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HomeMy WebLinkAboutStaff Report 2405-3024CITY OF PALO ALTO CITY COUNCIL Regular Meeting Monday, August 19, 2024 Council Chambers & Hybrid 5:30 PM     Agenda Item     9.Approval of Amendment Number 3 to Contract Number C18169712 with OB Sports Golf Management (Baylands), LLC in the Amount of $10,107,560 and Extend the Contract Term by Two Years and Nine Months for Management of Golf Course Operations at the Baylands Golf Links; Approval of Amendment Number 3 to Contract Number C18171872 with OB Sports Golf Management (Baylands), LLC to Extend the Contract Term by Two Years and Nine Months for a Real Estate License for the Restaurant to Provide Food and Beverage Services; and Approval of an Amendment to Fiscal Year 2025 Budget Appropriation in the General Fund (2/3 vote required); CEQA status – categorically exempt Consent Questions City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Community Services Meeting Date: August 19, 2024 Report #:2405-3024 TITLE Approval of Amendment Number 3 to Contract Number C18169712 with OB Sports Golf Management (Baylands), LLC in the Amount of $10,107,560 and Extend the Contract Term by Two Years and Nine Months for Management of Golf Course Operations at the Baylands Golf Links; Approval of Amendment Number 3 to Contract Number C18171872 with OB Sports Golf Management (Baylands), LLC to Extend the Contract Term by Two Years and Nine Months for a Real Estate License for the Restaurant to Provide Food and Beverage Services; and Approval of an Amendment to Fiscal Year 2025 Budget Appropriation in the General Fund (2/3 vote required); CEQA status – categorically exempt. RECOMMENDATION Staff recommends that City Council: 1. Approve and authorize the City Manager or their designee to execute Amendment Number 3 to Contract No. C18169712 with OB Sports Golf Management (Baylands), LLC (Attachment A) to extend the term for two years and nine months in the amount of $10,107,560 for a revised not to exceed compensation of $27,994,281 for golf management services on the course, at the driving range, at the Golf Shop, and surrounding areas of the Palo Alto Baylands Golf Links for the term of October 1, 2024 through June 30, 2027; 2. Approve and authorize the City Manager or their designee to execute Amendment Number 3 to Contract No. C18171872 with OB Sports Golf Management (Baylands), LLC (Attachment B) to extend the term for two years and nine months for OB Sports to provide food and beverage services under a license arrangement for the term of October 1, 2024 through June 30, 2027 and for OB Sports Golf Management, LLC to pay a minimum of $217,800 which is subject to mutual increase based on net revenue expectations; 3. Amend the Fiscal Year 2025 Budget Appropriation for the General Fund (requires a two- thirds approval by the City Council) by: a. Increasing the Charges for Services revenue estimate in the Community Services Department by $130,000; and b. Increasing the expenditure appropriation for contact services in the Community Services Department by $130,000. EXECUTIVE SUMMARY Staff recommends City Council approve contract renewals with OB Sports as the contracted operator of Baylands Golf Links for continuation as a premier municipal golf course in the region. In 2018 the City re-opened the former Palo Alto Municipal Golf Course as the Baylands Golf Links after a full course redesign and construction. To facilitate course operations, the City awarded contracts to OB Sports Golf Management1 for the provision of course management, maintenance, customer service, retail sales, and food and beverage. As OB Sports performed well, the contracts were mutually renewed in 20212 for three years through June 2024 and then the term was extended for three months through September 2024 without initial additional compensation to allow both parties to work on another renewal. Both parties now seek renewal for two years and nine months through June 2027. Since Fiscal Year 2019, the golf course has overachieved player green fee, driving range, and miscellaneous revenue over projected pro formas in all years except Fiscal Year 2020 due to course closure and restrictions at the onset of the COVID-19 pandemic. Operation revenue has exceeded expenditures in each fiscal year since then. For the current Fiscal Year 2025, the overall course revenue budget is $5.0 million with an expense budget of $4.2 million. Separate from contract renewal amendments with OB Sports, this report also provides brief updates on golf matters involving the First Tee of Silicon Valley, a second deck driving range, and environmental compliance. BACKGROUND In 2012, the City of Palo Alto sought designs for modification to the former Palo Alto Municipal Golf Course due to an adjacent San Francisquito Creek levee expansion project which would change the boundaries of the golf course. On July 1, 2016, the golf course closed to commence construction of a full course renovation and re-opened in May 2018 as the Baylands Golf Links. 1 City Council, April 16, 2018; Agenda Item #10; SR #8848, https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2018/item-8848.pdf 2 City Council, June 21, 2021; Agenda Item #16; SR #12343, https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2021/id-12343.pdf Preceding the May 2018 course re-opening, OB Sports Golf Management (Baylands), LLC was awarded contracts through a Request for Proposal process to be the single full-service course operator. Previously, the golf course was managed by three vendors and the change to a single full-service operator allowed for more efficient and effective coordinated service delivery focused on the customer experience. Course management, course maintenance, customer service, and golf shop retail sales are provided through a golf management services contract while the provision of food and beverages is through a facility lease with a restaurant license agreement contract. Locally, the company also manages the Golf