Consideration and Approval of Contract:  City-Owned Property located at 11 W. Cherry known as the Doris Harper White Community Theater

1. Approve the lease between the City and Theatrikos, Inc.; and
2. Authorize the City Manager to execute all necessary documents.

On February 11, 2022, the City published an invitation for bids, no. 2022-10, seeking proposals from qualified non-profit organizations to enter into a long-term lease of the City-owned Doris Harper White Community Theater, located at 11 West Cherry for the purpose of managing and operating a performing arts center. Theatrikos, Inc., the current tenant, was the only bidder, meeting the minimum bid threshold set for the lease. The organization has been deemed a responsible and responsive bidder. The new lease memorializes a number of changes in the City's relationship with the facility and future tenant: 

• Twenty-Five year initial term with options for an additional two, twenty-five year extensions. Extensions are at City's discretion to renew. This provides the future tenant excellent lease tenure and security which will allow for significant fundraising opportunities as verified in the bid documents;
• After the initial term, the City may cancel the lease for convenience after providing eighteen-month notice.
• Modifies the relation between the tenant and the City in regards to maintenance obligations. Previous leases were strictly As-Is leases; this lease establishes the city as responsible to address structural and shell maintenance of the facility;
• The Monthly lease rate of $2,022 provides sufficient revenue to plan and execute future city maintenance responsibilities; and
• Existing deferred maintenance to the facility for which the City is not responsible will be addressed as future capital budget requests.

Should Council award the lease, notice of cancellation of the existing lease will be sent to the current tenant providing an 18-month notice period. Both parties anticipate agreeing to an effective date for the new lease of January 1st, 2024 to be executed at a ceremonial signing during Theatrikos's 50th anniversary celebration on September 10th, 2022. 

The current lease base payment is $1,234.09 per month. The new lease will start at $2,022 per month with 2% annual escalation. This equals an additional $787.91 in additional revenue; however, in order to best fund the ongoing commitments to the facility, these revenues should be dedicated to facility maintenance.

The previous lease was issued "As-Is," placing maintenance of the facility on the lessee. This lease aligns the maintenance of the assets with the owner of the asset (the City), representing a policy change. This is in keeping with a more traditional lessor / lessee relationship.

Priority Based Budget Key Community Priorities and Objectives

• Livable Community: Create a welcoming community through partnerships, strong neighborhoods, civic engagement, and resident participation.
• Livable Community: Provide amenities and activities that support a healthy lifestyle.

Carbon Neutrality Plan

• DD-1: Encourage vibrancy, appropriate density, and attainability in existing neighborhoods, so that more residents live within walking distance of their daily needs.

Regional Plan

• Policy ED.3.2. Strengthen the arts, culture, and education sectors as important economic drivers in the community.
• Policy NH.2.1. Encourage the rehabilitation of historic downtown structures and contextual new structures as office, retail, entertainment, and residential space to reinvigorate the area as a destination of culture, shopping, government, and the arts.
• Policy CC.5.1. Promote first class arts, research, and educational facilities.

The current lease was awarded by council in 2006. Three lease amendments were brought before council; in 2011, on February 6th, 2018, and on July 7th, 2020. 

• Decline to award lease and provide input for another solicitation. The current lease runs until October 30th, 2026 with an extension for an additional five years.

Theatrikos, Inc. has leased the facility through several leases form the City starting in October of 1988. The current lease solicitation was requested by Theatrikos for two main reasons. First, in order to unlock identified donor funding opportunities, Theatrikos needed a longer lease tenure than the current lease. Donors want assurance that the company will continue to operate well into the future; a long term lease establishes that assurance. Second, maintenance responsibilities for the facility did not align with the remaining lease term, preventing planned improvement projects from moving forward.

Article VII.9 of the City Charter requires leases of city property to be made to the highest bidder as a result of a public solicitation. Non-profit organizations providing significant community benefits are not exempt from this requirement; however, leases may be solicited and qualified for particular purposes, in this case the lease was only open to organizations who could provide performing arts in the facility. This use qualification in the solicitation impacts the market rent expectation for the facility, allowing organizations who can deliver the services the City wishes to program in the facility a rate decoupled from other uses.

Approximately 150,000 people have attended Theatrikos, the overwhelming majority of those since Theatrikos started managing Doris Harper-White Playhouse in 1988.  In 2019 alone, the year before the pandemic, 10,000 people attended shows and educational performance workshops.
 
This is an audience that Theatrikos brings downtown, many of whom shop and dine downtown before or after shows.
 
The theater has a positive economic impact, as well as an economic contribution. 5-10% of audiences come from outside Flagstaff during the spring, fall and winter, while this increases to 25% in the summer. Many of these are people who, but for their attendance at a performance would not otherwise go downtown on any given Friday night, Saturday night or Sunday afternoon.