HomeMy WebLinkAboutStaff Report 440-10TO:
FROM:
DATE:
City of Palo Alto
City Manager's Report
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: COMMUNITY SERVICES
DECEMBER 6, 2010 CMR: 440:10
REPORT TYPE: CONSENT
SUBJECT: Approval of Amendment Number 5 to the Management Agreement
With Brad Lozares for Golf Professional Service~ at 1875
Embarcadero Road, Extending the Term for 28 Months to April 30,
2013.
EXECUTIVE SUMMARY
In response to uncertain economic conditions, Council authorized a Golf Course study to
examine the Bay Area golf market and conditions of the Palo Alto Golf Course facility;
and the current and alternative operating models available for the Golf Course. The study
was conducted in 2008.
The study recommended several actions for future success of the Golf Course. The
recommendations included making relatively minor but strategic investments in the. Golf
Course infrastructure and operating structure. The study also recommended that staff
actively participate in the planning of flood control alternatives for San Francisquito
Creek by the Joint Powers Authority in order to find a balanced flood control/recreational
use solution that would benefit the Golf Course. Additional recommendations include
aligning tenant contracts to expire concurrently, and to evaluate options to enhance Golf
Course maintenance, including the advantages and disadvantages of private versus public
maintenance.
Council and staff have acted upon several of the recommendations from the Golf Course
study including actively participating in the planning of flood control alternatives for San
Francisquito Creek that would also' benefit the Golf Course and the transition to private
Golf Course maintenance, which will save the City approximately $200,000 annually. At
this time staff recommends aligning the expiration term of the Golf Course Management
Agreement with Brad Lozares with the Pro Shop Lease Agreement with Mr. Lozares to
CMR: 440:10 Page 1 of7
.. •
expire concurrently on April 30, 2013 (Attachment A). This recommendation IS
consistent with the recommendations in the 2008 Golf Course study.
RECO~~NDATION. .. .
Sta,f, recoiiifnends that the CounCIl approve and authorIze the CIty Manager or hIS
de~g'I;lee to execute the attached Amendment No.5 to the Management Agreement with
Brad Lozares (Golf Professional) for golf course professional services at the Palo Alto
Municipal Golf Course, 1875 Embarcadero Road (Golf Course), to extend the term of the
contract for 28-months to April 30, 2013 (Attachment A).
BACKGROUND
On March 16, 1998, the City issued tax-exempt bonds to finance Golf Course
improvements. Prior to the bonds being issued, the City and the Golf Professional had
operated under one lease agreement for both professional management services and the
lease of the City-owned Pro Shop facility. When the bonds were issued in 1998, IRS
regulations required that there be two agreements: a management agreement for Golf
Course professional services and a separate lease to operate the golf retail establishment
(Pro Shop).
In 1998, Council approved a 20.;.month management agreement and a 15-year lease with
the Golf Professional. The original management agreement was amended three times
prior to Council approval of a new restated management agreement (Agreement) on
January 27, 2003. The new Agreement set the fixed fee to be paid to the City Contractor
at $322,251 and removed the annual CPI adjustment. Cart rentals and driving range fees
were split, with the Golf Professional receiving 40 percent of the revenue and the City
receiving 60 percent. The agreement also provided a productivity reward equal to a stated
dollar amount based on increases of golf rounds, power golf cart rentals 'and driving
range sales. The agreement has been extended 4 times since 2006 as summarized below:
1. Amendment No. 1 -May, 2006. Council approved an agreement which: 1)
extended the term for an additional eighteen months; 2) increased the fixed fee
compensation by three percent to $27,333.00; and 3) reimbursed the Golf
Professional for 60 percent of the bank's credit card merchant charges attributed to
the golf cart rentals.
2. Amendment No 2 -May 2007. Council approved an agreement which: 1)
extended the term for one year to December 31, 2008; and 2) increased the fixed
fee compensation by two percent to $28,213.46.
3. Amendment No 3 -October 2008. Council approved an agreement which: 1)
extended the agreement for one year to December 31, 2009; 2) increased the fixed
fee by two percent to $28,777.73; and 3) adjusted the Golf Professional's
productivity reward to reflect current market conditions.