Club at Moffett Field, a daily fee course open to the public. ANALYSIS The two contracts with OB Sports were established in 2018 through June 30, 2021, and each contains a mutual renewal option for up to three years (FY 2022- FY 2024). If the first option to renew is exercised, a second mutual renewal option may be exercised for up to three additional years (FY 2025 – FY 2027). The first mutual renewal option was exercised on June 21, 2021, for Fiscal Year 2022 – Fiscal Year 2024 as Amendment No. 1. The City then extended the term for three months to cover the period of July – September 2024 without initial additional compensation as Amendment No. 2 to allow both parties to work on another renewal. Operating with a single full-service provider has resulted in a positive player experience with higher service levels than before. Therefore, Staff recommends City Council approve Contract renewals for both Contracts for the second renewal period of two years and nine months (October 2024 – June 2027) as Amendment No. 3 to continue having a single operator provide all services at the golf course. Although Amendment No. 3 covers two years and nine months, the financial compensation is retroactive for three months to compensate for three full years (FY2025 - FY2027). For the past six fiscal years, OB Sports has managed and maintained the City’s golf course by reestablishing and growing a customer base while making the Baylands Golf Links one of the premier municipal courses in the Bay Area. OB Sports has placed an emphasis on creating a high- quality player experience, which incorporates attention to course play, course conditions, customer service, practice facilities, food and beverage selection, and aesthetics of the golf shop and restaurant. Since Fiscal Year 2019 when OB Sports began managing the golf course on behalf of the City, golf performance has overachieved player green fee, driving range, and miscellaneous revenue over projected pro formas in all years except Fiscal Year 2020 due to the impact of course closure and then restricted play associated with the onset of the COVID-19 pandemic. Green fee revenue has increased from $2.4 million to a high of $4.0 million with overall revenue including driving range, cart rental, and golf shop sales reaching $5.3 million in Fiscal Year 2022. Operating expenditures and debt service in Fiscal Year 2022 was $4.3 million. In comparison, prior to course renovation the overall revenue in Fiscal Year 2015 was $1.6 million with $2.2 million in expenditures. The following chart illustrates the financial performance of the golf course from Fiscal Year 2015 through Fiscal Year 2023. Prior to Fiscal Year 2019 the golf course was operated by the City but managed by three service providers. During Fiscal Years 2017 and 2018, the course was closed for course renovation while the driving range remained open. These two fiscal years incurred high net losses due to loss of green fee revenue while still incurring expenses such as debt service, potable water for irrigation to grow in natural turf grass, and startup costs to renovate the golf shop. In Fiscal Year 2019 the City incurred the last year of debt service on prior financing while initiating new debt service for the course renovation which resulted in overall net income loss. Operating losses in Fiscal Year 2020 are associated with course closure due to the onset of the COVID-19 pandemic. Several factors are attributed to the more than three-fold revenue increase over the past few years: •Course redesign with a layout appealing to players of different abilities. •Increase in demand for golf play after the lifting of COVID-19 restrictions. •Enhanced Course maintenance for desired playing conditions •Customer service and premium player experience •Dynamic pricing As OB Sports manages the last three factors above and successfully manages expectations, staff recommends the City Council approve Amendment No. 3 contract renewals with OB Sports for Fiscal Years 2025 through 2027 to continue operating the golf course on behalf of the City. If not approved, the City and OB Sports would transition to close out services for golf course management and food and beverage service. The transition period is estimated to take six to nine months. This would likely impact the strong customer base and reputation that OB Sports $(3,000,000) $(2,000,000) $(1,000,000) $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Revenue Expenses Net Revenue (Loss) Golf Course Financial Performance and the City have worked to develop since re-opening with a full course re-design. During the transition period, OB Sports would plan on ceasing operations and work with the City to terminate leases on golf carts and course maintenance equipment. Concurrently, the City would issue an expedited solicitation for a Request for Proposals for full-service golf course operations. As the City and OB Sports have successfully worked closely over the past six years, staff recommends continuing the course operator relationship for Fiscal Year 2025 – Fiscal Year 2027 to ensure no interruption in services at the golf course and retention of the course’s customer base and reputation. Then during the summer of 2026, the City would either enter into discussions with OB Sports for another contract renewal and amendment or issue a Request for Proposals for a full-service course management vendor to operate the golf course on the City’s behalf starting July 2027 in Fiscal Year 2028. Additional Information on Other Golf Course Matters Not Managed by OB Sports Staff would like to use this report as an opportunity to update the Council and community on other matters pertaining to the golf course. The course has multiple ongoing matters relating to operations, capital improvements, and environmental monitoring that are led by City staff. The City continues to develop a working relationship with the First Tee of Silicon Valley to provide youth programming, is exploring the return on investment of constructing