HomeMy WebLinkAboutItem 6j. Amendment No. 1 to the Exclusive Negotiating Agreement with SLO Repertory Theatre Item 6j
Department: Administration
Cost Center: 1005
For Agenda of: 5/21/2024
Placement: Consent
Estimated Time: N/A
FROM: Greg Hermann, Deputy City Manager
Prepared By: Robert Hill, Sustainability & Natural Resources Official
SUBJECT: AMENDMENT NO. 1 TO EXCLUSIVE NEGOTIATING AGREEMENT
WITH THE SAN LUIS OBISPO REPERTORY THEATRE
RECOMMENDATION
Approve Amendment No. 1 to the Exclusive Negotiating Agreement between the City of
San Luis Obispo and the San Luis Obispo Repertory Theatre.
POLICY CONTEXT
The City of San Luis Obispo’s policies and procedures for real property acquisition and
disposal are found at Section 475 of the Financial Management Manual, which further
incorporates City Charter Article IX, Section 906 and City Council Resolution No. 10052
(2009 Series).
San Luis Obispo Repertory Theatre’s long-standing plan to construct a new theatre
adjacent to the forthcoming Cultural Arts District Parking Structure is consistent with the
Downtown Concept Plan (2017) and to vacate the City’s old library property is consistent
with the Facilities Master Plan (2018).
DISCUSSION
Background
The San Luis Obispo Repertory Theatre (“SLO REP”), previously known as the San Luis
Obispo Little Theatre, has been a long-standing tenant of the City’s old library property at
888 Morro Street located next door to City Hall. In March 2000, the City Council identified
several options for a new theatre location within what would become known as the
Cultural Arts District Parking Structure site, located at the corner of Palm and Nipomo
Streets, and committed to working with SLO REP.
SLO REP is a valued community partner and local non-profit, has a strong Board and
governance structure, has an established professional staff, and has increased theatre
offerings. SLO REP has set forth a vision for a new 300-seat community theatre and has
been implementing a significant capital campaign in anticipation of the design,
construction, and operating costs associated with the long-planned move to a new
location.
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Item 6j
Previous Council Action
On May 22, 2019, the City and SLO REP entered into an Exclusive Negotiating
Agreement (“ENA”) (Attachment B) to set forth the parameters and conditions for SLO
REP’s long-term use of a portion of City property adjacent to the Cultural Arts District
Parking Structure, which is now under construction. Among the key deal points of the
ENA are that SLO REP complete a fundraising plan and proof of financial ability prior to
entering into lease negotiations with the City for the site. The ENA has a five-year term
and is therefore set to expire on May 22, 2024.
On April 19, 2022, the City and SLO REP entered into a Grant Agreement to provide
funding in the amount of $3,940,000 towards future construction of the new theatre. This
action followed SLO REP’s submittal of a “Challenge Grant” proposal that detailed the
anticipated local economic impact of the new theatre, which concluded that the new
theatre would generate more than $3 million annually while drawing 50,000 patrons to
downtown San Luis Obispo each year.
On September 5, 2023, the City Council adopted Resolution No. 11445 (2023 Series)
and made findings that the portion of City-owned land that is the subject of the ENA is
Exempt Surplus Land under the California Surplus Land Act (Cal. Gov. Code § 54221).
Exclusive Negotiating Agreements entered into prior to September 30, 2019, are not
subject to the Surplus Land Act’s noticing and availability requirements so long as the
land is disposed of prior to 2027. Without a timely extension of the ENA, as recommended
herein, the City would be required to complete noticing and availability requirements
pursuant to the Surplus Land Act.
Amendment No. 1 to Exclusive Negotiating Agreement
Staff recommends extending the term of the ENA, and the draft amendment includes the
following key points:
1. Provides for an additional 6-month term, with an option to extend for an additional
6-month term, to maintain timely forward progress in reasonable anticipation that
the ENA could be replaced by a prospective lease agreement within that
timeframe. The extension requires SLO REP to disclose other sites or options, if
any, that it may be considering for the theatre. The additional 6-month term is then
predicated on SLO REP issuing a written notice of intent to proceed with final lease
negotiations with the City.
