workforce to scale aircraft production while concurrently working to obtain regulatory approvals. It is anticipated that the lease will contribute over $12,628,000 to the Alameda Point fund over the initial seven (7) year term, net of Rent Credits and commercial brokerage leasing commission owed.
Poseidon is similar to the City’s adjacent tenants in the corridor, as innovators of drone technology, utilizing advanced manufacturing techniques. Building 11 has been vacant since 2020, during which time the City has had to address continued trespassing and copper theft in and around the building. Additionally, the hanger’s structure and its systems have experienced water intrusion and require additional investment that will be more viable with the property leased and generating cashflow. The re-occupancy of the space by Poseidon represents an opportunity to reinvigorate the building and return it to a use that is very similar to its original purpose when constructed by the Navy.
Staff also recommend the City Council adopt a Resolution to appropriate $828,905 from the Fund 290 (Alameda Point) Fund Balance to supplement the Base Reuse and Economic Development Department fiscal year 2026-27 operating budget, to cover the cost of the brokerage service commission, as the value of this lease exceeds the current budgeted commission allocation due to the size of the building, term, and lease rate.
Lastly, staff recommend the City Council adopt a Resolution declaring Building 11 and adjacent property to be Exempt Surplus for the purposes of leasing under the California Surplus Land Act.
BACKGROUND
The City owns a former US Navy hangar (Building 11) at Alameda Point. Building 11 is approximately 110,500 square feet in size and is located at 1190 West Tower Avenue (premises). The premises also include a fenced yard, containing approximately 127,000 square feet, to the west of the building running adjacent to Monarch Street and a strip of exclusive parking near the front entrance on West Tower Avenue. Building 11 was formerly occupied by Google and Makani, but has remained vacant since the end of 2020, with the exception of a handful of one-time event uses. The City has been actively marketing the space for lease through its commercial brokers. In 2023, the City considered a lease to Science Corporation but the lease was not approved by City Council. Recently, following a closed session discussion with the City Council, Building 11 was reoccupied under a five month administrative license agreement with Poseidon to allow staff time to negotiate a long-term lease, in order to maintain competitiveness with private landowners who are able to move more swiftly to attract tenants.
Building 11 was originally constructed by the Navy in 1941 as an aircraft rework shop, it has high power, four (4) overhead cranes and west facing hangar doors. It is physically connected to Building 12 as a result of the infill construction of Building 400 and 400A, and, thus is not a contributing structure to the Naval Air Station Alameda Reuse Area Historic District.
Building 11 has flexible Adaptive Reuse zoning and was recently connected to a new water service provided by the East Bay Municipal Utility District, in the portion of the Master Infrastructure Project (MIP) Phase 2, completed by the City in 2025.
Poseidon was founded in 2023 in San Fransico and is developing autonomous aircraft technology focused on the logistics industry. Its business plan is to build and operate a logistics network using its own aircraft and have a number of prototype aircraft already assembled. The company reports that it intends to be able to begin limited operation of aircraft in select U.S. corridors in 2027, pending regulatory approvals.
Poseidon’s activity is similar to the City’s adjacent tenants in the immediate vicinity, like Saildrone, Pyka, and Rain Industries. These companies are successful innovators of drone technology, utilizing advanced manufacturing techniques that require specialized industrial spaces. These companies all fall into the general “hard-tech” industry which is attracted to Alameda Point. Companies in this industry create tangible, physical products and often cluster near each other for proximity to talent and industrial-designed properties that can meet their physical space and utility requirements. Hard-tech and advanced manufacturing require open plan space, reinforced floors for heavy equipment, high ceilings, craneways, and specific zoning for manufacturing, assembly and R&D use. Alameda Point’s hangars provide structures that were purpose-built by the Navy for these types of activities. Further, Alameda Municipal Power (AMP) is able to deliver electricity quickly and at a competitive price and expedited timeline compared to other markets in the Bay Area.
City Council adopted Resolution 15777 on May 19, 2021, declaring the property Exempt Surplus (California Government Code Sections 54220-54233). Staff recommend that the City Council adopt a new Exempt Surplus Resolution making new findings and an Exempt Surplus declaration in accordance with Government Code Section 54221(f)(1)(M), the Alameda Point exemption authored by Assemblymember Mia Bonta in AB2319 in 2022 which allows for disposition for commercial uses provided the City remains compliant with minimum housing development, affordable housing, and Project Stabilization Agreement (PSA) requirements at Alameda Point. As the PSA requirement findings are solely applicable to the proposed lease agreement with Poseidon, staff would return with a new draft Exempt Surplus Resolution for any future nonresidential transaction involving this property (e.g. future sale or lease).
