Title
Introduction of Ordinance Authorizing the City Manager to Execute Lease Amendments for Rent Relief Programs to Rock Wall Winery and St. George Spirits Through the Loan Conversion Assistance Program for Rent Relief in Response to the Covid-19 Pandemic. (Community Development 858)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The Covid-19 pandemic continues to impact communities around the world, including Alameda. On March 17, 2020, the City Council adopted an urgency measure, consistent with Section 3-12 of the City Charter. The March 17 ordinance authorized certain actions until April 7, but was extended on April 21 until the date the State’s declaration of emergency is rescinded, unless revoked sooner as determined appropriate by City Council. The City Council discussed a rent deferral and abatement policy at its April 21, 2020 meeting and asked staff to come back with more information and recommendations on a potential rent abatement program.
Early research into what other commercial landlords were doing revealed that rent abatement was not being offered, but as the crisis continued longer than anyone had anticipated, landlords are having to be more creative. One of the proposed programs staff identified in May and the City Council approved an alternative to abating past due rent, was a loan conversion assistance program for commercial tenants in City-owned properties who have been impacted by the COVID-19 pandemic. Through use of the loan conversion approach, the City of Alameda (City) may convert up to six months of past due rent into a loan payable over time. If the tenant succeeds in reaching negotiated milestones, all or a portion of the loan may be forgiven. The program is similar to what was offered by the federal government through their Paycheck Protection Program. Staff felt that the loan conversion approach offered the City flexibility and allowed for an individualized approach to be applied to each tenant based on its situation.
BACKGROUND
The City Council has been active in adopting programs and policies to bring relief to its tenants, both residential and commercial. On March 17, 2020, at the onset of the Shelter in Place Order (SIP), the City Manager introduced a 60-day rent deferral program. After the SIP Order was extended, at its April 21 meeting, the City Council approved an additional 30-day deferral. To provide additional flexibility to tenants, the 90 days of rent deferral can be used for any three months during the next 12-month period.
Also at the April 21 City Council meeting, the City Council approved a COVID-19 Small Business Relief Grant Program, which gave businesses citywide an opportunity to apply for $7,500 grants. To leverage this program, the City, working with the community, has established the Alameda Strong fund (alamedastrong.org) which is soliciting tax-deductible donations from community members and corporate businesses to support small businesses, non-profit organizations and low-income tenants impacted by COVID-19. Small businesses can apply for a grant at the Alameda Strong website.
At its May 19 meeting, City Council approved a loan conversion program for tenants. Loan conversion is a program where the City, as landlord, rather than abating past due rent, agrees to convert the past due rent into a loan payable over time. The loan is then evidenced by a promissory note that is cross-defaulted with the lease. The loan conversion program functions like the federal Payroll Protection Program (PPP) in that upon satisfaction of certain performance measures, the City can convert all or part of the loan into a grant.
DISCUSSION
At its October 6, 2020 City Council meeting, the City Council further refined the loan conversion program to clarify that the repayment obligations of each tenant will be documented in a lease amendment rather than a promissory note. The City Council also funded the program up to $1.5 million.
That same night, the City Council approved a rent deferral program for non-profits and Spirits Alley tenants. Several of the loan conversion applicants have expressed interest in the new rent deferral program versus the loan conversion program. The new program allows tenants to defer up to nine months of rent with repayment over three years. If the rent is repaid early, the tenant could receive up to 3 months of abated rent.
The rent deferral program is more beneficial to the City because it has a rent repayment component. However two loan conversion applicants wanted to stay in the original program. The following are the terms of the loan conversion amendments:
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Rock Wall Winery (Exhibit 1) |
Up to $156,090 Maximum Possible Rent Credit |
Repayment commences 6 months after the county completely lifts restrictions on operations, including event space usage. Repayment schedule will reflect 2 months of rent paid per year until the lease expires August 2023. - 3 months of rent abated after 6 months operation and 75% full time equivalent (FTE) of employees restored to their positions. - 1 month of rent abated for every City-sponsored event hosted until lease expires in 2023. - If business is unable to operate by the end of August 2023 because of county restrictions, loan converts entirely to abatement. Tenant is eligible for abatement credit until Aug 2023. Abatement not to exceed 6 months total at the rate of the abated months. |
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St. George Spirits (Exhibit 2) |
Up to $237,050 Maximum Possible Rent Credit |
- At production of 3,600 gallons of hand sanitizer, 3 months of rent abated; - 1 month abated for continued employment of 23 FTE employees through June 30, 2021; - 1 additional month abated for every FTE employee added between Jan 1 2021 and July 2022; - 1 month rent abated for every hosting of City-sponsored event or donation to events until June 2023. Repayment commences FY 2021-22 with a schedule of 2 months of rent paid per year over a 3 year period. Tenant is eligible for abatement credit until July 2024. Abatement not to exceed 6 months total at the rate of the abated months. |
ALTERNATIVES
• Approve the Rockwall Winery and St. George Spirits lease amendments.
• Do not approve the lease amendments and these two pioneer Spirits Alley tenants will likely go out of business.
• Option to amend lease with appeal provision of the City Manager and City Attorney decision on non-compliance with COVID Health regulations.
• Require Tenant to also apply for and diligently pursue any available Federal funding assistance for which it qualifies.
• Direct staff to renegotiate terms.
FINANCIAL IMPACT
Approval of the lease amendments will result in a reduction of $393,140 in revenue to the Base Reuse Fund (858) in FY 2020-21. As of November 10, 2020, $5,702,611, or 43%, of the $13,228,000 revenue budget for FY 2020-21 had been received. In FY 2019-20, Fund 858 received $16.6 million on a revenue budget of $14.2 million, which added over $2.4 million to fund balance, so the reduction of $393,140 is unlikely to adversely affect the health of the fund in FY 2020-21.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This ordinance is proposed and drafted pursuant to the City’s general police powers, Section 3-12 of the Charter of the City of Alameda, Article XI of the California Constitution, and Government Code Section 36937.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15601(b)(3), which is known as the “General Rule” exemption and is used where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Recommendation to authorize the City Manager to execute Lease Amendments for Rent Relief Programs to Rock Wall Winery and St. George Spirits via the Loan Conversion Assistance Program for Rent Relief in Response to the Covid-19 Pandemic.
CITY MANAGER RECOMMENDATION
The City Manager recommends approval.
Respectfully submitted,
Lisa N. Maxwell, Interim Community Development Director
By,
Nanette Mocanu, Asst. Community Development Director
Financial Impact section reviewed,
Annie To, Finance Director
Exhibits:
1 Rock Wall Winery Lease Amendment
2 St. George Spirits Lease Amendment
cc: Eric Levitt, City Manager