| | | | | | | | Agenda Item - 2.d.
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
| To: | Scott C. Stiles
| From: | Lisa L. Kim
| | Dept.: | City Manager
| Dept.: | Community and Economic Development
| | Subject: | Approval of the Fourth Amendment to the Steelcraft Lease Agreement for the property located at 12900 Euclid Street, Garden Grove. (Action Item) | Date: | 3/9/2021 |
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| | | | | | | | OBJECTIVE
Consideration by City Council to approve a Fourth Amendment to the SteelCraft Garden Grove, LP, lease (“Fourth Amendment”) to extend an additional six month rent deferral, due to impacts of the COVID pandemic. |
| | | | | | | | BACKGROUND
In 2017, the City entered into a ground lease agreement with SteelCraft to lease approximately 1.7-acres of City-owned property located at 12900 Euclid Street. The urban outdoor eatery project opened in September 2019. The original lease provided for a 10-year term along with an option to extend up to four 5-year extensions. The monthly rent to be paid by StreelCraft for the first three years was set at $8,120 with periodic Consumer Price Index (CPI) adjustments.
Due to the impacts of COVID pandemic, a Third Amendment was approved in March 2020 for a 12-month rent deferral period with an option of an additional 6 month deferral. Unfortunately, the COVID pandemic compounded with more restrictive State guidelines have made Steelcraft operations challenging and a subsequent request to exercise the remaining 6-month rent deferral was made. |
| | | | | | | | DISCUSSION
With the challenges of the COVID-19 pandemic continuing, local businesses were further impacted this past November 2020 when Governor Newsom’s orders came into effect with more restrictive stay-at-home guidelines and a roll-back of 28 counties to Purple Tier which included Orange County. This has resulted in distressing impacts to Garden Grove’s local economy. For Steelcraft, the most restrictive State guidelines has caused permanent closure of four Steelcraft tenants (The Nest, Renegade Taco, Chick-n-Shack and Cauldron Ice Cream) and the temporary closure of Penalty Box. While Steelcraft owners made every effort to provide interest-free rent deferment and reduction of common area maintenance expenses, the strict State guidelines were difficult for start-up restaurants to sustain operations.
At this time, SteelCraft has submitted a written request to exercise the additional 6-month rent deferral option. Consideration of this request would be rent deferment of 6 months at no-interest from April 1, 2021 through September 30, 2021. The deferred rents would be repaid to the City over a five-year period, with repayment commencing October 1, 2021. Beginning October 1, 2021, SteelCraft would resume monthly rent of $8,120 along with the repayment rent of $2,436 per month bringing the total monthly rent to $10,556. The deferred amount would be $146,160. Additionally, waiver of the CPI adjustment during the deferral period is recommended.
Steelcraft team has provided regular bi-monthly operating report for the project and tenant activities with the most recent City Manager memorandum covered updates for January 2021.
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| | | | | | | | FINANCIAL IMPACT
The rent deferral would continue to pause the collection of rent until October 1, 2021. The 18-month deferred rent in the amount of $146,160 would be repaid over a five-year period and the City would be made whole. |
| | | | | | | | RECOMMENDATION
It is recommended that the City Council:
- Approve the Fourth Amendment to the Lease Agreement with SteelCraft Garden Grove LP; and,
- Authorize the City Manager to execute the Fourth Amendment and make minor modifications as needed on behalf of the City.
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