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HomeMy WebLinkAboutI-4 - Basin Marine, Inc. LeaseCITY OF NEWPORT BEACH Marine Department January 28, 1985 TO: MAYOR AND CITY COUNCIL FROM: Marine Director SUBJECT: BASIN MARINE, INC.: LEASE Recommendation: 0s) q_Z_C AGENDA ITEM NO.: -`/p--- 61) BY THE CITY COUNCIL CITY OF NEWPORT BEACH .JAN 2 8 1985 447L-LL�lrte, 2 -// 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 2of2 ------------------- 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