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HomeMy WebLinkAbout1998-10-13 City Council (7)TO: City of Palo Alto City Manager’s Report HONORABLE CITY COUNCIL FROM: DATE: CITY MANAGER OCTOBER 13, 1998 DEPARTMENT:ADMINISTRATIVE SERVICES CMR:392:98 SUBJECT:AMENDMENT TO LEASE WITH R&T RESTAURANT CORPORATION FOR PALO ALTO MUNICIPAL GOLF COURSE RESTAURANT, 1875 EMBARCADERO ROAD RECOMMENDATION Staff recommends that Council approve the attached Amendment No. 1 to the Lease Between the City of Palo Alto and R&T Restaurant Corporation (R&T) for the Palo Alto Municipal Golf Course Restaurant. The amendment provides for a reduction in the minimum annual rent for the first lease year l~om $48,000 to $36,000 and a clarification of the method for payment of utilities services. BACKGROUND On October 15, 1996, after a public bid process, Council awarded an option-to-lease for the golf course restaurant to R&T. Hazards, Inc.; which had been operating the restaurant under a month-to-month lease, vacated the premises on October 31, 1996. On November 1, 1996, the City entered into a short-term interim lease with R&T to provide restaurant services during the option period. On June 2, 1997, Council approved a Budget Amendment Ordinance (BAO) in the amount of $54,000 to provide funds for maintenance and repair of the restaurant facility and repair and replacement of City-owned restaurant equipment. On May 1, 1998, the long-term lease between the City and R&T commenced. Terms of the lease include a minimum annual rent for the first year of the greater of $48,000 or 6 percent of gross receipts and a 10-to 20-yea_r term, based on the value of tenant improvements. R&T has recently completed construction of a deck and patio extension to the restaurant at a cost of $80,000, which qualifies for a 15-year term. R&T has the fight to make further improvements that would qualify for a 20-year term. CIVlR:392:98 Page 1 of 4 DISCUSSION, Rent Reduction On September 11, 1998, staff received the attached letter from R&T (Attachment A) requesting a temporary reduction in rent due to the impact on the restaurant bu.siness of the severe winter/spring rainy season and the refurbishment of the golf course. As stated in the letter, last winter’s unusually high rainfall caused a significant decline in the number of rounds played on the golf course, which resulted in loss in revenue for the restaurant. In May, the City began its project to refurbish the golf course and driving range (Capital Improvement Program Project # 19624), which continued the decline in the number of rounds played and tournament play and resulting loss in revenue.. Based on the adverse impact these circumstances have had and will continue to have on the restaurant’s food, beverage and banquet operations, R&T has requested that the City reduce the minimum rental required by the lease. The letter requests a reduction of $2,000 per month for the first four months of the current year, and a reduction of $1,000 per month commencing May 1, 1998, until the golf course construction is completed and the course becomes fully operational in its regular 18-hole configuration. Since receiving the letter, staff has negotiated with R&T to revise the request to a reduction of $1,000 per month beginning May 1, 1998 until September 30, 1999, a period of 17 months, for a total rent reduction of $17,000 over the next two fiscal years. Attachment B shows a comparison of the number of rounds played for the months of January through August for the fiscal years 1996/97 and 1997/98 and substantiates the assertion that there has been a significant decline this year. The table shows an average 42 percent drop in the number of rounds played during January through August 1998 compared to the same period in 1997. The decline from January through April is attributable to the extreme winter and spring weather; the May through August decline is due to the City’.s construction on the course. Staff had projected this decline in rounds in the pre-construction planningr The decline in restaurant income for the same periods of January through August of 96/97 and 97/98 averages 17 percent (see Attachment C). R&T h~ h-ied to decrease its loss in revenue by offering a number of promotions including increased advertising and an afternoon happy hour. These efforts to reduce the decline in revenue are reflected in the fact that the percentage drop in restaurant revenue does not duplicate the percentage drop in the number of rounds played; however, R&T has reported that it is extremely difficult to sustain business with this significant loss of customers. In addition, during this same period of unusually low revenue, R&T has invested approximately $80,000 in the deck and patio extension, purchased a $6,000 refreshment cart to provide service on the golf course during heavy play, purchased $5,000 worth of new furniture for the new deck, and hired a banquet coordinator to develop a more viable banquet business. CMR:392:98 ¯Page 2 of 4 The requested rent reduction from $4,000 to $3,000 amounts to an annual reduction in minimum rent of 25 percent. Based on the figures above, it is staff’s opinion that this reduction is appropriate given the decrease in golf rounds and resultant loss in revenue, due to the storms and construction project. It is anticipated that the golf course construction will be complete in late spring of 1999, and additional construction planned for the pro-shop and restrooms is scheduled to be complete in February 1999. Although all construction is scheduled to be complete by May 1999, the rent