Title
(A) Introduction of Ordinance Approving the Lease of Building 21, Located at 2601 Monarch Street at Alameda Point, with St. George Spirits, Inc., a California Corporation for: (1) A Ten-Year Term With One Five-Year Extension Option; (2) An Option to Purchase the Property for $8 Million (or $7.9 Million if a Restaurant is Constructed Within 2 Years of Lease Commencement); and (3) An Authorization for the City Manager to Execute Documents Necessary to Implement the Terms of the Lease. [Requires Four Affirmative Votes]; and
(B) Recommendation to Consent to a Sublease Between St. George Spirits, Inc., a California Corporation, and Heads, Hearts, Tails, LLC, a California Limited Liability Company, for a Portion of the Leased Space. [In accordance with the California Environmental Quality Act (CEQA), this project is Categorically Exempt under the CEQA Guidelines Section 15301(c) - Existing Facilities.] (Base Reuse 819099)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: (A) Introduction of Ordinance Approving the Lease of Building 21, Located at 2601 Monarch Street at Alameda Point, with St. George Spirits, Inc., a California Corporation for: (1) A Ten-Year Term With One Five-Year Extension Option; (2) An Option to Purchase the Property for $8 Million (or $7.9 Million if a Restaurant is Constructed Within 2 Years of Lease Commencement); and (3) An Authorization for the City Manager to Execute Documents Necessary to Implement the Terms of the Lease. [Requires Four Affirmative Votes]; and
(B) Recommendation to Consent to a Sublease Between St. George Spirits, Inc., a California Corporation, and Heads, Hearts, Tails, LLC, a California Limited Liability Company, for a Portion of the Leased Space
BACKGROUND
St. George Spirits, Inc. (St. George) is a craft distillery company, which was founded in 1982 and has occupied Building 21 since 2004.
St. George entered the original lease agreement for Building 21 on February 05, 2004 and is currently under a second amendment to the original lease. The second amendment to the original lease will expire when the commencement date for this new lease begins (estimated December 1, 2016).
DISCUSSION
As the first tenant to Spirit’s Alley, St. George is Spirit’s Alley’s anchor tenant. Founded in 1982, St. George is an artisanal distillery that originally began as an eau de vie (fruit brandy) distillery, but has since steadily expanded their portfolio to include close to a dozen spirits. In addition to offering a larger selection of spirits, St. George Spirits, Inc. now also offers a tasting room, has a laboratory, and hopes to someday include a restaurant.
The proposed lease is for ten years with one five-year option to renew. Per the new lease, once the City provides notice of completion of creation of a legal subdivided parcel, St. George will have twenty four (24) months to exercise an option to purchase the premises at a price of $8 million, or $7.9 million if a restaurant has been substantially constructed within the Premises and the restaurant is open to the public. The purchase price was determined by utilizing both current market comparisons and purchase options offered to other Alameda Point tenants. Since the City has already created a legal parcel, the purchase can occur within twenty four (24) months of the lease commencement date. If, at the end of the twenty four (24) month, St. George has not exercised the option to purchase the property, the option to purchase will end and the lease will continue.
The parcel is 4.84 acres, which would have an infrastructure burden of $4,856,645; therefore, the purchase price far exceeds its fair share of infrastructure costs.
The current rent is $34,583 per month and will increase over the life of the lease. The new lease agreement contains the standard insurance, indemnity, assignment and termination clauses the City of Alameda requires in all its leases, and is summarized below.
The following table summarizes the major business terms of the lease agreement:
|
Terms |
Building 21 |
|
Square Footage |
65,000 |
|
Uses |
The production, storage and distribution of alcoholic beverages and complimentary products, retail sales of spirits and related merchandise and complementary products, special events and related activities, a restaurant and offices. |
|
Length of Term |
10 years |
|
Extension Options |
One Option for a Periods of Five Years |
|
Monthly Base Rent |
$35,100.00 - $45,797.54 ($0.54 -$0.70/sf) |
|
1- 6 |
$35,100.00* |
|
7 - 12 |
$35,100.00 |
|
13 - 24 |
$36,153.00 |
|
25 - 36 |
$37,237.59 |
|
37 - 48 |
$38,354.72 |
|
49 - 60 |
$39,505.36 |
|
61 - 72 |
$40,690.52 |
|
73 - 84 |
$41,911.24 |
|
85 - 96 |
$43,168.57 |
|
97 - 108 |
$44,463.63 |
|
109 - 120 |
$45,797.54 |
|
*Months 1-6 are subject to partial abatement in the amount of 50% of the Base Rent pursuant to Section 4.1 (b) in the attached lease agreement (Exhibit 5) |
St. George will also enter into a consent to sublease with Heads, Hearts, Tails, LLC, a California limited liability company (Heads, Hearts, Tails, LLC) a non-associated third party vendor. As a distiller, St. George cannot legally distribute or sell directly to the public and is required to use a third party vendor for retail distribution. Heads, Hearts, Tails will operate the retail outlet, primarily selling local spirits, and may also sell other related goods such as t-shirts, hats, and other apparel. This sublease will allow St. George to house Heads, Hearts, Tails, LLC on-site.
The following table summarizes the major business terms of the sublease agreement between St. George and Heads, Hearts, Tails, LLC:
|
Terms |
|
|
Premises |
Small portion of Building 21 as depicted in Exhibit A of Sublease Agreement |
|
Uses |
Retail Shop |
|
Length of Term |
Month-to-month basis |
|
Monthly Base Rent |
|
|
08/01/16 - 12/31/16 |
$1,030.00 |
|
Jan. 1st of each year thereafter rent to increase 3% |
FINANCIAL IMPACT
The monies from the leases will be deposited into the Base Reuse Lease Revenue Fund (Fund 858) and are limited to uses permitted under the Economic Development Conveyance Memorandum of Agreement with the United States Navy (Navy). The $7.9-$8.0 million in sales proceeds from this transaction will satisfy the parcel’s Development Impact Fee per the Alameda Point Development Impact Fee Ordinance.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action does not affect the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
In accordance with the California Environmental Quality Act (CEQA), this project is Categorically Exempt under the CEQA Guidelines Section 15301(c) - Existing Facilities.
RECOMMENDATION
(A) Introduction of Ordinance Approving the Lease of Building 21, Located at 2601 Monarch Street at Alameda Point, with St. George Spirits, Inc., a California Corporation for: (1) A Ten-Year Term With One Five-Year Extension Option; (2) An Option to Purchase the Property for $8 Million (or $7.9 Million if a Restaurant is Constructed Within 2 Years of Lease Commencement); and (3) An Authorization for the City Manager to Execute Documents Necessary to Implement the Terms of the Lease. [Requires Four Affirmative Votes]; and
(B) Recommendation to Consent to a Sublease Between St. George Spirits, Inc., a California Corporation, and Heads, Hearts, Tails, LLC, a California Limited Liability Company, for a Portion of the Leased Space.
Respectfully submitted,
Jennifer Ott, Base Reuse Director
By,
Nanette Mocanu, Assistant Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Leased Premises
2. Land Map
3. Parking Area
4. Storage Area
5. Lease