OFFICE OF THE CITY ADMINISTRATIVE OFFICER

Transcription

1 REPORT FROM OFFICE OF THE CITY ADMINISTRATIVE OFFICER Date: To: From: Reference: Subject: December 2, 2011 CAO File No Council File No Council District: r/1 6 The Mayor The Council Miguel A. Santana, City Administrative Offi.;;,~j7(';' d+~~--~ Transmittal from the Department of Airports dated :July 26, 2011; referred by the Mayor for report on July 27, 2011 PROPOSED FIRST AMENDMENTS TO VAN NUYS LEASE AGREEMENTS WITH AEROLEASE ASSOCIATES, LLC AND AEROLEASE WEST, LLC FOR LAND AND BUILDINGS AT THE VAN NUYS AIRPORT TO CONTINUE THE PROVISION OF STORAGE SPACE FOR AIRCRAFT SUMMARY The Executive Director of the Los Angeles World Airports (LAWA; Department) requests (1) authority to amend two existing leases-vna-8369 with Aerolease Associates, LLC and VNA-8368 with Aerolease West, LLC (see Attachment A and B)-for rental of land and improvements at the Van Nuys Airport, and (2) approval of a Settlement Agreement with Aero lease Associates, LLC to resolve outstanding issues resulting from litigation involving a dispute over construction permitting by the City. Aerolease Associates and Aerolease West (Lessee; Lessees) are current lessees who desire modifications to their existing 30-year and 20-year leases, respectively, in order to continue the storage of jet and private propeller-driven aircraft at Van Nuys Airport. While approval of the two First Amendments will likely result in approximately $492,236 in first-year revenue, the amendments will, ultimately, result in a total net loss of revenue to LAWA of $109,545 for the first year (without the two amendments, the first-year revenue would be $601,781). After that, it is anticipated that increases in the leases' building rents will offset the reduction in land rents. Due to limitations on the use of the existing aircraft hangars-most accommodate propeller-driven aircraft rather than jets-not later than 10 years from the date of execution of the First Amendment, Aero lease Associates will spend at least $3 million to construct improvements to its Van Nuys site. Additionally, the lessee will modify the current T-Hangars (an airplane hangar that is characterized by a type of vertical, hinged, scissors-style door that retracts on a vertical track) site (where the existing hangars are being demolished) for a use that is mutually agreeable to both LAWA and the lessee. The proposed amendments to the existing leases also reflect new rental rates for land and improvements for (1) the one-year period July 1, 2010 to June 30, 2011 (applied retroactively) and

2 GAO File No PAGE 2 (2) the four-year period July 1, 2011 to June 30, 2015, as well as a two-tiered rent structure that replaces a framework whereby each lease at the Van Nuys Airport had its own independentlydetermined land rental rate. The new rental rates negotiated with Aerolease Associates and Aerolease West reflect aeronautical land rental rates approved by the Board of Airport Commissioners (BOAC) on May 16, 2011 (for a comparison of proposed lease rates and projected minimum lease revenues for land see Attachments C and D). The new lease rates are subject to annual rent adjustments based upon the Consumer Price Index (CPI) with a minimum increase of two percent per year and a maximum increase of seven percent per year. According to the Department, the new rates will generate approximately $7,301,765 ($221,266 annually) in gross revenue (exclusive of rental adjustments; includes "Propeller Use" rates changing to "Aviation Use" rates after five years) from Aerolease Associates, LLC over the proposed 33-year term and $5,266,472 ($263,324 annually) in gross revenue (exclusive of rental adjustments; assumes that "Propeller Use" rates remain as such during the term of the lease) from Aerolease West, LLC over the 20-year term of the lease. It should be noted that "Propeller Use" indicates a restricted use area that does not allow jet aircraft, whereas "Aviation Use" indicates an unrestricted use area that accommodates jet aircraft but not propeller aircraft. The above-referenced aspects of the proposed leases, and this report, are based upon revised information received from the Department subsequent to the initial request submittal. Background The Van Nuys Airport, as of July 2011, is ranked as the busiest general aviation airport in the world. The airport serves private, corporate, charter, and public safety aviation, as well as some military aircraft exclusively and functions as a reliever airport for Los Angeles International Airport (LAX). As of December 2010, propeller-driven aircraft comprised nearly two-thirds of the 667 general aviation and military aircraft based at the airport. The mix of aircraft at Van Nuys Airport began changing a few years ago, resulting in a reduction in the number of propeller aircraft. However, the percentage of jet aircraft is increasing, thereby necessitating additional and/or modified storage facilities to accommodate jets. In June 2009, Aerolease Associates, LLC initiated a lawsuit against the City in a dispute related to construction permitting that, according to Aerolease, resulted in occupancy delays and, subsequently, lost lease revenues. The case can be resolved by the approval of the proposed Settlement Agreement that is to be considered by the Board of Airport Commissioners. And while the litigation did not include Aerolease West, conditions of the Settlement Agreement require that both the Aero lease Associates and Aerolease West leases be amended. The principle terms of the Settlement Agreement are as follows: Ill Within 10 years of the execution of the proposed First Amendment, Aero lease Associates, LLC will invest $3 million to construct improvements A three-year extension, from 30 to 33 years, was added to the original lease for Aerolease Associates, LLC to help the lessee amortize its investment in new facilities required by the First Amendment * All claims by the City against Aerolease Associates, LLC and all claims by Aerolease

