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17 - Rent for Commercial Tidelands Uses in Newport Harbor
Q SEW Pp�T CITY OF s NEWPORT BEACH C'94IF09 City Council Staff Report July 25, 2017 Agenda Item No. 17 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Kimberly Brandt, Community Development Director - 949-644-3232, kbrandt@newportbeachca.gov PREPARED BY: Lauren Wooding Whitlinger, Real Property Administrator Chris Miller, Harbor Resources Manager Seimone Jurjis, Assistant Community Development Director, CBO PHONE: 949-644-3236, Iwooding@newportbeachca.gov TITLE: Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor In November 2012, the City Council adopted fair market rent methodologies for large commercial marinas and other commercial uses in Newport Harbor. Since 2015, these rental rates have remained static while new appraisals of fair market rent were conducted. Now complete, the recent appraisals establish the fair market rent for large commercial marinas at 8.50% of gross revenue, and fair market rent for other commercial uses in the harbor at 4.61 % of gross revenue. Staff is recommending the adoption of a revised rent schedule that reflects the updated fair market values. RECOMMENDATION: a) Conduct a public hearing; b) Find this project exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, because this project has no potential to have a significant effect on the environment; and c) Adopt Resolution No. 2017-49, A Resolution of the City Council of the City of Newport Beach, California, Adjusting the Rent Charged for Commercial Uses Located Upon Tidelands. 17-1 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 2 FUNDING REQUIREMENTS: The adopted budget allocates revenue from the Newport Harbor commercial uses to the Tidelands Fund — Commercial Marinas accounts (Account numbers 10050505-551240, 10050505-551245, 10050505-551250, 10050505-551255, 10050505-551260, 10050505-551560, 10050505-551265, 10050505-551270, 10050505-551275, 10050505-551280, 10050505-551285, 10050505-551290, and 10050505-551295). DISCUSSION: Tir plandc, Pursuant to the State statutes, the City holds certain tidelands in Newport Harbor in Trust. The City manages the public tidelands property under the Beacon Bay Bill of 1978, as amended. The law states that when the City leases public property to third parties for private use, the City is required to charge fair market rent, and that lease period may not exceed 50 years. Newport Beach Municipal Code and City Council Policy also require the City to receive fair market rent for private third party use of public lands. The County of Orange (County) also manages portions of the Newport Harbor tidelands, and the County is subject to similar State statutes. Previous Actions In 2012, the City Council, with direction from an Ad Hoc Committee on Harbor Charges (Committee), adopted a series of resolutions outlining a program to manage commercial tidelands within Newport Harbor. As part of this Commercial Tidelands Program (Program), Council adopted Resolution No. 2012-96 and Resolution No. 2012-98, which established a rent setting methodology for commercial tidelands based on the Committee's recommendations and appraisals the City obtained from James Netzer and Gary Rasmuson. These resolutions are contained in Attachments B and C. 17-2 Resolution Amending Rent for Commercial Tidelands Uses in Current Rates and Revenues Newport Harbor July 25, 2017 Page 3 Table 1 lists the rental rates that the City is currently charging. Staff notes that the rates are based on the 2014 index (pending the outcome of the new appraisals). Table 1 also lists what the rents could be, based on the 2017 index contained in the City Council's 2012 resolutions. Table 1 2017 Rental Rates Current 2017 Index Commercial Use Category Rent' Rent2 $/sf $/sf Large Commercial Marina $0.35 $1.46 15,000 sf or greater) Small Commercial Marina $0.26 $1.10 (less than 15,000 sf) Fuel Dock (greater of base rent or percentage rent at $0.35 $0.50 $0.015/gallon up to 100,000 gallons, or $0.02/gallon over 100,000 gallons) Shipyard $0.35 $0.50 HOA Marina - Non -Members $0.35 $1.46 (15,000 sf or greater) HOA Marina - Non -Members $0.26 $1.10 (less than 15,000 sf) Yacht Club $0.35 $1.46 - Guest Slips @ Yacht Club $0.35 $0.50 Vessel Rental Facility Boat Rentals $0.35 $1.02 Sport Fishing Charters $0.35 $1.02 Restaurant (Guest Slips) $0.35 $1.02 Vessel Charter $0.35 $1.02 Free/Public Access Dock $0.00 $0.00 Other Tidelands Use $0.35 $1.02 1. Current Rates Charged to Commercial Uses, Based on the 2014 Index 2. Not Implemented Pending Reappraisal, Based on the 2017 Index 17-3 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 4 Based on the current 2017 rates in Table 1, Table 2 shows the Fiscal Year 2016/17 annual revenues per category of commercial use, which totaled $381,556. Table 2 Fiscal Year 2016-2017 Commercial Tidelands Use Revenues Commercial Use Category FY 16-17 Revenues Large Commercial Marina $246,096.55 (15,000 sf or greater) Small Commercial Marina $42,291.34 (less than 15,000 sf) Fuel Dock (greater of base rent or percentage rent at *$4,209.10 $0.015/gallon up to 100,000 gallons, or $0.02/gallon over 100,000 gallons) Shipyard $5,860.75 HOA Marina — Non -Members $0.00 (15,000 sf or greater) HOA Marina — Non -Members $7,215.52 (less than 15,000 sf) Yacht Club — Guest Slips $12,657.75 Vessel Rental Facility (Boat Rentals) $18,372.20 Sport Fishing Charters $3,973.20 Restaurant (Guest Slips) $7,516.95 Vessel Charter $23,985.85 Private Tidelands/Free/Public Access Dock N/A Other Tidelands Use $9,376.85 Totals: $381,556.06 *Base rent only; percentage rent not included in total. George Hamilton Jones, Inc. Appraisals George Hamilton Jones, Inc. performed an appraisal of the fair market rental value of the City's tidelands and submerged lands (GHJ Appraisals) (Attachments D and E). The appraisals concluded market rent for large commercial marinas should be set at 8.50% of the gross revenue generated by the commercial marina operation, or $1.17 per square foot of tidelands per year. 17-4 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 5 The appraisal assumed a term of fifty years, an annual adjustment by the Consumer Price Index (CPI), and an adjustment to market value by appraisal every ten years. Additionally, the appraisals assumed the tidelands were unimproved, vacant water area only, with access to and from the uplands. Further, the appraisals assumed restrictions on use of the tidelands for commercial marina purposes to include the minimum requirements for the dedication of a portion of the uplands to support the marina operation, including vehicle access, parking, and storage, restrooms, and marina office space. The appraisal concluded market rent for other commercial marina uses should be set at 4.61 % of the gross revenue generated by the commercial marina operation. A new category, medium commercial marina, was created to better reflect the gross income limitations and appropriate rental rates for various size marinas and their respective operating capacities. With the new category, four marinas will change from "large commercial marina" to "medium commercial marina", and one HOA marina would move from the "small" to "medium" category. The appraised market rental rates, per square foot of tidelands, are outlined in Table 3 below: Table 3 Market Rental Rates Per Appraisals Commercial Use Category GHJ Appraisal — Market Rent ($/sf) Large Commercial Marina (greater than 30,000 sf) $1.17 Medium Commercial Marina (13,000 sf to 30,000 sf) $0.89 Small Commercial Marina (less than 13,000 sf) $0.76 Fuel Dock $0.76 Shipyard $0.38 HOA Marina — Members *Residential Rates HOA Marina — Non -Members - (greater than 30,000 sf) $1.17 - (13,000 sf to 29,999 sf) $0.89 - (less than 13,000 sf) $0.76 Guest Slips @ Yacht Club $0.38 Vessel Rental Facility (Boat Rentals) $0.76 Sport Fishing Charters $0.76 Restaurant (Guest Slips) $0.38 Vessel Charter $0.76 Free/Public Access Dock $0.00 Other Tidelands Use $0.76 17-5 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 6 Recommended Rental Rates To achieve the appraised market rates, staff recommends implementation of the rent changes in two phases, as shown in Table 4. Phase 1 would begin in November 2017, and Phase 2 would begin in August 2018. As in the past, the City will calculate the annual rent by multiplying the applicable rate by the commercial use square footage. As can be noted in the table, the recommended rent rates are in all cases lower than the "2017 Index Rent". Based on the market data for fuel docks from the appraisals, staff recommends approval of a lower base rent amount of 38¢ per the commercial use square footage, than was outlined in the appraisal. Additionally, staff recommends that fuel docks continue to pay the greater of the base rent or percentage rent based on the number of gallons pumped or sold annually from the fuel dock, so that the rent is commensurate with the fuel dock income. Staff also recommends annual rent adjustments based on the Consumer Price Index. Additionally, the proposed resolution includes a fair market adjustment to the rent every 10 years. A Member of the Appraisal Institute (MAI) appraiser would determine the adjustment by performing a harbor -wide appraisal of commercial tidelands uses. Table 5 reflects the anticipated revenue, once the proposed rates are fully phased -in. With approval of the proposed rates, the annual revenue from commercial marina uses would increase by $719,414.30 when compared to Fiscal Year 2016/17. 17-6 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 7 Table 4 Recommended Commercial Tidelands Use Rental Rates (Based on Square Footage) RECOMMENDED RATES Current 2017 Index Phase 1: Phase 2: Commercial Use Category Rent' Rent2 Nov. 2017 Aug. 2018 $/sf $/sf Rent Rent Large Commercial Marina $0.35 $1.46 $0.76 $1.17 (greater than 30,000 sf Medium Commercial Marina N/A N/A $0.62 $0.89 13,000 sf to 30,000 sf Small Commercial Marina $0.26 $1.10 $0.49 $0.76 less than 13,000 sf Fuel Dock **Greater of Base or Percentage $0.35 $0.50 **$0.38 **$0.38 Rent Shipyard $0.35 $0.50 $0.38 $0.38 HOA Marina - Non -Members $0.35 $1.46 $0.76 $1.17 - greater than 30,000 sf - 13,000 sf to 30,000 sf $0.26 $1.10 $0.62 $0.89 - less than 13,000 sf $0.35 $1.46 $0.49 $0.76 Guest Slips @ Yacht Club $0.35 $0.50 $0.38 $0.38 Vessel Rental Facility (Boat $0.35 $1.02 $0.49 $0.76 Rentals Sport Fishing Charters $0.35 $1.02 $0.49 $0.76 Restaurant Guest Slips $0.35 $1.02 $0.38 $0.38 Vessel Charter $0.35 $1.02 $0.49 $0.76 Free/Public Access Dock $0.00 $0.00 $0.00 $0.00 Other Tidelands Use $0.35 $1.02 $0.49 $0.76 1. Current Rates Charged to Commercial Uses, Based on the 2014 Index 2. Not Implemented Pending Reappraisal, Based on the 2017 Index 17-7 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 8 Table 5 Proposed Rates Commercial Tidelands Use Revenues Commercial Use Category Harbor wide Revenues Square Footage (Phase 2) Large Commercial Marina 624,036 $730,122.12 (greater than 30,000 sf Medium Commercial Marina 79,097 $70,396.33 (13,000 sf to 30,000 sf) Small Commercial Marina 162,659 $123,620.84 (less than 13,000 sf) Fuel Dock 12,026 ***$4,569.88 (assuming Base Rent only) Shipyard 16,745 $6,363.10 HOA Marina — Non -Members 0 $0.00 - (greater than 30,000 sf) - 13,000 sf to 30,000 sf 14,896 $13,257.44 - (less than 13,000 sf) 12,856 $9,770.56 Yacht Club — Guest Slips 36,165 $13,742.70 Vessel Rental Facility (Boat Rentals) 52,492 $39,893.92 Sport Fishing Charters 11,352 $8,627.52 Restaurant (Guest Slips) 21,477 $8,161.26 Vessel Charter 68,531 $52,083.56 Private Tidelands/Free/Public 244,924 N/A Access Dock Other Tidelands Use 26,791 $20,361.16 Totals: 1,384,047 SF $1,100,970.39 ***Base rent only; percentage rent not included in total. 17-8 Resolution Amending Rent for Commercial Tidelands Uses in Newport Harbor July 25, 2017 Page 9 Public Outreach Following receipt of the appraisals, staff posted the reports to the City's website and notified stakeholders via letter and email of the reports' availability. Staff also notified stakeholders via letter and email of the March 14, 2017 City Council study session and in advance of this City Council meeting. Additionally, staff met with various stakeholders to review the appraisal reports, discuss the proposed rates and phase-in, and answer questions. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this project exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the setting of rent for commercial tidelands uses is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, the setting of rent for commercial tidelands uses is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value rent will be used to meet operating expenses within the tidelands. NOTICING: In addition to the stakeholder noticing and input noted above, this agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Resolution No. 2017-49 — Large Commercial Marinas and Other Uses Attachment B — Resolution No. 2012-96 — Large Commercial Marinas Attachment C — Resolution No. 2012-98 — Setting Rent for Commercial Uses Attachment D — George Hamilton Jones, Inc. Appraisal, dated April 7, 2016 Attachment E — George Hamilton Jones, Inc. Appraisal, dated July 12, 2017 17-9 Attachment A Resolution No. 2017-49 Adjusting Rent Charged for Commercial Uses Upon Tidelands 17-10 RESOLUTION NO. 2017- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, ADJUSTING THE RENT CHARGED FOR COMMERCIAL USES LOCATED UPON TIDELANDS WHEREAS, pursuant to the 1978 Beacon Bay Bill, as amended, ("Beacon Bay Bill") the City of Newport Beach ("City") acts on behalf of the State of California as the trustee of tidelands located within the City's limits, including Newport Harbor ("Tidelands"); WHEREAS, Section 1(b) of the Beacon Bay Bill authorizes the City to allow third - parties to use the Tidelands for commercial purposes for a term not to exceed fifty (50) years; WHEREAS, the City allows commercial Tidelands uses to operate upon the Tidelands under either a permit or a lease, WHEREAS, the Beacon Bay Bill, California Constitution Article 16, Section 6, Newport Beach Municipal Code ("NBMC") Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(D) require that the rent received by the City from third parties using the Tidelands be based in part upon an appraisal, and reflective of the fair market value related to such uses; WHEREAS, NBMC Section 17.060.060(D) vests the City Council with the exclusive discretion to determine fair market value rent based in part upon the findings of a City -selected appraiser, WHEREAS, City Council Policy F -7(E) requires that, whenever less than the fair market value is received, the City make specific findings setting forth the reasons thereof including, but not limited to, findings that the uses serve to promote the goals of the City or that the uses provide an essential or unique service to the community that might not otherwise be provided were full market value required; WHEREAS, on October 23, 2012, the City Council adopted Resolution No. 2012- 91 and Resolution No. 2012-92 approving a model lease template, model permit, and rent schedule for large commercial marinas located upon Tidelands; WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-96, which amended Resolution Nos. 2012-91 and 2012-92 to re -define large commercial marinas, adjust the rent phase-in schedule, correct scrivener's errors and revise the market adjustment date; WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-97 approving a model lease template and model permit template for commercial uses located upon Tidelands; 17-11 Resolution No. 2017 - Page 2 of 10 WHEREAS, on November 13, 2012, the City Council adopted Resolution No. 2012-98 setting fair market value rent for commercial uses located upon Tidelands; WHEREAS, on November 26, 2013, the City Council adopted Resolution No. 2013-88, which, among other things, amended Resolution No. 2012-98 to reclassify certain homeowners' associations slips from commercial to residential; WHEREAS, following the adoption of the various resolutions related to commercial uses located upon Tidelands, the City Council and staff continued to seek and receive input from Tidelands users regarding possible improvements designed to protect and enhance Newport Harbor and other Tidelands; WHEREAS, at the City's request, George Hamilton Jones, Inc. conducted an appraisal to determine fair market value rent for commercial Tidelands uses and, thereafter, prepared appraisal reports dated April 7, 2016 and July 12, 2017 (collectively, "Appraisal Reports"); WHEREAS, the City Council reviewed the Appraisal Reports and they are part of the record in this matter; and WHEREAS, the City Council finds this resolution is a successor resolution to Resolution No. 2012-91, Resolution No. 2012-92, Resolution No. 2012-96, Resolution No. 2012-97, Resolution No. 2012-98, and Resolution No. 2013-88 (collectively, "Commercial Tidelands Resolutions"). NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Council hereby sets rent, rental phase-in, and associated adjustments for commercial Tidelands users as provided in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands, which is incorporated herein by reference. Except as to the uses specifically set forth in Section 3 of this resolution, the City Council finds, pursuant to the Beacon Bay Bill, California Constitution Article 16, Section 6, NBMC Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(E), that the rental rates, phase-in, and adjustments contained in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands constitute fair market value rent. This finding is made by the City Council in its exclusive discretion but is based on the information contained in the Appraisal Reports and on the other documents and testimony contained in the record for this matter. Section 2: The City Council does hereby repeal any portion of the Commercial Tidelands Resolutions that conflict with the rental amounts, rental calculation methods, associated rental adjustments, and rental phase-in provided in the attached Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands. Section 3: The City Council sets the rental rates, phase-in, and adjustments contained in the attached Commercial Tidelands Rent Calculations For Commercial Uses 17-12 Resolution No. 2017 - Page 3 of 10 Located Upon Tidelands for Fuel Docks, Shipyards, Yacht Club Guest Slips, and Free Public Access Docks (not associated with a restaurant) at less than fair market value. Pursuant to City Council Policy F -7(E)(6), the City Council finds charging less than fair market value rent for these specific uses promotes the goals of the City to further marine - related services and activities. More specifically, the City Council finds charging less than fair market value rent for these uses promotes public recreation facilities and marine services to the general public, furthers the policies and objectives of the Beacon Bay Bill, and allows for continued operation and improved accessibility to the public. Thus, the charging of less than fair market value rent for these uses of the Tidelands is a matter of state-wide concern that benefits the citizens of the State of California. Section 4: The Recitals provided above are true and correct and incorporated into the operative part of this resolution. The City Council also incorporates, where appropriate, the findings made in the Commercial Tidelands Resolutions into this resolution. Section 5: Except as expressly modified by this resolution, all provisions, terms, and covenants set forth in the Commercial Tidelands Resolutions shall be unchanged and shall remain in full force and effect. Section 6: The City Council finds the setting of rent for commercial Tidelands uses is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of rent for commercial Tidelands uses is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, the City Council finds the setting of rent for commercial Tidelands uses is entitled- to a Statutory Exemption pursuant to CEQA Regulation, Section 15273(a)(1) because the rent established by the City Council will be used to meet operating expenses within the Tidelands. Section 7: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. ili ili ili 17-13 Resolution No. 2017 - Page 4 of 10 Section 8: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 25th day of July, 2017. Kevin Muldoon Mayor ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CITY ATT NEY'S OFFICE 7� Aaron C. arp City Attorney Attachment: Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands 17-14 Resolution No. 2017 - Page 5 of 10 Commercial Tidelands Rent Calculations For Commercial Uses Located Upon Tidelands Beginning on the date a lease or permit is first effective (i.e., the date a lease is executed by all parties or a permit is issued by the City), a Commercial Marina Operator shall pay to the City, on a monthly basis, Rent (as defined below). Rent. The "Rental Rate" for each category of commercial Tidelands use is as follows: Commercial Use Category Rent Per Square Foot Large Commercial Marinas $ 1.17 Medium Commercial Marinas $ 0.89 Small Commercial Marinas $ 0.76 Fuel Docks -Greater of base rent or percentage rent, percentage rent calculated at $0.015 per gallon up to 100,000 gallons per year, or $0.02 per gallon over 100,000 gallons per ear' $ 0.38 Shipyards $ 0.38 HOA marinas/docks for non-members' use - greater than 30,000 sf $ 1.17 - 13,000 sf to 30,000 sf $ 0.89 - less than 13,000 sf $ 0.76 Yacht Club Guest Slips $ 0.38 Free Public Access Docks (not associated with a restaurant $ _ Vessel Rental Facility Boat Rentals $ 0.76 Sport Fishing Charters $ 0.76 Restaurants' guest slips $ 0.38 Vessel Charters $ 0.76 All Others $ 0.76 For a term year beginning March 1, 2017, and thereafter, monthly Rent shall equal the then applicable Rental Rate, rounded to the nearest cent, times the Premises square footage as set forth in this resolution (i.e., if the Rental Rate is $1.17 and the Premises is 10,000 square feet the annual Rent would be $11,700). 1 A fuel operator paying percentage rent shall provide Books and Records to the City to assist in calculating rent due. 17-15 Resolution No. 2017 - Page 6 of 10 To the extent a Premise contains two (2) or more commercial Tidelands uses, the Rent shall be apportioned according to the use and the Premises occupied by the use (i.e., if half (1/2) of a Premises is operated as a Vessel Rental Facility and the other half (1/2) as a Small Commercial Marina the half (1/2) of the Premises used as a Vessel Rental Facility shall pay the applicable Vessel Rental Facility rent and the half (1/2) operated as a Small Commercial Marina shall pay the applicable Small Commercial Marina rent). Unless otherwise provided in this resolution, a commercial Tidelands use which provides complimentary (free of charge) public access slips to the general public (on a 24/7 basis or during normal operating hours) shall be exempt from the payment of Rent to the City for use of the Premises occupied by the complimentary public access slips. 2. Rental Phase -In Period. Rent will be set in accordance with a two (2) period phase-in procedure with the first phase-in billed in October 2017, for Rent due on November 1, 2017. The second phase- in billed in July 2018, for Rent due on August 1, 2018. Rent shall be fully phased -in beginning on August 1, 2018. An example of the two (2) period phase in procedure is provided below: Commercial Use Category Ramp -Up Period November 2017 July 2018 Large Commercial Marinas $ 0.76 $ 1.17 Medium Commercial Marinas $ 0.62 $ 0.89 Small Commercial Marinas $ 0.49 $ 0.76 Fuel Docks - Greater of base or percentage rent $ 0.38 $ 0.38 Shipyards $ 0.38 $ 0.38 HOA marinas/docks for non-members' use - greater than 30,000 sf $ 0.76 $ 1.17 - 13,000 sf to 30,000 sf $ 0.62 $ 0.89 - less than 13,000 sf $ 0.49 $ 0.76 Yacht Club Guest Slips $ 0.38 $ 0.38 Free Public Access Docks (not associated with a restaurant $ - $ - Vessel Rental Facility (Boat Rentals $ 0.49 $ 0.76 Sport Fishing Charters $ 0.49 $ 0.76 Restaurants' guest slips $ 0.38 $ 0.38 Vessel Charters $ 0.49 $ 0.76 All Others $ 0.49 $ 0.76 17-16 Resolution No. 2017 - Page 7 of 10 3. Rent Adiustments. A. Annual Rent Adjustment. Beginning on March 1, 2019, Rent may be adjusted on the first day of March each permit/lease year to reflect an increase in the cost of living, as indicated by the Consumer Price Index described below. Rent may be adjusted if the Consumer Price Index for the Los Angeles — Orange County - Riverside Area, All Urban Consumers, All Items ("Index"), as published by the United States Department of Labor, Bureau of Labor Statistics ("Bureau"), increases over the Base Period Index. The initial "Base Period Index" shall be the Index for the calendar month which is four (4) months prior to the month of the permit/lease effective date, thus November. The initial Base Period Index shall be compared with the Index for the same calendar month for each subsequent Lease Year ("Comparison Index"). The Comparison Index used for a given year's adjustment calculation will become the Base Period Index for purposes of the next annual Rent adjustment calculation. If the Comparison Index is higher than the Base Period Index, then Rent for the next Lease Year shall be increased by the amount of such percentage change. Should the Bureau discontinue the publication of the above Index, or publish same less frequently, or alter same in some other manner, then the parties shall adopt a substitute Index or substitute procedure which reasonably reflects and monitors consumer prices. The example CPI adjustment shown in the table below assumes that the Rental Rate in 2017 is one dollar and seventeen cents ($1.17) per square foot. In the actual calculation and subsequent years, the Rental Rate will be adjusted annually, as set forth above, and may vary from what is provided in the table below. Commercial Use Category Ram -U Period November 2017 July 2018 March 2019' Large Commercial Marinas $ 0.76 $ 1.17 $ 1.19 Medium Commercial Marinas $ 0.62 $ 0.89 $ 0.90 Small Commercial Marinas $ 0.49 $ 0.76 $ 0.78 Fuel Docks - Greater of base percentage rent or $ 0.38 $ 0.38 $ 0.39 Shipyards $ 0.38 $ 0.38 $ 0.39 HOA marinas/docks for non- members' use - greater than 30,000 sf $ 0.76 $ 1.17 $ 1.19 - 13,000 sf to 30,000 sf $ 0.62 $ 0.89 $ 0.90 - less than 13,000 sf $ 0.49 $ 0.76 $ 0.78 Yacht Club Guest Slips $ 0.38 $ 0.38 $ 0.39 17-17 Resolution No. 2017 - Page 8 of 10 Free Public Access Docks (not associated with a restaurant $ - $ - $ - Vessel Rental Facility (Boat Rentals $ 0.49 $ 0.76 $ 0.78 Sport Fishing Charters $ 0.49 $ 0.76 $ 0.78 Restaurants' guest slips $ 0.38 $ 0.38 $ 0.39 Vessel Charters $ 0.49 $ 0.76 $ 0.78 All Others $ 0.49 $ 0.76 $ 0.78 'Assumes 2% inflation. B. Market Adjustment of Rent and Other Fees and Charges. At the Market Adjustment Date, the Rental Rate may be adjusted, in the City's sole and absolute discretion, to reflect the then -current fair market value, as such value shall be determined by an appraisal to be conducted in accordance with the provisions of this section. If applicable, the Rental Rate determined by the appraisals shall commence on March 1 of the year following the appraisals (i.e., the Rental Rate determined by the appraisals following March 1, 2026 shall be effective March 1, 2027). If applicable, the City shall retain one (1) independent MAI appraiser to conduct a harbor -wide appraisal of commercial uses. All MAI appraisers selected pursuant to this subsection shall have at least ten (10) years' experience appraising Tidelands in the Southern California area. 4. Definitions. Unless otherwise provided, the terms provided in the NBMC shall apply to this resolution. The singular of any term also includes the plural. A. Base Rent and Rent, unless otherwise provided, means the annual rent charged on a square footage basis for the use of the Premises. B. Books and Records means full, complete, accurate and proper books, records and accounts of all business, use or occupation, or any combination thereof, transacted, arranged or performed, in whole or in part, on, from or for any fuel sold from the Premises, whether by the lessee, permittee or by a sublessee, licensee, concessionaire or other party. C. City means the City of Newport Beach. D. Fuel Dock means a facility that provides fuel (e.g., gasoline, diesel, oil, etc.) to vessels. E. Guest Slip means a "slip", as defined in NBMC Section 17.01.030(0)(8), or any successor statute, that is provided, with or without charge, for the use of the patrons while visiting the business. 17-18 Resolution No. 2017 - Page 9 of 10 F. Home Owners' Association ("HOA") means an organization of homeowners of a particular residential subdivision, condominium or planned unit development. G. Large Commercial Marina(s) means a "marina" as defined in NBMC Section 17.010.030(J)(3) or any successor statute, which occupies more than thirty thousand square feet (30,000 sf) of Tidelands and Private Waterways. H. Market Adjustment Date means March 1, 2026 and every tenth (10th) anniversary year thereafter. Medium Commercial Marina(s) means a "marina" as defined in NBMC Section 17.01.030(J)(3) or any successor statute, which occupies between thirteen thousand square feet (13,000 sf) and thirty thousand square feet (30,000 sf) of Tidelands and Private Waterways. Percentage Rent means rent which is determined each calendar year and shall be calculated by multiplying the rental rate, as indicated in the tables above, by the total sales made in, upon, or from the Premises and/or otherwise attributable to the Premises for the calendar year. For each calendar year that Percentage Rent exceeds Base Rent, the Tidelands user shall pay to City the Percentage Rent less the Base Rent paid to the City for that calendar year. K. Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. L. Private Waterways means privately owned submerged lands. M. Shipyards means "marine sales and services, uses and vessels" as defined in NBMC Section 17.01.030(J)(5), or any successor statute. N. Small Commercial Marina(s) means a "marina" as defined in NBMC Section 17.01.030(J)(3). or any successor statute, which occupies less than thirteen thousand square feet (13,000 sf) of Tidelands and Private Waterways. O. Sport Fishing Charter means a business that charters vessels for use by seven (7) or more persons to sport fish outside of Newport Harbor. P. Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of Orange, State of California granted to the City of Newport Beach, as trustee, by the State of California, pursuant to the Tidelands Grant. Q. Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation, the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). 17-19 Resolution No. 2017 - Page 10 of 10 R. Vessel Charter Business is a business that provides a vessel (including professional captain and crew) which has been hired or leased by the owner, directly or through an authorized representative, to any person for a voyage in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. S. Vessel Rental Facility(ies) (Boat Rentals) means a person that rents or leases vessels to another person for a period of less than twenty-four (24) consecutive hours in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. T. Yacht Club(s) means an organization operating from a fixed location, comprised of a private membership, and principally engaged to promote, coordinate or facilitate boating and yachting. 17-20 Attachment B Resolution No. 2012-96 — Large Commercial Marinas 17-21 RESOLUTION NO. 2.012-96 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH AMENDING RESOLUTION NO. 2012-91 AND RESOLUTION NO. 2012-92 RELATED TO LARGE COMMERCIAL MARINAS LOCATED UPON TIDELANDS WHEREAS, pursuant to the 1978 Beacon Bay Bill, as amended, ("Beacon Bay Bill") the City of Newport Beach ("City") acts on behalf of the State of California as the trustee of tidelands located within the City's limits, including Newport Harbor; WHEREAS, Section 1(b) of the Beacon Bay Bill authorizes the City to allow third - parties to use the tidelands for commercial purposes for a term not to exceed fifty (50) years; WHEREAS, on October 23, 2012 the City Council adopted Resolution No. 2012 91 entitled, "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH APPROVING A MODEL LEASE TEMPLATE AND MODEL PERMIT FOR LARGE COMMERCIAL MARINAS LOCATED UPON TIDELANDS"; WHEREAS, on October 23, 2012 the City Council adopted Resolution No. 2012- 92 entitled, "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH SETTING RENT FOR LARGE COMMERCIAL MARINAS LOCATED UPON TIDELANDS`, WHEREAS, following the adoption of Resolution No. 2012-91 and Resolution No. 2012-92 the Council Ad Hoc Committee on Harbor Charges ("Committee") continued to seek and receive input from Large Commercial Marina operators regarding possible improvements designed to protect and enhance Newport Harbor; WHEREAS, based upon this new information, the Committee recommends an amendment to Resolution No. 2012-91 and Resolution No. 2012-92, in part, to re -define Large Commercial Marinas, the Rent phase in schedule, correct scrivener's errors and revise the Market Adjustment Date, among other revisions; and WHEREAS, the City Council finds this resolution is a successor resolution to Resolution No. 2012-91 and Resolution No. 2012-92. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: 17-22 Section 1: The Recitals provided above are true and correct and are incorporated into the substantive portion of this resolution. The City Council incorporates the findings made in Resolution No. 2012-91 and Resolution No. 2012-92 into this resolution. Section 2: The City Council repeals and replaces in its entirety the model lease template for Large Commercial Marinas adopted by Resolution No. 2012-91 with the model lease template for Large Commercial Marinas, attached to this resolution, and incorporated by this reference. The City Council finds that the attached model lease template for Large Commercial Marinas satisfies the requirement of Newport Beach Municipal Code ("NBMC") Section 17.60.060(A) covering the conversion of existing permits to leases, The City Council further finds that the Large Commercial Marinas subject to the attached model (ease template for Large Commercial Marinas are not subject to the open bid process found in City Council Policy F-7 because redevelopment/reuse of the Tidelands by a third party would require excessive time, resources and costs which would outweigh other financial benefits. Section 3: The City Council repeals and replaces in its entirety the Commercial Marina Rent calculations (Large Commercial Marina Rent and Large Commercial Marina Rent Alternative) adopted by Resolution No. 2012-92 with the Commercial Marina Rent calculations attached to this resolution (Amended Large Commercial Marina Rent and Amended Large Commercial Marina Rent Alternative), and incorporated by this reference. The City Council finds pursuant to NBMC Section 17.60.060(D) that the rent provisions contained in the attached Commercial Marina Rent calculations provide for the charging of fair market rent and that the rental rate (and adjustments) in the attachments constitute fair market rent for Large Commercial Marinas, which findings are made by the City Council in its exclusive discretion but are based on the information in the appraisals of its City -selected appraisers and, in addition, on other testimony and documents in the record for this matter. The City Council further finds and determines the rent for Large Commercial Marinas located upon City managed Tidelands, operating under an annual permit or a lease, shall be set in accordance with the attached Commercial Marina Rent calculations. Section 4: Except as expressly modified by this resolution, all other provisions, terms, and covenants set forth in Resolution No. 2012-91 and Resolution No. 2012-92 shall remain unchanged and shall be in full force and effect. Section 5: The City Council finds the setting of Rent for commercial Tidelands uses and the adoption of an amended model lease template for Large Commercial Marinas is not subject to the California Environmental Quality Act ("CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the 17-23 setting of Rent for commercial Tidelands uses and the adoption of an amended model lease template for Large Commercial Marinas is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the Rent and amended lease contemplates the continued use of existing faciiities, with no expansion of the proposed use. Further, the City Council finds the setting of Rent for commercial Tidelands uses and the adoption of an amended model lease template for Large Commercial Marinas to implement the Rent is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value Rent established by the City Council will be used to meet operating expenses within the Tidelands. Section 6: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution: and each section, subsection, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses and phrases be declared unconstitutional. Section 7: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 13" day of November, 2012. Nancy Gar 6 ; Mayor ATTEST: c Leilani I. Brown, ` City Clerk '4%6'jRNIA Attachments: (1) Amended Large Commercial Marina Model Lease Template (2) Amended Large Commercial Marina Rent (3) Amended Large Commercial Marina Rent Alternative 17-24 ATTACHMENT 1 LEASE AGREEMENT [(WITH OPTIONS FOR RENEWAL)] BY AND BETWEEN City of Newport Beach, a California municipal corporation ("Lessor") �' 01 a ("Lessee") 17-25 I. Definitions.......................................................................................................................2 2. Leased Premises.............................................................................................................2 3. Term...............................................................,.......................................................•........3 4. Rent................................................................................................................................3 5. Utilities, Taxes and Assessments....................................................................................4 6. Use of the Premises............................................,..,.......................................................4 7. Reserved........................................................ ......... ,.................................... .. 6 8. Acceptance of Condition of Premises -"As-Is" / Waiver 1 Release...................................5 9. Reserved.........................................................................................................................6 10. Reconstruction or Removal.............................•...............................,...............................6 11. Maintenance and Repair............................•....................................................................7 12. Liens..................................................................... ......8. 13. Reserved.........................................................................................................................9 14. Quitclaim Deed................................................................................................................9 15. Right to Enter the Premises for Inspection.... ................................................................. - 9 16. Transfers f Hypothecation for Financing .................. 9 17. Bankruptcy....................................................................................................................13 18. Defaults.........................................................................................................................13 19. Remedies......................................................................................................................14 20. Surrender of Premises..................................................................................................16 21. Condemnation...............................................................................................................16 22. Indemnification..............................................................................................................18 23. Insurance.. .......... ...................................................................................... ..19 24. Hazardous Substances.................................................................................................19 25. Quiet Possession.......................................................... .....20 26. Compliance with Applicable Laws.................................................................................21 27. Not Agent of Lessor.......................................................................................................21 28. No Third Party Beneficiaries..........................................................................................21 29. Limitation of Leasehold 1 Easements.............................................................................21 30. Notices.......................................................................................................................... 