To: Mayor and City Council

From: City Staff

Subject: Proposed Revised Guidelines for Leasehold Management of City-Owned Properties in the Bayside District

Introduction

This report recommends that Council approve the proposed revised guidelines for leasehold management of City-owned property located in the Bayside District.

Background

The City of Santa Monica owns various parcels and sites of commercial real estate not currently needed or in use for municipal purposes. These properties become periodically available for leasehold occupancy and are currently in use for a variety of commercial and community-serving purposes. Economic Development Division staff has been delegated to act on behalf of the City to solicit interest in prospective commercial leasing and licensing opportunities for these public properties in the Bayside District, which include City-owned rights-of-way in use pursuant to outdoor dining licenses and vending cart concessions, kiosks on Third Street Promenade, and commercial spaces within Parking Structures #5 and 6.

Staff had generally utilized leasing guidelines established in 1986 to solicit and manage tenancies and licenses in the downtown area for purposes that provide community-based services to residents and visitors that may otherwise be absent from the Bayside District due to high commercial rental rates. Examples of these service occupancies are Emeritus College, Willie & Gloria’s salon, Dance Doctor, and Pete the Barber.

At the direction of Council, staff prepared Bayside District Leasing Guidelines setting forth the standards and methodologies governing preferred uses, advertising, marketing and tenant selection for the City’s limited real estate assets in the downtown area. Leasing Guideline objectives approved by Council in December 2000 are threefold:

· To maintain the compatibility of use of City-owned properties and public rights-of-way for purposes which contribute to pedestrian orientation, outdoor dining and neighborhood services

· To establish and implement procedures for managing and preserving the preferred uses of City-owned properties

· To assure access and use of these properties by the general public for the preferred uses through a leasing and licensing program that promotes orderly and periodic changes in tenancies

In an effort to counterbalance the decline in restaurants and the conversion of Third Street Promenade frontage into retail uses that may impair the character of the Promenade and weaken its desirability as a commercial destination, Council established a Promenade Uses Task Force to consider the relevant issues and make recommendations on strategies to preserve an appropriate mix of uses on the Promenade. The Task Force concluded its work in March 2003. It recommends that the City place an emphasis on the leasing and licensing of its properties and rights-of-way to non-formula commercial operations, restaurants and cafes that would provide diverse, affordable dining opportunities and community-serving retail activities along the Promenade and elsewhere in the downtown area.

Discussion

This report recommends certain modifications and additions to the existing Bayside Leasing Guidelines. The revised Leasing Guidelines were reviewed with the Bayside District Corporation Land & Asset Committee on June 10, 2003, and approved by the Board of Directors at its meeting held June 26, 2003. Significant proposed modifications from the guidelines previously approved by Council are summarized as follows:

• Preferred Uses: To compensate for the decline in the number of restaurants and the loss of outdoor dining along the Promenade, the Guidelines will reflect a change in preferred use for the Promenade kiosks from retail/community-serving uses to restaurant and café uses with outdoor dining; provided, however, that the current retail kiosk tenant be prospectively accommodated in mutually acceptable lease premises at commercially reasonable terms and conditions. Additional preferences for food uses will be extended to non-formula restaurants or cafes that will cumulatively provide for diverse food and beverage offerings, price points, hours of operation, aesthetic ambiance and any other factors deemed to enhance the character and pedestrian orientation of the Promenade.

The Vending Cart Program will be expanded to include new vending locations along the Transit Mall and other feasible downtown sites subject to further Council action, and will emphasize accommodation of incidental food and beverage vending that minimizes duplication of existing restaurant offerings, handmade arts and craft carts, and incidental goods and services. The Third Street Promenade Vending Cart Program will be modified to specify that products and merchandise offered shall be dedicated to unique and genuine handmade arts and crafts that reflect creativity, a local or regional identity and/or cultural diversity and are not otherwise available on the Promenade. The Preferred Uses will be phased in as the current leases and licenses expire.

• Local Preference: The leasing and licensing of all City-owned properties and rights-of-way within Bayside District will be subject to a preference for local independent, non-formula businesses and community services that are financially and operationally capable of providing the preferred uses. Such preference will be reflected in bonus ratings for responses received from non-formula independent businesses as part of the public tenant recruitment process. A formula business is defined as a business headquartered outside the City of Santa Monica that requires by contractual or other arrangement the maintenance of standardized service, décor, uniforms, facility design and format substantially identical to another operation.

• Renewal Options: Outdoor Dining license renewals or re-issuance will be extended to existing restaurants and cafes in good standing. Good standing shall mean the licensee has operated the premises in accordance with its license agreement and in a manner that encourages its use by pedestrians consistent with the Bayside Specific Plan, including but not limited to all zoning, design and operational standards established for the Bayside District.

• Labor Peace: Because the City has a financial or proprietary interest in the businesses operating from its leaseholds, some of which are in industries that have a history of labor/management conflict, the risk of interruption of rental revenue received by the City would be minimized if such businesses were assured of labor peace. An appropriate labor peace provision for businesses engaged in visitor-serving commercial activities would minimize the City’s exposure to revenue interruption and disruption of public enjoyment of the Promenade and Bayside District. New or substantially amended agreements for leasehold operation shall provide that the tenant will not engage in practices that impede employees’ ability to organize and contract with a labor organization for the purpose of collective bargaining. Such prohibited practices include harassment, intimidation, “captive audience” anti-union meetings or illegal terminations of workers in retaliation for organizing. A substantial amendment is defined as a change of use of the property, an increase in seating or square footage of more than 25%, or an extension of lease duration. Tenant engagement in prohibited practices shall constitute an event of default under the terms of lease. Affected leases would be those businesses having five or more full or part-time employees and engage in restaurant or visitor-serving activities.

Budget/Financial Impact

Anticipated revenue from leases and licenses of City-owned properties within the Bayside District based upon the proposed Leasing Guidelines is a part of the fiscal year 2003-04 budget. Approval of the proposed revised Leasing Guidelines will not affect the budgeted amount.

Recommendation

Staff recommends that City Council approve the revised Bayside District Leasing Guidelines, and that the City Manager be authorized to implement the Leasing Guidelines as approved.

Prepared by: Jeff Mathieu, Director of Resource Management

Mark Richter, Economic Development Manager

Elana Buegoff, Senior Administrative Analyst

Attachment A: Bayside District Leasing Guidelines (June 2003)