MINUTES OF THE CITY COUNCIL
SAN JOSÉ, CALIFORNIA TUESDAY,
OCTOBER 29, 2002
The Council of the City of San José convened in adjourned regular
session at 3:57 p.m. in City Council Chambers at City Hall for a joint meeting
with the Redevelopment Agency Board.
Present: Council Members - Chavez,
Cortese, Dando, Diquisto, LeZotte, Reed, , Williams, Yeager; Gonzales.
Absent: Council Members - Campos;
Shirakawa, Jr. (both excused).
7.1 (a) Adoption of a resolution by the City
Council accepting the summary of costs and findings of the Summary 33433 Report
and the Estimated Reuse Valuation pursuant to the California Health and Safety
Code Section 33433 for the lease of approximately 7,000 square feet at 170
South Market Street to McCormick and Schmick making certain findings and
approving the lease.
(b) Approval by the Agency Board of a lease
with McCormick and Schmick for the property located at 170 South Market Street,
for a ten-year term with three five-year options, funding of $480,000 in
landlord improvements, up to $749,000 in tenant improvement, and $100,000 in
real estate commissions.
CEQA: 67982 [SAN
ANTONIO PLAZA]
Documents
Filed: Memorandum from Redevelopment Agency Executive Director Susan F.
Shick, dated October 29, 2002, recommending (a) adoption of said resolution accepting the summary of costs and
findings of the Summary 33433 Report and the Estimated Reuse Valuation, and (b)
approval of said lease with McCormick and Schmick for the property located at
170 South Market Street
Discussion/Action:
Harry Mavrogenes, Deputy Executive Director of Redevelopment, explained that
there was a Request for Qualifications for the property, and McCormick and
Schmick, a nationally recognized, high quality restaurant was selected as the
tenant at a market rate lease. Council Member Chavez asked Staff to expand on
the Council’s role as a landlord – where the analysis took place and its
relevance to the City in this marketplace based on the deal before the Council.
Deputy Director Mavrogenes explained that the analysis indicated the City, as
landlord, has an interest in the retail space which is based in a five-star
hotel, and it is critical to get a tenant who will work with the hotel. Council
Member Chavez stated that one of the City’s goals should be to get the operator
to a point where they return revenue to the Agency. Assistant Executive
Director
Sharon L. Landers indicated that the financial consultants recommended this
type of tenant based on similar deals. Council Member Chavez questioned the
benchmarks and comparables used. Assistant Director Landers responded that they
would have to get more specific information from the consultants to determine
what comparables were used. Council Member Chavez stated that it is important
for the Council to understand its role in terms of how it is moving forward on
any of these agreements, and would like Staff to be more concrete regarding
comparisons in the future; in fact, she would like this information for this
deal even though she will be supporting it. She requested information on the
number of restaurants and other buildings where the Redevelopment Agency has
helped with the façade and other improvements, and commented that it is
important this tally continue to be attached to documents so the Agency Board
can understand the process of continuing development of downtown. Assistant
Director Landers explained that McCormick and Schmick is contributing $1
million for tenant improvements and the Agency is contributing $749,000; in
terms of other projects, the Agency has contributed approximately $5 million to
80 restaurants in the downtown area, plus 7 restaurants who have benefited from
over $65 million in assistance to hotel development. Regarding base rent,
Council Member LeZotte asked if there would be a negative at the end of ten
years. Deputy Director Mavrogenes responded that a percentage rent would begin
after five years.
Council Member Williams asked how
assured Staff is of the lessee’s ability to reach its financial objective.
Staff responded that the lease has a guaranteed rent, and that McCormick and
Schmick would not enter the lease without believing there is a market for them.
Council Member Reed asked if the lease is with the main McCormick and Schmick
or are they forming a new entity. City Attorney Doyle stated the lease is with
McCormick and Schmick Restaurant Corporation, a special section of their
company. Council Member Dando stated that she believes the Agency should
refocus its objective from additional restaurants to more traditional retail.
Council Member LeZotte asked if there were any specific exclusions in the
lease, such as bar sales, catering services, t-shirts, etc.
The following individuals spoke on
the item: William Garbett, Ross Signorino, and Henry Cord. City Attorney Doyle
provided a list of exclusions to the lease, which do not include those
mentioned by Council Member LeZotte. Council Member Reed stated that he
believes the Agency needs to draw a line on subsidies, and at a minimum, should
get money back on tenant improvements in the form of base rent.
Upon motion by Council Member
Chavez, seconded by Council Member Cortese, and unanimously carried, Resolution
No. 71285, entitled; “A Resolution of the Council of the City of San Jose
Accepting the Summary of Costs and Findings of the Summary 33433 Report and the
Estimated Reuse Valuation Pursuant to the California Health and Safety Code
Section 33433 for the Lease of Approximately 7,000 Square Feet at 170 South Market
Street to McCormick and Schmick, Making Certain Findings and Approving the
Lease”, was adopted, and the lease with McCormick and Schmick for the property
located at 170 South Market Street was approved and its execution authorized.
Vote 8-1-2-0. Noes: Reed. Absent: Campos, Shirakawa, Jr.
ADJOURNMENT
The Council of the
City of San José and the Redevelopment Agency Board adjourned the Joint
Redevelopment Agency Council meeting at 4:24 p.m.
RON GONZALES, MAYOR
ATTEST:
PATRICIA L. O’HEARN
CITY CLERK