HomeMy WebLinkAbout15 EXTENSION OF AUTO CENTER MERCHANTS ASSOC LEASEAgenda Item 15
/~ P ~~ Reviewed:
AGENDA ~ ~ City Manager
Finance Director
MEETING DATE: JUNE 7, 2011
TO: WILLIAM A. HUSTON, INTERIM CITY MANAGER
FROM: CHRISTINE SHINGLETON, ASSISTANT CITY MANAGER
SUBJECT: EXTENSION OF THE TUSTIN AUTO CENTER MERCHANT'S ASSOCIATION
LEASE
SUMMARY
Approval is requested to proceed with preparation of a Lease Amendment with the
Tustin Auto Center Merchant's Association to extend their existing lease of City of
Tustin real property adjacent to the Tustin Auto Center.
RECOMMENDATION
It is recommended the City Council authorize staff to complete a Lease Amendment
with the Tustin Auto Center Merchant's Association which would extend their existing
Lease with the City for real property adjacent to the Tustin Auto Center and direct staff
to subsequently return to the City Council with the final Lease Amendment for Council
review and approval.
FISCAL IMPACT
Since the existing Lease premises is reserved for future right-of-way and is not
marketable for development, there is no lease revenue that the City relies upon. The
only anticipated City incurred costs of a Lease Amendment with the Tustin Auto Center
Merchant's Association would be minor and related to preparation and administration of
the Lease to ensure compliance with terms and conditions including, but not limited to,
annual insurance renewals.
A review of the property listings in the market (comparable listings are only available for
Anaheim, Orange and Santa Ana) by City staff has indicated that vehicle storage lots
and parking lots for open storage can generate rents in the range of $.83 to $2.00 per
square foot of land value, but each site would have to be reviewed in comparison to the
subject Lease premises to determine comparability. Staff does not believe that a full
appraisal of potential lease revenue would be appropriate given unusual characteristics
of the subject Lease premises, the actual intended use of the subject Lease premises,
and other considerations that are discussed further in this Agenda Report.
Agenda Report
June 7, 2011
Page 2
BACKGROUND/DISCUSSION
The Tustin Auto Center Merchant's Association currently leases City vacant real
property (1.89 acres) on the future reserved right-of-way for Myford Road for storage
and parking of vehicles for the Tustin Auto Center at no annual cost. The term of the
Lease commenced on January 1, 2001, and was extended on January 1, 2009 for an
additional three-year extension as authorized under the terms of the Lease. The Lease
will expire on December 31, 2011.
Tustin City Code Section 7960, as enacted by Ordinance No. 1389, outlines the process
City and Redevelopment Agency staff must follow for the approval, extension or
modification of any existing City or Redevelopment Agency real property lease for less
than market value. Section 7960(B) identifies three different policy directions that the
City Council may direct as follows:
• Preparation of a proposed lease, modification or extension;
• Preparation of a request for proposal ("RFP") for a new leasehold from interested
parties, or;
• Take such other action as deemed appropriate.
Staff believes that there are unique and usual circumstances related to the subject
Tustin Auto Center Merchant's Association Lease with the City that are different from
other City real property assets that can be marketed and developed at fair market value
for the following reasons:
1. The Lease premises is a part of vacant property owned by the City and being held
as reserved right-of-way for a possible future extension of Myford Road. As
reserved right-of-way, the land is not available nor suitable for development.
Construction of permanent buildings on the premises would not be permitted. As a
result, the Lease premises would not be able to achieve a full market value lease.
2. The surrounding land uses adjacent to the proposed Lease premises impact access
to the Lease premises and would dilute any anticipated market rent lease value of
the property. Immediately adjacent to the Lease premises on the west is an Orange
County Flood Control District channel, to the south is the Interstate 5 (Santa Ana)
Freeway, to the north is EI Camino Real, and to the east is an area for employee
parking and deliveries for the Tustin Market Place.
3. A Lease extension provides an opportunity for the City Council to promote
economic development by leasing the property at no cost for interim temporary
Agenda Report
June 7, 2011
Page 3
parking and vehicle storage (which is all the property, as reserved right-of-way, can
really be used for) which will directly benefit the Tustin Auto Center, a major job and
tax generator in the City. Temporary parking and vehicle storage on the Lease
premises will benefit all seventeen dealerships in the Tustin Auto Center.
A Lease extension which continues to support interim vehicle storage and parking
for the Tustin Auto Center, will support City efforts to recognize that the Auto Center
is a major contributor to the City's tax base. During calendar year 2010,
dealerships in the Tustin Auto Center generated approximately $3.2 million dollars
or over twenty percent to the City's total sales tax base. This figure does not take
into account the additional contribution that the dealerships make to the City in real
and personal property taxes.
A no-cost Lease extension will also serve to recognize that auto manufacturers and
dealers are just beginning to emerge from the recession while facing the uncertainty
of manufacturing disruption of vehicles and part supplies caused by the earthquake
and tsunami in Japan.
In accordance with Section 7960(B) of the Tustin City Code, staff would recommend
that the City Council authorize staff to proceed on a Lease Amendment exclusively with
the Tustin Auto Merchant's Association, including provision of a Lease Amendment that
does not require Lease payments. Staff anticipates returning with a Lease Amendment
to permit a lease extension for five (5) years with two five (5) year options to extend.
In the event the City needs the reserved right-of-way before any future Lease
termination, the Lease will continue to contain provisions requiring the tenant to
surrender the land at any time the City needs the property. Upon conclusion of the
negotiations, the Agency will bring back the Lease Amendment for City Council
approval.
'~~
Christine A. Shinglet
Assistant City Manager