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  9.E.       
Meeting Date: 04/18/2017  
From: Charity Lee, Real Estate Manager

TITLE:
Consideration and Approval of Lease Agreements:  (1) A Lease with Pulliam I, LLC (for a gas station and convenience store); and  (2) A  Lease with Pulliam I, LLC  (for an office building); both Leases located at 3051 West  Shamrell Boulevard, parcel number 116-61-013, Pulliam Airport Airpark AM Unit 02, Tract: 5B, a 25.58 acre parcel.
RECOMMENDED ACTION:
Approval of two Lease Agreements under the original terms and conditions of the Master Lease as amended through the Fourth Amendment to the Lease Agreement with Pulliam I, LLC dated March 29, 2012; direct staff to prepare the lease forms and allow for immaterial changes with no reduction in rent; and authorize the City Manager to execute the final documents. 
Executive Summary:
  • Pulliam I, LLC ("Lessee") is exercising its option as defined in the Fourth Amendment to the Lease Agreement.
  • The Fourth Amendment to the Lease adopted by Council, March 6, 2012, Resolution No. 2012-07 (1) Extended the term of the Lease to April 30, 2085. (2) Provided an option for the Lessee to enter into additional Leases to develop the site under the same conditions of the Lease, until April 30, 2017. 
Financial Impact:
Annual Rent:
  • Lessee is proposing a different rental structure and Staff has not had an opportunity to determine the financial effect.
     
Current Rent Structure:
  • Rents are based on the square footage of the building envelope plus 6 1/2% of net base rents.
  • Currently the City receives approximately $84,025 annually from existing leases
Staff recommends approval of lease under the same terms as the current rental structure.
Policy Impact:
None
Connection to Council Goal, Regional Plan and/or TeamFlagstaff Strategic Plan:
Economic Development: Grow and strengthen a more equitable and resilient economy.
Has There Been Previous Council Decision on This:
Yes.
  • Lease Agreement with Pulliam LLC approved by Council 6/16/1998, unanimous vote.
  • Memorandum of Lease approved by Council 9/7/1999, unanimous vote.
  • Lease Agreement with Pulliam II, LLC approved by Council 1/7/2003, unanimous vote.
  • First Amendment to the Lease Agreement with Pulliam LLC and Pulliam II,  LLC  approved by Council 6/7/2005, unanimous vote.
  • Lease Agreement with Pulliam III, LLC and Pulliam IV LLC approved by Council 7/5/2005, unanimous vote.
  • Second Amendment to the Lease, signed by Mayor on June 21, 2005.
  • Third Amendment to the Lease, signed by Mayor on October 31, 2007.
  • Fourth Amendment to the Lease, approved by Council 3/06/2012 by Resolution No. 2012-07, unanimous vote.
Options and Alternatives:
1. Approve the Lease Agreements under the original terms and conditions of the Master Lease as amended through the Fourth Amendment with Pulliam I, LLC dated March 29, 2012, direct staff to prepare the lease forms and allow for immaterial changes with no reduction in rent, authorize the City Manager to execute the final documents.  Lessee is exercising its legal option as defined in the Fourth Amendment; option expires on April 30, 2017.

2. Do not approve Lease Agreements. This option is not recommended due to legal concerns.
 
Background/History:
  • 1998, the City entered into ("the Original Agreement")  with Pulliam LLC for the development of Pulliam Airport Airpark AM Unit 02, Tract: 5B, located at 3051 West  Shamrell Boulevard, parcel number 116-61-013.
  • The Original Agreement was for the development of 21 acres to be developed one unit at a time in three-year increments.
  • Four Amendments to the Lease approved by Council since 1998. 
  • Existing Lease allows for the development and lease of 25.58 acres of the site.
  • The City is the land owner and has a ground lease on the site until April 30th, 2085. 
  • The parcel has been developed in stages since 1998. Currently there are four office buildings on the site under separate Lease Agreements,  Pulliam II, LLC, Pulliam III, LLC, and Pulliam III, LLC and Pulliam IV, LLC. 
  • The City does not own the improvements on the land.
  • Lessee has the option to enter into additional leases for the development of the site until April 30, 2017
  • Lessee is exercising its option.   Lessee proposes Pulliam V, LLC and Pulliam VI, LL will be the lessees for purposes of the two leases being proposed.  However, Arizona Corporation Commission records do not reflect that these entities exist at this time.  City must contract with a legal entity.
Key Considerations:
The Lessee intends to develop a gas station and convenience store under one lease (proposed Pulliam V, LLC). This use would be of great benefit for the airport and rental car companies since the gas station would be in close proximity to the airport.  This project has been a desire for the City for many years. 

The Lessee intends to develop an office building under the other lease (proposed Pulliam VI, LLC).   

The Master Lease does not require a commitment of a certain improvements.  The proposed Leases therefore also would allow plans for improvements to change. 
Expanded Financial Considerations:

By approving the additional leases the City will increase the revenues to the airport once improvements are constructed and open for business. The rent will be based on a price per square foot for the building footprint, not the entire leased area.

 

Community Benefits and Considerations:
  • Office space for business operations .
  • Potential gas station and convenience store.
  • Income stream for the airport.
     
Community Involvement:
Inform
Attachments
Exhibit of Tract 5B
Concept Map
Fourth Amendment to the Lease
Third Amendment to the Lease
Second Amendment to the Lease
First Amendment to the Lease
Master Lease


    

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