Title
Recommendation to Authorize the City Manager, or Designee, to Negotiate and Execute Rent Relief Agreements with Commercial Tenants in City-Owned Alameda Point Properties via a $1.5 Million Loan Conversion Assistance Program and Implement an Alameda Point Non-Profit and Spirits Alley Businesses Rent Relief Program in Response to the COVID-19 Pandemic; and
Adoption of Resolution Appropriating $1.5 Million from the Base Reuse Fund for the Loan Conversion Assistance Program and $315,000 from the General Fund to Assist the Alameda Theater. (Community Development 858/442)
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certain actions until April 7, 2020, and was subsequently extended until the State’s declaration of emergency is rescinded, or sooner should it be appropriate to lift the local emergency declaration prior to State action, by City Council on April 21, 2020. 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.
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 continue to be creative in addressing the financial impacts. One of the proposed programs staff identified in May, and the City Council approved, which was 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. With the loan conversion approach, the City of Alameda (City) may agree to convert the past due rent into a loan payable over time. If the tenant succeeds in reaching negotiated milestones, all or a portion of those loans may be forgiven. The program is similar to what was being offered by the federal government through its Payroll Protection Program (PPP). Staff felt that the loan conversion approach offered the City a great deal of flexibility and provided individual attention to tenants based on their situation.
Staff is requesting that the City Council authorize the City Manager to negotiate and execute rent relief agreements consistent with the previously approved program guidelines and criteria and that the total assistance granted not exceed $1.5 million for the overall program. In addition, based on prior direction from the City Council, staff is recommending that $315,000 in General Fund be appropriated in support of the Alameda Theater which has been closed for over six months.
BACKGROUND
The City Council has been very 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, 2020 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 12-month period, commencing April 2020. Also at the April 21 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 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.
At its May 19, 2020 meeting, City Council approved a Loan Conversion program for commercial tenants in City-owned properties. Loan Conversion is a program whereby the landlord (the City), 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 Alameda Loan Conversion program functions like the federal PPP in that upon satisfaction of certain performance measures, the City can convert all or part of the loan into a grant. As proposed, staff will negotiate individual promissory notes with qualifying tenants and the City Manager will have final approval of the terms of each note.
The Council established three criteria for applicants for the loan conversion program:
• Tenant’s business operations must be consistent with the long-term land use and development plan for Alameda Point
• 25 or more FTE employees or generate significant sales tax
• Demonstrate significant loss of income of 35% or greater since March 17, 2020
DISCUSSION
Since the May meeting, staff has received seven applications and anticipates there are a few more pending based on recent tenant inquiries. Three were denied because they did not meet the minimum requirements. The total requests for assistance to date is $1.4 million. It should be noted that the Base Reuse fund ended the 2019-20 FY with revenue nearly $2 million over projections. The remaining qualified applicants submitted thoughtful proposals that envision re-hiring staff, offering public programs and committing to community service in order to convert their loans to grants. Staff believes that some of these proposals could be negotiated for a higher bar for converting to a grant or longer repayment periods if it were determined that the applicant is not eligible for grant conversion. It should be emphasized that initially all of these agreements start out as a loan from the City. They are due and payable unless the City determines the applicant meets benchmarks to convert to a grant.
The City has spent nearly $1 million in COVID support for non-Alameda Point commercial tenants. This assistance includes funding for include small business grants, support for the Business Improvement Areas, and capital projects to extend outdoor dining. Staff recommends the City Council authorize expenditure of $1.5 million for support of the Alameda Point Loan Conversion Program. Applications will be reviewed and assistance approved by the City Manager consistent with the guidelines previously established by the City Council and in an amount not to exceed the $1.5 million overall program cap.
During the May City Council discussion on the loan conversion program, there were many comments about the specific assistance offered for each loan or grant. At the time, the City Council was comparing what it was doing in the rest of the City relative to a proposed program for the commercial tenants at Alameda Point. However, the buildings at Alameda Point are large and the average monthly rent at Alameda Point is approximately $20,000. The micro-grants of $7,500 offer little relief to these tenants. On some of the larger buildings rents range from $30,000 to $64,000 per month. Given the unique nature of the buildings, and tenants, at Alameda Point, staff recommends sufficient flexibility and assistance to impact the future success of these important businesses.
Alameda Point Non-Profit Tenants and Spirits Alley Businesses
Most recently with the smoke-filled skies and the transition to fall, staff has become aware of the continued strain the pandemic has had on Alameda Point non-profits, which are mostly museums, and Spirits Alley. While there is a prohibition on large indoor gatherings, the decks, picnic tables and outdoor areas of Spirits Alley have been maximized, but these spaces and limited activities do not recapture lost revenue and meet overhead charges. In August, the businesses saw the County announce the reopening of outdoor areas to only rescind the order the next day. Businesses re-staffed but then bore the burden of expenses with the uncertainty of operations. Many of the Spirits Alley businesses are on the brink and need relief.
