SUBJECT
Title
GILLESPIE FIELD - FIFTH AMENDMENT TO INDUSTRIAL LEASE WITH VERIDIAM, INC. FOR SCHEDULED RENT ADJUSTMENT ONLY AND RELATED CEQA EXEMPTION (DISTRICT: 2)
Body
OVERVIEW
Gillespie Field is in the City of El Cajon and is one of eight airports owned by the County of San Diego (County) and operated by the County Department of Public Works (DPW). The County airports system is operated, maintained, and improved using lease revenues and federal and State grant funding. Gillespie Field airport infrastructure and facilities include runway, taxiways, air traffic control tower, communications, and related equipment. Services available to corporate and general aviation users at this airport include hangar and tie-down rentals, aviation fuel sales, aircraft repair, maintenance, parts, pilot supplies, and flight training. The airport serves the public by housing aviation facilities and equipment operated by local law enforcement agencies, aerial firefighting, and other emergency services providers. Gillespie Field also includes industrial-zoned land that accommodates uses compatible with the airport. Leasing of airport land generates revenue for the Airport Enterprise Fund, which is used by DPW to ensure that all County airports are properly maintained and safe for airport users and the surrounding communities.
Veridiam, Inc. (Veridiam), a leading custom tubing manufacturer, formerly known as Carpenter Special Products Corporation, occupies a 6.42-net acre parcel at Gillespie Field. The Board of Supervisors (Board) approved the existing ground lease on June 22, 2005 (11). The 35-year lease, with a 20-year extension option, commenced on May 1, 2004, and has been amended four times. The lease provides for periodic rental rate renegotiations every five years to keep pace with market rates. The upcoming renegotiated rental adjustment is due on May 1, 2024. Based on the recent appraisal of a nearby leasehold, which estimated the fair market rate at $7,773 per acre per month, Veridiam’s rent would increase by about 27.14%. To mitigate such steep increase, the County and Veridiam have negotiated a lease amendment that would implement annual 5% fixed rent increases over the next five years.
This is a request to approve the fifth amendment to the industrial lease with Veridiam, Inc., to adjust the rent and to revise the rent adjustment schedule, as negotiated by the parties based on appraisal. If the proposed action is adopted, the lessee’s current base monthly rent of $39,251 will be increased by five percent, or $1,963, to $41,214, effective May 1, 2024. Thereafter, fixed five percent increases would be implemented annually until the next renegotiated rent adjustment in 2029.
RECOMMENDATION(S)
CHIEF ADMINISTRATIVE OFFICER
1. Find, in accordance with Section 15301 of the California Environmental Quality Act (CEQA) Guidelines, that the proposed lease amendment is categorically exempt from CEQA review as it consists of the leasing of existing facilities involving negligible or no expansion of existing or former use.
2. Approve and authorize the Clerk of the Board to execute, upon receipt, three copies of the fifth amendment to industrial lease with Veridiam, Inc. (County Contract No. 117011).
(4 VOTES)
EQUITY IMPACT STATEMENT
Gillespie Field is one of eight airports owned and operated by the County of San Diego (County) that provide vital air transportation hubs, emergency response facilities, and economic engines. The County pursues delivery of these services in a fair and equitable manner and actively works to remove barriers by providing airport guests with general airport information in the County’s threshold languages, encouraging participation, and providing competitive opportunities for small businesses and business that traditionally have less working capital and business owners and managers who may be socially and economically underserved.
SUSTAINABILITY IMPACT STATEMENT
The proposal to amend the industrial lease with Veridiam, Inc. to increase the base monthly rent has economic and social sustainability benefits. This lease provides increased services for the region. The revenue from this lease is used to operate, maintain, and improve the County airports system consistent with the County sustainability goal of providing just and equitable access to County services and resources in support of sustainable communities.
FISCAL IMPACT
Funds for this request are included in the Fiscal Year (FY) 2023-24 Operational Plan in the Department of Public Works, Airport Enterprise Fund. If approved, this request will result in additional revenue of $3,926, for a total current year revenue of $474,938 in FY 2023-24, and $498,688 in FY 2024-25. The funding source is rental payments from the lessee under the terms of the amended lease. There will be no change in net General Fund cost and no additional staff years.
BUSINESS IMPACT STATEMENT
Leases at airports benefit the local business community by creating jobs, increasing economic activity, providing business opportunities, and supporting infrastructure development. They attract visitors, generate revenue, and help small businesses grow, thus stimulating the local economy and improving the quality of life for residents. Airports connect individuals to jobs and local communities to the world. DPW operates and maintains the eight County airports safely and cost-effectively with the revenue derived from the airport leases. Today’s action of implementing scheduled rent adjustments to industrial lease with Veridiam, Inc. promotes self-sufficiency of Gillespie Field and enhances the economic viability of the County airport system.
Details
ADVISORY BOARD STATEMENT
On January 17, 2024, Gillespie Field Development Council recommended, by a vote of 5 in favor, 0 against, 0 abstained, with 0 members absent and 0 vacant seats, that the Board approve the proposed amendment to industrial lease with Veridiam, Inc. (County Contract No. 117011).
