HomeMy WebLinkAbout01.28.1985 Item #I-4CITY OF NEWPORT BEACH
Marine Department
January 28, 1985
TO: MAYOR AND CITY COUNCIL
FROM: Marine Director
SUBJECT: BASIN MARINE, INC.: LEASE
Recommendation:
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AGENDA ITEM NO.: -`/p--- 61)
BY THE CITY COUNCIL
CITY OF NEWPORT BEACH
.JAN 2 8 1985
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If desired, authorize the Mayor and City Clerk to execute the
attached lease with Basin Marine, Inc.
Background:
Mr. David L. New, president of Basin Marine, Inc., by a letter in
August of 1981, requested that the City Council allow staff to commence
lease negotations for the purpose of entering into a new lease with
Basin Marine Shipyard. The existing City lease with Basin Marine
Shipyard expires on December 31, 1987.
George Hamilton Jones, Inc., appraisal consultants of Newport Beach,
were retained by the City of Newport Beach to appraise the Basin % rine
Shipyard site in January of 1982. The appraisal was completed on
March 15, 1982 and recommended that the minimum rent be increased
from $12,600 a year to $26,400 per year, and that a percentage rental
schedule be established as follows:
1. 4% of the lessee's gross receipts from labor, service and
materials (represents no change from existing lease).
2. 10% of lessee's net income from outside labor (represents
no change from existing lease).
3. 5% of lessee's gross of hardware sales, exclusive of internal
sales (represents increase from 4%).
The above rental value estimate is premised upon a lease term extending
the existing lease approximately 25 years from the March 15, 1982 date
of value.
Expanded Lease Site:
The City of Newport Beach was scheduled to begin renovation of Balboa
Yacht Basin in September of 1983. However, reconstruction was postponed
for one year until September of 1984, to allow the City's consulting
engineer more time to develop final design plans for the marina and to
incorporate and interface Basin Marine Shipyard improvements with the marina.
Page 2
It was determined, with input from the Tideland Affairs Committee and
authorization from the City Council, that the Basin Marine, Inc. site
be expanded and that Basin Marine be allowed to make major capital
improvements, which will include bulkheading and filling the existing
marine railway method of hauling boats out of the water, and replacing
this method with a hydrolift pier.
The lessee agreed to make.all improvements to the lease site at a cost
of $165,000 for the water site improvements and $29,189.70 for the
upland improvements. The City has included these improvements in the
contract Number 2242 with Merco Construction Co. The lessee will pay
these costs plus 5% administrative fee to the City for their admin-
istration of the contract.
Since approximately two years had elapsed since the original appraisal
of fair rental value (April 2, 1982),the City staff again requested
George H. Jones to update the fair rental value of Basin Marine, taking
into consideration the expanded site and the agreement for the lessee
to make the above mentioned improvements.
On May 2, 1984, Mr. Jones issued an update of fair rental value for
Basin Marine Inc. This appraisal is attached as Exhibit A. The
appraisal was used by the City in drafting the terms and conditions
of the attached lease that is being recommended for execution.
Proposed Lease, Terms and Conditions
The revised parcel area includes approximately 33,203 square feet of
land area plus approximately 9,074 square feet of water area (see attached
legal description and map which are depicted with the G.H. Jones update of
fair rental value and incorporated with the attached lease). The site is
proposed for total redevelopment by the combined effort of the lessor (City
of Newport Beach), and lessee (Basin Marine, Inc).
Term: The term of the lease shall be for 25 years, commencing
February 1, 1985 and ending January 31, 2010.
Rental: 1. Minimum Guaranteed Rental
Lessee agrees to pay the lessor a guaranteed minimum rental
for the use and occupancy of the leased premises. The
minimum guaranteed rental shall increase yearly during the
first four years of the lease to allow the lessee to gear up
to full operation. The minimum guaranteed rental schedule
is as follows:
a. First year: $33,000 per year
b. Second year: $36,000 per year
c. Third year: $40,000 per year
d. Fourth year: $45,000 per year.
Page 3
2. Adjustments to Minimum Guaranteed Rental
The minimum rental shall be adjusted on the eighth
year of this lease and every four years thereafter
to reflect increases or decreases in the U.S. Department
of Labor Consumer Price Index.
3. Percentage Rental
In addition to the Minimum Guaranteed Rent, the lessee
shall pay to the City a percentage of their gross sales
and labor as follows:
a. 4% of lessee's gross receipts from labor, service,
and material in the operation of the shipyard and
boat repair facility.
b. 10% of the lessee's net income from outside labor.
c. 5% of lessee's gross on boat equipment and/or
hardware sales exclusive of internal sales to
shipyard boat repair business of lessee.
4. Adjustments to Percentage Rental
The City reserves the right to adjust the Percentage
Rental schedule in the event that such increases are,
in the opinion of a qualified appraiser, necessary to
ensure that the rents due under this lease accurately
reflect the fair market value of the leased premises.