3 CAO File No PAGE 3 Associates, LLC against the City are released ~ No admission of liability is made by either the City or Aerolease Associates, LLC (parties) Certain rights under California Civil Code Section 1542 are waived by both parties e Related waivers and releases are binding upon both parties o Actual, or perceived, differences in fact will not adversely affect the final agreement What is known as the Van Nuys Airport Propeller Park Development Project, a 30-acre development at the northwest corner of Van Nuys Airport, is being developed exclusively for propeller-driven aircraft of less than 12,500 pounds gross takeoff weight and military aircraft built before 1950, is to begin construction in The park will include hangars, aircraft tie-down parking and ramps, a maneuvering area, maintenance and fueling facilities, an on-site wash rack, space for related services such as flight schools and avionics maintenance, as well as a restaurant. Propeller aircraft and hangars that are displaced by the Aerolease redevelopment project will be moved to the Propeller Park. Proposed Amendments Aero/ease Associates, LLC, Lease VNA-8369: The proposed lease amendment with Aerolease Associates provides for a continuation of the current acres for real property ( acres used for jet aircraft {"Area A"} and acres used for propeller aircraft {"Area B"}) and 38,242 square feet of improvements (approximately 27,132 square feet of improvements fort-hangars in Area B and approximately 11,110 square feet of improvements for hangars in Area A). The proposed amendment also reflects new rental rates for land that were approved by the BOAC on May 16, 2011, as well as a two-tiered rent structure that replaces the existing process wherein each lease has its own independently-determined land rental rate. The existing lease is for 30 years, for the period November 1, 2006 to October 31, The proposed amendment seeks to increase the 30-year term by an additional three years to October 31, The request for an additional three years is for the purpose of fulfilling the terms of the proposed Settlement Agreement by providing the lessee with additional time to amortize its investment in the new facilities that are required by the lease amendment. As a condition of the amendment, Aero lease Associates will (1) remove existing hangars (many of which are T-Hangars) that primarily accommodate propeller-driven aircraft, (2) invest a minimum of $3 million in tenant improvements and (3) complete the modification of the T-Hangars site fora use that is mutually agreeable to the City and the lessee. Per Article 2, Section 20.2 of the original leases, the City may terminate either lease by giving the lessee 30 days written notice. Aero/ease West, LLC, Lease VNAm8368: The proposed lease amendment with Aero lease West provides for a continuation of the current acres of real property ( acres of real property and paving used for jet aircraft {Area A} and acres used for propeller aircraft {Area B}) and 166,578 square feet of improvements (approximately 67,578 square feet of improvements fort-hangars in Area B and approximately 99,000 square feet of improvements for hangars in Area A). The proposed First Amendment also contains new rental rates for land that were approved by the BOAC in May 2011.

4 GAO File No PAGE 4 The existing lease with Aerolease West is for 20 years, for the period October 1, 2006 to September 29, There are no plans at this time to extend the lease beyond Alternatives to Approving the Proposed Leases According to the Department, there are two possible alternatives to amending the existing lease agreements: e~ Lease the premises to a different tenant This is not recommended in that Aerolease Associates and Aero lease West are tenants in good standing whose activities are consistent with the airport's land use plans. Furthermore, resolving the outstanding litigation is dependent upon approval of the proposed leases, or Not leasing the premises: Failure to enter into the proposed lease agreements with Aerolease Associates and Aerolease West would negatively affect the parties' efforts to settle the pending litigation, thereby causing the litigation to continue with both an uncertain outcome and, most likely, additional costs to both parties Compliance with City Administrative Requirements Since the proposed agreement is a property lease, the Department's request is not subject to the Charter Section 1022 provisions pertaining to the use of independent contractors. With respect to the Department's compliance with CEQA (California Environmental Quality Act) guidelines, the issuance of agreements, renewals, amendments, and extensions thereof or other entitlements granting use of an existing facility at a municipal airport involving no expansion of use are exempt from the requirements of the CEQA pursuant to Article Ill, Class 1 (18)(c) of the Los Angeles City CEQA Guidelines. Furthermore, since these are property lease agreements, the lessees are not subject to the Service Contract Worker Retention and Living Wage Ordinances, the provisions of the Minority/Women Business Enterprise program, Affirmative Action Program, Contractor Responsibility Program, Child Support Obligations Ordinance, Equal Benefits Ordinance, and First Source Hiring Program. The lessees are, however, subject to the City's insurance requirements. According to the Department, both Aerolease Associates, LLC and Aerolease West, LLC have approved insurance in place. Pursuant to Charter Section 606, "Process for Granting Franchises, Permits, Licenses and Entering Into Leases," and the Los Angeles Administrative Code Section 1 0.5, "Limitation and Power to Make Contracts," 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 lease shall be deemed approved. In addition, the proposed leases, being that they are for a period longer than five years, must be approved by the Council. Additionally, to become effective, the City Attorney must approve the leases as to form.

