DATE: NOVEMBER 12, 2009 THE PORT OF LOS ANGELES Executive Director's Report to the Board of Harbor Commissioners FROM: REAL ESTATE DIVISION SUBJECT: RESOLUTION NO. - APPROVAL OF PROPOSED PERMIT NO. 882 WITH MILLENNIUM MARITIME, INC. SUMMARY: Millennium Maritime, Inc. (MMI) is currently under a sublease with WWL Vehicle Services America, Inc. (WWL), occupying office space at 300 Water Street in Wilmington, California as well as wharf and water space at Berth 195 for its tug and barge operations and maintenance. The Los Angeles Harbor Department Port Police (Port Police) requires the use of the office, wharf, and water space currently occupied by MMI. Proposed Permit No. 882 (Permit) provides an interim replacement location and terms for MMI to continue its operations at the Port of Los Angeles (Port) until their planned permanent premises are developed at Berths 87-90. The proposed Permit is compliant with all applicable measures of the San Pedro Bay Clean Air Action Plan. RECOMMENDATlON: It is recommended that the Board of Harbor Commissioners: 1. Approve the proposed Permit with MNiI (See Transmittal 1); 2. Direct the Board Secretary to transmit the proposed Permit 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 Permit upon approval by City Council; and 4. Adopt Resolution No. DISCUSSION: BACKGROUND - As part of Preferential Berth Assignment No. 77-34 (PBA), between the Los Angeles Harbor Department (Harbor Department) and WWL, WWL built and is the current owner of an 18,000 square foot headquarters building at 300 Water Street in Wilmington. In 2006, WWL moved its headquarters out of state and subleased the second floor of the building to MMI under Order No. 6881. In June 2007, Order No. 6920 consented to the sublease between WWL and the Harbor Department for use of the first floor for Port Police operations.
DATE: NOVEMBER 12, 2009 PAGE 2 OF 5 SUBJECT: PROPOSED PERIVIIT WITH MMI Based on the results of the January 2007 Strategic Plan for Safety and Security, the Port Police has a critical need for additional office space with waterfront access. This is the only available location in the Port District that immediately meets these needs. Port Police requires the use of the entire 18,000 square foot building, its surrounding grounds (1.5 acres), as well as an additional adjacent 1.7 acres under \NWL's PBA. The acquisition of WWL's building will be proposed concurrently through a Sixth Amendment to PBA 77-34 in a separate report to the Board of Harbor Commissioners. In an effort to expedite the acquisition of the necessary facilities to accommodate the Port Police needs, staff negotiated with \NWL and MMI for an early occupancy termination of the 300 Water Street building. The final actual out-of-pocket 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 parties other than \NWL and MMI are very limited; therefore, no future rental revenues are currently expected. Cost Summary: 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 - 300 Water Street (subleased to Port Police) (225,080) 0 4.8 acres at Berth 200A 0 0 3.2 acres at 300 Water Street (acquisition parcel) 423,360 0 3.2 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) While the Sixth Amendment addresses the agreement between the Harbor Department and \NWL for the acquisition of the building, the proposed Permit addresses the agreement to move MMI to property at Berth 301 (a portion of former Los Angeles Export Terminals premises) to accommodate the needs of Port Police (Transmittal 2). The term of the proposed Permit is five years with two, five-year options, and is subject to the eventual move of MMI to the proposed long-term location for operations at Berths 87-90.
