HomeMy WebLinkAboutSupplemental Information Received after Posting of Agenda - Item DMarch 12, 2018
Dear City Council Members,
My name is Dan Parker and I'm president of Parker & Associates, Inc.
which specializes in shopping center retail and restaurant leasing as
well as acquisitions and sales. Over the last 30 years, I've personally
specialized in the representation of commercial landlords, retailers and
restauranteurs.
I've been asked to review the proposed lease by some residents of Seal
Beach and would like to share my alarming findings with all of you on
City Council.
Clearly, the proposed lease falls well outside the industry norm of a
market lease. In chronological order of the lease, I would like to point
out some of those items.
Page 1 E outlines the tenants rights to the premises, the public
restrooms and the public parking area. In most commercial leases,
especially in the instance where a tenant is in a free standing building,
the tenant would be responsible for ALL aspects of maintaining not only
the premises, but all of the costs relating to the common areas as well,
i.e. the parking lot, outside lighting, insurance, landscape, restrooms
and security staff if need. The outside area and building structure would
be controlled by the landlord or in this case the city and then billed back
to the tenant for those costs plus the supervision of same. There is NO
recapture of the majority of those related costs in the lease. Also, NO
reference is made regarding who cleans the toilets, mops the floors
and wipes the sinks and counters. Additionally, there is no reference
regarding who will clean the surroundings of the restroom area. Most
restaurants are required and have the regimen of a scheduled
maintenance throughout the day. The anticipated use of the restrooms
will be high. The related costs for proper maintenance is significant and
the guidelines for such should be rigid.
Page 1.2 The tenant is seeking a liquor license, which by its nature will
intensify the property use.
Page 1.3 The City should maintain control of the parking lot, and the
Base building. Any costs associated with building or property should be
reimbursed by the tenant to the city. Tenant should be required to show
and maintain throughout its lease a HVAC contract which would
regularly service and /or if needed, replace the unit when needed.
Currently the proposed lease gives up the cities control.
Page 2, 2.2 This clause outlines a base rent without any recapture of
the common area costs i.e. insurance, utilities, maintenance, etc. The
fixed increases are substandard and should fall at it's best, no less than
a fixed annual 3 % increase throughout the primary term and option
thereafter or CPI which ever is greater. Additionally, most restaurants
have a percentage against gross sales lease that shares gross
revenues with the landlord /city over a natural break point. This lease is
completely absent of any percentage against gross sales clause. Also,
this particular paragraph is absent to the "greater of language between
(i) and (ii). This entire clause should be rewritten. The base rent for this
facility appears low and I find it interesting that the overall rent now is
less then the prior occupant. Yet, the economy is up and the demand is
very high for freestanding coastal restaurants.
Page 3, 2.4 The proposed lease shows the tenant only paying for the
utilities of the premises. The tenant should be paying for all the costs
related to the premises and all the in common areas including utilities.
Page 3, 2.5 Currently the tenant would be paying $6,700.00 for the
security deposit, which is equal to the first month's rent. Industry
standard is more in the realm of 115 % of the last month's rent plus the
projected triple net charge.
Page 3, 3.1 Currently, the proposed lease is giving 20 years with two
options. The first option is for five years and the second option term is
unclear because it ties to the underlining Tidelands ground lease.
Although in 4.1 that extension is anticipated to be 30 years, it could be
argued that the Second option does not expire until what ever term the
city is able to negotiate with the state on an ongoing basis. This lease
could go on forever! A total commitment from the city of 30 years plus,
is ridiculous to say the least. For a qualified tenant, the industry
standard would fall more toward a five or ten year lease with possibly a
five year option. The term and option, are generally determined by the
strength and history of the tenant. Without each of those, many
landlords don't offer an option to extend, thus providing the ability for
the landlord /City to reevaluate the tenant and its past behavior after the
primary term the lease.
The tenant's financial commitment to the facility is nonexistent. Most
landlords would require seeing a budget, financial commitment, a
approved build out plan, and lien releases upon completion, as a part of
the consideration for entering into a lease.
Page 5, 4.2 1 would highly recommend that the city engages in it's
representation by a commercial brokerage company with experience in
restaurant and retail leases.
Page 5, 6.3 City is being held responsible for repairing the parking lot,
and the structural portions of the premises. Again, maintenance costs
should be recaptured from the tenant. At a minimum, the tenant would
be responsible for its pro rata share.
No hours of operation have been stipulated in the lease, which should
raise a big red flag to the city. With no limit to the hours of operation,
the requested liquor license and given the potential intensification of the
use, a reasonable person can only assume a future bar atmosphere
with little limits or controls and to how it will negatively impact the
surrounding neighborhood.
No square footage for the premises or patio area is shown in the lease.
This is very irregular and and the areas should be clearly defined in the
lease both numerically and shown as an exhibit.
It is normally the responsibility of the tenant to install a grease trap
interceptor which usually cost in the neighborhood of $15- $20,000. In
this agreement this city will be footing the bill for a tenant improvement.
Today, I checked Loop Net to see if there was any reference to this
address and none existed. I also never saw the premises being
marketed in California Centers Magazine or any other trade publications.
I'm most confident, that should there have been more aggressive
marketing, the city would've had higher offers submitted for their review.
Page 6 6.10 Given the potential change of the use, hours as reference
above and then overlapping special events that technically can happen
every night, the overall environment for this facility and it's surroundings
could change radically for the worse. In no event should a special
function or event cause the maximum occupancy to exceed that which
is required to be posted on site.
It is my strong recommendation that the City Council review and amend
all of these and other items shown in the proposed "Facility Lease" that
may be detrimental to the general public and the surrounding
neighborhood more closely.
Should any of you like to meet or call me, I would be happy to lend my
years of experience in aiding you in your decision.
Sincer
Dan Parker, President
t
Parker & Associates, Inc. 949 -916 8304