2. Amends and clarifies the expected standard for a construction contingency of 15%,
operating reserve for the first year of 20%, and the required approval of a three-
year operating plan including the establishment of a fund for building and facilities
maintenance and repair. City staff worked with SLO REP to identify an appropriate
plan for reserve funding that is consistent with industry standards and practices
and Council direction.
3. Forecasts the potential for a longer, 99-year lease term.
4. Acknowledges progress and milestones that have been met and addresses minor
inconsistencies.
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Item 6j
Public Engagement
Any member of the public may comment on this item either in writing in advance of the
City Council meeting or by providing public comment during the hearing of this item.
CONCURRENCE
The City’s Community Development and Public Works Departments concur with the
recommendations contained herein.
ENVIRONMENTAL REVIEW
Entering into Amendment No. 1 to the Exclusive Negotiating Agreement is not considered
a project, in and of itself, under applicable CEQA guidelines. However, it should be noted
that the City completed environmental review as lead agency for both the Parking
Structure and the Theatre and certified a Final Environmental Impact Report by
Resolution No. 10923 (2018 Series).
FISCAL IMPACT
Budgeted: Yes Budget Year: 2023-24
Funding Identified: Yes
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund
State
Federal
Fees
Other:
Total N/A N/A N/A N/A
The recommended action does not have a direct fiscal impact. Modest staff time from the
City Administration Department will be used to oversee the terms of the ENA and
Amendment No. 1, if approved.
ALTERNATIVES
Council may request additional information, make changes, or decide not to
approve the draft Amendment No. 1 to the Exclusive Negotiating Agreement. A
decision not to approve is not recommended by staff because the City and SLO REP
have been working diligently together to move the new theatre project forward pursuant
to prior Council direction and because, if the extension of the term included in the
amendment is not completed timely, the City will be required to undertake the current
noticing and availability requirements of the California Surplus Land Act.
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Item 6j
ATTACHMENTS
A - Draft Amendment No. 1 to Exclusive Negotiating Agreement
B - Exclusive Negotiating Agreement between City of San Luis Obispo and San Luis
Obispo Repertory Theatre, May 22, 2019
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AMENDMENT NO. 1 TO EXCLUSIVE NEGOTIATING AGREEMENT
THIS AMENDMENT NO. 1 TO EXCLUSIVE NEGOTIATING AGREEMENT is made and
entered in the City of San Luis Obispo on _________________________________, by and between the
City of San Luis Obispo, a charter municipal corporation (“the City”) and San Luis Obispo Repertory
Theatre, a California non-profit organization (“SLO REP”). The City and SLO REP are jointly referred to
as the “Parties”.
WITNESSETH:
WHEREAS, on May 22, 2019, the City and SLO REP entered into an Exclusive Negotiating
Agreement (“ENA”) that set forth certain parameters, conditions, milestones, and conditions precedent to
entering into a long-term lease for SLO REP to use of a portion of City property to construct and operate a
new theatre building adjacent to the City’s Cultural Arts District Parking Structure, and
WHEREAS, the ENA has a five-year term that may be extended by mutual agreement of the Parties
and both the City and SLO REP have a desire to continue working together towards the construction and
long-term operation of a new theatre building; and
WHEREAS, both the City and SLO REP have completed and will continue to maintain their
respective obligations specified in the ENA, as well as satisfy the necessary conditions precedent to lease
negotiations and execution (paragraphs 5, 6, and 8), and the Parties are presently working together to move
towards the preparation of a mutually agreeable lease agreement.