BACKGROUND
Gillespie Field, located in the City of El Cajon, is one of the eight airports owned by the County of San Diego (County) and operated by the Department of Public Works (DPW). Within the airport fence, DPW has leases with aviation operators, offering services to corporate and general aviation users, such as hangar rentals, aircraft tie-downs, aircraft maintenance, and flight training, as well as providing aerial support to the reginal law enforcement, firefighting agencies, and other emergency services providers. Gillespie Field also includes industrial-zoned land, located outside of the airport fence, that accommodates manufacturing, warehouses, offices, and light industrial uses compatible with the airport. Leasing of airport land generates revenue for the Airport Enterprise Fund, which is used by DPW to ensure that all County airports are properly maintained and safe for airport users and the surrounding communities.
On June 22, 2005 (11), the Board of Supervisors approved a new 35-year industrial ground lease with Carpenter Special Products Corporation, currently known as Veridiam, Inc (Veridiam), a leading manufacturer of precision-engineered parts, highly specialized tubing, wire components, and custom assemblies serving the medical, nuclear, aerospace, dental and industrial markets. The Veridiam lease was previously amended four times: on April 8, 2009 (6), to adjust rent; on April 16, 2014 (9), to adjust rent and update addresses; on October 19, 2016 (10), to reduce the premises size, adjust rent, and update lease language; and on March 27, 2019, to adjust rent and update lease provisions related to compliance with laws.
In accordance with Board Policy F-51, it has been standard practice for County leases to require periodic rental rate renegotiations to keep pace with market rates. The Veridiam lease provides for rental rate renegotiations every five years. The upcoming renegotiated adjustment is due to take effect on May 1, 2024.
Veridiam currently pays $39,251 per month for its 6.42-acre parcel. An independent appraiser, commissioned by the County last year to determine market rent for the neighboring industrial lot, estimated the fair market rate at $7,773 per acre per month. Applying that rate to Veridiam’s parcel would produce a monthly rent of $49,903, which is approximately $10,652 or 27.14% more than Veridiam is paying now. During the negotiations, Veridiam asserted that such a steep rental increase would cause hardship for the company that is still recovering from impacts of the recent pandemic. County and Veridiam have negotiated a lease amendment that would increase Veridiam’s rent to fair market rate incrementally by about 5% per year. Although this amount is initially lower than fair market rate at the beginning; with the annual calculation of CPI added to the amount of rent, the fair market value will be realized while helping Veridiam to continue their business and tenancy with County Airports, and consequently, County Airports will continue to benefit from the significant revenue that this large parcel brings to the Airport Enterprise fund, which contributes largely to the overall maintenance and safety of the County Airport system that benefits airport users and the surrounding communities.
If the proposed action is approved, Veridiam’s rent would be increased over the next five-year period, starting on May 1, 2024, in accordance with the following schedule (Chart does not include the additional annual CPI increases that will be applied pursuant to the lease language.):
|
Effective Date |
Base Monthly Rent |
Difference |
Percentage Increase |
|
5/1/2024 |
$41,214 |
$1,963 |
5% |
|
5/1/2025 |
$43,274 |
$2,060 |
5% |
|
5/1/2026 |
$45,438 |
$2,164 |
5% |
|
5/1/2027 |
$47,710 |
$2,272 |
5% |
|
5/1/2028 |
$50,095 |
$2,385 |
5% |
Today’s action involves scheduled rent adjustment only. Periodic adjustments upon rental rate renegotiations are contemplated in the Veridiam lease. Since this lease amendment is administrative in nature, all other terms of the lease would remain unchanged, and no other lease provisions are being added or modified. The lease amendment is not subject to the Working Families Ordinance (WFO) because the WFO at Section 73.12(b) does not apply to scheduled changes in rental rate or compensation. The proposed amendment is only for the purpose of implementing a scheduled adjustment in rent already provided for in the lease. The next renegotiated adjustment would be due on May 1, 2029. Starting on May 1, 2030, the rent would be subject to annual Cost of Living Adjustments, based on changes in the Consumer Price Index, and to periodic rental rate renegotiations, as set forth in the lease. All other terms of the lease will remain the same.
ENVIRONMENTAL STATEMENT
Section 15301 of the California Environmental Quality Act (CEQA) Guidelines exempts from CEQA review actions consisting of the “operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features involving negligible or no expansion of existing or former use.” The key consideration in applying this exemption is whether the proposed action involves expansion of an existing use. The proposed action involves approval of an amendment to a current industrial lease, with negligible or no proposed changes in use from what currently exists, and is, accordingly, exempt from CEQA review pursuant to Section 15301 of the CEQA Guidelines.
LINKAGE TO THE COUNTY OF SAN DIEGO STRATEGIC PLAN
Today’s proposed action supports the Economic Sustainability Strategic Initiative in the County of San Diego’s 2024-2029 Strategic Plan. Revenue derived from airport leases is placed in the County’s Airport Enterprise Fund, which aligns services to available resources, maintaining fiscal stability, and ensuring long-term solvency by using lease revenue for ongoing maintenance and operation of County Airports. Airports in San Diego County are an important part of the County’s physical infrastructure and the federal transportation system and provide superior service delivery to the local aviation customers and the public which they serve.
Respectfully submitted,
dahvia lynch
Interim Deputy Chief Administrative Officer
ATTACHMENT(S)
A. Vicinity Map