5 CAO File No. PAGE RECOMMENDATIONS That the Council, subject to approval by the Mayor: 1. Approve, subject to City Attorney approval as to form, the proposed First Amendment to the existing lease (VNA-8369) between the Los Angeles World Airports and Aerolease Associates, LLC (Lessee), which includes aeronautical land rental rates approved by the Board of Airport Commissioners on May 16, 2011 and a three-year extension, from 30 to 33 years, for real property, paving, and improvements at the Van Nuys Airport to enable Lessee to continue providing aircraft storage, to provide for removal of T -Hangars, and to construct the agreed-upon site improvements; and 2. Approve, subject to City Attorney approval as to form, the proposed First Amendment to the existing lease (VNA-8368) between the Los Angeles World Airports and Aerolease West, LLC (Lessee), which includes aeronautical land rental rates approved by the Board of Airport Commissioners on May 16, 2011 and a 20-year term, for real property, paving, and improvements at the Van Nuys Airport to enable Lessee to continue providing aircraft storage and to provide for the removal of T -Hangars. FISCAL IMPACT STATEMENT Approval of the proposed lease agreements with Aerolease Associates, LLC and Aero lease West, LLC will generate at least $492,236 in revenue during the first year of the agreements and over $12 million (exclusive of a minimum two percent yearly rental adjustment and periodic-every five years-adjustment to the fair market rental rate) for the Los Angeles World Airports over the 20- year and 33-year lease terms. An additional $3 million in improvements will be invested by Aerolease Associates, LLC within 1 0 years of the First Amendment's execution. The proposed leases comply with the Department of Airports' adopted Financial Policies. Approval of the proposed First Amendments will have no impact on the City's General Fund. Time Limit for Council Action Pursuant to Charter Section 606 and the Los Angeles Administrative Code Section 1 0.5, 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 leases shall be deemed approved. MAS:WDC: Attachments

6 ATTACHMENT A FIRST AMENDMENT TO VAN NUYS AIRPORT LEASE THIS FIRST AMENDMENT TO GROUND LEASE (this "Amendmen:t 1 ') is made and entered into as of this day of., 2011 (the "Amendment.Execudon Date"), to be retroactively effective as of July 1, 2010, by and between the CITY QF LOS ANGELES, acting by order of and through its Board of Airport Commissioners (hereinafter referred to as "Board'') of the DEPARTMENT OF AIRPORTS (hereinafter referred to as ''City"), and AEROLEASE ASSOCIATES LLC, a California limited liability company ("Lessee"), with reference to the following recitals of fact: Recitals A. City and Lessee are currently parties to that certain Ground Lease dated as of September 29, 2006 (the "Lease"). B. City and Lessee desire to amend the Lease upon the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing, and of the conditions, terms, covenants and agreements set forth herein and of other good and valuable considenition, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Lease is, effective as of the date hereof, amended as follows: Agreement 1. Defined Terms. Capitalized terms used and not otherwise defined herein shall have the same meanings ascribed to them in the Lease unless expressly superseded by the terms of this Amendment 1.1 Exhibit A-1 of this Amendment is hereby added to the Leuse as Exhibit A- 2. Term of the Lease. Article 1, Section 2.1 of the Lease.is hereby deleted in its entirety and replaced with the following~ ''2,l. Term of the Lease; Extens]QD The term of this Lease shall be for the period which commenced on November 1, 2006 (whit:h was the tirst day of the month following approval by the Los Angeles City Council and e({ecution of this Lease by the Executive Director oftlie Department of Airports (hereinafter refen ed. to as... Executive Director")) for a period of thirty-three (33) ye~u-s (the "Ii1itial Term"), subject, however, to earlier termination, as otherwise provided herein." 3, Demised Premises. Notwithstanding anything in tbe Lease to the conti ary, from and after July 1, 20J 0, the total Demised Premises shall consist of the following areas, subjecno Section 5 of this Amendment: /27929!

7 (i) the real prope1ty and paving of the Demised Premises used for jets, which is equal to acres ("Area A," as depicted in Exhibit A-J) (ii) the real property and paving of the Demised Premises used for propeller planes whkh is equal to acres (''Area B," as depicted in I;xhibit A~l); (iii) approximately 27, 132 square feet of improvements consisting oft hangars located on Area B ("T -Hangars"); and (iv) approximately 11,1] 0 square feet of improvements consisting of hangars located on Area A ("Hangars," and collectively with T-Hangars, the "Impt ovements," as depicted in Exhibit A-I). In connection with the foregoing, City and Lessee hereby covenant and agree that any future rental adjustments, including, without limitation, any anmml adjustments of Monthly Rent or periodic adjustments to fair market rental (including the appraisal process associated therewith), shall (x) reflect that the Demised Premises include Area A, Area B, and the Improvements; {y) provide the separate and appropriate rental rates or adjustments for Area A, Area B and the Improvements, and (z) take into consideration and make adjustments accordingly to reflect the value of such uses, more specifically, that Area A (or acres of the Demised Premises) is used for jets and Area B (or acres of the Demised Premises) is used for propeller planes. In accordance with Section 5 of this Amendment, Are<i B shall be deemed merged into Area A once the first (1 61 ) T Hangar is demolished, but no later than the Outside Date as defined in Section 5 of this Amendment. 4. Periodic Adjustment to Fair Market RentaL Notwithstanding anything to the contrary in the Lease, the parties acknowledge and agree that in accordance with the "Periodic Adjustment to Fair Market Rental" provision set forth in Article l, Section of the Lease, the appraisal process in connection with the Periodic Adjustment Date of July 1, 20l0 ls hereby deemed concluded with respect to Area A and Aren B, in accordance with this Section 4, provided that nothing herein shall be construed to abrogate the rent or rent adjustments for the Improvements. The parties hereby agree as follows: (a) For the period commencing July 1, 2010 until the next Periodic Adjustment Date of July l, 2015 (subject to annual adjustment pursuant Article 1, Section of the Lease, as amended herein, and subject to adjustment pursuant to Sections 3 ancl5 of this Amendment), the fair market rental rates for Area A and Area B are hereby contlrmed for such period to be as follows: For the period July l, 20 JO to June 30, 2011:.'A:re~. Size psfpy PAPY Rate Monthly Rent Anniiil1 :Rerit. Area A acs $0.675 $29, $13, $158, Area B acs $0.360 $15, $3, $44,