NOW THEREFORE, in consideration of their mutual promises, obligations, and covenants
hereinafter contained, the parties hereto agree as follows:
1. The Exclusive Negotiating Agreement is hereby amended as follows:
i. The term shall be extended for a period of six (6) months from the date of this
Amendment No. 1, provided that SLO REP shall disclose to City other sites or
options, if any, that it may be considering for the theatre. The ENA may be
extended for an additional six (6) month period thereafter with approval by the
City Manager. The additional six (6) month extension may only be considered
upon SLO REP delivering a written notice of intent to proceed with final lease
negotiations with the City.
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ii. Paragraph 8a., General Lease Terms, shall be amended as follows: “SLO REP
shall commence construction of the Theatre no later than one (1) year after the
completion of the Palm Nipomo Cultural Arts District Parking Structure and
shall complete construction of the Theatre within three (3) years after that.
SLO REP shall not commence construction of the Theatre unless SLO REP
demonstrates, to the City’s Finance Manager Director’s reasonable satisfaction
prior to expiration of the year within which SLO REP is to commencement of
construction, that SLO REP has all of the funds necessary to design and
construct, as well as operate for at least one (1) years after completion of
construction, the Theatre, plus a 15% construction contingency, available in
cash or approved financing (the “Required Funds”), and SLO REP shall also
submit to the City Manager (or their delegate) a written document that
demonstrates an operating reserve of 20% for the first year of operating the
new theatre and three year operating plan including the establishment of a fund
for building and facilities maintenance and repair.”
iii. Paragraph 8b., General Lease Terms, shall be replaced as follows: “A lease
term not-to-exceed ninety-nine (99) years.”
2. All other terms and conditions of the Exclusive Negotiating Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed the day
and year first written above.
CITY OF SAN LUIS OBISPO SLO REPERTORY THEATRE
_________________________________ ________________________________
Erica A. Stewart, Mayor Kevin Harris, Managing Artistic Director
ATTEST
_________________________________
Teresa Purrington, City Clerk
APPROVED AS TO FORM
_________________________________
J. Christine Dietrick, City Attorney
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EXCLUSIVE NEGOTIATING AGREEMENT
This Exclusive Negotiating Agreement (“Agreement”) is entered into this ___day of ______, 2019 (the
“Effective Date”), by and between the City of San Luis Obispo, a California charter municipal corporation
("the City'') and San Luis Obispo Repertory Theatre, a California non-profit corporation (“SLO REP”). The
City and SLO REP are jointly referred to as the “parties”.
RECITALS
WHEREAS, the City is the legal owner of the property located at 888 Morro Street in San Luis Obispo,
California (the “Property”); and
WHEREAS, the City identified a portion of the Property as the site of a proposed public parking structure
(“Palm Nipomo Parking Structure”) and anticipates that an estimated 18,000 square foot portion of the
Property will not be needed for the Palm Nipomo Parking Structure (“Remainder Property”); and
WHEREAS, SLO REP desires to construct a not-for-profit live performance theatre facility and related on-
site and off-site (if any) improvements (“Theatre”) on the Remainder Property; and
WHEREAS, the parties recognize that the exact location, size and availability of the Remainder Property
for the Theatre cannot be determined at this time, and understand that the Remainder Property has
development restrictions including maintenance of trees, street setbacks and provision of pedestrian
connections/plazas from the Palm Nipomo Parking Structure to Monterey Street that affect the net buildable
land; and
WHEREAS, the City wishes to support community-based performing arts groups by encouraging
development of a live performance theatre facility in the downtown; and
WHEREAS, the City and SLO REP recognize that identifying a location for the Theatre, as well as some
of the terms of a future lease, may help SLO REP’s capital fundraising efforts; and
WHEREAS, construction of the Palm Nipomo Parking Structure and the Theatre and related rezoning and
general plan amendments will require environmental review, and SLO REP must provide certain
information about the Theatre before City can conduct the environmental review; and
WHEREAS, the City’s Financial Management Manual allows exclusive negotiations for long term lease of
City property when the there is a clear link between the proposal and accomplishment of significant City
goals, plans or policies; and
WHEREAS, the City considers the development of a not-for-profit live performance theatre on the
Remainder Property to be in the public interest and in accordance with the City's goals and the existing and
proposed Downtown Concept Plan.