21 31. Entire Agreement/Amendments.....................................................................................22 32. Waivers.........................................................................................................................23 33. Lessor's Authorized Representative..,........................................................................... 23 34, City Business License...................................................................................................23 35. Governing Law & Non -Binding Arbitration.....................................................................23 36. Interpretation................................................................................................................. 24 37. Time is of the Essence.................................................................................................. 24 38. California Labor Laws....................................................................................................24 39. .Joint and Several Liability......................................................,............,............25 40. Memorandum of Lease Agreement .............................. 41. No Pre -commitment / Retention of Discretion / Assumption of Risk and Waiver.................................,.......,...................,.............................................25 42. No Damages.....................................................................................................,...........25 43. Appraisals.....,.,.............................................................................................................26 44. Reserved .................................... ................................................................ ,.26 45. Late Charges and Delinquency Rates...........................................................................26 46. Reserved...........................................................................................,........27 47. Government Claims Act.....,............................................,...............,..............................27 17-26 This Lease Agreement [(With Options for Renewal)] ("Agreement") is entered into this 1st day of March, 2013 by and between the City of Newport Beach. a California municipal corporation and charter city ("Lessor" or "City"), and a ("Lessee"). RECITALS A. Pursuant to the Tidelands Grant, the State of California granted to Lessor, as trustee, certain Tidelands. The Tidelands must be used to promote the public's interest in water - dependent or water -oriented activities, as described more fully in the Tidelands Grant; B. The Tidelands Grant provides that the Tidelands shall not, at any time, be granted, conveyed, given, or alienated to any individual, firm or corporation for any purpose whatever except pursuant to Lessor's grant of either a franchise or lease; C. The Tidelands Grant authorizes Lessor to enter into leases of the Tidelands for a period not exceeding fifty (50) years so long as such leases are consistent with Lessor's obligations to hold the Tidelands in trust for the uses and purposes contained in the Tidelands Grant; Q. On 20 the City Council approved this Agreement by adopting Resolution No. :- , as required by Municipal Code section 17.60.060(A); therefore, subject to the terms and conditions of this Agreement, Lessor desires to lease a portion of the Tidelands defined as the Premises to Lessee and Lessee desires to lease the Premises; E. The City previously issued City Pier Permit Number ("Permit") for the Premises; City Pier Permit Number which shall expire February 28, 2013 after which time the City has stated such Permit will not be renewed and Lessee or any other party has no continuing rights in such Permit after such date, and F. The parties desire to enter this Agreement for a term described herein and to grant Lessee an option to extend the term of this Agreement. In consideration of the mutual promises and obligations contained in this Agreement, the receipt and sufficiency of which is hereby acknowledged, and the Recitals above, which are incorporated by this reference, Lessee and Lessor hereby enter into this Agreement on the following terms and conditions: NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: f)efinitinns Capitalized terms that are not otherwise defined in the body of this Agreement (which are identified in parentheses (" ")) have the meanings attributed in Exhibit "A". 2. Leased Premises Lessor hereby leases to Lessee, for the Term specified in Section 3, the Premises. The rights granted to Lessee by this Agreement are subject to Lessee's compliance with the -2- 17-27 terms, covenants and conditions in this Agreement. Lessee covenants, as a material part of the consideration for this Agreement, to keep and perform each and every term, covenant and condition of this Agreement. 3. Term (a) Initial Term: The Term of this Agreement shall be (_) years commencing on the 1st day of March, 2013, which shall be the "Commencement Date," and terminating on the day of 20_, unless sooner terminated as provided in this Agreement. (b) Option for Renewal Term(s): If Lessee is not in default of its obligations in this Agreement, then Lessee shall have the option to extend the Term of this Agreement for (_) additional successive "Renewal Term(s)" of (_) years each, on the same terms and conditions contained in this Agreement. As provided by the Tidelands Grant, in no event shall the Term and any Renewal Terms exceed a total of fifty (50) years. (i) Each Renewal Term for which an option is exercised shall commence at the expiration of the immediately preceding Term. Lessee must exercise its option to a Renewal Term by giving a written "Option Notice" of its election to Lessor no earlier than two hundred and seventy (270) calendar days and no later than ninety (90) calendar days prior to the expiration of the immediately preceding Term. (ii) Should Lessee fail to timely give an Option Notice, then the option for the Renewal Term and all subsequent Renewal Terms shall be null and void and of no further force and effect. Rent for the Renewal Term shall be determined and adjusted as described in Section 4 below. 4. Rent (a) Rent: Rent shall be calculated pursuant to Resolution No. 2012-, or any successor/amended resolution. Resolution No. 2012- and any successor/amended resolution are automatically incorporated by reference into this Agreement, without any further action by the parties, when adopted by the Newport Beach City Council. (b) Periodic Payment of Rent: One-tvvelfth (1/12) of annual Rent for a particular Lease Term Year shall be payable on the first (1st) day of each month during the Term. (c) Place for Payment of Rent: All payments of Rent shall be made in lawful money of the United States of America and shall be paid to Lessor in person or by United States' mail, or overnight mail service, at the Cashier's Office located at 3300 Newport Boulevard, Newport Beach, CA 92658, or to such other address as Lessor may from time to time designate in writing to Lessee. If requested by Lessor, Lessee shall make payments electronically (at www.newportbeachca.gov) or by wire transfer (at Lessee's cost). Lessee' assumes all risk of loss and responsibility for Gate charges and delinquency rates -3- 17-28 67 0 if payments are not timely received by Lessor regardless of the method of transmittal. (d) Additional Rent: Lessee shall pay as "Additional Rent" for the Premises, within ten (10) calendar days of Lessor's demand therefore (unless a different time for payment is expressly provided in this Agreement), all other amounts required by this Agreement, in addition to Rent. Additional Rent does not reduce or offset Lessees obligations to pay Rent. (e) No Abatement or Reduction in Rent: Lessee has no right to any abatement, set- off or reduction in Rent or Additional Rent. No endorsement or statement on any check or any letter accompanying any check or payment will be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance or pursue any other available remedy. (f) Net Lease: Rent, as defined in this Agreement, is based upon Lessee's material representation and covenant that it will pay all expenses, costs, taxes; assessments, fees or charges, and incur all liabilities, of every kind in any way relating to, or in connection with, the Premises and the Improvements during the Term. Accordingly, Lessee will promptly pay all expenses, costs; taxes, assessments, fees or charges, and incur all liabilities, of every kind and description relating to, or in connection with, the Premises and the Improvements during the Term. Utilities, Taxes and Assessments (a) Lessee is solely responsible for obtaining all utilities and paying all taxes, fees and assessments for the Premises or Improvements located thereon. Lessee shall promptly pay, and discharge prior to delinquency, any and all charges for services or utilities and all taxes, fees and assessments furnished to or due on the Premises or Improvements located thereon, or occupants thereof. (b) Lessor hereby gives notice to Lessee, pursuant to Revenue and Tax Code Section 107.6 that this Agreement may create a possessory interest that is the subject of property taxes levied on such interest, the payment of which taxes shall be the sole obligation of Lessee. Lessee shall advise in writing any sublessee, licensee, concessionaire or third party using the Premises of the requirements of Section 107.6. (c) Any payments under this Section shall not reduce or offset Rent payments. Lessor has no liability for such payments. Use of the Premises During the term of this Agreement, Lessee will use and occupy the Premises solely and exclusively for the operation of a marina or boat berthing facility and associated ancillary uses. -4- 17-29 7. Reserved. 8. Acceptance of Condition of Premises - "As -Is" / Waiver / Release (a) Lessee's Acknowledgment: Lessee acknowledges that Lessee, Lessor or unrelated third parties may have constructed improvements (some or all of which may be Improvements as specified on Exhibit "B") on and adjacent to the Premises (including, without limit, bulkheads in the surrounding area adjacent to and/or abutting the Premises). Lessee agrees and acknowledges that it is relying solely on its own inspections and investigations regarding the Premises, the condition of the Premises, the surrounding area and all other matters related thereto. Lessee represents and warrants that it has obtained the advice of such independent professional consultants as it deems necessary in connection with its investigation and study of the Premises and surrounding area, including, without limitation, water quality, Improvement quality, soils, hydrology, seismology, archaeology, Applicable Laws (including, without limitation, the laws relating to the construction, maintenance, use and operation of the Premises and Improvements), and all environmental, zoning and other land use entitlement requirements and procedures, height restrictions, floor area coverage limitations and similar matters. (b) Only Lessor's Express Written Agreements Binding: Lessee acknowledges and agrees that no person acting on behalf of Lessor is authorized to make, and that except as expressly set forth in this Agreement, neither Lessor nor anyone acting for or on behalf of Lessor has made, any representation, warranty, statement, guaranty or promise to Lessee, or to anyone acting for or on behalf of Lessee, concerning the condition of the Premises, any other aspect of the Premises or the surrounding area. Lessee further acknowledges and agrees that no representation, warranty, agreement, statement, guaranty or promise, if any, made by any person acting on behalf of Lessor which is not expressly set forth in this Agreement will be valid or binding on Lessor_ (c) Verification of Acceptance: Lessee further acknowledges and agrees that Lessee's execution of this Agreement constitutes Lessee's representation, warranty and covenant that the condition of the Premises and the surrounding area has been independently verified by Lessee to its full satisfaction, and that, except to the extent of the express covenants of Lessor set forth in this Agreement, Lessee will be leasing the Premises based solely upon and in reliance on its own inspections, evaluations, analyses and conclusions, or those of Lessee's representatives. As material inducement to Lessor's entering this Agreement, Lessee represents, warrants and covenants that LESSEE ACCEPTS AND IS LEASING THE PREMISES, AND IS AWARE OF THE SURROUNDING AREA, IN ITS "AS -IS, WITH ALL FAULTS" CONDITION AND STATE OF REPAIR INCLUSIVE OF ALL 'FAULTS AND DEFECTS, WHETHER KNOWN OR UNKNOWN, AS MAY EXIST AS OF THE LESSEE'S EXECUTION OF THIS AGREEMENT, AND WITH NO WARRANTY EXPRESS OR IMPLIED FROM LESSOR AS TO ANY LATENT, PATENT, FORESEEABLE AND UNFORESEEABLE CONDITIONS. Without limiting the scope or generality of the foregoing, Lessee expressly assumes the risk that the Premises do not or will not comply with any Applicable Laws now or hereafter in effect. -5- 17-30 07 10 (d) Waivers, Disclaimers and Release: (i) Waiver and Disclaimer: Lessee hereby fully and forever waives, and Lessor hereby fully and forever disclaims, all warranties of whatever type or kind with respect to the Premises and Improvements, whether expressed, implied or otherwise including, without limitation, those of fitness for a particular purpose, tenant ability, habitability or use. (ii) Lessor's Materials: Lessee further acknowledges that any information and reports including, without limitation, any engineering reports, architectural reports, feasibility reports, marketing reports, soils reports, environmental reports, analyses or data, or other similar reports, analyses, data or information of whatever type or kind which Lessee has received or may hereafter receive from Lessor or its agents or consultants have been furnished without warranty of any kind and on the express condition that Lessee will make its own independent verification of the accuracy, reliability and completeness of such information and that Lessee will not rely thereon. Accordingly, Lessee agrees that under no circumstances will it make any claim against, bring any action, cause of action or proceeding against, or assert any liability upon, Lessor or any of the persons or entities who prepared or furnished any of the above information or materials as a result of the inaccuracy, unreliability or incompleteness of, or any defect or mistake in, any such information or materials. Lessee hereby fully and forever releases, acquits and discharges Lessor and each person furnishing such information or materials of and from, any such claims, actions, causes of action, proceedings or liability, whether known or unknown. (iii) Waiver of Civil Code Section 1542: With respect to all releases made by Lessee or Lessor under or pursuant to this Section 8, Lessee or Lessor hereby waives the application and benefits of California Civil Code Section 1542 and hereby verifies that it has read and understands the following provision of California Civil Code Section 1542: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release; which if known by him must have materially affected his settlement with the debtor." Lessee: Lessor: Reserved Reconstruction or Removal Lessee will promptly cause the Improvements or any part thereof, which are (a) damaged or destroyed or (b) declared unsafe or unfit for occupancy or use by a public entity with the appropriate authority, to either be (i) removed or (ii) restored or reconstructed to their original design and layout, or to a good and safe condition as reasonably approved by Lessor, whether or not required to be insured against, at Lessee's sole cost and expense. Restoration or reconstruction shall commence within -6- 17-31 ninety (90) calendar days from the date of issuance of all permits (City and Coastal), which permits Lessee will diligently pursue in a commercially reasonable timeframe, to repair, and Lessee shall diligently pursue reconstruction to completion. Lessee shall not be entitled to any abatement in Rent or other form of compensation from Lessor for loss of use of the Premises or Improvements in the event of damage or destruction of the Premises or Improvements. Damage to or destruction of the Premises or the Improvements shall not permit Lessee to terminate this Agreement. Alternatively, in the event of damage or destruction, Lessee may remove all Improvements from the Premises and terminate this Lease. The force majeure provisions in this Agreement shall apply to reconstruction. 11. Maintenance and Repair (a) Maintenance by Lessee: Lessee assumes full responsibility for operation and maintenance and repair of the Premises throughout the Term at its sole cost, and without expense to Lessor. (i) Without limiting Lessee's obligations to maintain the Premises. Lessee shall keep and maintain all Improvements in good order, condition and repair consistent with similar marinas in Newport Harbor. (ii) Maintenance dredging bayward of the property line, between the bulkhead line and the pierhead line, shall be the responsibility of Lessee. Lessee shall perform all maintenance in compliance with all Applicable Laws. (iii) Reserved. (iv) Reserved. (v) Lessee expressly waives (a) the right to require Lessor to make repairs; (b) any right to make repairs at the expense of Lessor; (c) the right to reduce or offset Rent as a consequence of the condition of the Premises or the Improvements; (d) the benefits of California Civil Code Sections 1932, 1941 and 1942, as amended from time to time; and (e) any law, judicial pronouncement, or common law principle similar thereto, which is now or hereafter in effect or is otherwise inconsistent with the provisions of this Agreement. (b) Reserved. (c) Reserved. (d) Maintenance Prior to Renewal Term: In addition to any other conditions to Lessee's exercise of the option to extend the Term (or Renewal Term) of this Agreement, no less than one hundred twenty (120) calendar days prior to the end of a Term that may be renewed, Lessee shall submit a maintenance report stating the condition of the Improvements on the Premises. improvements shall be inspected, and the maintenance report shall be written, by a qualified marine engineer that is retained and paid for by Lessee but approved by Lessor. -7- 17-32 The maintenance report shall make repair and maintenance recommendations to ensure that the maintenance standards in this Agreement are met and will be maintained and the useful life of the Improvements will extend throughout the Renewal Term(s). At the time of providing the maintenance report to Lessor, Lessee shall sign a certification under penalty of perjury that Lessee shall, at its sole cost, make all repairs and perform ail maintenance identified in the maintenance report to the reasonable satisfaction of, and on a schedule satisfactory to, Lessor. Any costs incurred by Lessee to make repair and maintenance recommendations is a qualification for the Term or Renewal Term of this Agreement and is not Rent. The cost of repair and maintenance recommendations shall not be considered by the parties or appraiser in determining any Rent or Rent adjustment during the term of this Agreement. (e) Maintenance by Lessor: Nothing in this Agreement requires Lessor to perform any maintenance or repair to the Premises or to any adjacent property or bulkheads; or to make any improvements whatsoever on or for the benefit of the Premises. However, with no less than twenty-four (24) hours written notice -from Lessor to Lessee, Lessor shall have the right, but not the obligation, to make any emergency repairs related to safety or hazard concerns to or on the Premises. Lessee shall reasonably cooperate with Lessor in any activity undertaken by Lessor on the Premises. Lessor may collect its cost for emergency repairs from the Lessee as Additional Rent. 12. Liens (a) Liens Prohibited: Lessee shall not permit to be imposed, recorded or enforced against the Premises, any portion thereof or any structure or Improvement thereon, any mechanics, materialmen's, contractors or other liens arising from, or any claims for damages growing out of, any work or repair, construction or alteration of improvements on the Premises. (b) Release/Removal of Liens: In the event any lien or stop notice is imposed or recorded on the Premises, or an Improvement permanently affixed to the Premises, during the Term, Lessee shall pay or cause to be paid all such liens, claims or demands before any action is brought to enforce the same against the Premises or the Improvement. Notwithstanding the foregoing, if Lessee legitimately contests the validity of such lien, claim or demand, then Lessee shall, at its expense, defend against such lien, claim or demand provided that it provide Lessor the indemnity in Section 22 and provided Lessee shall pay and satisfy any adverse judgment that may be rendered before any enforcement against Lessor, the Premises, or the Improvement. (c) Reserved. (d) Exceptions: Section 12 shall not apply to a foreclosure of a Leasehold Mortgage encumbering the Leasehold Estate if the Leasehold Mortgage has previously received Lessor consent in accordance with this Agreement. IE 17-33 13. Reserved. 1 4. Quitclaim Deed Upon expiration or the earlier termination of this Agreement for any reason, including but not limited to termination because of default by Lessee, Lessee shall, at Lessee's sole expense, remove all fixtures, equipment, and Improvements installed by Lessee from the Premises. Unless another time line is agreed upon by Lessor, all fixtures, equipment and Improvements shall be removed by Lessee within ninety (90) calendar days following the expiration or termination of this Agreement. Lessee shall continue to pay Rent to Lessor during the time Lessee removes the Improvements from the Premises, as provided in Section 20(b). Alternatively, Lessee, with Lessor's written consent, may quitclaim all fixtures, equipment, and Improvements on the Premises to Lessor. Lessor acknowledges the bulkhead is owned by Lessee and Lessor has no rights to use any portion of such bulkhead. Notwithstanding any other provision of this Agreement as permitted by California Public Resources Code Section 6312, or any successor statute, the parties agree that upon expiration or earlier termination of this Agreement Lessor shalt have no liability or obligation to pay compensation for any improvements made to the Premises. 15. Right to Enter the Premises for Inspection Lessor expressly reserves the right and shall be entitled to enter the Premises, and all Improvements, including a right of reasonable access to the Premises across Lessee owned or occupied lands adjacent to the Premises, to inspect the Premises for compliance with the terms of this Agreement. Unless otherwise provided in this Agreement, Lessee shall provide Lessor access to the Premises for such purposes, upon not less than seventy-two (72) hours written notice.. 16. Transfers / Hypothecation for Financing (a) Transfers: Except as expressly provided herein, Lessee and its successors shall not either voluntarily, or by operation of law, engage in a Transfer without first providing written request to Lessor and obtaining Lessor's prior written consent which shall not be unreasonably withheld or delayed. Notwithstanding anything to the contrary set forth herein. Lessee may, without consent from the City, assign all or a portion of its interest in the Premises and/or this Agreement to any entity or person affiliated with Lessee or a partner member, shareholder or trustee of Lessee ("Permitted Transferees'). Lessee agrees that Lessor's discretion to provide, withhold or condition consent to any Transfer (except for the Permitted Transfers to a Permitted Transferee in which the City has no consent) includes, without limitation, Lessor's discretion in administering the Tidelands, which are a valuable public resource held by Lessor in trust for the people of the State of California; therefore, Lessor's decision to grant, withhold or condition consent shall be reasonable. A Transfer made in violation of this Section 16, including without limitation the obligation to receive Lessors prior consent, is a default subject to the cure right in Section 18(b). Lessee shall comply with the following requirements for any Transfer. Lessee agrees that failure to satisfy these requirements are reasonable bases for Lessor to deny consent (but is not exhaustive of the bases to deny consent): M 17-34 (1) Lessee shall give Lessor at feast thirty (30) calendar days written notice of its proposed Transfer and provide appropriate documentation demonstrating to Lessor's satisfaction the financial and operational responsibility and appropriateness of the proposed transferee. Lessee shall provide Lessor within five (5) calendar days such other or additional information and/or documentation as maybe reasonably requested by Lessor. (2) Lessee shall provide the terms and provisions of the proposed Transfer. (3) Except as otherwise provided in this Agreement for a permitted Leasehold Mortgagee, the proposed transferee shall, in recordable form, expressly assume this Agreement. (4) In the event the proposed transferee is acquiring only a portion of the adjoining Other Real Property, the rights and obligations of Lessee and the proposed assignee shall be proportionately adjusted in the manner deemed appropriate by Lessor in light of its obligations under the Tidelands Grants; and (5) Lessee shall pay all Lessor's costs associated with Lessor's consideration of the Transfer, regardless of whether such transfer is consummated, or in connection with any other actions taken by Lessor pursuant to this Section 16. (h) Transfer if Appurtenant to Other Real Property (i) The Premises is appurtenant to the adjoining littoral or riparian land and/or uplands with required uplands support (e.g., parking, restrooms, etc.). The uplands property along with the location of the code required uplands support is more particularly described on Exhibit °G' as the "Other Real Property" and Lessee is the [fee title owner] ,[lessee of the Other Real Property pursuant to that certain dated by and between Lessee as and as "] of the Other Real Property. (ii) If Lessee Transfers its interest or rights to use such Other Real Property adjoining the Premises separately from the Premises or Lessee's interest in this Agreement, Lessee shall provide the following to the Lessor: (1) Lessee must provide Lessor with thirty (34) calendar days prior written notice of the proposed Transfer; and (2) Lessee, subject to Lessor's reasonable approval, must provide written documentation to Lessor describing in sufficient detail how access will be provided to the Premises and the required uplands support (e.g., parking, restrooms, etc.) and its respective location that will serve/benefit the Premises. -i 0- 17-35 (c) Subletting Permitted to Boat Slip Renters (i) Notwithstanding other provisions of this Section 16, Lessee shall have the right to sublease the slips to Boat Slip Renters and to extend or renew any subleases with Boat Slip Renters. (d) Hypothecation for Financing: For the purpose of financing or refinancing the acquisition of the Premises, the Improvements, the fixtures and equipment located on the Premises, the alteration, construction or reconstruction of Improvements, Lessee may engage in a Transfer to a Leasehold Mortgagee only if, in addition to such other applicable provisions in this Agreement, the provisions in this Section 16(d) are satisfied. In no event shall Leasehold Mortgages either individually or collectively exceed a loan -to -value ratio of seventy-five percent (75%) of the Premises. (i) Notice to Lessor. Lessee shall provide Lessor with a fully executed complete copy of each Leasehold Mortgage, and all related loan documents (including copies of all appraisals), any and all amendments thereto, and the name and address of each Leasehold Mortgagee. In the event of any assignment of a Leasehold Mortgage or in the event of a change of address of a Leasehold Mortgagee, Lessee shall provide the new name and address of the assignee or Leasehold Mortgagee to Lessor. Notices of default and notices of foreclosure shall be given to Lessor contemporaneously with service on Lessee. (ii) Notices to Leasehold Mortgagees. A Leasehold Mortgagee shall not be entitled to notice or a copy of any notice from Lessor unless Lessee provides Lessor with Leasehold Mortgagee's name and address and requests that such Leasehold Mortgagee receive notices. (iii) Leasehold Mortgagee Opportunity to Remedy Default. Any Leasehold Mortgagee who is entitled to notice as provided in Section 16(d)(ii) shall have the right, but not the obligation, to remedy the default or acts or omissions of Lessee within the period and in the manner specified in this provision. Upon Lessee's default and subsequent expiration of the applicable cure period in Section 18, a Leasehold Mortgagee shall be permitted to remedy such default(s) at any time within fifteen (15) calendar days (for nonmonetary defaults) and five (5) calendar days (for monetary defaults) following the expiration of the Lessee's cure period; provided, however, Lessor shall not be required to furnish any further notice(s) of default(s) to said Leasehold Mortgagee. (iv) Leasehold Mortgagee Procedure on Lessee's Default. (1) Upon Leasehold Mortgagees remedy of Lessee's default to the reasonable satisfaction of Lessor, this Agreement shall continue provided that a Leasehold Mortgagee: a. Pays all Rent, and other monetary obligations of Lessee under this Agreement as the same becomes due, and -11- 17-36 perform all of Lessee's other obligations under this Agreement; and b. If not enjoined or stayed, takes steps to acquire or sell Lessees interest in this Agreement and in the Premises to an assignee, future transferee or purchaser by foreclosure of the Leasehold Mortgage or other appropriate means, and prosecutes the same to completion with reasonable diligence. (2) Nothing in this Section 16(d) shall extend this Agreement beyond the Term or any Renewal Term; nor to require a Leasehold Mortgagee to ccntinue such foreclosure proceedings after a breach or default has been remedied. If Lessees breach or default is remedied and the Leasehold Mortgagee discontinues such foreclosure proceedings,. this Agreement, at Lessor's option and in its sole and absolute discretion, may continue as if no breach or default under this Agreement occurred. (3) Before a Leasehold Mortgagee, or any other assignee, future transferee or purchaser by foreclosure of the Leasehold Mortgage, acquires the Leasehold Estate, it shall, as an express condition precedent, agree in writing to assume each and every obligation under the Agreement. Regardless, with the exception of said Leasehold Mortgagee, no Transfer to an assignee, future transferee or purchaser by foreclosure of a Leasehold Mortgage shall be effective without Lessor's prior written consent, which shall not be unreasonably withheld. (4) The assignee, purchaser or future transferee at any sale of this Agreement or of the Leasehold Estate in any proceedings for the foreclosure of or trustee's sale under any Leasehold Mortgage, or pursuant to any deed in lieu of foreclosure, shall be deemed an assignee or transferee of this Agreement, and shall be deemed to have agreed to perform all of the terms, covenants and conditions on the part of Lessee to be performed in this Agreement but onfy from and after the date of such purchase and assignment, and only for so long as such purchaser; future transferee or assignee is the owner of the Leasehold Estate. (5) If Lessor denies consent to (a) the successful bidder or purchaser upon foreclosure or (b) a proposed future transferee, assignee or sublessee of the Leasehold Mortgagee, the sole and exclusive remedy shall be for such party or the Leasehold Mortgagee to seek relief in the nature of specific performance. (6) A Leasehold Mortgagee shall include a statement in any Notice of Foreclosure Sale that provides the requirements for Lessor's consent. -12- 17-37 (v) Casualty Loss. A standard lender's loss payable endorsement naming each Leasehold Mortgagee may be added to any and all insurance policies required to be carried by Lessee hereunder. Nevertheless, the provisions in any Leasehold Mortgage for the application of insurance proceeds shall be subject to the provisions of this Agreement and, in the event of any conflict between the provisions of this Agreement and the provisions of any Leasehold Mortgage with respect thereto, the provisions of this Agreement shall control. (vi) Limitation on Lessee's Right to Encumber. Any Leasehold Mortgage now or hereafter placed on Lessee's interest in the Premises shall be subject and subordinate to any limitations in the Tidelands Grants, Lessor's interest in the Tidelands, this Agreement. and any mortgage now in existence on the Leasehold Estate. Lessee shall not use, encumber or Transfer this Agreement or the Premises as security or collateral for any action unless directly related to the Tidelands and the permitted uses allowed by this Agreement. (vii) No Rights to Encumber Interest of Lessor. The provisions of Section 16 do not give any entity the right to mortgage, hypothecate, cause a Transfer of, or otherwise encumber or cause any liens to be placed against the Lessor's interest in the Premises as trustee of the Tidelands, nor shall anything in this Agreement be construed as resulting in a subordination in whole or in part of Lessor's interests. (viii) Estoppel Certificate. Lessor shall, within ten (10) business days after written request from Lessee or any Leasehold Mortgagee, certify by written instrument to any Leasehold Mortgagee or proposed Leasehold Mortgagee: (a) as to whether this Agreement has been modified, supplemented, amended, extended or renewed, (b) as to the existence of any breach or default of this Agreement; and (c) as to the commencement and expiration dates of the term of this Agreement. 17. Bankruptcy Lessee agrees that if all, or substantially all, of Lessee's assets are placed in the hands of a receiver or trustee and remain so for a period of thirty (30) calendar days; or if Lessee makes an assignment for the benefit of creditors or be adjudicated bankrupt; or if Lessee institutes any proceedings under the Bankruptcy Act or similar law wherein Lessee seeks to be adjudicated bankrupt or to be discharged of its debts or seeks to effect a plan of liquidation or reorganization; or if any involuntary proceedings be filed against Lessee and not dismissed or stayed within one hundred twenty (120) calendar days, then this Agreement or any interest in and to the Premises shall not become an asset in any such proceeding and, to the extent permitted by law (and in addition to the provisions of Section 18) Lessor may declare this Agreement terminated and take possession of the Premises. 18. Defaults The occurrence of any of the following constitutes a default of this Agreement by Lessee: 17-38 (a) Continued failure to operate, vacation or abandonment of the Premises except for casualty, damage, repair construction or Harbor dredging for three hundred (300) consecutive calendar days after the date of Lessor's written notice to Lessee. (b) Failure to make any payment required by this Agreement when such failure continues for a period of fifteen (15) calendar days after the date of Lessor's written notice that payment is due (unless another time period within which to make payment is specifically provided); provided that any such notice provided in this Section 18(b) or in Section 18(c) shall be in lieu of, and not in addition to, any notice required under Section 1161 of the California Code of Civil Procedure, as may be amended. (c) Failure of Lessee to observe or perform any of the covenants, conditions, or provisions in this Agreement, except for a monetary default specified in Section 18(b) above, where such failure continues for a period of thirty (30) calendar days after the date of Lessor's written notice of the default (unless another time period within which to perform is specifically provided in this Agreement); provided, however, that if the nature of Lessee's default is such that more than thirty (30) calendar days are reasonably required to complete its cure, then Lessee shall not be in default if Lessee commences to cure the default within thirty (30) calendar days after written notice and thereafter diligently and continuously pursues the cure to completion. (d) Any of the events in Section 17 occur; provided that this provision is not applicable or binding on a Leasehold Mortgagee which is of record and has been consented to by Lessor, or to said Leasehold Mortgagee's successors in interest consented to by Lessor, as long as (i) there remains any monies to be paid by Lessee to such Leasehold Mortgagee under the terms of such Leasehold Mortgage, (ii) that such Leasehold Mortgagee or its successors in interest, continuously and timely pays to Lessor all Rent due or coming due under the provisions of this Agreement and the Premises are continuously and actively used and (iii) that said Leasehold Mortgagee agrees in writing to assume and perform each and every obligation under the Agreement. 19. Remedies (a) Cumulative Nature of Remedies. If any default by Lessee continues without being cured in the time period specified in Section 18, then Lessor shall have the remedies described in this Section 19, which are in addition to all other rights and remedies provided by law, equity or elsewhere in this Agreement. Lessor shall have the right to elect its remedies and may resort to any such remedies cumulatively, or in the alternative. (i) Maintain Agreement. Lessor may maintain this Agreement in full force and effect and recover Rent, Additional Rent, payment or other charges or consideration as they become due, without terminating Lessee's right of possession, regardless of whether Lessee has abandoned the Premises. -14- 17-39 (ii) Termination. Lessor may terminate this Agreement by giving Lessee thirty (30) calendar days written notice. If Lessor terminates this Agreement, Lessor may recover possession (which Lessee shall surrender and vacate upon demand) and remove all persons, and property and Improvements. Lessor shall be entitled to recover the following as damages: (1) The Worth at the Time of Award of the unpaid Rent, Additional Rent or other charges which had been earned at the time of termination; (2) The Worth at the Time of Award of the amount by which the unpaid Rent, Additional Rent or other charges which would have been earned after termination until the time of award exceeds the amount of such loss that Lessee proves could have been reasonably avoided; (3) The Worth at the Time of Award of the amount by which the unpaid Rent, Additional Rent or other charges for the balance of the Term of this Agreement after the time of award exceeds the amount of such loss that Lessee proves could have been reasonably avoided; (4) Any other amount necessary to reasonably compensate Lessor for the detriment proximately caused by Lessee's failure to perform its obligations under this Agreement; (5) At Lessor's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time -to -time by applicable California law; and (6) Lessor shall also be entitled to an award of the costs and expenses (including, without limitation, actual attorneys' fees and costs) incurred by Lessor in maintaining or preserving the Premises after default, preparing the Premises for re -letting, or repairing any damage caused by the act or omission of Lessee. The "Worth at the Time of Award" of the amounts referred to in 11(1)" and "(2)" above shall be computed by charging interest at ten percent (10%) per annum from the dates such amounts accrued to Lessor. The "Worth at the Time of Award" of the amount referred to in "(3)° above shall be computed by discounting such amount at ten percent (14%) per annum. (b) Waiver of Rights. Lessee waives any right of redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 or 1179, or under any other present or future law, if Lessee is evicted or Lessor takes possession of the Premises by reason of any default by Lessee. -15- 17-40 M Surrender of Premi (a) Upon expiration or earlier termination, of this Agreement Lessee shall peaceably surrender the Premises to Lessor. (b) If Lessee elects to remove any fixtures. improvements (including all Improvements to which Lessee has title), or if Lessor declines Lessee's offer to accept ownership of the same, then Lessee shall restore the Premises to its natural state as deemed acceptable by Lessor. All plans for Lessee's subsequent removal shall be to the reasonable satisfaction of Lessor and shall be completed no later than ninety (90) calendar days after the expiration or sooner termination of this Agreement or other time line agreed upon by the Lessor. During any period of time employed by Lessee to remove fixtures, improvements (including all Improvements to which Lessee has title) Lessee shall continue to pay Rent to Lessor in accordance with this Agreement, which said Rent shall be prorated daily. (c) Any holding over by Lessee after either expiration or earlier termination shall not constitute a renewal or extension, or give Lessee any rights in or to the Premises. If Lessee, with Lessor's consent, remains in possession of the Premises after Agreement expiration or earlier termination (including for the purpose of Lessee's removal of Improvements), such possession shall be deemed a month-to-month tenancy terminable upon thirty (30) calendar days' notice furnished at any time by either party to the other. In addition, all provisions of this Agreement, except those pertaining to Term, shall apply to the month-to- month tenancy, and Lessee shall continue to pay all Rent required by this Agreement. Provided, however, Rent shall be paid monthly on the first (1st) day of the month. 