Agenda Item Wording:
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Introduction and first reading of Ordinance No. 2022-08, authorizing an amendment of the current lease between the City of Visalia and the Federal Express Corporation for a multiyear agreement giving the potential to add ten (10) total years to the agreement, at the rate of eleven thousand three hundred seventy-nine dollars and fifty-one cents ($11,379.51) monthly plus annual CPI adjustments.
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Deadline for Action: None
Submitting Department: Administration - Airport
Contact Name and Phone Number:
Jody Miller, Airport Manager, 713-4282, Jody.Miller@visalia.city
Nick Mascia, Assistant City Manager, 713-4323, Nick.Mascia@visalia.city
Department Recommendation:
Staff recommends that Council introduce Ordinance 2022-08 and authorize the City Manager to amend the current Airport lease with the Federal Express Corporation to extend the current agreement for five (5) more years with one (1) renewal option of an additional five (5) years leading to a potential total additional agreement length of ten (10) years. The current lease would continue until 2027, and have the potential for a five (5) year extension until 2032.
Background Discussion:
The current lease agreement between the City of Visalia and the Federal Express Corporation was signed into agreement in May of 2017 for an initial term of five (5) years with one lessee (Federal Express Corporation) optional renewal period of an additional five (5) years. In Exhibit “B” and Exhibit “C” of the original agreement, there was a list of agreed upon improvements that the lessor (The City of Visalia) was to make throughout the term of the agreement. The agreed upon improvements were never completed due to conflict on who would be responsible financially for completing them. These improvements are now in Exhibit “A” of the amended lease with negotiated terms for fiscal responsibility that both parties, including the City of Visalia legal advisors,, have agreed upon. It also includes an extension of the lease period of an additional five (5) years and one five (5) year optional renewal period that the lessee already held in the initial lease agreement. The lease agreement comes to just over one dollar and fifteen cents ($1.15) per square foot, which is slightly over the average cost for similar non-airport spaces of eighty-five cents ($0.85) to one dollar ($1.00) per square foot, and considered a fair rate given the airport proximity.
In the preparation of the amended lease, Visalia Airport personnel obtained quotes for the requested improvements which in total ended up at fifty five thousand three hundred nineteen dollars ($55,319), during the negotiation process City staff and the Federal Express Corporation agreed upon the lessee paying eighty-five thousand dollars ($85,000) towards these improvements in the event of raising costs pushing the work past the expected fifty-five thousand three hundred and nineteen dollar ($55,319) total, with the understanding that the eighty five thousand dollar ($85,000) amount would be the total paid whether the costs came in higher or lower. Additionally, the Federal Express Corporation hired consultants (Fischer Company) to handle their side of the lease amendment negotiation, for an additional cost of thirteen thousand six hundred fifty-five dollars and forty-one cents ($13,655.41) which the City agreed to pay upfront but would be reimbursed by the Federal Express Corporation. This led to a total owed to the City of Visalia of ninety-eight thousand six hundred fifty-five dollars and forty-one cents ($98,655.41).This amount owed is to be split into even payments of two thousand seven hundred forty dollars and forty-three cents ($2,740.43) to be paid over the first thirty-six (36) months of the new agreement on top of the standard monthly lease rate. In the event of either lessee or lessor terminating the agreement within the initial thirty-six months all remaining due of the ninety-eight thousand six hundred fifty-five dollar and forty-one cents ($98,655.41) would be due in full at that time.
The Federal Express Corporation is a significant tenant at the City’s airport. They utilize their Visalia Municipal Airport location for not only a retail/customer facing business but also as an air-cargo hub with three (3) planes permanently located at Visalia Municipal Airport that each make multiple scheduled flights daily, and a package sorting facility to process all the cargo that arrives via those flights. Coming to this agreement with the Federal Express Corporation at their current location provides the City with indirect revenue through fuel sales and commercial landing fees while keeping a long standing tenant. The City can point to this relationship with a quality tenant when negotiating with future cargo tenants as the airport expands.
Fiscal Impact:
Visalia Municipal Airport would receive Eleven Thousand Three Hundred Seventy-Nine dollars and fifty-one cents ($11,379.51) monthly plus annual CPI adjustments for a minimum of five (5) years with the potential of ten (10) years if the Federal Express Corporation exercises their five (5) year optional renewal period at the conclusion of the initial term, plus an additional two thousand seven hundred forty dollars and forty-three cents ($2,740.43) monthly for the initial thirty-six (36) months of the amended lease term. Additionally, the City will continue to make ancillary profits from the agreement in the form of fuel sales and commercial landing fees. This money would be deposited into the Airport Fund for general use within the airport for maintenance and operation. Airport Staff will prepare an additional Staff Report to take to council along with the second reading of this ordinance for budget appropriation for the repairs agreed upon in this lease amendment between the City of Visalia and the Federal Express Corporation.
Prior Council Action:
May 16th 2017: Council authorized the current lease agreement between the City of Visalia and the Federal Express Corporation.
Alternatives: City Council could not authorize the lease and cancel the existing agreement with the Federal Express Corporation; however, this would result in significant lost revenue for the Airport.
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to introduce Ordinance No. 2022-08 and authorize an amendment to the current lease between the City of Visalia and the Federal Express Corporation for their Airport location, extending the current lease for terms and cost specified within the staff report
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Environmental Assessment Status: NA.
CEQA Review: N/A
Attachments: .
1. Proposed Ordinance 2022-08
2. Proposed Amended Lease
3. Original Lease