CMR: 440:10 Page 2 of7
4. Agreement No 4 -November 2009. Council approved an agreement which: 1)
extended the term for one year to December 31, 2010 at the same monthly fixed
rate as 2008 of$28,777.73.
The short term amendments to the Golf Professional contract have been a factor of
uncertain economic conditions over the past several years. In response to the uncertain
economic conditions, Council authorized a Golf Course study to examine the Bay Area
golf market and conditions of the Palo Alto Golf Course facility as well as the current and
alternative operating models available for the Golf Course. The study was conducted in
2008.
As stated in the Executive Summary the study recommended several actions for future
success of the Golf Course that included making relatively minor but strategic
investments in the Golf Course infrastructure and operating structure along with actively
participating in the planning of flood control alternatives for San Francisquito Creek to
find a balanced flood control/recreational use solution that would benefit the Golf
Course. Additional recommendations include aligning tenant contracts to expire
concurrently and to evaluate options to enhance Golf Course maintenance, including the
advantages and disadvantages of private versus public maintenance.
DISCUSSION
Staff have been working on the recommendations from the Golf Course study and have
made progress on several fronts. Regarding the San Francisquito Creek flood control,
Council has requested that the Joint Powers Authority (JPA) retain a golf course design
consultant to work with the JP A and City staff to design an environmentally friendly
flood control project that will balance flood control and recreational use solutions that
will also benefit the Golf Course. The JPA has been very supportive of the City's need
for fair and reasonable mitigation measures to the Golf Course for levee improvements.
The known impacts to the Golf Course at this time will include the need to redesign four
to six holes due to levee realignment and encroachment onto the Golf Course.
The Golf Course study also recommended the City consider contracting out Golf Course
maintenance to improve cost recovery and the overall standard of maintenance. In the
2011 Budget process Council approved the contracting out of Golf Course maintenance
and a contract with ValleyCrest was approved on October 25, 2010, to assume Golf
Course maintenance responsibilities CMR: 390: 10. Recognizing that Brad Lozares would
participate in the RFP process for the Golf Course maintenance contract, staff postponed
recommending the alignment of Brad Lozares' Golf Professional agreement with the Pro
Shop lease pending the outcome of the Golf Course maintenance contract.
With the contracting of the Golf Course maintenance complete, staff now recommends
aligning the two tenant contracts with Brad Lozares to expire concurrently. Aligning the
CMR: 440:10 Page 3 of7
Golf Professional agreement to expire on April 30, 2013 would align three of the four
principal agreements the City has to operate at the Golf Course:
1. Pro Shop Lease (expires April 30, 2013)
2. Golf Course Maintenance (expires April 30, 2013)
3. Golf Professional Services (will expire April 30, 2013 if approved)
4. Restaurant Concessionaire (expires 2018)
The fourth principal agreement the City has to operate the Golf Course is between R&T
Restaurant Corporation and the City to operate the Bay Cafe; the current term of this
agreement expires in 2018.
Aligning the City contracts that keep the Golf Course operational gives the City
flexibility in bidding more than one element of the Golf Course operation when the terms
expire. This mayor may not be of interest to the City in April 2013, but the alignment of
the various Golf Course contracts provides the opportunity to consider alternative
operating models
Regarding the Golf Course budget, in Fiscal Year 2010 revenues exceeded expenses by
$76,000. It is estimated that Fiscal Year 2011 revenues will exceed expenses by
$300,000.
Compensation for Brad Lozares' services includes a fixed management fee of $28,777. 73
per month for a total of $805,776 for the 28-month term and percentage fees based on
Golf Course productivity. The fixed fee has not increased since 2008 and no increases are
recommended for this amendment. The percentage fees also remain unchanged in this
agreement. The percentage fees are a revenue share between the City and Brad Lozares
for Driving Range revenue at 62% to the City, and 38% to Brad Lozares; and Cart Rental
revenue at 60% to the City and 40% to Brad Lozares. Revenue to Brad Lozares in
percentage fees over the term of the contract is estimated to be $681,333 in addition to
the fixed management fee.
The service level the Golf Professional and his staff provide is very professional and
greatly appreciated by our golfing patrons. The Golf Professional is very well regarded
throughout the golf community for outstanding customer service. The drop in the number
of annual rounds played, from a high of over 100,000 in. the late 1980's to its current
level of approximately 70,000 rounds in Palo Alto, echoes a national trend in the decline
of rounds of golf due to the proliferation of new courses in the 1980's and 1990's and
other economic factors. The Palo Alto Golf Course still ranks financially in the top ten
municipal golf courses in the Bay Area.
