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HomeMy WebLinkAboutStaff Report 3.D 09/17/2018DATE: TO: FROM: SUBJECT: September 17, 2018 Honorable Mayor and Members of the City Council through City Manager Eric Danly, City Attorney Adoption (Second Reading) of an Ordinance Approving an Airport Hangar Ground Lease with Golden State Lumber RECOMMENDATION It is recommended that the City Council Adopt an Ordinance Approving an Airport Hangar Ground Lease with Golden State Lumber. BACKGROUND In 2007, Golden State Lumber purchased a private hangar at the Petaluma Airport previously owned by Peter Pfendler, and, through an Assignment and Assumption agreement, assumed the former Pfendler ground lease at the Petaluma Municipal Airport. The Airport ground lease that Golden State Lumber has assumed is set to expire October 31, 2018 and includes an option for a lease extension that if exercised would extend the lease another ten years through October 31, 2028. In advance of buying a new aircraft to be stored in the hangar space Golden State Lumber occupies at the Petaluma Airport, Golden State Lumber requested a further extension of its ground lease beyond the current option period which would extend the lease for an additional 20 years through 2048. In view of lease term limits contained in the City's charter, and the now somewhat antiquated lease agreement with Golden State Lumber (the Pfendler lease took effect in October, 1988), staff proposed that instead of further extending the assumed lease it would be preferable for the parties to enter a new lease modeled on the use agreements currently used at the Petaluma Airport. Golden State Lumber counsel agreed with staff's recommended approach. The proposed lease requires Council approval by ordinance in accordance with Article VII, Section 46 of the City's charter. By a unanimous vote of the City Council at its September 10 meeting the City Council introduced an ordinance for approval of a new hangar ground lease with Golden State Lumber. DISCUSSION The attached proposed new ground lease would take effect November 1, 2018 and expire 30 years later, on October 31, 2048. Having a long-term tenant in a large space at the Petaluma Airport helps provide financial stability for Airport operations through lease payments and fuel purchases. Taking into account the different types of use agreements at the airport, including tie -down licenses, licenses of City - owned hangars, ground leases for private hangars, and ground leases for Fixed Base Operators, staff have concluded that the lease payments that would apply to Golden State Lumber under the proposed lease are appropriate and consistent with current Airport use charges. The proposed new ground lease satisfies the lease term limits contained in Article XI, Section 75 of the City charter. FINANCIAL IMPACTS Golden State Lumber will pay rent for the ground space it occupies in the amount of $4,801.06 per year, paid in six-month installments. Consistent with the terms of the 10 -year option period that will be subsumed by the proposed new lease, for the first ten years of the new lease term, the lease payment amount will be adjusted every five years for inflation. Commencing year eleven of the new lease, inflation adjustments will occur annually. Airport revenues will benefit from Golden State Lumber fuel purchases at the airport. The amount of fuel purchased will depend upon aircraft usage. Staff understand that Golden State Lumber intends to arrange that purchase of the new aircraft will have Petaluma as situs for purpose of taxes on the purchase, and that one- time tax revenue in excess of $900,000 will result, with the City's share equaling approximately $100,000. ATTACHMENTS 1. Ordinance Approving an Airport Hangar Ground Lease Page 2 ATTACHMENT 1 EFFECTIVE DATE OF ORDINANCE ORDINANCE NO. XXXX N.C.S. Introduced by Seconded by ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PETALUMA APPROVING AN AIRPORT HANGAR GROUND LEASE WITH GOLDEN STATE LUMBER WHEREAS, the City of Petaluma owns that certain real property known as the Petaluma Municipal Airport ("Airport"); and WHEREAS, the City deems it advantageous to Airport operations to lease to Golden State Lumber ("Lessee") certain Airport land, together with certain rights and interest therein; and WHEREAS, Section 46 of Article VII of the Petaluma City Charter provides, in pertinent part, that no City action providing for the sale or lease of real property having a value of $3,000 or more may be taken except by ordinance or pursuant to a general law of the State; and WHEREAS, Section 75 of Article XI of the Petaluma Charter provides in pertinent part that leases of City property must reserve to the City adequate compensation for the privilege conferred and that lease terms may not exceed an initial period of fifty years with the option to renew for an additional twenty-five years; and WHEREAS, Lessee has used and desires to continue using certain land at the Airport for the construction and/or operation of a Lessee -owned hangar thereon for the storage of aircraft owned or leased by Lessee and used for aviation -related purposes; and WHEREAS, Lessee has been assigned an Airport ground lease on two Airport parcels, in accordance with a lease agreement dated October 24, 1988, originally between the City and Peter Pfendler as lessee ("Original Lease"), which Original Lease will by its terms expire on October 31, 2018; and WHEREAS, Lessee assumed its obligations under the Original Lease on August 7, 2007, pursuant to an Assignment and Assumption of Lease agreement; and WHEREAS, the Original Lease grants Lessee an option to extend the Original Lease for an additional 10 -year period, which option, if exercised, would extend the Original Lease until October 31, 2028; and Page 3 WHEREAS, City and Lessee have agreed that it is preferable to substitute for the Original Lease a modern Airport ground lease agreement consistent with City's current Airport use agreements to preserve Lessee's rights under the Original Lease, extend the term of the Lessee's use of Airport Parcels A and B to accommodate the useful life of a new aircraft Lessee is acquiring, and to obtain benefits for both Lessee and City under a modern lease document; NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF PETALUMA AS FOLLOWS: Section 1. Approval of Lease. In accordance with Section 46 of Article VII of the Petaluma City Charter and other applicable law, the lease agreement between the City of Petaluma and Golden State Lumber that is attached to and is hereby made a part of this ordinance as Exhibit A is hereby approved, and the City Manager is hereby authorized and directed to execute on behalf of the City a lease agreement with Golden State Lumber that is substantially in accordance with that attached as Exhibit A and is approved as such by the City Attorney. Section 2. Severability. If any section, subsection, sentence, clause, phrase or word of this ordinance is for any reason held to be unconstitutional, unlawful or otherwise invalid by a court of competent jurisdiction or preempted by state legislation, such decision or legislation shall not affect the validity of the remaining portions of this ordinance. The City Council of the City of Petaluma hereby declares that it would have passed and adopted this ordinance and each and all provisions thereof irrespective of the fact that any one or more of said provisions be declared unconstitutional, unlawful or otherwise invalid. Section 3. Effective Date. This ordinance shall become effective thirty (30) days after the date of its adoption by the Petaluma City Council. Section 4. Posting/Publishing of Notice. The City Clerk is hereby directed to publish or post this ordinance or a synopsis for the period and in the manner provided by the City Charter and other applicable law. INTRODUCED, and ordered posted/published, this 10th day of September, 2018. ADOPTED this 17th day of September, 2018, by the following vote: Ayes: Noes: Abstain: Absent: David Glass, Mayor Page 4 ATTEST: APPROVED AS TO FORM: Claire Cooper, City Clerk Eric Danly, City Attorney Page 5