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HomeMy WebLinkAbout16 - A Resolution to Adjust Rent Charged for Commercial Fuel DocksPaR m CITY OF �\`S NEWPORT BEACH cy<`o-P City Council Staff Report February 13, 2018 Agenda Item No. 16 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Seimone Jurjis, Community Development Director - 949-644-3232, sjurjis@newportbeachca.gov PREPARED BY: Lauren Wooding Whitlinger, Real Property Administrator PHONE: 949-644-3236, Iwooding(d_)newportbeachca.gov TITLE: A Resolution to Adjust Rent Charged for Commercial Fuel Docks ABSTRACT: In July 2017, the City Council adopted updated fair market rents for large commercial marinas and other commercial uses in Newport Harbor. Rents for fuel docks were not amended in the adopted Resolution No. 2017-49. City Council directed staff to obtain further information regarding calculation of fair market rent for fuel docks. Staff obtained an appraisal report for fuel docks recommending three rent calculation methods. The fuel dock operator may select any of the three rent calculation methods that would be most appropriate to their operation. RECOMMENDATION: a) Conduct a public hearing; b) Find this project exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, because this project has no potential to have a significant effect on the environment; and c) Adopt Resolution No. 2018-9, A Resolution of the City Council of the City of Newport Beach, California, Adjusting the Rent Charged for Commercial Fuel Docks, Located Upon Tidelands. FUNDING REQUIREMENTS: The adopted budget allocates revenue from commercial use of tidelands in Newport Harbor for Fuel Docks to the Tidelands Fund — Commercial Marinas account (10050505- 551290). 16-1 A Resolution to Adjust Rent Charged for Commercial Fuel Docks February 13, 2018 Page 2 DISCUSSION: Previous Actions In 2017, the City Council adopted Resolution No. 2017-49 (Attachment C), updating the fair market value rent charged for various commercial uses. Fuel docks were excluded, and the City Council directed staff to further study the rental category. Until City Council adopts a new rent schedule, fuel docks are charged a rent based on Resolution No. 2012- 98 (Attachment B). Appraisals George Hamilton Jones, Inc. performed an appraisal of the fair market rental value of the City's tidelands and submerged lands (GHJ Appraisals) (Attachments D and E). The appraisals concluded market rent for fuel docks should be set at $0.76 per square foot of tidelands per year. The appraisal assumed a term of fifty years, an annual adjustment by the Consumer Price Index (CPI), and an adjustment to market value by appraisal every ten years. GHJ Appraisals further concluded that rent could be charged one of three ways: (i) a flat base rent; (ii) the greater of base or percentage rent; and (iii) percentage rent only. The appraised fair market rental rate per calculation method, per square foot of tidelands, are outlined in Table 1 below: Table 1 Fair Market Rate Per Appraisal Fuel Dock Rent Calculation Options GHJ Appraisal Commercial Use Category Market Rate - Base Rent $/sf Fuel Dock • Option 1 — Base Rent only $0.76 • Option 2 — Greater of Base or Percentage Rent ($0.01 /gallon, not to exceed $0.76/square foot, per $0.38 year) • Option 3 — Percentage Rent only ($0.01/gallon, not $0.00 to exceed $0.76/square foot, per year) Public Outreach Following receipt of the GHJ Appraisal, staff met with Island Marine Fuel and Boat Service Inc. to discuss the proposed rates, the rent calculation options, phase-in schedule, and to answer questions. Staff also requested feedback from the two operators regarding their selected rent calculation method. Both operators prefer Option 1 — base rent only, set at $0.76 per square foot. The appraisal reports have been posted to the City's website, and staff notified stakeholders via letter and email in advance of this City Council meeting. 16-2 A Resolution to Adjust Rent Charged for Commercial Fuel Docks February 13, 2018 Page 3 Recommended Rental Rates Staff recommends implementation of the rent changes in two phases, consistent with the phase-in schedule approved under Resolution No. 2017-49. Phase 1 would begin March 1, 2018, and Phase 2 would begin in August 2018. As in the past, the City will calculate the annual rent by multiplying the applicable rate by the commercial use square footage. Table 3 Recommended Phase -In Schedule (Based on Square Footage) Phase 1: Phase 2: Commercial Use Category March 2018 Rent August 2018 Rent Fuel Dock' • Option 1 — Base Rent only $0.38 $0.76 • Option 2 — Greater of Base or Percentage Rent $0.38 $0.38 ($0.01/gallon, not to exceed $0.76/square foot, per year) • Option 3 — Percentage Rent only ($0.01/gallon, not to $0.00 $0.00 exceed $0.76/square foot, per year) 1. Rent calculated based on tenant's selection of Options 1, 2, or 3 Staff also recommends annual rent adjustments based on the Consumer Price Index. Additionally, the proposed resolution includes a fair market adjustment to the rent every 10 years. A Member of the Appraisal Institute (MAI) appraiser would determine the adjustment by performing a Harbor -wide appraisal of commercial tidelands uses. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this project exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the setting of rent for commercial tidelands uses is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, the setting of rent for commercial tidelands uses is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value rent will be used to meet operating expenses within the tidelands. 16-3 A Resolution to Adjust Rent Charged for Commercial Fuel Docks February 13, 2018 Page 4 NOTICING - In addition to the stakeholder noticing and input noted above, notice of this agenda item was published in the Daily Pilot at least ten days before the hearing, consistent with the provisions of the Municipal Code. Additionally, the item appeared on the agenda for this meeting, which was posted at City Hall and on the City website. ATTACHMENTS: Attachment A — Resolution No. 2018-9 — Adjusting Rent for Commercial Fuel Docks Located Upon Tidelands Attachment B — Resolution No. 2012-98 — Rent for Commercial Uses Located Upon Tidelands Attachment C — Resolution No. 2017-49 — Adjusting the Rent Charged for Commercial Uses Located Upon Tidelands Attachment D — George Hamilton Jones, Inc. Appraisal, Dated July 12, 2017 Attachment E — George Hamilton Jones, Inc. Appraisal, Dated October 30, 2017 16-4 Attachment A Resolution No. 2018-9 Adjusting Rent for Commercial Fuel Docks Located Upon Tidelands 16-5 RESOLUTION NO. 2018- 9 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, ADJUSTING THE RENT CHARGED FOR COMMERCIAL FUEL DOCKS LOCATED UPON TIDELANDS WHEREAS, pursuant to the 1978 Beacon Bay Bill, as amended, ("Beacon Bay Bill") the City of Newport Beach ("City") acts on behalf of the State of California as the trustee of tidelands located within the City's limits, including Newport Harbor ("Tidelands"); WHEREAS, Section 1(b) of the Beacon Bay Bill authorizes the City to allow third - parties to use the Tidelands for commercial purposes for a term not to exceed fifty (50) years; WHEREAS, the City allows commercial Tidelands uses to operate upon the Tidelands under either a permit or a lease; WHEREAS, the Beacon Bay Bill, California Constitution Article 16, Section 6, Newport Beach Municipal Code ("NBMC") Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(D) require that the rent received by the City from third parties using the Tidelands be based in part upon an appraisal, and reflective of the fair market value related to such uses; WHEREAS, NBMC Section 17.60.060(D) vests the City Council with the exclusive discretion to determine fair market value rent based in part upon the findings of a City - selected appraiser, WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-98 setting fair market value rent for commercial uses located upon Tidelands; WHEREAS, on November 26, 2013, the City Council adopted Resolution No. 2013-88, which, among other things, amended Resolution No. 2012-98 to reclassify certain homeowners' associations slips from commercial to residential; WHEREAS, on July 25, 2017, the City Council adopted Resolution No. 2017-49, which adjusted the fair market value rent charged for various commercial uses of Tidelands; WHEREAS, the City Council excluded commercial fuel docks from Resolution No. 2017-49, and directed staff to further study this rental category; WHEREAS, following the adoption of Resolution No. 2017-49, City staff reached out to the commercial fuel docks owners in Newport Harbor; 16-6 Resolution No. 2018 - Page 2 of 6 WHEREAS, at the City's request, George Hamilton Jones, Inc. conducted an appraisal to determine fair market value rent for commercial fuel docks and, thereafter, prepared an appraisal report dated October 30, 2017 ("Appraisal Report"); and WHEREAS, the City Council reviewed the Appraisal Report and it is part of the record in this matter. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Council hereby sets the fair market value rent, rental phase- in, and associated adjustments for commercial fuel docks Tidelands users as provided in the attached Commercial Tidelands Rent Calculations For Commercial Fuel Docks Located Upon Tidelands, which is incorporated herein by reference. This finding is made by the City Council in its exclusive discretion but is based on the information contained in the Appraisal Report and on the other documents and testimony contained in the record for this matter. Section 2: The City Council does hereby repeal any portion of a resolution that conflicts with the rental amounts, rental calculation methods, associated rental adjustments, and rental phase-in provided in the attached Commercial Tidelands Rent Calculations For Commercial Fuel Docks Located Upon Tidelands. Section 3: The Recitals provided above are true and correct and incorporated into the operative part of this resolution. Section 4: Except as expressly modified by this resolution, all provisions, terms, and covenants set forth in other Tidelands resolutions shall be unchanged and shall remain in full force and effect. Section 5: The City Council finds the setting of rent for commercial fuel docks is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of rent for commercial fuel docks is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, the City Council finds the setting of rent for commercial fuel docks is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the rent established by the City Council will be used to meet operating expenses within the Tidelands. Section 6: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, 16-7 Resolution No. 2018 - Page 3 of 6 sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 7: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this day of , 2018. Marshall "Duffy" Duffield Mayor ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CT7i— Y'S OFFICE � �r Aaron C. Harp City Attorney Attachment: Commercial Tidelands Rent Calculations For Commercial Fuel Docks Located Upon Tidelands 16-8 Resolution No. 2018 - Page 4 of 6 Commercial Tidelands Rent Calculations For Commercial Fuel Docks Located Upon Tidelands Beginning on the date a lease or permit is first effective (i.e., the date a lease is executed by all parties or a permit is issued by the City), a Commercial Fuel Dock lessee/permittee shall pay to the City, on a monthly basis, Rent (as defined below). Rent. The "Rental Rate" for Commercial Fuel Docks is as follows: Commercial Use Category Rent Per Square Foot Fuel Docks - Lessee/Permittee to select one of three rent calculation methodologies provided below'. 1 Base rent $0.76 (2) Greater of base rent or percentage rent. Percentage rent calculated at $0.01 per gallon per year, but not to exceed $0.76 per square foot per $0.38 year (as adjusted by CPI and this resolution (3) Percentage rent only, calculated at $0.01 per gallon per year, but not to exceed $0.76 per square foot per N/A year (as adjusted by CPI and this resolution For a term year beginning March 1, 2018, and thereafter, monthly Rent shall equal the then applicable Rental Rate, rounded to the nearest cent, times the Premises square footage as set forth in this resolution (i.e., if the Rental Rate is $0.76 and the Premises is 10,000 square feet the annual Rent is $7,600). To the extent a Premise contains two (2) or more commercial Tidelands uses, the Rent shall be apportioned according to the use and the Premises occupied by the use (i.e., if half (1/2) of a Premises is operated as a Fuel Dock and the other half (1/2) as a Small Commercial Marina the half (1/2) of the Premises used as a Fuel Dock shall pay the applicable Fuel Dock rent and the half (1/2) operated as a Small Commercial Marina shall pay the applicable Small Commercial Marina rent). 1 A fuel operator paying percentage rent shall at the City's request provide Books and Records to the City to assist in calculating rent due. 16-9 Resolution No. 2018 - Page 5 of 6 2. Rental Phase -In Period. Rent will be set in accordance with a two (2) period phase-in procedure with the first phase-in billed in February 2018, for Rent due on March 1, 2018. The second phase-in billed in July 2018, for Rent due on August 1, 2018. Rent shall be fully phased -in beginning on August 1, 2018. An example of the two (2) period phase in procedure is provided below: Commercial Use Category Ramp -Up Period March August 2018 2018 Fuel Docks 0.49 $ 0.76 - Base rent option only$ 3. Rent Adiustments. A. Annual Rent Adjustment. Beginning on March 1, 2019, Rent may be adjusted on the first day of March each permit/lease year to reflect an increase in the cost of living, as indicated by the Consumer Price Index described below. Rent may be adjusted if the Consumer Price Index for the Los Angeles — Orange County - Riverside Area, All Urban Consumers, All Items ("Index"), as published by the United States Department of Labor, Bureau of Labor Statistics ("Bureau"), increases over the Base Period Index. The initial "Base Period Index" shall be the Index for the calendar month which is four (4) months prior to the month of the permit/lease effective date, thus November. The initial Base Period Index shall be compared with the Index for the same calendar month for each subsequent Lease Year ("Comparison Index"). The Comparison Index used for a given year's adjustment calculation will become the Base Period Index for purposes of the next annual Rent adjustment calculation. If the Comparison Index is higher than the Base Period Index, then Rent for the next Lease Year shall be increased by the amount of such percentage change. Should the Bureau discontinue the publication of the above Index, or publish same less frequently, or alter same in some other manner, then the parties shall adopt a substitute Index or substitute procedure which reasonably reflects and monitors consumer prices. B. Market Adjustment of Rent and Other Fees and Charges. At the Market Adjustment Date, the Rental Rate may be adjusted, in the City's sole and absolute discretion, to reflect the then -current fair market value, as such value shall be determined by an appraisal to be conducted in accordance with the provisions of this section. If applicable, the Rental Rate determined by the appraisals shall commence on March 1 of the year following the appraisals (i.e., the Rental Rate determined by the appraisals following March 1, 2026 shall be effective March 1, 2027). If applicable, the City shall retain one (1) independent MAI appraiser to conduct a harbor -wide appraisal of commercial uses. All MAI appraisers selected pursuant to this subsection shall have at least ten (10) years' experience appraising Tidelands in the Southern California area. 16-10 Resolution No. 2018 - Page 6 of 6 4. Definitions. Unless otherwise provided, the terms provided in the NBMC shall apply to this resolution. The singular of any term also includes the plural. A. Base Rent and Rent, unless otherwise provided, means the annual rent charged on a square footage basis for the use of the Premises. B. Books and Records means full, complete, accurate and proper books, records and accounts of all business, use or occupation, or any combination thereof, transacted, arranged or performed, in whole or in part, on, from or for any fuel sold from the Premises, whether by the lessee, permittee or by a sublessee, licensee, concessionaire or other party. C. City means the City of Newport Beach. D. Fuel Dock or Commercial Fuel Dock means a facility that provides fuel (e.g., gasoline, diesel, oil, etc.) to vessels. E. Market Adjustment Date means March 1, 2026 and every tenth (10th) anniversary year thereafter. F. Percentage Rent means rent which is determined each calendar year and shall be calculated by multiplying the rental rate, as indicated in the tables in this resolution, by the total sales made in, upon, or from the Premises and/or otherwise attributable to the Premises for the calendar year. For each calendar year that Percentage Rent exceeds Base Rent, the lessee/permittee shall pay to City the Percentage Rent less the Base Rent paid to the City for that calendar year. G. Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. H. Private Waterways means privately owned submerged lands. I. Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of Orange, State of California granted to the City of Newport Beach, as trustee, by the State of California, pursuant to the Tidelands Grant. Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation, the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). 16-11 Attachment B Resolution No. 2012-98 Rent for Commercial Uses Located Upon Tidelands 16-12 RESOLUTION NO. 2012-98 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH SETTING RENT FOR COMMERCIAL USES LOCATED UPON TIDELANDS WHEREAS, pursuant to the 1978 Beacon Bay Bill, as amended, ("Beacon Bay Bill") the City of Newport Beach ("City") acts on behalf of the State of California as the trustee of Tidelands located within the City's limits, including Newport Harbor; WHEREAS, Section 1(b) of the Beacon Bay Bill authorizes the City to allow third - parties to use the Tidelands for commercial purposes for a term not to exceed fifty (50) years; WHEREAS, the City allows commercial Tidelands uses to operate upon the Tidelands under either a permit or a lease; WHEREAS, the Beacon Bay Bill, California Constitution Article 16, Section 6, Newport Beach Municipal Code ("NBMC") Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(D) require the City to receive fair market value Rent from third parties using the Tidelands; WHEREAS, NBMC Section 17.060.060(D) vests the City Council with the exclusive discretion to determine fair market value Rent based upon the findings of a City -selected appraiser; WHEREAS, an appraisal report by Rasmuson Appraisal Services, and an appraisal report by Netzer & Associates, were prepared and delivered to the City and have been reviewed and considered by the City Council: which reports are part of the record for this matter; WHEREAS, the Council Ad Hoc Committee on Harbor Charges ("Committee") and members of the Committee held public outreach meetings with commercial Tidelands users to solicit their input and participation in the Tidelands review process and these meetings afforded the public the opportunity to comment on this matter as well as provided the public information relating to this matter; WHEREAS, the City Council has considered all documents and comments in the record in connection with this resolution; -1- 16-13 WHEREAS, all previous resolutions and actions regarding the fair market rent for commercial Tidelands uses that are in conflict with the Rent established by the City Council in this resolution are hereby repealed. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The Recitals provided above are true and correct and are incorporated into the substantive portion of this resolution. Section 2: The City Council finds pursuant to NBMC Section 17.60.060(D), that the Rent provisions contained in the attached Commercial Tidelands Rent Calculations, which is incorporated by reference, provide for the charging of fair market value Rent and that the rental rate (and adjustments) in the attachment constitute fair market value Rent for commercial Tidelands uses, which findings are made by the City Council in its exclusive discretion but are based on the information in the appraisals of its City -selected appraisers and, in addition, on other testimony and documents in the record for this matter. The City Council further finds and determines the Rent for commercial Tidelands uses located upon City managed Tidelands, operating under an annual permit or a lease, shall be set in accordance with the attached Commercial Tidelands Rent Calcuiations. Section 3: The Rent charged under this resolution for Shipyards and complimentary guest slips, not associated with a restaurant, is for less than fair market value. The City Council specifically finds that the charging of less than fair market value Rent for these uses promotes public recreation facilities and marine services to the general public and furthers the policies and objectives of the Tidelands Grant. Charging less than fair market value Rent for these uses allows for continued operation and improved accessibility to the public. Thus, the charging of less than fair market value Rent for these uses of the Tidelands is a matter of state-wide concern that benefits the citizens of the State of California. Pursuant to City Council Policy F -7(E)(6), the City Council further finds that the charging of less than fair market value Rent promotes the goals of the City to further marine related services and activities. Section 4: The City Council finds the setting of Rent for commercial Tidelands uses is not subject to the California Environmental Quality Act ("CEQA") pursuant to Secticns 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of Rent for commercial Tidelands uses is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the Rent contemplates the continued use of existing facilities, with no expansion of the proposed -2- 16-14 use. Further, the City Council finds the setting of Rent for commercial Tidelands uses is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value Rent established by the City Council will be used to meet operating expenses within the Tidelands. Section 5: If any section; subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses and phrases be declared unconstitutional. Section 6: This resolution shall take effect immediately upon its adoption by the City Council and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 13" day of November, 2012. Nancy Gardne Mayor ATTEST: Leilani I. Brown, City Clerk n Attachment: Commercial Tidelands Rent Calculations -3- 16-15 Commercial Tidelands Rent Calculations Commercial Tidelands Uses (1) Fuel Docks shall pay as fair market rent the greater of Base Rent at Fifty Cents ($0.50) per square foot of the Premises, as adjusted pursuant to this resolution, or One and One Half Cents ($0.015) per gallon of fuel pumped and sold annually for every gallon up to and including One Hundred Thousand Gallons (100,000) or Two Cents ($0.02) per gallon for every gallon of fuel pumped and sold annually over One Hundred Thousand and Gallons (100,000). (2) Shipyards shall pay as Base Rent Fifty Cents ($0.50) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (3) Home Owners' Associations ('`HOA") which provide slips for the exclusive use of its members, shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. In the event an HOA rents slips to non-members, depending upon the size of the Premises, the HOA shall pay fair market Rent for those slips equal to the "Large Commercial Marina Rent" or "Large Commercial Marina Rent Alternative" as established by Resolution No. 2012-92, or any successor resolution, or the Small Commercial Marina Rent established by this resolution. Depending upon the Rent applicable to, or selected by, a HOA, the HOA shall be subject to all of the applicable terms accompanying the Rent (e.g., audit. etc.). (4) Yacht Clubs shall pay as fair market Base Rent the ''Large Commercial Marina Rent" or "Large Commercial Marina Rent Alternative" as established by Resolution No. 2012-92, or any successor resolution. Depending upon a Yacht Club's Rent selection, the Yacht Club shall be subject to all of the applicable terms accompanying the selected Rent (e.g., audit, etc.). Yacht Clubs shall pay as fair market Rent for complimentary Guest Slips Fifty Cents ($0.50) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (5) Small Commercial Marinas shall pay as fair market rent for use of the Premises, seventy-five percent (75%) of the 'Large Commercial Marina Rent" or "Large Commercial Marina Rent Alternative" as established by Resolution No. 2012-92, or any successor resolution. If a Small Commercial Marina elects to pay rent according to the "Large Commercial Marina Rent Alternative" methodology, the Base Rent provided in Resolution No. 2012-92 shall be applicable to the Small Commercial 16-16 Marina without any reduction in square footage costs. Depending upon a Small Commercial Marina's Rent selection, the Small Commercial Marina shall be subject to all of the applicable terms accompanying the selected Rent (e.g., audit, etc.). (S) Unless otherwise provided in this resolution, a commercial Tidelands use which provides complimentary (free of charge) public access slips to the general public shall be exempt from the payment of Rent to the City for use of the Premises occupied by the complimentary public access slips. (7) A Vessel Rental Facility shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (8) A Sport Fishing Charter business shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (9) Restaurants shall pay a fair market Base Rent for its Guest Slips at the rate of One Dollar and Two Cents ($1.02) per square foot of the Premises; as phased in and adjusted pursuant to this resolution. (10) A Vessel Charter Business shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises; as phased in and adjusted pursuant to this resolution. (11) Any commercial Tidelands use not covered by this resolution, or another resolution; shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (12) To the extent a Premise contains two (2) or more commercial Tidelands uses, the Rent shall be apportioned according to the use and the Premises occupied by the use (i.e., if half (112) of a Premises is operated as a Vessel Rental Facility and the other half (112) as a Small Commercial Marina the half (112) of the Premises used as a Vessel Rental Facility shall pay the applicable Vessel Rental Facility rent and the half (112) operated as a Small Commercial Marina shall pay the applicable Small Commercial Marina rent). Periodic Adjustments of Base Rent And Phase In Base Rent for commercial Tidelands uses provided by this resolution, shall be phased in and adjusted pursuant to the Marina Index provided in Resolution No. 2012- !611 16-17 92, or any successor resolution. For illustrative purposes, the Base Rent phase in and adjustment shall be as follows: Fifty Cent (S0.50) Base Rent Phase In Table and Adiustment One Dollar and Two Cent ($1.02) Base Rent Phase In Table and Adiustment Illustration of Target index Phase-in of $0.50/SF, with Harborwide Reappraisal with Harborwide Reappraisal 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 $ 0.56 5 0.81 S 1.05 2017 2018 $ 1.04 $ 1.09 S 2019 $ 0.36 $ 0.36 $ 0.50 5 0.51 $ 0.52 S 0.51 S 0.54 S 0.55 Assumed Rental Rate $ 0.50 $ 0.50 $ 0.51 $ 0.52 $ 0.51 $ 0.54 $ 0.55 $ (O.Oi) $ 0.05 $ $ 0.36 $ 0.50 $ 0.51 $ 0.52 5 0.51 5 0.54 Previous Year's Rent Difference(A) No Change n2013 $ 0.14 $ 0.01 $ 0.01 $ (0.01) $ 0.03 $ 0.02 Fully ?teased in at 201E $ 0.14 $ 0.01 1 $ 0.01 $ (0.01) $ 0.03 $ 0.02 Increase for Year JA/13) after 3-1-2018 __JFully This example illustrates that the Assumed Rental Rate can change every year - up Notes: orclown. Phased -in by 2016 in this illustration. Phased -in at 2014 artonvide Appraisalafter 3.1-2018 Notes: This example illustrates that the Assumed Rental Rate can change every year - up lor down. Phased -in by 2014 in this illustration. One Dollar and Two Cent ($1.02) Base Rent Phase In Table and Adiustment 16-18 Illustration of Target Index Phase -In of $1.02/SF, with Harborwide Reappraisal 2012 2013 2014 2015 2016 2017 2018 2019 $ 0.36 5 0.36 $ 0.56 5 0.81 S 1.05 $ 1.04 $ 1.09 S 1.13 Assumed Rental Rate $ 1.02 $ 1.02 $ 1.04 $ 1.05 $ 1.04 $ 1.09 1 $ 1.13 $ 0.36 S 0.56 $ 0.81 S 1.05 $ 1.04 5 1.09 Previous Year's Rent Difference (A) No Change in 2013 $ 0.66 S 0.48 $ 0.24 $ (O.Oi) $ 0.05 $ 0.03 $ 0.20 $ 0.25 $ 0.14 5 (0.01) $ 0.05 $ 0.03 Increase for Year (A/B) Fully ?teased in at 201E hartcnvide Appraisal after 3-1-2018 This example illustrates that the Assumed Rental Rate can change every year - up Notes: orclown. Phased -in by 2016 in this illustration. 