21. Condemnation (a) Lessor shall notify Lessee of any Condemnation by providing written notice thereof no later than thirty (30) calendar days after the later of (i) the filing of a complaint in eminent domain by Condemnor or (ii) any voluntary final agreement by Lessor and Condemnor of the extent of the scope and extent of property interests in the Premises to be included within the Condemnation. (b) If the Premises are totally taken by Condemnation, this Agreement shall terminate as of the date on which Condemnor actually takes physical possession of the Premises, which date is referred to in this Section 21 as the 'Termination Date." If less than all but more than fifty percent (50%) of total area of the Premises are taken through Condemnation, Lessee shall have the option to terminate this Agreement by providing written notice to Lessor. Lessee's notice must be given within thirty (30) calendar days after Lessee's receipt of Lessor's notice provided pursuant to subparagraph (a) above, and if Lessee's notice of termination is not timely given, then Lessee shall conclusively be deemed to have elected not to terminate this Agreement. If this Agreement is terminated under this Section, the termination shall be effective on the Termination Date, and Lessor shall prorate Rent to that date. Lessee must pay Rent for the period up to, but not including, the Termination Date, as prorated by Lessor. Lessor -16- 17-41 shall return to Lessee any prepaid Rent allocable to any period on or after the Termination Date. (c} If any part of the Premises is taken by Condemnation and this Agreement is not terminated, Rent shall be proportionately reduced based on the value of the actual portion of the Premises taken as a percentage of the value of the entire Premises, in its "before" condition and without regard to any injury to the remainder, or benefit to the remainder, resulting from the taking or the construction of the project for which the taking occurs. Lessor shall make such determination of the amount of reduction in Rent in its reasonable discretion, based upon either the appraisal for the Condemnation provided by the Condemnor, or pursuant to an appraisal prepared in the manner provided in Section 43, as Lessor shall determine. Lessor and Lessee agree to execute an amendment or other appropriate instrument modifying this Agreement within thirty (30) calendar days after a partial taking, confirming the reduction in Premises and reduction in Rent. (d) If a temporary taking of part of the Premises occurs through (i) the exercise of any government power by Condemnor or (ii) a voluntary sale or transfer by Lessor to any Condemnor, either under threat of exercise of eminent domain by a Condemnor or while legal proceedings for condemnation are pending, Rent shall abate during the time of such taking but only with respect to that physical portion of the Premises actually temporarily taken, and all Rent or other compensation paid by the Condemnor shall be the sole and exclusive property of Lessor. (e) In the event of a total or partial Condemnation, though the award shall belong and be paid to Lessor, Lessee shall be entitled to claim and receive, and Lessor hereby assigns to Lessee, from such award: (i) A sum attributable to the fair market value of any and all Improvements made to the condemned portion(s) of the Premises by Lessee in accordance with this Agreement, which Improvements Lessee has the right to remove, but elects not to remove; or, if Lessee elects to remove any such Improvements, a sum attributable to their reasonable removal and relocation costs not to exceed the fair market value of such Improvements; and (ii) A sum attributable to any excess of the present value at the date of taking of the fair market rental value of the condemned portion(s) of the Premises, exclusive of any of Lessee's Improvements for which it is compensated under subsection (i), above, for the remainder of the term over the present value at the date of taking of the actual Rent payable by Lessee hereunder for the condemned portion(s) for the remainder of the term; and (iii) A sum attributable to any diminution of the present value at the date of taking of the fair market rental value (i.e., that portion or those portions not condemned) for the remainder of the term; and -17- 17-42 (iv) Any sum awarded or paid to Lessee by any Condemnor for damage to Lessee's business or for "loss of goodwill." 22. Indemnification In addition to any other indemnity provided for in this Agreement, and notwithstanding any other provisions of this Agreement to the contrary, Lessee indemnifies, defends (with counsel selected by Lessor) and holds harmless Lessor, its elected officials, officers, employees, agents, attorneys, volunteers and representatives from and against all claims, demands, obligations, damages, actions, causes of action, suits, losses, judgments, fines, penalties, liabilities, costs and expenses (including, without limitation, attorney's fees, disbursements and court costs) of every kind that may arise from or in any manner relate to (directly or indirectly): (i) Lessee's rights, obligations, acts or omissions under this Agreement, (ii) Lessee's occupancy and use, or Lessee's guests, invitees, sublessees, or licensees occupancy and use, of the Premises, or Improvements (individually, each a "Claim" and, collectively, "Claims"), The indemnification in this Section 22 specifically includes, without limitation, all Claims arising by reason of: (a) The death or injury of any person or damage to real or personal property caused or allegedly caused by the condition of the Premises, Improvements, or an act or omission of Lessee or an agent, contractor, subcontractor, supplier, employee, servant, sublessee or concessionaire of Lessee; (b) Any work performed on the Premises, Improvements, or materials furnished to the Premises, Improvements, by or at the request of Lessee or any agent, contractor, subcontractor, supplier, employee, servant, sublessee or concessionaire of Lessee, with the exception of maintenance performed by City; and/or (c) Lessee's failure to perform any provision of this Agreement or to comply with any requirement of Applicable Law or any requirement imposed on the Premises or Improvements by any duly authorized governmental agency or political subdivision. Lessee's obligations in this Section (or any other provision providing indemnity in this Agreement) shall not extend to the degree any Claim is proximately caused by the sole negligence or willful misconduct of Lessor, subject to any immunities which may apply to Lessor with respect to such Claims. This indemnification provision and any other indemnification provided elsewhere in this Agreement shall survive the termination of this Agreement and shall survive for the entire time that any third party can make a Claim. 23, Insurance Without limiting Lessee's indemnification of Lessor, Lessee will obtain, provide and maintain at its own expense during the Term of this Agreement, a policy or policies of insurance of the type, amounts and form acceptable to Lessor. The policy or policies shall provide, at a minimum, those items described in Exhibit "LD 5H-* 17-43 24. Hazardous Substances (a) From the Commencement Date and throughout the Term, Lessee will not use, occupy, or permit any portion of the Premises to be used or occupied in violation of any Hazardous Substance Laws. Notwithstanding any other provision in this Section 24, Lessee is not responsible/liable for any Hazardous Substances that are brought on to the Premises, through migration or other means, by third - parties not associated with Lessee. (b) Notwithstanding any contrary provision of this Agreement, and in addition to the indemnification duties of Lessee set forth elsewhere in this Agreement, Lessee indemnifies, defends with counsel reasonably acceptable to Lessor, protects, and holds harmless Lessor, its elected officials, officers, employees, agents, attorneys, volunteers and representatives from and against any and all losses, fines, penalties, claims, demands, obligations, actions, causes of action, suits, costs and expenses (including, without limitation, attorneys' fees, disbursements and court costs), damages, judgments, or liabilities, including, but not limited to, any repair, cleanup, detoxification, or preparation and implementation of any remedial, response, closure or other plan of any kind or nature which the Lessor, its officials, officers, employees, agents, attorneys, volunteers or assigns may sustain or incur, or which may be imposed upon them, in connection with any breach of Lessee's obligations or representations in this Agreement or the use of the Premises under this Agreement, arising from or attributable to the Lessee Parties (defined below) storage or deposit of Hazardous Substances in violation of Applicable Laws. This Section is intended to operate as an agreement pursuant to Section 107(e) of CERCLA, 42 USC Section 9607(e), and California Health and Safety Code Section 25364, to insure, protect, hold harmless, and indemnify Lessor for any claim pursuant to the Hazardous Substance Laws or the common law. (c) Lessee does not, and will not, authorize any third party to use, generate, manufacture, maintain, permit, store, or dispose of any Hazardous Substances in violation of Applicable Laws on, under, about or within the Premises. (d) Upon expiration or earlier termination of this Agreement, Lessee shall deliver possession of the Premises in compliance with Hazardous Substance Laws subject to the last sentence of Section 24(a) above. (e) If during the Term of this Agreement, Lessee becomes aware of (i) any actual or threatened release of any Hazardous Substances on. in, under, from, or about the Premises in violation of Hazardous Substance Laws; or (ii) any inquiry, investigation, proceeding, or claim by any government agency or other person regarding the presence of any Hazardous Substances in violation of Hazardous Substance Laws on, in, under, from or about the Premises, Lessee shall give Lessor written notice of the release or inquiry within five (5) calendar days after Lessee becomes aware or first has reason to believe there has been a release or inquiry and shall simultaneously furnish to Lessor copies of any claims, notices of violation, reports, warning or other writings received by Lessee that concern the release or inquiry. -19- 17-44 (f) if the presence of any Hazardous Substances brought onto the Premises by Lessee or Lessee's employees, agents, sublessees, licensees, concessionaires, contractors, or invitees ("Lessee Parties"), or generated by same during the Term of this Agreement, results in contamination of the Premises or adjacent properties or the Newport Harbor in violation of Hazardous Substance Laws, Lessee shall promptly take all necessary actions, at Lessee's sole expense, to remove or remediate such Hazardous Substances in fuel compliance with Applicable Laws. Lessee shall provide notice to Lessor prior to performing any removal or remedial action. Lessee shall not propose nor agree to any covenant of use restriction as part of any removal or remediation required as a result of this provision without Lessor's written consent. Lessee shall pay any costs Lessor incurs in performing Lessee's obligation to clean-up contamination resulting from Lessee's operations or use of the Premises. Any amounts not paid when due shall be subject to fate charges and delinquency rates as provided in Section 45, (i) Should any clean-up of Hazardous Substances for which Lessee is responsible not be completed prior to the expiration or sooner termination of the Agreement, including any extensions thereof, then Lessee shall transfer the amounts required to complete clean-up into an escrow account, together with Lessor -approved instructions for the disbursement of such amount in payment of the costs of any remaining clean-up as it is completed, and (ii) if the nature of the contamination or clean-up required of Lessee is of such a nature as to make the Premises untenable or unleaseable, then Lessee shall be liable to Lessor as a holdover lessee until the clean-up has been sufficiently completed to make the Premises suitable for lease to third parties. The estimated cost of the clean-up shall require approval of the Lessor. (ii) If Lessor determines, in its reasonable discretion, that Lessee does not have insurance or other financial resources sufficient to enable Lessee to fulfill its obligations under this provision, whether or not accrued, liquidated, conditional, or contingent, then Lessee shall, at the request of Lessor, procure and thereafter maintain in full force and effect such environmental impairment liability and/or pollution liability insurance policies and endorsements, or shall otherwise provide such collateral or security reasonabiy acceptable to Lessor as is appropriate to assure that Lessee will be able to perform its duties and obligations hereunder. (g) Lessee's obligations in this Section 24 shall survive the expiration or earlier termination of this Agreement. 25. Quiet Possession (a) So long as no default by Lessee has occurred and is continuing uncured under this Agreement, and subject to the Tidelands Grant or any amendment to that grant, Lessee shall peaceably and quietly use and enjoy the Premises for the Term, without hindrance or interruption by Lessor. (b) Lessor shall in no event be liable in damages or otherwise, nor shall Lessee be released from any obligations hereunder, because of the interruption or termination of any service provided by Lessor (such as water or sewer service), -20- 17-45 FI 27 IMQ we 30 or a termination, interruption or disturbance of any service attributable to any act or neglect (other than gross negligence or willful misconduct) of Lessor or its servants, agents, employees, licensees, business invitees, or any person claiming by, through or under Lessee. Compliance with Applicable Laws Lessee agrees that, in all activities on or in connection with the Premises, and in all uses thereof, it will comply with and conform, at its sole cost, to all Applicable Laws. Lessee is solely responsible for compliance with Applicable Laws. If City enacts a new tax or imposes a new fee, which exceeds the cost of providing the service, against the Premises, the Lessee has the right to terminate this Agreement upon thirty (30) calendar days notice to Lessor. Not Agent of Lessor Neither anything in this Agreement nor any acts of Lessee shall authorize Lessee or any of its employees, agents or contractors to act as agent, contractor, joint venturer or employee of Lessor for any purpose. The parties' relationship under this Agreement is exclusively that of a lessor and lessee. No Third Party Beneficiaries Lessor (both as a lessor and as the City of Newport Beach) and Lessee do not intend, by any provision of this Agreement, to create in any third party, any benefit or right owed by one party, under the terms and conditions of this Agreement, to the other party. Limitation of Leasehold 1 Easements This Agreement and the rights and privileges granted Lessee in and to the Premises and Improvements are subject to all covenants, conditions, restrictions, and exceptions of record, including those which are set out in the Tidelands Grant by the State of California to Lessor. Nothing contained in this Agreement or in any related document shall be construed to imply the conveyance to Lessee of rights in the Premises or Improvements that exceed those owned by Lessor. This Agreement and the rights and privileges granted Lessee in and to the Premises shall be further subject to future easements and rights-of-way for access, gas, electricity, water, sewer, drainage, telephone, telegraph, television transmission, and such other utilities as Lessor may determine from time to time to be in the best interests of the development of the lands within Lessor's jurisdiction, provided, however, that no easements, rights-of-way, or the installation of such facilities by Lessor, shall materially interfere with Lessee's business. Easements and rights -of -ways allowed by this section shall be limited in purpose to providing the utilities contemplated in this section. Nothing in this section gives a utility a right to attach any item to the Improvements. Lessee is not entitled to any monetary payment or other remuneration for any such future easements and rights-of-way. Notices All notices and other communications required or permitted to be given under this Agreement, including any notice of change of address, shall be in writing and given by personal delivery, or deposited with the United States Postal Service, certified and -21- 17-46 postage prepaid, or by national overnight mail service addressed to the parties intended to be notified. Notice shall be deemed given as of the date of personal delivery, or if mailed, two (2) calendar days following the date of deposit with the United States Postal Service. Notice shall be given as follows: To Lessor: City of Newport Beach Attn: City Manager PO Box 1768 3300 Newport Boulevard Newport Beach, CA 92658 949-644•-3153 With Copy To: City Attorney (at same address) To Lessee: 31. Entire Agreement/Amendments (a) The terms and conditions of this Agreement, all exhibits attached hereto are incorporated by reference into this Agreement, and all documents expressly incorporated by reference, represent the entire Agreement of the parties with respect to the subject matter of this Agreement. (b) This Agreement may be executed in counterparts, including electronic counterparts, each of which, after all the parties have signed this Agreement, shall be deemed to be an original, and such counterparts shall constitute one Agreement binding on the parties. (c) This written Agreement shall supersede any and all prior agreements, oral or written, regarding the subject matter. Notwithstanding the foregoing sentence, with respect to City Pier Permit No. , nothing herein is a release of any violation of Lessee's duties or obligations: if any, with respect to City Pier Permit No. , whether known or unknown at this time or upon the effective date of this Agreement. Lessor acknowledges it is not aware of any known defaults by Lessee. (d) Except as permitted by Section 33 below, no other agreement, promise or statement, written or oral, relating to the subject matter of this Agreement, shall be valid or binding, except by way of a written amendment to this Agreement. (e) The terms and conditions of this Agreement shall not be altered or modified except by a written amendment to this Agreement signed by Lessee and Lessor, (f) If any conflicts arise between the terms and conditions of this Agreement, and the terms and conditions of the attached exhibits or the documents expressly incorporated by reference, the terms and conditions of this Agreement shall control. -22- 17-47 (g) Any obligation of the parties relating to monies owed, as well as those provisions relating to limitations on liability and actions, shall survive termination or expiration of this Agreement. 32. Waivers The waiver by either party of any breach, default or violation of any term, covenant or condition of this Agreement, or of any Applicable Law, shall not be deemed a waiver of any other term, covenant, condition, or Applicable Law, or of any subsequent breach or violation of the same or other term, covenant, condition, or Applicable Law. The subsequent acceptance by either party of any fee, performance, or other consideration which may become due or owing under this Agreement, shall not be deemed to be a waiver of any preceding breach or violation by the other party of any term, condition, covenant of this Agreement or any Applicable Law.. 33. Lessor's Authorized Representative Unless otherwise specified in this Agreement or unless Applicable Law requires action of the City Council or some other person or body of Lessor (in its capacity as the City of Newport Beach), Lessor shall maintain the authority to implement this Agreement on its behalf through the City Manager of the City of Newport Beach (or his or her designee). The City Manager (or his or her designee) shall have authority (but not the obligation) to issue interpretations, waive provisions (including, without limitation, imposition of late charges and delinquency rates, Lessee's payment of costs and times of performance), and/or enter into amendments of this Agreement on behalf of the Lessor. 34. City Business License Lessee shall obtain and maintain during the duration of this Agreement a City business license as required by the Newport Beach Municipal Code. 35. Governing Law & Non -Binding Arbitration (a) Prior to instituting any legal action in a court, in the event the Lessor and Lessee shall be unable to agree as to any matter provided for in this Agreement such dispute shall be submitted to three (3) disinterested arbitrators (unless the parties can agree on one (1) arbitrator). Such arbitration shall be conducted upon request of either the Lessor or the Lessee, before three (3) arbitrators (unless the Lessor or the Lessee agree to one (1) arbitrator) designated by the American Arbitration Association and in accordance with the rules of such Association. The decision(s) of the arbitrator(s) designated and acting under this Agreement shall be nonbinding and the arbitrator(s) have no power to depart from or change any of the provisions thereof. The expense of arbitration proceedings conducted hereunder shall be borne equally by the parties. (b) This Agreement shall be construed in accordance with the laws of the State of California. Any action brought relating to this Agreement shall be adjudicated in a court of competent jurisdiction in the County of Orange. Lessee is advised that Public Resources Code Section 6308 may require that the State of California be joined to any action against the City involving title to or boundaries of the Tidelands. -23- 17-48 (c) The prevailing party in any non-binding arbitration or legal action authorized under this section shall not be entitled to attorneys' fees. 36. Interpretation The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of the Agreement or any other rule of construction which might otherwise apply. 37. Time is of the Essence Time is of the essence to the performance of each and every act required to be performed by this Agreement. 38. California Labor Laws It shall be the obligation of Lessee or any subcontractor under Lessee to comply with all State of California labor laws., rules and regulations and the parties agree that the Lessor shall not be liable for any violation thereof. 39. Joint and Several Liabilit The term "party" in this section shall mean either Lessor or Lessee, and if more than one (1) person or entity comprises either Lessor or Lessee, then the obligations imposed upon such "party" shall be both joint and several. 40. Memorandum of Lease Aqreement A Memorandum of Lease Agreement, in a form and content similar to that contained in Exhibit "E" shall be recorded by the parties promptly upon execution of this Agreement. Upon execution by both parties, the Memorandum of Lease Agreement shall be recorded against the Premises in the office of the Orange County Clerk -Recorder, as required by Government Code Section 37393- 41. No Pre -commitment / Retention of Discretion / Assumption of Risk and Waiver (a) By its execution of this Agreement, Lessor is not committing itself or agreeing to undertake any activity requiring the subsequent exercise of discretion by the City of Newport Beach, or any department thereof, including but not limited to the approval of any CEQA documents, the approval of any development proposal or land use regulation governing the Premises, or any other act or approval. (b) Lessee understands and agrees that Lessor in its capacity as the City of Newport Beach reserves the right to exercise its discretion as to all matters which it is, by law, entitled or required to exercise its discretion, including, but not limited to, the consideration of CEQA documents the consideration of a final development, the consideration of any and all plans, permits, licenses or regulatory approvals, or any other acts or activities requiring the subsequent independent exercise of discretion by the City of Newport Beach or any agency or department thereof. Lessee understands and agrees that the City of Newport Beach may, in its sole -24- 17-49 and absolute discretion, certify or not certify a CEQA document and approve, approve with modifications, or not approve or may consider other alternatives, including those presented in the CEQA documents. (c} Lessee acknowledges and agrees that the City of Newport Beach or other governmental agencies (including without limitation the Coastal Commission) may, at their sole and absolute discretion, approve any and all plans, permits, licenses or regulatory approvals, only upon the imposition and performance of additional conditions or mitigation measures. (d) Nothing in this Agreement shall obligate the Lessor in its capacity as the City of Newport Beach to exercise its discretion in any particular manner, and notwithstanding any provision of this Agreement to the contrary any exercise of discretion requiredby law or permitted by this Agreement shall not be deemed to constitute a breach of Lessor's duties under this Agreement. (e} Lessee accepts and assumes the risk that the City of Newport Beach or other governmental agencies (including without limitation the Coastal Commission) will not approve or certify the CEQA documents or any and all plans, permits, licenses or regulatory approvals sought, that the City of Newport Beach may consider or approve other alternatives to the CEQA documents, any and all plans, permits, licenses or regulatory approvals, or CEQA documents might be approved or certified subject to modifications or the performance of certain additional conditions or mitigation measures imposed by the City of Newport Beach or other governmental agencies (including without limitation the Coastal Commission) in their sole and absolute discretion, or that third parties may file litigation against or otherwise delay any and all plans, permits, licenses or regulatory approvals sought, or CEQA documents. Lessee agrees it has no claim, cause of action, or right to damages, compensation or reimbursement from Lessor or the City of Newport Beach if (i) CEQA documents or any and all plans, permits, licenses or regulatory approvals sought are not approved by the City of Newport Beach or other governmental agencies (including without limitation the Coastal Commission) for any reason, (ii) other alternatives to the CEQA documents or any and all plans, permits, licenses or regulatory approvals sought are approved, (iii) CEQA documents are approved or certified subject to modification or the performance of certain additional conditions or mitigation measures, and/or (iv) third parties file litigation against or otherwise delay the CEQA documents. 42. No Damages Lessee acknowledges that Lessor would not enter into this Agreement if it were to be liable for damages (including, but not limited to, actual damages, economic damages, consequential damages, lost profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use) under, or relating to, this Agreement or any of the matters referred to in this Agreement, including, without limitation, any and all plans, permits, licenses or regulatory approvals, CEQA documents, and Transfers. Accordingly, Lessee covenants and agrees on behalf of itself and its successors and assigns, not to sue Lessor (either in its capacity as lessor in this Agreement or in its capacity as the City of Newport Beach) for damages (including, but not limited to, actual damages, economic damages, consequential damages, lost profits, loss of rents or other -25- 17-50 revenues, loss of business opportunity, loss of goodwill or loss of use) or monetary relief for any breach of this Agreement by Lessor or for any dispute, controversy, or issue between Lessor and Lessee arising out of or connected with this Agreement or any of the matters referred to in this Agreement, including, without limitation, any and all plans, permits, licenses or regulatory approvals, CEQA documents, Transfers or any future amendments or enactments thereto, the partes agreeing that declaratory relief, injunctive relief, mandate and specific performance shall be Lessee's sole and exclusive judicial remedies. 43. Appraisals Except as otherwise provided in the applicable resolution for the Fair Market Adjustment of Rent, this Section governs the process for all appraisals required or permitted in this Agreement. Any time an appraisal is required or permitted by this Agreement, Lessor and Lessee shall each select an independent appraiser with qualifications of MAI to appraise Tidelands properties. Each party shat{ pay the costs of their selected appraiser. If the two (2) appraisals return with a fair market value that is within five percent (5%) of each other the two (2) appraisal fair market values shall be averaged to produce the fair market value of the affected Premises. For clarity, if one (1) appraiser concludes thirteen percent (13%) and one (1) appraiser concludes fifteen percent (15%) the difference in their conclusions is thirteen and 333/1,000ths percent (13.333%) and therefore a third appraisal would be needed. If the two (2) appraisers should fail to agree on the fair market value, and the difference between the two appraisals exceeds five percent (5%), then the two (2) appraisers thus appointed shall mutually appoint a third MAI designated appraiser, and in case of their failure to agree on a third appraiser within thirty (30) calendar days after their individual determination of the fair market value, either party may apply to the Presiding Judge of the Superior Court for Orange County, requesting said Judge to appoint the third MAI designated appraiser. The costs of the third appraiser, if any, shall be split equally between the Lesser and the Lessee. The third appraiser so appointed shall meet and confer with the two (2) other appraisers and then conduct its own analysis to determine the fair market value of the affected Premises within sixty (60) calendar days of their appointment and the average of the fair market value per square foot as set forth in the appraisals of the two (2) closest appraisers shall be used as the fair market value. All MAI appraisers appointed or selected pursuant to this subsection shall have at least ten (10) years experience appraising Tidelands in the Southern California area and shall be free of conflicts (i.e., no appraisers shall rent a boat slip or office space from Lessor or lessees, etc.). 44. Reserved 45. Late ChaLges and Delinquency Rates A ten percent (10%) late charge shall be added to all payments due but not received by Lessor with ten (10) calendar days following the due date, unless another due date is specified in this Agreement. In addition, all unpaid amounts shall accrue at a delinquency rate of one and a half percent (1'yy %) per month or any portion of a month until paid in full. Lessor and Lessee hereby agree that such late charges and delinquency rates represent a fair and reasonable estimate of the costs Lessor will incur by Lessee's late payment, including, without limitation, lost opportunities and the cost of servicing the delinquent account. Lessee agrees that such late charges and delinquency rates are Additional Rent and are not interest. Acceptance of such late -26- 17-51 charges and delinquency rates (and/or any portion of the overdue payment) by Lessor does not constitute a waiver of Lessee's default with respect to such overdue payment, or prevent Lessor from exercising any of the other rights and remedies granted in this Agreement. 46. Reserved 47, Government Claims Act Lessee and Lessor agree that in addition to any claims filing or notice requirements in this Agreement. Lessee shall file any claim that Lessee may have against Lessor in strict conformance with the Government Claims Act (Government Code sections 900 et seq.). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate on the date and year first written herein. LESSOR LESSEE City of Newport Beach A Municipal Corporation a Mayor / City Manager ATTEST: Leilani Brown City Cleric APPROVED AS TO FORM: Aaron C. Harp City Attorney 0 Name: -27- 17-52 EXHIBIT "A" DEFINITIONS Additional Rent is defined in Section 4 Agreement is defined in the Preamble. Applicable Law(s) mean and include, but are not limited to, those prescribed by Title 17 of the Newport Beach Municipal Code; any ordinances of the City of Newport Beach, including the Building Code thereof; the City Charter of Newport Beach; any regulations, policies and general rules of the City of Newport Beach; the Tidelands Grant; Hazardous Substances Laws; CEQA; and any other Federal, State or local statute, law, ordinance, resolution, code, rule, regulation, order or decree as any of the same now exist or may hereafter be adopted or amended. Boat Slip Renters is defined in Section 1(a)(i). CDP means a Coastal Development Permit. CEQA means the California Environmental Quality Act, codified at California Public Resources Code Sections 21000 et seq. as may be amended from time -to -time. Claim(s) is defined in Section 22. Commencement Date is defined in Section 3(a). Condemnation means a permanent taking of the Premises through (i) the exercise of any government power, by any public or quasi -public authority or by any other party having the right of eminent domain (Condemnor) or (ii) a voluntary sale or transfer by Lessor to any Condemnor, either under threat of exercise of eminent domain by a Condemnor or while legal proceedings for condemnation are pending. Gross Revenue for Slip Rentals means all receipts of every kind and nature, whether for cash, credit or barter, received/due for the rental or use of a slip, dock, or pier on the Premises. Without limiting the breadth of the prior sentence, Gross Revenue for Slip Rentals shall include, without limitation, receipts of every kind and nature derived from any promotion, package deal, service, or other item that is associated in any way with the rental or use of a slip, dock, or pier on the Premises, excluding pass-through of direct third -party charges (e.g., electricity, cable TV, etc.) without markup by Lessee. For purposes of determining Gross Revenue for Slip Rentals any fixed, annual, monthly and/or recurring charge that a person or entity is required to pay shall be counted as part of the Gross Revenue for Slip Rentals. Gross Revenue for Slip Rentals shall not be offset or reduced for any reason, including, but not limited to, the payment of taxes, fees, repairs, maintenance, construction, or inability or failure to collect any cash, credit, or barter due for the use of a slip, dock, or pier on the Premises. Hazardous Substance means; (i) any substance, product, waste or other material of any nature whatsoever which is or becomes listed, regulated, or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (CERLCA); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conversation and Recovery Act, 42 U.S.C. Section 6901 et sec/. "RCRA"); the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Water EXHIBIT "A" -i- 17-53 Act, 33 U.S.C. Section 1251 et seq.; the California Hazardous Waste Control Act, Health and Safety Code Section 25100 et seq.; the California Hazardous Substance Account Act, Health and Safety Code Sections 25330 et seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code Sections 25249.5 et seq.; California Health and Safety Code Sections 25280 of seq. (Underground Storage of Hazardous Substances); the California Hazardous Waste Management Act, Health and Safety Code Sections 25170.1 et seq.; California Health and Safety Code Sections 25501 et seq. (Hazardous Materials Response Plans and Inventory); or the Porter -Cologne Water Quality Control Act, Water Code Sections 13000 et seq., all as they, from time -to -time may be amended or re -codified, (the above-cited statutes are here collectively referred to as lithe Hazardous Substances Laws") or any other Federal, State or local statute, law, ordinance, resolution, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect; (ii) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any of the above statutes or under any statutory or common law theory, including but not limited to negligence, trespass, intentional tort, nuisance, waste or strict liability or under any reported decisions of a state or federal court; (iii) petroleum or crude oil; and (iv) asbestos. Improvements are owned by Lessee and mean those items described on Exhibit "B" as they may be modified, altered, restored, or rebuilt pursuant to this Agreement. Leasehold Estate means Lessee's interest in the Premises created by this Agreement, Leasehold Mortgage means a Transfer or security instrument by which the Leasehold Estate is used to secure a debt or other obligation arising from or related to Lessee's use or operation of the 'Premises. Leasehold Mortgagee means a holder or holders of the Leasehold Mortgage. Lease Term Year means each twelve (12) month period beginning on the Commencement Date (or anniversary thereof) and ending an the day prior to the next anniversary of the Commencement Date. Lessee is defined in the Preamble. Lessor is defined in the Preamble. Marina Index is comprised of the marinas listed in the resolution incorporated by Section 4 Market Adjustment Date means March 1, 2018 and every fifth (5th) anniversary year thereafter. Option Notice is defined in Section 3(b)(i), Other Real Property is defined in Section 16(b). Premises means those Tidelands which is an independent site with no land access consisting of approximately j square feet water area located generally at in the City of Newport Beach, California, more particularly described in Exhibit F on the map set forth in Exhibit G, excluding any private water and Improvements. EXHIBIT "A" -2- and depicted 17-54 Renewal Term(s) is defined in Section 3(b). Rent is defined in Section 4 Target Indexed Rate is defined in the resolution incorporated by Section 4 Term is defined in Section 3(a). Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of Orange, State of California granted to the City of Newport Beach, as trustee, by the State of California pursuant to the Tidelands Grant. Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation, the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). Transfer(s) means any attempt to sell, convey, assign, transfer, mortgage, pledge, grant, hypothecate or encumber this Agreement or any interest in this Agreement, or the Premises or any portion of the Premises, and any attempt to sublet (which shall also include management and/or operating agreements covering the Premises), license or grant any concession to the Premises, in whole or in part, or allow any person other than Lessee's employees, members, agents, servants and invitees to occupy or use all or any portion of the Premises. EXHIBIT "A" -3- 17-55 EXHIBIT "B" I'MPROVEME'NTS EXHIBIT "B" -1- 17-56 EXHIBIT "C" OTHER REAL. PROPERTY EXHIBIT "C" -1- 17-57 EXHIBIT "Q" INSURANCE Without limiting Lessees indemnification of Lessor, Lessee will obtain, provide and maintain at its own expense during the Term of this Agreement, a policy or policies of insurance of the type, amounts and form acceptable to Lessor. The policy or policies shall provide, at a minimum, those items described below. (a) Coverage Requirements (i) Workers' compensation insurance providing statutory benefits and Employer's Liability Insurance in an amount not less than One Million Dollars ($1,000,000) each accident, each employee and policy limit. Coverage shall include USL&H and Maritime Coverages as appropriate. In addition, Lessee shall require each subtenant or subcontractor to similarly maintain workers compensation insurance and employer's liability insurance, including USL&Fl and Maritime Coverages as appropriate, in accordance with the laws of the State of California for all of the subtenant's or subcontractor's employees. The insurer shall agree to waive all rights of subrogation against Lessor, its officers, agents, employees and volunteers for losses arising from work performed by Lessee for Lessor, by endorsement to the policy. (ii) Commercial general liability insurance in an amount not less than Two Million Dollars ('52,000,000) per occurrence and Four Million Dollars (54,000,000) General Aggregate for bodily injury, personal injury, and property damage, Coverage shall be at least as broad as that provided by Insurance Services Office form CG 00 01 and may be arranged through any combination of primary and excess insurance as required to achieve the limits specified provided that any excess liability policy does not restrict coverage provided in the primary policy. Other policy forms may be acceptable if more appropriate to the exposures, such as Marina Operator's Liability insurance. None of the policies required herein shall be in compliance with these requirements if they include any limiting endorsement that has not been first submitted to City and approved in writing. (iii) Contractor's pollution liability insurance for contractors or subcontractors performing construction work written on a form acceptable to City providing coverage for liability arising out of sudden, accidental and gradual pollution. The policy limit shall be no less than One Million Dollars ($1,000,000) per claim and in the aggregate for contractors and between Two Million Dollars ($2,000,000) and Five Million Dollars ($5,000,000) for Lessee, as determined by Lessor depending on services offered by Lessee on the Premises (e.g., fuer dock, boat repair, etc.). When this insurance is required, all activities comprising the work shall be specifically scheduled on the policy as "covered operations." The policy shall provide coverage for the hauling of waste from the Premises to the EXHIBIT "D" -1- 17-58 final disposal location, including non -owned disposal sites. Products/completed operations coverage shall extend a minimum of three (3) years after completion of the work. (iv) Pollution legal liability applicable to bodily injury; property damage, including loss of use of damaged property or of property that has not been physically injured or destroyed; cleanup costs; and defense, including costs and expenses incurred in the investigation, defense, or setVement of claims; all in connection with any loss arising from the insured facility. Coverage shall be maintained in an amount of at least One Million Dollars ($1,000,000) per loss, with an annual aggregate of at least One Million Dollars ($1,000,000)- (b) Endorsements: Policies shall contain or be endorsed to contain the following provisions: (i) Lessor, its elected or appointed officers, officials, employees, agents and volunteers are to be covered as an additional insured under all general and pollution liability policies with respect to liability arising out of lessee's activities related to this Agreement and with respect to use or occupancy of the Premises. (ii) The insurer waives all rights related to workers' compensation subrogation against Lessor, its elected or appointed officers, officials, employees, agents and volunteers, (iii) The insurance required by this agreement shall not be suspended, voided, canceled, or reduced in coverage or in limits. (c) Additional Requirements (i) All insurance shall be written on an occurrence -made form, except the Pollution Liability policy which is on a claims -made form of insurance requiring the Lessee to provide proof of coverage (extending reporting) for a minimum of three (3) years following termination of lease agreement; and (ii) In the event Lessor determines that (i) the Lessee's activities in the Premises creates an increased or decreased risk of loss to the Lessor, (ii) greater insurance coverage is required due to the passage of time, or (iii) changes in the industry require different coverages be obtained, Lessee agrees that the minimum limits of any insurance policy required to be obtained by Lessee may be changed accordingly upon receipt of written notice from Lessor; provided that Lessee shall have the right to appeal a determination of increased coverage to the City Council within fourteen (14) calendar days of receipt of notice from the Risk Manager in the manner provided in Municipal Code Section 17.65.010 et seq. (or any amended or successor Code section or ordinance) if Lessee fails to timely appeal a decision, it shall be deemed final. With respect to changes in insurance requirements that are available from Lessee's then - existing insurance carrier, Lessee shat( deposit certificates evidencing EXHIBIT "la" -2- 17-59 acceptable insurance policies with Lessor incorporating such changes within thirty (30) calendar days of receipt of such notice. With respect to changes in insurance requirements that are not available from Lessee's then- existing insurance carrier, Lessee shall deposit certificates evidencing acceptable insurance policies with Lessor, incorporating such changes, within ninety (90) calendar days of receipt of such notice. All insurance policies shall be issued by an insurance company currently authorized by the California Insurance Commissioner to transact business of insurance in the State of California, with an assigned policyholders'. Rating of A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best's Key Rating Guide, unless otherwise approved by Lessor. (iv) All licensees, sub -lessees (not including slip renters) and concessionaires shall be subject to the insurance requirements contained herein unless written approval is granted by the Lessor. (v) Lessee shall provide certificates of insurance, with original endorsements as required above, to Lessor as evidence of the insurance coverage required herein. Insurance certificates must be approved by Lessor prior to commencement of performance or issuance of any permit. Current certification of insurance shall be kept on file with Lessor at all times during the Term of this Agreement. (vi) All required insurance shall be in force on the Commencement Hate, and shall be maintained continuously in force throughout the term of this Agreement. In addition, the cost of all required insurance shall be borne by Lessee. (vii) If Lessee fails or refuses to maintain insurance as required in this Agreement, or fails to provide proof of insurance, Lessor has the right to declare this Agreement in default without further notice to Lessee, and Lessor shall be entitled to exercise all available remedies. EXHIBIT "IJ" -3- 17-60 EXHIBIT "E" RECORDING REQUESTED AND WHEN RECORDED RETURN TO: Office of the City Clerk City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92658 [Exempt from Recordation Fee - Govt. Code Sec. 6103] MEMORANDUM OF LEASE AGREEMENT ((WITH OPTIONS FOR RENEWAL)] This Memorandum of Lease Agreement [(With Options for Renewal)] ("Memorandum") is dated 20 . and is made between City of Newport Beach, a California municipal corporation and charter city ("Lessor" or "City") and ("Lessee"), concerning the Premises described in Exhibits A" and "B,° attached hereto and by this reference made a part hereof. For good and adequate consideration, Lessor leases the Premises to Lessee, and Lessee hires them from Lessor, for the term and on the provisions contained in the Agreement dated , 20 , including without limitation provisions prohibiting assignment, subleasing, and encumbering said leasehold without the express written consent of Lessor in each instance, all as more specifically set forth in said Agreement, which said Agreement is incorporated in this Memorandum by this reference. The term is (es) years, beginning 20_, and ending 20. [If needed, insert recitation of Options and Renewal Terms(s).] This Memorandum is not a complete summary of the Agreement. Provisions in this Memorandum shall not be used in interpreting the Agreement's provisions. In the event of conflict between this Memorandum and other parts of the Agreement, the other parts shall control. Execution hereof constitutes execution of the Agreement itself. [Signatures on the next page] EXHIBIT "E" -1- 17-61 LESSOR City of Newport Beach A Municipal Corporation Mayor ATTEST: Leilani Brown City Clerk APPROVED AS TO FORM: Aaron C. Harp City Attorney LESSEE a Name: [NOTE: Attach Exhibits A and B from Agreement as Exhibits to this Memorandum behind attached Notary farm] EXHIBIT °E" -2- 17-62 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT STATE OF CAL FORNIA COUNTY OF ORANGIF I On this — day :,F —, 2,311, before me, the undersigned notarl Ptjbllz, P6rsonalkyzppeared NAV,E( , OF SIGNER S) proven to ire cn the bass of sa; sFa.toy evidence to bt-1 the parsor',$) %ftse narne,A Wazfe subscribed to t"e v4thin instrument and ack-uyviedgen to me that hef&efihoy execuU'd tte same n hisNp-iltnew authurtzed capealty(ies), and that by hisiheothel, signatuve(s) on tho instrUMOnt the person(s) or the entity(ieg) upor, behar' ef which the pemon(s) acted. execkit-ad Itio lr:trumnn' I rrrfiftj under PFNALTY OF PER.URY v"er the laws of the Staro of CaJomln Mit tete fofirIning parnqrav17 is true and correct. WITIN1768 rry -iand and ofklal seal, S'313NATURF OF NOTARY OPTIOINAL SECTION THIS CER-IFICATE MUST BE ATTACHED TO THE DOCUMENT DESCRIBED AT Rroi IT' Though fic data requostcd here is not required by i;vev, 't could ort -'Vent frowulent reottac-11ment o`this fo'm. -OPTIONAL SECTION -- CAPACITY CLAIMED BY SIGNER Though sizatule does ncrt,ecwi!a the NuhvV to fill in the offla below doing so may orove invakisUe to perscris relying an the docume-t * INDIVIDUAL * CORPORATE OFFICER(S) TITLEkS) 13 PAR-. N-'-Rk-S) ::1 LlAoli= :I GENERA - El ATTORNEY -IN -FAC__ TRUS7EE(S) GdARDIAWCONSERVA70IR L O-H5R. SIGNER IS REPRESENTING. NAVE r);: PrOSON(S) OR FNI I !Y(lES; TI 71LE OR TYPF OF DOCUMFNT. NUMBI R OF PAGFS- DA-E OF DOSUNIF71NIT: OTHER SIGNEROS) THAN NAV7:D ABOV17. 17-63 EXHIBIT "F" DESCRIPTION OF PREMISES EXHIBIT "F -1- 17-64 EXHIBIT `°G" DEPICTION OF PREMISES 17-65 ATTACHMENT 2 Amended Large Commercial Marina Rent A. Beginning on the date a lease or permit is first effective (i.e., the date a lease is executed by all parties or a permit is issued by the City), a Commercial Marina Operator shall pay to the City, on a monthly basis, Rent (as defined below). 1. Rent: Rent shall be calculated on an annual basis as follows.- First, ollows: First. the City shall determine the 'Target Indexed Rate" as follows. the "Aggregate 16% Equivalent Rent" shall be determined, which is comprised of Gross Revenue for Slip Rentals for the preceding calendar year of all marinas included within the Marina Index multiplied by point one six (0.16) (i.e., if aggregate Gross Revenue for Slip Rentals is $14,730,000, multiply $14,730,000 by 0.16 to yield an Aggregate 16% Equivalent Rent of $2,356,800). If a Commercial Marina Operator of a marina included in the Marina Index fails to provide Gross Revenue for Slip Rentals for any calendar year the City shall use the Commercial Marina Operator's immediate prior Gross Revenue for Slip Rentals as adjusted by the Consumer Price Index ("CPI"). The Aggregate 16% Equivalent Rent shall then be divided by the aggregate Premises' square footage for all marinas included in the Marina Index to determine the Target Indexed Rate for the succeeding twelve (12) months of Rent beginning on March 1 (i.e., if the Aggregate 16% Equivalent Rent is $2,356.800 and the aggregate square footage for all waters of marinas in the Marina Index is 1,402,000 square feet. the Target Index Rate would be $1.68 a square foot [$2,356,800 divided by 1,402,000 square feet]). The Premises for the individual Marina Index marinas will be based on known amounts determined by reference to existing City or County permits or leases. The Target Index Rate shall be calculated annually by the City in accordance with this paragraph as soon as practicable after December 31 of each calendar year. For 2013, Rent shalt remain at the current 50.36 a square foot. For a term year beginning March 1, 2019, and thereafter, monthly Rent shall equal the then applicable Target Index Rate, rounded to the nearest cent, times the Premises square footage as set forth in this resolution (i.e., if the Target Index Rate is $1.68 and the Premises is 10.000 square feet the annual Rent would be $16,800). Rent will be set in accordance with a six (6) -period phase-in procedure as follows: On March 1, 2013 Rent shall be set at $0.36 a square foot of the Premises. Beginning on March 1, 2014, Rent shall be 17-66 calculated annually each March 1 by reference to the following methodology: Target Index Rate minus the prior calendar year square footage rate divided by the number of years remaining with the phase-in period plus the prior calendar year square footage rate. An example of the Rent calcuiation is provided below in Table #1. Illustration of Target Index Phase-in to 16% at 3-1-2018, then ..rwide Reap. Ardell 2012 2013 2014 2015 2016 2017+2019 Lido Yacht Anchorage 5) Harbor Towers Marina 6) $ 0.36 $ 0.36 $ 0.56 S 0+.81 S 1.09 5 1.39 S 1.72 5 1.79 Assumed Index Rate $ 1.68 S 1.71 5-1.7575 1.77 5 1.72 5 1.72 5 1.79 5 0.36 5 0.56 5 0.81 $ 1.09 5 1.39 5 1.72 ?revious Year's Rent Difference (A) No mange in 2013 5 1.35 S 1.19 5 0.96 S 0.63 5 0.33 5 0.07 $ 0.20 5 0.25 5 0.28 5 0.30 5 0.33 5 0.07 Increase for Year (A/R) HarbortvideAppraisal ' after- 3-1-2018 The Marina Index suggests that 16% of Gross in 2012 = $1.68/5F. This example assumes the FMV appraisal in 2018 = 17% of Gross Slip Revenue {Index value today Notes: - $1.79/5F). Actual answer effective 3-1-19 vvllt be based on the appraisal process. This example illustrates that the Assumed Index Rate can change every year - up or down. In Table #1, the example assumes that the Targeted Index Rate in 2014 is one dollar and sixty-eight cents (31.68) per square foot, In the actual calculation and subsequent years, the Targeted Index Rate will be adjusted annually; as set forth above. and may increase or decrease. This increase or decrease shall be reflected in the subsequent calculations using the same methodology as shown above. 2. Marina Index Composition: The Marina Index shall be comprised of the following marinas.- 1) arinas: 1) Ardell 2) Bayshores Marina 3) Bayside Marina 4) Lido Yacht Anchorage 5) Harbor Towers Marina 6) Newport Dunes Marina 7) Newport Marina 17-67 8) Bahia Corinthian Yacht Club 9) Balboa Yacht Basin The square footage weighting in the Marina Index will be based on the Tidelands square footage used by the Commercial Marina. To be included within the Marina Index. a Commercial Marina Operator must agree to the terms provided in this resolution. The marinas included in the Marina Index may be revised by the City Council at a regular or special meeting in the event that an index marina ceases operation, fails to comply with the terms provided in this resolution, or in the reasonable discretion of the City Council ceases to be meaningful for use in the Marina Index. In that event, the City Council shall strive to select a new marina whose operating characteristics, revenue, and Tidelands square footage is similar to the marina to be replaced. B. Fair Market Adjustment of Rent and Other Fees and Charges: At the Market Adjustment Date, the Rent shall be adjusted to reflect the then -current fair market value, as such value shall be determined by appraisals to be conducted in accordance with the provisions of this section following March 1, 2018. The Rent determined by the appraisals shall commence on March 1 of the year following the appraisals (i.e., the Rent determined by the appraisals following March 1, 2018 shall be effective March 1, 2019). The City shall retain one (1) independent MAI appraiser to conduct a harbor -wide appraisal of commercial uses. Within thirty (30) calendar days of the City's selection of an appraiser the Commercial Marina Operators included in the Marina Index may retain one (1) independent MAI appraiser to conduct a harbor -wide appraisal of commercial uses. Each party shall pay the costs of their selected appraiser. The City shall not participate in the selection of the Commercial Marina Operators' appraiser. If the Commercial Marina Operators are unable or unwilling to select and retain an appraiser within thirty (30) calendar days of the City's selection of an appraiser, the City may in its sole and absolute discretion select and retain an independent MAI appraiser on behalf of the Commercial Marina Operators to conduct a harbor -wide appraisal of commercial uses. If the two (2) appraisals return with a fair market value that is within five percent (5%) of each other the two (2) appraisal fair market values shall be averaged to produce the then -current fair market value. For clarity, if one (1) appraiser concludes thirteen percent (13%) and one (1) appraiser concludes fifteen percent (15%) the difference in their conclusions is thirteen and 33311,000ths percent (13.333/0) and therefore a third appraisal would be needed. If the two (2) appraisers should fail to agree on the fair market value, and the difference between the two (2) appraisals exceeds five percent (5%), then the two (2) appraisers thus appointed shall mutually appoint a third MAI designated appraiser, and in case of their failure to agree on a third appraiser within thirty (30) calendar days after their individual determination of the fair market value, either party may apply to the Presiding .fudge of the Superior Court for Orange County, 17-68 requesting said Judge to appoint the third MAI designated appraiser. The costs of the third appraiser, if any, shall be split equally between the Lessor and the Lessees included in the Marina Index. The third appraiser so appointed shall meet and confer with the two (2) other appraisers and then conduct its own analysis to determine the then -current fair market value within sixty (60) calendar days of their appointment and the average of the fair market value per square foot as set forth in the appraisals of the two (2) closest appraisers shall be used as the then -current fair market value. All MAI appraisers appointed or selected pursuant to this subsection shall have at least ten (10) years experience appraising Tidelands in the Southern California area and shall be free of conflicts (i.e., no appraisers shall rent a boat slip or office space from Lessor or Lessees, etc.). C. To be included within the Marina Index, a Commercial Marina Operator must agree to be bound by the following terms: (1) Slip Rental Documentation: By February 1, 2014, a Commercial Marina Operator shall provide City with Gross Revenue for Slip Rentals and the slip rental rate schedule for the most recent calendar year and the two (2) preceding calendar years. For every subsequent calendar year, a Commercial Marina Operator shall provide the City its Gross Revenue for Slip Rentals and the slip rental rate schedule for the prior calendar year by February 1st of every year. The Gross Revenue for Slip Rentals shall be certified by the Commercial Marina Operator and its external auditor to be true and accurate to the City for purposes of calculation of the Marina Index. At the Commercial Marina Operator's option, the Gross Revenue for Slip Rentals may be provided directly to the City or to the City's designated certified public accountant ("CPA") for such purposes. The City's designated CPA shall exercise independent professional judgment and shall not be used by the City for any other purposes. The City shall use its best efforts to maintain such Gross Revenue for Slip Rentals information confidential. (2) Audit: if Gross Revenue for Slip Rental is submitted to City, City may, or if Gross Revenue for Slip Rentals is submitted to City's designated CPA, the CPA may. in its sole and absolute discretion, at any and all reasonable times, examine and audit Books and Records, financial statements. and documentation, without restriction; for the purpose of determining the accuracy of the Gross Revenue for Slip Rentals for the Premises reported to the City or the City's designated CPA for the prior year, and the accuracy of the Rent paid to City. If the Commercial Marina Operator's business operations conducted within or from the Premises are part of a larger business operation of the Commercial Marina Operator. and any part of the Books and Records, financial statements and documentation is prepared only for the larger operation, and not solely for the business operations of the Premises, then the City shall also have the right to examine and audit that part of the Books and Records, financial 17-69 statements, and documentation of the larger business operation. In the event the Commercial Marina Operator does not make available the original Books and Records, financial statements, and documentation at the Premises or within the limits of Orange County, Commercial Marina Operator shall pay all necessary travel expenses incurred by City (including, without limit, the cost of City's agent's time) in conducting an audit at the location where Books and Records are maintained. If the audit reveals a discrepancy in the Gross Revenue for Slip Rentals reported to City of ten percent (10%) or less, City shall pay the cost of the audit. If the audit reveals a discrepancy in the Gross Revenue for Slip Rentals reported to City of greater than ten percent (10%) the Commercial Marina Operator shall pay the cost of the audit. D. For the purposes of this Rent methodology the following terms have the following meanings: (1) Books and Records means full, complete, accurate and proper books, records and accounts of all business, use or occupation, or any combination thereof, transacted, arranged or performed, in whole or in part, on, from or for goods, services or events from or related to the Premises, whether by the Lessee or by a sublessee, licensee, concessionaire or other party, consistently applied, which shall include equipment to record all sales at the time of transactions and shall also include, without limit, income, sales and property tax returns and on a cash basis method of accounting information. (2) City means the City of Newport Beach. (3) Commercial Marina Operator(s) means a person or entity that rents Tidelands from the City under either a permit or a lease for the operation of a Large Commercial Marina. (4) Gross Revenue for Slip Rentals means all receipts of every kind and nature, whether for cash, credit or barter, received/due for the rental or use of a slip, dock, or pier on the Premises. Without limiting the breadth of the prior sentence, Gross Revenue for Slip Rentals shall include, without limitation, receipts of every kind and nature derived from any promotion, package deal, service, or other item that is associated in any way with the rental or use of a slip, dock, or pier on the Premises. excluding pass- through of direct third -party charges (e.g., electricity, cable TV, etc.) without markup by the Commercial Marina Operator. For purposes of determining Gross Revenue for Slip Rentals any fixed, annual, monthly and/or recurring charge that a person or entity is required to pay shall be counted as part of the Gross Revenue for Slip Rentals. Gross Revenue for Slip Rentals shall not be offset or reduced for any reason, including, 17-70 but not limited to, the payment of taxes, fees, repairs, maintenance, construction. or inability or failure to collect any cash, credit, or barter due for the use of a slip, dock, or pier on the Premises. (5) Large Commercial Marina means a "marina" as defined in Newport Beach Municipal Code Section 17,01.030(J)(3), which occupies fifteen thousand square feet (15.000 sf) or more of Tidelands and Private Waterways. (6) Market Adjustment Date means March 1, 2018 and every fifth (5th) anniversary year thereafter. (7) Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. (8) Private Waterways means privately held submerged lands. (9) Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of ©range, State of California granted to the City of Newport Beach, as trustee, by the State of California pursuant to the Tidelands Grant. (10) Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation, the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). 17-71 ATTACHMENT 3 Amended Large Commercial Marina Rent Alternative A. Alternative Rent: As an alternative Rent methodology, commencing with March 1, 2014, on the date a lease or permit is first effective (i.e., the date a lease is executed by all parties or a permit is issued by the City), a Commercial Marina Operator shall pay to the City, on a monthly basis, the greater of Base Rent or Percentage Rent (as defined below). For the year March 1, 2013, Rent shall remain at the current thirty- six cents ($0.36) a square foot. (1) Base Rent Adjustment and Phasing: "Base Rent" shall be charged on a per square foot basis of the Premises, at the rate of seventy-five percent (75%) of the Large Commercial Marina Target Index Rate: and shall be phased in as follows: Illustration of Target with Harborwide Index Phase-in Reappraisal of - Rent in 2018 2012 2013 20,14 2015 2016 2017 2019 2019 $ 0.36 S 0.36 $ 0.54 5 0.73 $ 0.92 5 1.,10 5 1.35 5 1.39 .s3urned Base Rent 5 .26 5 1.26 5 _.25 5 1.30 5 _ 25 $ 1.35 5 1.35 Previousvear's Rent 5 0.36 5 0.54 5 0.73 t 0-92 5 1,10 C 1.35 p r,'erence i ) Fac �r,ange � n 13 5 c07c 0 7 c U.3 5 0.2zzc 5 0.0-R 5 0.13 5 0.15 1 S 0.19 5 0. 1,3 5 0.25 S 0.04 ncrease `cr Year (;V81 193rbor:.,ice ,Ppr3isaI 3fter3-1-2015 Note: his ekamp e i iustrates Idovin. that the Assumed 3a se ent can change every yea - up or (2) Percentage Rent_ Phasing: "Percentage Rent" shall be phased in as follows and shall equal sixteen percent (16%) of annual Gross Revenue for Slip Rentals - 17 -72 Illustration of of •% with HarborwideReappraisal 2012 2013 20142015 20162017 2018 2019 3.40% 3.40LYc 5.92%° 8.44% 10.96% 13.48% 16.00% 16.00% Target Rate 16.00% 16.00% 16.00% 16.00% 16.00% 16.00%Previous Year's Rate 3.40% 5.92% 8.44% 10.96% 13.48% 1o16.00%Difference (A) No Change Periods Remaining (8) Increasefor Year (A/S) 4arbor:vice Appra[sal @a er 3-_-2D_S B. Fair Market Adjustment of Percentage Rent: At the Market Adjustment Date, the Percentage Rent shall be adjusted to reflect the then -current fair market value, as such value shall be determined by appraisal. The Rent determined by the appraisals shall commence on March 1 of the year following the appraisals (i.e., the Rent determined by the appraisals following March 1, 2018 shall be effective March 1, 2019). To avoid duplication and unnecessary expense, the appraisals performed for the Marina Index at the Market Adjustment Date shall be used for this fair market adjustment appraisal requirement. C_ Reconciliation of Rent: At the end of every calendar year, City shall perform a reconciliation of the Rent paid by the Commercial Marina Operator to City to ensure the correct Rent was paid. The City shall credit the amount by which Rent actually received exceeds the amount of Rent determined to have been due and payable for such calendar year. A credit, if applicable, shall be made to the next installment of Rent due. However, nothing in this section shall require the City to provide a credit that would cause the Commercial Marina Operator to ,pay less than Base Rent for the calendar year being reconciled and, in such case, no credit will be due or applied. If the amount of Rent due for a calendar year is more than the Rent paid by the Commercial Marina Operator prior to reconciliation, then the Commercial Marina Operator shall pay the difference to City. The Commercial Marina Operator shall pay City, within five (5) days following such determination, the full amount of Rent determined to have been due for such calendar year. D. Reporting Requirements: To use this alternative rent methodology, a Commercial Marina Operator must agree to be bound by the following terms: 17-73 ' in 2013 12.6x% 10.1% 7.6% 5.a% 2.5% 0.0% 5 4 3' Z 1 N/A 2.52°/ 2.5Z% 2.521 2,52% Z.52% N/A B. Fair Market Adjustment of Percentage Rent: At the Market Adjustment Date, the Percentage Rent shall be adjusted to reflect the then -current fair market value, as such value shall be determined by appraisal. The Rent determined by the appraisals shall commence on March 1 of the year following the appraisals (i.e., the Rent determined by the appraisals following March 1, 2018 shall be effective March 1, 2019). To avoid duplication and unnecessary expense, the appraisals performed for the Marina Index at the Market Adjustment Date shall be used for this fair market adjustment appraisal requirement. C_ Reconciliation of Rent: At the end of every calendar year, City shall perform a reconciliation of the Rent paid by the Commercial Marina Operator to City to ensure the correct Rent was paid. The City shall credit the amount by which Rent actually received exceeds the amount of Rent determined to have been due and payable for such calendar year. A credit, if applicable, shall be made to the next installment of Rent due. However, nothing in this section shall require the City to provide a credit that would cause the Commercial Marina Operator to ,pay less than Base Rent for the calendar year being reconciled and, in such case, no credit will be due or applied. If the amount of Rent due for a calendar year is more than the Rent paid by the Commercial Marina Operator prior to reconciliation, then the Commercial Marina Operator shall pay the difference to City. The Commercial Marina Operator shall pay City, within five (5) days following such determination, the full amount of Rent determined to have been due for such calendar year. D. Reporting Requirements: To use this alternative rent methodology, a Commercial Marina Operator must agree to be bound by the following terms: 17-73 (1) Slip Rental Documentation: By February 1, 2014, a Commercial Marina Operator shall provide the City with Gross Revenue for Slip Rentals and the slip rental rate schedule for the most recent calendar year and the two (2) preceding calendar years. For every subsequent calendar year, a Commercial Marina Operator shall provide the City its Gross Revenue for Slip Rentals and the slip rental rate schedule for the prior calendar year by February 1st of every year. The Gross Revenue for Slip Rentals shall be certified by the Commercial Marina Operator and its external auditor to be true and accurate to the City. The City shall use its best efforts to maintain such Gross Revenue for Slip Rentals information confidential. (2) Audit: The City may in its sole and absolute discretion, at any and all reasonable times, examine and audit Books and Records, financial statements, and documentation, without restriction, for the purpose of determining the accuracy of the Gross Revenue for Slip Rentals for the Premises reported to the City for the prior year, and the accuracy of the Rent paid to City. If the Commercial Marina Operator's business operations conducted within or from the Premises are part of a larger business operation of the Commercial Marina Operator, and any part of the Books and Records, financial statements and documentation is prepared only for the larger operation, and not solely for the business operations of the Premises, then the City shall also have the right to examine and audit that part of the Books and Records, financial statements, and documentation of the larger business operation. In the event the Commercial Marina Operator does not make available the original Books and Records, financial statements, and documentation at the Premises or within the limits of Orange County, Commercial Marina Operator shall pay all necessary travel expenses incurred by City (including, without limit, the cost of City's agent's time) in conducting an audit at the location where Books and Records are maintained. If the audit reveals a discrepancy in the Gross Revenue for Slip Rentals reported to City of ten percent (10%) or less, City shall pay the cost of the audit. If the audit reveals a discrepancy in the Gross Revenue for Slip Rentals reported to City of greater than ten percent (10%) the Commercial Marina Operator shall pay the cost of the audit. E. For the purposes of this alternative Rent methodology the following terms have the following meanings: (1) Books and Records means full, complete accurate and proper books, records and accounts of all business. use or occupation, or any combination thereof, transacted, arranged or performed, in whole or in part, on, from or for goods. services or events from or related to the Premises, whether by the Commercial Marina Operator or by a sublessee, licensee, concessionaire or other party, consistently applied, which shall 17-74 include equipment to record all sales at the time of transactions and shall also include, without limit, income, sales and property tax returns and on a cash basis method of accounting information. (2) City means the City of Newport Beach. (3) Commercial Marina Operator(s) means a person or entity that rents Tidelands from the City under either a permit or a lease for the operation of a Large Commercial Marina. (4) Gross Revenue for Slip Rentals means all receipts of every kind and nature, whether for cash, credit or barter, received/due for the rental or use of a slip, dock, or pier on the Premises. Without limiting the breadth of the prior sentence, Gross Revenue for Slip Rentals shall include, without limitation, receipts of every kind and nature derived from any promotion, package deal, service, or other item that is associated in any way with the rental or use of a slip, dock, or pier on the Premises, excluding pass- through of direct third -party charges (e.g., electricity, cable TV, etc.) without markup by the Commercial Marina Operator. For purposes of determining Cross Revenue for Slip Rentals any fixed, annual, monthly and/or recurring charge that a person or entity is required to pay shall be counted as part of the Gross Revenue for Slip Rentals. Gross Revenue for Slip Rentals shall not be offset or reduced for any reason, including, but not limited to, the payment of taxes, fees, repairs, maintenance, construction, or inability or failure to collect any cash, credit, or barter due for the use of a slip, dock, or pier on the Premises. (5) Large Commercial Marina means a "marina" as defined in Newport Beach Municipal Code Section 17.01.030(J)(3), which occupies fifteen thousand square feet (15,000 so or more of Tidelands and Private Waterways. (6) Market Adjustment Date means March 1, 2018 and every fifth (5th) anniversary year thereafter. (7) Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. (8) Private Waterways means privately held submerged lands. (0) Rent means both Base Rent and Percentage Rent. (10) Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of Orange, State of 17-75 California granted to the City of Newport Beach, as trustee, by the State of California pursuant to the Tidelands Grant. (11) Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including, without limitation; the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). 17-76 STATE OF CALIFORNIA } COUNTY OF ORANGE } ss. CITY OF NEWPORT BEACH } I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2012-96 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 13"' day of November, 2012, and that the same was so passed and adopted by the following vote, to wit: Ayes: Hill, Rosansky, Curry, Selich, Henn, Mayor Gardner Noes: Daigle IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the Official seat of said City this 14`h day of November, 2012. 4X&V', - Nk-- City Clerk Newport Beach, California (Seal) a F r 17-77 Attachment C Resolution No. 2012-98 — Setting Rent for Commercial Uses 17-78 RESOLUTION NO. 2012-98 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH SETTING RENT FOR COMMERCIAL USES LOCATED UPON TIDELANDS WHEREAS, pursuant to the 1978 Beacon Bay Bili, as amended. ("Beacon Bay Bill") the City of Newport Beach ("City") acts on behalf of the State of California as the trustee of Tidelands located within the City's limits, including Newport Harbor; WHEREAS, Section 1(b) of the Beacon Bay Bill authorizes the City to allow third - parties to use the Tidelands for commercial purposes for a term not to exceed fifty (50) years, WHEREAS, the City allows commercial Tidelands uses to operate upon the Tidelands under either a permit or a lease; WHEREAS, the Beacon Bay Bill, California Constitution Article 16, Section 6, Newport Beach Municipal Code ("NBMC") Section 17.60.060(D), NBMC Section 17.60.020(E), and City Council Policy F -7(D) require the City to receive fair market value Rent from third parties using the Tidelands; WHEREAS, NBMC Section 17.060.060(D) vests the City Council with the exclusive discretion to determine fair market value Rent based upon the findings of a City -selected appraiser; WHEREAS, an appraisal report by Rasmuson Appraisal Services, and an appraisal report by Netzer & Associates, were prepared and delivered to the City and have been reviewed and considered by the City Council, which reports are part of the record for this matter; WHEREAS, the Council Ad Hoc Committee on Harbor Charges ("Committee") and members of the Committee held public outreach meetings with commercial Tidelands users to solicit their input and participation in the Tidelands review process and these meetings afforded the public the opportunity to comment on this matter as well as provided the public information relating to this matter: WHEREAS, the City Council has considered all documents and comments in the record in connection with this resolution; -1- 17-79 WHEREAS, all previous resolutions and actions regarding the fair market rent for commercial Tidelands uses that are in conflict with the Rent established by the City Council in this resolution are hereby repealed. