Consider Lease Agreement with Independent Auto Service INC for use of Cold Storage Area; and Consider Sublease Agreement with First Choice Towing (6745 Hwy 10).

As part of a State driven effort to realign U.S. Highway 10, the City of Ramsey has acquired a number of properties.  Said properties were purchased by means of the State Revolving Loan Acquisition Fund (RALF) and are located in the planned/future path of U.S. Highway 10.

Several "RALF" properties have existing structures/buildings.  The City has the option to lease out said properties to the private sector until realignment of Highway 10 is ready to move forward.  Leasing RALF properties generates property taxes.

One of those City owned RALF properties, and the concern of this case, is located at 6745 Highway 10 NW.  The front end of the Subject Property is leased by Independent Auto Service INC.  The rear of the Subject Property (which consists of cold storage) was formerly leased by Denny Sharp and is vacant, as of October 1. 

They City has been approached by Independent Auto Service INC to lease the now vacant cold storage area.  In addition, Independent Auto would like to bring forward a sublease agreement with First Choice Towing for Council Consideration.

Therefore, the purpose of this case is to consider two items:
(A) Lease Agreement with Independent Auto INC, for the cold storage area located in the rear of Subject Property
(B) Sublease Agreement between Independent Auto Service INC and First Choice Towing INC

NA

Lease between the City of Ramsey and Independent Auto for Cold Storage Area:
This is a 29 month term, step lease.  Meaning, monthly rent increases over time.  The lease begins in December 2012 and ends in April 2015; and includes a two year renewal option.  Staff has worked with the City Attorney to structure this lease similar to leases used in the past for the Subject Property (6745 Highway 10) and the neighboring property (6701 Highway 10).

Due to timing, Staff is proposing a step lease.  Demand for cold storage is high in the spring an fall, and low in the summer and winter.  We are past the peak demand for fall, and Independent Auto INC has indicated they would not generate enough revenue to cover base rent until May.  Therefore, three options are available (1) use a step lease with Independent Auto INC, as proposed (2) wait to lease with Independent Auto INC until peak demand arrives again in April/May (3) Not work with Independent Auto INC and look for a different prospect.

The step lease is structured at $100 per month for December/January, $350 per month for February/March, $650 per month for April, $1,612 May--forward.  $1,612 per month, covers the City's taxes and insurance (i.e. fixed costs) along with administrative costs.  Details can be provided in closed session.

Sublease between Independent Auto and First Choice Towing:
The proposed sublease is not an agreement between the City of Ramsey and First Choice Towing INC.  Ultimately, Independent Auto INC is responsible for upholding the existing lease agreement with the City of Ramsey (and the proposed second agreement).

The proposed sublease before the Council is under consideration because the City owns the Subject Property; and it is written in the existing lease (and in the second proposed lease) that any additional use of the Subject property must be approved by the City Council through a sublease.  A sublease provision provides the City with protection against the tenant using the Subject Property for an undesired use.

From a Staff perspective, there are no regulatory issues with the proposed sublease.  NOTE: it is written in the sublease, First Choice Towing INC must comply with all rules and regulations outlined in the lease agreement between the City of Ramsey and Independent Auto INC.

Attached to this case are both proposed leases.

Staff recommends approval of the proposed lease agreement between Independent Auto Service INC and the City of Ramsey.  Additionally, Staff recommends approval of the proposed sublease agreement between Independent Auto Service INC and First Choice Towing INC.

Property management is a duty of administrative and finance staff.

Motion to [Approve/Deny] proposed lease agreement between Independent Auto Service INC and the City of Ramsey, subject to the review and approval of the City Attorney.

-AND-

Motion to [Approve/Deny] proposed sublease agreement between Independent Auto Service INC and First Choice Towing INC., subject to the review and approval of the City Attorney.