16-18 Definitions Unless otherwise provided, the terms provided in the Newport Beach Municipal Code ('NBMC") shall apply to this resolution. The singular of any term also includes the plural. (1) Base Rent and Rent, unless otherwise provided, means the annual fair market rent charged on a square footage basis for the use of the Premises. (2) Fuel Dock means a facility that provides fuel (e.g., gasoline, diesel, oil, etc.) to vessels. (3) Guest Slip means a ''slip", as defined in NBMC Section 17.01.030(0)(8), or any successor statute, that is provided; with or without charge, for the use of the patrons while visiting the business. (4) Home Owners' Association (''HOA") means an organization of homeowners of a particular residential subdivision, condominium or planned unit development. (5) Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. (6) Private Waterways means privately owned submerged lands. (7) Shipyards means "marine sales and services, uses and vessels" as defined in NBMC Section 17.01.030(J)(5), or any successor statute. (8) Small Commercial Marina(s) means a "marina" as defined in NBMC Section 17.01.030(J)(3), or any successor statute, which occupies less than fifteen thousand square feet (15.000 sf) of Tidelands and Private Waterways. (9) Sport Fishing Charter means a business that charters vessels for use by seven (7) or more persons to sport fish outside of Newport Harbor. (10) Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach; County of Orange, State of California granted to the City of Newport Beach, as trustee, by the State of California, pursuant to the Tidelands Grant. -7- 16-19 {11) Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation, the Beacon Bay Bili (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). (12) Vessel Charter Business is a business that provides a vessel (including professional captain and crew) which has been hired or leased by the owner, directly or through an authorized representative; to any person for a voyage in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. (13) Vessel Rental Facility(ies) means a person that rents or leases vessels to another person for a period of less than twenty-four (24) consecutive hours in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. (14) Yacht Club(s) means an organization operating from a fixed location, comprised of a private membership, and principally engaged to promote, coordinate or facilitate boating and yachting. 16-20 STATE OF CALIFORNIA COUNTY OF ORANGE ss. CITY OF NEWPORT BEACH I, Leilani 1 Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2012-98 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 13'h day of November, 2012, and that the same was so passed and adopted by the following vote, to wit Ayes: Hill, Rosansky, Curry, Selich, Henn, Mayor Gardner Noes: Daigle IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 1411 day of November, 2012. D& 4. � City Clerk Newport Beach, California (Seal) 16-21 Attachment C Resolution No. 2017-49 Adjusting the Rent Charged for Commercial Uses Located Upon Tidelands 16-22 RESOLUTION NO. 2017-49 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, ADJUSTING THE RENT CHARGED FOR COMMERCIAL USES LOCATED UPON TIDELANDS WHEREAS, pursuant to the 1978 Beacon Bay Bill, as amended, ("Beacon Bay Bill") the City of Newport Beach ("City") acts on behalf of the State of California as the trustee of tidelands located within the City's limits, including Newport Harbor ("Tidelands"), WHEREAS, Section 1(b) of the Beacon Bay Bill authorizes the City to allow third -parties to use the Tidelands for commercial purposes for a term not to exceed fifty (50) years; WHEREAS, the City allows commercial Tidelands uses to operate upon the Tidelands under either a permit or a lease; WHEREAS, the Beacon Bay Bill, California Constitution Article 16, Section 6, Newport Beach Municipal Code ("NBMC") Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(D) require that the rent received by the City from third parties using the Tidelands be based in part upon an appraisal, and reflective of the fair market value related to such uses; WHEREAS, NBMC Section 17.060.060(D) vests the City Council with the exclusive discretion to determine fair market value rent based in part upon the findings of a City -selected appraiser; WHEREAS, City Council Policy F -7(E) requires that, whenever less than the fair market value is received, the City make specific findings setting forth the reasons thereof including, but not limited to, findings that the uses serve to promote the goals of the City or that the uses provide an essential or unique service to the community that might not otherwise be provided were full market value required; WHEREAS, on October 23, 2012, the City Council adopted Resolution No. 2012- 91 and Resolution No. 2012-92 approving a model lease template, model permit, and rent schedule for large commercial marinas located upon Tidelands; WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-96, which amended Resolution Nos, 2012-91 and 2012-92 to re -define large commercial marinas, adjust the rent phase-in schedule, correct scrivener's errors and revise the market adjustment date; WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-97 approving a model lease template and model permit template for commercial uses located upon Tidelands; WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-98 setting fair market value rent for commercial uses located upon Tidelands; WHEREAS, on November 26, 2013, the City Council adopted Resolution No. 2013-88, which, among other things, amended Resolution No. 2012-98 to reclassify certain homeowners' associations slips from commercial to residential; 16-23 Resolution No. 2017-49 Page 2of3 WHEREAS, following the adoption of the various resolutions related to commercial uses located upon Tidelands, the City Council and staff continued to seek and receive input from Tidelands users regarding possible improvements designed to protect and enhance Newport Harbor and other Tidelands; WHEREAS, at the City's request, George Hamilton Jones, Inc. conducted an appraisal to determine fair market value rent for commercial Tidelands uses and, thereafter, prepared appraisal reports dated April 7, 2016 and July 12, 2017 (collectively, "Appraisal Reports"); WHEREAS, the City Council reviewed the Appraisal Reports and they are part of the record in this matter; and WHEREAS, the City Council finds this resolution is a successor resolution to Resolution No. 2012-91, Resolution No. 2012-92, Resolution No. 2012-96, Resolution No. 2012-97, Resolution No. 2012-98, and Resolution No. 2013-88 (collectively, "Commercial Tidelands Resolutions"). NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows.. Section 1: The City Council hereby sets rent, rental phase-in, and associated adjustments for commercial Tidelands users as provided in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands, which is incorporated herein by reference. Except as to the uses specifically set forth in Section 3 of this resolution, the City Council finds, pursuant to the Beacon Bay Bill, California Constitution Article 16, Section 6, NBMC Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(E), that the rental rates, phase-in, and adjustments contained in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands constitute fair market value rent. This finding is made by the City Council in its exclusive discretion but is based on the information contained in the Appraisal Reports and on the other documents and testimony contained in the record for this matter. Section 2: The City Council does hereby repeal any portion of the Commercial Tidelands Resolutions that conflict with the rental amounts, rental calculation methods, associated rental adjustments, and rental phase-in provided in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands. Section 3: The City Council sets the rental rates, phase-in, and adjustments contained in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands for Shipyards, Yacht Club Guest Slips, and Free Public Access Docks (not associated with a restaurant) at less than fair market value. Pursuant to City Council Policy F -7(E)(6), the City Council finds charging less than fair market value rent for these specific uses promotes the goals of the City to further marine -related services and activities. More specifically, the City Council finds charging less than fair market value rent for these uses promotes public recreation facilities and marine services to the general public, furthers the policies and objectives of the Beacon Bay Bill, and allows for continued operation and improved accessibility to the public. Thus, the charging of less than fair market value rent for these uses of the Tidelands is a matter of state-wide concern that benefits the citizens of the State of California, 16-24 Resolution No. 2017-49 Page 3 of 3 Section 4: The Recitals provided above are true and correct and incorporated into the operative part of this resolution. The City Council also incorporates, where appropriate, the findings made in the Commercial Tidelands Resolutions into this resolution. Section 5: Except as expressly modified by this resolution, all provisions, terms, and covenants set forth in the Commercial Tidelands Resolutions shall be unchanged and shall remain in full force and effect. Section 6: The City Council finds the setting of rent for commercial Tidelands uses is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of rent for commercial Tidelands uses is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, the City Council finds the setting of rent for commercial Tidelands uses is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the rent established by the City Council will be used to meet operating expenses within the Tidelands. Section 7: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 8: This resolution shall take effect immediately/ upon its adoption City Council, and the City Clerk shall certify the vote adoptinglthe_�Wlution, , ADOPTED this 25th day of July, 2017. ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CITY A Y'S OFFICE Aaron C. Harp City Attorney Kevin Muldoo Mayor / NIA Attachment: Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands 16-25 Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands Beginning on the date a lease or permit is first effective (i.e., the date a lease is executed by all parties or a permit is issued by the City), a Commercial Marina Operator shall pay to the City, on a monthly basis, Rent (as defined below). 1. Rent. The "Rental Rate" for each category of commercial Tidelands use is as follows: Commercial Use Cate�y Rent Per Square Foot Lar e Commercial Marinas$ 1.17 Medium Commercial Marinas $ 0.89 Small Commercial Marinas $ 0.76 Shipyards $ 0.38 HOA marinas/docks for non-members' use - greater than 30,000 sf $ 1.17 - 13,000 sf to 30,000 sf $ 0.89 - less than 13,000 sf $ 0.76 Yacht Club Guest Slips $ 0.38 Free Public Access Docks (not associated with a restaurant $ _ Vessel Rental Facility Boat Rentals $ 0.76 Sport Fishing Charters $ 0.76 Restaurants' guest slips $ 0.38 Vessel Charters $ 0.76 All Others $ 0.76 For a term year beginning March 1, 2017, and thereafter, monthly Rent shall equal the then applicable Rental Rate, rounded to the nearest cent, times the Premises square footage as set forth in this resolution (i.e., if the Rental Rate is $1.17 and the Premises is 10,000 square feet the annual Rent would be $11,700). To the extent a Premise contains two (2) or more commercial Tidelands uses, the Rent shall be apportioned according to the use and the Premises occupied by the use (i.e., if half (112) of a Premises is operated as a Vessel Rental Facility and the other half (112) as a Small Commercial Marina the half (112) of the Premises used as a Vessel Rental Facility shall pay the applicable Vessel Rental Facility rent and the half (112) operated as a Small Commercial Marina shall pay the applicable Small Commercial Marina rent). Unless otherwise provided in this resolution, a commercial Tidelands use which provides complimentary (free of charge) public access slips to the general public (on a 2417 basis or during normal operating hours) shall be exempt from the payment of Rent to the City for use of the Premises occupied by the complimentary public access slips. 2. Rental Phase -In Period, Rent will be set in accordance with a two (2) period phase-in procedure with the first phase-in billed in October 2017, for Rent due on November 1, 2017. The second phase- in billed in July 2018, for Rent due on August 1, 2018. Rent shall be fully phased -in beginning on August 1, 2018. An example of the two (2) period phase in procedure is provided below: 16-26 Commercial Use Category Ramp-Up Period November 2017 July 2018 Large Commercial Marinas $ 0.76 $ 1.17 Medium Commercial Marinas $ 0.62 $ 0.89 Small Commercial Marinas $ 0.49 $ 0.76 Shipyards $ 0.38 $ 0.38 HOA marinas/docks for non-members' use - greater than 30,000 sf $ 0.76 $ 1.17 - 13,000 sf to 30,000 sf $ 0.62 $ 0.89 - less than 13,000 sf $ 0.49 $ 0.76 Yacht Club Guest Slips $ 0.38 $ 0.38 Free Public Access Docks (not associated with a restaurant $ - $ - Vessel Rental Facility (Boat Rentals $ 0.49 $ 0.76 Sport Fishing Charters $ 0.49 $ 0.76 Restaurants' guest Slips $ 0.38 $ 0.38 Vessel Charters $ 0.49 $ 0.76 All Others $ 0.49 $ 0.76 3. Rent Adjustments. A. Annual Rent Adjustment. Beginning on March 1, 2019, Rent may be adjusted on the first day of March each permit/lease year to reflect an increase in the cost of living, as indicated by the Consumer Price Index described below. Rent may be adjusted if the Consumer Price Index for the Los Angeles — Orange County - Riverside Area, All Urban Consumers, All Items ("Index"), as published by the United States Department of Labor, Bureau of Labor Statistics ("Bureau"), increases over the Base Period Index. The initial "Base Period Index" shall be the Index for the calendar month which is four (4) months prior to the month of the permit/lease effective date, thus November. The initial Base Period Index shall be compared with the Index for the same calendar month for each subsequent Lease Year ("Comparison Index"). The Comparison Index used for a given year's adjustment calculation will become the Base Period Index for purposes of the next annual Rent adjustment calculation. If the Comparison Index is higher than the Base Period Index, then Rent for the next Lease Year shall be increased by the amount of such percentage change. Should the Bureau discontinue the publication of the above Index, or publish same less frequently, or alter same in some other manner, then the parties shall adopt a substitute Index or substitute procedure which reasonably reflects and monitors consumer prices. The example CPI adjustment shown in the table below assumes that the Rental Rate in 2017 is one dollar and seventeen cents ($1.17) per square foot. In the actual calculation and subsequent years, the Rental Rate will be adjusted annually, as set forth above, and may vary from what is provided in the table below. 16-27 Commercial Use Cate or Ramp-Ue Period November 2017 July 2018 March 2019' Large Commercial Marinas $ 0.76 $ 1.17 $ 1.19 Medium Commercial Marinas $ 0.62 $ 0.89 $ 0.90 Small Commercial Marinas $ 0.49 $ 0.76 $ 0.78 Shipyards $ 0.38 $ 0.38 $ 0.39 HOA marinas/docks for non- members' use - greater than 30,000 sf $ 0.76 $ 1.17 $ 1.19 - 13,000 sf to 30,000 sf $ 0.62 $ 0.89 $ 0.90 - less than 13,000 sf $ 0.49 $ 0.76 $ 0.78 Yacht Club Guest Slips $ 0.38 $ 0.38 $ 0.39 Free Public Access Docks (not associated with a restaurant $ - $ - $ - Vessel Rental Facility (Boat Rentals $ 0.49 $ 0.76 $ 0.78 Sport Fishing Charters $ 0.49 $ 0.76 $ 0.78 Restaurants' guest slips $ 0.38 $ 0.38 $ 0.39 Vessel Charters $ 0.49 $ 0.76 $ 0.78 All Others $ 0.49 $ 0.76 $ 0.78 'Assumes 2% inflation. B. Market Adjustment of Rent and Other Fees and Charges. At the Market Adjustment Date, the Rental Rate may be adjusted, in the City's sole and absolute discretion, to reflect the then -current fair market value, as such value shall be determined by an appraisal to be conducted in accordance with the provisions of this section. If applicable, the Rental Rate determined by the appraisals shall commence on March 1 of the year following the appraisals (i.e., the Rental Rate determined by the appraisals following March 1, 2026 shall be effective March 1, 2027). If applicable, the City shall retain one (1) independent MAI appraiser to conduct a harbor -wide appraisal of commercial uses. All MAI appraisers selected pursuant to this subsection shall have at least ten (10) years' experience appraising Tidelands in the Southern California area. 4. Definitions. Unless otherwise provided, the terms provided in the NBMC shall apply to this resolution. The singular of any term also includes the plural. A. Base Rent and Rent, unless otherwise provided, means the annual rent charged on a square footage basis for the use of the Premises. B. City means the City of Newport Beach. C. Guest Slip means a "slip", as defined in NBMC Section 17.01.030(0)(8), or any successor statute, that is provided, with or without charge, for the use of the patrons while visiting the business. 16-28 D. Home Owners' Association ("HOA") means an organization of homeowners of a particular residential subdivision, condominium or planned unit development. E. Large Commercial Marina(s) means a "marina" as defined in NBMC Section 17.010.030(J)(3) or any successor statute, which occupies more than thirty thousand square feet (30,000 so of Tidelands and Private Waterways. F. Market Adjustment Date means March 1, 2026 and every tenth (10th) anniversary year thereafter. G. Medium Commercial Marina(s) means a "marina" as defined in NBMC Section 17.01.030(J)(3) or any successor statute, which occupies between thirteen thousand square feet (13,000 so and thirty thousand square feet (30,000 so of Tidelands and Private Waterways, H. Percentage Rent means rent which is determined each calendar year and shall be calculated by multiplying the rental rate, as indicated in the tables above, by the total sales made in, upon, or from the Premises and/or otherwise attributable to the Premises for the calendar year. For each calendar year that Percentage Rent exceeds Base Rent, the Tidelands user shall pay to City the Percentage Rent less the Base Rent paid to the City for that calendar year. I. Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. J. Private Waterways means privately owned submerged lands. K. Shipyards means "marine sales and services, uses and vessels" as defined in NBMC Section 17.01.030(J)(5), or any successor statute. L. Small Commercial Marina(s) means a "marina" as defined in NBMC Section 17.01.030(J)(3) or any successor statute, which occupies less than thirteen thousand square feet (13,000 so of Tidelands and Private Waterways. M. Sport Fishing Charter means a business that charters vessels for use by seven (7) or more persons to sport fish outside of Newport Harbor, N. Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of Orange, State of California granted to the City of Newport Beach, as trustee, by the State of California, pursuant to the Tidelands Grant. O. Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation, the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). P. Vessel Charter Business is a business that provides a vessel (including professional captain and crew) which has been hired or leased by the owner, directly or through an authorized representative, to any person for a voyage in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. 16-29 Q. Vessel Rental Facility(ies) (Boat Rentals) means a person that rents or leases vessels to another person for a period of less than twenty-four (24) consecutive hours in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. R. Yacht Club(s) means an organization operating from a fixed location, comprised of a private membership, and principally engaged to promote, coordinate or facilitate boating and yachting. 16-30 Attachment D George Hamilton Jones, Inc. Appraisal, dated July 12, 2017 16-31 APPRAISAL OF Market Rental Value City Tidelands and Submerged Land Newport Beach, California Phase 2 Date of Value: Submitted To: March 15, 2016 Mr. Dave Kiff City Manager Date of Report: City of Newport Beach 100 Civic Center Drive July 12, 2017 Newport Beach, CA 92660 Our File No.: 417-1 Submitted By: George Hamilton Jones, Inc. 16-32 July 12, 2017 Mr. Dave Kiff City Manager City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 Re: Appraisal of Market Rental Value of City of Newport Beach Tidelands, as Dedicated to Various Commercial and Other Uses — Phase 2 Appraisal Report Dear Mr. KIM. In accordance with your request and authorization, I have made an investigation and analysis of various tideland parcels in Newport Harbor for the purpose of rendering an opinion of the market rental value of those State of California Tidelands, currently held in Trust by the City of Newport Beach ("City Tidelands") and proposed to be leased to private upland owners for various commercial and other uses. The date of value of this appraisal is March 15, 2016. This appraisal is undertaken in consideration of the general facts and conditions prevailing at the date of value as set out in the Appraisal Report, dated April 7, 2016, which was previously submitted by our office, and is considered a supplement to it. In the earlier appraisal, we formed an opinion of the market rental value of the City of Newport Beach Tidelands for commercial marina use. That analysis was based upon the hypothetical condition of a subject property described as being a "large" commercial marina of 56,000 square feet of vacant tidelands with immediate access to the vacant uplands necessary to support a commercial marina operation. All prevailing legal constraints and development requirements, for both the tidelands and the supporting uplands, were considered to be in effect and operative in determining the highest and best use of the hypothetical subject property. George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 16-33 Mr. Dave Kiff July 12, 2017 Page 2 of 4 The previous assignment explicitly recognized that, over the course of more than half a century, Newport Harbor had been developed with a wide range of commercial marinas. The commercial marina operations existing at the date of value varied widely in terms of overall size, improvement configuration, access to and character of upland amenities, conformance with current legal/land use standards, harbor location, and other key features. Accordingly, the appraisal was not based upon the specific characteristics of the tidelands associated with any particular marina in the harbor. This approach was undertaken in an attempt to provide as balanced and equitable an analysis of the tidelands in a harbor -wide context as possible. The market rent conclusion for the hypothetical 56,000 square feet of tidelands as dedicated to commercial marina use, which was presented in the April 7, 2016 Appraisal Report, was 8.50% of the gross revenue generated by the marina operation. Expressed on an annual square foot basis, this market rent conclusion was equivalent to $1.17 per square foot of tidelands per year. In the current assignment — Phase 2 — I have been requested to expand the analysis undertaken in the previous appraisal to include other tidelands uses throughout Newport Harbor. The additional categories for which I have developed and expressed an opinion of the market rental value are as follows: • Medium Commercial Marinas • Small Commercial Marinas • Fuel Docks • Shipyards • HOA Marinas • Yacht Clubs (Guest/Instructional Use) • Boat Rentals • Sport Fishing Charters • Restaurant Guest Slips • Vessel Charters • All Others George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 16-34 Mr. Dave Kiff July 12, 2017 Page 3 of 4 The definition of market rent used in this assignment is consistent with that set out in the Dictionary of Real Estate Appraisal, Sixth Edition: The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIS.) By instruction, the market rent conclusions for each category are to be expressed in terms of annual rent per square foot of tidelands. As will be discussed in the report, the preponderance of the market data to be found in harbors and port districts along the Southern California coast sets market rental rates for various categories of use based upon a percentage of the gross income generated by that use. Furthermore, the market data included land and water area combined, whereas the subject is tidelands only. This situation created significant appraisal challenges in correlating the data to the subject. Extensive investigations and analyses were undertaken to extract out those empirical elements from the data that could be most usefully employed in shedding light on market rent for the subject tidelands. This involved economic inquiries, paired sales/rental analyses, studies of the reciprocal relationships between uses and other methodologies and reasoning. Summary discussions of these analyses will be presented in the following Appraisal Report. Details are held in my files and are available for review upon request. As a result of all my investigations and analyses, I have formed the opinion, that, as of March 15, 2016, market rent for the various categories of use of the subject City Tidelands, expressed on an annual per square foot basis, was as follows: George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 16-35 Mr. Dave Kiff July 12, 2017 Page 4 of 4 Your attention is invited to the following Appraisal Report which was developed in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). The report sets forth, in brief, premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which formed, in part, the basis of my value conclusions. Supporting documentation and analyses are retained in my files. Respectfully submitted, Casey Jonc MAI (State Certift d General Real Estate Appraiser No. AGO41862) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonionesinc.com 16-36 RATE PER COMMERCIAL USE CATEGORY SQ. FT. Large Commercial Marinas $1.17 ( >30,000 square feet ) Medium Commercial Marinas $0.89 ( 13,000-30,000 square feet ) Small Commercial Marinas $0.76 ( <13,000 square feet) Fuel Docks $0.76 Shipyards $0.38 HOA Marinas (residential use) residential rates commercial HOA Marinas (commercial use) marina rates based on size Yacht Clubs (Guest/Instructional Use) $0.38 Boat Rentals $0.76 Sport Fishing Charters $0.76 Restaurant Guest Slips $0.38 Vessel Charters $0.76 All others $0.76 Your attention is invited to the following Appraisal Report which was developed in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). The report sets forth, in brief, premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which formed, in part, the basis of my value conclusions. Supporting documentation and analyses are retained in my files. Respectfully submitted, Casey Jonc MAI (State Certift d General Real Estate Appraiser No. AGO41862) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonionesinc.com 16-36 TABLE OF CONTENTS Introductory: Page Letter of Transmittal 1 Table of Contents 5 Introduction to the Appraisal Problem: Purpose 7 Date of Value 7 Client/Intended User 7 Intended Use 7 Property Rights Appraised 8 Definitions 8 Scope of the Appraisal 9 Property Description: Introduction 14 Location 15 Apparent Owner 16 Parcel Size and Shape 16 Utilities 17 Access 17 Land Use Regulations 17 Current Improvements 19 Market Analysis 19 Highest and Best Use 21 Valuation: Introduction 22 Commercial Marinas 23 Fuel Docks 26 Shipyards 29 HOA Marinas 30 Yacht Clubs (Guest/Instructional Use) 31 Restaurant Guest Slips 32 Boat Rentals, Sport Fishing Charters, Vessel Chargers, Others 34 Summary of Conclusions 36 GEORGE HAMILTON JONES, INC. 5 16-37 TABLE OF CONTENTS - continued Addenda: City of Newport Beach Pier Permit Exhibits Percentage Rent Survey Certification Limiting Conditions Qualifications GEORGE HAMILTON JONES, INC. 6 16-38 INTRODUCTION TO THE APPRAISAL PROBLEM Purpose: The purpose of this appraisal is to render an opinion of the market rent for those State of California tidelands currently held in trust by the City of Newport Beach ("City Tidelands") under the proposed use of being leased to adjacent upland owners for the various purposes set out below: • Medium Commercial Marinas (13,000 — 30,000 square feet) • Small Commercial Marinas (< 13,000 square feet) • Fuel Docks • Shipyards • HOA Marinas • Yacht Clubs (Guest/Instructional Use) • Boat Rentals • Sport Fishing Charters • Restaurant Guest Slips • Vessel Charters • All Others The opinions of market rent shall be expressed in terms of annual rent per square foot of tidelands. Date of Value: March 15, 2016 Client/Intended User: Dave Kiff, City Manager for the City of Newport Beach. Intended Use: The intended use of the report is to assist in setting the market rental rate for various uses of the tidelands throughout Newport Harbor. GEORGE HAMILTON JONES, INC. % 16-39 INTRODUCTION — continued Property Rights Appraised: The market rent of the fee simple interest of the tidelands within the lower bay of Newport Harbor allocated for the various described uses. Definitions: Tidelands_ For the purpose of this study, the public tidelands are considered to consist of that water area extending from the established U.S. Bulkhead Line to the Pierhead Line. Market Rent' (Fair Rental Value) The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs.) Market Value 2: The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: • Buyer and seller are typically motivated; • Both parties are well informed or well advised, and acting in what they consider their best interests; ' The Dictionary of Real Estate Appraisal, The Appraisal Institute, Sixth Edition, 2015. 