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The Recitals provided above are true and correct and are incorporated into the substantive portion of this resolution. Section 2: The City Council finds pursuant to NBMC Section 17.60.060(D), that the Rent provisions contained in the attached Commercial Tidelands Rent Calculations, which is incorporated by reference, provide for the charging of fair market value Rent and that the rental rate (and adjustments) in the attachment constitute fair market value Rent for commercial Tidelands uses, which findings are made by the City Council in its exclusive discretion but are based on the information in the appraisals of its City -selected appraisers and; in addition, on other testimony and documents in the record for this matter. The City Council further finds and determines the Rent for commercial Tidelands uses located upon City managed Tidelands, operating under an annual permit or a lease, shall be set in accordance with the attached Commercial Tidelands Rent Calculations. Section 3: The Rent charged under this resolution for Shipyards and complimentary guest slips, not associated with a restaurant, is for less than fair market value. The City Council specifically finds that the charging of less than fair market value Rent for these uses promotes public recreation facilities and marine services to the general public and furthers the policies and objectives of the Tidelands Grant. Charging less than fair market value Rent for these uses allows for continued operation and improved accessibility to the public. Thus, the charging of less than fair market value Rent for these uses of the Tidelands is a matter of state-wide concern that benefits the citizens of the State of California. Pursuant to City Council Policy F -7(E)(6), the City Council further finds that the charging of less than fair market value Rent promotes the goals of the City to further marine related services and activities. Section 4: The City Council finds the setting of Rent for commercial Tidelands uses is not subject to the California Environmental Quality Act (`CEQA") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of Rent for commercial Tidelands uses is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the Rent contemplates the continued use of existing facilities, with no expansion of the proposed -2- 17-80 use. Further, the City Council finds the setting of Rent for commercial Tidelands uses is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value Rent established by the City Council will be used to meet operating expenses within the Tidelands. Section 5: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses and phrases be declared unconstitutional. Section 6: This resolution shall take effect immediately upon its adoption by the City Council and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 13th day of November, 2012. Nancy Gardne , Mayor ATTEST: t �i - 9� Leilani 1. Brown, City Clerk Attachment: Commercial Tidelands Rent Calculations -3- 17-81 Commercial Tidelands Rent Calculations Commercial Tidelands Uses (1) Fuel Docks shall pay as fair market rent the greater of Base Rent at Fifty Cents ($0.50) per square foot of the Premises, as adjusted pursuant to this resolution, or One and One Half Cents ($0.015) per gallon of fuel pumped and sold annually for every gallon up to and including One Hundred Thousand Gallons (100,000) or Two Cents (50.02) per gallon for every gallon of fuel pumped and sold annually over One Hundred Thousand and Gallons (100,000). (2) Shipyards shall pay as Base Rent Fifty Cents ($0.50) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (3) Home Owners Associations ("HOA") which provide slips for the exclusive use of its members, shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. In the event an HOA rents slips to non-members, depending upon the size of the Premises, the HOA shall pay fair market Rent for those slips equal to the "Large Commercial Marina Rent" or "Large Commercial Marina Rent Alternative" as established by Resolution No. 2012-92, or any successor resolution, or the Small Commercial Marina Rent established by this resolution. Depending upon the Rent applicable to, or selected by, a HOA, the HOA shall be subject to all of the applicable terms accompanying the Rent (e.g., audit. etc.). (4) Yacht Clubs shall pay as fair market Base Rent the "Large Commercial Marina Rent" or "Large Commercial Marina Rent Alternative" as established by Resolution No. 2012-92, or any successor resolution. Depending upon a Yacht Club's Rent selection, the Yacht Club shall be subject to all of the applicable terms accompanying the selected Rent (e.g., audit, etc.). Yacht Clubs shall pay as fair market Rent for complimentary Guest Slips Fifty Cents ($0.50) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (5) Small Commercial Marinas shall pay as fair market rent for use of the Premises, seventy-five percent (75%) of the "Large Commercial Marina Rent" or "Large Commercial Marina Rent Alternative' as established by Resolution No. 2012-92, or any successor resolution. If a Small Commercial Marina elects to pay rent according to the `Large Commercial Marina Rent Alternative" methodology; the Base Rent provided in Resolution No. 2012-92 shall be applicable to the Small Commercial n 17-82 Marina without any reduction in square footage costs. Depending upon a Small Commercial Marina's Rent selection, the Small Commercial Marina shall be subject to all of the applicable terms accompanying the selected Rent (e.g., audit, etc.). (6) Unless otherwise provided in this resolution, a commercial Tidelands use which provides complimentary (free of charge) public access slips to the general public shall be exempt from the payment of Rent to the City for use of the Premises occupied by the complimentary public access slips. (7) A Vessel Rental Facility shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (8) A Sport Fishing Charter business shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (9) Restaurants shall pay a fair market Base Rent for its Guest Slips at the rate of One Dollar and Two Cents ($1.02) per square foot of the Premises; as phased in and adjusted pursuant to this resolution. (10) A Vessel Charter Business shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (11) Any commercial Tidelands use not covered by this resolution, or another resolution, shall pay as fair market Base Rent One Dollar and Two Cents ($1.02) per square foot of the Premises, as phased in and adjusted pursuant to this resolution. (12) To the extent a Premise contains two (2) or more commercial Tidelands uses, the Rent shall be apportioned according to the use and the Premises occupied by the use (i.e., if half (112) of a Premises is operated as a Vessel Rental Facility and the other half (112) as a Small Commercial Marina the half (1/2) of the Premises used as a Vessel Rental Facility shall pay the applicable Vessel Rental Facility rent and the half (1/2) operated as a Small Commercial Marina shall pay the applicable Small Commercial Marina rent). Periodic Adjustments of Base Rent And Phase In Base Rent for commercial Tidelands uses provided by this resolution, shall be phased in and adjusted pursuant to the Marina Index provided in Resolution No. 2012- 17-83 92, or any successor resolution. For illustrative purposes, the Base Rent phase in and adjustment shall be as follows: Fifty Cent ($0.50) Base Rent Phase In Table and Adiustment One Dollar and Two Cent ($1.02) Base Rent Phase In Table and Adiustment $ 4.36 1 $ 0.36 1 $ 0.56 15 0.81 1 $ 1.05 1 $ 1.04 1 $ 1.09 1 $ 1.13 Assumed Rental Ratel Illustration of Target Index Phase -In of 0.50 1.041$ 1.051$ 1.041$ with Harborwide Reappraisal 1.13 Previous Years Rent $ 0.36 $ 0.56 $ 0.81 $ 1.05 $ 1.04 $ 1.09 Difference (A) No Change $ 0.36 $ 0.36 $ 0.50 $ 0.51 $ 0.52 .$ 0.51 $ 0.54 $ 0.55 0.05 $ Assumed Rental Rate $ 0.50 $ 0.50 $ 0.51 $ 0.52 $ 0.51 $ 0.54 $ 0.55 Previous Years Rent $ 0.36 $ 0.50 $ 0.51 $ 0.52 $ 0.51 $ 0.54 0.201$ Difference(A) No Chang ¢ $ 0.14 $ O.D1 $ 0.01 $ (0.01)1$ 0.03 $ 0.02 in2813 Increase for Year (A/B) $ 0.14 $ 0.01 $ 0.01 $ (0.01)1$ 0.03 $ 0.02 Fully phased -In at 2014 Harbcrvride Appraisal after 3.1-20188 This example illustrates that the Assumed Rental Rate can change every year - up Notes: �ordown, Phased -in by 2014 in this illustration. One Dollar and Two Cent ($1.02) Base Rent Phase In Table and Adiustment $ 4.36 1 $ 0.36 1 $ 0.56 15 0.81 1 $ 1.05 1 $ 1.04 1 $ 1.09 1 $ 1.13 Assumed Rental Ratel $ 1.02 $ 1.021$ 1.041$ 1.051$ 1.041$ 1.091$ 1.13 Previous Years Rent $ 0.36 $ 0.56 $ 0.81 $ 1.05 $ 1.04 $ 1.09 Difference (A) No Change $ 0.661$ 0.48 $ 0.241$ (O.OIJ $ 0.05 $ 0.03 In 2013 Increase for Year (A/B) $ 0.201$ 0.25 $ 0.24 $ (0.01J $ 0.05 $ 0.03 Farbcrrnde Appraisal Fuliy ?hosed in at 2016 a er 3-1-2018 Notes: This example illustrates that the Assumed Rental Rate can change every year - up lordown.Phased-in by 2016 in this illustration. M 17-84 Definitions Unless otherwise provided, the terms provided in the Newport Beach Municipal Code ("NBIVIC") shall apply to this resolution. The singular of any term also includes the plural. (1) Base Rent and Rent, unless otherwise provided, means the annual fair market rent charged on a square footage basis for the use of the Premises. (2) Fuel Dock means a facility that provides fuel (e.g., gasoline, diesel, oil, etc.) to vessels. (3) Guest Slip means a "slip", as defined in NBMC Section 17.01.030(0)(8), or any successor statute, that is provided, with or without charge, for the use of the patrons while visiting the business. (4) Home Owners' Association ("HOA") means an organization of homeowners of a particular residential subdivision, condominium or planned unit development. (5) Premises means those Tidelands which are subject to the applicable permit/lease and are more particularly described and depicted in the applicable permit/lease, excluding any Private Waterways and improvements. (6) Private Waterways means privately owned submerged lands. (7) Shipyards means "marine sales and services, uses and vessels" as defined in NBMC Section 17.01.030(J)(5), or any successor statute. (8) Small Commercial Marina(s) means a `marina" as defined in NBMC Section 17.01.030(J)(3), or any successor statute, which occupies less than fifteen thousand square feet (15,000 so of Tidelands and Private Waterways. (9) Sport Fishing Charter means a business that charters vessels for use by seven (7) or more persons to sport fish outside of Newport Harbor. (10) Tidelands means certain tidelands and submerged land (whether filled or unfilled), located in the City of Newport Beach, County of Orange, State of California granted to the City of Newport Beach, as trustee, by the State of California, pursuant to the Tidelands Grant. -7- 17-85 (11} Tidelands Grant means uncodified legislation related to the State of California's grant of certain rights in the Tidelands to the City of Newport Beach, including; without limitation, the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended [citations omitted]). (12) Vessel Charter Business is a business that provides a vessel (including professional captain and crew) which has been hired or leased by the owner, directly or through an authorized representative; to any person for a voyage in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. (13) Vessel ;ental Facillty(ies) means a person that rents or leases vessels to another person for a period of less than twenty-four (24) consecutive hours in exchange for the payment of money, the receipt of something of value, or the forgiveness of a debt. (14) Yacht Club(s) means an organization operating from a fixed location, comprised of a private membership, and principally engaged to promote, coordinate or facilitate boating and yachting. 17-86 STATE OF CALIFORNIA # COUNTY OF ORANGE ss. CITY OF NEWPORT BEACH I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2012-98 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 13'h day of November, 2012, and that the same was so passed and adopted by the following vote, to wit: Ayes: Hill, Rosansky, Curry, Selich, Henn, Mayor Gardner Noes: Daigle IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 14`" day of November, 2012. D& 4. City --- City Clerk Newport Beach, California (Seal) '%ZORNO' 17-87 Attachment D George Hamilton Jones, Inc. Appraisal, dated April 7, 2016 APPRAISAL OF Market Rental Value City Tidelands and Submerged Land Newport Beach, California Date of Value: Submitted To: March 15, 2016 Dave Kiff City Manager Date of Report: City of Newport Beach 100 Civic Center Drive April 7, 2016 Newport Beach, CA 92660 Our File No.: Submitted By: 815-1 George Hamilton Jones, Inc. 17-89 GEORGE HAMILTON JONES Inc. Real Estate Appraisers & Consultants April 7, 2016 Mr. Dave Kiff City Manager City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 George H. Jones, MAI Stuart D. DuVall, MAI Casey O. Jones, MAI Re: Appraisal of Market Rental Value of City of Newport Beach Tidelands, as Dedicated to Commercial Marina Use Dear Mr. Kiff: In accordance with your request and authorization, we have made an investigation and analysis of various tideland parcels in Newport Harbor for the purpose of rendering an opinion of the market rental value of those State of California Tidelands, currently held in Trust by the City of Newport Beach, ("City Tidelands") and proposed to be leased to private upland owners for commercial marina purposes. The date of value for this appraisal is March 15, 2016. This appraisal is includes the extraordinary assumption that the following lease conditions were in place at the date of value: Term: 50 Years Rent: Based on percentage rent of gross revenue and/or price per square foot of tidelands Rent Adjustment: Annually by C.P.I (L.A- Riv.- O.C.) Adjust to market rental value by appraisal every ten years. George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 - Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-90 April 7, 2016 Page 2 of 3 It is recognized that, over the course of more than half a century, Newport Harbor has been developed with a wide range of commercial marinas. These existing operations vary widely in terms of overall size, improvement configuration, access to and character of upland amenities, conformance with current legal/land use standards, harbor location, and other key features. This valuation is not (and cannot be) based upon the specific characteristics of the tidelands associated with any particular existing marina in the harbor. Accordingly, for this assignment, and in order to provide as balanced and equitable an analysis of the tidelands in a harbor -wide context as possible, we based the valuation of market rent for the subject tidelands upon a "typical" commercial marina. This theoretical amalgam' of tidelands area, uplands area, and marina and upland improvements is intended to be representative of standard commercial marina tidelands use throughout Newport Harbor under current market conditions. The specific configuration and characteristics of this "typical" marina were based upon our investigation, inspection and analysis of existing marinas within the harbor; reference to operative city, state and federal construction regulations; as well as a market analysis designed to judge prevailing boat-owner/tenant demand. Included in the conditions considered to be in place at the subject tidelands are the following extraordinary assumptions: 1. That the subject tidelands is considered to be unimproved, vacant water area only. The subject tidelands has access to and from the uplands, and the upland property owner has direct access to the tidelands from the adjacent land by virtue of littoral rights. 2. Legal restrictions upon the use of the tidelands for commercial marina purposes (city, state, and federal regulations) include minimum requirements for the dedication of portions of the adjacent privately held uplands to support the marina operation. These land area requirements include, but are not limited to, vehicle access and parking, storage and restrooms, and marina office space. 1 This is a hypothetical condition per Standard Rule 1-2 (g) of USPAP. George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-91 April 7, 2016 Page 3 of 3 The definition of market rent used in this assignment is consistent with that set out in the Dictionary of Real Estate Appraisal, Sixth Edition: The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs ) As requested, the market rent conclusion is expressed in terms of both a percentage of gross revenue and annual rent per square foot of tidelands. As a result of our investigations and analyses, we formed the opinion, that, as of March 15, 2016, market rent for the subject tidelands was 8.50% of the gross revenue generated by the commercial marina operation, or $1.17 per square foot of tidelands per year. MARKET RENT CONCLUSION: 8.50 % of gross revenue, or $1.17 per square foot of tidelands per year The following Appraisal Report is in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). The report sets forth, in brief, premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which form, in part, the basis of our value conclusions. Supporting documentation and analyses are retained in our files. Respectfully submitted, George Ham' n Jones, MAI (Calif. Li—ee-nse-No. AG041862) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-92 EXECUTIVE SUMMARY The subject of this appraisal is the tidelands of Newport Harbor that are dedicated to commercial marina use. The purpose of the appraisal is to express an opinion of the market rent for those tidelands when they are leased by private parties from the City of Newport Beach and committed to marina use. Commercial marinas are typically characterized by a combination of water area (tidelands) and generally adjacent land area (uplands) operating in association. While there are exceptions, most jurisdictions in Southern California lease the tidelands and uplands together for marina use. In Newport Harbor, however, the uplands are almost exclusively owned by private parties, while the tidelands are, as indicated above, held in trust by the City of Newport Beach. The appraisal problem, therefore, is to determine market rent for the tidelands alone, in recognition of the economic reality that both the tidelands and uplands ownerships must receive a fair and equitable return for the dedication of their respective properties to a combined commercial marina use. Further, that return in joinder must be greater than the return each could receive individually; otherwise, there would be no incentive to undertake the cost, effort and risk involved in a commercial marina operation. This is particularly true for the uplands owner, who is assumed to be motivated by personal economic priorities rather than serving the public interest, as the City might be. As the following report will show, we addressed this problem from the perspective of both market data and economic analyses. In the market data approach, we compared tidelands to tidelands. A study was made correlating the subject tidelands, as dedicated to marina use, with the relatively limited number of tidelands only leases (with no uplands included in the leased premises) for marina use. The cornerstone of the economic analyses was based upon empirically supported market evidence that the appropriate rent for both tidelands and uplands together should be 25% of the gross income realized from the marina operation. This benchmark rate has been In GEORGE HAMILTON JONES, INC. 17-93 EXECUTIVE SUMMARY — continued repeatedly tested and upheld in various jurisdictions throughout Southern California in numerous arbitrations and other litigation contexts. Marina Gross Income 75% Pays: 1. Operational costs. 2. Amortization of costs of all marina improvements. 3. Entrepreneurial profit to the marina developer/operator. 25% = Rent payable to uplands and tidelands together. In order to determine how the total rent payable for the marina operation should be divided between the tidelands and the uplands in the specific circumstances of Newport Harbor, several approaches were utilized. These complementery analyses were intended to serve as useful checks on one another and to reflect the range of thinking of well- informed investors in this very specific market segment. In one instance, a residual analysis was performed. In this study, the annual return that the uplands owner/investor would, based upon market evidence, need to receive to be motivated to dedicate his land to marina use was deducted from the total rent in joinder. The resulting residual amount represented an indication of the tidelands rent that a marina operator could afford to pay. This takes into account the prevailing economics of a marina operation and the unique real estate context of Newport Harbor. This can be summarized as follows: Total Rent to Uplands and Tidelands in Joinder Less: - Investment Return (Rent) Required for Uplands Indicated Rent for Tidelands -5- GEORGE HAMILTON JONES, INC. 17-94 EXECUTIVE SUMMARY — continued In another approach the benefit that joinder provided over the projected aggregate income of each as independent sites was measured. It was confirmed that there was, in fact, an increase in income (or return on ownership in the property) as a combined marina operation. This increment above the sum reasonably obtainable as individual sites was designated the "enhancement by joinder" and quantified. Allocation of Rent ❑ Uplands Alone ❑ Tidelands Alone ❑ Enhancement by Joinder Analyses were then undertaken to study various methods for making an equitable allocation of this enhancement (a "fair share" of the pie) between the two property interests (tidelands and uplands). As a check on these indications, we undertook a further analysis that allocated the rent between land and water by equalizing the rate of return to each at its highest and best use as an existing marina operation. The final step in our analysis was to reconcile the various market rental indications for the subject tidelands developed through these analyses to a final value conclusion. In so doing, we weighed a variety of factors. These included the historic utilization of the Newport Harbor tidelands for commercial marina use, prevailing market conditions impacting recreational boating activities, zoning regulations that influence marina design and land use requirements, as well as a wide range of empirical economic data that would be considered by well- informed investors analyzing a commercial marina operation. The reader is invited to the following pages which set out the details of each step in the valuation summarized above. GEORGE HAMILTON JONES, INC. 17-95 TABLE OF CONTENTS Introductory: Page Letter of Transmittal 1 Executive Summary 4 Table of Contents 7 Introduction to the Appraisal Problem: 9 Purpose 9 Date of Value 9 Client/Intended User 9 Intended Use 9 Property Rights Appraised 9 Definitions 9 Lease Term 11 Scope of the Appraisal 12 Property Description: 16 Introduction 16 Location 16 Apparent Owner 17 Parcel Size and Shape 17 Utilities 18 Access 18 Land Use Regulations 19 Current Improvements 21 Market Analysis and Highest and Best Use: 22 Property Productivity 22 Marina Demand Factors 23 Competitive Supply 24 Residual Demand 28 Subject Capture 29 Highest and Best Use — Defined 29 Highest and Best Use — Independent Site 30 Highest and Best Use of the Tidelands In Joinder, as though Vacant 31 Highest and Best Use as Improved 34 Valuation: 35 Introduction 35 Market data Approach 37 Reconciliation — Market Data Approach 44 -7- GEORGE HAMILTON JONES, INC. 17-96 TABLE OF CONTENTS — continued Economic Approach Waterfront Sales Data Non -Waterfront Sales Data Economic Considerations of Joinder Reconciliation Addenda: Certification Limiting Conditions Qualifications 45 50 53 58 75 -8- GEORGE HAMILTON JONES, INC. 17-97 INTRODUCTION TO THE APPRAISAL PROBLEM Purpose: The purpose of this appraisal is to render an opinion of the market rent for those State of California tidelands currently held in trust by the City of Newport Beach ("City Tidelands") under the proposed use of being leased to adjacent upland private owners for commercial marina purposes. The opinion of market rent shall be expressed in terms of both a percentage rent of annual gross revenue of the marina operation as well as annual rent per square foot of tidelands. Date of Value: March 15, 2016 Client/Intended User: Dave Kiff, City Manager for the City of Newport Beach. Intended Use: The intended use of the report is to assist in setting the market rental rate for the commercial use of the tidelands for marina purposes. Property Rights Appraised: The market rent of the fee simple interest of the tidelands within the lower bay of Newport Harbor allocated for commercial marina use. Definitions: Tidelands: For the purpose of this study, the public tidelands are considered to consist of that water area extending from the established U.S. Bulkhead Line to the Pierhead Line. In GEORGE HAMILTON JONES, INC. 17-98 INTRODUCTION — continued Market Rent' (Fair Rental Value): The most probable rent that a property should bring in a competitive and open market refecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (M.) Description used in the San Diego Union Port District for Long Term Lease. "Rent, which the lessor would derive from the lessor's property if it was vacant land, without any improvements there on, and made available on the open market for new leasing purposes at the commencement of the rental period." Market Value': The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: • Buyer and seller are typically motivated; • Both parties are well informed or well advised, and acting in what they consider their best interests; • A reasonable time is allowed for exposure in the open market; • Payment is made in terms of cash in U.S. dollars or in terms or in terms of financial arrangements comparable thereto; and I The Dictionary of Real Estate Appraisal, The Appraisal Institute, Sixth Edition, 2015. 2 This definition of market value is used by agencies that regulate financially insured financial institutions in the United States. -10- GEORGE HAMILTON JONES, INC. 17-99 INTRODUCTION — continued The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (12C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994.) Leasehold Interest': The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease. Leased Fee Interese: The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires. Fee Simple Estate (Fee)': Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Lease Term: This appraisal of market rent considers the subject tidelands to be available in the open rental market as of March 15, 2016, under a lease contract briefly described as follows: Term of Lease: Fifty (50) years s The Dictionary of Real Estate Appraisal, pg. 128. 4 Ibid. 5 Ibid., pg. 90. GEORGE HAMILTON JONES, INC. 17-100 INTRODUCTION — continued Rental Adjustment: (a) Annually by C.P.I. (L.A. — Riv. — O.C.) (b) Adjust base rent to fair market value (market rent) every 10 years, as established by appraisal, in accordance with an agreed upon resolution process. Rent: Based on percentage rent of gross revenue and price per square foot of tidelands Scope of the Appraisal: In order to provide a credible analysis of the market -derived economic influences on the tidelands when dedicated to commercial marina use, it was necessary to utilize a "typical" commercial marina as a representative basis for this study. After an extensive investigation of a variety of factors, it was our conclusion that a 56,000 square foot tidelands area (700 feet of frontage x 80 feet of depth) would be the most appropriate dimensions and total size to employ as the specific physical characteristics of the subject of this appraisal. The existence of this representative tidelands area is a hypothetical condition of this appraisal. It is recognized that the existing marinas throughout Newport Harbor differ, often substantially, from this "typical" marina standard. However, given that it is the tidelands themselves that are the subject of this analysis — not a uniquely specific marina configuration — this was judged to be the most reasonably balanced and equitable approach to valuing tidelands market rent in a harbor -wide context. As will be shown in this report, our conclusion as to the highest and best use of the subject tidelands property is development of the site in joinder with the adjacent uplands to a commercial marina consistent with market demand and the configurations and uses of existing commercial berthing facilities within Newport Harbor. This appraisal relies, in part, upon a market data approach. In this case, the comparable data, drawn from marinas throughout Southern California, is market rent expressed as a percentage of the gross income generated by the marina/ boat berthing use. As with any other appraisal, -12- GEORGE HAMILTON JONES, INC. 17-101 INTRODUCTION — continued a critical component in determining the appropriate data to rely upon in forming an opinion of subject value is that the data conform to key definitions of market value. In particular, it is essential to confirm that the buyer and seller were "each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus." This is consistent with the California Code of Civil Procedure (126.320) which states that a determination of fair market value requires that the seller be "willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available." These criteria are critical because our investigations have revealed that certain potential tidelands data items in Newport Harbor are, in our judgment, not reflective of market value. Fundamentally, this conclusion was based upon the fact that they did not qualify as open market transactions in that the buyers/lessees were "affected by undue stimulus" and "under particular necessity" for accepting the terms of the lease. This circumstance arose from the fact that the lessees had made large capital investments in the marina improvements, the land was already dedicated to marina use, and the operation was serving an established tenancy. The potential data items that fail to meet these standards of market value are Bayshores Marina and Swales Anchorage and will be discussed more fully in the report. As will be presented in the following pages, the vast majority of the data providing empirically supported indications of market rent for the typical commercial marina include both water area (tidelands) and uplands combined. However, the subject property (tidelands only, as part a hypothetical marina) includes the water area only, no uplands. Accordingly, adjustments of these market data items, which included water and uplands, were required to reflect the subject condition of being water area only. As will be seen, these adjustments were analyzed using empirically supported economic criteria. -13- GEORGE HAMILTON JONES, INC. 17-102 INTRODUCTION — continued The scope of work for determining market rent for the subject property will include, but not be limited to, the following: I. Undertake a Market Data Approach to tidelands market rent: a. Obtain and verify information of California State Lands Commission benchmark rates for tideland leases. b. Obtain and verify information of the limited number of public leases for marina purposes of tidelands only. II. Undertake an Economic Analysis of tidelands market rent through a market-based allocation of the enhanced contribution of the upland and tidelands parcels in joinder: a. Obtain and verify information regarding the far more plentiful public leases of land and water in joinder for marina purposes. These data came from Orange County, Los Angeles, Ventura and San Diego Counties and were expressed as a percentage of the gross income of the marina operation. b. Undertake a market survey to form a supportable opinion of the retail rental rate of slips (amount per lineal foot per month), prevailing occupancy levels, and the economics of the operation of a standard marina in Newport Harbor. This will be applied to the subject property as determined by the aforementioned criteria and result in a stabilized gross income estimate at the date of value. c. Through analysis of lease rates of tidelands (water area only) being employed to offshore moorings, form an opinion of the lease rate of the tidelands as an independent site, without the enhancement created by joinder with the uplands. d. Form an opinion of the market value of the uplands that current land use regulations require be dedicated to marina support uses. Analyze market evidence of the level of return reasonably anticipated by a well-informed owner of the uplands as an independent site (not in joinder with the tidelands). -14- GEORGE HAMILTON JONES, INC. 17-103 INTRODUCTION — continued e. Determine the level of enhancement of income created by joinder of the independent tidelands with the independent supporting uplands in a unified marina operation. f. Allocate the enhancement in the income stream generated from the marina use between the tidelands area and the upland area in accordance with the principles of a bilateral monopoly' under three scenarios: 1. Determine the tidelands rent level as a residual amount, after considering the increased level of return and opportunity cost that a well-informed owner of the uplands would require in order to devote such land to marina uses. 2. As an equally divided share of the enhancement piece of the "pie" of gross revenue generated by joinder in a marina operation. 3. Allocate the income stream between the land and water based on a premise that the land and water are already dedicated to joinder and will equally share the enhancement relative to each highest and best use. III. Reconcile the various tidelands market rent indications to a final conclusion, expressed as a percentage of effective gross income and on a per square foot of tidelands basis. 6 "A market in which a single seller (a monopoly) is confronted with a single buyer (a monopsony). Under these circumstances, the theoretical determination of output and price will be uncertain and will be affected by the interdependence of the two parties." The Dictionary of Real Estate Appraisal, 6"' Edition. -15- GEORGE HAMILTON JONES, INC. 17-104 %,Geisxar +ew Park .'« e �I. 1'Ir ;: •ti �-. �^." f . sz. b, r'�stn rF �� - �/^ay � h -'��+ r o �aaciWe— sc coast 1' '0, xr L. { .t i -.. Newport � I r r• ,� . t 4yvry� i` a`ieaach idVIlag;k ensSUbjfC+ n.. CSipRpinp gLg i 4. tae r. L yi •; l .'f.. '.. r r ` - a. .'�� - ThGII��'& R .,r �/- � -i = •-Fi 3.n IFi k i��; � .. � hc�«. b'�,, _- - _ • "s� au, .t c� �� :� � e � +i�"�ex'r�`.[�+� y�na�` r� � ,,� t,_. F��2�th st ��� �`.FY .. °^•y.yy la .a '� :% ��i •4�y. �p1 � s � a +(f �tryf6tSh56 sin A j Mzo+ n� The Oral - l ripy#_ -a�an Bay L,,,t+0 yi'Gopkei•rr :.drt f s. ,�c S -0I- `.'A •M F,.. ':-.' � � P c 48harkeez eay` ra1- :Bay :�a ntrorn Ba�- - �'t��rr,, New+purtBearh� ,:ter _ ,. ,x "may'. ,, Balhoa ` z4 s L+ 1' rk - �, s a d t� y �FarK]rYr L -i -do Isle iZ� PROPERTY DESCRIPTION Introduction: The subject property is a hypothetical tidelands parcel in Newport Harbor that is intended to represent the water area that would be required for a typical commercial marina operation. It is an extraordinary assumption that this tidelands parcel has access to the adjacent uplands for access to utility services and the supporting land area necessary to a marina operation. A number of factors were considered in forming an opinion of both the physical characteristics of the independent tidelands parcel itself and the size, configuration, and economic potential of the marina with which it could be improved based upon the hypothetical assumption. In order to arrive at an empirically supported basis for our conclusion as to the key characteristics defining the subject property, we performed a survey of the existing marinas in Newport Harbor, analyzed the operative land use regulations and guidelines impacting marina use of the tidelands at both the local and state level, and performed a market analysis in order to judge highest and best use of the subject property. As a result of these investigations and analyses, our judgment of the pertinent property characteristics for the hypothetical tidelands parcel that is the subject of this valuation analysis were developed and are described below. Location: The subject tidelands property is considered to be adjacent to commercially oriented land in the northwesterly portion of Newport Harbor in the general vicinity of Mariner's Mile. M GEORGE HAMILTON JONES, INC. 17-106 PROPERTY DESCRIPTION - continued Apparent Owner: Fee Interest: The subject tidelands are held in fee by State of California, in Trust to the City of Newport Beach. There has been no change in the ownership of the fee interest for in excess of 10 years. Leasehold Interest: The leasehold interest in the subject tidelands is considered to be held by a well-informed marina operator who is capable of developing the property to its highest and best use. The subject tidelands are considered to be vacant, unencumbered by existing lessee improvements or any real property right restrictions beyond those inherent in the police powers to which it is naturally subject and the lease itself. Parcel Size and Shape: The subject property consists of unimproved tidelands only. Our survey of the existing marinas focused on marinas with 30 or more slips. As a result of that study, the following empirical information relative to the tidelands for those marinas was developed: Frontage along U.S Bulkhead Line: Range: 430 to 2,245 Feet Median: 700 Feet Example: Ardell Marina, 700 Feet We have used 700 feet for the water frontage of the subject parcel along the U.S. Bulkhead line. Depth from U.S. Bulkhead Line to U.S. Pierhead Line: Range: 50 to 100 Feet Depths from the U.S. Bulkhead line to the U.S. Pierhead Line differ throughout Newport Harbor due to -17- GEORGE HAMILTON JONES, INC. 17-107 PROPERTY DESCRIPTION - continued variations in channel widths and other factors; however, reference to City of Newport Beach mapping of the main harbor area indicates that the preponderance of the depths from the U.S Bulkhead Line to the U.S. Pierhead Line is 80 feet. There is an area in the northwest portion of the harbor (Lido Marina Village) where a Harbor Permit allowed an extension out an additional 20 feet to the Project Line wherein marina improvements were permitted. This is not considered to be representative of a "typical" commercial marina. Accordingly, we have used the standard 80 -foot depth in considering the size and shape of the subject tidelands parcel.' As a result of this study, our judgment of a subject property that appropriately represents a "typical" marina within Newport Harbor has the following physical characteristics: Frontage along U.S Bulkhead Line: 700 feet Depth from U.S. Bulkhead Line to U.S. Pierhead Line: 80 feet Total Area: 700 feet x 80 feet = 56,000 square feet Utilities: As an independent parcel, the subject tidelands has no access to public utilities because it has no legal access to the adjacent uplands from whence the utilities can be obtained. In order to value the subject property for marina purposes, it is an extraordinary assumption of this appraisal that access to utilities from the adjacent uplands is permitted. Access: The subject property possesses legal rights of access from the bayward water area only. Littoral rights of access to the water from the 1 It should be noted that the U.S. Pierhead Line defines the limit within which marina improvements are permitted to be constructed. In practice berthed vessels are allowed to extend beyond the Pierhead Line as a "sidetie", or to the beam of a vessel. This "overhang" has been considered in our valuation analysis. GEORGE HAMILTON JONES, INC. 17-108 PROPERTY DESCRIPTION - continued uplands reside within the property rights of the upland property adjacent to the subject. Again, in order to develop a meaningful indication of subject value for marina purposes, it is an extraordinary assumption of this appraisal that the subject tidelands parcel will have access from the uplands. Land Use Regulations: The subject tidelands are under the regulatory supervision of several entities in addition to the City of Newport Beach. These include the State of California Division of Boating and Waterways, the California Coastal Commission, as well as oversight by the Army Corps of Engineers, the California Department of Fish and Wildlife and others. The standards of development for the tidelands is set out in Section 17 of the City of Newport Beach Municipal Code. However, in order to develop the subject tidelands with a commercial marina, it is necessary for the tidelands to be supported by sufficient uplands area that has been dedicated to parking, restrooms, showers, and office use. Section 20.40 of the Municipal Code under Transportation Communities and Infrastructure Uses describes required parking for marinas as 0.75 parking spaces per slip, or 0.75 spaces per 25 feet of mooring space. However, our investigations have indicated that there is a reasonable probability that this uplands parking requirement could be reduced to 0.60 per slip to conform to other relevant jurisdictions. Section G1.2.1 of the Department of Boating and Waterways guidelines requires 0.60 single vehicle parking spaces per recreational berth. Additionally, On December 12, 2010 the Dana Point Harbor Revitalization Plan Commission approved the minimum designated boater parking for the 2,409 boat slips of the project at 0.60 parking spaces per slip or side tie. In November 2011, the California Coastal Commission approved 0.60 parking per slip ratio for the marina portion (Parcel 43) of the Marina Del Rey Hotel and Marina project. This designation is to serve a proposed 277 -slip project. In an interview with Tom Hogan, the developer of this project, it was reported that 0.60 parking to slip ratio is being approved throughout the state. -19- GEORGE HAMILTON JONES, INC. 17-110 PROPERTY DESCRIPTION - continued It is recognized that the City of Newport Beach offsite parking code currently requires a minimum of 0.75 parking spaces per marina slip. However, in recognition of the fact that the subject tidelands and adjacent uplands are considered to be unimproved and available for their highest and best uses, it is our judgment that the well-informed potential developer of the subject property would believe there to be a reasonable probability that the City and Coastal Commission would, upon proper application, approve marina parking on the 0.60 spaces per slip rate. In addition to the parking requirement, development of a commercial marina requires restroom facilities which "typically include toilet compartments, urinals, lavatories, mirrors, showers, interior/exterior lighting, drinking fountains, benches and walkways" per Section G2.1 of the Department of Boating and Waterways guidelines. Beyond a regulatory requirement, provision of these facilities/amenities is a generally accepted market standard. We have allocated 550 square feet of land to serve this portion of the uplands requirement. Our investigations, which included a review of current ADA standards, indicate that, within two two-story buildings, the 1,100 square feet of potential building area will accommodate both the required improvements per prevailing land use codes and be consistent with market standards. Two buildings with a 275 square foot footprint (25' x 11') will allow separate gender restrooms and a shower room on the first floor along with approximately 275 square feet of offices on the second floor. These requirements could also be readily fulfilled in a single 550 square foot footprint. (See Department of Boating and Waterways Guidelines.) Because the estimated value of the uplands independent of the tidelands is a required step in the valuation methodology to be presented in the following sections of this report, the zoning standards applicable to those uplands must be considered when analyzing the highest and best use of the upland property as an independent site. For the purposes of this analysis, the uplands adjacent to the representative subject property is considered to be zoned either MU -W1 or MU -W2, which are both mixed-use water -related zones. This designation applies to waterfront properties in which non-residential and -20- GEORGE HAMILTON JONES, INC. 17-111 PROPERTY DESCRIPTION - continued residential units may be intermixed. Marine -related and visitor serving land uses are encouraged. The standards of development differ markedly between MU -1 and MU -2, with minimum lot sizes significantly larger in the MU -1 zone that is found primarily along Mariner's Mile. Both have a minimum Floor Area Ratios of 0.35 and maximums of 0.50. MU -1 has a maximum of 50% residential use, whereas MU -2 permits a 0.75 residential FAR. It should be noted that the land uses for the uplands adjacent to the existing commercial marinas throughout Newport