a second deck driving range, and is working towards compliance for the required mitigation and monitoring of wetlands on the golf course. First Tee of Silicon Valley - The City has maintained a relationship with the First Tee of Silicon Valley (FTSV) since 2009 to provide youth character guidance and development through the game of golf. On May 9, 2022, the City Council approved a Letter of Intent for establishing a partnership with the FTSV Youth Development Teaching Program. At the time, FTSV intended to raise funding for a new training facility, to raise the existing driving range netting, and to add protective netting along Embarcadero Road and the youth area. The FTSV and City staff are discussing a revised project scope and plan to return to Council at the end of calendar year 2024. Assessment of Driving Range Second Deck - Staff engaged a golf industry consulting firm to assess the financial feasibility of expanding the driving range capacity by constructing a second deck. Staff will present the feasibility study to the Parks and Recreation Commission in the next few months for their review and input to incorporate into the next steps, which, if found to be a feasible project, may include additional studies, coordinating with OB Sports, and presenting to other Commissions, Committees, or Council. Golf Course Mitigation and Monitoring - As part of the golf course’s renovation project, the City was required to mitigate impacts to the wetlands as per conditions of environmental regulatory permits. The mitigation required the expanded and enhanced wetlands to be monitored and reported for five years. While the mitigation (expansion and enhancement of wetlands) occurred, the required monitoring and reporting did not adhere to the permit. Staff are working diligently with an ecological consulting firm to assess current conditions and develop a plan to achieve compliance. Staff also communicate with the Regional Water Quality Control Board (Water Board) to provide regular progress updates and submittals. Staff anticipates submitting the existing conditions report and plan to achieve compliance to the Water Board in August 2024. Additionally, City staff are working collaboratively with OB Sports’ agronomy staff to ensure that the golf course is adhering to the permit requirements such as managing the paspalum turf adjacent to the established wetlands. OB Sports golf course marshals continue to monitor and educate players to prevent encroachment into sensitive habitat areas. Signage and out-of- bounds markers are also used to identify these protected areas. FISCAL/RESOURCE IMPACT The golf course operating budget in the General Fund FY 2025 Operating Budget is $5.0 million in revenue and $4.2 million in expenses, which includes debt service payments. The recommendation in this report to extend these contracts does not result in any direct change to the resource impact. As of the writing of this report, staff and OB Sports estimate a revenue increase of approximately $130,000 for a new total revenue budget of $5.1 million and an expense increase of approximately $130,000 for a new total expense budget of $4.3 million. These projected impacts represent the assumption of continued strong revenue performance and resources required to maintain optimum service levels and to provide the premium player experience the golf course has established. The expense increase will cover higher costs of course maintenance supplies and materials and increased labor costs. In addition to compensation for course management and maintenance services, the contract is structured to financially incentivize the contractor to exceed annual revenue targets through a revenue share. After achieving the annual revenue targets, amounts in excess are shared through an 80/20 split with 80% retained by the City and 20% paid to the Contractor. All revenue up to the revenue target is fully retained by the City. For FY 2026 and FY 2027, the second and third years of the contract amendment, payment to the contractor for course management and maintenance is limited to no more than a 3% increase over the prior fiscal year. The restaurant facility license contract is a revenue contract with OB Sports paying rent and utilities in the amount of $6,050 per month during the contract renewal period (FY 2025 – FY 2027) and is subject to increase based on net revenue. This is a 10% increase for both rent and utilities. OB Sports has remained current on their monthly rent and utilities payments to the City. OB Sports serves the surrounding businesses and hosts banquets and meetings. Approximately 900 customers are served weekly with up to 1,350 during the peak summer season. Approximately three banquets are held weekly. The Baylands Café operates at approximately 70% capacity when considering in-person service and food orders to go. OB Sports would be able to continue to manage course operations on behalf of the City, continue to lease the Baylands Café restaurant, and provide exceptional unified service to golfers seeking golf play and food and beverage service as part of the premium player experience at Baylands Golf Links. STAKEHOLDER ENGAGEMENT Staff provide an annual performance update to the Parks and Recreation Commission (PRC) on the progress of the golf course. The report and presentation include revenues, expenditures, Palo Alto player residency, and rounds of golf. The report also covers programs at the golf course such as golf clubs and youth programs (First Tee, Youth on Course, High School golf, and summer golf camps). Based on previous feedback from the PRC, they have been satisfied with OB Sports’ performance as a golf course operator. The Community Services Department has collaborated with OB Sports and the Administrative Services Department to assess the financial impact of renewing the contracts through Fiscal Year 2027. ENVIRONMENTAL REVIEW City Council’s approval of these Contract Amendments for golf course services is categorically exempt from CEQA