2 This definition of market value is used by agencies that regulate financially insured financial institutions in the United States. GEORGE HAMILTON JONES, INC. 16-40 INTRODUCTION — continued • A reasonable time is allowed for exposure in the open market; • Payment is made in terms of cash in U.S. dollars or in terms or in terms of financial arrangements comparable thereto; and • The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (12C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994.) Scope of the Appraisal: The scope of the work required to formulate a reliable opinion of value for the appraised properties is outlined below. Assignment Analysis: Define the basic elements of the appraisal problem, and the purpose and intended use of the report. Identify the properties and research property history including current use, prior use, prior leasing information, and current market activity. Site Description and Analysis: Document the physical characteristics of the sites and their surrounding influences. Review and interpret applicable zoning, general plan, environmental restrictions, and developmental agreements that may apply to the subject properties. Analyze the impact of private tidelands that may be adjacent to subject sites. Improvement Description and Analysis: Describe the improvements on the sites, if any. This includes size, construction, finish, age, and condition. Analyze the utility of the existing improvements and the current demand as configured. GEORGE HAMILTON JONES, INC. 9 16-41 REGIONAL MAP wen Edwards AFB Kramer Hills Hinkley _ QWillow Barstow �i Yermv Pine Mountain Springs Rosamond Glub Lebec Newberry Gorman Springs to Helendale Lake Hughes Lancaster Quartz Hill Lake Los Palmdale Angeles Adelanto LittleraVicterville ss d[ ,a Apple Valley Ojai Castaic to Acton Lucerne Johnson valley Phelan Hesperia Valley Filkmore tw Q Angeles wri ghtwood a �� 2s National Forest San Gabriel Mt San 0 Ventura „8 Simi Valley �_ Mountains... Antonio -- © 8 Big Bear Lake Camarillo 13 Oxnard Thousand Port Hueneme Oaks tot San Pasadena Bernardino Pio qW m San Bernardino National Forest 0 San Gorgonio i10_L�',V•�`•L W ... Mountain Los Angeles Pomona Malibu Santa Monica I ¢i G b: De W Ri verside a-. Beaumont i S � v Torrance Anaheim Mt San Jacinto Q Long Beach Perris Hemet Ca Santa Ana 'a 0, jo Q ra rat Lake Elsinore Costa Mesa Newport BeachAk Fri Q ]3 Murrieta Anza 2a Temecula n, Dana Point Two Harho+s Catalina Island San Clemente Aguanga Essential Fish Habitat... Pala pafomaro SUBJEC Mountain D Cleveland Q National Forest Oceanside Vista Carlsbad Q Escondido Sarna Ysabel Julian Ramona San Clemenre 1 tstand L4 J�LLR to - Alpine pine N � EI Cajon San Diego I lI5 Chula Vista a GEORGE HAMILTON JONES, INC. 16-42 INTRODUCTION — continued This assignment is to form an opinion of the market rent of the tidelands only, absent any improvements. However, the impact of the existing improvements on the highest and best use is appropriate to consider given development/redevelopment constraints imposed by the California Coastal Commission and ADA compliance regulations. Market Analysis: Identify pertinent economic, governmental, social and environmental forces that may influence real property values and market rent considerations for subject tidelands. Highest and Best Use: Analyze highest and best use of the subject tidelands sites as though vacant and as improved. Potential uses and configurations of the tidelands sites were tested to determine which use or uses were physically possible, legally permitted, financially feasible, and maximally productive. Analysis of the economic and legal (land use) issues related to redevelopment of existing improvements on the subject tidelands was undertaken. Market Data: Search and acquire market rental data of properties comparable to the various subject categories of use: • Obtain and verify information of California State Lands Commission benchmark rates for tideland leases. • Obtain and verify information regarding public leases of land and water in joinder for the various use categories that are the subject of this analysis. These data came from Orange County, San Diego County, Los Angeles County and Ventura County. • Investigate economic factors that influenced the lease rates for the various uses analyzed in these different jurisdictions. This included slip rental rates, number of boats in the harbors, density of boat berthing, fuel retail GEORGE HAMILTON JONES, INC. 10 16-43 INTRODUCTION — continued prices, historic fuel gallonage rates, adjacent upland values and other factors. Valuation: Commercial Marinas: Reference was made to the data, economic analyses and reasoning that led to the market rent conclusion set out in the previously submitted, April 7, 2016, Appraisal Report. The conclusion reached in that appraisal reflected a reconciliation between a market data approach and two economic analyses. The result was expressed as a percent of the gross revenue and as an annual rental amount per square foot; specifically, $1.17 per square foot of tidelands. This reconciled indication was used as a benchmark for subsequent studies of different marina sizes. An economic analysis was then undertaken wherein all the key elements leading to a tidelands residual were held constant while only the size of the tidelands area leased for marina use was changed. This led to an indication, derived from these economic factors, that supported a distinction between tidelands rental rates based on the relative size of tidelands area leased. The conclusions of these analyses were as follows: Large Marinas: > 30,000 square feet Medium Marinas: 13,000 to 30,000 square feet Small Marinas: < 13,000 square feet Market rent indications were tested under different potential marina configurations within each size category to yield a reconciled conclusion of the appropriate rental rate for each commercial marina size category. GEORGE HAMILTON JONES, INC. I I 16-44 INTRODUCTION — continued Fuel Docks: Extensive investigations were undertaken analyzing rental rates for fuel docks in harbors from Marina del Rey to the San Diego Port District. These jurisdictions charge rent for tidelands and supporting uplands in joinder based on either a dollar amount (in practice, ¢) per gallon of fuel pumped or as a percentage of the total revenue generated by fuel sales. Information relating to gallons of fuel pumped, the retail price of the fuel and other factors were considered. Adjustments were also made for the economics of the uplands requirements that operators in Newport Harbor face and are distinct from those in other jurisdictions. Shipyards: Paired sales analyses were made between rental rates charged for shipyards in other jurisdictions relative to uplands and tidelands rental rates for higher uses in these other harbors. These ratios were then correlated to similar higher uses in Newport Harbor (such as the large commercial marina benchmark of the previous report) to yield an indication for tidelands rent for a shipyard in Newport Harbor. HOA Marinas An HOA Marina which is restricted to use by residents of the HOA shall be charged tidelands rent at the appropriate residential rates already established and approved. When an HOA Marina makes its facilities available to the general public, it is, in effect, functioning as a commercial marina. Accordingly, the tidelands lease rate should be consistent with the commercial marina rates of a comparable size category. Yacht Clubs — Guest/ Instructional Use This "guest/instructional use" category is distinct from a commercial marina where the operator might also be a yacht club. The guest/instructional use category is considered effectively to be GEORGE HAMILTON JONES, INC. 12 16-45 INTRODUCTION — continued a "transit" use, where there is no permanent berthing and the tidelands are primarily intended for temporary docking and to facilitate access from the water to the land, or vice versa. There is effectively no economic activity generated within the tidelands with this use. Accordingly, such a use was considered to be at the low end of the economic range of tidelands use. The California State Lands Commission benchmark, while not directly comparable to this use, was a helpful indicator. Restaurant Guest Slips These were judged to be comparable to Yacht Club — guest/instructional use. No income is directly generated by the tidelands; rather, the tidelands are an ancillary convenience to the economic driver (the restaurant) which is primarily served by uplands parking. Comparable rent was indicated. Boat Rentals, Sport Fishing Charters and Vessel Charters Comparable rental data from other harbors was examined. All comparable data are based on a percentage of revenue, depending on specific use. These uses include different income potentials and different upland land area requirements. Leverage from a variety of factors is acknowledged in any residual economic analysis with these uses. Such was also the case with the small commercial marina analyses. Accordingly, due to comparability of size and the uncertainty of residual economic utility depending on various use factors, these commercial uses were judged to be in line with small commercial marinas and market rent was estimated accordingly. A 11 nth erc For general (other) income generating uses in the small marina size category, my analyses indicated that a rental rate comparable to small commercial marinas, boat rentals, charters, etc. is appropriate. GEORGE HAMILTON JONES, INC. 13 16-46 �f "t� PROPERTY DESCRIPTION Introduction: Due to the multi -faceted nature of this assignment, there is no specific subject property to be described. However, all the properties which are being appraised lie within the tidelands of Newport Harbor, which, among all the harbors and port districts along the Southern California coast, is unique in a number of ways. These harbor -specific characteristics are important factors that have been considered in this valuation assignment and warrant a brief review. In the broadest context, it must be borne in mind that the tidelands of Newport Harbor have been undergoing a slowly evolving process of transformation for more than a century. These changes have been driven by a variety of interdependent forces that have played out in the specific manner they have due, in no small measure, to the private, as opposed to public, ownership of the uplands parcels adjacent to the tidelands. Private ownership, responsive as it is to market forces, has literally shaped the physical characteristics of the harbor over time. One need only think of the creation of Lido Isle from submerged tidal flats, or, in more recent memory, the transformation of Shark Island into the exclusive homes of Linda Isle, as high-profile examples. Demand for the finite supply of waterfront property in an area of broad appeal has provided a strong economic impetus to extract as much utility from the harbor as possible. However, offsetting a strictly mercantile emphasis on the direction of development, there has also arisen social, environmental and conservation considerations that have, and will in the future, continue to shape the harbor. It is in the organic interplay of these forces that the well- recognized charm of Newport Harbor has arisen. Diversity is a hallmark of the land and tidelands uses in the harbor, and this unique feature plays a significant role in attracting large numbers of visitors to the area. Further, from a valuation perspective, private ownership of the uplands adjacent to the tidelands is perhaps the most critical economic influence that distinguishes these waters from so many other port districts GEORGE HAMILTON JONES, INC. 14 16-48 PROPERTY DESCRIPTION - continued along the Southern California coast, where a public jurisdiction generally controls both water and adjacent uplands. In summary, the dynamic interplay of forces (economic, governmental, social and environmental) resulted, over time, in there being a wide range of tideland uses and improvement characteristics in Newport Harbor at the date of value. As part of this analysis, each of the tidelands parcels in Newport Harbor currently permitted for use by the City of Newport Beach have been reviewed and analyzed. These investigations took into account various defining features, including, but not limited to, use, size, location, association with private tidelands, and the nature of the supporting uplands. The permitted tidelands parcels reviewed and considered to have been in place at the date of value are summarized in the Addenda section of this report' with further details held in my files. It will be noted that the permit holders are for individual types of uses of the tidelands (such as commercial marina, boat rentals, etc.), as well as, in some instances, for combined uses. Again, while taking into account a variety of factors that may influence market rent, this valuation will ultimately be based on the use to which the tidelands are put, not the unique characteristics of a particular parcel or how a specific permittee has utilized his/her tidelands and/or adjacent uplands. Location: All subject tidelands are in the lower bay of Newport Harbor. They typically include the water area extending from the established U.S. Bulkhead Line to the Pierhead Line. (There are certain exceptions where they project beyond the Pierhead Line.) Because each parcel within the subject tidelands is part of the greater Newport Harbor whole, as well as a contributing component to the surrounding Newport Beach community, they have not been analyzed 1 This information is taken from the City of Newport Beach website: http: //nbgis.newportbeachca. gov/NewportHTML5 V iewer/?viewer=pierpermitsinfo GEORGE HAMILTON JONES, INC. 15 16-50 EXAMPLE: BULKHEAD LINE TO PIERHEAD LINE GEORGE HAMILTON JONES, INC. 16-51 PROPERTY DESCRIPTION - continued as strictly independent entities. Joinder within the larger network of harbor and coastal oriented real property interests is an inarguable influence on the nature of the demand for, as well as the economic utility of, each tidelands use. Accordingly, each category of use of the tidelands has been considered in terms of its integrated role within the larger context of Newport Harbor as a whole, as well as its function in the larger community. Apparent Owner: Fee Interest: The subject tidelands are held in fee by the State of California, in Trust to the City of Newport Beach. There has been no change in the ownership of the fee interest for in excess of 10 years. Leasehold Interest: It is recognized that the tidelands parcels that are the subject of this appraisal are not intended to be encumbered by conventional long-term leases, but, rather, by annual permits. It is an assumption of this report that the leasehold/permittee interest in the subject tidelands is held by a well-informed investor and/or operator who is utilizing the property at its effective highest and best use. Parcel Size and Shape: The subject parcels are of various sizes and shapes. The market rent conclusions presented in this report are expressed on an annual dollars per square foot basis. While these rates are intended to be applied to the total area of the tidelands leased to reflect the total market rent for each parcel, with the exception of commercial marinas, or uses analogous to commercial marinas, the rates themselves are based on use and not influenced by the size of the tidelands parcel. GEORGE HAMILTON JONES, INC. 16 16-52 PROPERTY DESCRIPTION - continued However, as will be seen in a following section of this report, a distinction, supported by economic analyses, has been made between commercial marinas in three size categories. These are as follows: Small Commercial Marinas: < 13,000 square feet Medium Commercial Marinas: 13,000 — 30,000 square feet Large Commercial Marinas: > 30,000 square feet HOA Marinas, when made available to the public on an open market basis, were judged to have the same rate structure as commercial marinas. Utilities: As an independent parcel, the subject tidelands have no access to public utilities because they have no legal access to the adjacent uplands from whence the utilities can be obtained. In order to value the subject properties for the various uses wherein utilities are required to facilitate that use, it is an extraordinary assumption of this appraisal that access to utilities from the adjacent uplands is permitted. Access: The subject property possesses legal rights of access from the bayward water area only. Littoral rights of access to the water from the uplands reside within the property rights of the upland property adjacent to the subject tidelands. Again, in order to develop a meaningful indication of subject value for the various uses presented in this report, it is an extraordinary assumption of this appraisal that the subject tidelands parcels will have access from the adjacent uplands. Land Use Regulations: The subject tidelands are under the regulatory supervision of several public entities in addition to the City of Newport Beach. These include the State of California Division of Boating and Waterways, the California Coastal Commission, as well as oversight by the Army Corps of Engineers, the California Department of Fish and Wildlife and others. GEORGE HAMILTON JONES, INC. 17 16-53 PROPERTY DESCRIPTION - continued The standards of development and use of the tidelands themselves are set out in Section 17 of the City of Newport Beach Municipal Code (Harbor Code). However, in order to develop the subject tidelands with the various commercial uses being appraised, it is required that the tidelands be supported by uplands area sufficient to meet the standards that are specific to each particular use. Our previous report, dated April 7, 2016, discussed the uplands requirements for a large (> 30,000 sq. ft.) commercial marina. The requirements for other uses vary significantly. I have reviewed the parking requirements set out in Section 20.40 of the City of Newport Beach Municipal Code and analyzed the development standards for parking areas of 20.40.070 as they may pertain to the various uses considered in this analysis. I have also investigated ADA development standards that may be applicable to the various uses. The impact of regulatory requirements is of significant consequence in considering highest and best use decisions regarding the various tidelands parcels and their potential uses. As an example, market demand for marina configuration has evolved in terms of size (boats have gotten bigger) since many marinas were originally constructed. This exerts a pressure for upgrading and reconfiguration of the marina improvements. At the same time, incorporating ADA requirements has become a critical design factor. A well-informed marina investor/operator must also take into account Coastal Commission and environmental requirements when considering upgrades and/or renovation. The agendas of these various regulatory agencies and economic forces can often be in conflict. This has resulted in circumstances where legal non -conforming uses have been "grandfathered in", and, as permitted, thereby can represent the effective highest and best use. This is because it may not be financially feasible for the operator to make the capital expenditure necessary to upgrade the facilities, meet regulatory obligations, and receive an economic return that warrants the undertaking. In this way, the economic potential of the tidelands may be constrained to the existing use. The financial implications that land use regulations can play in estimating the market rent of the tidelands is not limited to the tidelands GEORGE HAMILTON JONES, INC. 18 16-54 PROPERTY DESCRIPTION - continued themselves. Zoning has a direct impact on value of the uplands parcels. This, in turn, sets the level of economic return required for the uplands area that supports the tidelands use. The higher the level of return necessary, the less residual income is available to pay rent for the tidelands. As discussed at length in the previous Appraisal Report, the division between the return to the uplands and tidelands from the tidelands use must be calibrated to incentivize the uplands owner to dedicate land to tidelands support use. This analysis has taken into account the fact that the same tidelands use may be supported by uplands with different highest and best use potentials arising from different zoning designations. While this would have an implication for residual tidelands rent on a case by case basis, an equitable balance in a harbor -wide context of this influence was judged to be the appropriate basis for determining market rent in this assignment. Current Improvements: The subject tidelands were improved with a wide range of structures at the date of value. Please refer to aerial photos in the Addenda for details. It is an extraordinary assumption of this report that the various subject parcels are adjacent to an uplands parcel with an existing bulkhead and that the bulkhead is considered to be an improvement of the uplands parcel. Market Analysis: The subject properties, in their various uses and configurations, combine to provide the fundamental economic framework that gives Newport Harbor its vibrancy and broad-based appeal. A recent study by Tourism Economics2 indicated that "Newport Harbor generates $202.4 million annually in economic impact to Newport Beach, making it one of the city's most significant economic anchors." 2 Reported Daily Pilot, October 13, 2016; The Log, December 1, 2016 GEORGE HAMILTON JONES, INC. 19 16-55 NEWPORT HARBOR ACTIVITIES GEORGE HAMILTON JONES, INC. 16-56 PROPERTY DESCRIPTION - continued The breakdown of this total indicated that the harbor generated $46 million in annual tax revenue and an additional $156.4 million from harbor visitors who take advantage of retail, dining, and water -oriented recreational opportunities. Further, the study indicated the economic effects extend to Orange County as whole, with $348.1 million dollars in benefits rippling out to the larger community. As noteworthy as these figures may be, visitors and residents alike appreciate that the harbor's value lies in far more than just its economic benefits. The "bay" has always been the defining focal point of Newport Beach. As such, it is central in creating the general lifestyle that distinguishes the city from other coastal communities in Southern California. Pertinent to this analysis, it is recognized that the value of Newport Harbor is unquestionably more than the sum of its parts; that the balanced interplay between different property interests and uses is critical in sustaining the harbor's viability and its fundamental value as a whole. Accordingly, the well-recognized appraisal principle of "zones of value" appears to be operative and well supported when considering the Newport Harbor tidelands as an integrated subject parcel dedicated to various uses. While each use may have inherently different economic potential, they are all ultimately dependent upon each other. Therefore, it is consistent with the zones of value concept that market rent be different as well, depending upon various factors to be presented in the Valuation section of this report. The long history of Newport Harbor shows that there exists established demand for the various uses that are the subject of this appraisal. Further, based upon empirical information presented in the recent Tourism Economics report, there appears to be strong evidence indicating that local residents and the tourism -based users drawn to the harbor will continue to seek out the various commercial uses available. This combination of factors leads to the conclusion that it is reasonable to project that the existing tidelands uses will continue to capture sufficient commerce to remain economically viable into the foreseeable future. GEORGE HAMILTON JONES, INC. 20 16-57 PROPERTY DESCRIPTION - continued Highest and Best Use: Highest and best use is that use or combination of uses, selected from reasonably probable and legal alternatives, that results in the highest land value as of the date of value. The definition of highest and best use is as follows: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, legally permissible, appropriately supported, financially feasible, and that results in the highest value'. Details of the criteria impacting highest and best use conclusions were discussed in the previous (April 7, 2016) appraisal and can be appropriately applied to the various commercial uses addressed in this appraisal. As the foregoing market analysis indicated, all subject tidelands uses appear to be physically possible, legally permissible and financially feasible. Because no specific parcel is being appraised in this report, it is beyond the scope of this analysis to form a judgment as to a maximally productive use that could be applied to each existing tidelands parcel. It is therefore an extraordinary assumption of this report that the use categories which are the subject of this appraisal are the effective highest and best use of those tidelands parcels which are utilized for that use. 3 The Appraisal of Real Estate, 14th Edition, Appraisal Institute. GEORGE HAMILTON JONES, INC. 21 16-58 VALUATION Introduction: The purpose of this appraisal is to form an opinion of the market rent, expressed on annual price per square foot basis, of the various commercial tidelands uses existing in Newport Harbor at the March 15, 2016 date of value. An earlier Appraisal Report, dated April 7, 2016, submitted by this office provided a market rent conclusion for large commercial marinas at the same date of value. That report is considered to be a companion to this Phase 2 Appraisal Report. Certain factual information and data in that document is incorporated in this report by reference. Fundamentally, the objective of this assignment is to form opinions of market rent for the various uses in a manner that reflects the economic potential of each individual use as well as the synergistic relationship that exists between the uses. In this way an equitable balance, supported by economic analysis and reference to market data, between tidelands lease rates throughout Newport Harbor may be achieved. As discussed earlier, this principle is supported by the zones of value concept that is a well -accepted fundamental in real property valuation. The tidelands market data found throughout the Southern California region, is, with the few notable exceptions discussed in the earlier large commercial marina report, inclusive of both tidelands and supporting uplands. This is not the situation in Newport Harbor, where the subject tidelands are "owned" by the City of Newport Beach and the supporting tidelands are under private ownership. Therefore, a direct correlation of the market data (water and land) cannot properly be made with the subject tidelands (water only) without adjustments. The significance of this was presented in the previous appraisal. The reader's attention is directed to that report for detailed discussions of the economic implications of this situation for tidelands use and the market rent thereof. Again, that report pertained specifically to large marinas, but the principle of the need to allocate