The current Management Agreement will expire on December 31, 2010. In order for the
Golf Professional to manage the Golf Course and receive compensation, IRS rules
CMR: 440:10 Page 4 of7
require that there must be an agreement in place. Under IRS regulations, the management
agreements must be for no more than 60 months. Each of the agreements and
amendments between the City and the Golf Professional have been for less than 60
months in order to allow both parties -to make refinements to the agreement that reflect
economic conditions and needs of the Golf Course.
RESOURCE IMPACT
The annual impact on the resources for this agreement is ·estimated to be the same as
2010. The cost of overall compensation to the Golf Professional including fixed and
percentage payments is estimated to be approximately $1,487,110, and this artiount is
included in the Community Services Golf Course budget.
POLICY IMPLICATIONS
The proposed 28-month extension is consistent with prior Council direction and will keep
the Golf Course operational under the current management conditions to April 30, 2013.
ENVIRONMENTAL REVIEW
Approval of, the amendment does not constitute a project under the California
Environmental Quality Act (CEQA); therefore, no environmental assessment is required.
/ATTACHMENTS
Attachment A: Amendment No.5 to Management Agreement
PREPARED BY: 42tJ~
ROBDEGEUS
Division Manager, Recreation Services
DEPARTMENT HEAD APPROVAL:
GREGBE S
Director, Community Services Department
CITY MANAGER APPROVAL: . ~,-w.~
~JAMESKEENE .
City Manager
cc: Golf Professional
CMR: 440:10 Page 5 of7
AMENDMENT NO.5 TO MANAGEMENT AGREEMENT
C3150541A, BETWEEN THE CITY OF PALO ALTO AND BRAD
LOZARES GOLF SHOP FOR PROFESSIONAL SERVICES AT 1875
EMBARCADERO ROAD, PALO ALTO
THIS AMENDMENT NO.5 to the Management Agreement C3150541A,
between the City of Palo Alto and Brad Lozares Golf Shop for Professional Services at
the Palo Alto Municipal Golf Course, ("Agreement,") is made and entered into this 7th
day of December, 2010, by and between the City of Palo Alto, a municipal corporation
(the "CITY") and Brad Lozares ("GOLF PROFESSIONAL").
RECITALS
A. GOLF PROFESSIONAL has assumed responsibility for and continued the
operation and management of course play for the Golf Course facility on behalf of
the CITY on the terms and conditions set forth in the Management Agreement
dated January 28,2003.
B. On May 15, 2006, the parties amended the Agreement to extend the term
December 31, 2007, and to increase the fixed fee to $27,660.25 per month and
reimburse GOLF PROFESSIONAL for sixty percent (60%) of finance charges
associated with the payment of service charges for golf carts by credit card.
C. On May 15, 2007, the parties amended the Agreement to extend the term to
December 31, 2008, and to increase the fixed fee to $28,213.46 per month.
D. On October 20, 2008, the parties amended the Agreement to extend the term to
December 31, 2009, and to increase the fixed fee to $28,777.73 per month.
E. On December 7, 2009 the parties amended the Agreement to extend the term for
one year to December 31, 2010 at the same fixed level of compensation
established in 2008 of $28,777.73 per month.
F. The parties now wish to amend the Agreement to extend the term of the
agreement to April 30, 2013 at the same fixed level of compensation as
established in 2008 of $28,777.73 per month.
NOW, THEREFORE, in consideration of the terms, conditions, and
provisions of this Amendment, the parties agree as follows:
SECTION 1. Section III ("Term") is amended in its entirety to read, as follows:
"III. TERM
The term of this Agreement shall commence on January 8, 2003 and end on April
30,2013.
SECTION 2. Section IV, A ("Compensation"), is amended in its entirety to read
as follows:
"IV. COMPENSATION
During the term of the Agreement, GOLF PROFESSIONAL shall receive a fixed
fee and percentage fees, as defined below (collectively the "Management Fee").
A. Fixed Fee
GOLF PROFESSIONAL shall receive a fixed fee during the term of this
Agreement for GOLF PROFESSIONAL's Golf Course and driving range
management, Golf Course marshaling and starting and cart rental services.