DATE: NOVEMBER 12, 2009 PAGE 3 OF 5 SUB..IECT: FINANCIAL ANALYSIS - The estimated cost of MMl's proposed move to Berth 301 is $1,017,250, which includes infrastructure utility installations, moving expenses, purchase of spud barges for Port Police currently located at Berth 195, and security systems. In order to facilitate a quick transition, MMI has agreed to complete the work for their move to Berth 301 and subsequently be reimbursed by the Harbor Department partially in a lump sum upon the effective date of the proposed Permit and partially through rent abatements for the first 24 months of the proposed Permit. The Berth 301 location has been vacant and has not provided revenue to the Harbor Department since 2006. PERMIT TERMS - Below is a description of the significant terms of the proposed Permit. Use: The proposed Permit would be for the construction, operation and maintenance of a non-retail general office, tug and barge operations, maintenance facility, and similar operations at Berth 301. Term: The proposed Permit will be effective upon approval by the City Council. The proposed Permit shall be for a term of five years from the Occupancy Date. Occupancy Date would be the first day of the month, following Substantial Completion of Improvements at the premises. MMI will have two, five-year options to renew the proposed Permit at the end of the initial term if the proposed long-term location for MMI at Berths 87-90 is determined not to be ready for occupancy. Premises: Upon the effective date of the proposed Permit, MMl's premises will be comprised of approximately 111,416 square feet of wharf space, 190,320 square feet of water area, and no backland. Improvements: MMI will fund and contract for construction of the facility, including modular offices, utility connections, and yard improvements subject to a Harbor Department Engineering Permit. The Harbor Department shall reimburse MMI for the purchase of two spud barges, a security system which will remain at Berth 195 for Port Police use, and moving expenses. The Harbor Department shall also provide rent abatements for the cost associated with utility infrastructure installations, yard improvements, fencing, and fire sprinklers. Total reimbursements and rent abatements shall not exceed $1,017,250. Estimated costs have been reviewed by Engineering Division and include: $170,000 for moving expenses and security system; $135,000 reimbursement for purchase of two spud barges; Subtotal $305,000 $589,500 for utility infrastructure installations and yard improvements; $25,500 for construction permits; and $97,250 for fire sprinklers. Subtotal $712,250 Grand Total $1,017,250
DATE: NOVEMBER 12, 2009 PAGE 4 OF 5 SUBJECT: Compensation: The initial rent of $33,500 per month is based on MMl's current monthly lease payments to WWL and the Harbor Department for use of office and wharf area. This rate was negotiated to expedite the relocation and reduce the initial financial impact to MMI. For the first 24 months of the proposed Permit term, the Rent shall be reduced by $32,446 per month, bringing Rent to $1,054 per month, in consideration for MMI's construction costs described in the Improvement Section above. Beginning in 2014, a rental increase will be implemented based on a negotiated market rent, but not less than $50,819. This amount is based on a 10 percent rate of return on current values of $29 and $9 for industrial land and water, respectively, which is then adjusted 3.5 percent per year for the period from 2009 to 2014. Annual Consumer Price Index (CPI) adjustments would also apply to the rent following the 2014 adjustment. The new location will be limited to the wharf only and the rent for the wharf will be calculated as land rent. Corporate Guarantee: Harley Marine Services, Inc. (Guarantor) agrees to furnish a Corporate Guarantee for MMI, a wholly owned subsidiary of Harley Marine Services, Inc., in order to unconditionally guarantee MMl's performance under the terms of the proposed permit. ENVIRONMENTAL ASSESSMENT: The proposed action is approval of the proposed Permit between the Harbor Department and Harley Marine Services for use of existing Harbor Department property. The proposed Permit provides a replacement location for an existing use within the Port with no expansion of use. As such, the Director of Environmental Management has determined that the proposed action is exempt from the requirements of the California Environmental Quality Act (CEQA) under Article III Class 1 (18) and Class 3(6) of the Los Angeles City CEQA Guidelines. ECONOMIC BENEFITS: The amount of $1,017,250 on the proposed move of MMI will result in approximately eight direct and six secondary (indirect and induced) one-year equivalent job impacts for our five-county region. FINANCIAL IMPACT: Tenant shall pay $33,500 per month for land/wharf and water space at Berth 301. On July 1, 2014, rent shall immediately be adjusted to Market Rent, currently estimated at $50,819, which shall subsequently be adjusted annually based on the CPI every July 1. The annualized rate of return based on these terms is estimated at 9.5 percent.
DATE: NOVEMBER 12, 2009 PAGE 5 OF 5 SUB..IECT: Costs: $1,017,250 for construction and associated move costs at Berth 301 Source(s) of Funding or Savings: Upon execution of the proposed Permit, the Harbor Department will reimburse MMI for moving expenses, two spud barges, and a security system, totaling $305,000 through Center 1800, Account 59992 Relocation Assistance. The utility infrastructure, yard improvements, fire sprinklers, construction perrnit costs, and interest will be paid by tenant and reimbursed through rent abatement in the amount of $712,250. The proposed Permit premises is not currently occupied, and therefore the Harbor Department does not presently receive any revenue from this property. Alternatives Considered: Not relocating this tenant would delay the use of these premises by Port Police. This location is the most cost effective alternative and meets the location requirements of Port Police. Benefits of Funding: Approval will facilitate the development of the WWL office building for Port Police, as required under the January 2007 Strategic Plan for Safety and Security for the Port. Financial Impact if Not Approved: The Harbor Department will not realize future rents from the proposed Permit that is on Harbor Department property that is currently u nderutilized. CITY ATTORNEY: FIS Approval:_(initials) The proposed Permit has been prepared and approved as to form by the Office of the City Attorney. TRANSMITTALS: 1. Permit No. 882 2. Site map MJG:RG:AA:raw BL308raw MMI Permit