the income generated from tidelands use between land and water is the same for the other commercial uses that are the subject of this report. An additional complexity in analysis of the market data arose from the fact that, for the uses that are the subject of this market rent study, the annual rent amount in other jurisdictions is typically tied to a percentage of the GEORGE HAMILTON JONES, INC. 22 16-59 VALUATION - continued gross income that is generated by the use. It is not directly tied to the square footage of the area leased. Adjustments were required to correlate these indicators of market rent into the annual price per square foot conclusions that are required in this assignment. The appraisal challenge, therefore, was one of supportably reflecting and reconciling both market data, quantified in different economic terms, and the distinctions that are required to be made between that data and the subject tidelands in regard to the allocation of market rent between land and water that is unique in the Newport Harbor context. Extensive comparative economic analyses were undertaken to incorporate these elements. Summary discussions will be presented in the following pages. Details are retained in my files. Commercial Marinas: The April 2016 Appraisal Report provided an extensive analysis of the factors leading to an annual market rent conclusion for a large commercial marina. The template selected was a 56,000 square foot tidelands with appropriate supporting uplands. Part of this assignment was to determine if a market rent distinction between commercial marina sizes was warranted and supported by empirical information. While the earlier report provided limited market data of relatively large tidelands only leases, there was no such data available for smaller size categories. Therefore, to form an opinion as to whether a distinction in annual market rent rates was warranted for commercial marinas based on size, economic analyses between various marina sizes were required. While it may seem at first impression that "tidelands are tidelands are tidelands", this is not the case in terms of use. The income generated is different and the relative uplands requirements vary depending upon use and size. This dynamic is perhaps most readily appreciated when comparing vacant land. Market evidence shows that a commercial parcel has different value than a comparable residential property. This speaks to use. Further, differences in size impact the unit basis of that value as well. These criteria apply to the tidelands, just as they do vacant land. GEORGE HAMILTON JONES, INC. 23 16-60 Commercial Marina Residual Tidelands Rent Size Transition Study Tidelands Square Footage: 5,000 10,000 12,000 13,000 15,000 20,000 25,000 30,000 40,000 50,000 60,000 Average Slip Size 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 Number of Slips 4.0 8.0 10.0 11.0 13.0 17.0 21.0 26.0 34.0 43.0 52.0 Average Slip Length 38 38 38 38 38 38 38 38 38 38 38 Lineal Feet 152 304 380 418 494 646 798 988 1,292 1,634 1,976 Overhangs/sideties (5%) 8 15 19 21 25 32 40 49 65 82 99 Total Lineal Feet 160 319 399 439 519 678 838 1,037 1,357 1,716 2,075 Average Slip Lease/ LF/ Mo. $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 Potential Gross Income/ Mo. $5,586 $11,172 $13,965 $15,362 $18,155 $23,741 $29,327 $36,309 $47,481 $60,050 $72,618 x 12 =Annual PGI $67,032 $134,064 $167,580 $184,338 $217,854 $284,886 $351,918 $435,708 $569,772 $720,594 $871,416 Vacancy (5%) ($3,352 ($6,703 ($8,379 ($9,217 ($10,893 ($14,244 ($17,596 ($21,785 ($28,489 ($36,030 ($43,571 Effective Gross Income: $63,680 $127,361 $159,201 $175,121 $206,961 $270,642 $334,322 $413,923 $541,283 $684,564 $827,845 Annual Rent for Uplands/Tidelands in Joinder @ 25% of EGI $15,920 $31,840 $39,800 $43,780 $51,740 $67,660 $83,581 $103,481 $135,321 $171,141 $206,961 Uplands Requirements: No. of Parking Spaces (0.6/ slip) 2.4 4.8 6.0 6.6 7.8 10.2 12.60 15.6 20.4 25.8 31.2 Sq. Ft. Uplands/ Space 350 350 350 350 350 350 350 350 350 350 350 Total Sq. Ft. for parking 840 1,680 2,100 2,310 2,730 3,570 4,410 5,460 7,140 9,030 10,920 Restrooms/shower/office 250 250 250 250 250 250 250 250 250 250 250 Total Sq. Ft. Required 1,090 1,930 2,350 2,560 2,980 3,820 4,660 5,710 7,390 9,280 11,170 Uplands Value/ Sq. Ft. $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 Total Value, Dedicated Uplands $343,350 $607,950 $740,250 $806,400 $938,700 $1,203,300 $1,467,900 $1,798,650 $2,327,850 $2,923,200 $3,518,550 Required Return to Uplands: Return at 5% $17,168 $30,398 $37,013 $40,320 $46,935 $60,165 $73,395 $89,933 $116,393 $146,160 $175,928 Residual to Tidelands @ 5% -$1,247 $1,443 $2,788 $3,460 $4,805 $7,495 $10,186 $13,548 $18,928 $24,981 $31,034 Percentage of EGI -1.96% 1.13% 1.75% 1.98% 2.32% 2.77% 3.05% 3.27% 3.50% 3.65% 3.75% Note: Adjustment to slips to whole numbers only: all other factors constant; this assumes an implicit adjustment of size/parking space to accommodate GEORGE HAMILTON JONES, INC. 16-61 VALUATION - continued The initial phase of the study was to review the various elements that informed the large marina analysis, reported in April 2016. That appraisal concluded at 8.5% of the potential gross income, expressed as $1.17 per square foot per year. That conclusion was based on a reconciliation of two economic approaches to value and a market data approach to value. The conclusion, therefore, implicitly incorporated all approaches. The strictly economic analysis yielded a result of tidelands rent at 4.61 % of the effective gross income, which was then adjusted based on the market data and secondary economic analysis to the final conclusion of $1.17 per square foot. This economic analysis and its 4.61 % indictor was used as a reference point in subsequent economic analyses that were conducted to determine the implications, if any, of marina size on market rent. For the sake of consistency, this study utilized the criteria set out in the April 2016 appraisal. The constants were average slip size, average slip length, average slip lease rate, vacancy factors, relative uplands area requirements, and uplands land value. The variable was marina size. Due to a variety of factors, perhaps the most significant of which was uplands requirements (primarily parking) relative to the number income -generating slips, there was a downward trend in residual income available to the tidelands as the square footage of marina tidelands area decreased. While it was a sliding scale, significant points of demarcation were noted at approximately 30,000 square feet and 13,000 square feet. The residual percentages of effective gross income to be allocated to the tidelands that resulted from this analysis were not the basis for measuring the relative market rent for different marina sizes. This study was primarily intended to measure if, all other things being equal, size had an impact on market rent for commercial marinas. This being established, further studies were undertaken. These used existing commercial marinas, but incorporated variables for improvement configuration (number and size of slips), uplands legal requirements (and reasonable variances thereof), and uplands land value. (It is recognized that land value is significantly impacted by zoning, location and size.) It is beyond the scope of this report to present all variables considered. In general, it was recognized that marina configuration can impact highest GEORGE HAMILTON JONES, INC. 24 16-62 VALUATION - continued and best use in terms of maximizing the economic utility of the available tidelands. However, for existing marinas, reconfiguring to a higher use may not be legally or financially feasible, based on regulatory constraints and the costs of redevelopment. Uplands requirements include parking spaces, restrooms and showers, and (potentially) office space. The design and implementation of these elements will naturally be adjusted with marina size. Parking will not only change in terms of the number of parking spaces required, but also the configuration of the parking area, which can be dependent upon both the size of the uplands parcel and the size of the marina. All these elements were considered. Further, the price of the uplands and the corresponding level of the return required to support the tidelands use is highly variable throughout Newport Harbor. Market data of waterfront land values in the different settings where existing marinas are located were reviewed. These figures were incorporated in the analysis to provide a range of indications of residual income available for tidelands rent. All these economic studies were reconciled to conclusions, which, in my judgment, reflected an equitable balance between the various influences that are to be found throughout Newport Harbor. (Details of these analyses are retained in my files.) The $1.17 per square foot previously concluded incorporates both economic and market data analyses. The economic analysis for tidelands market rent was 4.61% of the effective gross income. The study for the medium and small marinas related the conclusions of the economic analysis for each size to the benchmark of 4.61 % in a proportional relationship to the $1.17 per square foot reconciled conclusion. Medium Size Marinas (13,000 — 30,000 sq. ft.): Conclusion of % EGI: 3.50% 3.50% / 4.61% = 0.76 0.76 x $1.17 = $0.89 GEORGE HAMILTON JONES, INC. 25 16-63 VALUATION - continued Small Size Marinas (< 13,000 sq. ft.): Conclusion of % EGI: 3.00% 3.00% / 4.61 % = 0.65 0.65 x $1.17 = $0.76 Fair Market Rent Conclusion Annual Rent per Square Foot of Tidelands per Year Commercial Marinas Small Commercial Marinas: $0.76 Medium Commercial Marinas: $0.89 Large Commercial Marinas: $1.17 Fuel Docks: Fuel docks play an indispensable role in the stable and ongoing operations of nearly all water -oriented commercial and recreational activities within and around a harbor. The importance of this fact was underscored recently in Huntington Harbor, where the only fuel dock was closed from October 1, 2015 to May 25, 2016. This created a significant disruption in harbor activities, with some waterfront homeowners even expressing concern about the potential impact on property values. It is widely recognized that fuel docks are difficult businesses to operate. In addition to uncontrollable fluctuations in fuel prices, commensurate variations in demand, and strict environment controls, narrow fuel profit margins create a challenging business environment. It is undoubtedly due to these factors that market rent for fuel docks throughout Southern California harbors is based on either a percentage of the income generated from fuel sales or on the volume of fuel pumped. As with commercial marinas, the area leased for fuel dock operations in these other jurisdictions includes both land and water. In some cases, improvements are included in the leased area as well. Adjusting the available market data for comparison to the subject tidelands, as dedicated to fuel dock use, involved investigations into a number of factors. These included, but were not limited to, retail fuel rates (diesel and gas) at the various data locations for comparison with the subject, GEORGE HAMILTON JONES, INC. 26 16-64 i VALUATION - continued direct and indirect analysis of the volume of fuel pumped at the data locations, and consideration of the relative uplands contribution of the different data items. (Review of uplands market data indicated that the price per square foot of the land necessary to support the tidelands for fuel dock use in Newport Harbor is significantly higher relative to the land values in other jurisdictions where the comparable fuel dock data is located.) The table below summarizes the primary data reviewed and analyzed. Aerial images of the data items can be found on facing pages. MARKET DATA As can be seen, a distinction is typically made between the percentage rent applied to diesel fuel and gasoline. On average the ratio of demand for diesel in comparison to gasoline is on the order of 80% to 20%. Blending these ratios and applying them to a market rent per gallon indications can give an average rent per gallon indication. As an example, GEORGE HAMILTON JONES, INC. 27 16-66 Fuel Durk Regular Diesel Reat2i Basis Joel Rey Fuel 1 13800 Bora Bora Way , 5.20 $3.91 $0.151gallon of all fuel sales Marina del Re Rocky Point Marine Fuel 2 310 Portofino Way $5.39 $4.41 5.5°lam of all fuel sales King Harbor Redondo Beach Dana Point Fuel Dock 3 34661 Puerto Place $3.49 $2.67 Diesel = 2_5% of sales Gasoline = 3.01A of sales Dana Point Dana Landing 4 2590 Ingraham Street $4.00 $3.35 Diesel = 1.5% gross Gasoline := 3.U°r6 gross Mission Bay. San Diego JHyatt Regency Spa & Marina 5 1441 Quivim Road , 4.19 $3.49 Diesel = 1.5% grass Gasoline = 3.U°r6 gross Mission Bay, San Diego Harbor Island west 6 2W Harbor Island Drive $4.4:2 54.32 Diesel = $0.02Jgallon Gasoline = $0.Mgal [on San Diego Port District Pearsons 7 2435 Sheller Island Drive $3.92 $3.67 Diesel = $0.07Jgallon Gasoline = SO.Mgal [on San Diego Port District High Seas 8 2540 Sheller Island Drive $4.00 $3.45 Diesel = $0.02Jgallcn Gasoline = $0.Mgal lon San Diego Port District As can be seen, a distinction is typically made between the percentage rent applied to diesel fuel and gasoline. On average the ratio of demand for diesel in comparison to gasoline is on the order of 80% to 20%. Blending these ratios and applying them to a market rent per gallon indications can give an average rent per gallon indication. As an example, GEORGE HAMILTON JONES, INC. 27 16-66 `-. � y Li1F���. Y tib. yl,s• �r- � �� J' � _ FSR -: Mi ¢ u►.y 71r � � .. ..� spm � �}+i�' �-. � � ��' �. +�►or^jd�Dr-'�f S VALUATION - continued the San Diego Port District charges rent based on $0.02 per gallon for diesel and $0.04 per gallon for gas. Applying the ratio results in the following: 80% x $0.02 = 20% x $0.04 = Combined: $0.016 $0.008 $0.024 per gallon Likewise, in the City of San Diego, where rent is based on a percentage of the gross income, the charge is 1.5% for diesel and 3.0% for gasoline. 80% x 1.5% = 1.20% 20% x 3.0% = 0.60% Combined: 1.80% of revenues There was strong data from the Beaches and Harbors Division of the County of Los Angeles indicating that the Del Rey Fuel Dock (Parcel 1) in Marina del Rey pumped approximately 745,000 gallons in 2016. This was in a marina comprising approximately 5,500 vessels. A recent study in Newport Harbor indicated that there are approximately 4,000 — 5,000 boats in the harbor. Based on comparison with Marina del Rey, this would correlate to a demand of approximately 600,000 gallons per year in Newport Harbor. This information was processed through various comparative analyses based on projected income and projected volume at a "typical" subject fuel dock while taking into account the particular characteristics of the tidelands use of the two primary fuel docks in the harbor — Island Marine Fuel and Hill's Boat Service. This included the surrounding influences and the high level of supporting uplands land value. No consideration of the relative gallonage or retail prices between these two competitors was given. As with all the commercial operations in the harbor, it was the utility of the tidelands, not a particular operation, that was the basis for setting market rent. As a result of these analyses, I formed the opinion that the annual market rent for subject tidelands, dedicated to fuel dock use, was $0.76 per square foot. GEORGE HAMILTON JONES, INC. 28 16-68 1. � '�. �. '-� ✓f :4 ... :'. � .. .. R �;;5.- k rte'•, •w _ �r P �I ' n VALUATION - continued Annual Fair Market Rent Conclusion Fuel Dock Use $0.76 per square foot Shipyards: Like fuel docks, shipyards are a necessary component to any harbor. They are also similar to fuel docks in terms of the varied challenges that operators face both in terms of economics and governmental regulations (primarily environmental.) A further consideration for this analysis is that the bulk of the operations occur on land; the tidelands are typically little more than a transit zone facilitating the movement of vessels from the water to the "dry" work area. Shipyard rental arrangements in various jurisdictions were investigated. They are typically quite complex and intermingled with other elements that are not directly applicable to the subject analysis. However, Parcel 53 in Marina del Rey ("The Boat Yard") provided useful information for analysis. On Parcel 53, the area dedicated to shipyard use is approximately 77,500 square feet of uplands and 13,000 square tidelands. (This is exclusive of the adjacent marina use, which is also on Parcel 53.) Therefore, the total area dedicated to shipyard use was approximately 90,500 square feet. The percentage rent charged for boat hauling and launching, repairs and pump out was 4% of gross income. Office space used for a commercial repair shop for boat services was 16% of the gross. The total rent paid for the years 2014 — 2016 for the shipyard use was equivalent to $1.01, $1.22 and $1.66 per square foot for the 90,500 square feet. Approximately 85% of this area was land that was dedicated to industrial shipyard use. This land rent was compared to the higher residential use of apartments found at nearby Parcel 64, a very comparable parcel of land. This was done in order to judge the discount that the County of Los Angeles deemed to be warranted, in terms of rent received, to facilitate the existence and operation of an essential shipyard use in Marina del Rey. The ratio ranged from 23% to 35%. Again, this includes the land, not just the tidelands. GEORGE HAMILTON JONES, INC. 29 16-70 VALUATION - continued It is worth noting that Parcel 65 (UCLA Boathouse), which is restricted to eleemosynary (non-profit/educational) use, paid rent at generally the same level ($1.32 - $1.69 per square foot) as Parcel 53 for shipyard use over the same period. This implicitly supports the concept that a shipyard provides essential services and benefits to the harbor as a whole. Market evidence indicates that this use is incentivized by a discounted rental rate relative to other for-profit commercial uses. Application of this principal to the "highest use" benchmark tidelands rent of $1.17 per square foot in Newport Harbor indicates that shipyards should pay 25% to 35% of that amount. This is equivalent to $0.29 to $0.41 per square foot per year. The State Lands Commission Benchmark rental rate for tidelands under its jurisdiction in Southern California was established in October 2016 at $0.374 per square foot per year'. It is recognized that this benchmark was intended primarily for recreational uses and is not directly comparable to the subject shipyard use, but, in my judgment, it provides a solid lower limit indicator. This is particularly true in the context of Newport Harbor where overall rates and values are significantly higher than the average used in the State Lands Commission study. In light of the above, as well as other analyses retained in my files, I have concluded that the market rent for subject tidelands, as dedicated to shipyard use, should be $0.38 per square foot per year. Annual Fair Market Rent Conclusion Shipyard Use $0.38 per square foot HOA Marinas Our investigations indicate that HOA -owned marinas can be utilized either exclusively for the use of the residents of the homeowners association, or they can be offered to the public generally. 1 California State Lands Commission, Calendar Item 65, 10/13/16. GEORGE HAMILTON JONES, INC. 30 16-71 VALUATION - continued In the case of exclusive use by homeowner residents, my independent analysis and investigations uncovered no information or data that would suggest the tidelands should be charged at any rate other than the established rate for residential tidelands use. On the other hand, when the same tidelands are put to a profit generating use with the capacity to receive market slip rental rates comparable to other commercial marinas in the harbor, there was similarly no supportable information indicating that the tidelands rental rate should be any different than the market rent charged for comparable commercial marinas. Annual Fair Market Rent Conclusion HOA Marinas Exclusive Use by Residents: Established Residential Rates Commercial Use by Public: Market Rates — Commercial Marinas Yacht Clubs (Guest/ Instructional Use): Yacht clubs are typically non-profit entities that, in addition to serving the needs of their membership, provide educational and recreational activities that enhance the overall balance of water -oriented uses throughout the harbor. Community benefits are created by attracting visitors to Newport Beach for regattas and other affiliated activities. Further, yacht club members are recognized to offer experienced stewardship of the waters in Newport Harbor and the surrounding ocean in a wide range of areas. The beneficial dynamics inherent in yacht club presence within the harbor is implicitly recognized by the fact that the land zoning for yacht clubs is PI (Public Institutions). In this subject use category, the tidelands are considered to be for guest/instructional use. They are not intended for long-term berthing such as would be the case with a marina. The subject tidelands are to serve as a transit area for members and guests between the bay and shore, as well as for short-term docking of vessels. There is no for-profit income directly generated by the use of this tidelands area. In many ways, a yacht club use can be compared to Parcel 65 (UCLA Boathouse) in Marina del Rey (discussed above). This is a non-profit/ GEORGE HAMILTON JONES, INC. 31 16-72 VALUATION - continued educational use that serves both its own constituency and members of the public drawn to the facility for regattas and other related activities. While not directly comparable, it is also worth noting that in Newport Harbor the County of Orange leased The School of Sailing and Seamanship to Orange Coast College and the Newport Sea Scout Base on a rent-free basis because these were considered to be non-profit uses that benefit both the harbor and the community at large. The County also leased uplands and tidelands in Dana Point to the Ocean Institute for $1.00 per year. The available market data for yacht club uses related primarily to income sources generated by the uplands and were not judged to be reflective of the specific tidelands use that is the subject of this analysis. Based on the non -incoming generating nature of the yacht club (guest/instructional) tidelands use, the ancillary benefits which yacht clubs contribute to the harbor environment, and reference to non-profit/ educational lease rates in Newport Harbor as well as other jurisdictions, I concluded that market rent for this category was indicated to be at the low end of the range, comparable to shipyard use, or $0.38 per square foot per year. Annual Fair Market Rent Conclusion Yacht Clubs (Guest/ Instructional Use) $0.38 per square foot Restaurant Guest Slips: The use of tidelands for guest slips to serve adjacent, privately owned restaurants is undoubtedly a benefit to the restaurant, but not a use upon which the operation of the restaurant is dependent. A small percentage of the guests of waterfront restaurants avail themselves of guest docks; most use uplands parking. There is no direct fee charged to the guest/users of the tidelands that generates income to the restaurant. Like the yacht club guest/instructional category, this tidelands use facilitates transit for customers/guests between the bay and the land-based restaurant. These are short-term users, and no effective enhancement in profit is generated by this use. GEORGE HAMILTON JONES, INC. 32 16-73 VALUATION - continued One key element distinguishing this ancillary use of the tidelands from commercial uses dependent on the tidelands for income generation is the fact that guest slips do not require supporting uplands parking; in fact, they reduce parking and traffic burdens on the city streets by replacing vehicle transport. Further, guest slips generate wider, multi-purpose activity on the water. This is considered to be a positive enhancement of the overall atmosphere of the harbor environs, particularly for visitors to the area. There was no comparable market data information from other jurisdictions for this narrowly defined use. I have considered it appropriate to analyze restaurant guest slips by the same criteria as I did other non -income generating uses of the tidelands. Accordingly, I concluded that market rent for restaurant guest slips was $0.38 per square foot per year on the date of value. Annual Fair Market Rent Conclusion Restaurant Guest Slips $0.38 per square foot GEORGE HAMILTON JONES, INC. 33 16-74 VALUATION - continued Boat Rentals, Sport Fishing Charters, Vessel Charters, Others: The Percentage Rent Survey in the Addenda Section of this report provides a summary of percentage lease rates for a variety of uses in various jurisdictions throughout Southern California. As mentioned several times previously, these rental rates are for land and water in joinder. The subject properties in this appraisal are the tidelands only, under the assumption of joint use with the adjacent privately -owned uplands. The percentage rents of the market data are based on projections of the income generating capacity for the various uses identified. They differ based on the anticipated level of income for each use, as well as demand and other factors. This assignment is not to reach a percentage rent conclusion for these various commercial uses, but, rather, to form an opinion of market rent on an annual dollars per square foot of tidelands basis. As the Percentage Rent Survey shows, percentage rents for a particular use can vary significantly between jurisdictions. For example, the data for sport fishing charters ranges from 3.5% to 10% of gross income, while the range for boat rentals is also generally from 3.5% to 10% but with King Harbor showing a range of 12.5% to 20.0%. The difficulty and uncertainty of extracting the tidelands contribution from the uplands (and, in some cases, improvement) contribution embedded in this market rent data is apparent. Further, correlating percentage rent to a price per square foot amount creates several challenges as well. However, these data were a useful guide of the relative relationships of rent levels between the various uses. In those instances where actual rental amounts could be correlated to the tidelands and uplands area used (as was discussed in the shipyard section of this report with Parcel 53 in Marina del Rey), a meaningful relationship of rental levels could be developed. It was particularly helpful to analyze the actual tidelands uses in Newport Harbor and to study the relationships between them. An example of this is presented on the following facing page where six tidelands use categories are adjacent to each other. With the exception of the guest slips, all categories in this example require the direct use of the tidelands to generate the primary business GEORGE HAMILTON JONES, INC. 34 16-75 Balboa Peninsula — Pavilion Area — Commercial Tidelands GEORGE HAMILTON JONES, INC. 16-76 VALUATION - continued income. This characteristic distinguishes them from the yacht club and restaurant guest slip analyses discussed immediately above. The concluded small commercial marina rate ($0.76/ sq. ft.) previously presented in this report was supported by correlation of the conclusion from the April 2016 report for large marinas through economic analyses to reflect the small marina size. The fuel dock rental rate conclusion ($0.76/ sq. ft.) was based on an extensive analysis of market data and an empirically supported estimate of fuel demand (gallonage) in Newport Harbor. It can be seen that, in the illustration opposite, these two uses essentially bookend the other categories of use. Further, these uses also generally share the feature of requiring relatively small tidelands areas to operate efficiently. In some sense, then, the specific areas allocated for these tidelands uses can be seen to be somewhat interchangeable. When this consideration is combined with the fact that use of the tidelands is mutually indispensable to their business operations, a certain equity between the uses, in terms of a reasonable rental obligation, is indicated. Accordingly, I have concluded that these relatively small -in -size, tideland -dependent commercial uses pay rent at the same level as small commercial marinas and fuel docks. This rate is $0.76 per square foot of tidelands per year. Annual Fair Market Rent Conclusion Boat Rentals Sport Fishing Charters Vessel Charters Others $0.76 per square foot GEORGE HAMILTON JONES, INC. 35 16-77 VALUATION - continued Summary of Conclusions: In light of all the foregoing, and a result of all my investigations and analyses, I have formed the opinion, that, as of March 15, 2016, market rent for the various categories of use of the subject City Tidelands, expressed on an annual per square foot basis, was as follows: GEORGE HAMILTON JONES, INC. 36 16-78 RATE PER COMMERCIAL USE CATEGORY SQ. FT. Large Commercial Marinas $1.17 ( >30,000 square feet ) Medium Commercial Marinas $0.89 ( 13,000-30,000 square feet ) Small Commercial Marinas $0.76 ( <13,000 square feet ) Fuel Docks $0.76 Shipyards $0.38 HOA Marinas (residential use) residential rates commercial HOA Marinas (commercial use) marina rates based on size Yacht Clubs (Guest/Instructional Use) $0.38 Boat Rentals $0.76 Sport Fishing Charters $0.76 Restaurant Guest Slips $0.38 Vessel Charters $0.76 All others $0.76 GEORGE HAMILTON JONES, INC. 36 16-78 Addenda GEORGE HAMILTON JONES, INC. 16-79 City of Newport Beach Pier Permit Exhibits (Alphabetical by Permittee) 126 Properties LLC (Morehart) Address: 2812 Lafayette - - Commercial Marina: 497 s.f. Private Tidelands: 816 s.f. Total: 1,313 s.f. 4 ! aa v� 126 Properties - Morehart / Bahia Corinthian Yacht Club Address: 1601 Bayside Drive Commercial Marina: 65,655 s.f. f Private Tidelands: 10,109 s.f. Total: 75,764 s.f. r 5 3. xy � ' o Bahia Corinthian Yacht Club Balboa Boat Yard Address: 2414 Newport Blvd.