NOW, THEREFORE, in consideration of the mutual covenants, conditions, promises and agreements
herein set forth, the parties agree as follows:
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AGREEMENT
1. RECITALS. The above Recitals are true.
2. TERM. This Agreement shall commence upon the Effective Date and shall continue in effect
for a period of five (5) years (the “Term”), unless sooner terminated as provided herein. The
Parties may extend the Term of this Agreement in writing upon mutual consent.
3. PURPOSE. The purpose of this Agreement is to enable the City to proceed with the Palm
Nipomo Parking Structure, and to allow SLO REP to explore the feasibility of SLO REP
financing, designing, constructing and operating the Theatre, at its sole cost and expense, on the
Remainder Property.
4. CITY’S OBLIGATIONS. The City shall, during the Term of this Agreement:
a. Exclusivity. Negotiate exclusively with SLO REP as the future tenant of the
Remainder Property.
b. Initiate Rezoning, General Plan amendments, and Lot Line Adjustment.
Upon City Council authorization, initiate all rezoning, General Plan amendments,
and a lot line adjustment necessary to allow the construction of the Palm Nipomo
Parking Structure on a portion of the Property and the Theatre on the Remainder
Property. The intent of this Agreement is for the Remainder Property to be created
as a “finished lot,” although the City legally cannot, and therefore does not,
contractually agree as to how it will exercise its legislative authority to rezone or
amend the General Plan and its land use authority to complete a lot line adjustment.
c. Environmental Review. The City has completed environmental review of the Palm
Nipomo Parking Structure and the Theatre and has certified a Final Environmental
Impact Report (“FEIR”) by Resolution No. 10923 (2018 Series). If SLO REP makes
any changes to the Theatre design or if any of the conditions set forth in CEQA
Guidelines § 15162 are triggered, then SLO REP may negotiate the portion of costs it
will bear in the event substantial new environmental issues are discovered during
construction, or if any project-specific environmental review related to the Theatre is
deemed necessary.
5. SLO REP’s OBLIGATIONS. SLO REP shall, during the term of this Agreement:
a. Non-Profit Status. Be a California non-profit corporation in good standing and be
exempt from state and federal income taxes under section 501 (c) (3) of the Internal
Revenue Code.
b. Proof of Financial Ability. Provide to City’s reasonable satisfaction that it has the
financial ability to design, construct and operate the Theatre on the Remainder
Property. At a minimum SLO REP shall:
Fundraising Plan. Provide the City with a fundraising plan by December 31,
2019 that is acceptable to, and approved by, the City Manager, whose approval
shall not be unreasonably withheld, delayed or conditioned. The fundraising plan
shall include a timeline with milestones that shall be met no later than 1 year
from the estimated completion of the Palm Nipomo Parking Structure. These
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milestones shall include, at a minimum, prior to commencement of lease
negotiations, but no later than one (1) year after City’s award and execution of a
contract to construct the Palm Nipomo parking Structure, that SLO REP shall
demonstrate, to the City Finance Director’s reasonable satisfaction, that SLO
REP has available at least 50% of all the funds necessary to design and construct
the Theatre.
i. Preliminary Cost Estimates. Provide the City with preliminary costs estimates
by December 31, 2020 to design, construct and operate the Theatre for at least
the first two (2) years after completion of construction. Update those estimates
as design progresses, but at least every 6 months. SLO REP will include the
payment of prevailing wages in its estimates.
ii. Annual Financials. Annually, on or before December 31st of each year, provide
the City with a current financial statement, copy of most recent filed state and
federal tax returns, and copies of current bank statements, to demonstrate
fundraising results for the Theatre.
iii. Formal Development Application. Finalize and submit a formal development
application for the Theatre to the City.
iv. Compensation for City Review Costs. Discuss and finalize how City
processing and review costs will be funded.
c. Environmental Review Information. Provide the City promptly with all information
necessary to conduct any subsequent environmental review of the Theatre that may be
necessary. This information includes, but is not limited to, square footage of structure;
square footage of various uses such as office, storage, classroom, and theatre; number
of seats; maximum number of performances per week, and any other information
deemed necessary by City.
