Title
Introduction of Ordinance Authorizing the City Manager to Execute a Lease for a Portion of Building 22 with Gold Bar Spirits Company Inc., Located at 2505 Monarch Street, at Alameda Point, Alameda, California, for a Term of Six Years with One Extension Option for Five Additional Years. [Requires 4 affirmative votes]
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 and Economic Development 29061822)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Staff recommends that City Council authorize the City Manager to execute a lease with Gold Bar Spirits, Inc., a Delaware corporation (Gold Bar), for a portion of Building 22 at Alameda Point for a term of six years with one extension option for five additional years. Gold Bar distills and distributes whiskey and is currently located on Treasure Island in San Francisco, with a tasting room also located in the San Francisco International Airport. It is seeking to relocate some distillery activities from Treasure Island and expand its tasting room presence to Alameda Point’s Spirits Alley. The proposed lease Premises are located adjacent to Faction Brewing in the space formerly occupied by Proximo, known as Hangar One. The establishment of Gold Bar Spirits at Alameda Point will play an important role in supporting Spirits Alley and the other existing artisan distilleries and tasting rooms along Monarch Street.
BACKGROUND
The City of Alameda (City) owns a former aircraft hangar known as Building 22 constructed in 1941 at Alameda Point. Building 22 is located at 2505 Monarch Street and is divided into two suites of approximately 32,500 square feet each. Faction Brewing Company, which currently occupies the adjacent suite in Building 22, has a lease extending through 2028, with two options to extend for 10 years each.
Gold Bar has been manufacturing whiskey since 2018. They currently lease approximately 40,000 square feet of warehouse and event space including a tasting room on San Francisco’s Treasure Island within the historic Administration Building and adjacent to the ferry terminal. Gold Bar whiskey is sold in iconic packaging shaped like a gold bar with a replica ‘lady of fortune’ coin. The company reported a dramatic increase in sales in 2023, fueled by marketing partnerships with the San Francisco 49ers, Vegas Golden Knights, and California Golden Bears football program. Their whiskies can be purchased at their tasting rooms and through major brick-and-mortar and e-commerce retailers like Total Wine, Costco, and BevMo.
Given Building 22’s central location in Spirits Alley, and the former tenant’s use as a distillery, staff focused on securing a new tenant that would utilize the existing improvements and be complementary to the surrounding breweries, tasting rooms and distilleries. Cushman & Wakefield, the City’s commercial broker, has been proactively engaging with compatible food and beverage manufacturing businesses, and identified Gold Bar Spirits, Inc. as a very compatible and interested potential tenant.
DISCUSSION
The recommended lease (Exhibit 1) has an estimated commencement date of April 1, 2024, for an initial term of 72 months (six years), with an Option to Renew for one additional 60-month (5-year) term should Gold Bar remain in good standing and provide a minimum of six (6) months’ notice of its desire to exercise its Option, for a total lease term of eleven years.
The leased Premises are generally depicted in Exhibit A-1 to the lease and include non-exclusive use of the area depicted in Exhibit A-2 to the west along Monarch Street for parking, limited operational uses and permitted special events not to exceed 72 hours in duration. In addition, Gold Bar may apply for a future Use Permit from the City to utilize the area along the south side of the building depicted in Exhibit A-3, to provide a secure fenced and screened temporary storage area for materials and containers, potentially including barrel storage, a silo or tank, and other equipment and supplies needed for the distilling process. The Use Permit review process will help the City to ensure that any outdoor storage of materials or containers is screened from public view and that significant view corridors identified in the Waterfront Town Center Specific Plan are preserved from Monarch Street to the runways and habitat. All fences will be subject to review by the City for consistency with Design Review regulations and standards. The exterior space to the west of the building is currently fenced, as is the trash enclosure along Monarch Street to the south of the building, installed by the former tenant. Gold Bar envisions a stacked barrel enclosure to reflect the Spirits Alley and Gold Bar functions, similar to what can be seen at The Rake. However, this proposal is subject to separate City review and approval and is not being considered for approval by City Council currently and in conjunction with this lease.
The initial Base Rent for the Gold Bar lease is $1.10 per square foot ($35,750 per month) with an escalation to $1.25 per square foot ($40,625 per month) in year three of the lease, $1.30 per square foot ($43,875 per month) in year four of the lease, $1.34 per square foot ($45,191 per month) in year five of the lease, and a 3% escalation ($46,547 per month) in year six of the lease. Rent in a Renewal Term will be set at Fair Market Value. Gold Bar will also be responsible for half of the building operating and common area expenses, maintenance, and repair. Rent revenue to the City is anticipated to be approximately $2 million in the initial five-year term of the lease, inclusive of the proposed rent credit discussed in more detail below, which will be deposited into the Alameda Point Fund (Fund 290).