per CEQA regulations 15301 (Existing Facilities), 15304 (Minor Alterations to Land), and 15323 (Normal Operations of Facilities for Public Gatherings). ATTACHMENTS Attachment A: Amendment No. 3 to Contract C18169712 with OB Sports for Golf Course Management Attachment B: Amendment No. 3 to Contract C18171872 with OB Sports for Restaurant Lease License APPROVED BY: Kristen O'Kane, Community Services Director Vers.: Aug. 5, 2019 Page 1 of 9 AMENDMENT NO. 3 TO CONTRACT NO. C18169712 BETWEEN THE CITY OF PALO ALTO AND OB SPORTS GOLF MANAGEMENT (BAYLANDS), LLC This Amendment No. 3 (this “Amendment”) to Contract No. C181769712 (the “Contract” as defined below) is entered into as of August 19, 2024, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and OB SPORTS GOLF MANAGEMENT (BAYLANDS), LLC, a Limited Liability Company, Department of Industrial Relations Registration No. 1001184589, located at 15044 North Scottsdale Road, Suite 300, Scottsdale, AZ 85254 (“CONSULTANT”). CITY and CONSULTANT are referred to collectively as the “Parties” in this Amendment. R E C I T A L S A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of golf programming services of golf course management, course maintenance, practice facility maintenance, and retail sales, as more fully described in Exhibit “A” (Scope of Services), as detailed therein. B. The Parties now wish to amend the Contract in order to extend the term for two years and nine months through June 30, 2027 for continuation of golf programming services and to increase the compensation retroactive to July 1, 2024 by Ten Million One Hundred Seven Thousand Five Hundred Fifty-Nine Dollars and Eighty-Five Cents ($10,107,559.85) from Seventeen Million Eight Hundred Eighty-Six Thousand Seven Hundred Twenty-One Dollars and Thirty-Seven Cents ($17,886,721.37), to a not to exceed total amount of Twenty-Seven Million Nine Hundred Ninety- Four Thousand Two Hundred Eighty-One Dollars and Twenty-Two Cents ($27,994,281.22), as detailed herein. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree: SECTION 1. Definitions. The following definitions shall apply to this Amendment: a. Contract. The term “Contract” shall mean Contract No. C18169712 between CONSULTANT and CITY, dated April 10, 2018, as amended by: Amendment No. 1, dated June 21, 2021 Amendment No. 2, dated July 3, 2024 b. Other Terms. Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract. SECTION 2. Section 2, “TERM AND OPTION”, of the Contract is hereby amended to read as follows: DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 2 of 9 “The term of this Agreement shall be from the date of its full execution and approval by City’s City Council (the “Commencement Date”) through June 30, 2027, unless terminated earlier pursuant to Section 19 of this Agreement.” A renewal option for a period or periods of up to 3 years (from July 1, 2021 through June 30, 2024, is available as mutually agreed, to be executed in accordance with Section 27.4 of this Agreement. (In June 2021, the Parties agreed to the first renewal option in Amendment 1 to this Agreement.) A second renewal option for a period or periods of up to an additional 3 years (from July 1, 2024 through June 30, 2027), is available as mutually agreed, to be executed in accordance with Section 27.4 of this Agreement. Absent a mutually extended agreement, the City reserves the right to extend this Agreement for up to six months. During such six-month extension period, the parties may agree to a renewal option as provided for herein.” SECTION 3. Section 4, “NOT TO EXCEED COMPENSATION” of the Contract is hereby amended to read as follows: “The compensation to be paid to CONSULTANT for performance of the Services described in Exhibit “A” (“Scope of Services”), and reimbursable expenses as specified in Exhibit “B” (“Compensation”) herein, shall not exceed Twenty Seven Million Six Hundred Ninety-Six Thousand Two Hundred Ninety-Eight Dollars and Twenty-Four Cents. ($27,696,298.24) as detailed in Exhibit “B” (“Compensation”). CONSULTANT agrees to complete all Services, including specified reimbursable expenses, within this amount. Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to the CITY. A Contingency Amount of Two Hundred Ninety-Seven Thousand Nine Hundred Eighty-Two Dollars and Ninety Eight Cents ($297,982.98) is available, as detailed in Exhibit “B” (“Compensation”), to provide for reasonable and unforeseen costs/services, upon approval of City and to be executed via written amendment to this Agreement as provided for in Section 27.4 herein. In the event such Contingency Amount is utilized as provided for herein, the total compensation for Services, reimbursable expenses and the costs/services added under the Contingency Amount, shall not exceed Twenty Seven Million Nine Hundred Ninety Four Thousand Two Hundred Eighty One Dollars and Twenty Two Cents ($27,994,281.22) as detailed in Exhibit “B” (“Compensation”).” SECTION 4. The following exhibit(s) to the Contract is hereby amended, as indicated below, to read as set forth in the attachment to this Amendment, which is hereby incorporated in full into this Amendment and into the Contract by this reference: a. Exhibit “B” entitled “COMPENSATION”, AMENDMENT NO. 3”, AMENDED, REPLACES PREVIOUS SECTION 5. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect. DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 3 of 9 SECTION 6. Incorporation of Recitals. The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference. (SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.) DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 4 of 9 SIGNATURES OF THE PARTIES IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written. CITY OF PALO ALTO _____________________________ City Manager APPROVED AS TO FORM: _____________________________ City Attorney or designee OB SPORTS GOLF MANAGEMENT(BAYLANDS), LLC Officer 1 By:__________________________ Name:_______________________ Title:________________________ Officer 2 By:___________________________ Name:________________________ Title:__________________________ Attachments: EXHIBIT "B" entitled “COMPENSATION, AMENDMENT NO. 3”, AMENDED, REPLACES PREVIOUS DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 EVP & General Counsel Jeff Hansen, Executive Vice President, General Counsel Jay McGrath, Chief Legal Officer Chief Legal Officer Vers.: Aug. 5, 2019 Page 5 of 9 EXHIBIT “B” COMPENSATION, AMENDMENT NO. 3 (AMENDED, REPLACES PREVIOUS) A. NOT TO EXCEED COMPENSATION. ORIGINAL TERM (Execution of Agreement until June 30, 2021) The not-to-exceed compensation to be paid to Consultant for performance of the Services described in Exhibit “A”, including both payment for professional services and reimbursable expenses, as detailed in this Exhibit “B” (“Compensation”), shall not exceed $859,000 for FY 2018, and for Year 1 of this Agreement (FY 2019). The not-to-exceed amounts for Year 2 and Year 3 annual compensation to Consultant hereunder shall be as determined in the approved Annual Operating Budget for each such year, as provided for in this Agreement. Payment of the annual compensation due to Consultant hereunder shall be made in quarterly installments. Quarterly payments consist of the following: 1. A quarterly management fee of $27,000. 2. Up to $1,000 per month for travel reimbursement up to the not-to-exceed amount of $39,000 for the Term of this Agreement. 3. Quarterly lump sum payments based on the approved Annual Operating Budget. The first quarterly lump sum payment includes payment for start-up costs which are detailed in Section D (“Start-Up Costs”) below. Quarterly payments for FY 2018 and for Year 1 (FY 2019), paid upon receipt of invoice as provided for herein, shall follow the schedule below: Q4 FY 2018* $ 859,000 Q1 FY 2019 $ 670,000 Q2 FY 2019 $ 662,000 Q3 FY 2019 $ 618,000 Q4 FY 2019 $ 679,000 Total $3,488,000 * Including start-up costs detailed in Section D (“Start-Up Costs”) below. The quarterly payments for Year 2 (FY 2020) and Year 3 (FY 2021) of this Agreement shall be based upon the approved Annual Operating Budget for each such year as provided for in this Agreement. In no event shall the Annual Operating Budgets for Year 2 and Year 3 of this Agreement grow by more than 3% over the prior year. DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 6 of 9 BUDGET SCHEDULE NOT TO EXCEED AMOUNTS (ORIGINAL TERM ONLY): Sub-total Services: $ 8,862,000 Total Reimbursable Expenses (Travel): $ 39,000 Total Services and Reimbursable Expenses: $ 8,898,000 Contingency Amount: $ 110,000 Maximum Total Compensation: $9,008,000 FIRST RENEWAL TERM (July 1, 2021-June 30, 2024) The not-to-exceed compensation to be paid to Consultant for performance of the Services described in Exhibit “A”, including both payment for professional services and reimbursable expenses, as detailed in this Exhibit “B” (“Compensation”), shall not exceed $2,844,095 for Year 4 of this Agreement (July 2021-June 2022, aka FY2022). The not-to- exceed amounts for Year 5 (July 2022-June 2023) and Year 6 (July 2023-June 2024) annual compensation to Consultant hereunder shall be as determined in the approved Annual Operating Budget for each such year, as provided for in this Agreement. Payment of the annual compensation due to Consultant hereunder shall be made in quarterly installments. Quarterly payments consist of the following: 1. A quarterly management fee of $27,000. 2. Up to $1,000 per month for travel reimbursement up to the not-to-exceed amount of $36,000 during the First Renewal Term of this Agreement. 3. Quarterly lump sum payments based on the approved Annual Operating Budget. Quarterly payments for Year 4, paid upon receipt of invoice as provided for herein, shall follow the schedule below: Q1 FY 2022 $ 711,023.75 Q2 FY 2022 $ 711,023.75 Q3 FY 2022 $ 711,023.75 Q4 FY 2022 $ 711,023.75 Total $ 2,844,095.00 The quarterly payments for Year 5 and Year 6 of this Agreement shall be based upon the approved Annual Operating Budget for each such year as provided for in this Agreement. In no event shall the Annual Operating Budgets for Year 5 and Year 6 of this Agreement grow by more than 3% over the prior year. DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 7 of 9 BUDGET SCHEDULE NOT TO EXCEED AMOUNTS FOR YEARS 4 THROUGH 6: Sub-total Services: $ 8,754,813.24 Total Reimbursable Expenses (Travel): $ 36,000 Total Services and Reimbursable Expenses: $ 8,790,813.24 Contingency Amount: $87,908.13 Maximum Total Compensation for Years 4-6: $ 8,878,721.37 SECOND RENEWAL TERM (July 1, 2024-June 30, 2027) The not-to-exceed compensation to be paid to Consultant for performance of the Services described in Exhibit “A” retroactive to July 1, 2024, including both payment for professional services and reimbursable expenses, as detailed in this Exhibit “B” (“Compensation”), shall not exceed $3,237,725 for Year 7 of this Agreement (July 2024- June 2025, aka FY2025). The not-to-exceed amounts for Year 8 (July 2025-June 2026) and Year 9 (July 2026-June 2027) annual compensation to Consultant hereunder shall be as determined in the approved Annual Operating Budget for each such year, as provided for in this Agreement. Payment of the annual compensation due to Consultant hereunder shall be made in quarterly installments. Quarterly payments consist of the following: 1. A quarterly management fee of $27,000. 2. Up to $1,000 per month for travel reimbursement up to the not-to-exceed amount of $36,000 during the First Renewal Term of this Agreement. 