Title
Request to Amend City Contract 154552 Lease and Development Agreement 154552-0 with Chicanos Por La Causa (Ordinance S-49990)
Description
Request to authorize the City Manager, or his designee, to amend Unsubordinated Ground Lease No. 154552 (Ground Lease) and Development Agreement No. 154552-0 (collectively, Agreements), and any other agreement, as necessary, with Chicanos Por La Causa, an Arizona non-profit corporation (CPLC) to develop approximately 35 acres of land in Sky Harbor Center at Phoenix Sky Harbor International Airport located at the northeast corner of 16th St. and Buckeye Rd. and the northeast corner of Sky Harbor Circle North and Buckeye Rd. (Site); to consent to CPLC partnering with Trammel Crow Company (TCC) to form a limited liability company to develop the Site as “Developer” in the Development Agreement and as “Tenant” in the Ground Lease; to amend the term of the Ground Lease to include one 15-year option to extend the term subject to Federal Aviation Administration (FAA) approval; to allocate 2.5-acres on the Site for the development of a convenience store-gas station, including electric vehicle charging infrastructure and the delivery of other alternative energy services, such as hydrogen, as future demand warrants; and to modify certain development and business terms and conditions.
Report
Summary
At the direction of Phoenix City Council, staff from the Aviation and Community and Economic Development Departments negotiated with CPLC for the use of the Site, which was purchased by the Aviation Department in the 1980s as part of the West Approach Land Acquisition program, which includes the historic Sacred Heart building.
On May 11, 2021, the City entered into a separate Unsubordinated Ground Lease No. 154383-0 with Sacred Heart Roman Catholic Parish Phoenix for the rehabilitation and activation of the historic Sacred Heart building on Parcel 2 of the Site.
On June 4, 2021, the City entered into the Agreements with CPLC for the development of a mixed-use project on the Site that included a focus on compatible, commercial uses and the construction of an 80,000 square foot corporate headquarters facility for CPLC on Parcel 1.
CPLC recently notified the City that it has been working with TCC on a development for the Site and, in order to complete the development, CPLC requested modifications of certain business terms.
Subject to City Council and FAA approval, the following business terms have been negotiated with CPLC and would be implemented throughout the Agreements:
1. CPLC to partner with TCC to form a limited liability company to develop the Site as “Developer” in the Development Agreement and as “Tenant” in the Ground Lease.
2. Modify the Site Parcel Map exhibit in the Agreements to re-label the parcels as depicted on the parcel map attached and marked Attachment A.
3. Remove the 80,000 square foot corporate headquarter facility for CPLC on Parcel 1 and allow for the Site development to focus on employment-generating uses based on federal requirements for compatible land uses, including leasing buildings to general industrial, manufacturing, aviation-related, and aerospace tenants. The Site development will include community-orientated attributes and CPLC’s initiative of workforce training in the manufacturing space.
4. The Site will be designed and developed to a premium standard consistent with Commerce Park/General Commerce Park. If there are any zoning changes from the current Class A-1 Light Industrial zoning, then the zoning changes must be compatible uses for Sky Harbor Center and zoning uses that allow for distribution as the primary source of business operations are prohibited from the Site.
5. Provide a reinvestment capital requirement of cumulative $10 million in upgrading existing or adding new building and leasehold improvements as tenant improvements. All improvements, whether completed by CPLC and TCC or the subtenants, must be documented and approved by the Aviation Department to qualify as part of the $10 million reinvestment capital requirement.
6. Amend the Ground Lease term to include one fifteen-year option to extend the term that is subject to FAA approval. A request exercise the option to extend will be contingent in part upon the completion of the full reinvestment capital requirement and the Ground Lease shall be in good standing and not in default.
7. Modify the development timeline requirements for Phase 1 to include Parcels 1, 3, 4, and building(s) at a minimum of 10,000 square feet and a maximum of 210,000 square feet. Phase 1 must be completed within 24 months from the date the Phoenix City Council approved the amended terms. If construction is not completed and a certificate of occupancy is not issued on all subsequent phases, excluding Phase 1 and Phase 2, within 72 months of the date the Phoenix City Council approved the amended terms, the City reserves its to terminate CPLC's and TCC's development rights, lease rights, and any subleases to those remaining parcels.
8. Allocate 2.5 acres of the Site as Parcel 1A located at the northwest corner of Sky Harbor Circle North and Buckeye Rd. for the development of a convenience store-gas station, including electric vehicle charging infrastructure as Phase 2 (see Attachment A). If construction does not commence on Parcel 1A within 30 months from the date the Phoenix City Council approved the amended terms, the City may terminate the Ground Lease and sublease for Parcel 1A and terminate CPLC's and TCC's development rights to Parcel 1A. In addition to the existing requirements to pay 10% of annual gross sales for a convenience store-gas station operation and a fuel flowage fee of $0.10 per gallon, CPLC and TCC or the approved gas station operator subtenant agrees to pay $0.50 per transaction for electric vehicle charging.
9.Establish short-term development milestones to ensure timely construction of the project, as well as development milestone payments based on modified development timeline performance benchmarks for Phase 1.
10. Modify Ground Lease rental rates (Rent) for each parcel (see Attachment A for parcel map):
- Parcel 1: $1.05 per square foot per year, or approximately $622,900 per year.
- Parcel 1.A: $1.02 per square foot per year, or approximately $111,078 per year.
- Parcel 3: $1.05 per square foot per year,or approximately $528,344 per year.
- Parcel 4: $1.05 per square foot per year, or approximately $266,450 per year.
11. Modify the Rent commencement date for Parcels 1, 3, and 4 to commence 24 months from the date the Phoenix City Council approved the amended terms or upon issuance of construction permits for Phase 1, whichever occurs first. Rent for Parcel 1A will commence 36 months from date the Phoenix City Council approved the amended terms or upon issuance of a certificate of occupancy for Phase 2, whichever occurs first.
12. Modify Rent adjustment to a Rent escalation schedule with Rent increasing every five years by a cumulative three percent and fair market value (FMV) adjustment based on an appraisal every ten years. The FMV Rent cannot decrease from the previous year’s Rent by more than 95 percent or increase by more than 105 percent.
13. Amendments may include other terms and conditions deemed necessary or appropriate by the City Manager or his designee.
Contract Term
Subject to FAA approval, a one 15-year option to extend the term will be added to the Ground Lease for a total lease term of 65 years. In order to request the extension option, CPLC and TCC must complete the $10 million capital reinvestment requirement and the Ground Lease contract must be in good standing and not in default. Extension of the term may be exercised at the sole discretion of the Director of Aviation Services.
Financial Impact
If amended, the project will have no expense impact on the General Fund. CPLC and TCC will pay Rent of approximately $1.5 million for the first year and subject to a Rent escalation schedule for the remaining years.
Concurrence/Previous Council Action
The Phoenix City Council authorized the City to enter into a Ground Lease and Development Agreement with CPLC on Dec. 13, 2017 (Ordinance S-44141) and extended the execution deadline of the Ground Lease and Development Agreement on Dec. 12, 2018 (Ordinance S-45258).
Location
The Site is generally located on the northeast corner of 16th St. and Buckeye Rd. and the northeast corner of Sky Harbor Circle North and Buckeye Rd. in Sky Harbor Center at Phoenix Sky Harbor International Airport.
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and Interim Deputy City Manager John Chan, and the Aviation and Community and Economic Development Departments.