REPORT
FROM
OFFICE OF THE CITY ADMINISTRATIVE OFFICER
Date:
December 24, 2009
To:
The Mayor
The City Council
CAO File No.
0150-05719-0015
Council File No.
Council District: 11
Officer~
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From:
Miguel A. Santana, City Administrative
Reference:
Transmittal from the Department of Airports dated November 17, 2009; referred by
the Mayor for a reRort on November 17, 2009
Subject:
PROPOSED FIRST AMENDMENT WITH AVIS RENT A CAR SYSTEM, LLC (LAA8464) TO EXTEND THE TERM FOR A CAR RENTAL FACILITY AT LOS ANGELES
INTERNATIONAL AIRPORT
SUMMARY
The Executive Director of the Department of Airports (Department) requests approval of a First
Amendment (Amendment) to Lease LAA-8464 (Lease) with Avis Rent A Car System, LLC (Avis,
LLC). Through this lease, Avis, LLC operates a car rental facility at Los Angeles International Airport
(LAX). The facility encompasses approximately 24.4 acres and contains 1,064,069 square feet (sq.
ft.) of land with an estimated 2,093,932 sq. ft. of site improvements at 9217 and 9419 Airport
Boulevard. Approval of the proposed Amendment will extend the Lease term for 10 years, from
February 1, 2010 to January 31, 2020, and will adjust the rental rates. The proposed rent
adjustments will provide an incremental increase in revenue to the Department of approximately $3.3
million in the first year of the term extension and the annual rental revenue will be an estimated $6.1
million. Pursuant to Charter Section 606, Council approval is required because the cumulative Lease
term will exceed five years. The Lease is subject to early termination, by either party, upon 180 days
written notice.
Background
In 1982, Avis Rent A Car System, Inc. became a tenant at LAX. Subsequently, the Avis Rent A Car
System, Inc. facility at LAX merged its operations into a single lease with another tenant, National
Car Rental Systems, Inc. The newly combined operations utilized the 24.4 acres of land and site
improvements through a five-year lease which began February 1, 2003. In 2006, Avis Rent A Car
System, Inc. converted its organizatiqnal.stru,cture und~r Delaware law to Avis, LLC. Upon the
expiration of the five-year lease in 2008: Avis, LLC contin'ued its operations first, through a month-tomonth holdover arrangement, and then through a n~gotiated, short term replacement lease. The
replacement lease will expire on January 31, 2010.
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0150-05719-0015
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Proposed First Amendment
The two key components of the Avis, LLC proposed Amendment, a 10-year term extension and
rental rate adjustments, are summarized below.
Term Extension
The 24.4 acres leasehold is under regulatory oversight by the Los Angeles
Regional Water Quality Control Board (Water Board) to clean up soil, groundwater and subsurface
contamination on the property. At least semi-annually, Avis, LLC provides monitoring reports to the
Water Board and the Department does not know when this regulatory agency will deem the
environmental clean up activities closed. The 10-year term extension, from February 1, 2010 to
January 31, 2010, is expected to provide enough time for Avis, LLC to remediate the contaminated
property to the complete approval of the Water Board.
The Lease is subject to early termination, by either party, upon 180 days written notice. The
proposed Amendment adds a provision stating the Lease may be terminated by the Department, in
accordance with set procedure, if the Board of Airport Commissioners (BOAC) approves construction
of a consolidated rental car facility (ConRAC) at LAX. Although the Department intends to construct
the ConRAC facility, confirming a construction time frame is not possible since funding,
environmental impacts, facility design and location are key factors yet to be finalized, according to
Airports staff.
Rental Rate Adjustments The proposed Amendment incorporates the following four categories of
rental rate adjustments over the extended term:
1. a two percent increase for all improvements;
2. a three-year gradual increase of land rent;
3. annual adjustments based upon the Consumer Price Index-All Urban consumers for Los AngelesRiverside-Orange County, CA areas (CPI-U), and;
4. periodic compensation (fair market) adjustments every five years [per Charter Section 607(b)].
The Department's BOAC report includes a summary that lists rental rate amounts which incorporate
the first two categories of adjustments. During the first year of the extended new term, a two percent
increase to the 2009 rental rates for all improvements will provide a total annual rent of
approximately $885,000, according to Department staff. The second category is a three-year rental
rate adjustment applicable to the 1,064,069 sq. ft. of land. The proposed increases are as follows:
Land Rental Rate
(per sq. ft.)