= -1 q f: Shipyard: 1,443 s.f Private Tidelands: 1,039 s.f. 3 Total: 2,482 s.f Balboa Boatyard GEORGE HAMILTON JONES, INC. 16-80 Balboa Manor (Balboa Pavilion) Address: 400 Edgewater Vessel Rental Facility: 6,703 s.f. f ' Vessel Charter Business: 5,646 s.f.` Restaurant: 3,961 s.f. Sport Fishing Charter: 2,885 s.f. Building Over Tidelands: 13,196 s.f. Total: 32,391 s.f. w """' _•:1/ `f�i •- �. `' f I�ee •q en.x<.en�ixral I � Balboa Manor � U3 seert c..em xral Balboa Yacht Club Address: 1801 Bayside Drive Yacht Club Guest Slips: 8,541 s.f. • ` t- Total: 8,541 s.f. Balboa Yacht Club Barton/Beek (Island Marine Fuel) Address: 406 S. Bay Front: _ �. .� . 4j� Fuel Dock: 3,617 s.f. r Total: 3,617 s.f. _ I Island Marine Fuel �0 L GEORGE HAMILTON JONES, INC. 16-81 Boat Service, Inc. (Hill's) Address: 814 E. Bay Avenue Commercial Marina: 5,767 s.f. Fuel Dock: 6,793 s.f. lb Private Tidelands: 583 s.f. Total: 13,143 s.f. a Hills Boat Service California Recreation Co., LLC (Balboa Yacht Club Marina) _ Address: 1701 Bayside Drive Commercial Marina: 62,912 s.f.- -- Private Tidelands: 27,152 s.f. Total: 90,064 s.f. Cal Rec - s=s, Balboa Yacht Club Marina California Recreation Co., LLC (Bayside Marina) oo Address: 1137 Bayside Drive - Commercial Marina: 128,560 s.f Total: 128,560 sf r.. kkk yz __Pon al Rec - Bayside Marina GEORGE HAMILTON JONES, INC. 16-82 California Recreation Co., LLC-- - (Villa Cove Marina) -_� t p Address: 1001 Bayside Drive : pu , Commercial Marina: 58,274 lw s.f. Total: 58,274 s.f. _ �T Cal Rec -Villa Cove Marina Cannery LLC Address: 3010 Lafayette Restaurant: 2,202 s.f Total: 2,202 s.f. t ` < Cannery LLC r Cannery Village LLC (Condominiums) ■ Address: 700 Lido Park Drive Commercial Marina: 3,540 s.f. Private Tidelands: 13,993 s.f Total: 17,533 s.f.'AM �± �- 191wo he r d.+ a a 15 16' 1718 19 20 21 r.J p tr i Cannery Village, LLC � GEORGE HAMILTON JONES, INC. 16-83 Cannery Village Marina Partners e ,. (281h Street Marina) Address: 2602 Newport Blvd. 0< Commercial Marina: 8,034 s.f Private Tidelands: 8,481 s.f. r "' Total: 16,515 s.f. y 28th Street Marina Cannery Village Marina Partners _ (Cannery Village Marina) Address: 2800 Lafayette Commercial Marina: 675 s.f 7qw , Private Tidelands: 502 s.f. ro;! Total: 1,177 s.f_ ' Cannery Village Marina '� 7 ^�' � Dicks Dock LLC (Rusty Pelican) Address: 2735 W. Coast Hwy. Commercial Marina: 8,761 s.f. Total: 8,761 s.f _ it �-e f Dick's Dock (Rusty Pelican) GEORGE HAMILTON JONES, INC. 16-84 Elks Lodge #1767 Address: 3456 Via Oporto W^ _1' Commercial Marina: 2,803 s.f. Total: 2,803 s.f. 1 9A Fun Zone Boat Company Address: 700 Edgewater Place Commercial Marina: 6,630 s.f. Vessel Charter Business: 2,660 s.f. ;.. Total: 9,290 s.f. �. i ' Fun Zone Boat Co. Gilbert Property, LLC (Newport Landing) Address: 503 Edgewater a 1 Vessel Rental Facility: 4,351 s.f. Sport Fishing Charter: 3,134 s.f.''!F= Fuel Dock: 1,616 s.f. Y; , Total: 9,101 s.f. Gilbert Property, LLC GEORGE HAMILTON JONES, INC. 16-85 Golden Hills Properties, LLC dba Newport Harbor Address: 3333 W. Coast Hwy. �I . Commercial Marina: 58,166 s.f. .1IV City Tidelands: 13,595 s.f. - _ r Private Tidelands: 2,069 s.f. Total: 73,830 s.f. ' Golden Hills Properties, LLC Goodin Family Trust (Norman P. Goodin) Address: 2527 W. Coast Hwy. Commercial Marina: 5,129 s.f. Vessel Charter Business: 3,411 s.f. Private Tidelands: 4,058 s.f. i Total: 12,598 s.f. h ■ o Goodin Family Trust � Khoshbin's Landing, LLC Address: 2801 W. Coast Hwy Commercial Marina: 9,765 s.f. Private Tidelands: 1,686 s.f.�` r ,� 11,451 s.f.Aj 4 r GP's Landing, LLC (2801) GEORGE HAMILTON JONES, INC. 16-86 Khoshbin's Landing, LLC Address: 1 Commercial Marina: 8,273 s.f N. Private Tidelands: 5,600 s.f 13,873 s.f 17 ., James Boys, LLC (James, Steve) Address: III Newport Blvd. - Restaurant: 4,511 s.f k Total: 4,511 s.f ..3 - r may, '=117= �..: f• Y. � ,']k�J• :..�yy.+t 4' FSS` .� do Morehart, John M. Z4 Address: .18 Lafayettem Commercial Marina: 863 s.fN Private Tidelands: 2,265 s.f Total: 3,128 s.f 1-M2 Wey 4 iil. A s � za �+stn. I N RW�_.. IT, Nw' GEORGE HAMILTON JONES, INC. 16-87 JRNP, LLC (Schock Boats) - — t a Address: 2818 Lafayette Shipyard: 1,002 s.f. Private Tidelands: 2,248 s.f. Total: 3,250 s.f. • ♦� J JRNP, LLC JRNP, LLC (Schock Boats) Address: 2900 Lafayette �` r Shipyard: 1,756 s.£ Private Tidelands. 2,733 s.f. JAM' Off . ; Total: 4,489 s.f41, ff'' r. D ro JRNP, C Lido Group Retail, LLC T� ! Address: 3400 Via Oporto A, Commercial Marina: 55,010 s.f.' Vessel Charter Business: 16,030 s.f. Vessel Rental Facility: 10,790 s.f. Total: 81,830 s.f. ,.rov�,.va.., Lido Group Retail, LLC GEORGE HAMILTON JONES, INC. 16-88 Lido Park Place Condominium �y r Address: 621-633 Lido Park Drive 1 rtc Homeowners Association Non-Members: 12,534 s.f Members Only: 2,735 s.f{r' Total: 15,269 s.f. y'' a� �y 09a s1� �wv Lido Park Place Condominium Lido Peninsula Company, LLC dba Lido Address: 711 Lido Park Drive �► r y Commercial Marina: 15,242 s.f Total: 15,242 s.f. ' w r ' 'S 1_ r Lido Peninsula Resort Lido Peninsula Company, LLC dba Lido Peninsula Yacht Anchorage Address: 717 Lido Park Drive Commercial Marina: 185,938 s.f. Shipyard: 19,177 s.f. Private Tidelands: 68,651 s.f. Total: 273,766 s.f. t \ � � s.mem n.,c �'�Nw -- orage o Lido Peninsula Yacht Anch GEORGE HAMILTON JONES, INC. 16-89 Lido Sail Club Prop (Windward Sailing) Address: 3300 Via Lido Commercial Marina: 11,166 s.f.' Total: 11,166 s.f. Windward Sailing o Marina Properties (Parker) (Joe's Crab Shack) Address: 2607 W. Coast Hwy. Commercial Marina: 9,608 s.f. Total: 9,608 s.f.�;; 11 .Y�1ZF PP Marina Properties - Parker (Joe's Crab Shack) O Mariners Mile LLC (VMA Mariner's Mile) Address: 2505 W. Coast Hwy. �. Commercial Marina: 8,365 s.f. Shipyard: 3,635 s.f. Private Tidelands: 7,367 s.f. Total: 19,367 s.f. F� VMA Mariner's Mile GEORGE HAMILTON JONES, INC. 16-90 Mariners Mile LLC (VMA Mariner's Mile — Hornblower) - Address: 2439 W. Coast Hwy. Vessel Charter Business: 12,000 s.f. Private Tidelands: 6,965 s.f. Total: 18,965 s.f. �r$ VMA Mariner's Mile (Hornblower) o Mariners Mile South, LLC (Dwyer/Olincy) (Duffy Boats), 1'k* . Address: 2001 Coast Hwy. Vessel Rental Facility: 8,000 s.f. Private Tidelands: 1,070 s.f.� - Total: 9,070 s.f. Duffy Boats o Morehart / Cervantes i Address: 2814 Lafayette 508. . Irl 0 512516 Commercial Marina: 491 s.f. Private Tidelands: 807 s.f. Total: 1,298 s.f. rig Morehart � � � GEORGE HAMILTON JONES, INC. 16-91 NB Mariner's Mile LLC Address: 2101 W. Coast Hwy. Commercial Marina: 55,999 s.f.rt_ Private Tidelands: 24,459 s.f. Total: 80,458 s.f. ti •• � lug ss w a •m„m��el NB Mariner's Mile LLC o Newport Bay Management LLC (The Larson Group) Address: 2703 W. Coast Hwy. Commercial Marina: 4,360 s.f. Shipyard: 3,639 s.f. Total: 7,999 s.f. - Newport Bay Management -p flRn1P Larson's Newport Bay Towers Address: 310 Fernando a,.k Homeowners Association Non -Members: 14,896 s.f. Total: 14,896 s.f. , J. Newport Bay Towers Yn GEORGE HAMILTON JONES, INC. 16-92 Newport Bay Villas, LLC (340 Inc) t Address: 2408 Newport Blvd. Commercial Marina: 3,007 s.f. - Total: 3,007 s.f � 1 340 Inc 0 Newport Harbor Nautical Museum (Discovery Cube's OceanQuest) (� (Explorocean) Address: 600 E. Bay Ave. �a Commercial Marina: 2,685 s.f. i „._• Vessel Rental Facility: 15,566 s.f Vessel Charter Business: 3,112 s.f. Total: 21,363 s.f. t Discovery Cube's OceanQuest Newport Harbor Yacht Club r z. Address: 720 & 800 W. Bay Avenue Commercial Marina: 14.252 s.f. '�``� .At Yacht Club Guest Slips: 27,624 s.f. -�' • ' Private Tidelands: 15,092 s.f. Total: 56,968 s.f. o -.. -..'* �. Newport Harbor =.A....,... WA Yacht Club (1 & 2) s`.t p GEORGE HAMILTON JONES, INC. 16-93 NP Beach Marina LLC = (Newport Bay Marina) . a Address: 2300 Newport Blvd. Commercial Marina: 26,110 s.f. Private Tidelands: 5,657 s.f. Total: 31,767 s.f. NEWPORT BAY MARINA O a Overstreet, Dennis/Christine Address: 2816 Lafayette ._ Commercial Marina: Private Tidelands: 494 s.f. 812 s.f. 93 ►�� Total: 1,306 s.f. y , . -1 Dennis Overstreet Plaza del Sol (Jakosky) Address: 3101 Coast Hwy. sA - Commercial Marina: 6,219 s.f. �'1�, Vessel Charger Business: 6,909 s.f. Private Tidelands: Total: 14,946 s.f 28,074 s.f. qo Plaza del Sol (Jakosky) �© o GEORGE HAMILTON JONES, INC. 16-94 Port Calypso (Parker) Address: 2633 Coast Hwy. ± y . F Commercial Marina: 9,000 s.f. Private Tidelands: 5,989 s.f. Total: 14,989 s.f. soon„ •s �-- �I - L d f .i 'i Port Calypso (Parker) o Primm Family Trust (Div Bar) . , Address: 2601 W. Coast Hwy. ^T Restaurant: 4,000 s.f Private Tidelands: 1,814 s.f. ~ Total: 5,814 s.f. ` ■ I fip Div Bar Primm - RREF II — WPG Waterfront, LLC Address: 919 Bayside Drive Commercial Marina: 29,453 s.f.► ' E�.. �; Private Tidelands: 8,500 s.f. Total: 37,953 s.f. --- ,'� 4 -JUWO 4~0 r - RREF II -WPG Waterfront, LLC � (919 Bayside Drive) GEORGE HAMILTON JONES, INC. 16-95 South Coast Shipyard (leased from Sea Spray Boatyard — Pappas) Address: 226 21" Street r Commercial Marina: 4,840 s.f. Shipyard: 1,640 s.f.. Private Tidelands: 463 s.f. ' � o„ Total: 6,943 s.f. �►,�' ¢ r elf South Coast Shipyard South Coast Shipyard Address: 223 21" Street Shipyard: 3,630 s.f. Total: 3,630 s.f. P.- southCoast Shipyard �0 Sullivan, Robert L. Address: 227 20th Street , Commercial Marina: 6,690 s Total: 6,690 s.f. �h til. 1, � •� T Newport Bay Villa HOA GEORGE HAMILTON JONES, INC. 16-96 Teller, Robert d. Address: 504 S. Bay Front s Commercial Marina: 8,657 s.f. ' Total: 8,657 s.f. ?L Teller - 504 Bay Front 5 The Winery, LP (3131 Pacific Coast) �� f Address: 3131 W. Coast Hwy. 7t ' Restaurant: 1,075 s.f. IT } 2 Private Tidelands: 6,055 s.f 'if -' JY • � w S� �f Total: 7,130 s.f.- The Winery, LPMED Ursini Family Limited Partnership and Blue Lido Real Estate Investment LP (Ursini, Francis / Bluewater) — ;k Address: 630-670 Lido Park Drive Commercial Marina: 4,929 s.f. Restaurant: 1,218 s.f. Vessel Charter Business: 3,539 s.f. )FJ- FYPrivate PrivateTidelands: 3,785 s.f. Total: 13,471 s.f. r Bluewater Marina GEORGE HAMILTON JONES, INC. 16-97 Vallely Investments (Balboa Boat Rentals — Rodheim) Address: 511 Edgewater Place Vessel Rental Facility: 7,082 s.f. Sport Fishing Charter: 5,333 s.f. Total: 12,415 s.f. ♦ 99 � � � .C' k 'C . y . �=F"' Vallely Balboa Boat Rentals (Rodheim) Vallely Marina ` Address: 508 S. Bay Front' 4 Commercial Marina: 3,159 s.f. Total: 3,159 s.f. • r f �, -�`� • ,•` i�\ - 3,159x! ,I rl roK, Vallely - 508 Bay Vikings Port Marina, LLC (Lenich Living Trust) Address: 2547 W. Coast Hwy Commercial Marina: 4,000 s.f. Private Tidelands: 2,090 s.f. �• ��:o,o.', f,• Total: 6,090 s.f. J I' A• GEORGE HAMILTON JONES, INC. 16-98 Vista del Lido Address: 611 Lido Park Drive F Commercial Marina: 15,674 s.f._ ' Total: 15,674 s.f.--- Vista Del Lido 0 Waterfront Newport Beach, LLC Address: 2901 W. Coast Hwy. I� F Vessel Charter Business: 15,224 s.f. Total: 15,224 s.f ) Waterfront Newport Beach Woody's Wharf Address: 2318 Newport Blvd. Restaurant: 4,510 s.f. Total: 4,510 s.f. :yam, Woody's Wharf GEORGE HAMILTON JONES, INC. 16-99 PERCENTAGE RENT SURVEY FUEL SALES JURISDICTION % RENT RANGE Marina del Rey $0.15/gallon King Harbor/Redondo Beach 5.50% Dana Point Diesel = 2.5% Gas = 3.0% Mission Bay/San Diego Diesel = 1.5% Gas = 3.0% San Diego Port District Diesel = $0.02/gal Gas = $0.04 Port of Los Angeles Diesel = $0.005-0.025/gal Gas = $0.025/gal Ventura Harbor Diesel = $0.018/gal Gas = $0.015/gal SPORT FISHING CHARTERS JURISDICTION % RENT RANGE Marina del Rey 4.5-6.0% Mission Bay/San Diego 7.0% San Diego Port District 6.0% Port of Los Angeles 3.5% Ventura Harbor 6.0-8.5% Sunset Harbor, Huntington Beach 10.0% Channel Islands Harbor, Oxnard 5.0% BOAT RENTALS JURISDICTION % RENT RANGE King Harbor/Redondo Beach 12.5-20.0% Mission Bay/San Diego 7.0-10.0% San Diego Port District 10.0% Port of Los Angeles 3.5-5.0% Ventura Harbor 7.0% Sunset Harbor, Huntington Beach 10.0% Channel Islands Harbor, Oxnard 5.0% SHIP CHANDLERY JURISDICTION % RENT RANGE Marina del Rey 2.0% King Harbor/Redondo Beach 4.0-5.0% Mission Bay/San Diego 2.0-4.0% San Diego Port District 4.0% Port of Los Angeles 1.0-4.0% Ventura Harbor 3.0% Sunset Harbor, Huntington Beach 5.0% Channel Islands Harbor, Oxnard 3.0% GEORGE HAMILTON JONES, INC. 16-100 BAIT SALES AND EQUIPMENT RENTAL JURISDICTION % RENT RANGE Marina del Rey 4.0-5.0% King Harbor/Redondo Beach 5.5% Mission Bay/San Diego 7.0% San Diego Port District 6.0% Port of Los Angeles 3.0-3.5% Ventura Harbor 5.0% Sunset Harbor, Huntington Beach 5.0% Channel Islands Harbor, Oxnard 5.0% BOAT SALES - New and Used JURISDICTION % RENT RANGE Marina del Rey 1.0% King Harbor/Redondo Beach 1.0-1.5% Mission Bay/San Diego 2.0% Port of Los Angeles 1.0% Ventura Harbor 1.0% Sunset Harbor, Huntington Beach 1.0% Channel Islands Harbor, Oxnard 1.0% YACHT CLUB DUES AND GUEST FEES JURISDICTION % RENT RANGE Marina del Rey 15.0% King Harbor/Redondo Beach 6.0% Mission Bay/San Diego 7.0% San Diego Port District 9.4% Channel Islands Harbor, Oxnard 10.0% Santa Barbara Harbor 10.0% GEORGE HAMILTON JONES, INC. 16-101 CERTIFICATION The undersigned hereby certifies that: 1. I have made personal inspections of the subject properties throughout Newport Harbor on various occasions over the past 25 years. 2. To the best of my knowledge and belief, the statements of fact contained in this report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the assumptions and limiting conditions stated herein, and are the personal, unbiased professional analyses, opinions, and conclusions of the undersigned. Those limiting conditions (imposed by the terms of the assignment or by the undersigned) considered to affect the analyses, opinions, and conclusions are contained in this report. 4. I have no present or prospective interest in the properties that are the subject of this report. I have no personal interest or bias with respect to the subject matter of this report or the parties involved. This report is Phase 2 of an appraisal of City of Newport Beach Tidelands. The first report (Phase 1), the subject of which was tidelands dedicated to large commercial marina use, was submitted by this office on April 7, 2016. Otherwise, I have not performed any services, as an appraiser or in any other capacity, regarding the properties that are the subject of this report within the three-year period immediately preceding the acceptance of this assignment. 5. The engagement of my firm and the compensation for this assignment are not contingent upon the development or reporting of a predetermined value or result, or direction in value, that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This report is not conditioned upon a requested minimum valuation, a specific valuation, or the approval of a loan. GEORGE HAMILTON JONES, INC. 16-102 7. This report, and the analyses, opinions, and conclusions contained herein, have been made in conformity with and are subject to the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, and the Uniform Standards of Professional Appraisal Practice. 8. No one other than the undersigned prepared the analyses, conclusions, and opinions, or provided other significant professional assistance concerning the real property interests that are the subject of this report. 9. The Appraisal Institute conducts a program of continuing education for its designated members. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. Casey 4.es, MAI (State Ce ified General Real Estate Appraiser No. AG041862) GEORGE HAMILTON JONES, INC. 16-103 LIMITING CONDITIONS The Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute require that all assumptions and limiting conditions that affect the analysis be clearly and accurately set forth. To assist the reader in interpreting this report, the primary assumptions and limiting conditions affecting the analysis of the subject properties are set forth below. Other assumptions and conditions may be cited in relevant sections of the following report. 1. That the date of value to which the conclusions and opinions expressed in this report apply is March 15, 2016. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American dollar existing on that date. 2. That the appraiser assumes no responsibility for economic or physical factors which may affect the opinion herein stated occurring at some date after the date of value. 3. That the appraiser reserves the right to make such adjustments to the valuation herein reported, as may be required by consideration of additional data or more reliable data that may become available. 4. That no opinion as to title is rendered. Data related to ownership and legal description was obtained from public records, and is considered reliable. Title is assumed to be free and clear of all liens and encumbrances, easements and restrictions, except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Investigation of the property's history is confined to examination of recent transactions or changes in title or vesting, if any, and does not include a "use search" of historical property utilization. 5. That no engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area was taken from sources considered reliable and no encroachment of real property improvements is considered to exist. 6. That maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. 7. As a premise of this report it is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the following analysis. GEORGE HAMILTON JONES, INC. 16-104 LIMITING CONDITIONS - continued 8. That no opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. It is assumed that there are no hidden or unapparent conditions of the property that render it more or less valuable. No responsibility is assumed for such conditions or for the arranging of studies that may be required to discover them. The function of this report is to provide an opinion of the value of the real property as herein defined. Under no circumstances should this report be considered as providing any service or recommendation commonly performed by a building inspector, structural engineer, architect, pest control inspector, geologist, etc. 9. That no soil reports concerning the subject property were available. This valuation is based upon the premise that soil and underlying geologic conditions are adequate to support standard construction consistent with highest and best use. 10. That no specific information was available for my review relating to hazardous materials or toxic wastes that may affect the appraised property. Unless otherwise stated in the report, I did not become aware of the presence of any such material or substance during our investigation or inspection of the appraised property. However, I am not qualified by reason of experience or training to identify such materials or substances. The presence of such materials and substances may adversely affect the value of subject property. This valuation is predicated on the assumption that no such material or substance is present on or in the subject properties or in such proximity thereto that it would prevent or impair development of the land to its highest and best use or otherwise affect its value. The appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state, and local environmental laws, regulations, and rules. 11. This Appraisal Report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. Disclosure of the contents of this appraisal report is governed by the By -Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected, or any reference to the Appraisal Institute, or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the author. GEORGE HAMILTON JONES, INC. 16-105 QUALIFICATIONS OF CASEY O. JONES, MAI Member of the Appraisal Institute California Certified General Real Estate Appraiser, License No. AG041862 Education: University of Southern California, Bachelor of Arts Advanced Study - University of Southern California, Master of Fine Arts, 1978 Real Estate Appraisal Courses (Appraisal Institute): Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice Business Practices and Ethics Apartment Valuation Advanced Income Capitalization General Market Analysis and Highest and Best Use Advanced Sales Comparison and Cost Approaches Report Writing and Valuation Analysis Advanced Applications Comprehensive Appraisal Workshop Litigation Professional Program Federal and California Staturory and Regulatory Law Course Real Estate Appraisal Seminars (Partial List) Litigation Seminars, 2007, 2009-2012, 2014-2016 Market Trends Seiminars: LA/ OC/ Inland Empire Conservation Easement Valuation Real Property Damages Valuation Project Delay Economics Hydraulic Fracking and Property Rights Entitlements in Real Property Appraisals Professional Affiliations: Appraisal Institute (MAI Member No. 12935) Regional Representative (Region VII), 2012-2015 International Right of Way Association Chapter 67 Valuation Chair, 2011-2012, 2014-2017 16-106 Qualifications of Casey O. Jones, MAI Page 2 Employment: 1/91 - Present: Real Estate Appraiser and Consultant George Hamilton Jones Inc., Newport Beach, California Scope of Experience (Partial List): Appraisal experience includes valuations of most categories of real property and appraisal reviews. Interests appraised include fee simple, leased fee, leasehold, fair market rent, partial acquisitions, easements and rights-of-way. Work has been primarily carried out throughout Southern California. Property Types: Single Family Residences Condominiums Commercial Buildings Industrial Buildings Retail Centers Vacant Lots/ Land (All types) Mobile Home Communities Conservation/Mitigation Land Church Hotels Right of Way Corridors Tidelands Apartments Residential Subdivision Acreage Retail Buildings Office Buildings Service Stations Medical Buildings Marinas Leasehold/ Leased Fee (Residential and Commercial) Waterfront and Oceanfront Properties Yacht Clubs Wetlands Shipyards Speicalized Properties and Assignments (Partial List): Marina Pacifica — 569 -unit condominium underlying land revaluation, Long Beach Kilroy Airport Center Office Complex, Long Beach Leasehold Residential Subdivision Land, Custom Waterfront Lots, Newport Beach Tidelands, fair rental value at Harbor Island, Newport Beach Tidelands, Lido Marina Village, Newport Beach Colonies Parkway, Upland — commercial/residential planned community/water rights Inland Center Mall — partial acquisition freeway on/off ramp Residential Subdivison — Regulatory Taking, Inverse Condemnation, San Juan Capistrano BNSF Railway — aerial and other easement acquistions, Anaheim Valley View Grade Separation — land and easement acquisitions, Santa Fe Springs 245 acres of conservation/mitigation land, San Diego County 100 acres wetlands, Huntington Beach Avalon Canyon Road right of way acquistion, Avalon, Catalina Island Mt. Ada Historic Property, value restricted to elemosynary purposes, Avalon Residential subdivision land for mitigation/low-cost housing, Avalon H.U.D Apartment Project, Downey 12 -acre vineyard and residence, Bel -Air Dana Point Yacht Club, fair market rent 16-107 Qualifications of Casey O. Jones, MAI Page 3 Newport Beach Tennis Club Lyon Copley Corona Association — 950 -acre planned unit community Port of San Pedro, Terminal and Wharf Facility, leasehold interest Properties with soils, subsidence or construction defects issues in Southern California Fair rental land valuations in Marina del Rey Rancho Mission Viejo — Trampas Reservoir Mt. Ada/Wrigley Estate (Catalina Island) — eleemosynary valuation Clients — Attorneys & Corporations (Partial List): Anglin, Flewelling, Rasmussen, Campbell & Trytten, LLP — John Anglin, Attorney Ayres Hotels The Bixby Ranch Company Barger & Wolen — Don Adkinson, Attorney Borchard Redhill, LP Curci Companies Endangered Habitat League Greenberg Traurig, LLP — Cris K. O'Neall Hines Hampton LLP — Brian Pelanda, Nicole Hampton The Irvine Company The Kilroy Realty Corporation La Jolla Bank Lanphere Law Group — Michael A. Lanphere Nossaman, Guthner, Knox & Elliott — Alvin S. Kaufer, James C. Powers, Attorneys Mira Mesa Shopping Centers Munger, Tolles & Olson LLP — Richard Volpert, Attorney Murphy & Evertz — John Murphy, Jennifer Dienhart, Attorneys Palmieri, Tyler, Wiener, Whilhelm & Waldron — Michael H. Leifer, Attorney The Santa Catalina Island Company Rutan & Tucker, LLP — Stephen A. Ellis Sall Spence Callas & Kreuger — Suzanne Burke Spencer Stephens Friedland LLP — Todd Friedland Waldron & Bragg, LLP — Gary Waldron, John Olson, Attorneys Clients — Public Agencies, Governmental (Partial List): City of Newport Beach City of San Juan Capistrano City of Long Beach County of Orange County of Los Angeles Beaches and Harbors County of Los Angeles Board of Harbor Commissioners Santa Margarita Water District State of California Department of Transportation (Caltrans) State of Nevada Department of Transportation (NDOT) University of California (Updated 1/17) 16-108 Attachment E George Hamilton Jones, Inc. Appraisal, dated October 30, 2017 16-109 APPRAISAL OF Market Rental Value City Tidelands and Submerged Land (Fuel Dock Use) Newport Beach, California Phase 3 Date of Value: Submitted To: March 15, 2016 Mr. Dave Kiff City Manager Date of Report: City of Newport Beach 100 Civic Center Drive October 30, 2017 Newport Beach, CA 92660 Our File No.: 417-1(b) Submitted By: George Hamilton Jones, Inc. 16-110 GEORGE HAMILTON HMJONESInc. Real Estate Appraisers & Consultants October 30, 2017 Mr. Dave Kiff City Manager City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 George H. Jones, MAI Stuart D. DuVall, MAI Casey O. Jones, MAI Re: Appraisal of Market Rental Value of City of Newport Beach Tidelands, as Dedicated to the Commercial Sale of Marine Fuels — Phase 3 Appraisal Report Dear Mr. KIM. In accordance with your request and authorization, I have made an investigation and analysis of tideland parcels in Newport Harbor and other jurisdictions for the purpose of rendering an opinion of the market rental value of those State of California Tidelands, currently held in Trust by the City of Newport Beach ("City Tidelands") and proposed to be leased to private upland owners for the commercial sale of marine fuels. The date of value of this appraisal is March 15, 2016. This appraisal is undertaken in consideration of the general facts and conditions prevailing at the date of value and as set out in two previously submitted Appraisal Reports, entitled "Market Rental Value City Tidelands and Submerged Land". These reports were submitted by our office as Phase 1, dated April 7, 2016, and Phase 2, dated July 12, 2017. In these previous assignments, we were instructed to form an opinion of market rental value for the Newport Beach tidelands for various commercial uses, as a "flat rate" of annual rent, and expressed on a price per square foot basis. Those analyses took into account a variety of factors which are discussed in detail in the reports. The considerations included, but were not limited to, the following: • The unique situation found in Newport Harbor wherein the lands supporting the tidelands uses (uplands) are privately owned while the tidelands themselves are owned in public trust by the City of Newport George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 16-111 Mr. Dave Kiff October 30, 2017 Page 2 of 4 Beach. (This is distinct from nearly all harbors and ports along the Southern California coast where a public entity owns both land and water.) • Recognition of the fact that over nearly a century Newport Harbor has been developed with a wide range of commercial uses that vary widely in terms of overall size, improvement characteristics, upland land use standards and values, harbor location, and other key features. Accordingly, the appraisals did not emphasize the specific characteristics of the tidelands associated with any particular commercial operation; rather, the methodology was oriented towards providing as balanced and equitable an analysis for each commercial use of the tidelands in a harbor -wide context as possible. • In acknowledgement of the fundamental interdependence of the components that make up the harbor environment as a whole, the conclusions of market rent reflected both the economic potential of each individual type of use as well as the synergistic relationship that exists between the uses. The current assignment (Phase 3) is a supplement to the two earlier appraisals. This valuation is specifically focused on the market rent of the City Tidelands as used for the purpose of the commercial sale of marine fuels. Please refer to Scope of Services, Exhibit A from the Letter of Engagement, dated October 10, 2017, which is located in the Addenda of this report. The instruction is to express opinions of fair market rent in "three different forms." 