8 For the period July 1, 2011 to June 30,2015: acs $0.75 $32, $14, AreaB acs $0.371 $16, $3, $45, For the avoidance of doubt, during the period July 1, 2012 to June 30, 2015, the rental rates for Area A and Area B are also subject to annual adjustlnents in accordance with Article 1, Section as revised by Section 6 of this Amendment 5. Removal oft-hanggrs; Redevelopment The parties hereby acknowledge and agree as follows: (a) (b) (c) On or before the date that is five (5) years after the Amendment Execution Date ("Outside Date"), Lessee shall remove all T -Hangars on the Demised Premises (the "T-Hangm s Site"); On or before the date that is ten (10) years after the Amendment Execution Date, Lessee shah, in accordance with Article 2, Section 7 of the Lease, spend at least Three Million Dollars ($3,000,000) to construct improvements (in addition to completing any improvements that Lessee is required to build under Article 1, Section 6 of the Lease) and redevelop the T-Hangars Site into a use mutually agreeable between City and Lessee (the "Parcell Improvements"), provided that: (i) City shall not unreasonably withhold or delay approval of any reasonable use proposed by Lessee; and (li) soft costs shall not exceed twenty-five percent (25%) of the Three Million Dollar investment; and Area B shajl be merged into and classified as part of Area A and Lessee shall commence paying the Area A rental rate for such area on the earlier of: (i) the date that Lessee removes any T-Hangar from the T-Hangars Site, or (ii) the Outside Date. Lessee shall provide the City with written notice within five (5) business days of its removal of any T"Hangar from Are'1 B. Moreover, us each T"Hangar is removed, the Le::;see shall no longer have to pay building re11t for each such structure and when all of the T-Hangars are removed, Lessee shall no longer have to pay any rent for the removed T-Hangars. 6. Rental Adjustments. Article I, Section 7.2 of the Lease is hereby deleted in its entirety and replaced with Section 7.2 set forth in Exhibit B attached hereto and made a part hereof by this reference. 7. Assignment and Subletting. Atticle 2, Section 18 of the Lease is hereby deleted in its entirely and replaced witl1 Section J 8 set forth in Exhibit C attached hereto and made a part hereof by this reference.

9 8. Brokers. City and Lessee each warrants and represents that it has not dealt with any real estate broker or agent in connection with this Amendment or its negotiation. Each party shall indemnify and hold the other party harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any real estate broker or agent in connection with this Amendment or its negotiation by reason of any act of the indemnifying party. 9. Entire Agreement; Amendment The Lease, as amended by this Amendment, constitutes the full and comp1ete agreement and understanding between the parties hereto and shall supersede all prior communications, representations, understandings or agreements, if any, whether oral or written, concerning the subject matter contained in the Lease, as so amended, and no provision of the Lease, as so amended, may be modified, amended, waived or discharged, in whole or in part, excepl by a written instrument executed by all of the parties hereto. 10. Authority. Each person executing this Amendment represents and warrants that he or she is duly authorized and empowered to execute it, and does so as the act of and on behalf of the party indicated below. 11. Governing Law. This Amendment shaii be construed in accordance with and governed by the laws of the State ofcalifornia, In the event of any dispute regarding this Amendment or the Lease, the prevaiung party shall be entitled to attorneys' fees and costs as determined by the court having jurisdiction. 12. SevcrabWty. If any term or provision of this Amendment shall be deemed or held, by any court or authority having proper jurisdiction to be invalid, illegal, void or unenforceable, the remaining terms and provisions hereof shall nevertheless remain in full force and effect with the intent that the pmpose of this Amendment will be accomplished. 13. Force and Effect. Except as modified by this Amendment, the terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force and effect. Should any inconsistency arise between this Amendment and the Lease as to the specific matters which are the subject of this Amendment, the terms and conditions of this Amendment shall control. This Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. 14. Counteq2arts. This Amendment may be executed in counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one agreement [SIGNATURES ON FOLLOWING PAGE] 4

10 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. APPROVED AS TO FORM: CARMEN A. TRUTANICH, Attorney for the City of Los Angeles CITY OF LOS ANGELES, INCLUDING LOS ANGELES WORLD AIRPORTS By: Its: By: Its: AEROLEASE ASSOCIATES LLC By: Its: 5

