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OLVERA STREET LEASE NEGOTIATIONS Jeffer Mangels JMBM Butler & Mitchellllp

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OLVERA STREET LEASE NEGOTIATIONS Jeffer Mangels JMBM Butler & Mitchellllp OLVERA STREET LEASE NEGOTIATIONS Jeffer Mangels JMBM Butler & MitchellLLP--------------------- Paul Hamilton 3 Park Plaza, Suite 1100 Direct: (949) 623-7235 Irvine, California 92614-2592 Fax: (310) 712-8552 (949) 623-7200 (949) 623-7202 Fax [email protected] www.jmbm.com Ref: 71153-0001 April24, 2011 Via Hand Delivery Via Email: [email protected] Honorable Members of the Budget and Gerry Miller Finance and Arts, Parks, Health and Aging Chief Legislative Analyst Committees City of Los Angeles City Hall City Hall 200 N. Spring St. 200 N. Spring St. Los Angeles, CA 90012 Los Angeles, CA 90012 Via Email: migueL santana@lacity. org Via Email: [email protected] Miguel Santana Ana Cubas , Chief Administrative Officer Chief of Staff to the Honorable Jose Huizar City ofLos Angeles 14th District Councilmember City Hall City Hall 200 N. Spring St. 200 N. Spring St. Los Angeles, CA 900J 2 Los Angeles, CA 90012 Via Email: [email protected] Robert L. Andrade General Manager El Pueblo De Los Angeles Historical Monument Re: El Pueblo De Los Angeles Historical Monument Concession Agreement. April21, 2011 Report; Council File No. 11-0449; Assignment No. 11-04-0381 Dear Councilmembers, Mssrs. Miller, Santana and Andrade, Ms. Cubas: The writer and my law firm, represents the Olvera Street Merchants Association ("OSMA"). OSMA represents 4 7 Olvera Street Merchants who are the lessees of 60 premises on Olvera Street. OSMA has received the detailed April21, 2011 Joint CLA/CAO/Department Report ("April 21, 2011 Reportu) to the Joint Committees and make the comments that follow. A Limited Liability Law Partnership Including Professional Corporations I Los Angeles ,. San Francisco ,. Orange County 7755353vl Honorable Councilmembers; Gerry Miller; Miguel Santana; Ana Cubas; Robert L Andrade April 24, 2011 Page 2 I. Expression of Appreciation OSMA is very appreciative of the efforts made by the City and its representatives and particularly, Council member Huizar and the tireless efforts of his Chief of Staff, Ana Cubas, in bringing the Concession Agreement to this eve of closure. OSMA is also very appreciative of the extraordinary and tireless efforts of Judge Dennis Choate, as mediator, to long ago bring the parties near to closure, of Concession Agreement Terms that he stated were reasonable to the City and the Olvera Street Merchants represented by OSMA. Taking into account the CLA, CAO, and Department recommendation, OSMA and the City are very close to consensual agreement on the economic and other terms of the proffered March 18, 2011 Concession Agreement. With OSMA's requested concessions approved, it is done. In OSMA's view, the facts compel these requested adjustments, are addressed below. II. The Olv:~ra Street Merchants are Entitled; They are not Month to Month Tenants Since 1980, the State, the Electorate of the City, and the City Council have recognized the need to protect the Olvera Street Merchants and their commitment to El Pueblo, and their years of benefits provided to the City: • In 1980, the State General Plan recognized the Olvera Street Merchants as "a unique and important human resource," thus giving the Olvera Street Merchants legally protected status which cannot be denied by City action. • In 1992, the City Electorate, with unanimous City Council support, passed Proposition H, recognizing then 60, now 81 years of benefits given by the Olvera Street Merchants to the City by commanding the City "protect the Olvera Street Merchants and the Mexican marketplace theme while recognizing the [Olvera Street] Merchants' continued commitment and involvement. They have become the essential link to the preservation of this [EI Pueblo] historic landmark." And the City electorate mandated that long term leases be given to the Olvera Street Merchants without competitive bidding, thus assuring that no future action by the City could lawfully deny the Olvera Street Merchants a long term lease without competitive bidding to the Olvera Street Merchants. "' In 1999, in implementation ofProposition H, the City Charter was amended to require the City "to negotiate long term concession agreements with the Olvera Street Merchants without any arbitrary or artificial limit as to their duration to be determined on what is negotiated as being fair and :reasonable in light of all the other terms and conditions negotiated in the contracts." )effer Mangels JMBMI Butler & Mitch<>ll Lll' 7755353vl Honorable Councilmembers; Gerry Miller; Miguel Santana; Ana Cubas; Robert L Andrade April24, 2011 Page 3 ® In 1999, the City Council, by unanimous vote, further implemented the mandates of Proposition Hand the Charter Amendment by directing the Department to enter into Concession Agreements with the Olvera Street Merchants on certain minimum terms. III. Olvera Street Medium to Large Stores Must Have Further Rent Relief As presented by to April 24, 2011 OSMA letter filed with this letter, 6 medium to large size stores