1. A "flat rate" of an annual rent on a per square foot of tidelands basis; 2. Annual rent based on a price (unit rate) per gallon of fuel sold; 3. Annual rent based on a price (unit rate) per gallon of fuel sold in conjunction with a "flat rate" minimum requirement (distinct from #1 above) based on the square footage of the tidelands leased. The definition of market rent used in this assignment is consistent with that set out in the Dictionary of Real Estate Appraisal, Sixth Edition: The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIS) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 16-112 Mr. Dave Kiff October 30, 2017 Page 3 of 4 As a result of all my investigations and analyses, I have formed the opinion, that, as of March 15, 2016, market rent for the City Tidelands used for the purpose of the commercial sale of marine fuels, expressed per the terms set out in the Scope of Work, was as follows: 1. "Flat Rate": 2. "Unit Rate" per gallon: Not to Exceed: 3. "Unit Rate" with Minimum Rent: Minimum Rent: "Unit Rate": Not to Exceed: $0.76 per square foot per year $0.01 per gallon sold $0.76 per square foot per year $0.38 per square foot per year $0.01 per gallon $0.76 per square foot per year Your attention is invited to the following Appraisal Report which was developed in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP) and written in conformance with Standards Rule 2-2 of USPAP. The report sets forth, in brief, premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which formed, in part, the basis of my value conclusions. Supporting documentation and analyses are retained in my files. Respectfully submitted, Cas , AI (State Certified General Real Estate Appraiser No. AG041862) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 16-113 TABLE OF CONTENTS Introductory: Page Letter of Transmittal 1 Table of Contents 4 Introduction to the Appraisal Problem: Purpose 5 Date of Value 5 Client/Intended User 5 Intended Use 5 Property Rights Appraised 5 Definitions 6 Scope of the Appraisal 7 Subject Tidelands Ownership Interests 9 Property Description: Location Map — Newport Harbor 10 Introduction 11 Market Analysis — Marine Fuel Docks 16 Highest and Best Use 19 Valuation: Introduction 23 Regional Map — Marina del Rey to San Diego 24 Market Data — Overview 25 Summary of Market Data 26 Data Analysis and Reconciliation 44 Application to Subject Tidelands 47 Addenda: Exhibit A — Scope of Services Certification Limiting Conditions Qualifications 16-114 INTRODUCTION TO THE APPRAISAL PROBLEM Purpose: The purpose of this appraisal is to render an opinion of the market rent for those State of California tidelands currently held in trust by the City of Newport Beach ("City Tidelands") under the proposed use of being leased for the purpose of the commercial sale of marine fuels. By instruction, the opinion of market rent shall be expressed in the following terms: 1. A "flat rate" of an annual rent on a per square foot of tidelands basis; 2. Annual rent based on a price (unit rate) per gallon of fuel sold; 3. Annual rent based on a price (unit rate) per gallon of fuel sold in conjunction with a "flat rate" minimum requirement (distinct from #1 above) based on the square footage of the tidelands leased. Date of Value: March 15, 2016 Client/Intended User: Dave Kiff, City Manager for the City of Newport Beach, and other representatives of the City of Newport Beach. Intended Use: The intended use of the report is to assist the intended user(s) in setting the market rental rate for the tidelands in Newport Harbor as dedicated to the commercial sale of marine fuels. Property Rights Appraised: The market rent of the fee simple interest of the tidelands within the lower bay of Newport Harbor for the commercial sale of marine fuels. 16-115 INTRODUCTION — continued Definitions: Tidelands: For the purpose of this study, the public tidelands are considered to consist of that water area extending from the established U.S. Bulkhead Line to the Pierhead Line. Market Rent': The most probable rent that a property should bring in a competitive and open market refecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (M.) Market Value: The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: • Buyer and seller are typically motivated; • Both parties are well informed or well advised, and acting in what they consider their best interests; • A reasonable time is allowed for exposure in the open market; • Payment is made in terms of cash in U.S. dollars or in terms or in terms of financial arrangements comparable thereto; and • The price represents the normal consideration for the property sold unaffected by special or creative financing or ' The Dictionary of Real Estate Appraisal, The Appraisal Institute, Sixth Edition, 2015. 2 This definition of market value is used by agencies that regulate financially insured financial institutions in the United States. 16-116 INTRODUCTION — continued sales concessions granted by anyone associated with the sale. (12C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994.) Scope of the Appraisal: The scope of the work required to formulate a reliable opinion of value for the appraised properties is outlined below. Assignment Analysis: Define the basic elements of the appraisal problem, and the purpose and intended use of the report. Identify the properties and research property history including current use, prior use, prior leasing information, and current market activity. Site Description and Analysis: While a non -site specific (harbor -wide) market rent conclusion is the objective of this assignment, it is acknowledged that there were three primary marine fuel docks in the harbor at the date of value that had very different physical characteristics. Accordingly, the subject sites and their surrounding influences were reviewed, inspected and documented. Investigate and interpret applicable zoning, general plan, and environmental restrictions that may apply to the subject properties. Improvement Description and Analysis: This assignment is to form an opinion of the market rent of the tidelands only, absent any improvements. However, the existing improvements were inspected and described for informational purposes and to form an opinion of their functional utility and remaining economic life. 16-117 INTRODUCTION — continued Market Analysis: Identify pertinent economic, governmental, social and environmental forces that may influence real property values and market rent considerations for the subject tidelands as dedicated to the commercial sale of marine fuels. Highest and Best Use: This analysis considers the use of the subject tidelands to be dedicated to the commercial sale of marine fuels. However, as will be discussed in the report, marine fuel sales can be a precarious business undertaking, and it was judged to be consistent with the analyses of a well-informed lessee to consider which alternative commercial uses at the site would be physically possible, legally permitted, and financially feasible and, further, how such an analysis could inform market perceptions of an appropriate level of rent. Market Data: Search and acquire market rental data of properties comparable to the subject as dedicated to the commercial sale of marine fuels. Because the market data includes the rental of tidelands and uplands together, investigate market data that would be useful in measuring the contributory value of the uplands at the market data sites. By deducting this contributory amount from the total rent, an indication of the contribution to total rent made by the tidelands alone was indicated. Valuation: Extensive investigations were undertaken analyzing rental rates for fuel docks in harbors from Marina del Rey to San Diego. These jurisdictions typically charge rent for tidelands and supporting uplands in joinder. The rents charged generally have an annual minimum amount against which a "percentage rent" is applied. This rate is based on either a dollar amount (in practice, ¢) per gallon of fuel 16-118 INTRODUCTION — continued pumped (volume) or as a percentage of the total revenue generated by fuel sales. Information relating to gallons of fuel pumped, the retail price of the fuel and other factors comparing the data with the subject were considered. Adjustments were also made for the economics of the uplands requirements that operators in Newport Harbor face that are distinct from those in other jurisdictions where the uplands (and in some cases, improvements) are part of the leased premises. Subject Tidelands Ownership Interests: Fee Tnterest_ The subject tidelands are held in fee by the State of California, in Trust to the City of Newport Beach. There has been no change in the ownership of the fee interest for in excess of 10 years. Leasehold Interest: It is my understanding that the tidelands parcels that are the subject of this appraisal are not intended to be encumbered by conventional long-term leases, but, rather, by annual permits. It is an assumption of this report that the leasehold/permittee interest in the subject tidelands is held by a well-informed investor and/or operator. 16-119 PROPERTY DESCRIPTION Introduction: At the date of value there were three marine fuel docks in Newport Harbor. As discussed previously, this assignment is not intended to be geared to the specific physical, legal and economic features of any one particular fuel dock. Rather, the goal of the assignment is to provide a market rental estimate for the tidelands that is equitable and balanced between the existing users and any hypothetical future users of the tidelands for the commercial sale of marine fuels.' In general terms, the basic design of any marine fuel facility almost always includes the following: • Piers and floats where the customers' vessels tie up temporarily so that the operator can dispense the fuel. • Fuel storage tanks. These are typically subterranean, in concrete. • Pipes, hoses and/or connecting cables that run from the upland tanks to the fuel dispensing pumps on the floats. Further, with most marine fuel operations, the optimum utilization of the tidelands is generally to design the floats so that they can maximize the lineal footage of dock space available to service customers efficiently. The dedicated uplands area needs to be large enough to provide for a range of tanks to hold different fuel types and to have a sufficient supply on hand at all times. By placing the tanks underground, the dedicated uplands area can also be used for required parking and other interim uses. As discussed in the previous appraisals, a commercial lease of the tidelands in Newport Harbor (including fuel docks) is distinct from other comparable harbors and port districts in that the tidelands only are leased in Newport, whereas, for the most part in other jurisdictions, the land and water area necessary for the particular commercial operation are leased together. ' It is acknowledged that for a variety of reasons, not least of which is environmental, it is uncertain that a new fuel site would be permitted in the Newport Harbor. 16-121 Boat Services, Inc. Tidelands: 6,793 sq. ft. Uplands: 900± sq. ft. Island Marine Fuel Tidelands: 3,617 sq. ft. Uplands: 1,200± sq. ft. 16-122 PROPERTY DESCRIPTION - continued The economic implications of this "divided" ownership interest and its impact on market rent of the tidelands in Newport Harbor will be addressed in the Valuation Section of this report. At this point, for clarity and informational purposes, the entire operation (land and water) of the three fuel docks in Newport Harbor will be briefly described. Boat Services, Inc.: Address: 814 E. Bay Avenue, Balboa Peninsula Parcel Size: Tidelands: 6,793 square feet Uplands: 900± square feet. This is an estimate based upon appraiser's inspection and Google aerial measurements. Zoning: CV 0.75 (Visitor -serving commercial) Location: This site is well located to maximize access for boat traffic in the harbor. Improvements: This is a long-established, multi-purpose boat service facility offering a range of ship chandlery products along with marine fuels. The piers and floats are older, but well- maintained. It is immediately adjacent to and effectively operates with a small (5,767 sq. ft.) commercial marina. The subterranean fuel tanks are adjacent to the tidelands in an area that doubles as parking space with direct access to Bay Avenue. 16-123 PROPERTY DESCRIPTION - continued Island Marine Fuel: Address: 406 S. Bay Front, Balboa Island Parcel Size: Tidelands: 3,617 square feet Uplands: 1,200± square feet. This is an estimate based upon appraiser's inspection and Google aerial measurements. Zoning: MU -W2 (Mixed-use, Water) Location: This site is located adjacent to the ferry in a good harbor location that provides ready access for typical boat traffic in the bay. Improvements: This is part of an iconic commercial cluster on Balboa Island that is closely associated with Balboa Island/Balboa Peninsula ferry. This includes a workshop/garage for the ferry, offices and a small retail store. The fuel dock pier, which projects out from the South Bay Front sidewalk to the floating docks, is across the Balboa Island beach. It is sandy at low tide and not available for other uses. The subterranean fuel tanks are located at the rear (alley side) of 406 and 408 S. Bay Front lots. 16-124 Tidelands: 1,616 sq. ft. Uplands: 1,200± sq. ft. 16-125 PROPERTY DESCRIPTION - continued Newport Landing Fuel Dock: Address: 503 Edgewater Avenue, Balboa Peninsula Parcel Size: Tidelands: 1,616 square feet Uplands: 1,200± square feet. This is an estimate based upon appraiser's inspection and Google aerial measurements. Zoning: MU -V (Mixed-use, Vertical) Location: This site is located to the west of the ferry with ready access for typical boat traffic in the harbor. Improvements: This fuel dock is the most bayward portion of a combined tidelands area that includes a sportfishing charter and vessel rental uses as well. The piers and floats are well maintained. The subterranean fuel tanks are located adjacent to the alley behind the Newport Landing restaurant and offices. The space is also used for surface parking. Market Analysis — Marine Fuel Docks: In terms of location and physical characteristics, the subject fuel docks are well situated to attract customers. In comparison with many other ports along the Southern California coast, Newport Harbor is a dynamic and relatively affluent boating environment with a variety of recreational and commercial users. Within this network of yachting interests, the availability of marine fuel is critical. However, despite acknowledged demand for its services, the economic viability of a marine fuel enterprise can be problematic, in large part because these businesses are often dependent upon factors beyond the operators' control. 16-126 PROPERTY DESCRIPTION - continued The uncertainties of ever -tightening regulations, fluctuating wholesale fuel costs, and irregular customer demand all contribute to creating a precarious environment for the marine fuel sales business. This circumstance is confirmed by the relatively recent permanent closure of the Cabrillo Marine Fuel Dock in Los Angeles Harbor, the closure and re -opening (with City of Huntington Beach intervention) of the marine fuel dock in Huntington Harbor and the closure of the subject Newport Landing facility in Newport Beach2. The National Association of Convenience and Fuel Retailing (MACS) reports that since 1994, while overall fuel demand in the United States has increased, the total number of fueling locations (including marine -oriented) has decreased by 25%. This phenomenon is partially explained by Dennis Kinsman in an article published by Marina Management Services, Inc. (1/30/12) wherein it is detailed how maintaining real margin levels (retail vs. wholesale costs) while underlying costs creep up can, due to percentage factors, decrease real profit over time. This has particular consequences for marine fuel operators where seasonal impacts are significant. External forces can also be a major influence. As an example, in analyzing a fuel dock lease in Marina del Rey, economists for the County of Los Angeles presented the not - surprising empirical evidence that boaters will attenuate their yachting activities (and fuel consumption) when fuel costs, over which retailers have limited control, increase.3 Should the notoriously wild volatility of the wholesale price of fuel strike during a period of peak demand (summer months), the resulting drop in sales can have a devastating effect on a marine fuel operator's annual bottom line. Counterintuitively, when prices increase, the operator's profit tends to decrease. In contradistinction to the financial uncertainty associated with exposure to this variability is the indispensable role that fuel docks are acknowledged to play in the ongoing "economic health" of a harbor. An interview with Kellee Fritzal, Deputy Director of the Office of Economic 2 Calls to the offices of the Newport Landing indicated that there were no plans to resume operations at the fuel dock. 3 Approval of Amendment No. 1 to Lease No. 75629, County of Los Angeles (Marina del Rey), June 30, 2009, pg. 3. 16-127 PROPERTY DESCRIPTION - continued Development for the City of Huntington Beach, indicated that genuine concerns were expressed by government representatives and residents alike that the shutdown of the fuel dock in Huntington Harbor would negatively impact both local home prices and the value of marinas. Active intervention by the City was required to coordinate the re -opening of the marine fuel dock with a new operator to avert the consequences of a prolonged, or permanent, shutdown. Newport is a very active harbor, and demand for ready access to marine fuel is well-established. The issue that is central to this analysis is correlating the level of that demand with the economics of a marine fuel operation in the specific context of Newport Harbor, and then utilizing that information in comparison with rental data for marine fuel sales found in other harbor/port districts in the Southern California region to form an opinion of market rental in Newport for tidelands only. Historical information regarding the volume of fuel sales in Newport Harbor is not available. In my July 2017 report, I discussed how empirical information of the annual volume (total gallons) of fuel sales at the sole marine fuel facility in Marina del Rey could potentially provide a meaningful indication of the volume level of fuel sales in Newport Harbor.4 In the following Valuation Section of this report, I will expand upon that and provide further details of projected fuel volumes, revenue indications and rental rates at various jurisdictions reviewed. A critical, market -sensitive consideration that arises in this analysis is the return that a well-informed investor would anticipate receiving for dedicating the uplands land area necessary to support a marine fuel dock operation. As discussed previously, all three subject fuel docks are long- established facilities. At the time that they were constructed, the relationship between permitted uses (zoning) and land values was very different than the current situation. As a result, the anticipated return to the land for a marine fuel dock operation was viewed through a different set of analytics than would be the case today. In summary, Newport Harbor is a dynamic maritime environment with established demand for readily obtainable marine fuels for a 4 Market Rental Value City Tidelands and Submerged Land, dated July 12, 2017, by George Hamilton Jones, Inc., pg. 28. 16-128 PROPERTY DESCRIPTION - continued diversity of users. However, because the nature of the business of the retail sale of marine fuels is fraught with great variability and uncertainty, the economics of these operations can be unpredictable. Unlike all other harbor/port jurisdictions in Southern California, where land and water are leased together, in Newport Harbor the tidelands only are leased to marine fuel operators. The cost of the supporting uplands, expressed as a market-based return on value, must be borne by the business operator. As will be discussed, this has potential implications for highest and best use, and, by extension, the appropriate annual rent for the tidelands as dedicated to the commercial sale of marine fuels. Highest and Best Use: Highest and best use is that use or combination of uses, selected from reasonably probable and legal alternatives, that results in the highest land value as of the date of value. The definition of highest and best use is as follows: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, legally permissible, appropriately supported, financially feasible, and that results in the highest values. Having been in existence for many decades, the subject fuel docks are demonstrably physically suited to and legally permitted for the commercial sale of marine fuels. However, it should be noted that, to a significant degree, it is the long-term ownership and consequent low-cost basis in the uplands real estate that allows the two ongoing operations to approach financial feasibility. As was discussed in our earlier reports, in the Newport Harbor context, market rent for the tidelands must take into account a market - level return for the supporting uplands in order for the uplands owner to be motivated to commit his land to joinder with the tidelands. The return to the uplands, expressed as a percentage of fee value, must be based on the market value of the land as of the date of value. As 5 The Appraisal of Real Estate, 14th Edition, Appraisal Institute. 16-129 PROPERTY DESCRIPTION - continued detailed in the previous reports, it is my judgment that the minimum return that a well-informed investor would expect for dedicating waterfront uplands to joinder in support of any commercial operation in the harbor, including fuel docks, would be 5% of the land value per annum. This amount must then be deducted from indications of market rent taken from other jurisdictions where land and water are included in the leased premises to yield a supportable indication of market rent for the subject tidelands alone. An analysis of the highest and best use of the subject as vacant — meaning vacant supporting uplands as well as the tidelands - must address the high land value levels for waterfront property in Newport Harbor. The Island Marine Fuel dock and the Newport Landing operation are both in Mixed -Use zones, which permit residential development above commercial. The unit (per square foot) value of mixed-use land on the waterfront is some of the most costly in Newport Harbor. There is abundant empirical evidence in the form of new development, particularly in the westerly portion of the harbor, supporting strong demand for residential property in a mixed-use configuration. The Island Marine parcel, which is zoned MU -W2, is considered adaptable to development of a mixed-use property, with residential above and commercial on the ground level. Such a project was recently completed at nearby 508 South Bay Front, which is also in the MU -W2 zone. While some adjustment downward on a unit basis would likely be indicated for subject's mixed-use designation, recent waterfront residential land sales in the immediate vicinity of the Island Marine parcel transferred at $1,700 - $1,800 per square foot of land.6 In my judgment, the necessary return for land this valuable could not reasonably be generated by use of the land in joinder with the tidelands dedicated to the commercial sale of marine fuels. Further, having a fuel dock in front of an expensive residence (or multiple residential units) would not be consistent with market expectations. 6 304 S. Bay Front sold 11/23/15 for $4,750,000, or $1,702.51/ sq. ft. It had a shared pier. 542 S. Bay Front sold 1/6/16 for $4,606,000, or $1,802.27, with no pier rights. 16-130 PROPERTY DESCRIPTION - continued Therefore, development of this site, as vacant, with a marine fuel facility would not, in my judgment, be reasonably considered to be the highest and best use of the property. The same reasoning would apply to the Newport Landing site considered as vacant. It is zoned MU -V and is located immediately across Adams Street from a well-established residential (R-2) district. The Boat Services, Inc. uplands site is located in a commercial (CV) zone. Therefore, it is both physically and legally suited to supporting a commercial marine fuel sales operation. Two recent sales in the immediate vicinity, analyzed through a land residual study, support land values of approximately $500 to $600 per square foot. These sales are as summarized below: 702 E. Bay Avenue Date of Sale: Sale Price: Lot Area (buildable): Improvement Size: Improvement Condition: Improvement Allocation: Land Residual Indication: 706 E. Bay Avenue Date of Sale: Sale Price: Lot Area (buildable): Improvement Size: Improvement Condition: Improvement Allocation: Land Residual Indication: 4/22/16 $1,850,000 3,000 square feet 3,850 square feet Built in 1945, average $75 to $100 per square foot $490 to $520 per square foot 4/28/16 $1,992,000 3,000 square feet 3,250 square feet Built in 1915, average $60 to $75 per square foot $580 to $600 per square foot I have concluded that a well-informed investor, in developing an opinion of the highest and best use of a commercial property, would consider it appropriate to anticipate a minimum return of 5% on $550 per square foot at this location. 16-131 PROPERTY DESCRIPTION - continued By their very existence up and down the coast, it is self-evident that a marine fuel dock can undoubtedly be a successful business operation. However, as will be seen in the following Valuation Section of this report, this is in part contingent on the level of rent charged. In my judgment, it remains speculative and uncertain, based strictly on market parameters prevailing at the date of value, as to whether a marine fuel sales operation could provide the necessary level of return to the supporting uplands to which it must necessarily be joined in Newport Harbor to warrant such an undertaking. This economic uncertainty is, of course, exacerbated when multiple operations compete for a finite supply of potential customers. While these circumstances are acknowledged, this assignment is to form an opinion of the market value of the subject tidelands, in a Newport Harbor -wide context at the date of value, for the commercial sale of marine fuels. Therefore, it is an extraordinary assumption of this report that the highest and best use of the subject tidelands is for the commercial sale of marine fuels. 