reduction is proposed through October 1999 to allow some catch-up time for restaurant business and revenue. Payments for Utilities The lease requires the tenant to pay charges for all utilities services supplied to the premises except for the gas. Because gas is not separately metered and it would be uneconomical to do so, the lease provides that the tenant pays a monthly amount of $1,500 for gas, electric and water utilities, which is the estimated average cost of those utilities supplied to the restaurant use. This monthly payment is subject to adjustment every even-numbered year of the lease, based on utilities rate increases. The amendment makes clarification to this provision and also provides that, should the. City choose to install separate metering in the future, the tenant shall bear the responsibility for direct payment for utilities services. Charges for telephone and refuse service will continue to be paid directly by the tenant. Amendment to Lease The attached Amendment provides for a minimum monthly rent for the first 17 months of the lease (May 1, 1998 to October 1, 1999) of $3,000 per month. The minimum monthly rent for the remainder of the lease year (until May 1, 2000) will be $4,000. For each subsequent year, the minimum rent will by adjusted automatically as provided for in the lease. The amendment also clarifies the provision requiting the tenant to pay for utilities in the amount of $1,500 per month, to be adjusted every other year based on utility rate changes.. ALTERNATIVES TO STAFF RECOMMENDATION Council may choose to make no amendment to the lease or to change the amount of rent reduction. RESOURCE IMPACT The amendment provides for a rent reduction of $1,000 per month for 17 months, totaling $17,000 in reduced revenue to the City for the same period. This represents a reduction in revenue in 1998/99 in the amount of $12,000. If the proposed rent reduction is approved by Council, staff will return to Council with the Mid-Year Budget Amendment Ordinance to reduce rental revenues by $12,000. The utility payment is estimated to equal the average cost of tenant-consumed utilities and will not reduce City revenue. CMR:392:98 .....Page 3 of~-~ POLICY IMPLICATIONS This temporary reduction in rent is consistent with the reduction given to the previous golf course restaurant tenant in fiscal year 1994-95 during an the City’s extensive repair project on the restaurant floor. ENVIRONMENTAL REVIEW The amendment to lease is not a project under the California Environmental Quality Act (CEQA) and requires no environmental review. ATTACHMENTS Attachment A: Attachment B: Attachment C: Attachment D: September 11, 1998 letter from R&T Restaurant Corporation Comparison of 1996/97 and 1997/98 Total Golf Rounds by Month Comparison of Golf Course Restaurant Income January through August 1997 and 1998 Amendment to Lease PREPARED BY:Janet Freeland, Senior Financial Analyst ~ DEPARTMENT HEADAPPROVAL: CARL YEAT~ Director, Adrfiinistrative Services CITY MANAGER APPROVAL: Assistant City Manager co: R&T Restaurant Corporation CIVlR:392:98 Page 4 of 4 ATTACI~ENT A The R&T Restaurant Corporation 23950 Mission Blvd. Hayw~rd~ CA 94544 ...... (5 I0) 582-7500 Fax (510) 582-4921 ’ September 11, 1998 Mr. Bill Fellman Real Property Manager City of Palo Alto P. O. Box 10250 Palo Alto, CA 94303 Dear Mr. Fellman: In reference to your letter of September 4, 1998 in response to R & T Restaurant Corporation’s request for rent relief, we met with Mr. Paul Dias on September 8 to discuss his concerns and .seek his counsel. As a result of that meeting, the following, we trust, responds definitely to his concerns and questions. The purpose of our request for rent relief is twofold; a very devastating protracted rainy season and the refurbishment of the Golf Course. During last winter and spring, one hundred and seventeen (117) days of rainfall were registered by the Weather Service. For example, the Golf Course was inundated with water twenty-six (26) days in January, and rain fell twenty-two (22) days in February. Additionally, the Golf Course was rendered unplayable a great many days immediately following inclement weather. In May the City officially began major refurbishment of the Golf Course and Driving Range and, as your records will verify, daily golf and tournament play has dramatically declined. Rounds of golf for July totaled 7,094 and for August 5,638 rounds, a decline of 36% and 42% respectively from the previous year, a trend that will continue until such time as the Golf Course construction is completed and once again becomes fully playable ...... The circumstances above have had and will continue to have a major and adverse impact on our food, beverage and banquet operations, as the enclosed profit and loss statement for the first eight (8) months of this year clearly attests. Mr. Bill Fellman September 11, 1998 Page Two R & T Restaurant Corporation during this same period of time constructed a 1,350 square foot deck and patio extension to the restaurant at a cost of more than $80,000 (a project we expedited to oincide with the renovation of the Golf Course); purchased a refreshment cart in order to provide food and beverage service on the Golf Course during heavy daily and tournament play at an approximate cost of $6,000; purchased new furniture for the recently constructed deck for $5,000; and this month hired a Banquet Coordinator to develop a more viable banquet business. Further, our current year budget provides for the acquisition of new banquet room furniture, equipment and supplies in order to improve the