Staff also recommend adoption of a Resolution to appropriate $828,905 from the Fund 290 (Alameda Point) Fund Balance to supplement the Base Reuse and Economic Development Department’s fiscal year 2026-27 operating budget, to cover the cost of the brokerage commission, as the value of this lease exceeds the budgeted commission allocation due to the size of the building, term, and lease rate. The leasing commission will be calculated and paid in accordance with the City Council authorized Exclusive Listing Agreement with Jones, Lang, Lasalle (JLL) to provide the City commercial brokerage services. While staff budgeted $1 million annually to cover broker commissions, increased leasing activity combined with the size, lease rate, and length of this lease will require a budget amendment. Funds are available in the 290 fund balance and would be allocated to the Base Reuse and Economic Development operating budget.
DISCUSSION
The recommended lease (Exhibit 1) will allow Poseidon to use the premises for general office, research and development, light manufacturing and assembly of autonomous aircraft and related components, ancillary storage, and staging of finished aircraft for transport. The fenced yard may be used for employee parking, storage and staging activities, but all manufacturing and assembly would take place inside the building. The leased premises, land, and parking areas are shown in the lease as Exhibits A, A-1 and A-2.
If the Ordinance to approve the lease with Poseidon is introduced by City Council on October 20, and then adopted on November 4, the recommended lease would be effective December 5, 2026. The initial term of the proposed lease is seven years with two five-year extension options, for a total possible full duration of seventeen years. As discussed, Poseidon is currently in occupancy of Building 11 under an administrative license, which would be terminated once a lease is in place or other direction is given by City Council. The length of the lease term is important to Poseidon as it is planning to invest significant capital into the planned facility and require certain security of occupancy.
The initial Base Rent is $1.50 per square foot triple net and provides the City with a strong fair market comparable rent for Alameda Point commercial real estate. It is anticipated that the lease will contribute over $12,628,000 to the Alameda Point fund over the initial seven-year term, after deducting the total Rent Credit and leasing commission. Further, the tenant will be responsible for all annual maintenance, repair, taxes, and other operating expenses for the building. On the one-year anniversary of the lease commencement, and annually thereafter, for the term of the lease, the Monthly Base rent shall increase by 3.5%. The net present value of the new 7-year lease is estimated at $9,989,000 at a 5.5% discount rate. Further, City staff estimates an additional $29 million in potential lease revenue if the tenant exercises the two 5-year renewal options.
The negotiated lease includes $2,024,900 in Rent Credit for a combination of base building upgrades (improvements) to be made by Poseidon and an incentive to lease at Alameda Point. The value of this Rent Credit is equivalent to approximately 12 months’ Base Rent and is aligned with what is being negotiated across the Bay Area commercial market to attract this type of advanced manufacturing tenant. The Rent Credit is distributed over the first twenty-four (24) months of the lease, so that the City is receiving monthly cashflow. The negotiated tenant Security Deposit is equivalent to five months’ rent, totaling $1,020,000. This will be provided by Poseidon in cash, an irrevocable letter of credit acceptable to City, or a combination of both.
Poseidon plans to invest in the City’s building by making substantial improvements, estimated at $1.5-$3 million, that will preserve and add value to it. Building 11 currently stands in a shell condition with no office improvements and minimal restroom facilities. The proposed tenant improvement (TI) work includes construction of new offices, conference and meeting rooms, kitchen/breakroom, restroom areas, electrical upgrades, resurfacing of warehouse floor, installation of HVAC, and modifications to the fire life safety system.
The roof of Building 11 is in poor condition, and Poseidon may choose to complete intermediary work to patch areas of the roof. Both City staff and Poseidon understand that a full roof replacement will be necessary in the future, but the building is being leased in as-is condition. The Lease Agreement includes language to document the City and Poseidon’s understanding of existing roof conditions in Section 10.4. and agreement that the cost of a future roof replacement project shall not be passed through to Poseidon by the City or a successor landlord, i.e., the lease agreement states that the City (or successor landlord) will retain responsibility for future roof replacement expenses. This particular aspect of the lease was necessary to achieve a $1.50-per-square-foot Market Rent Rate. Having a new comparable rent of $1.50 at Alameda Point will have a significant positive impact on the City’s position going forward in negotiating rents for new leases and renewals.
