Title
Introduction of Ordinance Authorizing the City Manager, or Designee, to Execute a Ten Year (120 month) Lease, Substantially in the Form of the Attached Lease, with Rain Industries Inc., for Building 19, Located at 2175 Monarch Street, Alameda, CA. In accordance with the California Environmental Quality Act (CEQA), this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15301 (Existing Facilities). (Community Development 29061822)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City of Alameda (City) received four competitive proposals for Building 19 from Astra Space Operations, Inc. (Astra), Pyka, Inc. (Pyka), Rain Industries Inc. (Rain), and Saildrone, Inc. (Saildrone) in response to a March 2022 leasing solicitation. On July 12, 2022, staff brought a recommendation to City Council to lease Building 19 to Saildrone, and intended to return to City Council with a proposed amendment to Saildrone’s existing lease 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.
BACKGROUND
Building 19, a former air traffic control tower, is located at 2175 Monarch Street (see Exhibit 2). In addition to the historic control tower, which offers approximately 16,888 square feet of interior office space, Building 19 includes an approximately 3,993 square foot shed and enclosed, paved yard area. Bordering the California Least Tern Conservation Area, owned by the United States Department of Veterans Affairs (VA), Building 19 is subject to certain activity and construction restrictions. Building 19 was previously occupied by Google, Inc. and Makani Technologies, LLC, who made a few infrastructure improvements to the office space. As one of the most unique structures and requiring the least capital investment, Building 19 is one of the most desirable properties available at Alameda Point.
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 19. The City received no responses to these Notices.
Following conclusion of the SLA process, staff issued a request for proposal (RFP) seeking a tenant interested in leasing and developing Building 19 (Exhibit 3). 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 19, 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 consistency with City Council priorities, job generation, sales tax generation, clean energy technology, consistency with current tenant mix, and ability to attract other similar tenants.
Currently, there is no policy guiding decisions on leasing and/or selling property at Alameda Point. In making prior recommendations to City Council regarding selling or leasing an Alameda Point 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 policy for disposition of Alameda Point real estate assets, and staff will return to City Council with this analysis in the future. In the interim, staff is recommending that Alameda Point real estate assets be leased instead of permanently disposed of through a sale. Even with a lease in place for a particular building, the City can elect to sell the building subject to the rights of the existing tenants under that lease.
The City received four competitive proposals for Building 19 from Astra, Pyka, Rain, and Saildrone. On July 12, 2022, staff brought a recommendation to City Council to lease Building 19 to Saildrone and intended to return to City Council with a proposed amendment to Saildrone’s existing lease 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.
In response to City Council’s direction, each applicant was asked to provide staff with greater detail regarding its intended use and tenancy of Building 19 and its ability to pay rent and honor other financial lease obligations. The City employed Keyser Marston Associates, a real estate economics advisory firm, to evaluate the financial strength of each company. On July 13, 2022, Astra advised the City that it was revoking its offer to lease Building 19. Pyka also advised the City that it is no longer interested in leasing Building 19, because it was interested in leasing Building 11 and was the only remaining candidate with such interest.
On September 6, 2022, staff recommended that the City Council approve a lease amendment with Saildrone for Building 19. The recommendation was based on Saildrone’s long history as a tenant, employment growth projections and strong financial portfolio. The City Council expressed interest in knowing more information about Rain and determining if Building 19 could be shared by the two remaining applicants. On September 8, 2022, Saildrone withdrew its application for Building 19 leaving Rain as the only remaining applicant.
Rain designs and manufactures autonomous aircraft. These aircraft assist with extinguishing wildfires in their early stages, an innovative and important product to our state and the environment. Rain would use Building 19 for the following functions: research and development, light manufacturing and as a headquarters for its business operations. Rain is also interested in licensing a portion of the Northwest Territories for testing of its prototypes’ autonomous flight, fire retardant deployment (though it will only deploy water at Alameda Point), and coordinated containment capabilities.