Any appraisal shall evaluate the fair rental value
of the leased premises, assuming that the primary
use of the property, is restricted to that of a boat
repair facility with the sale of new and used boats,
marine equipment and marine hardware permitted
incidental to the primary use of a shipyard. Percentage
Rental adjustments shall be no more frequent than
every 10 years from the date of the lease.
Improvement to Leased Premises:
Basin Marine, Inc. understands that the City is in the process of
constructing major improvements to the marina. The existing ship-
yard is in need of certain repairs and improvements, some of which
can be constructed as part of the renovation of the marina. These
repairs and improvements to the shipyard can be completed more
quickly and more economically if incorporated into the reconstruction
project underway by the City. In consideration of the commitment
of the City to lease the premises, the lessee has agreed to pay
to the City the actual costs incurred by the City in constructing
all water site improvements and the concrete sheet pile bulkhead
and related work necessary to enclose the existing marine ways.
Page 4
The total cost to the lessee for these improvements are $194,189.70,
plus a 5% administrative fee for the City's administration of the
contract with Merco Construction Co. The lessee will pay 50%
of these total costs concurrently with the execution of this lease,
and the remainder within 30 days after receipt of notice that the
improvements have been completed.
Other Lease Conditions:
The remaining conditions of the lease are considered typical.
Lease negotiations were conducted by the City Attorney and Marine Director
in conjunction with a Public Works Project Engineer for assistance in
interfacing the described lease site improvements with the City Marina
contract.
David Harshbarger
Marine Director
Attachments
Exhibit A - G.H. Jones appraisal
Exhibit B - Lease (Council only)
Exhibit A
GEORGE HAMILTON STONES, INC.
APPRAISAL CONSULTANTS
GEORGE HAMILTON JONES, M.A.I. 717 LIDO PARK DRIVE
WILLIAM R. HANSEN NEWPORT BEACH, CALIFORNIA 92663
RUSSELL C. BARON
NANCY M. MUELLER, M.A.1
May 2, 1984
Mr. David Harshbarger
Marine Director
City of Newport Beach
3300 Newport Boulevard
Newport Beach, California 92663
Dear Mr. Harshbarger:
Re: Update of the
Fair Rental Value
Basin Marine
OFFICE TELEPHONE
(714) 673-6733
In accordance with your request and authorization by letter
dated February 15, 1984, we have examined the Basin Marine pro-
perty located at 829 Harbor Island Drive for the purpose of up-
dating our original appraisal report dated April 2, 1982.
The date of value for this appraisal is April 18, 1984.
This letter report is supplemental to and made a part of our
original appraisal report dated April 2, 1982. Premises, limit-
ing conditions, descriptions, exhibits, data, analysis and com-
putations which also form, in part, the basis of our conclusions
are contained in the original report.
We have updated our survey information regarding rental paid
by other boat repair facilities as well as our estimate of econ-
nomic return to underlying land value. The survey data suggested
no change from our prior report in percentage rent categories.
However, the subject land area has been significantly expanded in
comparison to the basis of our original appraisal. We have
therefore revised our estimate of minimum rent to reflect the
larger site area as well as reflecting the site improvement ob-
ligations of both the lessor and lessee.
The revised parcel area (see attached legal description and
map) includes approximately 33,203 square feet of land area plus
about 9,074 square feet of water area. This site is proposed for
total redevelopment by the combined effort of lessor and lessee.
The lessor (City) is to reconstruct the bulkhead in contemplation
of a new travelift boat haulout system. The lessee ( Basin
Marine) proposes to redevelop the site including removal of the
existing track systems, shop area and filling the ways area as
well as remodeling and adding to the marine hardware store and
offices.
5-
6
Mr. David Harshbarger
Page Two
May 2, 1984
Because the survey data involved finished sites, we have
adjusted for the lessee obligations to prepare the subject to an
equivalent finished site. It is our understanding that the les-
see will participate in the bulkhead construction and in the
block wall to be located along the west property line. Cost in-
formation provided by the City indicated the following:
Bulkhead (south property line) :
City: $47,000
Basin Marine: 14,000
Total: $61,000
Block Wall (west property line) :
City: $ 7,000
Basin Marine: 7,000
Total: $14,000
No cost information was available concerning the removal of
the trackage and shop building or the filling of the ways. It is
our judgment that the total site development cost (i.e. to ach-
ieve a "finished site" ready for improvement) including bulkhead
and wall construction, removal of shop building and trackage and
filling ways as well as associated indirect costs would not ex-
ceed $35,000.
In our original report we estimated the contributory value
of the marine hardware store to be about $35,000. Therefore, for
the purpose of this analysis, we have considered the obligations
of the lessee to prepare the subject parcel to an equivalent fin-
ished site to be offset by the contributory value of the hardware
store.