6. TERMINATION. Either party may terminate this Agreement without liability to the other party
at any time by written notice to the other. This Agreement shall automatically terminate in the
event SLO REP fails to secure building permits for the Theatre one year after the completion of
the Palm Nipomo parking structure.
7. CONDITIONS PRECEDENT TO LEASE NEGOTIATION AND EXECUTION. All of the
following conditions must be met as conditions precedent prior to lease execution for the
Remainder Property:
a. Lease negotiation:
i. Rezoning and Lot Line Adjustment. City has rezoned and/or amended the
City’s general plan and has perfected a lot line adjustment that will create the
Remainder Property as a “finished lot” allowing for construction and its use as
the Theatre.
ii. Obligations Met. Both City and SLO REP have met all of their respective
obligations under the Agreement.
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b. Availability of Funds for Design, Construction, and Operation of the Theatre Prior
to execution of the lease, SLO REP demonstrates to the City Manager’s reasonable
satisfaction that SLO REP has met all applicable fundraising milestones in the
fundraising plan approved by the City Manager.
c. Non-Profit Status. SLO REP has maintained its non-profit and tax-exempt status under
applicable state and federal law.
d. Design and Construction Schedule. Prior to lease execution, provide to the City’s
Community Development Director’s reasonable satisfaction, a design and construction
schedule, demonstrating, at a minimum, the Theatre will be constructed and completed
within 3 years of the completion of the Palm Nipomo Parking Structure.
e. Design Coordination. Coordinate design of the Theatre with the City to ensure it is
compatible with the Palm Nipomo Parking Structure.
8. GENERAL LEASE TERMS. If the parties enter into the exclusive negotiations, the parties
desire that the lease include the following general provisions; provided, the actual language of
each provision is subject to further negotiation, and most material terms and provisions of the
lease have not yet been discussed. The City shall not lease the land for minimal rent unless the
lease is completely acceptable to the City and approved by the City Attorney. Nothing in this
paragraph shall be interpreted as an agreement or offer to lease upon the terms, provisions or
language set forth below.
a. SLO REP shall commence construction of the Theatre no later than one (1) year after the
completion of the Palm Nipomo Parking Structure and shall complete construction of the
Theatre within three (3) years after that. SLO REP shall not commence construction of
the Theatre unless SLO REP demonstrates, to the City’s Finance Manager’s reasonable
satisfaction prior to expiration of the year within which SLO REP is to commence
construction, that SLO REP has all of the funds necessary to design and construct, as
well as operate for at least one (1) years after completion of construction, the Theatre,
plus a 15% contingency, available in cash or approved financing (the “Required Funds”).
If SLO REP does not timely demonstrate that SLO REP has the Required Funds, or if
SLO REP fails to timely begin or timely complete construction, SLO REP shall be in
substantial default, and the lease shall automatically terminate unless City agrees
otherwise in writing. The Theatre shall be deemed complete only upon issuance of a
Certificate of Occupancy.
b. Minimum 40-year term with the right of first refusal for additional lease years provided
that Theatre is in good standing at the time of the renewal window, which shall open
after 35 years and conclude after 37 years unless the window is extended.
c. Rent of $1.00 per year provided SLO REP:
i. Is a California non-profit corporation in good standing; and
ii. Is a federal and state income tax exempt 501 (c)(3) entity; and uses the
Remainder Property solely as a live performance theatre and related City
approved community uses.
