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WITHDRAWN - Introduction of Ordinance Authorizing the Interim City Manager, or Designee, to Execute a Ten-Year Lease, Substantially in the Form of the Attached Agreement, with Pyka, Inc., a Delaware Corporation, for Building 11, Located at 1190 West Tower Avenue, Alameda, CA. (Community Development 29061822) [Will not be heard on September 6, 2022]
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EXECUTIVE SUMMARY
The requested action would authorize execution of a ten-year lease with Pyka, Inc. (Pyka), with no renewal option or purchase option, for Building 11 located at 1190 West Tower Avenue, consisting of approximately 110,561 square feet of rentable space at Alameda Point (Premises [Exhibit 1]). Pyka, the proposed tenant, responded to a Request for Proposals (RFP) issued by the City of Alameda (City), which included the material terms of the proposed lease. Currently operating out of Oakland, Pyka researches, develops, and manufactures autonomous electric aircraft. With City Council approval of this lease, Pyka anticipates employing approximately one hundred thirty-one (131) full-time employees at Alameda Point by 2026.
BACKGROUND
The Surplus Land Act (SLA), as amended by AB1486 (2019), requires local agencies such as the City to offer properties it intends to sell or lease on a long-term basis for certain public uses, such as open space or affordable housing, before it is disposed of to private parties. At the May 18, 2021 City Council meeting, the City Council approved issuing Notices of Availability to Sell or Lease (Notices), as prescribed by the SLA, for five sites at Alameda Point, including Building 11. The City received no responses to these Notices.
Building 11, a former hangar located near the intersection of West Tower Avenue and Monarch Street (see Exhibit 2), offers two-stories of rental space totaling 110,561 square feet . The building was previously occupied by Google, Inc. and Makani Technologies, LLC, who made a few infrastructure improvements to the building.
Following conclusion of the SLA process, staff issued an RFP seeking a tenant interested in leasing and developing Building 11 (Exhibit 2). The RFP was listed on CoStar and Loopnet, which are the commercial leasing versions of the residential MLS. The RFP included the material terms of a lease for Building 11, and asked respondents to match or enhance those terms. RFP proposals were evaluated using the same criteria used for all commercial tenants at Alameda Point, including job generation, sales tax generation, consistency with current tenant mix, and ability to attract other similar tenants.
Currently, there is no policy guiding decisions on leasing versus selling property at Alameda Point. In making prior recommendations to City Council regarding selling or leasing a real estate asset, factors considered have included building maintenance requirements; personnel/staffing costs; infrastructure needs; a building or parcel’s condition, desirability and location; the proposed use of a property; and terms of occupancy. An analysis is currently being prepared to inform the development of a future policy for disposition of Alameda Point real estate assets. In the interim, staff is recommending that Alameda Point real estate assets be leased instead of permanently disposed of through a sale.
The City received three proposals for Building 11 from Astra Space Operations, Inc. (Astra), Pyka, and srmErnst. The srmErnst proposal was received after the RFP deadline and was therefore excluded from consideration. The remaining respondents were both competitive.
On July 12, 2022, staff brought a conditional recommendation to City Council to lease Building 11 to Astra, so long as by October 15, 2022, Astra executed all pending leases for its existing buildings and a lease for Building 11. Staff intended to return to City Council with a proposed lease with Astra for Building 11 if this recommendation was approved. However, City Council did not approve staff’s recommendation and directed staff to return to City Council with additional information. Following the July 12, 2022 City Council meeting, Astra rescinded its offer for Building 11. As a result, staff now recommends that City Council approve a lease with Pyka for Building 11.
DISCUSSION
Pyka is a growing and innovative company that manufactures autonomous electric aircraft (Video, Exhibit 4). It is a company consistent with goals previously articulated by the City Council (i.e., job generation, tax revenue generation, new, emerging and clean technologies), and compatible with the tenant mix currently at Alameda Point. Pyka forecasts that its proposed operations at Alameda Point will employ approximately one hundred thirty-one (131) full time employees by 2026, which is when Pyka expects to be in serial production of its products. The focus of operations at Alameda Point will be ongoing product research and development, advanced manufacturing of aircraft subsystems and avionics, and related office uses. In 2026, anticipated employment breakdown by service category is expected to be seventy (70) research and development focused, forty-four (44) manufacturing, and seventeen (17) sales and general administrative employees.
The proposed lease (Exhibit 5) has a ten-year (120 month) term with no renewal options or purchase option. Base monthly rent is $105,032.95 ($0.95/SF) for months 1-12, increasing three and a half (3.5) percent every twelve months.
Key terms of the proposed lease are described below:
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Term: |
120 months |
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Permitted Use: |
General administrative/office, research and development, manufacturing, and warehouse uses consistent with the operations of a company focused on autonomous electric aircraft technologies. |
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Extension Options: |
None |
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Monthly Base Rent: |
Months |
Monthly |
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1-12 |
$105,032.95 |
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13-24 |
$108,709.10 |
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25-36 |
$112,513.92 |
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37-48 |
$116,451.91 |
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49-60 |
$120,527.73 |
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61-72 |
$124,746.20 |
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73-84 |
$129,112.31 |
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|
85-96 |
$133,631.24 |
|
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97-108 |
$138,308.34 |
|
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109-120 |
$143,149.13 |
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Security Deposit: |
$143,149.13 |
An analysis of Pyka’s financial situation was completed by Keyser Marston, a real estate economics advisory firm, contracted by the City. Pyka finances its operation primarily through venture capital funding. It recently secured a new infusion of investment capital and a new credit facility that are adequate to sustain the company’s operations, including proposed lease payments, for a period of years. Additional capital infusions and/or revenue generation are necessary to sustain the company’s business for the duration of the proposed 10-year lease term.
ALTERNATIVES
• Approve the lease with Pyka, as described above, for Building 11 located at 1190 West Tower Avenue at Alameda Point.
• Direct staff to renegotiate all or some of the terms of the lease with Pyka based on City Council direction.
• Direct staff to seek and market the property to other prospective tenants.
FINANCIAL IMPACT
Lease revenue would be deposited in the Alameda Point/Base Reuse Fund (290) and is restricted by use as described in the Economic Development Conveyance Agreement. The previous lease for Building 11 was terminated in 2020 at a final monthly base rent of $12,792.38, or $92,240.67 less than the starting base rent for Pyka. Leasing this property will increase the projected revenue for this fund by approximately $1.1 million annually over the previous lease. Year 10 of the proposed lease would generate approximately $1.7 million annually for the Alameda Point/Base Reuse Fund (290).
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
In accordance with the California Environmental Quality Act (CEQA), this action is Categorically Exempt pursuant to CEQA Guidelines Section 15301 - Existing Facilities.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Introduce an ordinance authorizing the Interim City Manager, or Designee, to execute a ten-year lease, substantially in the form of the attached agreement, with Pyka, Inc., a Delaware corporation, for Building 11, located at 1190 West Tower Avenue, Alameda, CA.
Respectfully submitted,
Lisa Nelson Maxwell, Community Development Director
By,
Lorie Curtis, Management Analyst
Exhibits:
1. Premises
2. Map of Building 11 Location
3. Building 11 RFP
4. Pyka, Inc. RFP Submission
5. Lease, Substantially in the Form
cc: Nancy Bronstein, Interim City Manager