Rain currently has twelve (12) employees and anticipates that number will increase to thirty-two (32) employees by the end of 2022 and eighty-five (85) by 2025. Rain employs a diverse workforce to research and develop its aircraft, including employees handling business administration, light manufacturing, computer-aided design (CAD) and software engineering. As a climate technology firm with a culture of sustainability, nearly half of Rain’s employees commute on foot or bicycle. If Rain’s proposal for Building 19 is selected, the company plans to expand in Alameda as it grows.
DISCUSSION
Rain’s proposed use for Building 19 is consistent with City Council prioritization of new, emerging and/or clean technologies. Rain is designing the “Rain System” to contain wildfires within 10 minutes of ignition using a network of autonomous aircraft installed in a grid throughout high risk regions. When an ignition is detected, all aircraft within range swarm to the ignition coordinates to contain the ignition.
Building 19 uniquely supports Rain’s mission due to the surrounding airspace and the Air Traffic Control Tower (“Tower”). The Tower has a view of the entire flight area and the runways. Because the FAA requires Rain to maintain situational awareness of all personnel, other aircraft, and wildlife within the airfield and airspace, Building 19 both supports Rain’s mission and satisfies FAA requirements. Integrated aircraft tests will be conducted outside of the Least Tern breeding season (April - August), only deploy water (instead of retardant), and not use actual fires. During the Least Tern season, considering the overlap with California wildfire season, Rain will focus on integrating its platform with fire agencies.
Rain was founded in 2019 and operates at a loss while it focuses on development and initial pilot demonstrations of its autonomous aircraft networks for containing wildfires. The company will require additional capital investment in the near term to maintain viability and support work toward initial service deployment of its product, which is expected to occur in 2025.
To that end, Rain is planning a $25 million “Series A” venture capital fundraising round this fall, which is estimated to be adequate to support the company’s operations for a period of years. The company provided a support letter from its venture capital investor, DBL Partners, expressing an intent to support the company through this planned fundraising and to make a substantial additional investment in Rain. In addition to the planned Series A fundraising, the company will require subsequent rounds of venture capital investment and/or revenue generation to maintain operations over the full term of the proposed 10-year lease. The company has offered to deposit an initial year of rent in an escrow account as a showing of good faith and security for rent payments in the initial lease year.
The proposed rent for Building 19 is as described below:
|
Year |
Building 19 Monthly Base Rent |
Annual Rent |
|
1 |
$ 31,321.50 |
$375,858.00 |
|
2 |
$ 32,417.75 |
$389,103.03 |
|
3 |
$ 33,552.37 |
$402,628.49 |
|
4 |
$ 34,726.71 |
$416,720.48 |
|
5 |
$ 35,942.14 |
$431,305.70 |
|
6 |
$ 37,200.12 |
$446,401.40 |
|
7 |
$ 38,502.12 |
$462,025.45 |
|
8 |
$ 39,849.69 |
$478,196.34 |
|
9 |
$ 41,244.43 |
$494,933.21 |
|
10 |
$ 42,687.99 |
$512,255.87 |
Monthly base rent during the ten-year term will increase by three and one half percent (3.5%) every twelve (12) months.
ALTERNATIVES
• Approve staff’s recommendation to execute a ten (10) year lease with Rain on the terms described in this staff report.
• Direct staff to renegotiate all or some of the terms of the lease with Rain based on City Council direction.
• Direct staff to market the property to other prospective tenants and issue a new RFP.
• Direct staff to market the property for sale to prospective buyers and issue a new RFP.
• Do nothing at this time.
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. Leasing these properties will increase the projected revenue for this fund.
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 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, or designee, to execute a ten year (120 month) lease, substantially in the form of the attached lease, with Rain Industries Inc., for Building 19, located at 2175 Monarch Street, Alameda, CA.
Respectfully submitted,
Lisa Nelson Maxwell, Community Development Director
By,
Nanette Mocanu, Assistant Community Development Director
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Premises/Building 19
2. Map with Building 19 Location
3. Building 19 RFP
4. Lease for Building 19, substantially in form
cc: Erin Smith, City Manager