Gold Bar plans to make certain improvements to the City-owned building including upgrade of its mechanical, electrical and plumbing systems, recertification of the elevator, as well as installing a new kitchen to support its planned tasting room. Tenant improvements will include refreshing the public spaces, upgrading the tasting room area and installation of distillation equipment. Gold Bar understands that all work on City-owned buildings is subject to Prevailing Wage Law and requirements, and the City’s Project Labor/Stabilization Agreement Resolution.
A lease credit has been proposed in the lease terms, as Gold Bar does not anticipate that it will open for business within the first year of occupancy in Building 22. The amount of the lease credit negotiated over the first year is divided into two portions, a Physical Improvement Credit of approximately $218,000, based on the estimated tenant improvement costs they will invest into the City’s building and a Contingency Credit of $150,000. The Contingency Credit is intended as a gap measure, while the distillery business navigates the lengthy process to apply and obtain the required liquor licensing in order to operate. The credits will be monitored and allocated on a monthly basis. Both credits are contingent on Gold Bar meeting specific performance measures outlined in the lease including the expectation that permit and liquor licensing applications will be submitted by Gold Bar within the initial four (4) months of lease commencement, and responses to City staff comments related to the building permit submittals will be completed in a timely manner. The Base Reuse and Economic Development Department will monitor performance and allocation of lease credits over the first year of the lease term. The maximum estimated value of the recommended combined Physical Improvement and Contingency lease credit is $368,000. If Gold Bar is successful in obtaining all permits and licensing prior to the end of the first year and can begin operations, the Contingency Credit will cease to be applied to the proceeding months’ rent.
Staff evaluated the financial costs and benefits of providing this lease credit, and recommend these terms to City Council, on the grounds that this tenant would make efficient use of the existing distillery and tasting room improvements. Furthermore, it is reasonable to speculate that a different tenant, with perhaps a non-distillery use in mind, would propose a much larger and costlier tenant improvement project and rent credit from the City, while taking as long, if not longer, than Gold Bar’s proposal to occupy the space.
As part of the assessment of Gold Bar as a prospective tenant, the company's financial condition was reviewed by a third-party and provided to City staff. The assessment reported that Gold Bar is financed through a combination of private investment capital, as well as sales revenues. The report indicated that Gold Bar has adequate resources to pay rent for multiple years and this was supported by documentation of its trajectory of annual revenue growth.
In conclusion, staff recommends the execution of the lease with Gold Bar, as it presents an opportunity to provide a complementary use along Spirit’s Alley benefiting the City’s economy by reinforcing the cluster of artisan distilleries and tasting rooms, and potentially increasing visibility and visitors to this area of Alameda Point.
ALTERNATIVES
After opening the public hearing and considering all of the documents and testimony, City Council may consider three alternative courses of action, including:
• Approve the first reading of the ordinance authorizing the City Manager to execute a lease with Gold Bar on the terms described in this staff report.
• Choose to not approve the first reading and direct the City Manager to terminate negotiations with Gold Bar. In this scenario, City Council should identify why Gold Bar is not a suitable tenant for Alameda Point to ensure staff directs its pursuit of a new tenant that is suitable to City Council.
• Choose to not approve the first reading and direct the City Manager to continue negotiations with Gold Bar. In this scenario, City Council should identify the specific lease terms or conditions that require further negotiation.
FINANCIAL IMPACT
The lease will contribute significant annual revenues of approximately $429,000, starting in year two of the lease and increasing each subsequent year. It is anticipated over the full 11-year life of the lease (inclusive of Initial and Renewal Term) the City will receive over $5.5 million in revenues.
These funds will be deposited into the Alameda Point Fund (Fund 290) and 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 Alameda Point 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 2023 Keyser Marston Property Disposition Framework Analysis. This action is subject to the Levine Act.
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
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Hold a public hearing and introduce an ordinance authorizing the City Manager to execute a lease with Gold Bar Spirits, Inc. at 2505 Monarch Street, Building 22, at Alameda Point for a term of six years with one, five-year extension option.
Respectfully submitted,
Abigail Thorne-Lyman, Base Reuse and Economic Development Director
By,
Alesia Strauch, Base Reuse Manager
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibit:
1. Lease (inclusive of Exhibit A-1, A-2 and A-3, as referenced)