Approve the Outdoor Public Market Term Sheet and Authorize the City Manager to Execute a Lease Agreement

On September 22, 2020, the City Council approved staff issuing a Request for Proposals (RFP) to seek interest from firms to design, fund, constructing and operate an Outdoor Public Market (Market) on City property.  The proposed Market would be located on the 0.79 acre overflow parking lot bounded by Pacific Street to the west, Adventure Way (entrance to Quarry Park Adventures) to the east, and the City’s parking lot to the south. 

Staff issued the RFP on October 30, 2020 and received two proposals.  An internal review committee consisting of the Assistant City Manager, Chief Financial Officer, Community Development Director, Parks & Recreation Deputy Director, and Public Services Manager reviewed both proposals and determined the proposal submitted by the firm identified as BEER 40, LLC (BEER 40) to be in the best interest of the City. This determination was based upon a number of factors including; higher scores across most evaluation criteria, successful operation of two other similar operations, and overall completeness and professionalism of the proposal (see attached proposal).  On December 16, 2020 staff notified both firms of the review committee’s determination and began to negotiate a term sheet with BEER 40, the results of which are contained herein (see attached term sheet).  Term sheet highlights include the following:

• The City (Lessor) and BEER 40 (Lessee) will enter into a five-year three-month initial lease agreement;

• Lessee will invest significant funds (ie. estimated $500,000) in the project and therefore will receive one five-year lease renewal option in order to amortize their start-up expenses;

• Lessee will be given first right of refusal to purchase the property should the Lessor elect to sell;

• Lessee will pursue all required entitlements and permits, and Lessor will defer payment of City fees for the first year of the lease, with fees amortized and repaid between the second and final year of the initial lease term;

• Lessee will be granted a $100,000 tenant improvement credit against the lease rate;

• Lessee will pay base rent at $1,000 per month during the lease term including annual escalation;

• Lessee will pay additional rent based on a percentage of gross sales (net sales tax) per quarter;

• Lessee will be responsible for all on-site maintenance, security, and monthly utilities;

• Lessee will cover insurance and indemnify the Lessor; and

• The City may terminate the Lease for convenience upon 120 days notice, with reimbursement to Lessee for its tenant improvement costs.

The Lessee will be responsible for designing, funding, permitting, constructing and operating all Market related improvements.  Given the large upfront capital investment required and relatively short period of time to recoup the investment, the City would grant a $100,000 tenant improvement credit against the lease rate, and would allow the one five-year lease renewal option at the Lessee’s discretion.  In staff’s opinion, this is a reasonable approach given that the Lessee is otherwise paying fair market value rent, is providing additional rent revenue based on gross sales, is making a number of permanent infrastructure improvements that will increase the value, marketability and use of the City's property, and is advancing the type of project the City desires to further economic development in Rocklin's Quarry District.

There are no direct costs to the City for this project, other than staff time managing the agreement. The City will receive an estimated $12,000 per year in rent payments, plus has the opportunity to receive additional rent if the operation is successful, plus sales tax revenue. If the City terminates the lease for convenience, the City would be responsible for reimbursing the Lessee for its tenant improvements.