16-132 VALUATION Introduction: The purpose of this appraisal is to form an opinion of the market rent of the City Tidelands proposed to be leased to private upland owners for the commercial sale of marine fuels. Lengthy discussions of the appraisal methodologies, economic influences, governmental restrictions, and environmental factors that need to be considered in forming an opinion of market rent for the City Tidelands were presented in the Phase 1 and Phase 2 reports submitted previously. The reader is directed to those reports as reference. This report is considered a supplement thereto. By instruction, the conclusion as to market rent for the City Tidelands as dedicated to the commercial sale of marine fuels is to be expressed in three forms: 1. A "flat rate" of an annual rent on a per square foot of tidelands basis; 2. Annual rent based on a price (unit rate) per gallon of fuel sold; 3. Annual rent based on a price (unit rate) per gallon of fuel sold in conjunction with a "flat rate" minimum requirement (distinct from #1 above) based on the square footage of the tidelands leased. Fundamentally, the objective of this assignment is to form an opinion of market rent for marine sales purposes that reflects the economic factors attendant to this use as well as the synergistic relationship that marine fuel docks play in the network of commercial, recreational and residential uses that comprise Newport Harbor as a whole. In light of this perspective, the appraisal conclusion is intended to provide an equitable balance, supported by economic analysis and reference to market data, between the State/City's requirement (and obligation) to receive an appropriate return for the use of public lands/tidelands by a private enterprise and the lessee/operator's economic imperative to establish and maintain a viable business, the existence of which benefits the public. The market data found throughout the Southern California region for fuel dock purposes is, for the most part, inclusive of both tidelands and supporting uplands. The fuel dock operations are also quite often only a part 16-133 REGIONAL MAP ,rarer°� �ueverlyHills'° West Covina � Ontario eloomington d Los Angeles O Pomona Redlands oak Glen Q ® cityof Q ® ® _ 0 iv Yucaipa Santa Monica © Industry Chino ® ® calimesa 0 O Inglewood qW CherryValley Downey ® _ Riverside Moreno Valley mac-:•. gundo � � Brea eeaarr�nt I nimnnn Marina del Re '- a Yorba Linda © Fullerton Corona woodcrest R sere a rse Lakewood d Torrance Anaheim LcerntoLakeMalhews Mead valley Lakeview Estelle KUP Mountain Nuevo ZReserve Perris San Jacinto � Long Beach O Q NonnTussn ® King Harbor Ran�no P,losverdec s Santa Ana 0 sllveradn ® ®(ii) Hemet v a Q Terracotta Merrvfee Winchester tw Irvine canyon Lake Huntington Lake alstnare 3 est Beach Lake ForHuntir Lakeland Newport Village O Los Angeles/San Pedro LotiM HMIs ® Q Sege tr L eguna Beach Murrieta Glenoak Hills Laguna Niguel Subjects: ii -7 Temecula Newport Harbor o P^ Two kkrrb"rs :. rl Clemente Delua Luz Catalina island Hei g Essential Rainbow Santa CefFish Habitat... 5 Fallbmok Dana Point Pala inn Agra camp Pala Mesa Pendleron Noah eonrau San CfemenM Island v valley cemer Oceanside Vista Carlsbad San Marcos Q Escondido O Encinitas Rancho Santa Fe Solana Beach Q Del Mar ® Poway v 6,7 O Lake Mission Bay Q O� Q -` EI Cajon D La Mesa 8, 9,10 v Q San Diego Port District an Diega coronadq 16-134 VALUATION — continued of a larger marina and yachting -oriented facility offering a range of products and services to customers. As was discussed at length in our earlier reports, this is not the situation in Newport Harbor, where the subject tidelands are "owned" by the City of Newport Beach and the supporting uplands are under private ownership. Therefore, a direct correlation of the market data (tidelands and uplands) cannot properly be made with the subject tidelands only without adjustments. An additional complexity in the analysis arises from the fact that the market data for fuel dock use is most commonly tied to either the volume (in gallons) of fuel pumped or a percentage of the gross income that is generated by the sale of the fuel. It is generally not directly tied to the square footage of the area leased, which is the first "form" ("flat rate") in which, by assignment instruction, the conclusion is to be presented. As was done in the Phase 2 report, adjustments were required to correlate these volume and percentage indicators of market rent into an annual price per square foot "flat rate" conclusion. Discussions regarding reconciliation of the three "forms" in which the market rent conclusion is to be expressed will be presented at the end of the valuation analysis. Market Data — Overview: Market data for fuel dock leases from Marina del Rey to the San Diego Port District were reviewed. Brief discussions of the various data items will be presented in the following pages. As will become apparent, a wide range of factors influence the prevailing rates within the various jurisdictions. The reasons behind these differences are myriad, complex and beyond the scope of this report; however, they will be presented and analyzed where practical. Further details are held in my files. 16-135 SUMMARY OF MARKET DATA RETAIL FUEL SALES COSTS & RENTAL RATES OCTOBER 2017 Item Fuel Dock Gasoline* Diesel* Rental Basis Subject Hill's Boat Services, Inc. 814 E. Bay Avenue $3.35 $2.96 TBD Newport Beach Subject Island Marine Fuel 406 S. Bay Front $3.45 $3.16 TBD Balboa Island i Subject PetroSea Fuel (Newport Landing) 503 Edgewater Place (Currently non -operational.) Newport Beach 1 Del Rey Fuel 13800 Bora Bora Way $5.10 $4.52 Minimum with $0.15/gallon of all fuel sales Marina del Rey 2 Rocky Point Marine Fuel 310 Portofino Way $5.65 $4.90 5.5% of all fuel sales, includes improvements King Harbor, Redondo Beach 3 Jankovich and Son Berth 74 $3.77 $2.69 Flat rate of $0.97/sq. ft. - tidelands only Port of Los Angeles / San Pedro 4 Maxum Marine Fuels $0.015/gallon up to 100,000 gallons 15922 Pacific Coast Highway $3.69 $2.94 $0.02/gallon > 100,000 gallons Huntington Harbour Adjusted 2/9/16 to flat $10,300 annual rent 5 Dana Point Fuel Dock 34661 Puerto Place $4.16 $3.77 Diesel = 2.5% of sales Gasoline = 3.0% gross Dana Point 6 Dana Landing 2590 Ingraham Street $4.19 $3.69 Diesel = 1.5% gross Gasoline = 3.0% gross Mission Bay, San Diego 7 Hyatt Regency Islandia 1441 Quivira Road $4.31 $3.93 Diesel = 1.5% gross Gasoline = 3.0% gross Mission Bay, San Diego 8 Harbor Island West 2040 Harbor Island Drive $4.37 $4.64 Diesel = $0.02/gallon Gasoline = $0.04/gallon San Diego Port District 9 Pearson Marine Fuels 2435 Shelter Island Drive $4.22 $4.40 Diesel = $0.02/gallon Gasoline = $0.04/gallon San Diego Port District 10 High Seas 2540 Shelter Island Drive $4.53 $3.88 Diesel = $0.02/gallon Gasoline = $0.04/gallon San Diego Port District * Each fuel dock discounts for volume to individual customers at varying rates. 16-136 VALUATION — continued Marina del Rey: Del Rey Fuel, Marina del Rey Tidelands: 11,500 sq. ft. Uplands: 1,950 sq. ft. The Del Rey Fuel Dock is located on Parcel 1 near the entrance to the Marina del Rey harbor. The leased area includes 14,744 square feet of land and 46,510 square feet of tidelands under the supervision, as lessor, of the County of Los Angeles Beach and Harbors. This is a multi-purpose marine facility with boat slip rentals and other marine -related services providing more than 50% of the rental income. It is the only fuel dock in Marina del Rey. The area dedicated to fuel dock purposes is approximately 11,500 square feet of tidelands and just under 2,000 square feet of uplands. The entire property was redeveloped in 2006 with a new 55 -year lease entered into under the unique and specific terms particular to Los Angeles' long- term management of Marina del Rey. The cost of the new improvements was in excess of $4,000,000. The lease terms were based, in part, on rent at 6% of fuel sales. (Other uses, such as boat slip rental, retail sales, bait sales were charged at other, varying rates.) In Marina del Rey an ongoing annual capital improvement deposit is also required of all lessees. This was originally 0.375% of fuel 16-137 VALUATION — continued sales. In 2009 these terms were amended to $0.15 per gallon of fuel sales for annual rent and $0.01 per gallon for the Capital Improvement Fund. As can be seen by a review of the summary of the market data, the rent charged at Parcel 1 in Marina del Rey appears to be well above the preponderance of the other data along the coast. Not surprisingly, the retail fuel rate is at the upper end of the range being charged at other locations as well. This may compensate, relative to the other data, for the comparably higher rental rate. The Department of Beach and Harbors provided information regarding the volume (in gallons) of fuel sales for 2014 — 2016 and the corresponding rent charged for tidelands and uplands. Year Gallons Sold Rent Charged 2014 575,266 $86,290 2015 671,086 $100,663 2016 743,963 $111,954 Because this is the only fuel dock in Marina del Rey, and the harbor reportedly is home to more than 5,000 vessels, this data was considered a useful indication of the potential gallonage that could apply in Newport Harbor. It should be noted that Newport Harbor has more commercial vessels with year-round activities than does Marina del Rey. These require greater amounts of fuel than typical recreational yachts. Further, though there is no ready empirical information supporting this, it appears to this appraiser, who has good familiarity with both harbors, that, in comparison with Newport, there is a higher percentage of smaller boats and sailboats in Marina del Rey that consume less fuel. King Harbor: The Rocky Point Marine Fuel Dock is the only source of marine fuels in King Harbor. We were unable to obtain detailed information other than the fact that rent is charged at 5.5% of the revenue generated from fuel sales. It is my understanding, based upon previous discussions with representatives of the City of Redondo Beach, that the leased premises include improvements, as well as uplands and tidelands. Limited weight was given to this data item, and it is included for informational purposes only. 16-138 VALUATION continued Port of Los Angeles/San Pedro: Jankovich and Son, Port of Los Angeles/San Pedro MAIN CHANNEL Tidelands: 42,000 sq. ft. Jankovich and Son is the only remaining fuel dock in L.A. Harbor that provides both gasoline and diesel fuel. With the closure of the Cabrillo Marine Fuel Dock on November 1, 2015, Jankovich is of necessity shared between recreational boaters and larger commercial (shipping) vessels. According to Jack Boyt, the operator of Cabrillo Marine Fuel "every effort was made to keep the dock operational but meeting code compliance became increasingly burdensome and costs to keep the fuel tanks up to date had started to become cumbersome... this is a very tough business to run in California."' An interview with Elizabeth Solario of the Port of Los Angeles on April 19, 2017, indicated that the Port was charging rent for marine fuel facilities at the rate of $0.025 gallon for gasoline and mixed fuels and $0.005 per gallon for diesel. Ms. Solario confirmed that this was based on a Leasing Policies and Procedures document dated 9/23/05. The Port of Los Angeles Leasing Policy document, dated 8/8/13 was also reviewed. 1 The Log, 11/19/15. 16-139 N3]99b9•E 100.00 seH1H 72 IIS +29US PIERHEeD URE UYSp 131 J f �� xh �0 tt]9'14'13•E 9¢00' E Hae•x3'35•E 3 ID PARCEL NO.9 �,QS• 'I•=A �� / u6633'37•E 3x,08' MUNICIPAL RSH 7$HD S F. 'Q waa ''`� e•� f PAR— ,g MARKET t=]x33'31"E 3fi.09' �Oti M230'3l% 30.00' ., �3 .+�PARCEL • nsr3D's1 •w e7.02' NO. 5 r�. ys' �,� x3zso's1'w lase' Yom':\. CL S' WIDE R/W 7,ieD S.F. Nn'u'xe'w a -o �yi U9 N52'30'31"W 30.99' Q t>° u]r33'S1'E 38.05 ]5.00' M1T25'2 H9• "[. Ne]'25'2S"W �•D SIGNAL PLACE n if'13'28'w 0 yp' 00 'N 9'J.00' N3rvr'W'E +Do. W' •rH5Y50'S1'W ]39}' '%3V NSTpy'p9"E +1-00' W C PARCEL ND. 4 07'09'0e•E 76.99' NS]'09 08 C IB� H37'09'09"[ ]8.00' i. N PARCEL 140.7 (SEE 0[iA1L R) N1]'i5'90" N SIGNAL STRESS PARCEL ND.6 . I I,E92 SP [SEE OETIJL A i Tidelands: 42,000 sq. ft. Jankovich and Son is the only remaining fuel dock in L.A. Harbor that provides both gasoline and diesel fuel. With the closure of the Cabrillo Marine Fuel Dock on November 1, 2015, Jankovich is of necessity shared between recreational boaters and larger commercial (shipping) vessels. According to Jack Boyt, the operator of Cabrillo Marine Fuel "every effort was made to keep the dock operational but meeting code compliance became increasingly burdensome and costs to keep the fuel tanks up to date had started to become cumbersome... this is a very tough business to run in California."' An interview with Elizabeth Solario of the Port of Los Angeles on April 19, 2017, indicated that the Port was charging rent for marine fuel facilities at the rate of $0.025 gallon for gasoline and mixed fuels and $0.005 per gallon for diesel. Ms. Solario confirmed that this was based on a Leasing Policies and Procedures document dated 9/23/05. The Port of Los Angeles Leasing Policy document, dated 8/8/13 was also reviewed. 1 The Log, 11/19/15. 16-139 VALUATION — continued A subsequent interview with Kevin Kim (10/11/17), also of the Port of Los Angeles, provided detailed information regarding a new lease being prepared for Jankovich and Son. The existing marine fuel operation is currently located at Berth 74, but will be relocated to Berth 73 to make way for harbor upgrades. The new lease breaks out the various components of the leased premises by property type and lease rate. Pertinent to the present analysis, there will be a 42,000 square foot tidelands (submerged land) that will be charged at a flat annual rate of $0.97 per square foot. It should be noted that this is a very high-volume fuel dock serving large commercial vessels. Huntington Harbor: Maxum Marine Fuels, Huntington Harbour Tidelands: 7,500 sq. ft. Uplands: 1,200± sq. ft. Huntington Harbor experienced a shutdown of its sole marine fuel dock, Mariner's Point, on October 1, 2015. Kellee Fritzal, Deputy Director of the Office of Economic Development for the City of Huntington Beach, was involved with the transfer of the leasehold interest from the former owner to the current lessee, Maxum Petroleum. 16-140 VALUATION — continued It was reported in an interview (10/13/17) that the former owners were concerned about potential toxic issues and wanted to divest themselves of the facility with the attendant responsibilities. Because city officials and residents were concerned with the impact of the closure on property values for both residences and marinas, the City of Huntington Beach intervened and acquired the leasehold interest with the intention of finding a new lessee/operator as soon as possible. The initial lease terms offered by the California State Lands Commission was a minimum annual rent of $8,900 against $0.015 per gallon of fuel up to 100,000 gallons and $0.02 per gallon thereafter as well as 5% of the gross income for all other sales. Maxum Petroleum purchased the leasehold for $25,000, but with the understanding that there were to be expenditures in the first three to four years on the order of $500,000 to upgrade the facilities and to replace the underground storage tanks. The final lease terms to Maxum Petroleum, presented as Calendar Item C71 (2/9/16), was for a 10 -year term at an annual flat rent of $10,300 per year with CPI adjustments. This included 7,500 square feet of tidelands area; an easement for pipes running along the southerly boundary of the uplands property with an estimated area of approximately 450 square feet; a subterranean tank storage area of approximately 750 square feet in the driveway/parking lot area fronting on Pacific Coast Highway. The total uplands supporting area is approximately 1,200 square feet. Thus, the lease effectively includes both tidelands and uplands, as with most port districts. I reviewed five commercial land sales and lightly improved properties that transferred near the date of value in the subject market area. While no detailed comparative analysis was performed, these data appeared to indicate that the uplands land value at the location of the gas dock would be on the order of $200 to $250 per square foot. Because the uplands rights are in the form of easements, I allocated a 50% discount to the base value on a per square foot basis. Calculating the necessary return to the uplands at 5% on the same basis as presented in the previous reports results in the following: 1,200 sq. ft. x $200/ sq. ft. x 50% x .05 return = $6,000 1,200 sq. ft. x $250/ sq. ft. x 50% x .05 return = $7,500 16-141 VALUATION — continued The indication of the remainder available for rental payment of the tidelands is calculated as follows: $10,300 — $6,000 = $4,300/ 7,500 sq. ft. _ $0.57/ sq. ft. $10,300 — $7,500 = $2,800/ 7,500 sq. ft. _ $0.37/ sq. ft. Dana Point Fuel Dock: Dana Point Fuel Dock, Dana Point Tidelands: 8,000 sq. ft. Uplands: 8,500 sq. ft. The Dana Point facility includes approximately 8,000 square feet of tidelands and approximately 8,500 square feet of uplands land. Additionally, the leased premises also include improvements on both land and water. These consist of a 900± square foot office/retail building, ramps, dock, landscaping, refuse area, storage area, storage fuel tanks and parking area. The rent is based on a minimum against 2.5% of revenue from diesel and 3.0% from gasoline and 10% of non -fuel items. The total rent paid for 2015-2016 was $98,469. This included minimum rent and percentage rent. In order to judge the residual contribution made to total rent by the tidelands for the sale of marine fuel purposes, it was necessary to calculate a market based return to the uplands and the annual amortization costs and return on the improvements. 16-142 VALUATION — continued Total Rent 2015-2016: $98,469 Less 10%± for other income sources: ($10,000) $88,469 Estimated Uplands Land Value: $900,000 Return @ 5%: $45,000 ($45,000) Improvements Costs: Storage Tanks: $225,000 Office and land improvements: $100,000 Pier, ramps, floats: $75,000 Marine fuel pumps, dispenser, equip.: $25,000 Sub -total improvements: $425,000 Amortized costs/return @ 9%: $38,000 ($38,000) Residual to tidelands: $5,469 Round to: $5,50018,000 sq. ft. = $0.69/ sq. ft. Mission Bay: 16-143 VALUATION — continued Dana Landing Dana Landing, Mission Bay Tidelands: 6,000± sq. ft. The Dana Landing facility is a multi-purpose marina that includes 80 slips and other marine -related uses. It has a total tidelands area of 4.127 acres and an uplands area of 3.467 acres. The area dedicated strictly to marine fuel sales is estimated to be 6,000± square feet of tidelands and 1,000 square feet of uplands. Rent is based upon 3.00% of revenue from gross sales of gasoline and 1.50% of diesel income. I was able to review the audited income and rent for the four years from December 2007 through November 2011. The average annual rent for fuels sales over that period was $19,758 per year. I was also able to review the rent report from August 2015 through July 2016. The rent from fuel sales over that year was $24,196. Analyzing the contribution made by the uplands to total rent is complicated by the fact that nearly all potential commercial waterfront property in Mission Bay is under the ownership of the City of San Diego. However, I did research surrounding real estate values, particularly of residential properties, in Mission Bay. While acknowledged to be an indirect 16-144 VALUATION — continued basis for comparison, it was noted that the price levels for comparable properties in Mission Bay were generally similar to those in the various neighborhoods in the immediate vicinity of Newport Harbor. This was particularly true for those on the Balboa Peninsula, which is analogous to the peninsula in Mission Bay. With a slight adjustment downward for the large size of the parcel of which the marine fuel area is a part, it seemed reasonable, based upon the data available, to allocate a value of $400 per square foot for the waterfront commercial property in Mission Bay. If the uplands area is judged to be 1,000± square feet in size, then the required return to the uplands would be calculated as follows: $400/ sq. ft. x 1,000 sq. ft. _ $400,000 Return @ 5% _ $20,000 Based on the empirical data of rent generated from marine fuel sales discussed above, it appears that the upper end of anticipated rent would be on the order of $25,000 for land and water. Total Rent: $25,000 Required return to uplands: ($20,000) Residual to tidelands: $5,000 $5,000 / 6,000 sq. ft. _ $0.83 per square foot 16-145 VALUATION — continued Hyatt Regency Islandia Hyatt Regency Islandia, Mission Bay Tidelands: 11,500± sq. ft. This is a large multi-purpose property that is anchored by a Hyatt Regency Hotel and large commercial marina. It cannot be directly compared to the subject properties, but it is included for informational purposes. Like Dana Landing, rent is based upon 3.00% of revenue from gross sales of gasoline and 1.50% of diesel income. The tidelands area dedicated to the sale of marine fuels is approximately 11,500 square feet in size. I reviewed audit information from September 2008 through August 2012. During this period, the average annual rent per the audit was $9,219. This is equivalent to $0.80 per square foot without consideration of the required return to the uplands. 16-146 "Y' Legend = SAN DIEGO UNIFIED PORT DISTRICT MEMBER CITIES CHULA VISTA CORONADO IMPERIAL BEACH NATIONAL CITY SAN DIEGO MEAN HIGH TIDE LINE uuun COASTAL ZONE FIGURE I x i 1 San Diego Unified Part District n �11 -7 7, Q- P Q NA j 01 San DA,LgO Bay .--N 16-147 VALUATION — continued San Diego Port District: I was able to obtain considerable factual information from the Real Estate Division of the Port of San Diego on the three primary marine fuel sales facilities operating in the San Diego Port District. As will be seen in the following data, it appears that location, with a corresponding proximity to potential customers, is a critical influence in the volume of sales obtained at a particular fuel dock. Rental for land and water in the San Diego Port District for the commercial sale of marine fuels is based on $0.02 per gallon for diesel and $0.04 per gallon for gasoline. The San Diego Port District owns and controls much of the commercial waterfront and there is, correspondingly, limited sales activity to measure open -market indications of the value of uplands as dedicated to the support of the commercial sales of marine fuels. Surrounding real estate values in the residential sector are relatively high, as discussed above with nearby Mission Bay. 16-148 VALUATION — continued Pearson Marine Fuels Pearson Marine Fuels, San Diego Port District Tidelands: 32,900 sq. ft. Uplands: 4,000 sq. ft. The leased premises include 4,000 square feet of uplands and 32,900 square feet of tidelands. The annual volumes of fuel sold and the corresponding rent are presented below: 16-149 FuelType Volume Rent 2014 Diesel 649,398 $12,988 Gasoline 131,142 $5,246 2014 Totals 780,540 $18,234 2015 Diesel 759,014 $15,180 Gasoline 135,398 $5,416 2015 Totals 894,412 $20,596 2016 Diesel 742,315 $14,846 Gasoline 122,197 $4,888 2016 Totals 864,512 $19,734 16-149 VALUATION — continued It appears that $20,000 per year for the rental of land and water would be reasonably anticipated for this site. Allocating 750± square feet of the 4,000 square feet of uplands to fuel dock support (tank storage), at $350/ square foot and a 5% return indicates $13,125 of the projected total rent going toward dedication of the uplands to support the fuel dock use of the tidelands. This leaves a residual to the tidelands of $6,875. $6,875 / 32,900 square feet = $0.21 per square foot Considering the low end of the range for waterfront commercial land at $200 per square foot results in a market based return to the land of $7,500. $20,000 - $7,500 = $12,500 $12,500/ 32,900 square feet = $0.38 per square foot The indicated rent for the tidelands only of $12,500, generated on the basis of the volume of fuel (gallons) dispensed, is as follows: $12,500 / 8659000 = $0.0145 per gallon 16-150 VALUATION — continued High Seas Marine Enterprises Tidelands: 33,079 sq. ft. Uplands: 6,000± sq. ft. The leased premises include 13,802 square feet of uplands and 33,079 square feet of tidelands. It appears that approximately 6,000 square feet of the uplands is utilized for fuel tank storage. The annual volumes of fuel sold and the corresponding rent are presented below: 16-151 FuelType Volume Rent 2014 Diesel 2,427,029 $46,541 Gasoline 73,486 $2,939 2014 Totals 2,500,515 $49,480 2015 Diesel 2,775,121 $55,502 Gasoline 82,447 $3,298 2015 Totals 2,857,568 $58,800 2016 Diesel 2,766,786 $45,533 Gasoline 73,066 $2,923 2016 Totals 2,839,852 $48,456 16-151 VALUATION — continued It appears that $50,000 - $55,000 per year would be reasonably anticipated for this site for the rental of land and water. Allocating land value at the low end of the range ($200 per square foot) results in the following: $200 per square foot x 6,000 sq. ft. _ $1,200,000 $1,200,000 x.05 = $60,000 Therefore, it appears that a market-based return on the land ($60,000) is greater than the total indicated rent for land and water ($50,000 - $55,000). This seems to suggest that there is some implicit subsidization operating where the land and water are controlled by a public entity that is mandated to provide a balanced harbor environment where there is a stable blend of interdependent services providing both commercial and recreational opportunities. Harbor Island West Harbor Island West, San Diego Port District Tidelands: 14,500 sq. ft. The leased premises of Harbor Island West include extensive land and water area to support a large marina in addition to a fuel dock. According to Port District information, the total leased area is 16-152 VALUATION — continued 3.76 acres of land and 21.97 acres of water area. As shown in the aerial image above, the portion of the tidelands dedicated to fuel dock use is approximately 14,500 square feet. It appears that approximately 1,000 square feet of the uplands is used for underground tank storage purposes. The annual volumes of fuel sold and the corresponding rent are presented below: Based upon the above data, it is reasonable to conclude that, at the date of value, rental income on the order of $42,000 per year could be anticipated for this site, inclusive of land and water. Allocating land value is considered particularly speculative at this site as the Harbor Island land area is used for a complex of planned, inter -related uses. These include marina support, marine -related retail and large, destination hotel facilities. I performed a capitalized rent analysis taken from empirical information available for the multi -story Hyatt Hotel in Mission Bay on a 9.7± acre site, reviewed general real estate and commercial values in the area, and adjusted for size to conclude that a $350 per square foot basis for dedication of the land for marine fuel purposes at this Port District location, as was employed elsewhere, was reasonable. Based upon these criteria, the following indication of rent applicable to the tidelands at this site is developed as follows: 16-153 FuelType Volume Rent 2014 Diesel 1,042,883 $20,658 Gasoline 392,255 $15,690 2014 Totals 1,435,138 $36,348 2015 Diesel 1,229,176 $24,584 Gasoline 430,728 $17,229 2015 Totals 1,659,904 $41,813 2016 Diesel 1,267,426 $25,348 Gasoline 416,247 $16,649 2016 Totals 1,683,673 $41,997 Based upon the above data, it is reasonable to conclude that, at the date of value, rental income on the order of $42,000 per year could be anticipated for this site, inclusive of land and water. Allocating land value is considered particularly speculative at this site as the Harbor Island land area is used for a complex of planned, inter -related uses. These include marina support, marine -related retail and large, destination hotel facilities. I performed a capitalized rent analysis taken from empirical information available for the multi -story Hyatt Hotel in Mission Bay on a 9.7± acre site, reviewed general real estate and commercial values in the area, and adjusted for size to conclude that a $350 per square foot basis for dedication of the land for marine fuel purposes at this Port District location, as was employed elsewhere, was reasonable. Based upon these criteria, the following indication of rent applicable to the tidelands at this site is developed as follows: 16-153 VALUATION — continued $350 per square foot x 1,000 sq. ft. _ $350,000 $350,000 x.05 = $17,500 $42,000 - $17,500 = $24,500 $24,500 / 14,500 = $1.69 The indicated rent for the tidelands only of $24,500, generated on the basis of the volume of fuel (gallons) dispensed is as follows: $24,500 / 1,685,000 = $0.0145 per gallon Data Analysis and Reconciliation: Analysis of the market data provides a range of indications for the contributory value of the tidelands only to total rent for the commercial sale of marine fuels. The relative relationship between the data items can be impacted by the unit value used in expressing the basis for the rent. As an example, comparison of Pearson Marine Fuels and Harbor Island West, both in the San Diego Port District, provides an interesting illustration. The indicated rent for tidelands only at Pearson's was $0.38 per square foot while it is $1.69 at Harbor Island West. A significant difference, yet when the same results were expressed in terms of the volume of fuel pumped, the indicated rental rate was the same - $0.0145 per gallon. The following analysis and reconciliation will attempt to bring these disparate facts and analyses to a final conclusion for the subject tidelands as dedicated to the commercial sale of marine fuels. The proposed Jankovich lease in the Port of Los Angeles is the only flat rate lease of tidelands only. It should be noted that it is also leased in conjunction with other adjoining land uses at different rates to create the total "package" of the premises. The rate for 42,000 square feet of tidelands is $0.97 per square foot. As opposed to making a conventional upward adjustment for size and marginal utility, it should be borne in mind that the size of this facility permits the berthing of large commercial vessels with far greater fuel consumption potential than would be available in Newport Harbor. This is recognized to be an advantage. It seems reasonable that the increased volume of sales potential, rather than being expressed on a price per gallon basis, is embedded in the price per square foot. Therefore, this would appear to be a reliable upper limit indicator for the subject when considered on a per square foot basis. 