On February 19, 1994, the City Council approved a twenty-six year Ground Lease with Jon Marchi.  At that time, Mr. Marchi was Chairman of the Board of Directors for Big Sky Airlines.  Under this Ground Lease, Mr. Marchi built and subleased a new hangar facility to Big Sky Airlines.  Mr. Marchi later built an office building and also subleased that facility to Big Sky Airlines.  On October 10, 2000, the City Council approved an Amendment to the Ground Lease to extend the lease term by five additional years to February 28, 2025, allowing Mr. Marchi an additional term over which to amortize his investment.  Big Sky Airlines ceased operations on March 8, 2008.  After Big Sky Airlines left the Airport, the hangar and office building were vacant for a number of years, and consequently Mr. Marchi recently filed for Chapter 11 bankruptcy protection.  Mr. Marchi now subleases the hangar for maintenance and aircraft storage to Cape Air, the current Essential Air Service airline operating at the Airport.  He was recently awarded a lease with the Federal Aviation Administration for subleasing the office building and has invested in tenant required improvements in that building.  Both of these subleases and Mr. Marchi's Ground Lease with the City are assets included in the bankruptcy reorganization plan.  Staff has worked with Mr. Marchi throughout his bankruptcy reorganization and his efforts to obtain a new tenant for his office building.  To complete the transition of the assets and the approval of the FAA Sublease, Mr. Marchi is requesting approval of the following documents:

• Amendment 2 to Mr. Marchi's Ground Lease with the City to update the legal description and the language of various standard clauses;
• Assignment and Transfer of the Ground Lease from Jon Marchi to Marchi Family Enterprises, LLC., the Lessor on the sublease with the FAA;
• The Consent of Sublease providing City approval of Mr. Marchi subleasing the office building to the FAA.  The requirement for City Consent of the sublease is a condition of Mr. Marchi's Ground Lease with the City.

 
Copies of the Amendment, the Assignment and Transfer, and Consent of Sublease are on file in the City Clerk's office.  Staff has utilized the expertise of a local bankruptcy attorney to ensure that the City is fully protected from any effects of Mr. Marchi's bankruptcy reorganization.

City Council may:

• Approve Amendment 2, the Assignment and Transfer of the Ground Lease, and the Consent of the Sublease to the FAA; or
• Disapprove Amendment 2, the Assignment and Transfer of the Ground Lease, and the Consent of the Sublease to the FAA.

This Ground Lease currently generates $16,369.08 annually. Future lease year rentals will continue to be adjusted annually on the anniversary date by the Department of Labor Consumer Price Index For All Urban Consumers (CPI-U), published by the Bureau of Labor Statistics, for the previous twelve months to keep pace with annual inflation.  Additionally, a five-year rental rate analysis will be conducted in 2020 to determine whether the then current Ground Lease rental rate is in line with other on-Airport properties, or if a rate increase is warranted should the analysis identify that the then current Lease rental rate is below market value for other on-Airport properties.

Staff recommends that Council authorize the Mayor to execute Amendment 2 to the Ground Lease, the Assignment and Transfer of the Ground Lease to Marchi Family Enterprises, LLC, and the Consent of Sublease to the FAA.