$4.95
$5.15
$5.40
51
Adjustment Period
Annual Land Rent Payment
1 Lease Year, Feb. 1, 2010- Jan. 31, 2011
2nd Lease Year, Feb. 1, 2011- Jan. 31, 1012
3rd Lease Year, Feb. 1, 2012- Jan. 31, 2013
$5,267,141.55
$5,479,935.35
$5,745,972.60
The third category pertains to annual adjustments based upon the CPI-U. All rental rates will be
adjusted accordingly, starting annually with the improvement rental rates. However, provisions within
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0150-05719-0015
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the proposed Amendment note that the land rental rate will not incorporate CPI annual adjustments
until the fourth year of the extended term.
The beginning dates for the Lease periodic fair market adjustments, the final category, are specified
in the proposed Amendment. Adjustments for the improvement rental rates, which will occur every
five years, are scheduled to start January 1, 2015. Yet, the periodic adjustment for the land rental
rate, which also will occur every five years, is scheduled to start February 1, 2014. The Lease parties
negotiated a land rental rate adjustment to $4.95 to be applicable for 13 months, from January 1,
2009 to January 31, 2010. The additional rent payment will provide approximately $5,267,000.
According to Department staff, Avis, LLC will pay that additional rent over a five-year period at
$87,785 per month ($1.1 million annually) plus eight percent annual interest. Based upon this
arrangement, the next fair market land rental rate adjustment will be in 2014.
During the two years when Avis, LLC has been operating under the short term replacement lease,
the Department has received rent revenue of approximately $3,976,400 and $4,041,000 for 2008
and 2009, respectively. Excluding the additional rent payment, implementing the rental rate
adjustments contained in the proposed Amendment will provide a $3.3 million incremental increase
in revenue during the first year of the term extension. The new annual rental payment is expected to
be approximately $6,154,700.
City Contract Compliance
The proposed Amendment is subject to approval by the City Attorney as to form. Avis, LLC has been
assigned a Business Tax Registration Certificate and has approved insurance documents in the
required terms and amounts on file with the Department. Avis, LLC has submitted required City
contract standard provision documentation to comply with the ordinances and provisions of:
Affirmative Action Plan, Child Support Obligations and Contractor Responsibility Program Pledge of
Compliance. Additionally, Avis, LLC will comply with the provisions of the Living Wage Ordinance
and with the First Source Hiring Program for all non-trade LAX jobs once the Program is formally
implemented by the Department. Prior to the execution of the Amendment, the Public Works, Office
of Contract Compliance must determine that Avis, LLC is in compliance with the provisions of the
Equal Benefits Ordinance.
The issuance of leases and renewals, amendments or extensions thereof, granting use of an existing
facility at a municipal airport involving negligible or no expansion of use is exempt from the
requirements of the California Environmental Quality Act (CEQA) pursuant to Article Ill, Class 1,
(18)(c) of the Los Angeles City CEQA Guidelines. The request is also statutorily exempt from the
provisions of the Minority/Women Business Enterprise Program according to the Department's
Executive Directive 2001-26. Additionally, the request is not subject to the provisions of Charter
Section 1022 regarding the use of independent contractors. Pursuant to Charter Section 606,
Council approval of the proposed replacement lease is required because the cumulative term will
exceed five years and the revenue exceeds $100,000 annually. Action taken on this request by the
BOAC will become final upon approval by the Council.
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0150-05719-0015
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RECOMMENDATION
That the Mayor and the City Council approve, subject to approval by the City Attorney as to form, the
proposed first Amendment between the Department of Airports and Avis Rent A Car System, LLC to
extend the Lease term for 10 years, from February 1, 2010 through January 31, 2020, on
approximately 24.4 acres at 9217 and 9419 Airport Boulevard to continue the operation of a car
rental facility at Los Angeles International Airport and to adjust rental rates on the land and site
improvements.
FISCAL IMPACT STATEMENT
Approval of· the proposed Amendment will generate approximately $6,154,700 in rent for the
Department during the first year of the tern extension as well as an additional $1.1 million in rent
payments annually for five years. The annual rental revenue will increase periodically during the 10
years as revisions in the rental rates are implemented. Since the Department is only bound by the
City Debt Management Policies, the City Financial Policies are not applicable.
TIME LIMIT FOR COUNCIL ACTION
Pursuant to Charter Section 606, "Process for Granting Franchises, Permits, Licenses and Entering
Into Leases", unless the Council takes action disapproving a franchise, permit, license or lease that
is longer than five years within 30 days after submission to Council, the document shall be deemed
approved.
MAS:AVM:10100105