Title
Introduction of Ordinance Authorizing the City Manager to Execute a Second Lease Amendment with Faction Brewing Company LLC for Building 22, Suite 200, Located at 2501 Monarch Street at Alameda Point, for a Three-Month Rent Deferral and Subsequent Twelve-Month Deferred Rent Repayment Schedule. [Requires 4 affirmative votes]
In accordance with 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 is recommending that City Council authorize the City Manager to execute a Second Amendment to the Lease with Faction Brewing Company, LLC., (Faction) for approximately 32,500 square feet of space of Building 22, located at 2501 Monarch Street, Suite 200, at Alameda Point, (Premises). Faction is currently operating a brewery and tasting room, and family- and pet-friendly patio with live music, food trucks, and events at the Premises. The term of the current lease (Lease), dated April 17, 2018, is 10 years, expiring April 30, 2028, and includes two ten-year extension options (Exhibit 1). The First Amendment to the Lease, dated December 15, 2020, provided deferral of Base Rent for a period of nine (9) months, with a three (3) year repayment schedule and rent credit, as described in Exhibit 2. The proposed Second Amendment to the Lease defers three (3) months of rent, beginning February 2024, with a twelve (12) month repayment schedule. The Second Amendment is attached as Exhibit 3.
BACKGROUND
On August 16, 2012, the City of Alameda (City) entered into an initial five (5) year and three (3) month Lease with Faction. On April 17, 2018, the City entered into a ten (10) year lease with Faction. The lease includes two ten-year extension options.
In 2020, the COVID-19 pandemic, and resulting Shelter in Place order, caused major economic impacts to businesses and manufacturers worldwide. Prohibitions on large gatherings impacted businesses like Faction that rely on revenues from in person tasting room sales and events. In response, on October 6, 2020, City Council approved a rent relief program for non-profits and Spirits Alley tenants at Alameda Point. The program allowed tenants to defer up to nine (9) months of rent and repay the deferred rent over a three-year repayment period. Tenants that 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.
On October 6, 2020, City Council approved a nine-month rent deferral program for eight businesses at Spirits Alley, including Faction.
In the winter of 2023-24, Faction’s business and sales were deeply impacted by repeated atmospheric rivers and inclement weather as well as road closures for necessary infrastructure improvements at Alameda Point which temporarily changed traffic patterns, resulting in low revenues.
In January 2024, Faction approached the City to discuss a proposed rent deferral and repayment schedule.
DISCUSSION
Alameda Point’s first local brewery, Faction, has occupied a portion of Building 22 located along Spirit’s Alley since 2013. In the past 11 years Faction has established themselves as a well-known, local Bay Area brewery. Patrons from all over the region come to Faction to enjoy their beers and to partake in the views of the San Francisco skyline. As the pioneer brewery of Spirits Alley, Faction has been an integral part of establishing Alameda Point’s Spirits Alley as a well-known community of craft beer, wine, and spirit makers.
In 2020, the COVID-19 pandemic impacted Faction’s ability to make full rental payments and shortened hours of operation. In spite of this, Faction repaid all deferred rent within the first 12 months of repayment, well prior to the allowed three-year repayment period, earning the maximum rent credit. Staff believes this past performance demonstrates Faction’s ability to repay deferred rent.
In January 2024, Faction proactively approached City staff requesting a three-month rent deferral to offset financial impacts that have been compounded from last year’s significant wet weather, a subsequent shorter than normal summer, and impacts from street infrastructure improvements. In addition, they had to make recent payments of Property Taxes, Storm Water Utility Fees, and Water Quality and Flood Protection Fees that were all due concurrently.
That said, Faction anticipates revenues increasing based on the City supporting enhanced marketing of Spirits Alley that is beneficial to Faction and other Spirits Alley businesses as well as Faction’s partnership with St. George’s Spirits on this summer’s Head West markets and an increase in sales with warmer weather.
Staff and Faction have established the following rent deferral and repayment terms:
|
DEFERRED RENT REPAYMENT SCHEDULE |
|
Months Deferred |
Three (3) (February 2024-April 2024) |
|
Total Base Rent Deferred |
$70,078.11 |
|
Repayment Period |
Payment Due |
|
Month 1 |
Base Rent + $5,839.84 when first Base Rent payment is due |
|
Month 2 |
Base Rent + $5,839.84 when second Base Rent payment is due |
|
Month 3 |
Base Rent + $5,839.84 when third Base Rent payment is due |
|
Month 4 |
Base Rent + $5,839.84 when fourth Base Rent payment is due |
|
Month 5 |
Base Rent + $5,839.84 when fifth Base Rent payment is due |
|
Month 6 |
Base Rent + $5,839.84 when sixth Base Rent payment is due |
|
Month 7 |
Base Rent + $5,839.84 when seventh Base Rent payment is due |
|
Month 8 |
Base Rent + $5,839.84 when eighth Base Rent payment is due |
|
Month 9 |
Base Rent + $5,839.84 when ninth Base Rent payment is due |
|
Month 10 |
Base Rent + $5,839.84 when tenth Base Rent payment is due |
|
Month 11 |
Base Rent + $5,839.84 when eleventh Base Rent payment is due |
|
Month 12 |
Base Rent + $5,839.84 when twelfth Base Rent payment is due |
ALTERNATIVES
• Approve first reading of draft Ordinance directing City Manager to execute the proposed Second Amendment to the Lease with Faction, as recommended.
• Do not approve first reading of Ordinance and direct staff to negotiate alternate Second Amendment terms based on City Council direction.
• Do not approve the first reading of the Ordinance and direct staff to enforce the existing Lease terms, which will result in late fees, and additional financial burden on the Lessee.
FINANCIAL IMPACT
The revenues generated from this Lease are deposited into the Alameda Point Fund (Fund 290). The proposed Second Amendment to the Lease temporarily reduces revenue by $70,078.11, as a result of three months of Deferred Base Rent. At the conclusion of the twelve-month repayment period, all Deferred Base Rent will be repaid. Please note that there may be a minor loss of revenue, as Tenant will not be charged interest on deferred payments, however, long-term financial impacts are minimal.
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. 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
Introduce an Ordinance authorizing the City Manager to execute a Second Lease Amendment with Faction Brewing Company LLC for Building 22, Suite 200, located at 2501 Monarch Street at Alameda Point, for a three-month rent deferral and twelve-month repayment schedule.
Respectfully submitted,
Abby Thorne-Lyman, Base Reuse and Economic Development Director
By,
Annie Cox, Management Analyst
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Lease
2. First Amendment to the Lease
3. Proposed Second Amendment to the Lease