Cathedral City Downtown Foundation
MEETING DATE: 4/13/2016
TITLE:
Title
Amendments to Commercial Lease Agreements with Bonta Restaurant and Taqueria Los Arcos
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FROM:
Curt Watts, Economic Development Director
RECOMMENDATION:
Recommendation
Staff recommends that the City Council acting as the Cathedral City Downtown Foundation authorize the Executive Director to execute proposed amendments to existing Commercial Lease Agreements with Bonta Restaurant located at 68-510 East Palm Canyon Drive, Space 140; and with Taqueria Los Arcos located at 68-510 East Palm Canyon Drive, Space 120.
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BACKGROUND:
Two commercial spaces located at 68-510 East Palm Canyon, managed by the Cathedral City Downtown Foundation (the "Foundation"), have been occupied by existing operating restaurants since December 1, 2014. Under the terms of a Commercial Lease Agreement dated September 19, 2014 with Hector & Petra Salvatierra, doing business as Bonta Restaurant (the "Bonta Lease"), Space 140 covers 4,853 sq. feet of space as shown on Attachment 1 to this Report. Under the terms of a Commercial Lease Agreement dated September 25, 2014 with Octavio & Jesus Almaraz, doing business as Taqueria Los Arcos, (the "Los Arcos Lease"), Space 120 covers 1,313 sq. feet of space as shown on Attachment 2 to this Report.
Both businesses have been challenged in achieving stable financial operations during the initial "establishment phase" of their new restaurants (i.e. since the December 2014 openings) which has resulted in conversations with City staff regarding the possibility of restructuring the financial terms of both Leases effective April 1, 2016. A temporary reduction in Base Rent and pro rata shares of Common Area Maintenance ("CAM") charges would help these businesses continue in operation and also allow additional funds for their marketing purposes and physical improvements to improve interior spaces and/or their exterior appearances.
DISCUSSION:
The annual lease year for both leases runs from December 1 through November 30. During the initial 5-year lease term, which began December 1, 2014, both leases require monthly Base Rent payments along with monthly pro rata payments for Common Area Maintenance ("CAM") and HVAC Maintenance charges as described below.
Bonta Lease:
1) Square Footage: 4,853 Sq. Ft.
2) Monthly Base Rent: Year 1 * $4,853.00* $1.00/sf
Year 2 $5,096.00 $1.05/sf
Year 3 $5,338.00 $1.10/sf
Year 4 $5,498.00 $1.13/sf
Year 5 $5,663.00 $1.17/sf
* Year 1 Abatement of 6 months Base Rent-January thru March; July thru September 2015.
3) Monthly CAM: Years 1-5 $1,213.25 $0.25/sf
4) Monthly HVAC Maintenance: Years 1-5 $ 160.33 $0.033/sf
Los Arcos Lease:
1) Square Footage: 1,313 Sq. Ft.
2) Monthly Base Rent: Year 1 * $1,641.00* $1.25/sf
Year 2 $1,641.00 $1.25/sf
Year 3 $1,641.00 $1.25/sf
Year 4 $1,690.00 $1.29/sf
Year 5 $1,741.00 $1.33/sf
*Year 1 Abatement of 1 month Base Rent - January 2015.
3) Monthly CAM: Years 1-5 $ 328.25 $0.25/sf
4) Monthly HVAC Maintenance: Years 1-5 $ 65.66 $0.05/sf
With the primary goal of retaining both current restaurant operators and avoiding the possible disruption and loss of monthly lease revenues should either restaurant cease operations (especially given the uncertainty of securing suitable replacement tenants in the near future), Staff discussed the possibility of various forms of rent relief with the City Council in Closed Session on February 24, 2016 and again on March 23, 2016. Based on direction received from the City Council and significant discussions with both businesses regarding their respective operations and financial concerns, Staff is proposing identical Lease Amendments for both operators to include:
1) Two years of discounted Base Rent and CAM charges to be structured as a 50% discount from April 1, 2016 through March 31, 2017; and a 40% discount from April 1, 2017 through March 31, 2018. During this period the tenants would be allowed to make payments on a weekly (versus monthly) basis. As of April 1, 2018, both Base Rent and CAM charges would return to the current provisions of the Lease as previously described.
2) Should either business be sold during the two-year term of reduced Rent & CAM charges, any remaining future discounts would terminate and the Lease (with the new business owner) would return to its current provisions for Rent & CAM charges as previously described.
3) All other current terms and provisions of the Leases would remain in effect.
In the case of the Bonta Lease, there was also significant discussion about the possibility of the restaurant operator "surrendering" at this time a 383 sq. ft. space that is being utilized for storage but which has the potential of being leased to another future tenant (as yet unidentified). Alternatively, there was discussion about the Landlord having a future option to "take back" that space with 60 days advance notice. Bonta wants to retain its use of this space and continue to pay the related Rent and CAM charges. As a result, the proposed Lease Amendment does not include a provision to alter the current Premises by excluding this square footage at this time, or providing a future option to do so, from the Leased Premises. Should the City Council wish to require either of those two alternatives as a condition of approving the Bonta Lease Amendment, the Amendment could be approved conditioned upon that directive.
FISCAL IMPACT:
The original and modified revenue streams from the Bonta and Los Arcos Leases are as follows:
Bonta Lease: Based on the current Lease provisions, a total of $288,258 in Base Rent and $82,415 in CAM & HVAC Maintenance charges were anticipated over the first five years of the lease ($370,673 combined). Based on the proposed modified terms, a total of $231,303 in Base Rent and $69,327 in CAM & HVAC Maintenance charges would be anticipated ($300,630 combined). Therefore, the reduction in combined receipts for the Bonta Lease would be $70,043 during the two-year discount period of the Lease as amended.
Los Arcos Lease: Based on the current Lease provisions, a total of $98,607 in Base Rent and $23,635 in CAM & HVAC Maintenance charges were anticipated over the first five years of the lease ($122,242 combined). Based on the proposed modified terms, a total of $80,806 in Base Rent and $21,347 in CAM & HVAC Maintenance charges would be anticipated ($100,895 combined). Therefore, the reduction in combined receipts for the Los Arcos lease would be $21,347 during the two-year discount period of the Lease as amended.
ATTACHMENTS:
1. Bonta Leased Premises
2. Los Arcos Leased Premises
3. Bonta - First Amendment to Commercial Lease Agreement
4. Los Arcos - First Amendment to Commercial Lease Agreement