Poseidon’s planned TIs are further detailed in the work letter included with the proposed lease agreement. The final plan for alterations to the City’s building will be reviewed and approved by City staff, and the City Manager would be authorized to provide written Landlord Consent. Poseidon will need to obtain all required permits and approvals for its TIs and abide by the prevailing wage provisions in the lease. These improvements will help to sustain and grow the value of the City’s assets and will remain in place if Poseidon vacates prior to the end of the lease term, making the building much easier for the City to re-lease, if need be.
A lease to Poseidon would not preclude or conflict with a potential future building sale. In January 2026, City Council held a study session to discuss the City’s Disposition Strategy for Alameda Point, and staff discussed the possible sale of the Building 11/12/400 complex. Sale of this building is a higher priority due to the need for a roof replacement which is cost-prohibitive for the City to undertake at this time. Staff will continue to explore the sale of this building, which is complicated by the Navy’s continued ownership of the Building 400 portion, due to contamination with per- and polyfluoroalkyl substances (PFAS). The improvements and tenancy in Building 11 may make the asset more appealing to an investor if the City chooses to sell the property.
Poseidon’s financial strength and stability are similar to its neighboring tenants. Poseidon met with the City’s consultant, Keyser Marston Associates, (KMA) in mid-August of this year and reported that the company had obtained new Series A funding. KMA provided the City an assessment of the company’s financial condition and outlook to support the City in negotiations, including an assessment of Poseidon’s ability to pay rent over the proposed lease term. The financial condition rating was favorable and aligned with the rating received by adjacent tenants in a similar category of advanced manufacturing and hard-tech. Poseidon currently reports operating at a loss while investing in research and development and incurring startup costs. The company finances its operations using venture capital and recently closed on $60 million in Series A funding.
Poseidon appears to have a strong growth track and will bring new jobs to Alameda Point with the proposed lease and development of its new facility. Poseidon currently has 30 employees and is growing, projecting to have 100 employees in 2027, with a majority planned to be based at Alameda Point. KMA reports that the company has the ability to sustain operations for a period of years with the Series A funding that has been secured and its business plan includes a combination of civilian and military applications, which will provide dual pathways for future revenue generation.
Staff recommends that, after opening the public hearing and considering all of the documents and testimony, City Council approve the first reading of the ordinance authorizing the City Manager to execute the lease agreement with Poseidon as described, as the lease will reoccupy a long-vacant building, bring significant revenues to the Base Reuse fund, reinvest in a City owned asset and grow the existing hub of advanced manufacturing and hard-tech at Alameda Point. Introduction of the ordinance will require four affirmative votes. Staff further recommends that City Council adopt the attached Resolution allocating additional Fund 290 balance to Base Reuse and Economic Development to cover the commission expense, which would be paid up front in the first year of the lease.
ALTERNATIVES
• Choose not to approve the first reading and direct the City Manager to terminate negotiations with Poseidon and notify Poseidon to vacate Building 11 at the end of its license term. In this case, City would continue to market the vacant space but its marketing efforts may be hindered by a cooling of interest in Alameda Point if a clear and factual reason for rejecting the lease with Poseidon is not provided.
• Choose not to approve the first reading and direct the City Manager to continue negotiations with Poseidon. In this scenario, the City Council should identify the specific lease terms or conditions that require further negotiation. Poseidon may choose to end negotiations and seek to lease elsewhere.
FINANCIAL IMPACT
Net of abated rent and the budget allocation for commission, the lease will contribute Base Rent revenue of $12,628,000 over the seven-year initial term. These funds will be deposited in the Alameda Point Fund (Fund 290).
Funding for the recommended supplemental appropriation of $828,905 is available in the Alameda Point Fund (Fund 290) to offset the cost of broker’s commission.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The proposed uses for the building are consistent with the existing land use regulations and the General Plan. The recommended lease aligns with the Strategic Plan goal of expanding Citywide business and economic development activities, including an Alameda Point attraction and retention program. 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).
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 introduce an ordinance (requires four affirmative votes) authorizing the City Manager to execute a lease with Poseidon Tech Corporation, a Delaware Corporation, for a term of seven years, with two additional five-year extension options for Building 11, located at 1190 West Tower Avenue, at Alameda Point,
Adopt a Resolution to appropriate $828,905 from the Fund 290 (Alameda Point) Fund Balance to cover the cost of broker commission; and
Adopt a Resolution to declare Building 11 and adjacent land exempt Surplus Under the California Surplus Land Act.
Respectfully submitted,
Abigail Thorne-Lyman, Base Reuse and Economic Development Director
By,
Alesia Strauch, Base Reuse Manager
Financial Impact section reviewed,
Ross McCarthy, Finance Director
Exhibit:
1. Lease