Title
Ground Lease with Hines Interests Limited Partnership (Ordinance S-44614)
Description
Request to authorize the City Manager, or his designee, to enter a 30-year ground lease (Lease) with Hines Interests Limited Partnership (Hines) for approximately 8.2 acres of land located at 2601 and 2645 E. Washington St. (Premises). The Lease will contain other terms and conditions deemed necessary or appropriate by the City Manager or his designee. Annual rent will be $232,175, plus applicable taxes, and will be adjusted every five years by the cumulative changes in the Consumer Price Index (CPI).
Report
Summary
Hines will lease the Premises and then construct a build-to-suit state-of-the-art food manufacturing facility consisting of approximately 140,000 square feet, plus approximately 239 parking spaces. Hines will invest approximately $18 million to construct the facility. Hines must obtain an easement, lease, fee title, or other access rights from Union Pacific Railroad Company (UPRC) to the 19-foot right-of-way owned by UPRC that runs through the Premises. If Hines is unable to obtain an easement, lease, fee title, or other access rights from UPRC, then Hines may terminate the Lease within six months of the Lease commencement date. The City will cooperate with Hines's efforts to acquire an easement, lease, fee title, or other access rights on the UPRC right-of-way. Hines must receive the City's prior written consent to and acceptance of the acquisition terms prior to completing the transaction with UPRC for the right-of-way. If Hines obtains an easement, lease, fee title or other access rights from UPRC, then Hines shall transfer the rights acquired from UPRC to the City.
Contract Term
The term of the Lease is 30 years. The Lease will include two options to extend the term for ten years each that may be exercised upon mutual agreement of the parties. The City will conduct an initial environmental site assessment on the Premises and Hines will perform an environmental exit audit when the Lease expires or is terminated. If the Premises are needed for airport expansion purposes, then the City will give Hines at least 18 months prior written notice before terminating the lease and will pay to Hines the appraised value of the tenant improvements it made to the Premises, less the amortized portion of Hines's original capital investment based on a 30-year straight-line amortization schedule. The City will not terminate the Lease in the first seven years of the term, except in the event of a default or breach by Hines.
Financial Impact
Hines will pay ground rent at the rate of $0.65 per square foot per year. Annual rent will be $232,175, plus applicable taxes, and will be adjusted every five years by the cumulative changes in the Consumer Price Index (CPI). Rent will commence 18 months after the effective date of the Lease or upon beneficial occupancy of the tenant improvements, whichever occurs first. Total revenue received by the City will be approximately $6,965,250 over the 30-year term of the Lease, not including CPI adjustments.
Concurrence/Previous Council Action
This item was approved by the Downtown, Aviation, Economy and Innovation Subcommittee on May 2, 2018 by a vote of 4-0, with direction to staff to encourage Hines to collaborate with the Planning and Development Department to incorporate elements consistent with the TOD-2 section of the Zoning Ordinance, and the Reinvent Phoenix Gateway Transit Oriented Development (TOD) Policy Plan into their design.
Location
2601 and 2645 E. Washington St.
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Deanna Jonovich and the Aviation Department.