3. Quarterly lump sum payments based on the approved Annual Operating Budget. Quarterly payments for Year 7, paid upon receipt of invoice as provided for herein, shall follow the schedule below: Q1 FY 2025 $ 809,431.25 Q2 FY 2025 $ 809,431.25 Q3 FY 2025 $ 809,431.25 Q4 FY 2025 $ 809,431.25 Total $ 3,237,725.00 The quarterly payments for Year 8 and Year 9 of this Agreement shall be based upon the approved Annual Operating Budget for each such year as provided for in this Agreement. In no event shall the Annual Operating Budgets for Year 8 and Year 9 of this Agreement grow by more than 3% over the prior year. DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 8 of 9 BUDGET SCHEDULE NOT TO EXCEED AMOUNTS FOR YEARS 7 THROUGH 9: Sub-total Services: $ 9,971,485.00 Total Reimbursable Expenses (Travel): $ 36,000.00 Total Services and Reimbursable Expenses: $ 10,007,485.00 Contingency Amount: $100,074.85 Maximum Total Compensation for Years 4-6: $ 10,107,559.85 REIMBURSABLE EXPENSES The administrative, overhead, secretarial time or secretarial overtime, word processing, photocopying, printing, insurance and other ordinary business expenses are included within the scope of payment for services and are not reimbursable expenses. City shall reimburse Consultant for the following reimbursable expenses at cost. Expenses for which Consultant shall be reimbursed are: Travel for Consultant’s management staff to travel from Consultant’s headquarters to the Premise/City to ensure performance in accordance with this Agreement, not to exceed $1,000 per month over the Term of this Agreement. The expenses eligible for reimbursement under this paragraph are ordinary business expenses of Consultant and not operational expenses of managing the Premise. INCENTIVE PAYMENTS Consultant is eligible to receive incentive payments based upon achieving/exceeding annual revenue targets. For example, for FY 2022, revenue excluding golf retail merchandise sales, must exceed $ 3,761,644 in order for Consultant to be eligible for incentive payments. If the revenue target is achieved/exceeded, then for every dollar of revenue achieved in excess of the annual revenue target, Consultant may retain $0.20 as an incentive payment. CONTINGENCY AMOUNT An additional 1% of CONSULTANT compensation will be a contingency amount and is reserved by the City for possible use in the event of any reasonable and unforeseen costs during the fiscal year, as agreed to by City and implemented pursuant to a written amendment to this Agreement as provided for herein. ADDITIONAL SERVICES No Additional Services are authorized by the City through this Agreement, unless pursuant to a written amendment to this Agreement as provided for herein. B. PAYMENT. Subject to Section 5 (“Invoices”) of the Agreement, Consultant shall submit quarterly invoices to the City in advance of each quarter. The Consultant’s invoice will then be submitted to the fiscal section for payment at which point the City has 30 working days from the last date of the invoice to render payment to the Consultant. DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 9 of 9 Invoices must include Consultant name, address, contract number, description of services, date of services, and compensation amount. C. LATE FEES. 1. City shall pay to Consultant all of the fees described above, and any other sums due Consultant, at the times, at the places, and in the manner herein provided. If any payment or any part thereof to be made by City to Consultant pursuant to the terms hereof shall become overdue for a period of sixty (60) days, a “late charge” may be charged by Consultant for the purpose of defraying the expense incident to handling such delinquency. 2. The late charge shall be equal to the lesser of: (i) 1% of the quarterly management fee; or (ii) $2,000 per month overdue based on the date payment was due. 3. In the event any portion of this Section violates any state or federal law or regulation, this Section shall be deemed void and shall have no other effect or make invalid any other provision of this Agreement. D. START-UP COSTS. The City has agreed to pay, as a part of the Q4 FY 2018 payment to Consultant, the following items that Consultant shall purchase but City will retain ownership of. These include: Item(s) Amount Point of Sale/Tee Time Systems “Clover” & Computers $ 10,000 Goose Dog $ 7,500 Office/Pro-Shop Equipment $ 16,116 Cart Storage & Range Equipment / Supplies $ 13,750 Restaurant tables, chairs and other furniture $ 44,189 Paint, Carpet, Flooring in Restaurant/Pro-Shop $ 80,000 New Inventory Purchases-Retail $ 50,000 Pre-Opening Marketing $ 71,075 Total Start-Up Costs $ 292,630 DocuSign Envelope ID: 02690DB3-EE59-485A-B0CB-5B1808B6A231 Vers.: Aug. 5, 2019 Page 1 of 4 AMENDMENT NO. 3 TO CONTRACT NO. C18171872 (RESTAURANT) BETWEEN THE CITY OF PALO ALTO AND OB SPORTS GOLF MANAGEMENT (BAYLANDS), LLC This Amendment No. 3 (this “Amendment”) to Contract No. C18171872 (the “Contract” as defined below) is entered into as of August 19, 2024, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and OB SPORTS GOLF MANAGEMENT (BAYLANDS), LLC, a Limited Liability Company, Department of Industrial Relations Registration No.1001184589, located at 15044 North Scottsdale Road, Suite 300, Scottsdale, AZ 85254 (“CONSULTANT”). CITY and CONSULTANT are referred to collectively as the “Parties” in this Amendment. R E C I T A L S A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of restaurant services to provide food and beverages and banquet services, as more fully described in Exhibit “A” (Scope of Services), as detailed therein. B. The Parties now wish to amend the Contract in order to (1) extend the contract term for two years and nine months through June 30, 2027; (2) retroactive to July 1, 2024, increase monthly rent by ten percent (10%) from four thousand dollars ($4,000) to forty-four hundred dollars ($4,400); and (3) increase utilities fees by ten percent (10%) from fifteen hundred dollars ($1,500) to sixteen hundred fifty dollars ($1,650), as detailed herein. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree: SECTION 1. Definitions. The following definitions shall apply to this Amendment: a. Contract. The term “Contract” shall mean Contract No. C18171872 between CONSULTANT and CITY, dated April 10, 2018, as amended by: Amendment No. 1, dated June 21, 2021 Amendment No. 2, dated July 3, 2024 b. Other Terms. Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract. SECTION 2. Section 2, “TERM AND OPTION”, of the Contract is hereby amended to read as follows: “The term of this Agreement shall be from the date of its full execution and approval by City’s City Council (the “Commencement Date”) through June 30, 2027 unless terminated earlier pursuant to Section 19 of this Agreement. DocuSign Envelope ID: 52E5B79B-DE04-4401-957D-7D935B3002E8 Vers.: Aug. 5, 2019 Page 2 of 4 A renewal option for a period or periods of up to 3 years (from July 1, 2021 through June 30, 2024, is available as mutually agreed, to be executed in accordance with Section 27.4 of this Agreement. (In June 2021, the Parties agreed to the first renewal option in Amendment 1 to this Agreement.) A second renewal option for a period or periods of up to an additional 3 years (from July 1, 2024 through June 30, 2027), is available as mutually agreed, to be executed in accordance with Section 27.4 of this Agreement. Absent a mutually extended agreement, the City reserves the right to extend this Agreement for up to six months. During such six-month extension period, the parties may agree to a renewal option as provided for herein.” SECTION 3. The following exhibit(s) to the Contract is hereby amended, as indicated below, to read as set forth in the attachment to this Amendment, which is hereby incorporated in full into this Amendment and into the Contract by this reference: a. Exhibit “B” entitled “COMPENSATION”, AMENDMENT NO. 3”, AMENDED, REPLACES PREVIOUS SECTION 4. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect. SECTION 5. Incorporation of Recitals. The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference. (SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.) DocuSign Envelope ID: 52E5B79B-DE04-4401-957D-7D935B3002E8 Vers.: Aug. 5, 2019 Page 3 of 4 SIGNATURES OF THE PARTIES IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written. CITY OF PALO ALTO _____________________________ City Manager APPROVED AS TO FORM: _____________________________ City Attorney or designee OB SPORTS GOLF MANAGEMENT(BAYLANDS), LLC Officer 1 By:__________________________ Name:_______________________ Title:________________________ Officer 2 By:___________________________ Name:________________________ Title:__________________________ Attachments: EXHIBIT "B" entitled “COMPENSATION, AMENDMENT NO. 3”, AMENDED, REPLACES PREVIOUS DocuSign Envelope ID: 52E5B79B-DE04-4401-957D-7D935B3002E8 Jeff Hansen, Executive Vice President, General Counsel EVP & General Counsel Chief Legal Officer Jay McGrath, Chief Legal Officer Vers.: Aug. 5, 2019 Page 4 of 4 EXHIBIT “B” COMPENSATION, AMENDMENT NO. 3 AMENDED, REPLACES PREVIOUS A. Rent The rent to be paid by CONSULTANT shall be paid in advance on or before the first day of every month during the term of this Agreement. CONSULTANT shall pay rent to CITY according to the following schedule: Time Period Rent Amount Owed to City May 2018 through June 2019 $1 per month July 2019 through June 2020 $4,000 per month June 2020 through June 2024 At least $4,000 per month but subject to increase based on net revenue expectations July 2024 through the end of this Agreement At least $4,400 per month but subject to increase based on net revenue expectations B. Utilities The CITY provides gas, electricity, water, sewer and refuse collections services (“utilities”) as required for CONSULTANT’S use. The utilities fees to be paid by CONSULTANT shall be paid in advance on or before the first day of every month during the term of this Agreement. CONSULTANT shall pay utilities fees to CITY according to the following schedule: Time Period Utilities Fees Owed to City May 2018 through June 2019 No charge to CONSULTANT. July 2019 through June 2024 $1,500 per month July 2024 through the end of this Agreement At least $1,650 per month Notwithstanding the above terms of this Section B, CONSULTANT shall be responsible for gas, electricity, water, sewer and refuse collection services that are not required for CONSULTANT’S use or for uses not authorized by this Agreement. C. Late Fees 1. CONSULTANT shall pay to CITY all of the fees described above, and any other sums due CITY, at the times, at the places, and in the manner herein provided. If any payment or any part thereof to be made by CONSULTANT to CITY pursuant to the terms hereof shall become overdue for a period of sixty (60) days, a “late charge” may be charged by CITY for the purpose of defraying the expense incident to handling such delinquency. 2. The late charge shall be equal to 1% of the payment owed. 3. In the event any portion of this Section violates any state or federal law or regulation, this Section shall be deemed void and shall have no other effect or make invalid any other provision of this Agreement. DocuSign Envelope ID: 52E5B79B-DE04-4401-957D-7D935B3002E8 Dear Mayor and Council Members, On behalf of City Manager Ed Shikada, please see staff responses below for questions from Mayor Stone, Vice Mayor Lauing, and Council Member Tanaka on the Monday, August 19 Council Meeting. Item 6: Addition of Five Properties to the City’s Historic Resources Inventory Based on Owner Interest. CEQA Status: Pursuant to Public Resources Code Section 21065, the Historic Designation of Properties is not a Project Subject to Environmental Review – Mayor Stone 1. Regarding item #6, I wanted to clarify a procedural issue. Is this item solely to approve 5 homes where the owners proactively requested the city to add them to the historic registry? Staff response: Yes, the owners of the 5 listed properties responded to city outreach efforts and requested to be placed on the historic inventory. 