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HomeMy WebLinkAboutStaff Report 12078 City of Palo Alto (ID # 12078) Policy and Services Committee Staff Report Report Type: Action Items Meeting Date: 4/13/2021 City of Palo Alto Page 1 Summary Title: Rent Forgiveness Program Title: City Council Referral to Policy & Services: Consideration of Rent Forgiveness for City Tenants in an Amount not to Exceed the City Council COVID-19 Reserve From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Policy & Services Committee recommend for Council consideration the creation of a rent forgiveness program for City tenants who were not forgiven three months of rent by City Council on March 1, 2021, for up to three months and not to exceed $50,000 per tenant. Background At the March 1, 2021 City Council meeting, staff presented and discussed with City Council options for a potential rent forgiveness program for City tenants including non- profit and for-profit (CMR 11872). City Council approved to forgive three months of rent for active non-profit tenants. Council also approved the eight program qualifications and funding to come from the City Council COVID-19 Contingency Fund. The Council approved option had an estimated cost of up to $203,000 (Option C from CMR 11872). City Council also directed the Policy and Services Committee to review a rent forgiveness program for other qualified City tenants (for-profit tenants) with program costs not-to-exceed the $744,000 available in the COVID-19 Contingency Fund including the $203,000 already approved from the March 1, 2021 Council action. California Governor Gavin Newsom signed an executive order N-80-20 on September 23, 2020 that protected commercial tenants from being evicted until March 31, 2021. Santa Clara County passed an ordinance NS-9.293 on November 3, 2020 extending the temporary moratorium on evictions in Santa Clara County for non-payment of rent by small business tenants through the date of Governor Newsom’s Executive Order N-80- 20 or April 30, 2021, whichever is earlier. California Governor Gavin Newsom signed legislation on March 4, 2021 that extended eviction moratorium through June 30, 2021 for commercial tenants. Under the County’s moratorium, small business tenants have City of Palo Alto Page 2 up to six months after the moratorium expires or terminates to repay at least 50% of the past-due rent, and up to 12 months after the moratorium expires or terminates to repay in full the past-due rent. Discussion Staff seeks Policy & Services Committee direction to determine final eligibility of tenants who qualify to participate in the rent forgiveness program. Staff has proposed tenant rent forgiveness program options and qualifications for tenants to meet. The rent forgiveness program options in this report for the Committee to consider include: • Option 1 – Rent Forgiveness using a pro rata share approach • Option 2 – Rent Forgiveness using a COVID-19 impact approach • Option 3 – No Rent Forgiveness Further, staff recommends the Policy & Service Committee consider the following eight qualifications for the establishment of a rent forgiveness program, following Council direction with some variations. To simplify the qualification process staff eliminated the requirement that gross revenue be less than $2.5 million in 2019. Staff also added the requirement that applicants have an active Business Registry account. The recommended qualifications include: 1. The rent forgiveness program is available to tenants that have satisfied all responsibilities under their existing rental agreement, have no outstanding delinquencies for any payments due prior to April 1, 2020, and are current tenants as of the date of the application. 2. Tenants must be active in the City of Palo Alto Business Registry. 3. Tenants must cite section(s) of the County’s Public Health Orders that restricted tenant’s operations. 4. Rent must be over $100 per month including operating expenses. 5. Tenants will be required to complete a form describing their impact from the COVID-19 pandemic and provide financial statements demonstrating the amount of reduced business revenue. 6. The business must provide an income statement demonstrating a decline in gross revenue during the first half of 2020 of at least 50% compared to the same period in 2019. 7. If a qualified tenant paid rent during the forgiveness period instead of deferring, the rent may qualify as credits to be used for rent owed in the following three months subject to an approved lease amendment. 