Title
Introduction of Ordinance Authorizing the City Manager to Execute a Lease for Building 39 with Pyka Inc. Located at 950 West Tower Avenue at Alameda Point, Alameda, California, for a Term of Eight Years with a Three-Year Extension Option.
In accordance with California Environmental Quality Act (CEQA), this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15301 (Existing Facilities). (Base Reuse 29061822)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Staff recommends that the City Council authorize the City Manager to execute a lease with Pyka Inc. (Pyka), a designer and manufacturer of autonomous electric airplanes, for Building 39 located at 950 West Tower Avenue at Alameda Point for a term of eight years with a three-year extension option. The approximately 106,000-square-foot building is currently vacant and was formerly leased to the Delphi Company. As part of the lease terms, Pyka will also host an annual student science event for Alameda students.
BACKGROUND
The City of Alameda (City) owns the former airplane hangar located at 950 West Tower Avenue referred to as “Building 39” in trust for the State of California. Given that the building is located on lands designated as State Tidelands, the building may be leased, but it may not be sold.
In October 2022, the City issued a Request for Proposals for potential tenants to occupy the City-owned Building 39. In response, the City received three proposals for the building, including Pyka’s proposal. Based upon a review of the proposals and the City’s leasing, financial and economic development objectives for Alameda Point, staff initiated lease negotiations with Pyka for the building. Pyka is a designer and manufacturer of autonomous electric airplanes. Pyka is currently designing small, electric airplanes for specialized tasks and operations, such as agricultural spray operations and delivery of cargo to remote locations with small, dangerous runways. As electric and autonomous vehicles, these airplanes generate significantly less greenhouse gas emissions than traditional airplanes and they provide a safer option for difficult or dangerous aerial operations requiring low altitude flying or accessing very small, remote landing fields. The lease negotiations concluded with a proposed lease for City Council consideration (see Exhibit 1).
DISCUSSION
The recommended lease will allow Pyka to continue development of its airplane technology at Alameda Point in a building originally designed by the U.S. Navy for airplane maintenance. Building 39 will house Pyka’s administrative offices, research and development activities, and manufacturing of prototypes, light assembly and warehouse activities associated with the development of autonomous electric aircraft technologies. Pyka will not be flying or doing in-flight testing of their aircraft at Alameda Point. As part of the lease terms, Pyka will host an annual student science event for Alameda students.
The proposed uses for the building are consistent with General Plan policies for Alameda Point and the Adaptive Reuse subdistrict and consistent with the Alameda Municipal Code zoning requirements for the property.
The recommended lease commences March 1, 2024, for an initial term of 96 months (8 years), with one option for a three-year extension provided that Pyka submits a minimum of 12 months’ notice of its desire to extend, and provided that: 1) no more than 10% of the property is sub-leased to a non-affiliated use, and 2) no more than 50% of the business expenditures are devoted to agricultural aircraft research and development at the time of the requested extension.
The recommended lease sets the base rent at $0.95 per square foot per month ($100,700.00 per month), which then increases by 3.5% annually for the duration of the lease term. Pyka will provide security for the lease in the amount of $150,000. Pyka will pay 100% of the building operating expenses and be fully responsible for all maintenance and repair for the building and parking area. In the first year, the lease provides that Pyka will receive a rent credit for up to $1,208,400 for expenses to improve the City-owned building for their use. All work on the City-owned building is subject to Prevailing Wage Law and requirements, and the City’s Project Labor/Stabilization Agreement Resolution. Pyka will utilize union general contractors, recognizing prevailing wage requirements, to obtain bids for the premises shell and tenant improvement work.
The recommended lease establishes lease premises and an allowable area on either side of the building that may be fenced and screened to provide a secure area for the temporary storage of materials and containers for the transport of materials or prototypes to and from the site by automobile or truck. (The building includes loading docks on the east side of the building.) The lease premises and fencing provisions are designed to ensure that outdoor storage of materials or containers is screened from public view and that significant view corridors are preserved on either side of the building from West Tower Avenue to the Seaplane Lagoon. All fence designs will be subject to review by the City for consistency with Design Review regulations and standards.
In conclusion, staff believes that Pyka will provide high quality employment opportunities at Alameda Point and complement the growing community of green, high technology businesses at Alameda Point, such as Saildrone, which makes autonomous sailboats in the adjacent Hangar. The Pyka lease will also provide important lease revenue to the City (approximately $9,400,636 over the initial term), which may be used for a variety of much needed activities at Alameda Pont to improve existing infrastructure and other building assets at Alameda Point in need of significant repair.
ALTERNATIVES
After opening the public hearing and considering all of the documents and testimony, the City Council may consider three alternative courses of action, including:
• Approve the first reading of the draft ordinance authorizing the City Manager to execute a lease with Pyka on the terms described in this staff report as recommended by staff.
• Choose not to approve the first reading and direct the City Manager to continue negotiations with Pyka. In this scenario, City Council should identify the specific lease terms or conditions that require further negotiation.
• Choose not to approve the first reading and direct the City Manager to terminate negotiations with Pyka. In this scenario, City Council should identify why Pyka is not a suitable tenant for Alameda Point so that staff directs its pursuit of a new tenant that is suitable for Alameda Point and Building 39.
FINANCIAL IMPACT
The lease will contribute significant annual revenues (approximately $1.2 million annually) starting in year two and increasing by 3.5% each year to Fund 290 (Alameda Point). These funds will assist with the operating expenses for City-owned Alameda Point properties and may also be allocated in part to funding the infrastructure requirements in the 2020 Master Infrastructure Plan.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The proposed uses for the building are consistent with General Plan policies for Alameda Point and the Adaptive Reuse subdistrict and consistent with the Alameda Municipal Code zoning requirements for the property. The recommended lease is also consistent with the City’s recommended disposition strategy for the Reuse Area at Alameda Point, as presented to the City Council in March 2023.
ENVIRONMENTAL REVIEW
In accordance with CEQA, this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15301 (Existing Facilities).
CLIMATE IMPACT
The recommended lease is in support of a company and the development of technologies that will reduce the greenhouse gases generated by aviation, which is currently one of the biggest generators of greenhouse gas emissions due to reliance on fossil fuels for propulsion.
RECOMMENDATION
Introduction of an ordinance authorizing the City Manager to execute a Lease for Building 39 with Pyka Inc. located at 950 West Tower Avenue at Alameda Point, Alameda California, for a term of eight years with a three-year extension option.
Respectfully submitted,
Andrew Thomas, Interim Base Reuse and Economic Development Director
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibit:
1. Proposed Pyka Lease