ambiance of the facility. In view of the foregoing, we respectfully request that the City of Palo Alto reduce the minimum rental for the first four (4) months of the current year by the amount of $2,000 per month for a total of $8,000. Additionally, we respectfully request reduction of the monthly minimum lease rental by the amount orS1,000 per month commencing May 1, 1998 through the Golf Course construction period and until such time as the course becomes fully operational in its regular eighteen (18) hole figuration. R & T Restaurant Corporation is honored and proud to be your restaurant concessionaire and we extend our appreciation for your consideration and review of our request. Sincerely, THE R & T RESTAURANT CORPORATION ec: Mr. Paul Dias Director Park & Golf Division I I I I I I I I I E ATTACHMENT D AMENDMENT NO. 1 TO LEASE #333 BETWEEN THE CITY OF PALO ALTO AND R&T RESTAURANT CORPORATION FOR THE PALO ALTO MUNICIPAL GOLF COURSE RESTAURANT THIS AMENDMENT to the Lease between the City of Palo Alto and R&T Restaurant Corporation, dated May 1, 1998, hereinafter referred to as "Lease," is made and entered into this day of ~, 1998, by and between the City of Palo Alto, a municipal corporation, hereinafter referred to as "City" and R&T Restaurant Corporation, a California corporation, hereinafter referred to as "Tenant;" RECITALS Ao Section VI of the Lease requires a minimum annual rental for the first lease year (May 1, 1998 to April 30, 1999) of $48,000, or $4,000 per month; and Section XXI of the Lease requires Tenant to pay a monthly amount of $1,500 for utilities, except for telephone and refuse service; and Co City and Tenant agree that a temporary reduction in the required minimum rental is appropriate to offset the reduction in Tenant’s restaurant revenue resulting from the decrease in golf course business caused by the severe winter weather and City’s construction project to refurbish the golf course; and Do City and Tenant also agree that the provisions relating to payment of utilities should be amended to clarify that the fixed monthly charge for utility services, which is equal to the current estimated average cost of the utilities supplied for the restaurant use, shall be adjusted periodically based on utility rate increases, and that the Tenant would be required to pay a rate based on actual consumption if the City were to install separate utility meters at the leased Premises. City and the District desire to amend the Lease to provide for the temporary reduction in rent and to clarify the Lease provisions relating to payment for utilities services. G°NOW THEREFORE, in consideration of their mutual covenants and agreements, the parties hereto agree as follows: ITEM Section VI (CONSIDERATION/RENT), paragraph A. 1 is amended to read as follows: 1.Minimum Annual Rent. The minimum annual rent for the first Lease Year (being the first twelve months following the commencement of this .Lease) shall be ~ .... ~.:_~.. ~-~. ...... ~ ,-,_11___ ~Ao ,~,,,~ ,,,,~ Thirty,six Thousand Dollars ($36,000), which shall be based on a monthly rental rate of Three Thousand Dollars ($3,000). The minimumarmual rent for the second Lease Year shall be Forty-three Thousand Dollars ($43,000), which shall be :based on a monthly rental rate of Three Thousand DOllars ($3,000) for the first five months (May 1, 1999- September 30, 1999) and a monthly rental rate of Four Thousand Dollars ($4,000) for.the following seven:months (October 1, 1999-April 30, 2000) of the second Lease Year. ITEM 2. ITEM__.___~B. The minimum annual rental for each subsequent Lease Year shall be adjusted automatically to the greater of the following: ao Seventy-five percent (75%) of the annual rent paid by TENANT to CITY in accordance, with this Clause for the previous Lease Year, or The initial minimum annual rent adjusted in proportion to eighty-five percent (85%) of the change in the Consumer Price Index, All Urban Consumers (base years 1982-1984 = 100), San Francisco-Oakland-San Jose CSMA published by the United States Department of Labor, Bureau of Labor Statistics, or the official successor to this index. The adjustment shall be effective on each anniversary of the commencement of this Lease and in no event shall the minimum rent be less than the minimum rent for the preceding Lease Year. Should this Lease be terminated during the Lease year, the applicable minimum annual rental shall be prorated. Section XXI (UTILITIES) is amended to read as follows: XXI. Utilities In addition to rent, TENANT shall pay ~!~ One Thousand Five Hundred Dollars ($1,500.00) per month for gaS, wate~ and d~9 utilities Supp!igd:~o the PREMISES.. TENANT will be responsible for refuse and phone service. CITY shall retain the right to adjust the monthly utility payment for any rate increases. Adjustment to the utility payment will be made in the even numbered years following the execution of this lease. ~ITY!~ Real Property Manager shall notify TENANT in writing of any adjustments. separatc n,ctcrz,,,,~-- "~--,,,~ ,~.o~,’ .... ~, ,,~,,,,oE~.. Shoed CITY: ~1: meters for all Utilities supp!ied to thePRE~SES;TEN~Tshallbe’responsible~or~d eonsump~on! Except as herein modified, all other provisions of and exhibits to the Lease shall remain in full force and effect. 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment the day and year first above written. CITY OF PALO ALTO R&T RESTAURANT CORPORATION Mayor ATTEST: By Iis City Clerk City Manager APPROVED AS TO FORM: Senior Assistant City Attorney APPROVED: Director of Administrative Services Director of Community Services