8. Tenants that meet all qualifications will be required to enter into a lease amendment to the lease, subject to City Manager approval. City of Palo Alto Page 3 Based on the above qualifications, there is the possibility to assist 38 tenants or more depending on the actual number of tenants who qualify for Option C (Attachment A – List of Tenants). The rent forgiveness considers tenants experiencing a loss of revenue at a certain level attributed to the COVID-19 pandemic. To determine which tenants qualify and are most in need of rent forgiveness, tenants will be required to complete a form describing their impact from the COVID-19 pandemic and provide financial statements demonstrating the amount of reduced business revenue. The list of proposed tenants excludes tenants that already received rent forgiveness from the Council adopted March 1, 2021 program and operational tenants who were not impacted by closures related to the Public Health Order such as cell towers and ground lease tenants. Staff considered using data on the number of Palo Alto residents served by the tenant to qualify applicants, however staff determined that the data would be hard to compare across applicants. Another option considered for analysis was using rent per square foot but the space for tenants varied in rent from below market rate space at Cubberley to market rate space which made it difficult to compare. It should be noted in the list of tenants that OB Sports Golf Management is unique in that they are both a tenant and vendor since they manage the golf course operations. The following tenant statistics are provided as context when considering the program: • The average rent per square foot is approximately $1.50 • The rent per square foot ranges from $0.27 to $5.47 • Over 75% of the City’s for-profit tenants pay less than $2.00 per square foot • 60% of the City’s for-profit tenants rent space at Cubberley Community Center • Over 90% of tenants’ rent is less than $50,000 per month Options for Policy & Service Committee consideration include: Rent Forgiveness Options to Consider Estimated Impact Cost Time Covered Option 1 – Rent Forgiveness using a pro rata share approach Up to $541,000* Up to 3 months Option 2 – Rent Forgiveness using a COVID-19 impact approach Up to $541,000* Up to 3 months Option 3 – No Rent Forgiveness $0 N/A * The cost could be more if the actual cost of Option C approved from the March 1, 2021 is less than $203,000 • Option 1 – This option would provide rent forgiveness up to three months and not to exceed $50,000 per tenant. The amount will be determined through a pro rata approach. The pro rata approach uses the monthly rent divided by the total City of Palo Alto Page 4 monthly rent to get a percentage which is then multiplied by the estimated impact cost. For example, if a tenant’s rent is $1,000 per month and the total rent combined for all qualified tenants is $200,000, that equals .5%. If the estimated impact cost is $541,000, the tenant would receive $2,705 in rent forgiveness in this example. A tenant will be limited to three months of rent forgiveness. This approach would allow for an equitable distribution of rent forgiveness to all qualified tenants. • Option 2 – This option would require analysis of financial statements from tenants to demonstrate a minimum of 50% loss in revenue between 2019 to 2020. Tenants would need to provide monthly financials for 2019 and 2020 in their application for staff to determine whether there was a loss revenue greater than 50%. If the tenant shows a loss throughout the year, the tenant would be eligible for rent forgiveness up to three months and not to exceed $50,000. From a staff perspective, this option has the greatest administrative ease in implementation. • Option 3 – This option would not provide rent forgiveness to tenants that did not qualify under the first program (adopted by Council on March 1, 2021 that supported non-profit tenants only). The County’s eviction moratorium has been continued multiple times throughout 2020 and is scheduled to expire June 30, 2021. The eviction moratorium could be extended further into 2021. By delaying the forgiveness program until the eviction moratorium expires, staff may receive assistance or guidance from the state or other agency in helping tenants. Timeline Staff will notify qualified tenants about the rent forgiveness program requirements and provide forms after City Council’s approval following the Policy & Services committee’s consideration and recommendation for Council review. Resource Impact The FY 2021 Adopted Operating Budget includes a COVID-19 Council Reserve in the amount of $744,000. On March 1, 2021, as part of CMR #11872, Council approved the use of up to $203,000 to forgive three months of rent in accordance with Option C. Council also approved the eight program qualifications and for funding to come from the City Council COVID19 Contingency Fund. The ultimate cost of the rental relief program could be up to the total amount of the COVID-19 Council Reserve, $744,000; however, the final amount will depend on the number of tenants that apply and qualify for the program. Stakeholder Engagement Since the Council Meeting on March 1, 2021, staff has continued to receive correspondence via