Harbor range from R-1, to mixed-use, to strictly commercial land use designations. In our judgment, the general mixed-use water -related zone is most appropriate to consider for the representative subject property. Current Improvements: The representative subject tidelands is considered to be unimproved water area only. It is an extraordinary assumption that the subject property is adjacent to an uplands parcel with an existing bulkhead. This bulkhead is considered to be an improvement of the uplands parcel. -2t- GEORGE HAMILTON JONES, INC. 17-112 MMLM-�- Total Slips Average Slip Length Cabrillo Isle Marina, San Diego 1976 406 38.0 2005 404 39.4 Dana Point Marina, Dana Point 1969 1,467 33.0 Proposed 1,285 33.4 Sunset Aquatic Park, Hunt. Beach Before Reconfiguration 252 30.5 After Reconfiguration 237 32.8 Peter's Landing Marina, H. B. Before Reconfiguration 300 39.0 After Reconfiguration 286 40.5 Long Beach Downtown Marinas Existing 1,769 35.9 Proposed 1,679 36.7 Alamitos Bay Marina, L.B. Existing 1,997 31.5 Proposed 1,647 35.8 Cabrillo Way Marina, San Pedro Existing 625 34.3 Proposed 697 45.6 Marina del Rey 2008 4,731 33.9 Proposed 4,255 36.4 Anacapa Isle Marina, Oxnard 1974 504 30.2 1987 389 33.4 Bahia Marina, Oxnard 1973 70 38.0 2009 82 52.8 Peninsula Marina, Oxnard 1970 341 33.7 2009 292 47.3 Ventura Isle Marina, Ventura 1973 625 31.5 1992 519 38.8 Treasure Isle Marina, San Francisco 1950 105 31.5 2009 403 38.8 Ballena Isle Marina, Alameda 1974 442 34.5 2010 373 43.8 Total All Marinas (ex. MdR) Before 8,903 33.6 After 8,293 38.0 Source: Marina del Rey Slip Sizing Study, Noble Consultants, Inc., 3/11/09. GEORGE HAMILTON JONES, INC. 17-113 MARKET ANALYSIS AND HIGHEST AND BEST USE Property Productivity: Under the extraordinary assumption that the subject tidelands will have access to the adjacent uplands, the property is considered to be well suited to a commercial marina development. It has 700 feet of bulkhead frontage and a depth from the U.S Bulkhead Line to the U.S. Pierhead Line. The total area of the subject tidelands is 56,000 square feet, which offers reasonable marina design flexibility. The subject property is considered to be situated in a mixed- use/commercial portion of Newport Harbor. Located on the central coast of Orange County, this landmark destination is one of the largest pleasure boat harbors in the world, with more than 2,200 marina slips, 1,200 offshore and onshore moorings, and 1,200 private residential piers. There are 25 miles of frontage in Newport Harbor. Tourism is an important part of the economy with estimates of daily visitors from the summer months ranging form 20,000 to in excess of 100,000. Newport Harbor traditionally has the highest slip rents of any of the harbors of Southern California. Nonetheless, despite ever increasing rates, occupancy has remained generally steady at 95% to 100% for decades, with lengthy waiting lists for slips 35 feet and greater. The demand has been due to the beauty of the harbor itself, the proximity to a wide range of amenities and yachting support services, as well as the affluence of the surrounding communities that can afford involvement in boating. As a consequence of the 2007/08 recession, a decline of demand for boat/slips occurred. While slip rates declined slightly, vacancy factors increased significantly. Even as recently as 2012 vacancies were from 5% to 10%, and greater in some instances. Since 2012, however, there has been a continued decrease of vacancy such that many marinas now show full occupancy -22- GEORGE HAMILTON JONES, INC. 17-114 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued Marina Demand Factors: The table below shows the pattern of pleasure vessel registration within the State and Orange County over the last four years. The counties of Orange, Los Angeles, Riverside and San Bernardino, which may be served by Newport Harbor marinas, represents more or less 25% of the total registrations. The data appears to be erratic and difficult to interpret. It is interesting that the 2014 registration at 50,534 vessels is the lowest amount in four years. Pleasure Vessel Registrations Year Orange County Total State 2011 60,457 835,743 2012 55,158 764,341 2013 56,552 807,537 2014 50,534 716,885 Source: California Department of Motor Vehicles Boat Sales Source: National Marine Manufacturing Association (NMMA) California pleasure boat sales were up 17% from 2012 and powerboat sales were up 30% from 2013. National total boat sales for 2014 were $428,956,622, a 2.2% increase from 2012. The lowest recorded sales period was in 2006. One phenomenon that has become apparent, as the boating community has evolved over the past 30 — 40 years, is that vessel size has steadily increased, with a corresponding demand for larger slips, in terms of both length and beam. Over time, portions of various marinas have been repaired and reconstructed to meet this changing character in slip demand, with the result that the average slip length in most marinas has increased. -23- GEORGE HAMILTON JONES, INC. 17-115 MARINA RENTAL RATES HARBOR TOWER MARINA Newport Beach Slip Length (Lineal Feet) 20 to 29 Feet 30 to 39 Feet 40 to 49 Feet (inside slip) 40 to 49 Feet (outside slip) 50 to 59 Feet 60 to 69 Feet BELLPORT LIDO YACHT ANCHORAGE Newport Beach Slip Length (Lineal Feet 6 to 15 Feet 16 to 20 Feet 21 to 31 Feet 20 to 32 Feet 32 to 33 Feet 34 to 37 Feet 37 to 39 Feet 40 to 44 Feet 50 to 59 Feet 60 to 63 Feet 73 to 79 Feet 83 to 86 Feet 110 to 135 Feet Monthly Rent/L.F. $22.00 $30.00 $35.00 $37.00 $44.00 $45.00 Monthly Rent/L.F. $20.00 $21.00 $21.50 $24.00 $26.50 $28.50 $28.50 $37.00 $39.00 $44.00 $46.00 $52.50 $54.50 VILLA COVE MARINA Newport Beach Slip Lenqth (Lineal Feet) Monthly Rent/L.F. 22 Feet 30 Feet 45 Feet 60 Feet $31.00 $36.00 $51.00 77 $55.00 GEORGE HAMILTON JONES, INC. 17-116 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued Competitive Supply: There are thirteen marinas in Newport Harbor with over thirty slips. The primary elements of comparison that distinguish the different commercial marinas in Newport Harbor from one another are location, the physical features of the marina, and access to amenities. For example, the subject's theoretical location in the mid -to -northwesterly portion of the harbor requires more running time to the harbor entrance than might some other marinas, yet the immediate surrounding influences, with a variety of shore -based amenities, is of considerable appeal to many users who come from outside the immediate Newport Beach area. Our judgment of those marinas that would most directly compete with the subject are presented below. These facilities are strictly commercial marinas, without the influences of club membership, or other, non -market issues. HARBOR TOWER MARINA: Number of slips: 51 Occupancy: 100% Time to Harbor Entrance: 45 minutes Amenities: Restrooms Remarks: Adjacent PCH. Impacted by traffic noise and pollution. Positive adjacency to amenities in Mariner's Mile. LIDO YACHT ANCHORAGE (BELLPORT): Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: 265 100% 45 minutes Dock box, showers, and restrooms, free parking. Adjacent to Lido Peninsula amenities. Includes some very large (>90') slips. -24- GEORGE HAMILTON JONES, INC. 17-117 MARINA RENTAL RATES BAYSHORES MARINA Newport Beach Slip Lenqth (Lineal Feet) Monthly Rent/L.F. 20 Feet 23 Feet 26 Feet 32 Feet 39 Feet 60 Feet 68 Feet 83 Feet $34.00 $34.00 $34.00 $41.00 $47.00 $69.00 $70.00 $73.00 BALBOA MARINA Newport Beach Slip Length (Lineal Feet) Monthly Rent/L.F. 25 Feet $34.00 L 28 Feet $39.00 32 Feet $41.00 34 Feet ET $41.00 36 Feet $44.00 40 Feet $50.00 Feet $61.00 58 Feet $67.00 BAYSIDE MARINA Newport Beach Slip Lenqth (Lineal Feet) Monthly Rent/L.F. GEORGE HAMILTON JONES, INC. 17-118 20 Feet (inside side tie) $27.00 20 Feet (outside side tie) $33.00 I,. 22 Feet (side tie) $33.00 30 Feet $43.00 35 Feet $45.00 42 Feet $57.00 45 Feet $60.00 48 Feet ET $63.00 60 Feet $67.00 65 Feet $72.00 74 Feet $76.00 GEORGE HAMILTON JONES, INC. 17-118 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued VILLA COVE MARINA: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: BAYSHORES MARINA: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: BALBOA MARINA: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: 40 100% 20 - 35 minutes (power — sail) Dock box, showers, and restrooms, free parking. Adjacent to Balboa Island amenities. West side of bridge, so longer travel time to harbor entrance if sail. 134 100% 30 minutes Dock box, showers, and restrooms, free parking. Basic but well maintained. Located in gated community. Off-site amenities not within walking distance. 132 100% 25 - 35 minutes (power — sail) Dock box, showers, and restrooms, free parking. Adjacent to PCH Bridge/ Linda Isle. Airport over flight. -25- GEORGE HAMILTON JONES, INC. 17-119 MARINA RENTAL RATES BALBOA YACHT BASIN Newport Beach Slip Length Lineal Feet Monthly Rent/L.F. 20 $21.44 4.4 25 $23.15 31 $26.51 32 $27.00 34 $29.05 = 35 $29.93 37 $29.93 - 40 $31.79 45 $34.23 50 $40.10 60 $42.22 75 $44.99 NEWPORT DUNES RESORT MARINA Newport Beach SliD Length (Lineal Feet) Monthly Rent/L.F. DEANZA BAYSIDE VILLAGE MARINA Newport Beach Under 29' $25.00 30' to 33' $29.00 34' to 39' $34.00 40' to 45' $42.00 = Over 46' $48.00 DEANZA BAYSIDE VILLAGE MARINA Newport Beach Slip Length (Lineal Feet) Monthly Rent/L.F. Under 20' $21.00 20' to 24' $21.00 25' to 29' $20.00 .f 30' to 32' $25.00 33' to 39' $26.00 -; 40' to 45' $32.00 46' to 50' $35.00 Super Slips $35.00 Dbl Loaders $38.00 GEORGE HAMILTON JONES INC. 17-120 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued BAYSIDE MARINA: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: BALBOA YACHT BASIN: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: NEWPORT DUNES RESORT MARINA: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: 102 100% 10-15 minutes Dock box, showers, restrooms, free parking. Good street access, close to Balboa Island amenities. 173 100% 20 - 35 minutes (power — sail) Dock box, showers, and restrooms, free parking. Good land access, adjacent marine supply store and boatyard. City owned and operated. Bridge forces longer journey to harbor opening for sail and many powerboats. 450 95% 40 minutes (must pass under bridge) Dock box, showers, and restrooms, free parking. Clubhouse, pool/spa, boat launch, dry storage and wash rack. Good parking and security. Major negative influence of being inland of the bridge. -26- GEORGE HAMILTON JONES, INC. 17-121 MARINA RENTAL RATES LIDO MARINA VILLAGE Newport Beach Slip Lenath (Lineal Feet) Monthly Rent/L.F. 30 to 39 Feet $35.00 40 to 49 Feet $38.00 50 to 59 Feet $41.00 60 Feet & Over $45.00 ARDELL Newport Beach SliD Lenath (Lineal Feet) Monthly Rent/L.F. 20' to 29' 30' to 39' 40' to 49' 50' to 60' Over 60' $26.50 $30.00 $34 to $38 $39.00 $42.00 GEORGE HAMILTON JONES, INC. 17-122 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued DEANZA BAYSIDE VILLAGE MARINA: Number of slips: Occupancy: Time to Harbor Entrance: Amenities: Remarks: LIDO MARINA VILLAGE Number of slips: Occupancy: Time to Harbor Entrance: Amenities: 220 95% 40 minutes (must pass under bridge) Dock box, showers, and restrooms, free parking. Limited amenities, standard features. Inland side of bridge. 60 N. A. 45 minutes Restrooms, showers, parking in multi -story structure at tenant's expense. Remarks: With 100 feet pierhead lines, marina includes four 100 - foot cruise ships, one 80 -foot cruise ship, 21 spaces exceeding 50 feet in length. Various lagoon slips. Dock and pier in poor condition. Close to restaurants, theater and retail. -27- GEORGE HAMILTON JONES, INC. 17-123 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued ARDELL MARINA Number of slips: Occupancy: Time to Harbor Entrance: Amenities: 53 100% 30 minutes Dock boxes, restrooms, free parking. Well landscaped. Remarks: Attractive, well-maintained slips and uplands. Close to many restaurants, retail and marina shops. Residual Demand: Our investigation indicates that there has been an improvement in the marina business over the last year or so. This has been reflected in higher slip rentals and lower vacancies. Many of the larger marinas report near -full occupancies while smaller facilities and the Back Bay marinas still have space available. The following table describes the slip rate change for a 40' to 49' foot slip over the last three years. Marina 2012 Rate 2015 Rate Harbor Tower $37.00 $37.00 Lido Yacht Anchorage $31.50 $37.00 Villa Cove (45') $39.00 $51.00 Bayshores (60') $53.40 $69.00 Balboa Marina $47.80 $50.00 Balboa Yacht Basin $26.71 $34.23 Ardell Marina $32.50 - $36.00 $34.00 - $38.00 As a further measure of the current trend of slip rental demand we have been able to interview operators and/or examine confidential slip rental revenue information of their operations for the last three years. -28- GEORGE HAMILTON JONES, INC. 17-124 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued However, it is important to recall that only a few years ago vacancies up to 10% existed and some boat owners were moving to other harbors with more favorable slip rates. Further, reported vacancy rates may not truly measure the losses due to credit matters that may arise. For this study, it was important to form an opinion of a stabilized basis of slip rates and vacancy/credit losses that would be consistent with the analyses of well informed lessee, marina owner or investor, who is evaluating the investment over a longer term. Subject Capture: As an unimproved tidelands site with assumed access to the adjacent uplands, the subject property is available for development to a commercial marina facility that could be most efficiently designed to meet prevailing market demands. The following highest and best use section will set out our analysis leading to our conclusion of the configuration of the marina which, in our opinion, would be the maximally productive utilization of the subject site for marina purposes. From our review of the data and interviews with well-informed persons involved in the commercial marina industry, it appears reasonable that a well-informed lessee at the subject property would anticipate an occupancy rate of 95% as of the date of value. As will be seen further on, we used a 95% occupancy rate at the subject property in our valuation analyses. Highest and Best Use — Defined: The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially feasible and that results in the highest value. (Source: The Appraisal of Real Estate, 14th Edition, Appraisal Institute) Highest and best use is appropriately analyzed through the filter of the four following criteria: -29- GEORGE HAMILTON JONES, INC. 17-125 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued Physically Possible: The subject property's overall size and dimensions must be of sufficient magnitude to accommodate the proposed use. For improved properties, the size, design, and condition of the structure must be able to accommodate the use without unjustified expense. Legally Permissible: The proposed use must conform to existing land use regulations such as general plan designation, zoning ordinances, environmental restrictions, building codes, or other governmental regulations. The use must also be compatible with private limitations such as deed restrictions, easements, leases, and any Covenants, Conditions and Restrictions (CC&R's), if applicable. Financially Feasible: Uses that first meet the above criteria of physically possible and legally permissible are then tested for financial feasibility. Uses that are expected to produce a positive return are considered financially feasible. A positive return is generated when income exceeds the amount required to pay operating expenses, financial obligations, and capital amortization expenses. Maximally Productive: The highest and best use is that financially feasible use, which is both physically possible and legally permissible, and which produces the highest value as of the effective date of the appraisal. Highest and Best Use — Independent Site: The highest and best use of the subject tidelands, as an independent site, is severely restricted by its lack of access to the uplands for support of any commercial use. It would be available for swimming, boating, or fishing as an extension of the main channels in Newport Harbor. The tidelands could potentially be used for offshore moorings; -30- GEORGE HAMILTON JONES, INC. 17-126 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued however, lack of uplands parking, restrooms, and dinghy launching facilities would present problems of approval from local citizens' groups and certain regulatory agencies. Therefore, as an independent site, the subject property is considered to be of limited economic value. Accordingly, its highest and best use is considered to be in joinder with the adjacent uplands to create an integrated unit that could be developed to a commercial marina. Because the subject does not possess the property right of joinder with the adjacent uplands, it is an extraordinary assumption of this appraisal that it has obtained rights of joinder and can be developed to a commercial marina consistent with prevailing development standards of the affected regulatory agencies, the physical characteristics of the site, and with current market forces. Highest and Best Use of the Tidelands In Joinder, as Though Vacant: The purpose of this study was to determine what, given a vacant tidelands site, the appropriate marina configuration would be that would yield the greatest return, considering factors such as slip size, potential rent, and vacancy. In order to perform this analysis, the following matters had to be investigated and considered: 1. Determine the total lineal slip length potential of the subject tidelands based upon empirical water area per lineal foot rates established within other marinas within the harbor. 2. Estimate number of potential slips from empirical water area per slip ratios. 3. Estimate the maximally productive mix of slip sizes (marina configuration) based upon physical constraints, empirical evidence, and market demand. 4. Compute the upland land area requirement based on 0.60 parking spaces per slip plus area for restrooms, showers and other marina support amenities. -31- GEORGE HAMILTON JONES, INC. 17-127 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued As indicated previously, we performed a survey of the existing marinas in Newport Harbor with 30 or more slips. Some examples of water and improvement area allocations within these data are as follows: Bahia Corinthian Yacht Club — new marina 1993 Water Area: 87,325 sq. ft. 79 Slips: 1,105 sq. ft. water area per slip 3,017 lineal feet: 38.2 lineal feet per slip Water area/ lineal foot: 28.9 sq. ft. Balboa Marina: This marina facility was recently upgraded. The total number of slips was reduced from with 132 spaces to 105 spaces in order to accommodate increased boat beams and handicap mandated improvements. Water Area: 122,000± sq. ft. 105 Slips: 1,162 sq. ft. water area per slip 3,486 lineal feet: 33.2 lineal feet per slip Water area/ lineal foot: 35.0 sq. ft. Bayside Marina: Water Area: 129,000 sq. ft. 102 Slips: 1,265 sq. ft. water area per slip 3,732 lineal feet: 36.6 lineal feet per slip Water area/ lineal foot: 34.6 sq. ft. Ardell Marina: Water Area: 56,000 sq. ft. (tidelands), 84,746 gross (includes water area in fee interest) 53 Slips: 1,599 sq. ft. gross water area/slip 2,544 lineal feet: 48 lineal feet per slip Water area/ lineal foot: 33.31 sq. ft. -32- GEORGE HAMILTON JONES, INC. 17-128 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued Villa Cove Marina: Water Area: 49,080 sq. ft. 42 Slips: 1,169 sq. ft. water area per slip 1,438 lineal feet: 34.2 lineal feet per slip Water area/ lineal foot: 34.1 sq. ft. As a result of these analyses we formed the opinion that a well- informed lessee of the subject representative tidelands parcel, under the extraordinary assumption of joinder with the uplands, would consider the following marina configuration reflective of the highest and best use of the parcel given the physical characteristics of the site, prevailing land use regulations and market demand. U.S. Bulkhead Line Length: 700 Feet U.S. Pierhead Line Depth: 80 Feet Total Tidelands Area: 56,000 Square Feet Subject Marina Configuration Size of Slips Number of Slips Total Lineal Feet Up to 20' 4 72 20' to 29' 6 150 30' to 39' 12 420 40' to 49' 15 638 50' to 59' 5 270 60' and Larger 3 195 Totals 45 1,745 Water Area: 56,000 sq. ft. 45 Slips: 1,244 sq. ft. water area per slip 1,745 lineal feet: 38.8 lineal feet per slip Water area/ lineal foot: 32.1 sq. ft. This opinion of the highest and best use configuration of the subject tidelands carries with it an implicit uplands land area requirement to support the marina operation. As set out in the discussion of parking -33- GEORGE HAMILTON JONES, INC. 17-129 MARKET ANALYSIS AND HIGHEST AND BEST USE — continued requirements presented earlier, it is our judgment that a well-informed lessee of subject tidelands would anticipate that there is a reasonable probability that the current City of Newport Beach zoning code parking ratio requirement of 0.75 parking spaces per slip could be reduced to 0.60 spaces per slip. This is consistent with approvals in a variety of jurisdictions through the State. Therefore, under the highest and best use marina configuration presented above, the uplands land area requirement can be computed as follows: 45 slips x 0.60 = 27 parking spaces required 27 parking spaces @ 350 sq. ft./ space = 9,450 sq. ft. Bathrooms, showers, office = 550 sq. ft. Total uplands land area required: 10,000 sq. ft. Highest and Best Use as Improved: The subject is considered to be a vacant tidelands parcel with no improvements. -34- GEORGE HAMILTON JONES, INC. 17-130 VALUATION Introduction: Newport Harbor is unusual in the Southern California region in that the supporting uplands of nearly all its marinas are held by private owners, while the tidelands are vested in public entities. Further, because of the limited supply of waterfront property in the dynamic Newport Beach real estate market, the value of the supporting uplands is considerable. The property that is the subject of this market rent valuation analysis is an independent, vacant tidelands parcel. As an independent site, it has no rights of access to the uplands for utilities or marina -supporting land uses such as parking, restrooms and showers. As has been discussed previously, in order to develop a meaningful analysis of the market rent of the subject tidelands as dedicated to commercial marina use, we have invoked the extraordinary assumption that this vacant tidelands site has joinder with the adjacent uplands and/or reasonably proximate uplands in order to satisfy the needs of parking, restrooms and other support facilities for the marina tenants. This assumption implies that the uplands owner and tidelands owner have reached a negotiated agreement as to the terms of the collaboration of their two property interests. It is recognized that there are existing marinas in Newport Harbor that don't meet the development standards of the City of Newport Beach Municipal Code in terms of fulfilling the uplands requirement to support a commercial marina use. As stated previously, this analysis does not address the specific circumstances of any particular marina that may have been "grandfathered in" to a legal non -conforming use. Rather, this valuation considers what is legally permitted (and required) in the current regulatory environment. In our judgment, basing our analysis on the highest legal utility of the subject is the most balanced measure of determining market rental value for the tidelands. Accordingly, assuming an open market context, the economic motivations for and implications of the joinder of uplands and tidelands necessary for an integrated commercial marina operation in Newport Harbor must be investigated from the perspective of both the uplands owner and the tidelands owner. This process begins with an understanding of the value of each as independent sites. -35- GEORGE HAMILTON JONES, INC. 17-131 VALUATION — continued As the following pages will show, the value (and anticipated annual return) of the uplands as an independent site dramatically exceeds that of the tidelands as an independent site. It is one of the key tenets of highest and best use that the well-informed owner of a property will seek the maximally productive use of his property. Therefore, it is implicit in any well-informed joinder of properties that both parties should benefit by this joinder in the form of an enhancement on their annual return as independent sites. If either of the properties did not benefit by the joinder, there would be no motivation for that property to engage in joinder. The unique set of circumstances pertaining to this particular assignment creates interdependence between a specific independent tidelands owner and an equally specific adjacent uplands owner. This interrelationship between parties is termed a bilateral monopoly (as defined earlier). If the joinder of two properties creates an increment in value that is greater than the sum of the two parts as independent sites, then the allocation of that increment becomes the reasonable nexus of negotiations between the parties. This appraisal will use various approaches to explore the basis of that enhancement in forming an opinion of market rent for the subject tidelands as considered in joinder with the adjacent uplands. Because the vast majority of the tidelands leases in Southern California are by jurisdictions that control both land and water, there is a limited supply of tidelands -only rental data. We will discuss the pertinent data available and analyze the relevance of each item as true open market indicators and their appropriateness in shedding light on market rent for the subject. We will also investigate the economic implications of joinder for both parties, measure the enhancement created by joinder, and analyze the various criteria upon which an allocation of that enhancement between the uplands and tidelands parcels can reasonably be made. Finally, we will analyze the indications developed from the various approaches to subject market rent and reconcile them to a final value conclusion based upon the relative reliability of each approach. This will be -36- GEORGE HAMILTON JONES, INC. 17-132 VALUATION — continued expressed as a percentage of effective gross income and on an annual price per square foot basis. Market Data Approach: The subject tidelands are held in fee interest by the State of California, in Trust to the City of Newport Beach. Accordingly, the benchmark standards of lease rates used by the California State Lands Commission (CSLC), which has ultimate oversight over State-owned real estate, should appropriately be considered in this analysis. On December 5, 2011, the CSLC issued an update of their 2005 benchmark General Lease — Recreational Use for Southern California. This General Lease was intended to be primarily applied to privately owned docks and piers and other mooring related facilities. Because these privately owned facilities offer amenities similar to commercial marinas, the "Principle of Substitution"I was invoked as the basis for setting this rent. This widely accepted appraisal methodology considers a "fair return and fair rental value" to be measured by what an individual would pay at "a comparable site in a commercial marina." The state collected data from 53 commercial marinas in Southern California and compiled an average slip size and rate. The annual tidelands rent rate was then computed utilizing a 5% annual rate of return times the average slip rental income, then dividing by the average slip size to yield the rental rate per square foot. Further information on relative tideland percentage rental rates was obtained from a paper "Corporation Files for the Use of State Owned Submerged Lands by Commercial Marinas (MASGP-09-008-06). This report, dated May 4, 2009, was prepared by the National Sea Grant Law Center of the University of Mississippi. It provided a nation-wide survey of the "comparative fees for the use of state-owned submerged land by commercial marinas" that focused on eight coastal states. I The Principle of Substitution states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price attracts the greatest demand and widest distribution. The Appraisal of Real Estate, 14"' Edition. -37- GEORGE HAMILTON JONES, INC. 17-133 VALUATION — continued In the section applicable to the Sate of California (paragraph 4, page 2) the following was reported: "To determine the minimum annual rent for new commercial marinas, the California State Lands Commission (CSLC) multiplies a projected gross income by a rental percentage to determine the minimum annual rent that will be charged. The CSLC typically charges 5- 7% of gross income for boat berthing for sites leased to commercial marina operators, with most of the leases set at 5% of gross income." Accordingly, these empirical data sources indicated a range of 5% to 7% of gross income as a basis for determining appropriate rent for State- owned submerged land (tidelands). Indicated Tidelands Rental Rent as Percent of Gross Income State of California 5%-7% As discussed above, our search for market data of directly comparable leases of tidelands only (as distinct from tidelands and uplands together) for marina use revealed only a limited number of potential data items throughout all of Southern California. According to the records of the Department of Boating and Waterways, a state agency, less than 10% of the berthing spaces in Southern California involve privately owned uplands. Most of these privately owned marinas are in Newport Harbor. Our investigations uncovered only six leases that were potentially comparable to the subject for meaningful analysis. Three of these were in Newport Harbor, two in San Diego, and one in Huntington Harbor. In our judgment, two of the leases in Newport Harbor did not represent open market transactions, as defined by the criteria wherein each party was "acting prudently and knowledgeably, and assuming the price was unaffected by undue stimulus."' We will provide a short discussion of each z Definition of Market Value: The Dictionary of Real Estate Appraisal, Sixth Edition. -38- GEORGE HAMILTON JONES, INC. 17-134 VALUATION — continued of the leases to be followed by analysis. We will begin with the three leases in Newport Harbor. Bahia Corinthian Yacht Club: Date: May 7, 1998 Term: 35 Years — New Lease Area of Tidelands: 76,550 Square Feet Rental: 9% of Gross Slip Rental This was a new lease when written and was based upon an appraisal prepared by an independent appraiser (George Hamilton Jones, MAI). The lessor was the City of Newport Beach and the lessee was the Bahia Corinthian Yacht Club. It is considered an open market transaction with neither lessor nor lessee affected by undue stimulus. Bayshores Marina: Date: December 7, 2004 Term: 20 Years with Option Area of Tidelands: 2.297 AC — 100,057 Square Feet Rental: 20% of Gross Slip Rental This lease agreement is an outgrowth of an original lease, which was entered into in 1974, between the County of Orange as lessor and The Irvine Company as lessee. One of the undersigned, George Hamilton Jones, MAI, has personal knowledge regarding the terms of the original lease. In that agreement, rental value was based upon a formula, expressed as percentage rent, which was to be adjusted to account for increasing upland values. It has been reported to this office that there was confusion in implementing these adjustments. As a consequence, by failing to make the appropriate adjustments for increases in land value, the inflationary increases in effective gross rental income (increasing slip rental rates) over time resulted in ever increasing percentage rental rates for the tidelands.' ' All other elements being equal, a decrease in uplands value results in an increase in indicated percentage rent to the tidelands. Likewise, an increase in uplands land value results in a lower indication in percentage rent for the tidelands. Therefore, if rental rates rise, without a corresponding adjustment of uplands land value, the result is in an increase in residual percentage to the tidelands. -39- GEORGE HAMILTON JONES, INC. 17-135 VALUATION — continued It has been reported that the 20% figure was reached through this misunderstanding and had no basis arising from independent analysis or reference to supporting market evidence. Our interviews with involved parties indicated that when the new (2004) lease was entered into, no independent appraisal was performed to establish market rent and the prevailing rate of 20% was simply continued. In our judgment, this transaction does not represent an open market exchange for several reasons. First, there was no independent appraisal undertaken to provide an unbiased opinion of market rent. Second, the lessee had a large capital investment in an operating marina, which it could not readily walk away from, for both economic reasons and the fact that it had an obligation to serve existing tenants. Finally, the lessee was California Recreation Company, a subsidiary of The Irvine Company, which is a very large property owner with a wide range of business and property interests throughout the Orange County community. This marina is a small part of a very large operation. Therefore, this is considered to be a special buyer/lessee, not reflective of the market generally. The uplands property was purchased in excess of fifty years prior to entering the lease, and it has been essentially dedicated to marina support use. Because of the nominal effective investment in land for this particular lessee, the economic considerations of the lessee are not comparable to those of a well-informed owner of vacant land at the date of value seeking to develop that land to its highest and best use. In essence, the lessee was not "typically motivated" per the definition of market value. As an illustration, it is noted that after the time of this 2004 lease extension at Bayshores, the County of Orange entered into a lease amendment with the Dunes Marina in August 2009 for both tidelands and uplands in joinder at 25% of gross slip revenue. This transaction supports the 25% benchmark for land and water combined as seen throughout the Southern California region. However, in the Bayshores context, after paying 20% of the marina revenue for the tidelands rental, it would leave only 5% of the gross revenue as the return on 32,000± square feet (282 waterfront feet and five legal lots) of very high-end residential property that has been dedicated to upland parking area to support the marina. .R GEORGE HAMILTON JONES, INC. 17-136 VALUATION — continued To place this in an economic context, waterfront residential property of this size and at this location in Bayshores would, based on our extensive review of comparable market data, sell at a minimum of $750 per square foot of land. This reflects at total value on the order of $24,000,000 for these 32,000 square feet of uplands that are used to support the marina. After a survey of the prevailing market -level slip rates and occupancy rates, the gross revenue from the marina operation at Bayshores was estimated to be on the order of $2,000,000. The 5% return of that amount, which would be directed to the uplands (after 20% is given to the tidelands: 25% - 20% = 5%), is estimated to be approximately $100,000. Based on the $24,000,000 land value, a 0.42% return to the uplands results. A minimal return of this nature is, in our judgment, neither reasonable nor consistent with the expectations of well-informed investors in an open market context. For the above reasons this lease transaction was judged not to meet the standards of a "competitive and open market" and was given nominal weight in this analysis. Swales Anchorage Date of Lease: November 25, 2011 Term: 3 -Year Interim Lease Area of Tidelands: 1.15 AC — 50,094 Square Feet Rental: $6,000 per Month These tidelands were originally leased from the County of Orange to the Farwell Family, which was leasing the uplands from The Irvine Company, in 1971. When the County raised the percentage rent to 20% without any supporting analysis or appraisal being made, Mr. Farwell actively challenged this level of rent; however, there was no established forum or court for seeking adjudication by any third party entity. Lessee's attorney, Mr. Don Adkinson, sought a hearing in which expert testimony providing an independent opinion of market rent could be presented to the County Board of Supervisors for their consideration. This request was denied. M GEORGE HAMILTON JONES, INC. 17-137 VALUATION — continued With no other legal recourse available, the Farwell Family had no option but to accept the rent terms. Prior interviews with the principal lessee and his counsel indicated these circumstances created substantial economic hardships that had negative long-term consequences. The 1991 revaluation, which set the rent at 20% of the gross income, is not considered to have had a willing lessee nor was it, in our judgment, reflective of an "open and competitive market." The lease at Swales Anchorage is between the County of Orange and Palmo Investments as lessee. It was an interim lease with a three-year term, commencing July 1, 2011. The rent was a flat rate of $6,000 per month and not directly based upon a percentage rent; however, it does represent 20% of the estimated gross revenue. The tenant is challenging the ownership of the tidelands by the County. An August 27, 2015 interview with the lessee (Palmo Investment) indicated that the lease remains on a temporary basis. The lessee is in the process of dredging, sea wall repair and marina improvement upgrades. Negotiation as to a new lease is progressing. Because of the conditions of the 1991 revaluation, with an unwilling lessee who sought to challenge the 20% rent terms but could not have the matter heard for independent adjudication (as is the case in other jurisdictions), and the interim nature of the current lease agreement which is based on a flat monthly rate and is concurrently being contested, this is not judged to be an transaction that occurred in an "open and competitive market" with a lessee in circumstances anywhere analogous to having a vacant site available for its highest and best use. Thus, it is not judged to be an open market data item and is given nominal consideration in the market rent analysis. Sunset Aquatic Marina Date of Lease: January 1, 2000 Term: 40 years Area of Tidelands: A tidelands portion of substantially larger (50± acres) Sunset Aquatic Marina project Rental: 8.5% of gross revenue generated from boat berthing. Lease No.: PRC 4076.1 -42- GEORGE HAMILTON JONES, INC. 17-138 VALUATION — continued This marina is located in the westerly portion of Huntington Harbor adjacent to Anaheim Bay in Seal Beach. Access to the open ocean is from Anaheim Bay. This is part of the much larger Sunset Aquatic Marina, which includes a wide range of water -oriented recreational activities and services. In additional to the commercial marina, these uses include a launch ramp, dry storage, RV storage, parks, and an on-site shipyard. The lease was of the tidelands -only, for 40 years with the State of California as lessor and County of Orange as lessee. The rent is 8.5% of the gross revenue generated from marina berthing. Glorietta Bay Marina Date of Lease: July 1, 2012 Term: 40 years Area of Tidelands: 144,555 sq. ft. / 3.32 ac. of tidelands only Rental: 11.0% of gross revenue generated from slip rental with a three-year build-up at $11,616 per year to a $95,000 per year minimum against the 11% of the gross. This forty -year lease agreement is of the tidelands only portion of the Glorietta Bay Marina. The tidelands are occupied by a 100 -slip marina at a density of approximately 1,400 square feet per slip. It has a total water area of approximately 3.32 acres. Because the tidelands area made up approximately 50% of the total marina area, the San Diego Unified Port District prorated the Board -adopted rate of 22% (for land and water) at 50% to obtain the 11% for the tidelands alone. The lease was adopted at the San Diego Unified Port District Board Meeting August 14, 2012, and was verified as being operative at 11% of the gross by Jerome Torres, City of Coronado (8/25/15) and Ryan Donald, San Diego Port District (8/18/15). Coronado Yacht Club At the time of an earlier tidelands appraisal performed by this office, August 2012, the San Diego Port District and the Coronado Yacht Club (1631 Strand Way) were considering entering into an expansion of its existing land and water lease, which included a 264 -slip marina within -43- GEORGE HAMILTON JONES, INC. 17-139 Summary of Tideland Lease Data GEORGE HAMILTON JONES, INC. 17-140 Percent of Marina Location Date Slip Rental Comments State Land State 12/11/11 5%-7% Source: Return of Commercial Commission Tidelands Marina Tidelands as Percent of Benchmark Return Slip Income 2011 Benchmark Report and the University of Mississippi National Sea Grant Law Center Survey. Bahia Corinthian Newport 5/7/98 9% New lease with 35 -year term. Yacht Club Beach Bayshores Marina Newport 12/7/04 20% 20 -year term. Not considered Beach open -market. Swales Anchorage Newport 11/25/11 $6,000 3 -year term. Old lease expired. Beach per month Under negotiations. Sunset Harbor Huntington 1/1/00 8.50% 40 -year term with State/County. Marina Harbor Glorietta Bay San Diego 7/1/12 11% 40 years. Marina Coronado Yacht Coronado 2012 8.5% to 11% Lease rental rate terms agreed to Club but proposed expansion of marina withdrawn due to Coastal Commission public access issues. GEORGE HAMILTON JONES, INC. 17-140 VALUATION — continued 10.35± acres of tidelands. The proposed increase of the facility was to add 108 new slips. The additional tidelands were to be leased by the Port District and subleased to the Yacht Club. It was reported that the tidelands would have a lease rate of 8.25% of slip rental stepping up to 11% over several years. Our review of the negotiations as of August 20, 2015, indicated that the Yacht Club had withdrawn its application for expansion due to issues related to the California Coastal Commission's requirements for public access impacting improvement design. Therefore, while the deal was not consummated, negotiated terms of 8.25% to 11.0% were indicated. Reconciliation — Market Data Approach: On the facing page is a panorama of the percentage rents market data considered helpful in forming an opinion of market rent for the subject tidelands based on the market data approach. These data, which involve tidelands only, reflect a lower end limit of 5% of gross slip rental income. This is the CSLC Benchmark and is a minimum amount, based on the principle of substitution, wherein the rental rate "with the lowest price will attract the greatest demand." Information indicated that a 7% rate was also used at times by the CSLC. The balance of the other Southern California market-based tidelands -only lease rates ranged from 8.25% to 11.0% of gross slip rental income. The Orange County tidelands leases of Bayshores and Swales (now expired) were at a percentage rate more than double the other data. They were both known to have had unusual circumstances that impacted the setting of the rate. Further, the fact that there was no independent analysis that would support these higher rates, led us to the conclusion that they did not meet the standards of an open market as defined by agencies that regulate federally insured financial institutions in the United States and by the Appraisal Institute', the standard of market rent as defined by The Appraisal Institute, and California Code of Civil Procedure (1263.320). Accordingly, they were not given weight in our reconciliation of the market data indications. 