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12 EXHIBIT :0 7.2 Rental Adjustments. lt is agreed that rent shall be adjusted each year in accordance with the procedures provided hereinafter. 7.2, 1. Annual Adjustments. Except when adjusted as provided in A1tide 1, Subsection Periodic Adjustment to Fair Market Rental, below, the Monthly Rent shall be subject to automatic, annual rental adjustments on July 1 (hereinafter referred to as "Annual Adjustment Date"). After the First Amendment to this Lease the next Annual Adjustment for Area A or Area B shall be on July 1, The Monthly Rent shall be revised and adjusted on the Annual Adjustment Date according to the percentage increase over the prior year, if any, in the Consumer Price Index, All Urban Consumers for the Los Angeles-Riversjde-Orange County, California area, :::::100 (hereinafter refened to as the "CPI-U"), as published by the U.S. Department of Labor, Bureau of Labor Statistics ("B.LS. "), or its successor as follows: Monthly Rent shall be multiplied by the CPI-U for the month of March immediately preceding the Annual Adjustment Date (hereinafter referred to as the "Adjustment Index"), divided by the said CPI-U as it stood on March of the prior year (hereinafter referred to as the "Base Index'') and the result shall be the "Adjusted Monthly Rent" to be applied effective July l through June 30 annually, except dming the applicable rental period, or fraction thereof, when rent is brought to fair market value each five years by the procedure set forth in Article I, Sub-Section hereunder. Under no circumstances during any year of application of the Annual Adjustment shall the multiplying factor, consi11ting of the Adjustment Index divided by the Base 1ndex, be less than two percent (2%) or greater than seven percent (7%), In the event that the Adjusted Monthly Rent indicates a rate Increase in excess of seven percent, the rentul rate increase shah be carried ovei and implemented in the succeeding year or years, as necessary, at a rate not to ekceed seven percent per year until the fair market rental rate is adjusted pursuant to Article l, Subsection The fmmub for calculation of Adjusted Monthly Rent commencing each July I during the term of this Lease shall be as follows: Adjusted Monthly Rent= Monthly Rent x Adjustment Index Base 1ndex If the B.L.S. should discontinue the preparation or publication of the CPI-U, and if ilo transposition table is available, then City shall adopt a basis for adjusting and revising the Monthly Rent on July l annually Lo vm y said Monthly Rent according to any increase in commodity consumer prices over the prior yeur.

13 Pel'iodic Adjustment to Fair Market RentaL It is agreed that: (i) the rent payable for each of the T-Hangars and Hangars shall be adjusted effective as of July I, 2010 and every five (5) years thereafter to a fair market rental rate; (ii) following the adjustments to the rental rate of Area A and Area B pursuant to the First Amendment to this Lease, the rent payable for each of Area A and Area B covered under this Lease shall be adjusted effective July 1, 2015, and every five (5) years thereafter to a fait market rental rate (each a "Periodic Adjustment Date'') Parties May Negotiate in Good Faith. At least eighteen (18) months prior to the Periodic Adjustment Date and in accordance with the "Periodic Adjustment to Fair Market Rental" provision above, the pmties may, in good faith, negotiate the rental rate(s) applicable to the subject adjustment period(s) as referenced above. As soon as possible during such negotiation period, the City shall provide Lessee with a list of the Chy's estimated airport wide rental rates then in effect. Such good faith negotiations may include the involvement of a third party reviewer to review and make nonbinding recommendations regarding each party's rate adjustment proposal. The parties shall have continuing opportunities to negotiate in good faith in an attempt to reach agreement on rental adjustment(s) notwithstanding each party's obligation to perform its duties as described under Subsection below. If the parties are able Lo reach an agreement on the adjustment to the rental rate(s), then said rate(s) shall be presented as a recommendation to the Board. However, if the parties are unable to reach final agreement during said negotiation period, then the parties may continue to negotiate in good faith to attempt to reach agreement on the rental adjustment(s) after the Appraisal Process in Section below has commenced Appraisal Process. If the parties cannot reach agreement on the rental rate(s), or the Board does not approve the agreed upon rentaj rate(s) as described in Subsection , then, at least twelve (12) months prior to tbe I,'eriodic Adjustment Date parties shall determine the Monthly Rent by the following procedure. The City may elect to have such procedures apply only to the rent applicable to improvements and may adjust the land rental rates on the basis of airport wide land rental rates then in effect, provided that such rates are reusonable and are not unjustifiably discriminatory under applicable Federal h'w. Step 1: The Executive Director shah provide the Lessee with a copy of the City's list of at least three (3) qualified appraisers for the Airport. Each appmiser on the City's list shall be a member of the Appraisal Institute, or its successor organization, and shall meet such Other minimum qualificatjons as may be established by the Executive Director ("a Qualified Appruiser"). No later than fifteen ( 15) calendar days thereafter, the Lessee shall select one Qualified Appraiser and notify the Executive Director of such seleclion. lf for any reason the selected Qualified Appraiser is unable to complete the appraisal, the Lessee shall select another Qualified Appraiser within fifteen ( l 5) B-2

