Memorandum 16-178 Seven Seas Fish Company/Fish Factory Lease

Memorandum 16-178

TO:                       MAYOR BRYAN ZAK & HOMER CITY COUNCIL      

THROUGH:         PORT & HARBOR ADVISORY COMMISSION

FROM:                  LEASE ADVISORS

DATE:                   NOVEMBER 2, 2016

SUBJECT:           SEVEN SEAS FISH CO. DBA ALASKAN FISH FACTORY LEASE ASSIGNMENT & PROPOSAL

On October 28, 2016 the City received a lease assignment request from The Fish Factory.  Mike McCune, owner of The Fish Factory, LLC, informed Port and Harbor Staff and the City Manager that he is selling the business to Seven Seas Fish Co. Ltd.  They are seeking the remaining amount of The Fish Factory’s lease term (14 years), potentially a longer term, and intend to continue operating as a fish processing business under the name Alaskan Fish Factory, Ltd.  Both parties are seeking the City’s approval of assigning the lease to the new owners before the end of this year; Seven Seas wishes to begin their operations by January 1, 2017.  Attached is the business proposal, supporting letters from Mr. McCune, and correspondence from the City to both parties regarding any outstanding zoning issues that would need to be resolved before a lease assignment/new lease could be approved.

The Lease Advisors reviewed the lease proposal at their November 1, 2016 meeting.  As per the Lease Policies and Procedures, the proposal must go before the Port and Harbor Advisory Commission for recommendations and then to City Council for approval.

The Lease Advisors recommend to City Council that the lease assignment request be granted to The Fish Factory/Seven Seas and a new lease with options to renew be awarded to Seven Seas Fish Company, dba Alaskan Fish Factory.  Seven Seas has provided sufficient information to the City to show that The Fish Factory is being sold to a responsible party and can continue operating it as a viable fish processing plant on the Homer Spit.  It was further agreed by the Lease Advisors that a new lease be awarded without the parcel being advertised through the Request for Proposals process. 

The Fish Factory is also leasing a portion of Lot 12B, the lot adjacent to Lot 12-A1.  It was requested by the parties that this portion be included in the new lease.  This section of parcel was leased to The Fish Factory on a short-term basis until they fulfilled all requirements listed under Conditional Use Permit 10-05.  It was determined at that time that upon completion of CUP 10-05, their lease for Lot 12-A1 would be amended to include the portion of Lot 12B.  Although majority of the requirements were completed in a timely manner, issues regarding RV storage prevented the CUP from being finalized. The assignment and new lease is contingent upon Mr. McCune resolving this zoning code issue, which is detailed in the attached letter dated November 2, 2016.

Below are some highlighted details of the proposed lease:

2.01 Lease of Property:  Lot 12-A1 (KPB 181-034-21) consists of 27,270 square feet, and a Portion of Lot 12B (KPB 181-034-51) that is 17 ft. by 225 ft., consisting of 3,825 square feet; total is 31,095 square feet.
3.01 Lease Term:  New term will either be a 20-year lease with two 5-year extensions, or a 10-year lease with two 2.5-year extensions.
4.01 Base Rent:  The current per square foot rate for these lots is $0.84. The total annual base rent for both Lot 12-A1 and portion of Lot 12B will be no more than $26,119.80 and is subject to change as determined by lease negotiations and/or if a current appraisal is needed.  Rent will be subject to annual CPI increases and 5-year appraisals.
4.08 Outfall Line Connection Agreement:  The Fish Factory is already connected to the City’s Fish Grinder Facility; they will be required to complete a new connection agreement where the one-time connection fee shall be waived and only the annual outfall line fee will apply.

Recommendation

The City Manager and Port and Harbor Staff recommends approving Resolution 16-117, approving an assignment of lease for The Fish Factory on Lot 12-A1 and awarding Seven Seas Fish Company, Ltd., dba Alaskan Fish Factory, Ltd. a new lease with options to renew for Lot 12-A1, Port Industrial No. 3, and a Portion of Lot 12B, Port Industrial No. 4, with an annual base rent of $26,119.80 (subject to change as determined by lease negotiations and/or ordered appraisal if needed), and authorizing the City Manager to move forward with lease negotiations and execute the appropriate documents.

Attached:            Seven Seas Fish Co. Lease Proposal

                              Letter to The Fish Factory & Seven Seas Fish Co. Re: Zoning Code Issue dated November 2, 2016

Fiscal Note:        Alaskan Fish Factory’s Annual Base Rent will be $26,119.80, subject to change as determined by lease negotiations and/or ordered appraisal if needed; lease rate is adjusted annually per the Consumer Price Index.