4 The Appraisal of Real Estate, The Appraisal Institute, 14`" Edition, pg. 58. GEORGE HAMILTON JONES, INC. 17-141 VALUATION — continued Because there is such a limited amount of tidelands -only market available that can be considered directly comparable to the subject, we provide this information as one prism through which to view the empirical data leading to a market rent conclusion. In our judgment, an economic analysis, which is sensitive to the specific characteristics of the subject property, will also be necessary to fulfill the objective of this assignment. This market data approach, then, provides a framework in which to investigate the economic characteristics of the subject tidelands within the context of Newport Harbor, and all the surrounding influences, including real estate values, associated therewith. Accordingly, the market data approach provides a wide range of indications of market rent from 5.0% and 11.0% of gross slip rental. These will be borne in mind as we undertake further economic analyses. Market Data Approach Indication Rent as a Percentage of Gross Income: 5.0% to 11.0% Economic Approach: In order to undertake an economic analysis of the appropriate market rent for the tidelands in joinder with the adjacent uplands, it is necessary to first analyze the market rent for each parcel as independent sites. This step is required to provide a basis for judging whether joinder is, in fact, the highest and best use for each property. This, in turn, will provide an indication of the level of return in joinder that it would be reasonable for each property to expect to warrant the act of joinder and all that is attendant to such a commitment. The Tidelands As an Independent Site As was discussed in the Highest and Best Use Section of this report, the subject tidelands as an independent site has limited economic utility because it has no access to the uplands. It could be used for recreational activities such as swimming, boating or fishing, but this would simply be an extension of general harbor uses. -45- GEORGE HAMILTON JONES, INC. 17-142 VALUATION — continued The subject tideland does have potential to generate an offshore mooring fee as an independent site. While its utility for that use may be somewhat constricted by its narrow dimensions (80 feet wide by 700 feet in length) and the need for a public dinghy launching site for access, a review of the City of Newport Beach offshore mooring fee schedule offers an economic measure of the subject tidelands value if put to such a use. There are 734 offshore moorings in Newport Harbor, broken out into 12 separate fields. Mooring sizes range from 35 to 45 feet in length. The average size is 40 feet. To provide a historical perspective, the following information was investigate&: No. of Moorings: Total Mooring Area (Tidelands) Average Tidelands/ Mooring: 2013/2014 Revenue: Total Annual Revenue: Revenue/ Square Foot: Annual Revenue/ Mooring: 734 5,531,803 square feet 7,537 square feet $623,171 $0.113 $849 As the result of a Council Study Session on January 27, 2015, a report called "Harbor Fees, Moorings, Commercial and Residential Piers" was prepared. The rates proposed for 2015 was $55.43 per lineal foot per year. However, after a presentation by the Newport Mooring Association at a Harbor Commission meeting on April 7, 2015, a consensus of opinion concluded that the 2015 rate should be reconsidered. An Appraisal of the Fair Market Rent of Off -Shore and On -Shore Moorings, dated January 6, 2016, was prepared by Netzer & Associates. This report indicated a conclusion of the Fair Market Rent for the Off -Shore 5 Source: City of Newport Beach Tide and Submerged Lands Fund Statement of Revenues, Year End June 13, 2014 Chris Miller, Harbor Manager; Sally A. Cooper-Jehangiri -46- GEORGE HAMILTON JONES, INC. 17-143 H Mooring Site A- 964,786 Sq Ft B - 367,222 SgFt C - 385,812 SgFt D - 319,248 SgFt F - 196,739 SgFt G - 102,131 SgFt H - 458,739 SgFt J - 672,687 SgFt K - 138,266 SgFt BYC - 852,009 SgFt NHYC - 870,197 SgFt HP - 231,347 SgFt Anchorage - 211,806 SgFt chora F NHYC C 0 0 B BYC A HP e 0 700 1,400 Feet Newport Harbor Mooring Sites City of Newport Beach GIS Division September 30, 2015 17-144 VALUATION — continued Moorings ranging from $32.00 to $38.00 per lineal foot of mooring annually. At a meeting of the City of Newport Beach City Council on January 26, 2016, Resolution No. 2016-17 was passed in which an annual mooring rate of $35.00 per lineal foot of mooring was adopted. Section 2 of the Resolution indicated that the findings of the City Council were "made by the City Council in its exclusive discretion but are based, in part, on the information in the appraisal of the City -selected appraiser and, in addition, on other testimony and documents in the record for this matter." However, there appears to remain some controversy regarding the adoption of this rate.6 Therefore, in order to insure a breadth of analysis, we will carry out this study of the revenue potential of the tidelands as an independent site at both the $35.00 per lineal foot rate, as well as the previously proposed $55.00 (rounded) per lineal foot rate. Though larger in total area than the subject, Mooring Fields F and K (opposite page) have a generally analogous shape to the appraised property. Both have 22 moorings. Mooring Field F has an average area per mooring of 8,942 square feet. Mooring Field K has an average area of 6,285 square feet per mooring. The average tidelands area per mooring throughout the harbor, as indicated on the previous page, is just over 7,500 square feet. An additional density measurement was obtained after an in-depth discussion with Chuck South of South Mooring Company. His firm has extensive experience of serving the installation, relocation and maintenance needs of all the mooring fields in Newport Harbor. His estimate was on the order of 8,000 to 8,500 square feet per mooring. By employing the area calculations generated from Chuck South's data and experience, the empirical information of the existing mooring fields in the harbor, as well as other sources, we have concluded that approximately 7,500 square feet of the gross tideland area would be required to serve a 40 -foot mooring within subject tidelands. 6 Daily Pilot newspaper: http://www.latimes.com/social/daily-pilot/news/tn-dpt-me-0127- mooring-rates-20160126-story.html -47- GEORGE HAMILTON JONES, INC. 17-145 VALUATION — continued Application of the two rental rates discussed above yields the following income information for a 40 -foot mooring with a total tidelands area of 7,500 square feet: $35.00 per lineal foot per year $35.00 x 40 lineal feet = $1,400 = 7,500 sq. ft. _ Rounded to: $55.00 per lineal foot per year $55.00 x 40 lineal feet = $2,200 = 7,500 sq. ft. _ Rounded to: $1,400 per year $0.1867 per square foot $0.19 per square foot $2,200 per year $0.2933 per square foot $0.29 per square foot The theoretical subject tidelands site has 56,000 square feet of water area. It follows that if the subject tidelands were put to its highest and best use as an independent site by providing offshore mooring space, it would return approximately $10,640 to $16,240 per year. 56,000 s. f. x $0.19 per s. f. = $10,640 56,000 s. f. x $0.29 per s. f. = $16,240 Based upon a capitalization rate of 5%7, this represents a range of value for subject tidelands as an independent site from: $10,640 - 0.05 = $212,800, or 56,000 square feet at $3.80 per square foot. To ' The 5% capitalization rate was chosen to reflect the nature of the proposed income, its risk, prevailing demand in the market, stability, and management as these factors relate to alternative market capitalization rates: Commercial Mortgage Rate: 5% Apartment Capitalization Rate: 4-6% Office Building Capitalization Rate: 5-6% MR GEORGE HAMILTON JONES, INC. 17-146 UPLANDS SALES DATA MAP zj Newport Beach V. WIN— "p'a 5-11 ;T?D'Pr FIG Cn. 32ndSl Lxt PMk TI 3t.,& WPORT I N GEORGE HAMILTON JONES, INC. 17-147 VALUATION — continued $16,240 - 0.05 = $324,800, or 56,000 square feet at $5.80 per square foot. Tidelands As An Independent Site: $212,800 - $324,800. Fee Value of The Uplands as An Independent Site The uplands parcel adjacent to the theoretical tidelands is considered to be vacant land with a zoning of MU -W1 or MU -W2, both of which provide for mixed-use (commercial and residential) and water -related uses. The sales comparison (market data) approach was used to form an opinion of the value of the uplands adjacent to the subject property as a site independent from the tidelands. Waterfront sites such as these upland properties are considered to have littoral rights of access to the tidelands. The only improvements are the bulkhead, which is the responsibility of the uplands owner to maintain. It should be noted that the littoral rights of the uplands owners do not provide exclusive rights of use to the tidelands. As with any other party, in order to acquire exclusive use of the tidelands they must obtain proper authorization (e.g. leases, permits) from the appropriate public agency. Four of the seven sales set out on the facing page are situated with frontage on the waterfront. The other three non -waterfront sales are in the sphere of influence of the Harbor. These data were selected from amongst the limited supply of commercial/residential sales in the harbor area because, in our judgment, they were most helpful in shedding light on the value of subject's required upland area. During our firm's many years of experience of valuing lands within Newport Harbor, we have observed the value relationship between bay - fronting and adjacent non -bay fronting parcels. While these ratios may vary depending upon specific locations and intended land use, the relationships are clear enough to be helpful to study the market indications from both of these classifications to test an opinion of value of either of them. A comparability analysis of this data relative to the subject uplands was carried out. Adjustments were made for the differences between the sale and the subject for relevant elements of comparison. These included ME GEORGE HAMILTON JONES, INC. 17-148 Summary of Pertinent Sales Data GEORGE HAMILTON JONES INC. 17-149 Date of Size Price per Sale Location Sale Sq. Ft. Sq. Ft. No. APN Doc. No. Price WFF WFF Remarks Waterfront 1 3131 W. Coast Hwy 4/2/13 $6,798,000 20,768 Gross Sale included 8,000 s.f. older 049-130-21 198468 14,713 of. $462.04 restaurant substantially 86.5 $78,590 reconstructed by buyer. Upland net area to Bulkhead is 14,713 s.f. and 6,055 s.f. private tidelands. 1,075 s.f. of City tidelands. 2 2633 W. Coast Hwy. 1/18/11 $5,800,000 23,996 Gross Older resturant and retail. 20 older 049-150-01; 30551 18,000 eff. $322.22 slips. Bulkhead recessed 68 feet. 049-130-11 100.0 $58,000 6,000± s.f. of private tidelands with 8,000 s.f. of City tidelands. After adjustment, indicates $280 p/s.f. for land. 3 2607 W. Coast Hwy 1/14/10 $8,030,000 27,113 $296.17 Crab Shack Restaurant plus 400 049-150-27 21499 112.99 $71,068 lineal feet of side ties - sale 68 months prior to date of value limits reliability as a current value indication. Non Waterfront 4 2430 W. Coast Highway 9/29/14 $4,000,000 26,663 $150.02 Minor improvements. Prior sale 425-471-19 393513 5/7/12 at $1,580,000. Size 75 I.f. x 382 ft. Zoned MU MM. 5 Villa and 32nd St. 10/28/11 $7,262,500 47,916 $151.57 Two parcels - residential and minor and 3355 Via Lido 544538 commercial. Major demolition of 047-031-19 & multi -story office building. Zoned 428-112-03 RM, CV0.5, M6 CV. 6 3303 Via Lido 12/10/12 $2,500,000 17,424 $143.48 Prior Christian Science Church 423-112-02 763662 requires demolition. Zoned RM/Multi/Residential from P.I. (Private Institution). Ardel I's 7 2101 W. Coast Highway 1/5/16 $71,700,000 N/A N/A Including 3.0 ± acre waterfront 049-150-26+ 2793 parcel, 4.0 ± acre inland parcel and marina. GEORGE HAMILTON JONES INC. 17-149 VALUATION — continued date of sale (trend), location, size, shape, zoning, and improvement contribution. The inland data were considered useful as lower limit indicators and to note the ratio of value of bay front lands to neighboring non -waterfront parcels. Waterfront Sales Data: Sale 1: 3131 West Coast Highway, Newport Beach Sold 4/2/13; 14,713 effective sq. ft. @ $462 / sq. ft. Sale 1 has total gross fee area of 20,768 square feet, with 86.5 feet of frontage on the bay and a total depth of 240 feet. However, 6,055 square feet of this fee area is in tidelands. This results in an effective land area of 14,713 square feet, with a depth from the bulkhead to the street of 170 feet. There are 1,075 square feet of City tidelands in the marina water area. Sale 1 was improved with an old 8,000 square foot restaurant building (Villa Nova Restaurant). The new buyer has extensively reconstructed the restaurant buildings. -50- GEORGE HAMILTON JONES, INC. 17-150 VALUATION — continued Adjustments downward were made for sale conditions, contributions to value of restaurant structure, the docks, and the private tidelands within the fee area. An upward adjustment was indicated for trend. After analyzing all these elements, a price indicating the market value of the subject uplands on the order of $335 per square foot resulted. Sale 2: 2633 West Coast Highway, Newport Beach Sold 1/18/11; 18,000 effective sq. ft. @ $322 / sq. ft. Sale 2 is a Mariners Mile site in the mixed-use zone. The gross area is 24,000± square feet with 6,000± square feet of fee water area. The land was unencumbered by leases at the date of sale. There is an additional 8,000 square feet of City tidelands with a total of 20 to 21 older slips. The commercial improvements are in excess of 50 years of age and are of below average construction quality. The recent mixed-use zoning enhanced marketability. The buyer also acquired the adjacent parcel, Sale 3. A downward adjustment was made for the interim contribution of the older retail/commercial building and dock improvements. This sale -51- GEORGE HAMILTON JONES, INC. 17-151 VALUATION — continued occurred 55 months prior to the date of value of this report. Therefore, an upward adjustment for market trend is warranted. In our opinion, this sale reflects a value of subject at date of value at $315 per square foot. Sale 3: 2607 West Coast Highway, Newport Beach Sold 1/14/10; 27,113 sq. ft. @ $296 / sq. ft. Sale 3 is the transfer of the Crab Shack restaurant site. It contains 113 feet in frontage with total uplands of 27,103 square feet. City tideland area is 9,040 square feet with 6 to 8 older slips. In the sales comparison analysis, a downward adjustment was made for the contribution of the restaurant improvements and marina improvements. A market trend adjustment upward was applied. This market data item reflects a value of subject in the order of $310 per square foot. -52- GEORGE HAMILTON JONES, INC. 17-152 VALUATION — continued Non -Waterfront Sales Data: Sale 4: 2430 West Coast Highway, Newport Beach Sold 9/29/14; 26,663 sq. ft. C $150 / sq. ft. Situated on the inland side of the Pacific Coast Highway, Sale 4 is an unusually shaped parcel, with a street frontage of 75 feet and a depth of 382 feet. Zoning is MU -MM, which allows commercial and residential uses. There are three small, older buildings towards the front of property. This $4,000,000 sale transferred previously (5/7/12) for $1,580,000 or $59 per square foot. No changes on the property were apparent during intervening three years. It was reported that the buildings are to be demolished, and the land improved to a two-story medical building. Sale 4 is negatively impacted by its narrow frontage and great depth, which impacts developmental flexibility. Further, there is no access to rear line of the property. This $150 per square foot 2014 -53- GEORGE HAMILTON JONES, INC. 17-153 VALUATION — continued sale reflects a significant price trend. Applying a reasonable range of the ratio of bay front to inland land value, the sale reflects subject uplands land value in excess of $300 per square foot. Sale No. 5: Villa Way and 32nd Street, Newport Beach Sold 10/28/11; 47,916 sq. ft. @$152 / sq. ft. Sale 5 includes two independent parcels. 3355 Via Lido, which comprises 34,848 square feet of land, was improved with a 3 -story commercial/office building that was subsequently torn down in 2015. The zoning is RM -20 acres (multi -family). The site is planned for development in conjunction with Sale 6 with the proposed Lido Villas, a 23 -unit multi -family townhome project. The Villa Way and 32nd Street parcel is a 13,068 square foot site. It has been serving as an improved parking lot for several years. Zoning is CV 0.5 - Commercial Visitor Serving on the corner, with the balance of the site zoned MU -CV. 15t' Street is a mixed-use vertical category. No separate value allocations between the sites were made. This sale is offered to indicate the value of multi -family and mixed-use lands adjacent to bay fronting properties. -54- GEORGE HAMILTON JONES, INC. 17-154 VALUATION — continued Sale No. 6: 3303 Via Lido, Newport Beach Sold 12/10/12; 17,424 sq. ft. @ $143.50 / sq. ft. This is the First Church of Christ Scientist Church property at the northwest corner of Via Lido and Via Malaga in Newport Beach. It was improved with an estimated 12,000 square foot church building, reportedly constructed in 1947, but well maintained. The structure was demolished in 2015. The site is of 17,424 square feet in area with two street frontages. The coastal commission approved its rezoning from Private Institutes (P.I.) to its current zoning of RM -20. The land is to be joined with Sale No. 5 for the development of 23 multi -family townhomes. With subject uplands having a hypothetical mixed-use (commercial/residential) zone classification, Sale 6 was helpful in providing and indication of the level of value of waterfront associated but non -bay fronting properties. -55- GEORGE HAMILTON JONES, INC. 17-155 VALUATION — continued As with Sale 5 the indicated price per square foot price was adjusted upwards for trend from date of sale to date of value. Upward adjustments were also indicated for the builder's cost of demolition, and, perhaps most importantly, for the non -waterfront/ waterfront ratio. Sale 7: 2101, 2200, 2201 & 2241 Pacific Coast Highway Sold 1/5/16 for $71,700,000 This sale included 129,652 square feet (2.97 acres) of uplands waterfront parcel area with approximately 700 feet of frontage, 4.39 acres of inland land area, as well as a 57 -slip marina. While it is recognized that it is somewhat speculative to distill out the contribution of the inland and marina components to yield a residual to the waterfront parcel, it is reasonable to anticipate that a well- informed investor would give consideration to such an analysis, particularly given the location and characteristics of this sale property. -56- GEORGE HAMILTON JONES, INC. 17-156 VALUATION — continued Based on analysis of comparable data, including those presented above, we allocated approximately $140 per square foot to the inland portion of this sale. By capitalization of the projected income of the marina, we estimated that its contribution to value would be on the order of $7.5M to $8.OM. After deducting the upland area required to support the marina, the 120,000± square foot residual waterfront upland portion of this sale property indicated a land value on the order of $315 per square foot. Reconciliation and Conclusion: Bay front commercial and mixed-use land sales have traditionally been scarce due to the relatively limited supply of these property types in Newport Harbor and their infrequent exposure to the market. As a result of these circumstances, several of the data items are less current than would typically be ideal. However, in regards to empirically measuring trend, there is solid evidence from Sale 1, as well as recent improved sales at 2751 W. Coast Highway and 2801 W. Coast Highway, that there has been a marked increase in prices in this market segment. Also, increases in price and sales activity for adjacent non -waterfront parcels has been noted and verified. These trend indications are supported by the overall growth in real estate values throughout Newport Harbor in all market segments. Our detailed records of bay fronting residential sites over the last three years shows growth on the order of 6% to 8% per year. A comparability analysis of the above and other market indicators was made. Adjustments were applied to the data for differences between the sale and the subject for elements of comparability such as date of sale, location, size and shape, zoning and improvement contribution or cost of demolition. As a result of this investigation and analysis, we concluded that as a land site independent from the tidelands, the market value of the 10,000 square feet of uplands necessary to support the tidelands was equivalent to $315 per square foot. 10,000 sq. ft. x $315 per sq. ft. = $3,150,000 Uplands As An Independent Site: $3,150,000 -57- GEORGE HAMILTON JONES, INC. 17-157 VALUATION — continued Economic Considerations of Joinder: As will be shown, there is an enhancement in the return to each parcel as independent sites by virtue of joinder to a marina use. This creates the bilateral monopoly situation explained earlier. We will investigate the economic consequences of allocating this enhancement between the subject tidelands and uplands according to three basic principles: 1. Market rent for the tidelands as a residual after consideration of the increased return and opportunity cost that the uplands owner would require in order to engage in joinder. 2. As a 50/50 share of the enhancement piece of the "pie" created by joinder in a marina operation. In this approach, the benefit of the enhancement is split equally between the two parties. 3. Allocate the income stream between land and water based on an equal allocation reflecting the highest and best use of each. Tidelands Residual Analvsis In order to gauge the level of return that an uplands owner would reasonably require to engage in joinder, we need to first determine his anticipated return as an independent site. Only then can we assess the necessary enhancement. Our review of recent sales of waterfront commercial/ residential land devoted to restaurants, offices and associated purposes indicates that the return on land value, based on price paid by the sales transaction, rarely achieves more than a 3.0% annual return on the investment. We have observed this phenomenon along the commercial waterfront in Newport Harbor over several decades. (As example, see Addenda, Analysis of Return to Land for Waterfront Commercial Site) While this is below the rate of return that the typical investor in commercial land would anticipate, we have observed these properties being bought and sold at this level of annual return by well-informed buyers and sellers several times over the years. This phenomenon is explained by the fact the finite supply of waterfront commercial land creates underlying capital appreciation over time. Therefore, the investor does, in fact, realize an appropriate return on his investment, albeit not primarily through annual GEORGE HAMILTON JONES, INC. 17-158 VALUATION — continued cash flow; rather, the market -accepted profit is ultimately realized at the time of resale by increased price. This is particularly true at the present time where the mixed-use zoning holds out increasing prospects for redeveloping the land with a significant residential component, which provides a greater profit yield. As was presented in the Highest and Best Use Section of this report, our conclusion of the anticipated uplands area required for marina support was 10,000 square feet. The value of this land, based on the foregoing sales comparison analysis, was judged to be $315 per square foot. 10,000 sq. ft. x $315 per sq. ft. = $3,150,000 The anticipated annual return as an independent site would therefore be calculated as follows: $3,150,000 x .03 = $94,500 Because the current level of annual cash flow to the investment in the uplands as an independent site is relatively low, there does not need to be a major increment in that return to reach the threshold of motivation for considering an alternative highest and best use. From the perspective of the uplands owner, risk factors that would influence deliberations regarding development of a marina include a long- term commitment of the land to a specific use and the potential uncertainties and costs associated with a marina operation. Dedication of land to marina use effectively takes it out of commission for alternative uses. This, in turn, could impact its availability for the capital appreciation that could be realized if it were not so dedicated. After review of these and other factors, we reached the conclusion that a level of enhancement to a 5% return could motivate the well- informed uplands owner to consider joinder with the tidelands parcel to create an integrated marina operation. This 2% increment over the more passive 3% return discussed above is a measure of the entrepreneurial incentive that an investor dedicating his land to this use (and taking it out of circulation for other uses, including resale) would reasonably expect in order to move forward with the long-term project of marina development. -59- GEORGE HAMILTON JONES, INC. 17-159 Summary of Slip Rental Rates 2015 GEORGE HAMILTON JONES, INC. 17-160 Per Lineal Foot Per Month Item Marina Name and Location Boat Length No. 20'- 29' 30'- 39' 40'- 49' 50' - 60' 61' and Longer Pacific Coast Highway Influences 1 Harbor Tower Marina $22.00 $30.00 $33.00 - $34.00 44 $45.00 3335 W. Pacific Coast Highway 2 Ardell Marina Inc. $26.50 $30.00 $34.00 - $38.00 39 $42.00 2101 W. Pacific Coast Highway 3 Balboa Marina $34.00 - $39.00 $41.00 - $44.00 $50.00 $61.00 - $67.00 201 E. Coast Highway 4 Lido Yacht Anchorage - Bellport $35.00 $37.00 $40.00 $45.00 151 Shipyard Way 5 Bayshore Marina $34.00 $41.00 - $47.00 $69.73 2572 Bayshore Drive 6 Balboa Yacht Basin $21.44 $27.00 - 29.93 $31.79 - $34.30 $40.10 - $42.22 $44.99 829 Harbor Island Drive Close to Jetty 7 Bayside Marina $27.00 - $33.00 $43.00 - $45.00 $57.00 - $60.00 $67.00 $72.00 - $76.00 1137 & 1135 Bayside Drive GEORGE HAMILTON JONES, INC. 17-160 VALUATION — continued This enhancement would represent a 67% increase (3% to 5%) in returns over that which would be anticipated with more traditional commercial uses. $3,150,000 x .05 = $157,500 This 5% return to the uplands, representing our judgment of an appropriate level of return to warrant joinder by a well-informed uplands owner, was used in the following residual analysis to determine market rent for the tidelands. Marina Revenue Estimate in Joinder In forming our opinion of the highest and best use of the tidelands in joinder we considered the physical characteristics of the site, the appropriate land use regulations, and the likely slip rental income that would create the maximally productive marina operation. We reviewed prevailing slip rates throughout the harbor and considered the market preference for larger slips in the current environment. (The subject is considered to be vacant and available to development to its highest and best use, which reflects the market preference for slightly larger slips. It should be noted that existing marinas can and do perform renovations to replace older improvements to more appropriately meet market desires.) A summary of slip rental rates by various harbor locations is presented on the facing page. After review and analysis of this panorama of data, we formed the following conclusions as to the likely slip rents to be obtained at the subject property given prevailing market conditions as of March 15, 2016. -60- GEORGE HAMILTON JONES, INC. 17-161 VALUATION — continued Potential Gross Income Estimate Size of Slip Number Total Rate per of Slips Lineal Feet Lineal Foot Potenial Gross Income Up to 20' 4 72 $25.00 $1,800 20' to 29' 6 150 $27.00 $4,050 30' to 39' 12 420 $35.00 $14,700 40' to 49' 15 638 $38.00 $24,225 50' to 59' 5 270 $40.00 $10,800 Larger 3 195 $46.00 $8,970 45 1,745 $64,545 Additional 5% for overhang/sideties: $3,227 Potential Gross Income per Month: $67,772 Annual Potential Gross Income: $813,267 Occupancy: As discussed earlier in the Market Analysis section of this report, we concluded that a well-informed operator of the subject marina would anticipate a 5% stabilized vacancy rate, which is equivalent to 95% occupancy. Potential Gross Income: $813,267 Less Vacancy (5%): ($ 40 663 Effective Gross Income: $772,604 Accordingly, it is our judgment that the well-informed lessee of the subject tidelands would anticipate that, at highest and best use in joinder with the adjacent uplands, a marina operation would generate an effective gross income of $772,604 per year. Annual Effective Gross Income: $772,604 per year -61- GEORGE HAMILTON JONES, INC. 17-162 VALUATION — continued Percentage Rent of a Marina (Uplands and Tidelands in Joinder) In Southern California, most marina developments are constructed as part of publicly owned projects under the jurisdiction of a governmental entity, such as City, County, or Port District, that controls both land and water. The improvements are typically built by the lessee pursuant to long- term leases of the land and water in joinder. We made an extensive investigation of these existing leases, the details of which provided empirical evidence of the level of percentage rent accepted by the market for land and water in joinder for marina purposes throughout Southern California. The marina projects and governmental jurisdictions that were surveyed are: PROJECT JURISDICTION San Diego Bay Port of San Diego Mission Bay City of San Diego Oceanside Harbor Oceanside Harbor District Newport Harbor Private/ City/ County Sunset Aquatic Park County of Orange/ Private Long Beach Marina City of Long Beach Downtown Shoreline Marina City of Long Beach Los Angeles Harbor Port of Los Angeles Marina del Rey County of Los Angeles King Harbor City of Redondo Beach Channel Islands Harbor — Oxnard County of Ventura Ventura Marina Ventura Port District Santa Barbara Harbor City of Santa Barbara The survey data for specific marina percentage rents found at various harbors throughout Southern California are summarized below. This market information was confirmed with managers, lessors and operators. -62- GEORGE HAMILTON JONES, INC. 17-163 VALUATION — continued Jurisdiction Slip Rents San Diego Port District 15% - 22% City of San Diego 25%; Some 20% Dunes, Newport Beach 25% Bridge Restricted Bay Club Newport 31% (Pt. Bay Club Lease) Huntington Harbor Graduated 25% to 35% Marina del Rey 25% Redondo Beach 25.5% Ventura Harbor 23.5% Channel Islands Harbor 25% These market data items represent negotiated transactions in which both lessee and lessor were acting prudently and knowledgeably and neither was under any undue compulsion to consummate the lease. In an interview on September 14, 2015, with James Allen of Redondo Beach, it was learned that they have recently reduced the percentage rate for the Portofino Marina in King Harbor from 27% to 25.5% of gross slip revenue. Of the 23 marinas in Marina Del Rey, at the date of value all but three were at 25%. The others were at 20%. There is no evidence that these percentage rents will be adjusted in the near future even though slip rates in the newer projects are currently at levels approaching those found in Newport Harbor. The recently constructed Marina del Rey Hotel Marina is subject to a rental at 25% of the gross revenue. From the panorama of empirical data presented above, it is apparent that 25% of slip revenue is widely accepted as an appropriate percentage to be applied to leases of marinas with uplands and tidelands operating in joinder. This 25% multiplier has been tested many times over the years and upheld by numerous arbitrations, hearings, etc. Its general acceptance has resulted in far fewer serious disputes between lessor and lessee occurring. The rate has been analyzed and accepted as being a residual component of the four elements that make up the principal components of the monetary obligations that a marina operation must meet. These are: 1. Amortization of costs of marina improvements (docks, berths, walkways, utilities, upland structures, parking facilities, etc.). 2. Operational costs. -63- GEORGE HAMILTON JONES, INC. 17-164 VALUATION — continued 3. A return to entrepreneurial incentive (risks, profit, time, etc.). This being necessary to attract a developer to the investment. 4. Return to tidelands and upland values. The first three items can be accommodated by 75% of gross slip revenue. The 4th item is the residual 25% available for payment of rent to the uplands and tidelands. Accordingly, we concluded that a rental rate of 25% of gross revenues at the subject property would be well supported if the tidelands and appropriate uplands were available in joinder. Percentage Rental Rate — Tidelands & Upland in Joinder: 25 % Allocation of Market Rent Between Uplands and Tidelands The foregoing discussions have set out the pertinent criteria, based upon market evidence, that would reasonably be considered in developing an indication of market rent for the subject tidelands by a residual analysis. The approach is intended to develop a supportable estimate of what portion of total revenue generated by the marina should be appropriately allocated between the uplands and the tidelands. The procedure to achieve this end involves the following steps: Form an opinion of the Effective Gross Income of the marina operation (land and water in joinder). 2. Determine the market rent due for land and water in joinder by application of the market -derived percentage rent factor of 25%. 3. Deduct the appropriate return to the uplands that would reflect the enhancement that accrues to the property by virtue of joinder (above the anticipated return as an independent parcel). 4. The residual amount represents the market rent for the tidelands at its highest and best use in joinder with the uplands for marina use. UMA GEORGE HAMILTON JONES, INC. 17-165 Tideland's Residual Analysis GEORGE HAMILTON JONES, INC. 17-166 Potenial Size of Number Total Rate per Gross Slip of Slips Lineal Feet Lineal Foot Income Up to 20' 4 72 $25.00 $1,800 20' to 29' 6 150 $27.00 $4,050 30' to 39' 12 420 $35.00 $14,700 40' to 49' 15 638 $38.00 $24,225 50' to 59' 5 270 $40.00 $10,800 Larger 3 195 $46.00 $8,970 45 1,745 $64,545 Additional 5% for overhang/sideties: $3,227 Potential Gross Income per Month: $67,772 Annual Potential Gross Income: $813,267 Occupancy: 95.0% Vacancy and Collection Loss (5.0%) (40,663) Annual Effective Gross Income: $772,604 Percentage Rent to Land and Water @ 25%: $193,151 Upland's Allocation: Uplands Land Area (sq. ft.): 10,000 Value of Uplands per Sq. Ft. $315.00 Indicated Total Value of Uplands: $3,150,000 Percent Return to Uplands: 5.00% Indicated Return to Uplands: $157,500 ($157,500) Indicated Residual Allocation of Rent to Tidelands: $35,651 Tidelands Rent as % of Effective Gross Income: 4.61% Indicated Annual Tidelands Rent per Sq. Ft.: $0.64 GEORGE HAMILTON JONES, INC. 17-166 VALUATION — continued 5. Express the market rent for the tidelands as a percentage of the Effective Gross Income and as Price per Square Foot of tidelands. A summary of these steps is set out below. The details of this analysis are presented on the page opposite. 