.,A U, THE PORT OF LOS ANGELES DATE: NOVEMBER 12, 2009 REAL ESTATE DIVISION

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1 DATE: NOVEMBER 12, 2009.,A U, 1 THE PORT OF LOS ANGELES Executive Director's Report to the Board of Harbor Commissioners FROM: REAL ESTATE DIVISION RESOLUTION NO. - PROPOSED SIXTH AMENDMENT TO PREFERENTIAL BERTH ASSIGNMENT NO WITH WALLENIUS WILHELMSEN LOGISTICS VEHICLE SERVICES AMERICA, INC. SUMMARY: Preferential Berth Assignment No (PBA 77-34), between the Los Angeles Harbor Department (Harbor Department) and Wallenius Wilhelmsen Logistics Vehicle Services America, Inc. (WWL), grants a nonexclusive preferential berth assignment (PBA) at Berths to operate a vehicle import/export processing terminal. PBA is for a term of 25 years and expires on October 31, PBA also allowed the tenant to build an 18,000 square foot headquarters building at 300 Water Street in Wilmington, California. After many years of utilizing the building, WWL moved its headquarters out of state in 2006 and subleased the second floor of the building to Harley lviarine Services, Inc., aka Millennium Maritime, Inc. (MMI). In 2007, WWL subleased the first floor to the Los Angeles Port Police (Port Police) for its Wilmington Substation. As determined by a 2007 Strategic Plan for Safety and Security, the Port Police will require use of the entire building and its surrounding grounds (1.5 acres), as well as an additional adjacent 1.7 acres (Property) currently under WWL's PBA for a Wilmington substation including landside and waterborne operations. The Proposed Sixth Amendment will accommodate the Port Police's space needs, and in exchange, will grant replacement premises to accommodate WWL's needs (Transmittal 1). RECOMMENDATION: It is recommended that the Board of Harbor Commissioners: 1. Approve the proposed Sixth Amendment to PBA 77-34; 2. Direct the Board Secretary to transmit the proposed Sixth Amendment to PBA to the City Council for approval pursuant to Section 606 of the City Charter; 3. Authorize the Executive Director to execute and the Board Secretary to attest to the proposed Sixth Amendment upon approval by City Council; and 4. Adopt Resolution No.

2 DATE: NOVEMBER 12, 2009 PAGE 2 OF 5 SUB.JECT: DISCUSSION: I:3ACKGROUND - The Los Angeles City Cou ncil (City Council) approved PBA Nu on October 29, 1985, which granted WWL the rig hts to operate a veh icle import/export processing terminal at Berths for a period of 25 years. The PBA allowed the tenant to build its 18,000 sq uare foot headquarters building at 300 Water Street at the tenant's sole expense. In 2006, WWL moved its headquarters out of state and vacated its two-story headquarters building at the Port of Los Angeles. Under Order No. 6881, the Board of Harbor Commissioners (Board) consented to the sublease of the second floor between WWL and Harley Marine Services, Inc., aka Millennium Maritime, Inc. (MMI ). In June 20 07, Order No approved to the sublease between WWL and the Harbor Department for use of the first floor for Port Police operations. The total rent revenue received by WWL for the subleases is approximately $22,206 per month. Upon approval of the proposed Sixth Amendment, MMI will be moved to Berth 301. This relocation will be addressed concurrently in a separate Board report. COSTS OF ACQUISITION - In an effort to expedite the acquisition of the necessary facilities to accommodate the Port Police needs, staff negotiated with WWL and MMI for an early occupancy termination of the 300 Water Street building. The final actual out-ofpocket cost of such early termination is estimated at $58,840, which allows the Port Police to meet its facilities needs 20 months in advance (see cost summary below). Most of the costs associated with the acquisition project will be absorbed by rent abatements for the new locations provided to WWL and MMI. The proposed new locations are vacant Harbor Department properties at Berth 200A and Berth 301. Opportunities to lease these properties to pa rties other than WWL and MMI are very limited; therefore, no future rental revenues are currently expected. Cost Summary: I Description of Harbor Department Income or (Expense) over the 20-month Agreement Term Before After Berth 301 (MMI new location)* $ 0 $ 21,080 First floor Water Street (subleased to Port Police) (225,080) acres at Berth 200A acres at 300 Water Street (acquisition parcel) 423, acres at Berth 200A (replacement parcel) 0 423,360 Total Income $ 198,280 $ 444,440 *After the proposed rent abatements at Berth 301 expire, the Harbor Department Will receive additional revenue estimated at $389,304 per year. Cost of MMI move to Berth 301 $ (305,000) Additional Income over 20 months ( After move) $ 246,160 Final cost to Harbor Department for 300 Water Street acquisition and MMI move to Berth 301 $ (58,840)

