Los Angeles World Airports

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RESOLUTION NO. 26873

BE IT RESOLVED that, on recommendation of Management, the Board of Airport Commissioners approved First Amendment to Lease VNA-8553 with Van Nuys Golf Management Partners, LLC to modify the rent structure to provide rent relief, covering operation of a golf course located at 6550 Odessa Avenue at Van Nuys Airport, as referenced in the Board-adopted staff report attached hereto and made part hereof; and

LAX

BE IT FURTHER RESOLVED that the Board of Airport Commissioners authorized the Chief Executive Officer to execute the First Amendment to Lease VNA-8553 between the City of Los Angeles and Van Nuys Golf Management Partners, LLC upon approval as to form by the City Attorney and approval by the Los Angeles City Council; and

Van Nuys

City of Los Angeles

Eric Garcetti Mayor

Board of Airport Commissioners

BE IT FURTHER RESOLVED that the issuance of permits, leases, agreements, gate and space assignments, and renewals, amendments or extensions thereof, or other entitlements granting use of existing airport facilities or its operations is categorically exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to Article III, Class 1 (18)(c) of the Los Angeles City CEQA Guidelines; and

Sean O. Burton President

Valeria C. Velasco Vice Presidert

BE IT FURTHER RESOLVED that this action is subject to the provisions of Los Angeles City Charter Sections 606.

Gabriel L. Eshaghlan Beatrice C. Hsu Nicholas P. Roxborough Dr. Cynlhia A. Telles Karim Webb

oOoDeborah Flint Chief Executive Officer

I hereby certify that this Resolution No. 26873 is true and correct, as adopted by the Board of Airport Commissioners at its Regular Meeting held on Thursday, November 7, 2019.

Grace Miguel - SecretaryBOARD OF AIRPORT COMMISSIONERS

ithpE f-V * S

1 World Way Los Angeles California 90045-5803 Mail P.O. Box 92216 Los Angeles California 90009-2216 Telephone 310 646 5252 lnternetwww.lawa.org

$ ALos Angeles World Airports

REPORT TO THEBOARD OF AIRPORT COMMISSIONERS

Meeting Date:

Heitor fApproved by: Ramon Olivares, Dir Property Services 11/7/2019

Completed

Pending

□Reviewed ay: /Jeffrey Utterback, Deputy Executive Director CAO Review:

N/A□fJi /m Reviewed for Date Approval Status I By

BY □ N □ NA | RW

E3Y □ N □ YDN Kl Cond I QM

Tty Attorney 10/25/2019Finance

CEQA 10/17/2019

10/21/2019

! JHProcurement

h • ! t - ^hief Executive Officer 10/22/2019Guest Experience BY (UN BY

10/17/2019Strategic Planning □Y □ N H NA KV

Approval of First Amendment to Lease with Van Nuys Golf Management Partners, LLC at Van Nuys Airport

SUBJECT:

Approve the First Amendment to Lease No. VNA-8553 with Van Nuys Golf Management Partners, LLC to modify the rent structure to provide rent relief for the continued operation of a golf course at 6550 Odessa Avenue at Van Nuys Airport.

RECOMMENDA TIONS:

Management RECOMMENDS that the Board of Airport Commissioners:

1. ADOPT the Staff Report.

DETERMINE that this action is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Article III, Class 1 (18)(c) of the Los Angeles City CEQA Guidelines.

2.

APPROVE the First Amendment to Lease No. VNA-8553 with Van Nuys Golf Management Partners, LLC.

3.

AUTHORIZE the Chief Executive Officer to execute the First Amendment to Lease No. VNA- 8553 between the City of Los Angeles and Van Nuys Golf Management Partners, LLC upon approval as to form by the City Attorney and approval by the Los Angeles City Council.

4.

Page 1First Amendment to Lease No. VNA-8553 withVNGMP

DISCUSSION:

1. Purpose

To provide Van Nuys Golf Management Partners, LLC (VNGMP) with rent relief under the Lease.

2. Prior Related Actions

• December 6, 2010 - Board Order No. AO-5293 'The Board of Airport Commissioners (Board) approved a ten-year Lease (VNA-8553) with a twenty-year option to extend the term between the City of Los Angeles and VNGMP to operate and maintain the Van Nuys Golf Course at Van Nuys Airport (VNY).

3. Current Action

VNGMP occupies the premises at 6550 Odessa Avenue under Lease No. VNA-8553 for the operation and maintenance of the Van Nuys Golf Course. The premises consists of 55 acres of land located within the South Approach area of VNY. The current Lease will expire on June 8, 2021.

VNGMP is requesting rent relief under the Lease due to revenue losses stemming primarily from stagnant participation in the sport and stiff competition from three municipal/county operated golf courses within close proximity to Van Nuys Golf Course (refer to attached map). The decline in golf revenues is in spite of VNGMP’s effort to introduce new streams of revenue and control operational expenses. VNGMP also has informed LAWA that it will not exercise the option to extend the Lease beyond the initial term.

