City Council Meeting:
Agenda Item: 1-M
To: Mayor and City Council
From:
Subject: Authorization to submit a request to the
State of
Recommended
Action
Staff recommends that the City Council authorize
staff to submit a request to the State of
Executive
Summary
The Annenberg Community Beach Club will open to the
public early in 2009. The project
retains the existing beach café, currently operated as “Back on the Beach”. With the redevelopment of the site, staff is
proposing to update and expand concession services to include to-go food
service and beach equipment rentals as described in the approved project
design, and possibly seasonal mobile food cart services. In accordance with state law, the City must
request approval of the proposed minimum bid requirements prior to issuing a
Request for Proposals (RFP) for this concession. Additionally, the State Parks and Recreation
Commission will be required to approve the proposed concession and sale of beer
and wine at this location. Staff is
proposing minimum rental bids of $100,000 per year or 10% of gross receipts, whichever
is greater. The proposed contract term
is up to ten years. At a minimum, these
terms will maintain current revenues to the City.
Discussion
Background
The restaurant at 415 PCH (currently known as “Back on the Beach”)
is operated by Fred Deni under a 1991 Management Agreement with a
month-to-month term. Current annual rent
is $4,000 per year or 10% of gross receipts, whichever is greater. Average annual rent to the City over the last
four years is approximately $100,000.
With the
redevelopment of the site and to ensure a full range of visitor services, the
concessions for the site include not only the retention of sit-down food
service at the beach café but also take-out service, rental of beach equipment,
and possibly mobile food cart service during peak hours of public use. The new concessionaire will be selected through
an RFP process in accordance with State and City laws and ordinances. Minimum bid requirements must be approved by
the State Legislature. Requests for such approval must be submitted one year
prior to approval. Consequently, the
City must submit its request to the State one year prior to finalization of the
concession contract.
Proposed Terms
In an effort to determine a rental structure
that will generate a reasonable level of revenue to the City, as well as
encourage a variety of high-quality food and services to beach visitors, staff
collected data from a number of other state, city, and county beach concessions.
Rental rates for food service, equipment
rental, and/or retail sales concessions on state beaches range from 7-20% of
gross sales (Attachment 1). Rental rates for restaurant leases on the
Santa Monica Pier typically range from 6-8%s.
The recent minimum rental bid for the City’s other beach concessions was
$100,000 per year or 10% of annual gross receipts. The selected bidder was $150,000 per year or
15% of annual gross receipts.
State law requires that the
rental requirement for concession contracts be the greater of a flat rate or a
percentage of gross receipts. In
addition, beach concession
contracts frequently provide a different percentage rental structure for
different profit centers. For this
concession, staff propose a minimum rental bid
requirement of $100,000 per year or 10% of gross receipts and that proposers
be invited to bid a different percentage rent for each profit center: sit-down
food service, to-go food service, equipment rentals, and mobile food service.
For example, the winning proposer may bid 10%
of gross receipts from sit-down food service, but due to the profit margin, may
bid 25% of gross receipts from equipment rentals and 15% of gross receipts for to-go
food services. In this scenario, gross
receipts will be reported to the City by profit center and rent paid based on
the corresponding percentage.
Lease Term
Lease terms for state park concession stands
are generally five to ten years. The
recently bid concession contract for the beach stands (Perry’s) is for a five
year term plus one five year extension option. Lease terms for the Santa Monica Pier as
specified in the Pier Leasing Guidelines approved by Council in August 2006
include a five-year term except in cases where a capital investment is required.
In those cases, terms of 10-25 years are
negotiated, depending on the amount of investment and time required for
amortization.
The proposed term for this concession is up
to ten years, bid as a term of five years with one five year extension
option. This proposal is based on lease
terms for comparable beach concession agreements and standards for state
concession operations. Depending on the
capital improvements proposed by the winning bidder, a term of ten years with
no extension option may be negotiated to provide the operator sufficient time
to amortize the investment.
Previous Council Actions
On February
28, 2006, the City Council reviewed and approved the refined schematic
design plans including the retention of the existing restaurant, incorporation
of a take out window, and a new concession building for beach rentals at the
north end of the site. On May
25, 2006, the City Council denied appeals of the Planning Commission and
Landmarks Commission actions; certified the Final EIR; and approved the
Development Review Permit, Reduced Parking Permit, Fence/Wall height
modification, and Certificate of Appropriateness for the Project. On September
12, 2006 the City Council approved terms of the settlement agreement with
project neighbors and on September
26, 2006 the City Council adopted a resolution expressing its intentions as
to the duration of certain Project Conditions of Approval as agreed upon in the
approved settlement agreement. On January
23, 2007, the City Council approved activation of phase two of Design-Build
contract for adaptive reuse of
On July
22, 2003, the City Council approved minimum bid requirements for the four beach
stand concessions on
Budget/Financial Impact
Over the last four years, gross sales at the Back on the Beach Café have
ranged from a high of $1,040,881 in FY 04-05 to a low of $990,229 in FY 03-04
with a four-year average of $1,007,064.
It is anticipated that gross sales at the restaurant will rise following
the redevelopment and adaptive reuse of the site and the resulting increase in
public usage. The addition of other
contract opportunities such as beach rentals will further increase gross sales.
Average return in the form of rent is currently $100,888 per year to the
Beach Fund. Therefore, if the selected
operator were able to pay the minimum flat rent only, the annual revenue to the
Beach Fund of $100,000 would be retained.
However, conservative revenue projections for the Annenberg Community
Beach Club include approximately $175,000 a year in rental revenue from the
restaurant concession. Revenue estimates
will be refined for the FY 08/09 City budget and as a result of final
negotiations with the selected concessionaire.
Next Steps
Following approval by Council, a request to the State for minimum
bid requirements will be submitted in August 2007. If accepted by the State, it will be
forwarded to the State Legislature for consideration in the FY 08/09
budget. Prior to bidding the contract, the
State Park and Recreation Commission must approve the proposed concession and
the sale of alcohol. It is anticipated
that this request will be presented to the Commission in August 2007.
Prior to development of an RFP, staff will request direction from
Council regarding proposal evaluation criteria, specifically in regard to local
and small businesses. Following approval
of the proposal evaluation criteria, staff will prepare an RFP for issuance in
early 2008. A contract award recommendation
will be forwarded to the City Council for consideration in the summer of
2008. Final contract execution will be
dependent on approval of minimum bid requirements by the State Legislature in
July 2008. Contract implementation will begin in August
2008 to provide the approved concessionaire ample time to initiate capital
improvements and hire and train staff prior to the planned opening of the Annenberg
Community Beach Club to the public in January 2009.
Prepared by:
Callie Hurd,
Open Space Manager
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Approved: |
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Forwarded to Council: |
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Barbara Stinchfield Director,
Community & Cultural Services |
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P. City Manager |