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iii. SLO REP’s failure to maintain its non-profit corporate status in good standing
or its tax-exempt status under applicable state and federal law or to use the
Remainder Property for any purpose other than as a live performance theatre and
related City approved community uses during the term or any extended term of
the lease, shall be a material breach of the lease. In the event any such breach
occurs, City may, at its option, either terminate the lease or raise the rent to fair
market rates for neighboring commercial uses.
d. SLO REP shall design, construct, operate and maintain the Theatre and all street frontage
and landscaping, utility extensions and connections, and other improvements, based on
agreed upon and approved plans and specifications, at its sole cost and expense without
any assistance from the City.
e. SLO REP shall be responsible for meeting or mitigating all conditions, impacts,
mitigations and requirements identified in the environmental review and entitlement
processes for issues associated with the SLO REP’s operation of a theatre on the
Property, at SLO REP’s sole cost and expense.
f. The design of the Theatre must be compatible with the design of the Palm Nipomo
Parking Structure, including the parking structure’s entrance and exiting needs, as
determined by the sole discretion of the Public Works Director.
g. SLO REP shall take all reasonable efforts to preserve, protect, and maintain the large oak
tree on 614 Monterey, along with the tree on the corner of Monterey and Nipomo.
h. If the SLO REP is not in material compliance with the Lease or ceases to be financially
solvent and to maintain the Property in a commercially reasonable manner, the lease shall
contain provisions for the City to declare a default of the Lease, for SLO REP to effect a
reasonable cure of the default(s), and for the City to terminate the Lease if the default(s)
are not cured pursuant to the terms and conditions of the Lease, and for the Remainder
Property to revert to the City.
i. Prevailing wages shall be paid by SLO REP for construction of the Theatre and related
improvements, mitigations etc.
j. SLO REP shall pay all applicable parking in lieu fees for a Community Partner, as
determined by the sole discretion of the City’s Public Works Director.
k. Payment of possessory interest and other taxes by SLO REP.
l. Other long-term landlord protection ground lease provisions, such as City standard
insurance requirements, indemnity provisions, attorneys’ fees, prohibitions against
nuisance, waste, requiring maintenance at SLO REP expense, etc.
m. If the City Council does not move ahead with the construction of the Palm/Nipomo
structure, a new agreement will need to be negotiated between the parties for a mutually
acceptable alternate site or an alternate set of requirements for a portion of the Property.
n. The City will not subordinate its interest in the Remainder Property to any financing.
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10. AMENDMENT. This Agreement may be extended or modified with the mutual consent of the
parties. Any such extension, amendment, modification or variation from the terms of this
Agreement shall be in writing and shall be effective only upon approval by the City Council.
11. COMPLETE AGREEMENT. This written Agreement, including all writings specifically
incorporated herein by reference, shall constitute the complete agreement between the parties.
No oral agreement, understanding or representation not reduced to writing and specifically
incorporated herein shall be of any force or effect, nor shall any such oral agreement,
understanding or representation be binding upon the parties.
12. NOTICE. All notices to the parties shall be in writing and shall be sent by United States mail,
postage prepaid by registered or certified mail addressed as follows:
City: Derek Johnson
City Manager
990 Palm Street
San Luis Obispo, CA 93401
SLO REP: Kevin Harris
Managing Artistic Director
888 Morro Street
San Luis Obispo, CA 93401
13. AUTHORITY TO EXECUTE AGREEMENT. Both City and SLO REP warrant and represent
that each individual executing the Agreement on behalf of each party is a person duly authorized
and empowered to execute agreements for such party.
IN WITNESS WHEREOF, the parties execute this Agreement on the day and year first above written.
ATTEST CITY OF SAN LUIS OBISPO
Teresa Purrington
City Clerk
Date Heidi Harmon
Mayor
Date
APPROVED AS TO FORM: SLO REPERTORY THEATRE
J. Christine Dietrick
City Attorney
Date Kevin Harris
Managing Artistic Director
Date
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