will not likely survive the increased rent and CAM fee due to the present economy, if further rent adjustments are not made. The new rent/CAM fee represents a minimum of a 190% increase to as much as 294% increase in the tirst year of the lease, depending on the Merchant, - with greater increases over the next 4 years. Moreover, the new rent and CAM fee are estimated to be between 17% and 40% of the 2010 gross revenues of such Merchants. By any measure, these are not economically sustainable rents, and, accordingly, as mandated by the City Charter, 11 these rents/CAM are not "fair and reasonable . Any real estate professional will confirm this. OSMA takes issue with certain related findings in the April 21, 2011 Report, determining that the combined effect of new rent and CAM and payment of6 months ofback rent and 2 11 months of security deposits are "fair and reasonable , the facts are: 1. Unanticipated December 201 0 rains during Las Posadas and New Year week and unanticipated extraordinarily slow first quarter 2011 significantly reduced revenues. 2. Of the 158 days from the time the first City Term Sheet was proposed to the City proposed March 18, 2011 Concession Agreement, the City consumed 115 days in drafting the new Term Sheets and Concession Agreements and OSMA spent 43 days. OSMA Merchants should not be penalized for this delay. 3. The August 2009 Riggs Report is 18 months old. No updating has occurred, although OSMA has repeatedly asked for an updated report. Comparable rents have dropped significantly from August 2009 to the present, with vacancies for long periods. The 20-30% 1 discount from April I, 20 I 0 rent mentioned on page 2 CRent' ) of the April 2 I, 20 II Report is not reflective oftrue present market rates; which are 35 to 50% below the August 2009 rents. OSMA's well respected MAI Appraiser, Ron Buss ofBuss Shelger, will confirm this fact through testimony, as certain of the Merchants at the April25, 2011 Hearing will also establish these facts. IV. There is No 11 Gift of Public Funds" Issue OSMA and the City Attorney agree that there should be no 11 gift of public funds" implicated. And none are, in fact, implicated here. The City Attorney's contention that agreeing to a rental amount that is anything other than "fair market value" is illegal as violating the California Constitution and other laws prohibiting a public gift is flawed because: ]efferMangels JMBM lButler & Mltcheiii.U' 7755353vl Honorable Councilmembers; Gerry Miller; Miguel Santana; Ana Cubas; Robert L Andrade April 24, 2011 Page 4 • The Constitutional ban on public gifts do not apply to Charter cities like Los Angeles and there is no other applicable authority to support the illegality of the rental amounts proposed by the merchants; • The applicable law simply requires that a governmental entity obtain adequate consideration for leases; it does not require "fair market value;" and e The enactment of Proposition H by the City Electorate and other laws and the elimination of competitive bidding for the Olvera Street leases provides a sufficient public benefit to negate the applicability of the public gift prohibition. The City Attorney offers Allen v. Hussey (1950) 101 Cal.App.2d 457, as the key case supporting its position. Allen, however, is inapposite. There, the court found that a lease between defendant and the County of Los Angeles regarding an airport constituted an improper gift because the proposed rent amounted to one dollar a year and was to remain unchanged for 34 years and possibly 69 years through the exercise of an option. Allen, supra, 101 Cal.App.2d at 473(emphasis added). Thus, the Allen court found that because defendant provided no , consideration whatsoever for the subject lease, it was an improper gift of public funds under the State Constitution. !d. at 473-474. Those are not the facts here. 1. First, Olvera Street is City owned property, not County owned, and thus the public gift ban of the State· Constitution does not apply to the City of Los Angeles. 2. Unlike the County in Allen, the Olvera Street merchants here provide the City with more than adequate consideration for their leased premises. Over the first 5 year term of the Concession Agreement, the Merchants will pay over $7 Million in rent and over $1 Million in CAM tees. Such payments can hardly be compared to the $1 per year in Allen wherein absolutely no consideration was provided, and a "public gift" was found. Moreover, assuming, arguendo, that the Constitutional requirement regarding public gifts did apply to City owned property, the law only requires that adequate consideration be provided in exchange, and not fair market value. 1 In Winkelman v. City (ifTiburon (1973) 32 Cal.App.3d 834, 844 ("it is established that in order for a transfer to avoid being classified as a gift, the consideration given in exchange must be "adequate," so as to evidence a bona fide contract The consideration cannot be merely "nominal." The law, however, does not require a weighing of the quantum of benefit received by a promisor or of the detriment suffered by a promisee where the consideration is plainly substantial.
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