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Recommendation to Approve a Consent to Assignment of Lease and Leasehold Deed of Trust with SHM Ballena Isle, LLC for the Current CLP Ballena Marina, LLC, Formerly Known As CNL Income Ballena Marina, LLC at Ballena Marina. (Community Development 216)
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To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Recommendation to Approve a Consent to Assignment of Lease and Leasehold Deed of Trust with SHM Ballena Isle, LLC for the Current CLP Ballena Marina LLC, Formerly Known As CNL Income Ballena Marina, LLC at Ballena Marina.
BACKGROUND
The City entered into a lease agreement with Ballena Isle Marina (BIM), LP, in 1979, for 27 acres of submerged land and 27 acres of dry land, located at 1150 Ballena Boulevard. The lease term was for 25 years with an option, exercised in January 1988, to renew for an additional 25 years. Under the current lease, which expires December 31, 2028 (which includes the remaining time on the original term), the annual rent is $40,400 for the entire property, increasing to $55,000 in the last year. In March 2010, the City approved a Consent to Assignment of Lease between BIM and CLP Ballena Marina, LLC (formerly CNL Income Ballena Marina, LLC. In July 2015, SHM Ballena Isle, LLC (SHM) proposed acquisition of Ballena Isle Marina from CNL Lifestyle Properties (CLP Ballena Marina, LLC). Under the terms of the lease agreement, the City Council is required to consent to any assignment of the lease and leasehold deed of trust (Exhibit 2).
DISCUSSION
In July 2007, the City Council approved a Master Lease that divided the BIM leasehold estate into three separate leasehold estates (Exhibit 3). The Master Lease was to become effective when BIM sold the commercial buildings located on a portion of the leased premises. BIM requested, and negotiated with staff, the Master Lease agreement to facilitate BIM’s ability to trifurcate the lease into three portions selling off the portions that were non-marine related. The economic downturn delayed any sale of the commercial buildings and improvements to the marina that were contemplated as part of the Master Lease Agreement.
In 2010, BIM assigned its interest to CLP Ballena Marina, LLC, with BIM continuing to operate and manage the property for CLP. At the time of the lease assignment, CLP indicated it would evaluate the Ballena Marina to determine what improvements would benefit the City’s asset and the lease hold interest. However, no major investments were made on the premises during the time that CLP held the lease (2010-2015).
At this time, CLP has requested that the City consent to assignment of the Lease between CLP and SHM and leasehold deed of trust. In evaluating the request to consent to the assignment, staff retained Keyser Marston Associates (KMA) to evaluate the financial capacity of SHM to operate the marina. KMA has concluded, based on the information provided, that SHM has the financial wherewithal and institutional experience to lease and operate the Ballena Marina consistent with the terms and conditions of the Lease. SHM is acquiring the leasehold interest as part of a larger 27 marina acquisition deal. SHM will be placing a mortgage on the property in an amount of $125 million. The lessee intends to use mortgage funds to upgrade the marina, and re-position it more effectively in the market. SHM intends to undertake a three-pronged approach to upgrading the facility using operational improvements, maintenance and rehabilitation of the premises, to grow and reposition the marina. To ensure that SHM carries out these stated activities, the Assignment requires that within 90 days after closing on financing, SHM will review and inspect the marina and develop a list of repairs required to keep the marina in good order. SHM will provide a copy of these repairs and a schedule for completing the repairs to the City. If the identified repairs are not made in a timely manner, the City can declare SHM in default of the lease and compel improvements.
Based on SHM’s proven track record and its financial capacity and institutional expertise in operating marinas, and pursuant to the requirements of the sublease, staff recommends City Council consent of the assignment of Lease and mortgage of the leasehold estate.
FINANCIAL IMPACT
There is no financial impact to the General Fund or any Other Funds from approving the Assignment of the Lease Agreement.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Municipal Code, Tidelands Trust regulations and the Lease.
RECOMMENDATION
Approve a consent to assignment of Lease and Leasehold Deed of Trust with SHM Ballena Isle, LLC for the current CLP Ballena Marina, LLC formerly known as CNL Income Ballena Marina, LLC at Ballena Marina.
Respectfully submitted,
Debbie Potter, Community Development Director
By,
Nanette Mocanu, Assistant Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Ballena Isle Marina Lease (1979)
2. Consent to Assignment of the Lease and Leasehold Deed of Trust
3. 2007 Master Lease Agreement