Proposed Amendments for Palomar Airport Center dba Premier Jet Special Workshop/Meeting Palomar Airport Advisory Committee June 14, 2006
Proposed Amendments forPalomar Airport Center
dba Premier Jet
Special Workshop/Meeting
Palomar Airport Advisory Committee
June 14, 2006
Today’s Workshop Meeting
Background Special Workshop/Meeting Proposed Amendments Premier Jet
– Commercial vs. Non-commercial Tenants– Aviation Uses
County’s Analysis – Types of Rent– Spreadsheets
Question and Answer Period Motion and Vote
Background
This item originally discussed at meeting on May 18, 2006
Some PAAC members said they did not have enough information to vote to recommend approval
PAAC voted 4 to 3, with 1 abstention, against recommending Board approval
Background - continued
Staff options: Drop the proposed amendments Move forward with the statement that PAAC
did not vote to recommend Board approval in the letter to the Board
Bring the item back to PAAC for additional information and discussion
Why a Special Meeting?
Staff calls special meetings Advisory Councils for various reasons, for example time sensitive matters or those needing detailed discussion
For issues involving complex financial analysis it can be preferable to have daytime meeting on one topic.
Some members were interested in discussing this item in more detail, so it was determined a special meeting would be best option.
Overview of Proposed Amendments
Staff and Premier Jet have agreed to amend, subject to Board approval, two of the 5 Premier Jet leases, Lease 2 County Contract Number 75628R and Lease 3, Contract Number 75629R
Overview of Proposed Amendments - continued
Clarify the amount of additional rent the County will receive from long term prepaid subleases. – Upfront- Prepaid Rents– Ongoing – Operating Expenses– If additional term ever granted in future
Set County Processing fees for these types of agreements
Issue
There was a disagreement between the County and Premier Jet on how to handle additional rent to County for long term prepaid subleases according to the existing leases
Staff and Premier discussed differences and settled on the terms in the proposed Lease amendment, subject to Board approval
Staff Interpretation
Considers agreements Subleases – Premier Jet pays 5% of all prepaid rent for commercial subleases and ground rent subleases
The estimate of this amount varies depending on the percentage of commercial subleases:
At 33% $ 523,156 At 44% $ 690,875 At 50% $ 785,085 At 60% $ 942,102 At 75% $ 1,177,628 At 100% $ 1,570,171
Difficult to Administer for County
There is a grey area between private use and commercial, County would have to investigate each sublease’s business prior to consent
Use could change over time and additional rent is paid upfront. It would be difficult to go back and collect once escrow is closed.
Other Aviation Leases
Other County leases for prepaid long term subleases or “sale hangars” typically provide alternate formula resulting in monthly payments based on square footage
Premier had agreed to share a percentage of long term prepaid subleases in exchange for other favorable terms.
Premier Jet Interpretation
Considered agreement transfers Premier anticipated paying 5% on net profit
only Construction costs (approximately 78%) were
to be deducted Additional rent to County currently estimated
at $352,077
Construction Costs
Construction costs estimated at $181.64 or 78% of total price ($181.64 cost psf vs. sale price of $225-235 psf)
Costs have risen over earlier estimates due to increased cost of materials
These numbers are estimates, not final
Clear Misunderstanding
Clearly there was a misunderstanding, because Premiers loan docs and business performas show a maximum of 5% on 1/3 of total profits
Premier Jet had previously estimated to County that it’s additional rent for the prepaid sublease would be approximately $400,000
Problem’s with this Option
Leases as currently drafted are subleases not transfers
Due to cost of improvements this amount is lower than anticipated by County
Proposed Solution
Staff and Premier Jet have agreed to amend the lease, subject to Board approval, to clarify that long-term prepaid sublease additional rent to County will 5% of 1/3 of the total prepaid rent
Staff believes this is a fair and reasonable compromise between the 2 interpretations
Additional Provisions
Set processing fees to cover staff costs Establish payment of additional rent to
County for any future term extensions granted to Premier Jet and passed on to long term subleases.
Benefits of Proposed Amendment
More revenue to County than previously anticipated
The amendment will relieve the County of the need to determine commercial/ non-commercial uses and validate construction costs
Additional Rent to County
In addition to ground rent
The estimated additional rent to County would be:5% of 1/3 of all prepaid rent = $539,981 (up
front one time)5% of total short term commercial subleases =
$11,168 (annually)5% of operating expenses = $10,000
(annually)First year total $561,149
Proposed AmendmentsCompared to Transfer
If the proposed Amendment is approved– $187,904 one time more to County– $10,000 annually more to County
Proposed AmendmentsCompared to Traditional Sublease
– Difference varies depending on percentage of commercial use:
33% commercial = $ 21,825 more to County 44% commercial = $ 150,894 less to County 50% commercial = $ 245,104 less to County 65% commercial = $ 402,121 less to County 75% commercial = $ 637,647 less to County 100% commercial = $1,030,190 less to County
Premier Jet
Commercial vs. non-commercial mix Types of uses
Premier Jet Current Monthly Ground Rent (#1)
Lease 1: $ 01.30
Lease 2: $ 11,878.81
Lease 3: $ 6,057.02
Lease 4: $ 4,175.19
Lease 5: $ 2,254.85
Total: $ 25,167.17
Cost to Construct (#2)
Engineering & Inspections 694,368
Soils Testing 141,693
Architectural 871,336
Consultants 236,204
Site Improvements 2,787,564
Permits and Fees 597,735
Direct Construction 19,069,652
Indirect Construction 5,025,852
Marketing Costs 1,224,362
Other 4,946,477
Total 35,595,243
Estimate not final
Cost PSF (#3)
Total cost of Construction $ 35,595,243
Net Leaseable Square Feet 195,968
Cost Per Square foot $ 181.64
Estimate not final
Transfer Calculations (#4)
Gross $ 31,303,410
Cost to Construct $ 24,261,870
Net $ 7,041,540
Total to County as Additional Rent $ 352,077
Sublease Calculations
• Gross Total $ 31,403,410
• 44% Commercial $ 13,817,500
• Total to County • as Additional Rent $ 690,875
Assume 44% Commercial Subleases
Proposed Amendment (#6)
Total Prepaid Hangars $ 20,603,860
Total Prepaid Office $ 10,799,550
Total $ 31,403,410
Total to County as Additional Rent $ 539,981
Proposed Amendments Compared to Subleases (#7)
Total Prepaid $ 31,403,410
Percentage 44% $ 13,817,500
5% to County $ 690,875
Amendment $ 539,981
Difference $ (150,894)
What If? (# 7)
Working Excel Spreadsheet
Total Ongoing Premier Jet Rent (#8)
Monthly Annual
Ground Rent $ 25,167 $ 302,006
Subleases $ 931 $ 11,177
Operating $ 833 $ 10,000
Total Ongoing Rent $ 26,932 $ 323,183
Compared to Other FBOs at CRQ (#9)
Acres Monthly Annual
Premier 14.82 $ 26,932 $ 323,183
JetSource 8.49 $ 17,731 $ 212,777
Magellan 16.52 $ 36,174 $ 434,085
Western Flight 7.98 $ 11,946 $ 143,350
Estimates include ground rent, ongoing sublease rent, and equity payments
Question and Answer
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RECOMMENDED MOTION
“Palomar Airport Advisory Committee recommends that the Board of Supervisors approve the Second Amendment to Aviation Lease for County Contract Number 75629R and Third Amendment for County Contract Number 75628R between the County of San Diego and Palomar Airport Center dba Premier Jet.”