As indicated in our original appraisal, the subject site,
although having a direct waterfronting location, has an economic
value (reflecting the lease use restriction) more directly as-
sociated with industrial land value. Based upon the restricted
use we have judged the property to have a base economic value to
be within the range of $12 to $15/square foot.
61
Mr. David Harshbarger
Page Three
May 2, 1984
Additionally, we have estimated the water area to contribute
approximately 25% to the upland value. Utilizing an economic
rent (or return on land value) of 9$ of the site value, the in-
dicated rental value is computed as follows:
32,970 sq. ft. @
$12 to $15/sq. ft. _ $398,436 to $498,045
8,600 sq. ft. @
25% of $12 to $15/sq. ft. = 27,222 to 34,028
$425,658 to $532,673
9% of $425,658 to $532,073 = $38,309 to $47,887/year
From the above combined with our knowledge of specific lease
information and other pertinent data, the indicated rental value
of the property (as restricted in use) is approximately
$45,000/year.
The historical income and rent paid under the existing lease
agreement between the City and Basin Marine is summarized below.
The existing lease rental is based upon a minimum of $1,050/
month vs. 4% of lessee's gross receipts from labor, service,
materials and hardware, and 10% of lessee's income from outside
labor. However, the above income and rent was produced within a
site area (including water) of about 22,000 square feet which is
only 53% of total site area of the expanded site (i.e. 33,203
square feet of land plus 9,074 square feet of water) .
% Rent
Minimum
Total
Year
Gross Income
Overa e
Rent
Rent
1980
$
582,414
$ 11,766
$
12,600
$
24,366
1981
$
679,152
$ 16,715
$
12,600
$
29,315
1982
$
693,975
$ 16,381
$
12,600
$
28,981
1983
$
786,090
$ 20,890
$
12,600
$
33,490
The existing lease rental is based upon a minimum of $1,050/
month vs. 4% of lessee's gross receipts from labor, service,
materials and hardware, and 10% of lessee's income from outside
labor. However, the above income and rent was produced within a
site area (including water) of about 22,000 square feet which is
only 53% of total site area of the expanded site (i.e. 33,203
square feet of land plus 9,074 square feet of water) .
Mr. David Harshbarger
Page Four
May 2, 1984
Because the calculated land rent is in excess of the econ-
omic rent production based upon historical gross, it is our op-
inion that step-up minimum rent over the first 3 years of oper-
ration is appropriate. The step-up minimum prov-ides the lessee
time to establish the level of gross income necessary to function
in an economically feasible manner. The City is protected by its
percentage rent participation.
As a result of our investigation and analysis as briefly
summarized above we have formed the following opinion of fair
rental vaue.
Minimum Rent:
Year 1 $ 33,000/yr. or $2,750/month
Year 2 $ 36,000/yr. or $3,000/month
Year 3 $ 40,000/yr. or $3,333/month
Year 4 and thereafter $ 45,000/yr. or $3,750/month
Percentage Rent;
1) 4% of Lessee's gross receipts from labor, service
and materials.
2) 10% of Lessee's net income from outside labor.
3) 5% of Lessee's gross on hardware sales, exclusive
of internal sales.
The above fair rental value estimate is premised upon a
lease term extending approximately 25 years from date of value.
Additionally, most leases provide for periodic adjustment of
minimum rent and review of percentage rents. Typically, minimum
rent is adjusted based upon a proportionate increase in an index
(such as the Consumer Price Index) with an adjustment period of
about every 5 years. Percentage rents and minimum rent are re-
valued or reappraised within 10 to 20 year periods depending on
the total lease term and other conditions. Within our files we
have samples of various types of rental adjustment clauses which
we can discuss with you at your convenience.
19
Mr. David Harshbarger
Page Five
May 2, 1984
Should you require clarification or additional information
please do not hesitate to call.
Enclosures
0
Respectfully
BALBOA YACHT BASIN BOAT YARD LEASE
PARCEL 2
A parcel of land situated in the northwest quarter of Section 35,
Township 6 South, Range 10 West, S. B. B. & M., Orange County,
California, more particularly described as follows:
Beginning at point "A" as described in Parcel 1 above; thence
S 00 54' 02" W 70.00 feet to a Tine parallel with and 70.00 feet
measured at right angles from said U.S. Bulkhead line as de-
scribed in Parcel 1 above; thence N 890 05' 58" W 129.63 feet
along said parallel line; thence N 00 54' 02" E 70.00 feet to
said Bulkhead line; thence S 890 05' 58" E 129.63 feet along said
Bulkhead line to the Point of Beginning.
5/i/84
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CITY OF NEWPORT BEACH DRAW" iV-ft DATE- -
PUBLIC WORKS DEPARTMENT APPROVED
epi L $Oq Y.d G'f� T Fj,d 5/,v Puetic WORKS DIRECTOR
Yo -4 ,OO L E.1�9/C R_E. NO.
DRAWING