AIRPORT COMMISSION RESPONSE TO STAFF’S LEASING GUIDELINES

TO:Madame Mayor and Council Members

FROM: David Goddard

EXECUTIVE SUMMARY

· The staff Leasing Guidelines have not been provided to the Airport Commission for review.

· The Airport Commission recommended a leasing policy, not renewing leases while our federal obligations are still outstanding.

· There is no urgent financial need to renew aviation leases or any leases. Leases can go month-to-month.

· After July 1, 2015, there is no Federal Obligation to lease to aviation tenants.

· The best leasing alternatives are: 1) implement a LMSD leasing policy now and after July 1, 2015, renew compliant leases at market rates; or 2) after July 1, 2015, renew leases month-to-month at market rates.

AIRPORT COMMISSION RECOMMENDATION

The Santa Monica Airport Leasing Guidelines Memo by staff concludes that the Airport Commission did not provide a formal recommendation or feedback regarding these guidelines. The Airport Commission was not provided with the staff memo or the guidelines. It was only presented a summary Powerpoint presentation. The commissioners commented that the summary presentation was inconsistent with the City Council’s direction to staff in the March 25, 2014 meeting.

If the City Council would like the Airport Commission’s recommendation, please direct staff to submit the guidelines to the Airport Commission.

OVERALL INCREASE IN RENT REVENUE WITHOUT AVIATION TENANTS

When the AVIATION leases expire on July 1, 2015, the subtenant leases will revert to the City. On only three non-aviation sub-tenants leases at market rental rates, the rent revenue will increase by $2.2 million per year:

Rent Leased

VW $1,566,000 $43,500

Milstein $439,000 $12,200

Fireman’s Fund $293,000 $8,150

————— ———

$2,244,000 63,850

The aviation tenants only pay rent revenue of $1.2 million per year, which means the City rent revenue will increase by a net $1 million on just 3 subtenants with no aviation tenants.

Rent Leased

Aviation Tenants $1,200,000 $1,672,820

There are other existing sub-tenants with non-aviation uses whose market rate rent will go directly to the city which I estimate will increase the City rent revenue by over 200% per year with NO AVIATION TENANTS.

Therefore, there will be no negative financial impact from not renewing aviation leases and more importantly, there is no financial urgency to renew any lease before our Federal Leasing Obligation expires on July 1, 2015.

LEASING OBLIGATIONS

The Airport Commission recommended a leasing policy based upon a Light Manufacturing and Studio District (LMSD) zoning. The staff report says it doubts the LMSD policy will satisfy the City’s current federal obligations.

The staff’s response fails to identify which “federal obligations”, i.e., agreement/provision, would be unsatisfied and what it means by “current”, i.e., now or after July 1, 2015 when the City’s federal leasing obligation expires and the proposed LMSD leasing policy will take effect.

1948 Instrument of Transfer. There is no leasing requirement in the 1948 IOT. There is only a requirement to operate a runway and to not grant exclusive rights to an operator at the airport.

1984 Santa Monica Airport Agreement. There is a leasing requirement in the 1984 Agreement which expires on July 1, 2015 so no new lease should be executed until after its expiration.

1994 Grant Agreement. There is no leasing requirement in the 1994 Grant Agreement which expired on June 29, 2014. There is only a requirement to operate a runway and to not discriminate against different classes of aeronautical users. Although this agreement expired, for the sake of this analysis, let’s assume it operates.

So after July 1, 2015, there are no federal leasing obligations, just the following requirements:

1. Operate a runway on the 1948 IOT Parcel.

2. To not grant exclusive rights to an operator at the airport.

3. To not discriminate against any class of aeronautical users. – IT IS IMPORTANT TO NOT RENEW ANY AVIATION LEASE BECAUSE IF YOU RENEW ONE, YOU HAVE TO RENEW ALL AVIATION LEASES OTHERWISE THE CITY WILL BE DISCRIMINATING AGAINST A CLASS OF AERONAUTICAL USERS.

There is no remaining requirement to lease space to aviation tenants. If staff believes there is an obligation, please request that they identify which provision requires the City to lease to aviation tenants.

LEASING ALTERNATIVES

After July 1, 2015, the City can:

1. Terminate all leases.

2. Renew all leases on a month-to-month basis at market rates.

3. Adopt a LMSD leasing policy (now) to avoid discrimination claims and renew compliant leases at market rates (after July 1, 2015) (airport commission recommendation).

4. Renew aviation and non-aviation leases at market rates (staff recommendation).

Option 1 is financially undesirable.

Option 2 and 4 are financially desirable but environmentally undesirable.

Option 3 is both financially and environmentally desirable.

If Option 3 cannot be achieved, then Option 2 is significantly better than Option 4 because it provides the future flexibility to achieve Option 3 when any federal obligations have expired.

CONCLUSION

· There is no urgent financial need to renew aviation leases or any leases.

· After July 1, 2015, there is no Federal Obligation to rent to aviation tenants.

· The best leasing alternatives are: 1) implement a LMSD leasing policy now and after July 1, 2015, renew compliant leases at market rates; or 2) after July 1, 2015, renew leases month-to-month at market rates.

FROM: DAVID GODDARD

Leave a Reply

Your email address will not be published. Required fields are marked *