telephone and email requesting rent forgiveness from tenants. Tenants have explained the hardship due to COVID-19 on their business operations. City of Palo Alto Page 5 The hardships experienced include lower enrollment numbers as business resumes in limited capacity, lack of space due to social distancing requirements, and inability to generate revenues to offset overhead cost. As the County’s Public Health Order tiers become less restrictive, tenants have informed the City of their plans to resume their business operations at the limited capacities allowed. Environmental Review The rent reduction programs as proposed are not a project under CEQA per CEQA Guidelines 15061(b)(3). Attachments: • List of COPA Tenants Tenant Location Program Eligibility Advantage Aviation Airport For-Profit Forgiveness Aero Works Airport For-Profit Forgiveness Austro Aircraft Airport For-Profit Forgiveness College of Palo Alto Airport For-Profit Forgiveness JATO Aviation Airport For-Profit Forgiveness Rossi Aircraft Airport For-Profit Forgiveness Sundance Flying Club Airport For-Profit Forgiveness Barbara Boissevain Artist For-Profit Forgiveness Carmina Eliason Artist For-Profit Forgiveness Chandrika Marla Artist For-Profit Forgiveness Conrad Johnson Artist For-Profit Forgiveness Danièle Archambault Artist For-Profit Forgiveness Darryl Dieckman Artist For-Profit Forgiveness Elizabeth Bennett Artist For-Profit Forgiveness Ernest Regua Artist For-Profit Forgiveness Harumo Sato Artist For-Profit Forgiveness Jennifer Gonsalves Artist For-Profit Forgiveness Martha Sakellariou Artist For-Profit Forgiveness Mel Day Artist For-Profit Forgiveness Paloma Lucas Artist For-Profit Forgiveness Pantea Karimi Artist For-Profit Forgiveness Patrick Fenton Artist For-Profit Forgiveness Rachelle Doorley Artist For-Profit Forgiveness Robin Mullery Artist For-Profit Forgiveness Sahba Shere Artist For-Profit Forgiveness Servane Briand Artist For-Profit Forgiveness t.w. five (Andersson, Pernilla / Pereira, Paula)Artist For-Profit Forgiveness Tara de la Garza Artist For-Profit Forgiveness JSRFIT LLC d.b.a. Form Fitness Bryant Street For-Profit Forgiveness Sanghee Lee City Hall For-Profit Forgiveness Acme Education Group, Inc.Cubberley For-Profit Forgiveness California Law Review Cubberley For-Profit Forgiveness Dance Connection Cubberley For-Profit Forgiveness Melody Academy of Music Inc.Cubberley For-Profit Forgiveness Ranger Taekwondo Cubberley For-Profit Forgiveness OB Sports Golf Management (Baylands), LLC Embarcadero Road For-Profit Forgiveness Kids Choice Stanford Avenue For-Profit Forgiveness Palo Alto Lawn Bowls Club Waverley Street For-Profit Forgiveness Stanford Flying Club Airport Non-Profit Forgiveness West Valley Flying Club Airport Non-Profit Forgiveness Avenidas Cubberley Non-Profit Forgiveness BrainVyne Cubberley Non-Profit Forgiveness California Pop Orchestra Cubberley Non-Profit Forgiveness Children's Pre-School Center Cubberley Non-Profit Forgiveness Dance Action inc (dba Dance Visions)Cubberley Non-Profit Forgiveness Dance Magic Cubberley Non-Profit Forgiveness Friends of the Palo Alto Library Cubberley Non-Profit Forgiveness Heart Fit for Life (Cardiac Therapy Foundation) Cubberley Non-Profit Forgiveness Hua Kuang Chinese Reading Room Cubberley Non-Profit Forgiveness Living Wisdom High School Cubberley Non-Profit Forgiveness Minority Television Project Cubberley Non-Profit Forgiveness Palo Alto Community Child Care Cubberley Non-Profit Forgiveness Palo Alto Humane Society Cubberley Non-Profit Forgiveness Palo Alto Soccer Club Cubberley Non-Profit Forgiveness Reach Cubberley Non-Profit Forgiveness Zohar Dance Company Cubberley Non-Profit Forgiveness Palo Alto Players-Peninsula Center Stage Lucie Stern Non-Profit Forgiveness Bay Area Cellular Telephone Company dba AT&T Cell Tower Operations Not Restricted GTE Mobilenet of California Limited Partnership (Verizon)Cell Tower Operations Not Restricted Omnipoint Communications, Inc (T-Mobile)Cell Tower Operations Not Restricted PTI US Towers II, LLC Cell Tower Operations Not Restricted Sprint Spectrum L.P. Cell Tower Operations Not Restricted Me Fit Vending, LLC City Hall Operations Not Restricted San Mateo Credit Union City Hall Operations Not Restricted Anderson Honda Geng Road Operations Not Restricted The Purple Pipe LLC LATP Operations Not Restricted Valley Transportation Authority Train Depot Operations Not Restricted Precision Engineering, Inc.N/A No Longer a Tenant Abundant Air Café N/A No Longer a Tenant Art of Living Foundation N/A No Longer a Tenant Catherine di Napoli N/A No Longer a Tenant Community For Christ Church of Palo Alto N/A No Longer a Tenant Good Neighbor Montessori N/A No Longer a Tenant Imagination School N/A No Longer a Tenant IVY GOAL EDUCATION CO N/A No Longer a Tenant Karer CDC LLC N/A No Longer a Tenant Silicon Valley Karate N/A No Longer a Tenant Yishu Wang N/A No Longer a Tenant