14 calendar days, The Executive Director shall set the time and place for a conference, at which time the Qualified Appraiser shah be instructed to conduct the appraisal in substantially the same manner as established by the Executive Director, with reasonable input from the Lessee, and applicable to the Demised Premises and similar preh1ises at the Airport ("Appraisal Instructions"), The City shall pay the fees and expenses of the selected Qualified Appraiser. The appraisa1 and the completed appraisal report must meet the Uniform Standards of Professional Appraisal Practice (USPAP) or it will be rejected. A copy of the completed, USPAP compliant appraisal report (the "Appraisal Report") shall be made available to the Lessee for review within a time specified by the Executive Director, but in any event no later than sixty (60) calendar days of the conference set by the Executive Director. This time for delivery of the Appraisal Report may be extended if mutually agreed to, in writing, by the parties. Within fifteen ( t5) calendar days of delivery of the appraisal report, the Executive Director shall fix the time and place for a conference between the parties hereto. At such conference, the parties shall attempt to reach an agreement on rentals. If Lessee and City reach agreement, the Executive Director shall present the results as a recommendation to the Board. Sten 2: If Lessee and City are stiij unable to reach agreement on the adjusted rentnl(s), then the Executive Director's recommended rentals, the Appraisal Reports, and any other relevant material shall be furnished to Board. In the event the parties ure still unable to reach agreement, and Lessee obtains and pays for a USPAP compliant appraisal report from an appraiser who meets the qualification standards for a Qualified Appraiser and follows the Appraisal Instructions, all as described above, then that appraisal report shall also be presented to the Board. Board shah review all facts and evidence, including the appraisal report(s), submitted to it and shall then prescribe the adjusted rental that, in the Board's opinion, is the most appropriate to apply throughout the respective adjustment period With respect to additions, improvements, or alterations to leasehold structures authorized by City and made by Lessee during the term of this Lease, Lessee shall not be charged rent for the rental value thereof unless and untij title to said additions, improvements, or alterations revert to City pursuant to the terms of this Lease or by operation of law. 7,2.5. Nothing herein shall prejudice the right of Lessee to contest, in a court of coltipetent jurisdiction, such adji1sted rental in the event said Board may have acted arbitrarily or unreasonably. However, pending the outcome of any such litigation, Lessee shal1 be obligated first to either pay the new rental and all retroactive amounts directly to City as they come due, or deposit such increased amounts of such rental and the B-3

15 retroactive amounts into a joint escrow account. Provision shah be made for the payment to the City of the escrowed funds, including accrued interest, (to the extent such funds are owed by Lessee to City) upon a final determination of the appropriate rental adjustment, if any It is agreed that failure by the parties to timely comply with the rental readjustment procedures herein shall not be construed to constitute a waiver of the right of City to a rental readjustment. In the event adjustment of rental is not completed prior to the adjustment date, Lessee shall continue to pay the rent set for the preceding period, at the intervals and in the manner fixed for such preceding period. and if such rent is thereafter fixed ln a different amount, such new rental shall take effect retroactively back to the beginning date of the readjustment period. Subject to Lessee's right of contest and right to escrow funds, unless the Board otherwise agrees to a payment plan with interest, Lessee shall promptly pay to City that sum, if any, which has accrued as a result of such retroactive application, If a rental reduction occurs, City shall provide a rent credit to Lessee'::; account equal to the sum which has accrued as a result of such retroactive application If City has complied with the appraisal procedure and related time frames as set forth above in Section , City shall be entitled to receive, in addition to all retroactive rents that become due as a result of Board-adjusted rental rate(s), the time value of said rental increase(s) ca.lculated from the effective date of the increase(s) to the time period that the rental increase(s) are assessed to the Lessee at an interest rate representing what the City may have otherwise been entitled to if the funds associated with the increase(s) were available for City's use; however, in no event shall the interest rate be less than 5% Assessments, Fees, and Charges. In addition to the rental obligation, Lessee hereby agrees to pay such assessments, fees, and charges as shall be set by the Board and that shall be generally applicable to similarly situated lessees at Airport &version of THie to Improvements. Notwithstanding anything to the contrary contained in this Lease or any other agreement between City and Lessee, or between Lessee and another party 1 title to tlll improvements in the Demised Premises that are not City-owned shall automatically vest in City upon the expiration or earlier terininatioli of this Lease, and neither Lessee nor its successors and assigns shall have any right to or interest in any such improvements thereafter. B-4