The fixed fee for the term of this agreement will be $805,776.44. The
fixed fee will be paid in twenty-eight equal monthly installments.
During the eighteen-month extension term from July 1, 2006 to
December 31, 2007, GOLF PROFESSIONAL shall receive
a fixed fee payable monthly in the amount of $27,660.25.
During the twelve-month extension term from January 1, 2008 to
December 31, 2008, GOLF PROFESSIONAL shall receive a
fixed fee in the amount of $28,213.46, monthly.
During the twelve-month extension term from January 1, 2009 to
December 31, 2009, GOLF PROFESISONAL shall receive a
fixed fee, in the amount of $28,777.73, monthly.
During the twelve-month extension term from January 1, 2010 to
December 31, 2010, GOLF PROFESISONAL shall receIve a
fixed fee, in"the amount of $28,777.73, monthly.
During the twenty-:eight month extension term from January 1,
2011 to April 30, 2013, GOLF PROFESISONAL shall receive a
fixed fee, in the amount of $28,777.73, monthly.
The CITY shall forward the fixed fee by the 5th working day of
the CITY's working month for the amount due for that month to
the GOLF PROFESSIONAL. If not received within ten calendar
days after the fifth working day of the month, a late charge of one
percent of monthly payment due and unpaid plus an administrative
fee of $45.00 shall be added to the payment due and unpaid, and
the total monthly sum shall become immediately due and payable
to GOLF PROFESSIONAL. The parties agree that such late
charges represent a fair and reasonable estimate of the costs that
GOLF PROFESSIONAL will incur by reason of the CITY's late
payments and that acceptance of such late charges in no event
constitutes a waiver of the CITY's default with respect to such
overdue payment, nor prevents GOLF PROFESSIONAL from
exercising any of the other rights and remedies granted hereunder
or by any provision oflaw."
B. Percentage Fees
In addition to the fixed fee, GOLF PROFESSIONAL shall receive
38% percent of the gross revenues of the driving range and retain
40% of the gross revenue of the golf carts, golf club and pull cart
rentals. Percentage fees for each month will be <;alculated and paid
no later than the lOth day of the following month. In no event,
-however, shall the cumulative percentage fees paid to GOLF
PROFESSIONAL for a single calendar year exceed the total fixed
fee payments described in section IV-A herein for that same
calendar year.
C. GolfCart Fuel Reimbursement
GOLF PROFESSIONAL shall reimburse the CITY quarterly for
fuel supplied to gas golf carts. Reimbursement shall be at the
current retail full service pump price on the date of billing for
unleaded . fuel, determined quarterly by the CITY. GOLF
PROFESSIONAL shall reimburse the CITY by no later than by the
20th day of the month following the close of
each quarter.
D. Productivity Reward (Incentives)
In order to enhance overall golf division business incomes,
customer service and golf professional revenues, a productivity
reward equal to a stated dollar amount based on increases of golf
rounds, gross power golf cart rentals and driving range sales
becomes effective with this agreement. In addition to the fixed and
percentage fees, the golf professional shall receive the following
productivity rewards based on exceeding the following baselIne
golf rounds and gross sales:
PAID GOLF ROUNDS: (FEE, DISCOUNT CARD & REPLAY ROUNDS)
* Greater than 72,000 rounds $3.00 PER ROUND
, FAX NO. :6023912992 Nov. 29 2010 09:06PM Pi
POWER GOLF CART RENTALS:
* Greater than $300,000
DRIVING RANGE SALES:
Ij< Greater than $400,000.
$100 PER $1,000 INCREASE
$200 PER $1,000 INCREASE
SECTION 3. Except as herein modified, all other provisions of the Agreement,
including any exhibits and subsequent amendments thereto, shall remain in full torce and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No 5 to Management Agreement on the date first written above.
CITY OF PALO ALTO BRAD LOZARES GOLF SHOP
BY:f}t&V . £OJ~
Name: BY'ctcl. F. La1...Qre. ~ City Manager
Purchasing Manager Title: OI.U N-t..-I jo J r-~ra t'€SS;oJl q l
APPROVED AS TO FORM:
Senior Asst. City Attorney
4
091 12(),ib 0073262