Over the years, Alameda has developed its identity through its lovely homes, great schools, and welcoming beaches. Its commercial identity has been defined by the Alameda Theater on the east side of town and Spirits Alley on the west. In addition, Alameda has been recognized for its unique reuse of the base, including developing a hub for beers, wines and spirits. Like the theater, staff believes that Spirits Alley and the non-profits are critical to the city’s fabric and should be assisted during this difficult period.
Therefore staff is proposing a separate rent relief program for Spirit’s Alley and non-profits at Alameda Point. In addition, staff recommends that if applicants under the loan conversion program are interested, they can opt into this new program. The program is outlined below:
• Up to nine months of rent deferral, repayable over three (3) fiscal years (a minimum of three months repaid each of the next three fiscal years).
• Abate one month of rent for every year repaid early (no more than three months of abatement).
• Require a lease amendment with the repayment terms. Nonpayment of the deferred rent constitutes a default of the lease.
• No application required. Notice to the landlord, lease amendment is drafted and executed by the City Manager.
The City Council has offered all tenants 90 days of rent deferral. The repayment period starts October 2020. The proposed program offers tenants relief from repayment of rent for the remainder of the calendar year and gives them a six-month period before their repayment plan begins. This is in recognition that the SIP and other County health orders remain in place almost seven months after the initial SIP.
Staff understands there is great concern about the finances and development of Alameda Point, but due to aggressive leasing and conservative spending approved by the City Council, the Alameda Point fund balance is very healthy. Last fiscal year, even with the pandemic, the lease revenue was nearly $2 million in excess of projection. In addition, the Surplus Lands Act currently impacts the ability to lease buildings that may become vacant. Staff recommends continuing to support the current tenants and to focus on business and job retention strategies.
Alameda Theater
Finally, the City Council provided direction to staff regarding a package of strategies to support the Alameda Theater Complex. Staff is recommending a nine-month rent deferral which will be paid back at the earliest of the Theater owner exercising the option to extend its lease (2037) or the deferral amount will be added to purchase price of the theater if the City decides to sell it. As a result of deferring rent, the City will not have sufficient revenue to make its FY 2020-21 payment of its Section 108 loan, the proceeds of which were used to construct the parking garage (revenues at the parking garage are significantly impacted by the pandemic). Therefore, staff recommends that the required funds be appropriated from the General Fund ($315,000) in support of this recommendation.
ALTERNATIVES
Rent Assistance Program:
• Appropriate $1.5 million from the Base Reuse fund balance for the loan conversion program described above.
• Increase the appropriation for the Loan Conversion Program to $1.7 million to fully meet the anticipated demand for assistance.
• Reduced the recommended amount to be appropriated to assist the commercial tenants at Alameda Point or decline to move forward with the program.
Non-Profit/Spirits Alley Assistance Program
• Approve the rent assistance program as described above.
• Make the program available to non-profit and Spirits Alley businesses but do not allow other businesses to opt in.
• Decline to move forward with an assistance program at this time.
Assistance to the Alameda Theater
• Approve the nine-month rent abatement as described above.
• Approve a different level of assistance.
• Decline to move forward with assistance at this time.
FINANCIAL IMPACT
It is recommended that a budget resolution be approved appropriating $1.5 million in Base Reuse fund balance to fund the business assistance program and appropriating $315,000 from General Fund to assist the Alameda Theater by using these funds to make the required Section 108 payment in lieu of rent proceeds.
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
It is recommended that the City Council:
1. Authorize the City Manager to negotiate and execute Rent Relief Agreements with commercial tenants in City-owned properties via a $1.5 million Loan Conversion Assistance Program and implement an Alameda Point Non-Profit and Spirits Alley Businesses Rent Relief Program in response to the COVID-19 pandemic; and
2. Approve a budget amendment appropriating $1.5 million in Base Reuse Fund Balance for the Alameda Point Loan Conversion Assistance Program and $315,000 in General Fund to assist the Alameda Theater.
CITY MANAGER RECOMMENDATION
The City Manager concurs with the staff recommendation.
Respectfully submitted,
Debbie Potter, Community Development Director
By,
Nanette Mocanu, Asst. Community Development Director
Financial Impact section reviewed,
Nancy Bronstein, Acting Finance Director
cc: Eric Levitt, City Manager