16 Sect)on 18, Assignment and Subletting. EXHIBITC Lessee shall not, in any manner, assign or transfer this Lease, or any portion thereof or any interest therein ("Assignment"), without the prior written consent of the Board, nor sublet or sublease the whole or any part of the Demised Premises {"Sublease"), nor license or permh the use of the same, in whole or in part, without the pdor wdtten consent of the Execntive Director, except as permitted under the Los Angeles World Airports Leasing Policy, as may be modified or amended from time to time. Any attempts to transfer, assign, or Sublease without the consent required by this Section shall be void and shall transfer no rights to the Demised Premises. Consent to one Assignment, subletting, or use, or occupation shall not be deemed to be a consent to any subsequent Assignment, subletting, occupation, or use, This Lease shall not, nor shall any interest therein, be assignable as to the interest of Lessee by operation of law without the prior written consent of Board. For purposes of this Lease, an "Assignment" shal1 include any change in the majority ownership of or the power to vote, directly or indirectly, the majority of outstanding capital stock, membership interest or other ownership interests of Lessee; provided, moreover, for purposes of this Section 18. J, a serial or cumulative transfer of more than fifty percent (50%) of the ownership interests of Lessee slulll also constitute an Assignment for purposes of this Lease; provided, however, that: (i) a serial or cumulative transfer of fifty percent (50%) or Jess of the ownership interests of Lessee shall not constitute an Assignment for purposes of this Lease; and {ii) City shall.not unreasonably withhold its consent to an assignment or other transfers that are primarily for bona fide eswte planning purposes City shall not unreasonably withhold its consent to the Assignment of this Lease or the subletting of the Demised Premises or any portion thereof; provided, however, that the use of said premises by any such assignee or sublessee must be consistent with the use authorized herein arid the prospective subtenant and/or assignee must agree to execute Chy's Consent to Sublease and/or A!:isignment Agreement. A request by Lessee for Assignment or subletting shall be submitted to City in writing along with u fu!jy executed copy of the proposed Assignment Agreement or Sublease, us web as a copy of all contracts or writings which set forth payments from subtenant(s)/assignee(s) to Lessee and/or which describe the acts or services to be performed by or for the subtenanr(s)/ussignee(s) in connection with the use of the space covered by this Lease. Lessee shall promptly advise City of early termination of Assignments or Subleases In the case of an Assignment, Lessee shall pay to City a fee ("Assignment Fee") based on the following formulas: If there are ten (10) years or more remaining on the Lease term when the Assignment occu(s, Lessee shall pay to City an amount equal to twenty percent (20%) of the gross transaction value inuring to the benefit of Lessee and/or its Affiliate (as defined below), as determined by City lf there are less than ten (l 0) years but more than five (5) years remaining on the Lease term when the Assignment occurs, Lessee shall pay to City an umount C-1

17 equal to fifteen percent (15%) of the gross transaction value inuring to the benefit of Lessee and/or its Affi1iate (as defined below), as determined by City If there are less than five (5) years remaining on the Lease term when the Assignment occurs, Lessee shall pay to City an amount equal to ten percent ( 10%) of the gross transaction value inuring to the benefit of Lessee and/ot its Affiliate (as defined below), as determined by City Notwithstanding the foregoing, no Assignment Fee shall be charged in the event of an assignment to an Affiliate of Lessee; provided, however, (a) City reserves the right to require a guarantee, in a form satisfactory to the City Attorney's Office, for all obligations under the Lease and (b) City shall r eceive an administrative fee for costs incurred in connection with the processing of the consent to assignment and reimbursement of its attorneys' fees in connection with the review, preparation and processing of the consent to the assignment of the Lease to the Affiliate. For purposes of this Lease, "Affiliate" shall mean {a) any entity not less than tlfty percent (50%) of whose outstanding ownership interest shall, at the tiine, be owned directly or indirectly by Tenant or (b) any entity which, directly or indirectly, controls or is controlled by or is under common control with Lessee. For this purpose, control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities or by contract or otherwise.! 8.5. ln rhe case of a Sublease requiring consent by the Executive Director to a change of use of the Demised Premises, it shall not be deemed to be an unreasonable restraint by the City, as a condition to the Consent to Sublease, for City to require that Lessee pay to City a percentage, to be negotiated, of any monetary or other economic consideration received by Lessee as a result of the Sublease over and above the amount of Lessee's rental and other payments due City pursuant to this Lease (excluding any consideration attributed to assets other than this Lease) after first deducting the unamortized cost of leasehold improvements which costs had been approved by City and paid for by Lessee. C-2

18 ATTACHMENT B FIRST AMENDMENT TO VAN NUYS AIRPORT LEASE THIS FIRST AMENDMENT TO LEASE (thjs "Amendment") is made and entered into as of this day of, 2011 (the "Amendment Execution Date"), to be retroactively effective as of July 1, 2010, by and between the CITY OF LOS ANGELES, acting by order of and through its Board of Airport Commissioners (hereinafter referred to as "Board") of the DEPARTMENT OF AIRPORTS (hereinafter referred to as "City"), and AEROLEASE WEST LLC, a California limited liability company ("Lessee"), with reference to the following recitals of fact: Recitals A. City and Lessee are currently parties to that certain Lease dated as of September 29, 2006 (the "Lease"), B. City <md Lessee desire to amend the Lease upon the terms and conditions set forth in this Amendment NOW, THEREFORE, in consideration of the foregoing, and of the conditions, terms, covenants and agreements set forth herein and of other good and valuable consideration, the receipt and stlfficiency of which are hereby acknowledged, the parties hereto hereby agree that the Lease is, effective as of the date hereof, amended as follows: Agreement 1. Defined Terms, Capitalized terms u~ed and not otherwise defined herein shall have the same meanings ascribed to them In the Lease un1ess expressly superseded by the terms of this Amendment. L 1 Exhibit A-1 of this Amendment is hereby added to the Lease as Exhibit A- 2. Demised Premises. Notwithstanding anything in the Lease to the contrary, from and afteduly 1, 2010, the tota!demised Premises shall consist of the following areas: (i) the real property and paving on the Demised Premises used.for jets which is equal to acres ("Area A," as depicted in Exhibit A-1); (U) the real property and paving on toe.demised Premises used for propeller planes which is equal to 4.!583 acres (''Area B," as depicted inexhibit A-1); (ill) approximately 67,578 squm e feet of improvements consisting oft -hangars ("T ~ Hangars") located on Area B; and (iv) approximately 99,000squarefeet of improvements consisting of hangars located on Are~1 A ("Hangars" and collectively with T~Hangars, "Imprt)vements," as depicted in Exhibit A-]). In co1inection with the foregoing, City and Lessee hei eby covenant <md agree that any future rental adjustments, including, without limitation, any annual adjustments of Monthly Rent or /279302