The financial difficulties facing VNGMP are similar to those experienced by the former operator of LAWA’s Palmdale Desert Aire Golf Course, as well as other golf courses in California. Until December 2018, the Palmdale golf course operator had been having difficulty operating the golf course at a sustained profit. The difficulty was primarily due to increasing costs associated with (1) payroll increases, (2) golf course maintenance and repair, and (3) diminished user demographics and waning interest in the game of golf. In December 2018, the Board ultimately approved a new lease with a new operator, but with financial lease terms that considered those operating challenges and difficulties. Additionally, there were concerns about costs LAWA would have to incur if a decision was made to close the golf course, such as maintenance, environmental, security, and other costs. VNGMP has experienced the same difficulties noted above.

To address the challenges faced by VNGMP, staff proposes a First Amendment to the Lease, which will alter the rent structure to provide rent relief for the remainder of the initial term. Such rent relief will allow VNGMP to continue operating and maintaining the Van Nuys Golf Course at least through the expiration of the initial term. Staff of Commercial Development Group, as well as the Chief Financial Officer, reviewed VNGMP’s financial statements and validated VNGMP’s financial and operational difficulties. As such, staff has determined that a reduction of the Minimum Annual Guarantee to $120,000 is supported by the financial information provided; this information reflects net income losses of $207,851, $254,949, and $323,802 for years 2016, 2017, and 2018, respectively. The proposed Amendment will include an early termination clause that can be exercised at LAWA’s option if a more favorable revenue-generating opportunity becomes available for LAWA’s benefit. Staff is evaluating various options regarding the future of the golf course, including a reduction in the size of the golf course and a possible change of use to promote land use optimization and increased revenues.

Page 2First Amendment to Lease No. VNA-8553 withVNGMP

The table below provides a summary of key elements of the proposed Amendment:

PROPOSED AMENDMENT

Current Proposed

February 9, 2011 No changeCommencement

No changeExpiration June 8, 2021

Termination Provision None 90 days at LAWA’s Option

Demised Premises:

No change55 acres (AC)Land

Payment to LAWA; Greater of MAG or Gross Receipts

a) Minimum Annual Guarantee $120,000*$325,000

b) Percentage of Gross Receipts:

18% for combined revenue up to $1,000,000; 20% for combined revenue in excess of $1,000,000

Green Fees, Golf Cart Rental Fees, and Driving Range Fees

9% for combined revenue up to $1,000,000; 10% for combined revenue in excess of $1,000,000

Instruction Paid to Course 2.5%*

2.5%*

2.5%*

2.5%*

5%

Merchandise 5%

5%Food

5%Beverage

Other 5% 2.5%*

* Effective March 1,2019

Action RequestedStaff requests the Board approve the First Amendment to Lease No. VNA-8553 to provide rent relief, so VNGMP can continue to operate and maintain the Van Nuys Golf Course at VNY.

Fiscal ImpactApproval of this First Amendment will result in a loss of $465,806 in revenue for the period of March 1, 2019 through June 8, 2021 (27 months). The revenue loss will be offset by the cost savings to LAWA associated with keeping the tenant liable for the maintenance and security costs of the 55-acre site for the aforementioned period.

Page 3First Amendment to Lease No. VNA-8553 withVNGMP

4. Alternatives Considered

• Take No Action

If the rent structure is not amended, VNGMP will continue to experience revenue losses. As a result, VNGMP may be forced to vacate the premises, leaving LAWA with the loss of revenue and the maintenance and security obligations for the 55-acre site.

STANDARD PROVISIONS:

1. The issuance of permits, leases, agreements, gate and space assignments, and renewals, amendments or extensions thereof, or other entitlements granting use of existing airport facilities or its operations is categorically exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to Article III, Class 1 (18)(c) of the Los Angeles City CEQA Guidelines.

This item is subject to approval as to form by the City Attorney.2.

Actions taken on this item by the Board of Airport Commissioners will become final pursuant to the provisions of Los Angeles City Charter Section 606.

3.

Van Nuys Golf Management Partners, LLC is required by contract to comply with the provisions of Living Wage Ordinance.

4.

5. The Business Enterprise Program does not apply to leases.

Van Nuys Golf Management Partners, LLC is required by contract to comply with the provisions of the Affirmative Action Program.

6.

Van Nuys Golf Management Partners, LLC must submit a Business Tax Registration Certificate prior to amendment of Lease Agreement.

7.

Van Nuys Golf Management Partners, LLC is required by contract to comply with the provisions of the Child Support Obligations Ordinance.

8.

Van Nuys Golf Management Partners, LLC must have approved insurance documents, in the terms and amounts required, on file with Los Angeles World Airports.

9.

10. This action is not subject to the provisions of City Charter Section 1022 (Use of Independent Contractors).

11. Van Nuys Golf Management Partners, LLC must submit the Contractor Responsibility Program Pledge of Compliance and comply with the provisions of the Contractor Responsibility Program.

12. Van Nuys Golf Management Partners, LLC must be determined by Public Works, Office of Contract Compliance, to be in compliance with the provisions of the Equal Benefits Ordinance prior to execution of the lease amendment.

13. This action is not subject to the provisions of the First Source Hiring Program.

14. Van Nuys Golf Management Partners, LLC must submit the Bidder Contributions CEC Form 55 and will comply with its provisions.

15. This action is not subject to the provisions of the Iran Contracting Act of 2010.

Page 4First Amendment to Lease No. VNA-8553 withVNGMP

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