16-154 VALUATION — continued The Del Rey Fuel Dock in Marina del Rey appears to pay significantly more rent for the tidelands than at any other location on the Southern California coast. Reference to the chart of the Market Data Retail Fuel Sales Costs presented previously shows that the gasoline price at Del Rey is well above any other fuel dock in Southern California, with the exception of King Harbor. In both cases, these facilities are the sole marine fuel operations in the respective harbors creating a "captive audience" dynamic. The diesel price is at the upper end of the range of competitive facilities as well. Interviews with professionals in the area have indicated that larger yachts with greater fuel capacities will travel to Port of Los Angeles/San Pedro to fill their boats with cheaper fuel. No data was available distinguishing between the ratio of gasoline to diesel sales at the Del Rey Fuel dock. Typically, older sailboats, which make up a significant percentage of the marina population in Marina del Rey, have gasoline engines. Speedboat/outboards also use gas. Accordingly, it appears possible that the apparent higher rental rate for the marine fuel dock facility is accommodated by the relatively higher retail fuel prices. In other words, the higher rent is passed on to the customers. Because this assignment is to form an opinion of market value in Newport Harbor for fuel dock use of the tidelands in synergistic relationship with other commercial uses in the harbor, the Del Rey Fuel Dock rental rate was given lesser weight in a direct correlation to subject fair market rent. The Rocky Point Marine Fuel Facility in King Harbor included improvements, as well as uplands and tidelands. It was not considered directly comparable to the subject and was included for informational purposes only. The saga of the fuel dock operation in Huntington Harbor was instructive for a number of reasons. Widely held perceptions of the critical role that marine fuel docks play in the economic vitality of a harbor was illustrated by the extraordinary measures taken by the City of Huntington Beach, at the behest of its residents, to make certain that a new operator was attracted to the harbor when Mariner's Point Fuel dock closed down. The terms of the final lease — a flat rate — reflected the fact that the lessor recognized the new tenant would be obliged to make major upgrades to the facilities. Due to the existing facilities, which were purchased for a 16-155 VALUATION — continued nominal $25,000, this situation was less onerous than it would be at a theoretical vacant subject site, where all the costs of improving both the uplands and the tidelands to standards consistent with current regulations and market expectations would need to be considered. A range of $0.37 to $0.57 per square foot per year for rent attributable to the tidelands only resulted from this analysis. The lease at Dana Point included the improvements for the uplands office, the dock facilities, underground storage tanks and other site improvements. Adjustments for this required the development of a residual indication of the tidelands contribution to total rent. The costs are judged to be well -supported; nonetheless, it is recognized that a significant degree of leverage was involved in this analysis. The result was $0.69 per square foot. The Dana Landing fuel dock facility in Mission Bay, being part of a much larger whole, was generally consistent with the size and nature of the subject fuel docks. Allocation of land value for the uplands was based upon indirect criteria, but judged to be reasonable. The result of $0.83 per square foot of tidelands was generally consistent with the other indicators. The Hyatt Regency gas dock, which is part of a complex assembly of uses, indicated that the tidelands contribution to rent for the commercial sale of marine fuels should be less than $0.80 per square foot. Good empirical information for the volume of fuel sold and the rent charged was provided by the San Diego Port District for its three primary fuel docks. Because the locational influences and the size and configuration of the facilities vary, indications of the contribution of the tidelands to total rent likewise varied when employing the same methodology. However, viewed on a rental rate per gallon of fuel pumped, there was consistency at $0.0145 per gallon for rental of tidelands only. After eliminating apparent anomalies at the high and low end of the indicators, a range of $0.37 to $0.97 per square foot resulted. 16-156 VALUATION — continued Application to Subject Tidelands: Discussion was presented in an earlier section of this report relative to the fundamental imperative that the conclusions of fair market rent for the subject tidelands for the commercial sale of marine fuels cannot properly be considered in isolation from the tidelands rents of other commercial users in Newport Harbor. In summary, the underlying objective of this assignment is to form an opinion of market rent for marine sales purposes that is logically and supportably integrated within the network of commercial, recreational and residential uses that comprise Newport Harbor as a whole. The instructions set out in the Scope of Services was to present "conclusions of fair market rent of the city tidelands, as used for the purpose of the commercial sale of marine fuels... expressed in three different forms." Accordingly, the three following "expressions" of my conclusion of market rent are presented: 1. A "flat rate" of an annual rent on a tier sauare foot basis: The foregoing analysis of fuel dock market data at other jurisdictions up and down the Southern California coast indicated a reconciled range of rental indications for tidelands only from $0.37 to $0.97per square foot per year. The majority of that data was between $0.57 and $0.80 per square foot. Extensive analysis was presented in the Phase 2 report indicating how an annual market rent conclusion for small commercial marinas (< 13,000 sq. ft.) was supported at $0.76 per square foot. This indication was then correlated to similarly sized commercial operations where the real "engine" of the enterprise — that without which the business could not function - was in the tidelands. A similar $0.76 per square foot annual rental rate conclusion was obtained in these cases as well. The intuitive rationale for this common rate across uses is perhaps best illustrated by the exhibit of the commercial tidelands in the Pavilion area of the Balboa Peninsula. The tidelands areas leased are essentially similar. The uses vary, but they are all (with the exception of the guest slips) integral and indispensable to the 16-157 Balboa Peninsula — Pavilion Area — Commercial Tidelands 16-158 VALUATION — continued different commercial businesses of which they are a part. And they are effectively interchangeable. While fully aware that different uses can, and in some cases, should be charged at different rates, within this band of tidelands size and highest and best use potential, it is my judgment that a $0.76 per square foot annual rental rate should be applied consistently. Therefore, I have concluded that market rent for the subject tidelands, as dedicated to the commercial sale of marine fuels, is expressed as a "flat rate" of $0.76 per square foot per year. This conclusion is consistent with the analysis of the market data as well as with established rates for other similarly configured commercial uses of the tidelands in Newport Harbor. "Flat Rate" Conclusion: $0.76 per square foot per year 2. Annual rent based on a price (unit rate) per gallon of fuel sold: In my judgment, application of a percentage rent, or price per gallon basis for fuel dock use, while a useful tool, must be applied with caution. This method could potentially create a non -equitable situation if done without reference to the basic "flat rate" conclusions to which other commercial uses in the harbor are subject. It must be remembered that the market data in other jurisdictions for non -fuel dock commercial uses are also typically expressed on a percentage of revenue basis. It was the work of the Phase 2 report to bring those various indicators to fair and equitable "flat rate" rental conclusions on a harbor -wide basis. This balance should not be lost. That said, integrating a unit rate (price per gallon) basis in setting market rent presents an opportunity to recognize and accommodate the uncertainties inherent to the marine fuel dock business. The permanent closure of Cabrillo Marina Fuel Dock and the closure and re -opening of the Huntington Harbor facility, facilitated by the intervention of the City of Huntington Beach and the apparent involvement of the State Lands Commission in adjusting lease terms, highlights the challenges of such a business enterprise. 16-159 VALUATION — continued Utilizing a rental rate based on effective "productivity" (gallons dispensed) could provide implicit support to fuel dock enterprises experiencing low sales volume. This would be beneficial in a harbor - wide context by indirectly contributing to the economic health of an essential fuel sales operation. By the same token, in my judgment a "ceiling" should be placed on a price per gallon unit rate that is consistent with other commercial uses of the tidelands of similar size and general character. This is the established "flat rate" of $0.76 per square foot of leased tidelands already discussed. To expose the operator of a marine fuel dock to rent above that level based on a highly volatile gallonage standard would seem to be inconsistent with the overarching assignment to set market rent at an equitable level, reflecting use, for all commercial uses in the harbor. For example, to penalize a successful operator of a marine fuel business with an open-ended rental rate while a (theoretically) equally successful operator of a vessel charter business would be assured a fixed rental amount appears to be at variance with an integrated standard of market rent throughout the harbor. Alternatively, the effective rent paid by a successful operator of a marine fuel business, subject to an open-ended rent amount, could be dramatically different from that of a less successful competitor in the marine fuel business for, theoretically, equivalent space and for the same use. Such a circumstance would fundamentally contradict basic principles of market rent. Setting a reasonable cap on the unit rate basis of rent at the "flat rate" standard resolves this situation. I was able to obtain reliable sales volume (gallonage) information from Marina del Rey and the Port District of San Diego. As discussed, the Marina del Rey information was useful as an indicator of potential volume in Newport Harbor, but the unit rate itself, being much higher than all other market indicators, was difficult to correlate. 16-160 VALUATION — continued Analysis of two of the Port District facilities appeared to indicate that tidelands rent, expressed on a price per gallon basis, was on the order of $0.0145. This was based on indirect estimates on the anticipated return to the uplands that was required at the respective locations. In Newport Harbor the high value intrinsic to waterfront property presents the commercial tidelands users with the burden of providing a market based economic return to the uplands necessary to support the tidelands use. We have further seen how the value of the uplands affiliated with two of the three existing fuel dock facilities is two to three times greater than the third (mixed-use vs. commercial), and significantly more than the uplands associated with the market data in the San Diego Port District or Marina del Rey. Accordingly, in my judgment, the $0.0145 per gallon rate developed from the data should be adjusted downward to reflect the upland values in Newport Harbor. I have concluded at $0.01 per gallon as the applicable unit rate for the subject tidelands as dedicated to commercial marine fuel sales. Further, it is my opinion that this rate should be applied up to a level not to exceed the equivalent of $0.76 per square foot of tidelands leased. Unit Rate Conclusion: $0.01 per gallon Not to Exceed: $0.76 per square foot 3. Annual rent based on a price (unit rate) per gallon of fuel sold in conjunction with a "flat rate" minimum requirement (distinct from #1 above) based on the square footage of the tidelands leased: In my judgment, the minimum rent requirement for the commercial sale of marine fuels should be consistent with the low end of tidelands rent concluded elsewhere in the harbor. Just as with shipyards, a marine fuel dock can be considered an "essential" component of the overall health and stability of the harbor, and the minimum rate should reflect this. The analysis for the minimum rent requirement, as exemplified by shipyards, was presented in the Phase 2 report along with the conclusion at $0.38 per square foot. In my judgment, this is also an 16-161 VALUATION — continued appropriate minimum requirement to apply to the lease of the tidelands for fuel dock use. Therefore, my conclusion to the third "expression" of market rent of the Newport Harbor tidelands for the commercial sale of marine fuels is as follows: Minimum Rent: $0.38 per square foot Application of Unit Rate @ $0.01 per gallon Not to Exceed: $0.76 per square foot 16-162 Addenda 16-163 EXHIBIT A SCOPE OF SERVICES Consultant shall provide an appraisal of the following: Supplement to the Appraisal Report "Market Rental Value City Tidelands and Submerged Land", dated April 7, 2016, (Phase 1) and a Phase 2 Appraisal Report, dated July 12, 2017, both reports prepared by Consultant. The same date of value used in those previous reports, March 15, 2016, shall be used. Consultant's conclusions of fair market rent of the city tidelands, as used for the purpose of the commercial sale of marine fuels, shall be expressed in three different forms: A "flat rate" of an annual rent on a per square foot of tidelands basis; 2. Annual rent based on a price (unit rate) per gallon of fuel sold; and 3. Annual rent based on a price (unit rate) per gallon of fuel sold in conjunction with a "flat rate" minimum rent requirement (distinct from # 1 above) based on the square footage of tidelands leased. Consultant's work shall be performed in accordance with Uniform Standards of Professional Appraisal Practice (USP AP), and in conformance with Standards Rule 2-2 of USPAP. Consultant shall provide City with an electronic copy of the Appraisal Report at the completion of the assignment. George Hamilton Jones Page A-1 16-164 CERTIFICATION The undersigned hereby certifies that: 1. I have made personal inspections of the subject properties and the Newport Harbor tidelands generally on various occasions over the past 25 years. 2. To the best of my knowledge and belief, the statements of fact contained in this report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the assumptions and limiting conditions stated herein, and are the personal, unbiased professional analyses, opinions, and conclusions of the undersigned. Those limiting conditions (imposed by the terms of the assignment or by the undersigned) considered to affect the analyses, opinions, and conclusions are contained in this report. 4. I have no present or prospective interest in the properties that are the subject of this report. I have no personal interest or bias with respect to the subject matter of this report or the parties involved. This report is Phase 3 of an appraisal of City of Newport Beach Tidelands. Phase 1 was submitted by this office on April 7, 2016. Phase 2 was submitted by this office on July 12, 2017. Otherwise, I have not performed any services, as an appraiser or in any other capacity, regarding the properties that are the subject of this report within the three-year period immediately preceding the acceptance of this assignment. 5. The engagement of my firm and the compensation for this assignment are not contingent upon the development or reporting of a predetermined value or result, or direction in value, that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This report is not conditioned upon a requested minimum valuation, a specific valuation, or the approval of a loan. 16-165 7. This report, and the analyses, opinions, and conclusions contained herein, have been made in conformity with and are subject to the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, and the Uniform Standards of Professional Appraisal Practice. 8. No one other than the undersigned prepared the analyses, conclusions, and opinions, or provided other significant professional assistance concerning the real property interests that are the subject of this report. 9. The Appraisal Institute conducts a program of continuing education for its designated members. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. Case . Jo e , Al (State Certifi General Real Estate Appraiser No. AG041862) 16-166 LIMITING CONDITIONS The Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute require that all assumptions and limiting conditions that affect the analysis be clearly and accurately set forth. To assist the reader in interpreting this report, the primary assumptions and limiting conditions affecting the analysis of the subject properties are set forth below. Other assumptions and conditions may be cited in relevant sections of the following report. That the date of value to which the conclusions and opinions expressed in this report apply is March 15, 2016. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American dollar existing on that date. 2. That the appraiser assumes no responsibility for economic or physical factors which may affect the opinion herein stated occurring at some date after the date of value. 3. That the appraiser reserves the right to make such adjustments to the valuation herein reported, as may be required by consideration of additional data or more reliable data that may become available. 4. That no opinion as to title is rendered. Data related to ownership and legal description was obtained from public records, and is considered reliable. Title is assumed to be free and clear of all liens and encumbrances, easements and restrictions, except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Investigation of the property's history is confined to examination of recent transactions or changes in title or vesting, if any, and does not include a "use search" of historical property utilization. 5. That no engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area was taken from sources considered reliable and no encroachment of real property improvements is considered to exist. 6. That maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. 7. As a premise of this report it is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the following analysis. 16-167 LIMITING CONDITIONS - continued 8. That no opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. It is assumed that there are no hidden or unapparent conditions of the property that render it more or less valuable. No responsibility is assumed for such conditions or for the arranging of studies that may be required to discover them. The function of this report is to provide an opinion of the value of the real property as herein defined. Under no circumstances should this report be considered as providing any service or recommendation commonly performed by a building inspector, structural engineer, architect, pest control inspector, geologist, etc. 9. That no soil reports concerning the subject property were available. This valuation is based upon the premise that soil and underlying geologic conditions are adequate to support standard construction consistent with highest and best use. 10. That no specific information was available for my review relating to hazardous materials or toxic wastes that may affect the appraised property. Unless otherwise stated in the report, I did not become aware of the presence of any such material or substance during our investigation or inspection of the appraised property. However, I am not qualified by reason of experience or training to identify such materials or substances. The presence of such materials and substances may adversely affect the value of subject property. This valuation is predicated on the assumption that no such material or substance is present on or in the subject properties or in such proximity thereto that it would prevent or impair development of the land to its highest and best use or otherwise affect its value. The appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state, and local environmental laws, regulations, and rules. 11. This Appraisal Report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. Disclosure of the contents of this appraisal report is governed by the By -Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected, or any reference to the Appraisal Institute, or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the author. 16-168 QUALIFICATIONS OF CASEY O. JONES, MAI Member of the Appraisal Institute California Certified General Real Estate Appraiser, License No. AG041862 Mr. Jones is a partner with the real estate appraisal and consulting firm of George Hamilton Jones, Inc., in Newport Beach, California. He has been appraising real property since 1991. His appraisal experience covers a broad range of assignments that, in addition to standard property types, includes railroad rights of way, transmission line corridors, acquisitions for freeways, wetlands/ conservation land, vineyards and wineries, tidelands, marinas, ranches, subdivision land, real property damages and various waterfront property types. Property interests appraised include fee simple, leased fee, leasehold, fair rental value, partial acquisitions, eleemosynary interests, and easements of various types and rights of way. Mr. Jones has served as an expert witness in courtroom and judicial arbitration settings in Southern California. Education: University of Southern California, Bachelor of Arts Advanced Study - University of Southern California, Master of Fine Arts, 1978 Real Estate Appraisal Courses (Appraisal Institute): Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice Business Practices and Ethics Apartment Valuation Advanced Income Capitalization General Market Analysis and Highest and Best Use Advanced Sales Comparison and Cost Approaches Report Writing and Valuation Analysis Advanced Applications Comprehensive Appraisal Workshop Litigation Professional Program Federal and California Staturory and Regulatory Law Course Real Estate Appraisal Seminars (Partial List) Litigation Seminars, 2007, 2009-2012, 2014-2016 Market Trends Seminars: LA/ OC/ Inland Empire Conservation Easement Valuation Real Property Damages Valuation Project Delay Economics Hydraulic Fracking and Property Rights Entitlements in Real Property Appraisals 16-169 Qualifications of Casey O. Jones, MAI Page 2 Professional Affiliations: Appraisal Institute (MAI Member No. 12935) Regional Representative (Region VII), 2012-2015 International Right of Way Association Chapter 67 Valuation Chair, 2011-2012, 2014-2017 Employment: 1/91 - Present: Real Estate Appraiser and Consultant George Hamilton Jones Inc., Newport Beach, California Scope of Experience (Partial List): Appraisal experience includes valuations of most categories of real property and appraisal reviews. Interests appraised include fee simple, leased fee, leasehold, fair market rent, partial acquisitions, easements and rights-of-way. Work has been primarily carried out throughout Southern California. Property Types: Single Family Residences Condominiums Commercial Buildings Industrial Buildings Retail Centers Vacant Lots/ Land (All types) Mobile Home Communities Conservation/Mitigation Land Church Hotels Right of Way Corridors Tidelands Apartments Residential Subdivision Acreage Retail Buildings Office Buildings Service Stations Medical Buildings Marinas Leasehold/ Leased Fee (Residential and Commercial) Waterfront and Oceanfront Properties Yacht Clubs Wetlands Shipyards Specialized Properties and Assignments (Partial List): Rancho Mission Viejo, 1,100 -acre Planning Area 5, Trampas Reservoir site Marina Pacifica — 569 -unit condominium underlying land revaluation, Long Beach Kilroy Airport Center Office Complex, Long Beach Leasehold Residential Subdivision Land, Custom Waterfront Lots, Newport Beach Tidelands, fair rental value at Harbor Island, Newport Beach Tidelands, fair rental value, various commercial uses, Newport Beach Colonies Parkway, Upland — commercial/residential planned community/water rights Inland Center Mall — partial acquisition freeway on/off ramp 16-170 Qualifications of Casey O. Jones, MAI Page 3 Residential Subdivision — Regulatory Taking, Inverse Condemnation, San Juan Capistrano BNSF Railway — aerial and other easement acquisitions, Anaheim Valley View Grade Separation — land and easement acquisitions, Santa Fe Springs 245 acres of conservation/mitigation land, San Diego County 100 acres wetlands, Huntington Beach Avalon Canyon Road right of way acquisition, Avalon, Catalina Island Residential subdivision land for mitigation/low-cost housing, Avalon H.U.D Apartment Project, Downey 12 -acre vineyard and residence, Bel -Air Dana Point Yacht Club, fair market rent Newport Beach Tennis Club Lyon Copley Corona Association — 950 -acre planned unit community Port of San Pedro, Terminal and Wharf Facility, leasehold interest Properties with soils, subsidence or construction defects issues in Southern California Fair rental land valuations in Marina del Rey Mt. Ada/Wrigley Estate (Catalina Island) — eleemosynary valuation Clients — Attorneys & Corporations (Partial List): Anglin, Flewelling, Rasmussen, Campbell & Trytten, LLP — John Anglin Ardell Investment Company Ayres Hotels The Bixby Ranch Company Barger & Wolen — Don Adkinson Borchard Redhill, LP Curci Companies Endangered Habitat League Greenberg Traurig, LLP — Cris K. O'Neall Hines Hampton LLP — Brian Pelanda, Nicole Hampton The Irvine Company Jeffer Mangels Butler & Mitchell LLP - Gordon A. Schaller Kasdan Lippsmith Weber Turner, LLP — Celene S. Chan The Kilroy Realty Corporation La Jolla Bank Lanphere Law Group — Michael A. Lanphere Nossaman, Guthner, Knox & Elliott — Alvin S. Kaufer, James C. Powers Michael D. May — Attorney at Law Mira Mesa Shopping Centers Munger, Tolles & Olson LLP — Richard Volpert, Attorney Murphy & Evertz — John Murphy, Jennifer Dienhart, Attorneys O'Hara & Greco — Thomas A. Greco, Attorney Palmieri, Tyler, Wiener, Whilhelm & Waldron — Michael H. Leifer The Santa Catalina Island Company Rutan & Tucker, LLP — Stephen A. Ellis Southern California Edison Company Stephens Friedland LLP — Todd Friedland Waldron & Bragg, LLP — Gary Waldron, John Olson 16-171 Qualifications of Casey O. Jones, MAI Page 4 Clients — Public Agencies, Governmental (Partial List): Capistrano Unified School District City of Long Beach City of Newport Beach City of San Juan Capistrano County of Orange County of Los Angeles Beaches and Harbors County of Los Angeles Board of Harbor Commissioners Orange County Transportation Authority (OCTA) San Bernardino Associated Governments (SANBAG) Santa Margarita Water District State of California Department of Transportation (Caltrans) State of Nevada Department of Transportation (NDOT) University of California (Updated 8/17) 16-172