19 periodic adjustments to fair market rental (including the appraisal process associated therewith), shall (x) reflect that the Demised Premises include Area A, Area B and Improvements, (y) provide the separate and appropriate rental rates or adjustments for each of Area A, Area B and the Improvements, and (z) take into considemtion and make adjustments accordingly to reflect the value of such uses, more specifically, that Area A (or acres of the Demised Premises) is used for jets and Area B (or acres of the Demised Premises) is used for propeller planes. 3. Periodic Adjustment to Fair Market RentaL Notwithstanding anything to the contrary in the Lease, the parties acknowledge and agree that in accordance with the "Periodic Adjustment to Fair Market Rental" provision set fmth in Article 1, Section of the Lease, the appraisal process in connection with the Periodic Adjustment Date of July 1, 2010 is hereby deemed concluded with respect to Area A and Area B, in accordance with this Section 3, provided that nothing herein shall be construed to abrogate the rent or rent adjustments for the Improvements. The parties hereby agree as follows: (a) For the period commencing July 1, 2010 until the next Periodic Adjustment Date of July l, 2015 (subject to annual adjustment pursuant Article 1, Section of the Lease, as amended herein), the fair market rental rates for Area A and Area B are hereby confirmed for stl'ch period to be as follows: For the period July l, 2010 to June 30, 2011: Area A acs $0.675 $29, $14, $177, Area B acs $0.36 $15, $5, $65, For the period July I, 2011 to June 30, 2015:.. : j\.n~a Size PSl?Pf PA:PY:gate Monthly Rent An:n"4~l Rent Area A acs $0.75 $32, $16, $197, AreaB acs $0.371 $16;156. t I $5, $ 67,]81.95 For the avoidance of doubt, during the period Ju1y i, 2012 to June 30, 20.15, the rental rates for Area A and Area B are al:;o ::;ubject to annual adjustments in accordance with Article I, Section as revised by Section 5 of this Amendment. 4. Removal oft-hangars; Redevelopment. The parties hereby acknowledge and agree as follows: (a) Lessee shall not remove any Improvements from the Demised Premises without the prior written consent of the Executive Director or the Board, 2

20 which consent may be conditioned upon compensation to City for the value of the Improvements to be removed ("Removal Compensation"); (b) Except as may be required pursuant to Section 4(a) of this Amendment, j Lessee shah not be required to make any additional investment ln the Demised Premises as a result of this Amendment. However, nothing in this Amendment shau prevent Lessee from requesting an extension to the term of the Lease prior to making additional investments in the Demised Premises, which extension shall be subject to approvnl of the Board and City Council. (c) On the date that Lessee removes any T Hangar from the Demised Premises, Area B shall be merged into and classified as pmt of Area A and Lessee shall commence paying the Area A rental rate for the area formerly known as Area B. Lessee shall provide the City with written notice within five (5) business days of its removal of any T-Hangar from Area B. Moreover, as each T-Hangar is removed, the Lessee shah no longer have to pay building rent for each such structure and when all of the T-Hangars are removed, Lessee shall no longer have to pay any rent for the removed T-Hangars. 5. Rental Adjustments. Article I, Section 5.2 of the Lease is hereby deleted in its entirety and replaced with Section 5.2 set forth in Exhibit A attached hereto and made a part hereof by this reference. 6. Assignment and Subletting. Article 2, Section 18 of the Lease is hereby deleted in its entirety and replaced with Section 18 set forth in Exhibit B attached hereto and made a part hereof by this reference. 7. Brokers. City and Lessee each warrants and represents that it has not dealt with any real estate broker or agent in connection with this Amendment or its negotiation. Each party shall indemnify and hold the other party harmless from any cost, expense or Habllity (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any real estate broker or agent in connection with this Amendment or its negotiation by reason of any act of the indemnifying party. 8. Entire Agreement; Amendment. The Lease, as amended by this Amendment, constitutes the full and complete agreement and underst<mding between the palties hereto and shall supersede all prior communications, representations, understandings or agreements, ifany, whether oral or written, concerning the subjed maller C{mtained in the Lease, as so amended, and no provision of tbe Lease, as so amended, muy be modified, amended, waived or discharged, in whole or in part, except by a written,instrument executed by all of the pmiies hereto. 9. Authority. Each person executing this Amendment represents and warrants that he or she i!:i duly authorized and empowered to execute it, und does so as the act of and on behalf of the puny indicated below.