2. Will a subsequent action item be scheduled to return to council for part 3 of the April 22 motion that requested staff to, "study the possibility of a process for removing the properties as shown as potentially eligible in the parcel reports and return to council with evaluations on any alternatives”? I just want to make sure that this consent item is not the full response to that previous council motion and that more will be returning to council. Staff response: It is the intent of staff to return to the council at a subsequent date to address part 3 of the council motion. At the most recent August 8, 2024, Historic Resources Board (HRB) meeting staff presented alternatives to the “potentially eligible” status for review and consideration. The HRB’s consensus was to closely align the City’s historic status language with the statuses found in the California Built Environment Resources Directory (BERD) for consistent messaging. Item 7: Approval of a Lease Amendment Between Palo Alto Players and the City of Palo Alto for the Premises at the Lucie Stern Community Center Located at 1305 Middlefield Road for an Approximate 36-month Term, at a starting Base Rent of $1,540.75 per Month and Increasing 3% Annually; CEQA Status – Council Member Tanaka 1. Considering that this lease could set a precedent for future agreements, what specific policies or guidelines does the City intend to implement to manage similar requests in the future? Could you provide detailed scenarios or case studies from other cities that faced comparable situations, and explain how they balanced support for cultural institutions with maintaining fair market practices? Staff response: This lease has been in place for many years, and the City’s policy on leased facilities provides guidance on leased use of City land/facilities. In addition, following a City Auditor report on non-profit relationships, the City will have an upcoming study session on prospective approaches for nonprofit relationships and risk management. 2. What stakeholder analysis was conducted to assess potential concerns from other local businesses or non-profits who might feel disadvantaged by this lease extension? Can you outline the specific outreach efforts made to these groups and how their feedback was integrated into the decision-making process? Staff response: The Palo Alto Players have been leasing this office space since 2012. Staff is unaware of any local businesses or nonprofits that have felt disadvantaged by their occupancy of this space. 3. Given that the Palo Alto Players are benefiting from a below-market lease rate, what specific measures has the City taken to ensure that other non-profits are not disadvantaged by this arrangement? Could you provide concrete examples of how the City plans to apply consistent criteria for lease agreements across different organizations to prevent potential inequities or perceptions of favoritism? Staff response: Please see the responses above. The City will have an upcoming study session on prospective approaches for nonprofit relationships and risk management. Item 9: Approval of Contract Renewal for Baylands Golf Links Management and Restaurant Operations – Council Member Tanaka 1. The staff report references the overall positive financial trajectory under OB Sports' management but omits a detailed analysis of specific areas where revenue has underperformed, such as merchandise sales falling 6% below projections. Considering the ongoing weekday traffic issues impacting utilization rates, what are the specific financial projections for these underperforming areas over the next two years, and how does the City plan to mitigate these ongoing risks to the revenue stream? Could you provide a risk assessment of these revenue shortfalls and their potential impact on the City’s broader financial obligations? Staff response: Traffic hindering access to the golf course has not been observed and has not impacted utilization. Merchandise sales are a small component with minimal impact on the overall revenue for the golf course operations. The golf course operator has shifted their merchandise sales model to include high-quality Golf Course (Baylands Logo) name- branded items to help offset the competition with online sales. 2. The staff report highlights OB Sports' current strategies but does not address the ongoing challenges of low weekday utilization due to traffic congestion. What innovative strategies, such as partnerships with local businesses or targeted marketing initiatives, are being planned to increase weekday play and improve underperforming areas like merchandise sales? How will the success of these strategies be measured and reported to ensure they contribute to the course's long-term growth and sustainability? Staff response: Traffic hindering access to the golf course has not been observed and has not impacted utilization. The weekly play has not been affected. Item 10: Approval of Amendment No. 2 to the Lease Agreement Between the City of Palo Alto and the County of Santa Clara (Contract No. 1557819) at 2000 Geng Road for Safe Parking to Expand the Premises of the Lease and Increase by 10 the Number of Safe Parking Spaces Permitted; CEQA – Exempt pursuant to CEQA Guidelines Section 15061(b)(3) – Vice Mayor Lauing 1. What is the official game plan for funding this operation, and how do community donations fit in? Staff response: Over the summer, staff worked quickly with community partners to find safe parking capacity to accommodate potential displaced vehicle dwellers from El Camino Real. With Geng Road expansion identified as the most feasible and timely solution, fundraising provides an opportunity for community members to start this operation quickly. In parallel, staff is working to identify a budget source to cover ongoing operational costs and will bring a funding proposal to Council at mid-year. Staff also applied for grant funding. Donated funds ensure the operations can begin quickly to serve displaced vehicle dwellers. The proposed safe parking expansion operations will cost $266,162 annually. For fundraising purposes, the amount being sought is approximately $130,000 to cover the 1st six months of operation and will go directly to the operator, MOVE Mountain View. The current operations contract with the operator is held and paid for by Santa Clara County, and the County has indicated it does not have budget allocated to cover expanded operations.