3 DATE: NOVEMBER 12, 2009 PAGE 3 OF 5 PORT POLICE NEEDS - Based on the results of the January 2007 Strategic Plan for Safety and Security, the Port Police have a critical need for additional office space with waterfront access for its waterborne operations. This is the only available location in the Port District that immediately meets these needs. The Port Police would require use of the entire building and its surrounding Property currently under WWL's PBA. They also require the acquisition and use of a backup generator currently on site owned by WWL. This transaction and the proposed move by MMI is proposed to be fully funded through a grant under Proposition 1 B from the State of California. The Harbor Department has received preliminary confirmation of the State's commitment to provide such funding. Based on these needs, Real Estate Division staff began negotiations for acquisition of the building and land in FINANCIAL ANALYSIS - Based on the initial financial analysis, Real Estate Division staff negotiated for the acquisition of the Property in exchange for replacement and additional acreage at a new location until October 31, The substitute acreage totaling 3.2 acres is being offered to WWL for replacement of the 3.2 acres lost as part of the property acquisitions. As a consideration to sell the building, the Harbor Department added an additional 4.8 acres rent free from the effective date of the Sixth Amendment until October 31, The 4.8 additional acres were offered in exchange for lost rental revenue from the building, lost utility, and increased operational costs associated with swapping 3.2 acres near the water and the facility's Auto Processing Center for 3.2 acres in a remote location at the rear of Berth 200A, and to compensate WWL for acquisition of a backup generator on the site which was originally excluded from the exchange but later requested by Port Police. Upon approval and final execution of the proposed Sixth Amendment, the sublease on the first floor of the building at 300 Water Street between WWL and the Harbor Department will terminate and monthly rent payments to WWL will cease. The current monthly rent for the sublease is $11,254. Assuming approval of this item by City Council by March 1, 2010, and commencement of this agreement at that time, the term of this agreement would last 20 months and expire on October 31, Based on the above timing assumption, WWL is estimated to lose $727,000 in future building rental revenue and increased operational costs as a result of this transaction. Concurrently, they will receive rent credits for 4.8 acres, with an estimated value of $711,000. The Harbor Department will forego lost opportunity cost from rental revenue of approximately $711,000 for the 4.8 acres granted to WWL and will save approximately $225,000 in rent currently paid to WWL, which results in a net lost opportunity cost of $486,000. TERMS FOR PROPOSED SIXTH AMENDMENT - Following negotiations and agreement on methodology, WWL and the Harbor Department agreed on the following terms: 1. The Harbor Department deletes 3.2 acres from Berths 195 and 196;

4 DATE: NOVEMBER 12, 2009 PAGE 4 OF 5 3. The Harbor Department offers 4.8 acres of space at Berth 200A for no additional rent until October 31,2011 (termination date of PBA); and 4. V'MIL to convey ownership of all improvements (including but not limited to buildings and appurtenances) at 300 Water Street, W ilmington, California to the Harbor Department. ENVIRONMENTAL ASSESSMENT: The proposed action is a proposed Sixth Amendment to PBA between the Harbor Department and V'MIL for use of existing Harbor Department Property with no expansion of use. The proposed Sixth Amendment will gra nt V'MIL substitute premises to accommodate the Port Police's need for use of V'MIL's present space. As such, the Director of Environmental Management has determined that the proposed action is exempt from the requirements of the Californ ia Environmental Quality Act (CEOA) under Article III Class 1 (18) of the Los Angeles City CEOA Guidelines. ECONOMIC BENEFITS: Approval of the proposed Sixth Amendment to accommodate the Port Police's space needs will have no job impact for our five-county region. FINANCIAL IMPACT: Cost and/or Revenue Impact: In providing an additional 4. 8 acres to WWL at no charge, the revenue impact is that the Harbor Department will forgo $35,545 per month (=$7,405 per acre X 4.8 acres) in fixed land rent until October 31, 20 11, which equates to $426, 540 annually. This property is not currently occupied, and therefore, the Harbor Department does not presently receive any revenue from this property. Additionally, the Harbor Department sublease will be terminated, resulting in a savings of $11,254 per month. Source of Funding or Savings: Not applicable as no fu nding is requested of this Board action. Alternatives Considered : No other site was deemed suitable to Port Police's specific needs. Benefits of Funding: Approval will facilitate the acquisition of the Property for Port Police, as required under the January 2007 Strategic Plan for Safety and Security for the Port. Fiscal Impact If Not Approved: The Harbor Department will lose grant funding specifically allocated for this project and will have to continue subleasing space at the Property at a cost of $11,254 per month. FIS Ap prov al :.~jinitiais)

5 DATE: NOVEMBER 12, 2009 PAGE 5 OF 5 CITY ATTORNEY: The Sixth Amendment has been prepared c:lljd approved as to form by the Office of the City Attorney. TRANSMITTALS: 1. Sixth Amendment 2. Site map