1. Annual Effective Gross Income: $772,604 2. Market Rent for Uplands and Water in Joinder @ 25%: $193,151 3. Allocation Rent to Uplands: $157,500 4. Residual Rent to Tidelands: $35,651 5. Market Rent as % of Gross: 4.61% Market Rent as $/sq. ft. tidelands: $0.64 As discussed earlier, the unique situation of having a single seller/lessor (a monopoly) and a single buyer (monopsony) creates a bilateral monopoly in which the price (market rent of the tidelands) will be affected by the interdependence of the parties. It is assumed that, as in all open market conditions, both entities are acting in their own best interests with no undue compulsion to complete the transaction, which, in this case, is joinder for marina purposes. The motivation for each party in joinder is to obtain a return greater than they would have received as independent sites. To judge whether the indication of market rent for the tidelands expressed above is reasonable in the light of these bilateral monopoly dynamics, the follow analysis was undertaken. First, the expected annual return for each parcel as an independent site was determined. This has been discussed in the pages above'. s The independent tidelands parcel was studied based on the current $35.00 per lineal foot rate and the previous $55.00 per lineal foot rate. The flow-through implications for both bases will be shown in the following analyses. -65- GEORGE HAMILTON JONES, INC. 17-167 Total in Joinder: $193,151 ❑ Upland's Independent Income ❑ Tideland's Independent Income ❑ Enhancement by Joinder GEORGE HAMILTON JONES, INC. 17-168 VALUATION — continued At $35.00/ lineal foot rate for tidelands: Uplands Parcel: $94,500 Tidelands Parcel: $10,640 Total Both Parcels: $105,140 The total enhancement by virtue of joinder was determined. Total Revenue in Joinder: $193,151 Total Both Parcels as Independent: ($105,140) Indicated Enhancement: $88,011 Therefore, from the "pie" of total rental income owing to the uplands and tidelands together, an $88,011 "piece" is the enhancement above and beyond the income to the sites individually that is created by virtue of the joinder. This enhancement "piece of the pie" should, therefore, be divided between the two parties in an equitable manner that recognizes the bilateral monopoly influences discussed earlier. In the residual analysis above, $63,000 of the enhancement was allocated to the uplands ($94,500 to $157,500). This was considered to be a reasonable threshold level of motivation to entice a well-informed owner of the uplands to commit to joinder for marina use. This $63,000 represents 71.6% of the "enhancement piece" ($63,000/$88,011), and it also represents a 67% increment on the expected return for the uplands owner as an independent site ($94,500 to $157,500). Correspondingly, the tidelands benefits by receiving 28.4% of the "piece of the pie" ($25,011/$88,011). While this is less than a 50/50 split of the actual enhancement amount, the relative income to the tidelands by virtue of joinder is increased 3.35 times, or 235% ($10,640 to $35,651). As discussed, the same study was tested at the recently repealed $55.00 per lineal foot rate for the economic measure of the tidelands as an independent site: -66- GEORGE HAMILTON JONES, INC. 17-169 VALUATION — continued At $55.00/ lineal foot rate for tidelands: Uplands Parcel: $94,500 Tidelands Parcel: $16,240 Total Both Parcels: $110,740 The total enhancement by virtue of joinder was determined. Total Revenue in Joinder: $193,151 Total Both Parcels as Independent: ($110,740) Indicated Enhancement: $82,411 In this case, the $63,000 of the enhancement that is allocated to the uplands ($94,500 to $157,500) represents 76.4% of the "enhancement piece" ($63,000/$82,411). Again, it is a 67% increment on the expected return for the uplands owner as an independent site ($94,500 to $157,500). In this case, the tidelands benefits by receiving 23.6% of the "piece" ($19,411/$82,411). While this is less than a 25/75 split of the actual enhancement amount, the relative income to the tidelands by virtue of joinder is increased 2.20 times, or 120% ($16,240 to $35,651). Therefore, while a greater share of the total enhancement is allocated, in whole number terms, to the uplands, the benefit to the tidelands, relative to its value as an independent site, is proportionately greater than for the uplands: 2.20 to 3.35 times (for tidelands) compared to 1.67 times (for uplands) . Allocation of the Enhancement as a 50/50 Share Between Tidelands and Uplands The total enhancement of joinder with the tidelands value based on a $35.00 per lineal foot per year mooring rental rate was shown to be $88,011. If this total amount were shared equally between the two parties, each would receive $44,005 above their income as independent sites. The total income to the tidelands would, therefore, be $54,645 ($44,005 + $10,640). This would represent 7.1% of the gross revenues of the entire marina operation ($54,645/ $770,800). -67- GEORGE HAMILTON JONES, INC. 17-170 VALUATION — continued The same analysis applied to the $55.00 per lineal foot per year mooring rental rate yields a total enhancement of $82,411, but with an income for the tidelands as an independent site of $16,240. A 50/50 split of the $82,411 enhancement for joinder in a marina operation between the tidelands and uplands would result in each receiving $41,205 more than they would have as independent sites. The total income to the tidelands would then be $16,240 + $41,205 = $57,445. This is equivalent to 7.5%± of the projected gross income of $770,800. As the definition of a bilateral monopoly states, there is no market- based method for judging the appropriate allocation of enhancement; it is a matter of negotiations between parties and is best analyzed through a test of reasonableness, while acknowledging that both parties must benefit by the transaction. In our judgment, most market participants would consider the analyses shown above to be fair and equitable approaches for determining a means of allocation of the total enhancement by joinder of the two properties in a marina development. These studies indicated a range for the market rent applicable to the subject tidelands of approximately 4.6% to 7.5% of the gross revenue of the marina operation. Allocation of The Income Stream Based Highest and Best for Each as Established Marina: This methodology is designed to give weight to the fact of the ongoing existence of commercial marinas in Newport Harbor and the established partnership between the uplands and tidelands. This approach allocates the rent between the land and water based on an equalized rate of return for each, considering the highest and best use of each parcel. This approach employs a 9 -step analysis, which results in an indication of market rent for subject tidelands generated by the marina at its highest and best use. The first three steps in this process are the same as those employed in residual analysis. The subsequent steps are designed to reflect the established relationship between tidelands and uplands as joined to a commercial marina use. In effect, this considers that joinder has already occurred and is operative. cello GEORGE HAMILTON JONES, INC. 17-171 VALUATION — continued The steps are initially listed below, with an explanation of their application following. 1. Estimate the value of the tidelands independent of the uplands. 2. Estimate the value of the uplands independent of the tidelands. 3. Estimate the market rent of the uplands and tidelands in joinder as a marina. 4. Analyze the arithmetic distribution of that rental to the tidelands by the relative area of the tidelands relative to the total area of the tidelands and uplands in joinder (as a marina). 5. Estimate the market rent of the uplands at its highest and best use, expressed as a dollar amount return on the value of the property. 6. Determine the ratio of the arithmetically allocated market rent of the tidelands considered in joinder to the combined market rent of the tidelands and uplands at their respective highest and best use values. 7. Develop a preliminary indication of the apportioned rent to tidelands. 8. Adjust apportioned rent in accordance with each component's relative relationship to the actual total rent in joinder. 9. Allocate fair rental value (market rent) between uplands and tidelands as a dollar amount. 1. Estimate the Value of Tidelands Independent of the Uplands: This step was discussed in the residual analysis, and the conclusion was as follows: 56,000 sq. ft. @ $0.19 per sq. ft. = $10,640 annual rene 9 This analysis will use the prevailing $35.00 per lineal foot basis for tidelands independent value. -69- GEORGE HAMILTON JONES, INC. 17-172 VALUATION — continued Capitalized @ 5% = $212,800, or $3.80 per square footlo 2. Value of the Uplands Independent of the Tidelands: This step was discussed in the residual analysis, and the conclusion was as follows: 10,000 sq. ft. @ $315 per sq. ft. = $3,150,000 3. Market Rent of Uplands and Tidelands in Joinder as Marina: This computation derives the total dollar amount of rental due for the subject marina operation at its highest and best use based on the market evidence presented earlier that the appropriate rent for the land and water areas necessary to the operation of a modern marina facility is equivalent to 25% of the total gross slip rental generated within the project. This step was presented in Approach 1 as well. It was derived by multiplying the Effective Gross Income by the market-based percentage rent of 25% as follows: Effective Gross Income: $772,604 Percentage Rent (25%): x .25 Market Rent in Joinder: $193,151 4. Determine the Arithmetic Distribution of the Tidelands Relative to the Total Area of Tidelands and Uplands in Joinder: This is simply a mathematical calculation. It distributes the rental to the tidelands in accordance with its area in relation to the combined area of upland and tidelands. The subject tidelands comprise 56,000 square feet of water area. It requires access to 10,000 square feet of uplands to accommodate the required 27 parking spaces " Note: The California Code of Regulations indicates that public lands shall be leased either at a percentage of annual gross income, or 9% of the appraised value of the leased land. Based on the capitalized value of the tidelands as an independent parcel of $3.80 per square foot, this 9% criterion would reflect rent of $0.34 per square foot per year. -70- GEORGE HAMILTON JONES, INC. 17-173 VALUATION — continued and an additional 550 square feet of land for bathrooms, showers, and walkways/office to serve the marina use. The total required area for the marina operation is 66,000 square feet. Arithmetic proportion of tidelands = 56,000 = 85% 66,000 Relative distribution of rental to the tidelands as a proportion of the total marina area (land and water) = 0.85 x $193,151 = $164,178 Arithmetic Distribution of Rental to Tidelands by Area: $164,178/yr. 5. Fair Rental Value Uvlands In Joinder with the Tidelands: The market indicates that in the Newport Harbor area the well- informed investor can anticipate a far lower return on land value than would be the case in many other locations. This is reasonably ascribed to the capital appreciation potential of the sites, which arises from the limited supply and the lack of comparable alternative locations. Accordingly, based on market evidence, we believe a 5% rate can be supported as market rent for the uplands as of the date of value in joinder with tidelands. As discussed earlier, this reflects the appropriate enhancement of the return to the uplands by reason of joinder for marina use above the return as an independent site. The equation applicable to this step is: Fair Rental Value Uplands = Value Uplands x 5% Application to Subject Uplands: $3,150,000 x .05 = $157,500/year Fair Rental Value Uplands in Joinder with Tidelands: $157,500/ year -71- GEORGE HAMILTON JONES, INC. 17-174 VALUATION — continued 6. Ratio of the Arithmetically Distributed Market Rent of Tidelands to the Combined Market Rents of the Tidelands and Uplands at Their Respective Highest and Best Uses: As shown in Step 4 above, the maximum dollar rent allocation that can be placed on the tidelands is that which can be calculated as an arithmetic distribution of the rental value of the water and the uplands in accordance with the area of each element. This requires joinder of the two. Without joinder, the value of the tidelands independently, as stated in Step 1 above, is limited. The function of this step is to adjust this arithmetic relationship between the parts so that the uplands receives an appropriate share of the revenue that is reflective of its highest and best use, with the residual apportioned to the tidelands. This requires an adjustment in distribution of rental revenue from a strictly arithmetic basis to an economic basis reflecting the uplands highest and best use. In order to accomplish this, it is necessary to measure the relationship (ratio), in terms of rent allocation, of the tidelands at its highest and best use (in joinder) to the combined contribution of each part at their individual highest and best uses. The equation applicable to this step is as follows: Ratio = Tideland Rent Apportioned by Area Tideland Rent Apportioned by Area + Upland Rent in Joinder Ratio = $164,178 $164,178 $164,178 + $157,500 $321,678 = 51.04% Ratio of the Rental of the Tidelands by Area to Combined Rental of Each Component at Highest and Best Use: 51.04% -72- GEORGE HAMILTON JONES, INC. 17-175 VALUATION — continued 7. Preliminary Indication of Apportioned Rental to Tidelands: This step is simply the application of the above ratio to the tidelands arithmetic portion of the total land and water (in joinder) market rent indication (Step 4). In this way, the uplands receive a return commensurate with its highest and best use while operating in joinder with the tidelands. The equation for this step is: Arithmetic Tidelands Rental by Area x Ratio $164,178 x 0.5104 = $83,793 Preliminary Apportioned Rental to Tidelands: $83,793/ year This is not the final allocation, since an adjustment must be made to further equalize the return to each component in relation to the actual total revenue generated by the marina use (land and water in joinder). 8. Adjustment of Apportioned Rent: are: Up to this point, we have three rental estimates available. They a) Fair Rental Value Tidelands and Uplands in Joinder as a Marina (Step 3): $193,151/year. b) Fair Rental Value of Uplands at Highest and Best Use in Joinder (Step 5): $157,500/year. c) Preliminary Indication of Apportioned Rental to Tidelands Reflecting Joinder (Step 7): $83,793/year. It has been established that the tidelands and uplands in joinder have a provable market rental value. That fair rental value was $193,151 per year. This total rent must therefore be apportioned respectively so that the tidelands and uplands each receive an adjusted portion of this amount. The relative relationship of the rents should be equivalent to -73- GEORGE HAMILTON JONES, INC. 17-176 VALUATION — continued the same proportion to their relative rental values as shown in Items (b) and (c) above. Saying it another way, the summation of the ultimate fair rental values of each element, when in joinder and restricted to the use as a marina, cannot exceed the $193,151 per year. This is the economic rental value of the combined properties. Therefore, a factor must be developed which will adjust each of the independent rental indications so that combined values are equivalent to the total rent for the marina. This is best shown through the following: Total Fair Rental Value Uplands and Tidelands in Joinder as a Marina: $193,151 Preliminary Tidelands Rent: $83,793 Market Rent Uplands at H & B Use: +$157,500 Total: $241,293 Required Adjustment Factor = $193,151 - $241,293 = 0.8005 Equalization Adjustment Factor: 0.80 9. Allocation of Fair Rental Value: This final step is carried out by applying the adjustment factor to the two proportionate rental estimates previously calculated. The equation is therefore: Market Rental Value Tidelands = Adjustment Factor x Preliminary Tidelands Rent and Market Rental Uplands = Adjustment Factor x Market Rent of Uplands atH&BUse -74- GEORGE HAMILTON JONES, INC. 17-177 VALUATION — continued Market Rental Value Tidelands = 0.80 x $83,793 = $67,034 per year and Market Rental Value Uplands = 0.80 x $157,500 Check: = $126,000/ year $67,034 + $126,000 = $193,034/ year Tidelands Market Rent Conclusion: $67,000 per year This is equivalent to: 8.67% of Effective Gross Income ($67,000 = $772,604), or 56,000 square feet @ $1.20± per square foot per year Reconciliation: This valuation analysis includes a market data approach and economic analyses derived from empirical data. These studies recognized that the subject property is an independent tidelands parcel with no rights of access to the adjacent uplands. Because such access is necessary for the operation of a commercial marina, this valuation invoked the extraordinary assumption that the subject has access to the adjacent uplands. This allowed us to carry out a meaningful analysis of the tidelands as dedicated to commercial marina use. The market data approach involved analyses of tidelands -only leases. Included among these was the California State Lands Commission (CSLC) benchmark studies, which indicated that most submerged lands (tidelands) owned by the State of California and used for dock purposes would be leased at a rate of 5% - 7% of the gross income generated by similar commercial marina uses. This methodology was based on the foundational appraisal concept of the Principle of Substitution. -75- GEORGE HAMILTON JONES, INC. 17-178 VALUATION — continued While relatively limited in number, other open -market, tidelands -only lease data in the Southern California coastal region represented a range of 8.5% to 11.0% of gross income as a basis for tidelands rent. In our review and analysis of these data, we formed the opinion that greatest weight should be given to the BCYC lease at 9.0% because both parties were well- informed, acting in their own best interests, and based their acceptance of lease terms on an independent (3rd party) assessment of market rent. The economic analyses that were considered used market evidence to value the tidelands and the uplands as independent sites as a starting point. This was done in order to gain a frame of reference of the economic benefits that joinder of the two parcels for marina purposes would generate. Discussions were presented regarding the economic considerations of a bilateral monopoly, and the reasonable expectations of the two parties who undertake joinder. It was recognized that, in joinder, both parties would require an enhancement in the returns over what would be expected as independent sites. The allocation of the enhancement, as set out in the analysis using a residual approach to equitable tidelands income was shown to be reasonable and consistent with what would be expected by well-informed participants acting in their own best interests. This analysis used two rates (the prevailing $35.00 per lineal foot and a recently repealed $55.00 per lineal foot rate) as a basis for independent tidelands value. In both cases, the increment to the tidelands through allocation of the enhancement was shown to be greater, relative to its independent value, for the tidelands than for the uplands even though the total amount was greater for the uplands. This approach resulted in an indication of market rent for the subject tidelands of 4.6% of the gross rental income, or $0.64 per square foot of tidelands area. This is very close to the 5.0% return on tidelands employed in the State Lands Commission Benchmark Rent Analysis. A second method of analyzing how to equitably allocate the enhancement in gross revenue created by joinder in a marina operation was to split that quantified enhancement equally between the uplands and tidelands. This resulted in an indication of market rent for the tidelands ranging from 7.1 % to 7.5 %. -76- GEORGE HAMILTON JONES, INC. 17-179 VALUATION — continued The final economic approach was premised upon the same fundamental principles as the residual approach, but also included elements designed to equalize the return to each parcel (at its highest and best use in joinder). This approach gave increased weight to the subject tidelands as already effectively joined to the uplands. This is recognized to be a benefit to the tidelands, especially in light of earlier discussions regarding the relative value of the parcels as independent entities. This approach is judged to more closely reflect the condition of an established marina, as opposed to the assumption of vacant land and tidelands that is implicit in the other analysis. This approach resulted in an indication of market rent for the subject property of 8.67% of the gross rental income and $1.20 per square foot of tidelands area. Summary of Indications of Return to Tidelands: Market Data Approach: California State Lands Commission: Southern California Marinas — Tidelands Only: Economic Residual Analysis 50/50 Split of Enhancement: Existing Marina/Joinder: 5% - 7% of gross revenue 8.25% - 11.0% of gross revenue 4.6% of gross revenue 7.1% - 7.5% of gross revenue 8.67% of gross revenue The market data approach offers compelling evidence for the middle portion of the range between 5 % and 11 % as a balance between State Lands Standards (fee owner of subject) and negotiated terms for generally comparable property to the subject tidelands. The economic approaches address the uncertainty and inherent subjectivity associated with a bilateral monopoly situation. The range — from 4.6% to 8.67% - reflects the variability inherent in a bilateral monopoly analysis. -77- GEORGE HAMILTON JONES, INC. 17-180 VALUATION — continued In our final reconciliation we concluded that the open -market tidelands -only data should be given considerable weight, as these reflect the terms in which much of the analysis that goes into well-informed negotiations by both parties are conducted. The most meaningful in our opinion were the Sunset Aquatic Marina (Huntington Harbor) lease at 8.5%, the Bahia Corinthian lease in Newport Harbor at 9.0%, the Glorietta Bay Marina at 11%, and the negotiated lease at the Coronado Yacht Club from 8.25% to 11.0%. (It is our understanding that, while this lease was not consummated due to Coastal Commission issues, both parties agreed to the percentage rental terms.) The California State Lands Commission published benchmark rate of 5% was also carefully considered since the State is the fee owner of the subject property. It was recognized that, in some instances, the State reportedly applies a 7% rate as well. The economic analyses were used to address the implicit variability of a true, open -market bilateral monopoly and were fundamentally intended to provide support for the financial logic underlying the market data evidence. This data was well -supported, at one end showing the State Lands benchmark at 5% to be consistent with the residual to the tidelands approach. An analysis based on a 50150 split of the enhancement created by joinder resulted in tidelands rental indication of 7.1% - 7.5%, which was in line with the upper end of State Lands data. Finally, the lower end of the market data range — 8.25% to 9.0% - was supported by the economic allocation designed to equalize the return to each parcel at its highest and best use in joinder. It was in this range that the nexus of the various approaches was, in our opinion, best supported. In light of all the foregoing, and other less pertinent factors, we formed the opinion that market rent for the subject tidelands property, as dedicated to marina use and considering the extraordinary assumption of joinder with the adjacent uplands parcel, was, as of March 15, 2016, equivalent to: 8.50% of the annual gross slip rental revenue -78- GEORGE HAMILTON JONES, INC. 17-181 VALUATION — continued This conclusion leads to the following calculations of subject tidelands market rent: Assumed gross revenue: $770,800 % Rent to tidelands: 8.5% Tidelands annual rent: $65,520 Tidelands area: 56,000 square feet Rental per square foot: $1.17 per square foot per year MARKET RENT CONCLUSION 8.50 % of annual gross revenues, or $1.17 per square foot of tidelands per year -79- GEORGE HAMILTON JONES, INC. 17-182 Addenda 17-183 Analysis of Return to Land for Waterfront Commercial Site Location: West Coast Highway, Newport Beach Mariners Mile Land: 100' x 216 (21,600 s.f.) bay front Improvement: 5,750 s.f. restaurant Lease: Long term, amended 2009 Rental: 2011-2016: $330,000 per year with option to extend at a graduated rate Percentage Rate Prior to Amendment: 2011-2016: 6% of gross income from restaurant Effective Gross Sales at Amended Rates: $330,000 - .06 = $5,500,000 per year Market Percentage Rent to Land Only: 3.5% of gross sales Estimated Rental to Land Only: 3.5% of $5,500,000 or $192,500 per year Land Appraised Value 2013: $6,400,000 Indicated Cap Rate: $192,500 = $6,400,000 = 3.01 % GEORGE HAMILTON JONES, INC. 17-184 CERTIFICATION The undersigned hereby certify that: 1. Mr. George H. Jones, Mr. Casey Jones have inspected the Newport Harbor tidelands and adjacent uplands parcels on numerous occasions over several decades. The most recent was in the several weeks before and after the date of value. 2. To the best of our knowledge and belief, the statements of fact contained in this report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the assumptions and limiting conditions stated herein, and are the personal, unbiased professional analyses, opinions, and conclusions of the undersigned. Those limiting conditions (imposed by the terms of the assignment or by the undersigned) considered to affect the analyses, opinions, and conclusions are contained in this report. 4. We have no present or prospective interest in the property that is the subject of this report. We have no personal interest or bias with respect to the subject matter of this report or the parties involved. We performed a similar appraisal of the Newport Harbor tidelands, for a different client and different intended user, presented in a report dated August 31, 2012. 5. The compensation for this assignment is not contingent upon the reporting of a predetermined value L- or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This report is not conditioned upon a requested minimum valuation, a specific valuation, or the approval of a loan. 7. The reported analyses, opinions, and conclusions were developed, and this report has been prepared. in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice (USPAP). 8. No one other than the undersigned prepared the analyses, conclusions, and opinions or provided other significant real property appraisal assistance concerning the real property interests that are the subject of this report. 9, The Appraisal Institute conducts a program of continuing education for its designated members. As of the date of this report, Mr. George H. Jones and Mr. Casey Jones have completed the continuing education program of the Appraisal Institute. 10. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. Barge Ha t ton kGR1QAI C n , MAI (Calif. License No. AG005632) (Calif. Licen e AG041862) GEORGE HAMILTON JONES, INC. 17-185 LIMITING CONDITIONS The Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute require that all assumptions and limiting conditions that affect the analysis be clearly and accurately set forth. To assist the reader in interpreting this report, the primary assumptions and limiting conditions affecting the analysis of the subject properties are set forth below. Other assumptions and conditions may be cited in relevant sections of the following report. 1. That the date of value to which the conclusions and opinions expressed in this report apply is March 15, 2016. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American dollar existing on that date. 2. That the appraisers assumes no responsibility for economic or physical factors which may affect the opinion herein stated occurring at some date after the date of value. 3. That the appraisers reserve the right to make such adjustments to the valuation herein reported, as may be required by consideration of additional data or more reliable data that may become available. 4. That no opinion as to title is rendered. Data related to ownership and legal description was obtained from public records, and is considered reliable. Title is assumed to be free and clear of all liens and encumbrances, easements and restrictions, except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Investigation of the property's history is confined to examination of recent transactions or changes in title or vesting, if any, and does not include a "use search" of historical property utilization. 5. That no engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area was taken from sources considered reliable and no encroachment of real property improvements is considered to exist. 6. That maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. 7. As a premise of this report it is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the following analysis. GEORGE HAMILTON JONES, INC. 17-186 LIMITING CONDITIONS - continued 8. That no opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. It is assumed that there are no hidden or unapparnt conditions of the property that render it more or less valuable. No responsibility is assumed for such conditions or for the arranging of studies that may be required to discover them. The function of this report is to provide an opinion of the value of the real property as herein defined. Under no circumstances should this report be considered as providing any service or recommendation commonly performed by a building inspector, structural engineer, architect, pest control inspector, geologist, etc. 9. That no soil reports concerning the subject property were available. This valuation is based upon the premise that soil and underlying geologic conditions are adequate to support standard construction consistent with highest and best use. 10. That no specific information was available for our review relating to hazardous materials or toxic wastes that may affect the appraised property. Unless otherwise stated in the report, we did not become aware of the presence of any such material or substance during our investigation or inspection of the appraised property. However, we are not qualified by reason of experience or training to identify such materials or substances. The presence of such materials and substances may adversely affect the value of subject property. This valuation is predicated on the assumption that no such material or substance is present on or in the subject properties or in such proximity thereto that it would prevent or impair development of the land to its highest and best use or otherwise affect its value. The appraisers assume no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state, and local environmental laws, regulations, and rules. 11. This Appraisal Report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. Disclosure of the contents of this appraisal report is governed by the By -Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected, or any reference to the Appraisal Institute, or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the author. GEORGE HAMILTON JONES, INC. 17-187 QUALIFICATIONS OF GEORGE H. JONES, MAI Member of the Appraisal Institute Certified General Real Estate Appraiser, State of California, No. AGO05632 Certified General Real Estate Appraiser, State of Nevada, No. 04192 Educational: High School: Pomona High School College: Pomona Jr. College - 1941 - 1942 Stanford University - 1942 - 1943 University of California at Berkeley (U.S.N.R. transferee) - June 1943 to June 1944 Graduated Bachelor Applied Science (Engineering) - June 1944, University of California at Berkeley (non -interrupted four-year curriculum in three years). Advanced Study: American Institute of Real Estate Appraisers - Candidate Study Courses I and II, August - September, 1950; U.S.C. Engineering School, 1949-1950 Professional: 10151 to Date: Independent fee appraiser, primarily serving general Southern and Central California areas, but with experience in Nevada, Arizona, Utah, and Hawaii. Valuation of all classes of real property: residential, residential income, commercial, industrial, agricultural and special purpose. Experienced in problems of fair market value estimations, condemnation, value of lease interests, fair rental estimates, economics of property utilization and others. 1948 - 10151: Real Estate Appraiser, Bank of America, Los Angeles Headquarters. Valuation of all classifications of real property for mortgage loan and fair market value purposes throughout Southern California. 1946 - 1948: Estimator - Engineer and Chief Estimator - Engineer Southern California area, Bank of America - Los Angeles Headquarters Appraisal, secondary duty 1946 - 1946: Stress Group (Engineering) - Douglas Aircraft, Santa Monica 1944 - 1946: United States Navy, Structures Officer, U.S. Navy Air Corps 17-188 Qualifications of George H. Jones, MAI Page 2 Qualified for court testimony as expert witness on real estate valuations in Superior Courts of Orange, Los Angeles, Riverside, San Diego, San Bernardino, Santa Barbara, San Luis Obispo Counties and Salt Lake City, Utah. Also U.S. Federal Court in Fresno and Los Angeles; U.S. Tax Court in Los Angeles; U.S. Court of Claims in Los Angeles and Honolulu. Appointed as court appraiser within Superior Courts of Los Angeles and Orange Counties and Federal Courts of Los Angeles and Orange Counties. Served as instructor at UCLA between 1952-1959. Extension courses on Real Property Valuations, primary and advanced. Since 1963 — 1985, Instructor for American Institute of Real Estate Appraisers at various campuses throughout the United States, primary subjects taught: Investment Analysis and Litigation Valuation. Lecturer at various seminars for Appraisal Institute and International Right -of -Way Association. Representative appraisal clients include, in part, the following: Inde ctri al Union Pacific R.R., Las Vegas Johns Manville Corp., Corona Cabot, Cabot, and Forbes Beeco Corporation U.S. Motors, Anaheim National Cash Register Co. The Irvine Company Los Angeles County Transit District Port of Los Angeles Commercial: John B. Kilroy Company Southern Counties Gas Co. Frank H. Ayres and Son Sheraton Hotel Disneyland, Anaheim Bank of America Santa Catalina Co. Frazee Paints Agricultural: M.B.M. Farms, Cucamonga, Etiwanda Bell-Pitzer Groves, Claremont Agro Phosphate Co., Imperial Fresno Counties Santa Catalina Co. Yellow Cab Company, Los Angeles Ford Motor Co., Newport Beach LAX Intercontinental Airport, Palmdale Bixby Ranch Company Southern Pacific Company American Can Company Orange County Transit Company Nevada Department of Transportation Los Angeles Community Redev. Agency Beverly Hills Develop. Co., Beverly Hills Southern California Edison Company The Irvine Company East Anaheim Shopping Center Cagney Estate Curci-Turner Company Rancho Mission Viejo, Orange County George Kinsey, Antelope Valley The Irvine Company 17-189 Qualifications of George H. Jones, MAI Page 3 Residential, Residential Income, Subdivision Acreage: Hercules Powder Co., San Fernando Southern California Gas Company General Motors Real Estate Division The Irvine Company Southern California Edison Co. Crown Zellerback Company Pacific Electric Co. - S.P.R.R. Gersten Corporation Fritz Burns Foundation Estate of William Cagney Citation Builders Ayres Hotels L.A. County Department of Beaches & Harbors Morro Bay Land Co. Santa Catalina Company Governmental Bodies: California State Attorney General's Office California State Department of Transportation (Caltrans) State Department of Finance County Counsel - Santa Barbara & Ventura County Counsel - San Diego Orange County Harbor District San Diego United Port District State Division of Highways, Districts VII & VIII Los Angeles Dept. of Water & Power State Division of Beaches & Parks U.S. Department of Justice, Lands Division, So. District of California County of Orange, Flood Control District, County Counsel, Right -of -Way Dept., G.S.A. County of Los Angeles, Flood Control District, County Counsel County of Los Angeles, Department of Beaches & Harbors Kern Delta Water District Riverside County Flood Control District City of Buena Park City of Cathedral City City of Corona City of Costa Mesa City of Fullerton City of Hermosa Beach City of Laguna Beach City of Newport Beach City of Redondo Beach City of San Clemente City of Santa Ana City of Santa Barbara 17-190 Qualifications of George H. Jones, MAI Page 4 School Districts: Westminster School District Newport -Mesa School District Savanna School District Fullerton School District San Clemente School District Lending Institutions: Bank of America, Trust Depts. City National Bank and Trust Co. of Chicago Newport -Balboa Savings and Loan Union Bank and Trust Company of Los Angeles Attorneys: Anaheim City Schools Magnolia School District Placentia School District Capistrano School District Chino Unified School District Security Pacific Bank Pico Citizens Bank Crocker - Citizens Bank Best, Best & Kreiger, Riverside - Barton Gaut Santa Fe Southern Pacific Corp., Los Angeles - Anthony P. Parrille Gibson, Dunn & Crutcher, Los Angeles - William Steinhart, Jr. Gibson, Dunn & Crutcher, Beverly Hills - Robert D. Burch Harwood, Adkinson and Meindl, Newport Beach - Don R. Adkinson Latham & Watkins, Los Angeles - John C. Hall O'Melveny & Myers, Los Angeles - Richard S. Volpert O'Melveny & Myers, Los Angeles - Ed Szczepkowski Nossaman, Guthner, Knox & Elliott - Alvin S. Kaufer, John Murphy Rutan & Tucker - Clifford Frieden, Mike Rubin Berger & Norton - Richard Norton Robert Waldron - Santa Ana Donald J. Drew - Pasadena Other: South Laguna Sanitation District Laguna Beach Co. Water District Wildlife Conservation Board Specialized Assignments: Orange County Irrigation District Anaheim Union Water Company In addition to the above general classifications, the undersigned has made valuations of less common properties including, in part, the following: Undeveloped Islands - Upper Newport Harbor, California Beachfront Properties - excess of 200,000 lineal feet of ocean or bay frontage involving over 1,000 parcels between San Luis Obispo County and the Mexican border Proposed Marinas - San Elijo Lagoon, Imperial Beach, San Diego County - Harbor Island, City of San Diego 17-191 Qualifications of George H. Jones, MAI Page 5 Existing Marinas -Newport Beach - Lido Peninsula Yacht Anchorage - 228 slips Bayshores Marina - 134 slips Balboa Yacht Club Marina - 72 slips Balboa Corinthian Yacht Club Marina - 83 slips Lido Marina Village Yacht Anchorage - 99 slips Marina del Rey - Aggie Cal Marina - 113 slips Parcel 44 Marina - 251 slips Parcel IOR Marina - 198 slips Tradewinds Marina - 157 slips Holiday Harbor Marina - 196 slips Catalina Marina - 160 slips Marina del Rey Hotel Marina - 377 slips Fisherman's Wharf Villa del Mar Marina - 209 slips Windward Yacht Center Marina - 53 slips Marina Harbor Marina - 614 slips Marina City Marina - 339 slips California YC Marina - 307 slips King Harbor - King Harbor Marina - 852 slips County of Ventura - Anacapa Isle Marina - 483 slips Lyon Copley Corona Assoc. - 950 acre planned community Rancho Mission Viejo - 52,000 acres ranch Santa Cruz Island, California - 58,000 acres 108,000 acres - portion Twenty Nine Palms Marine Base Montana de Oro Ranch - 4,450 acres - Morro Bay Area Eight cemeteries - Los Angeles, San Bernardino, Orange County, Honolulu Dry lake bottomland and desert properties, Antelope Valley Tidelands: Newport Beach, San Diego County, and Santa Barbara County Duck Clubs - Antelope Valley Wildlife Habitats, Wetlands - San Diego County, Orange County, Padilla Bay, Washington Sanitary Landfills - Monterey Park, Huntington Beach, Dairyland Real Property Damages: Soil subsidence, slippage, critical soils Division Lessor - Lessee Interests - Oil producing properties Valuation of stock in closely held corporations, Orange, Los Angeles Counties, and Honolulu Estimated damages to residential, commercial, industrial, and park land arising from Santa Barbara offshore oil spill (excess of 500 parcels) Rights -of -Way: power transmission lines, sewer, drainage, avigation easement, railroads (operating, abandoned) Golf Courses: Riverview, Irvine Coast, Newport Beach, South Laguna Hills, Hillcrest, Los Angeles Country Clubs, Rancho Mirage Country Club, Cresta Verde Golf Course Chandler's Sand & Gravel Mine — Corona 200 acre ocean tidelands lease, El Segundo 17-192 Qualifications of George H. Jones, MAI Page 6 Membership in Professional Organizations: The Appraisal Institute (formerly the American Institute of Real Estate Appraisers) President - Southern California Chapter No. 5 (1978) Governing Counselor (1980-1983) International Right -of -Way Association The Appraisal Foundation: Member Board of Trustees (1987-1992) Vice Chairman (1991) Revised 5/23/13 17-193 QUALIFICATIONS OF CASEY O. JONES, MAI Member of the Appraisal Institute California Certified General Real Estate Appraiser, License No. AG041862 Education: University of Southern California, Bachelor of Arts Advanced Study - University of Southern California, Master of Fine Arts, 1978 Real Estate Appraisal Courses (Appraisal Institute): Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice Business Practices and Ethics Apartment Valuation Advanced Income Capitalization General Market Analysis and Highest and Best Use Advanced Sales Comparison and Cost Approaches Report Writing and Valuation Analysis Advanced Applications Comprehensive Appraisal Workshop Litigation Professional Program Federal and California Staturory and Regulatory Law Course Real Estate Appraisal Seminars (Partial List) Litigation Seminars, 2007, 2009-2012, 2014 Conservation Easement Valuation Real Property Damages Valuation Project Delay Economics Hydraulic Fracking and Property Rights Professional Affiliations: Appraisal Institute (MAI Member No. 12935) Regional Representative (Region VII), 2012-2015 International Right of Way Association Chapter 67 Valuation Chair, 2011-2012, 2014-2015 17-194 Qualifications of Casey O. Jones, MAI Page 2 Employment: 1/91 - Present: Real Estate Appraiser and Consultant George Hamilton Jones Inc., Newport Beach, California Scope of Experience (Partial List): Appraisal experience includes valuations of most categories of real property and appraisal reviews. Interests appraised include fee simple, leased fee, leasehold, fair market rent, partial acquisitions, easements and rights-of-way. Work has been primarily carried out throughout Southern California. Property Types: Single Family Residences Condominiums Commercial Buildings Industrial Buildings Retail Centers Vacant Lots/ Land (All types) Mobile Home Communities Conservation/Mitigation Land Church Hotels Right of Way Corridors Tidelands Apartments Residential Subdivision Acreage Retail Buildings Office Buildings Service Stations Medical Buildings Marinas Leasehold/ Leased Fee (Residential and Commercial) Waterfront and Oceanfront Properties Yacht Clubs Wetlands Shipyards Speicalized Properties and Assignments (Partial List): Marina Pacifica — 569 -unit condominium underlying land revaluation, Long Beach Kilroy Airport Center Office Complex, Long Beach Leasehold Residential Subdivision Land, Custom Waterfront Lots, Newport Beach Tidelands, fair rental value at Harbor Island, Newport Beach Tidelands, Lido Marina Village, Newport Beach Colonies Parkway, Upland — commercial/residential planned community/water rights Inland Center Mall — partial acquisition freeway on/off ramp Residential Subdivison — Regulatory Taking, Inverse Condemnation, San Juan Capistrano BNSF Railway — aerial and other easement acquistions, Anaheim Valley View Grade Separation — land and easement acquisitions, Santa Fe Springs 245 acres of conservation/mitigation land, San Diego County 100 acres wetlands, Huntington Beach Avalon Canyon Road right of way acquistion, Avalon, Catalina Island Mt. Ada Historic Property, value restricted to elemosynary purposes, Avalon Residential subdivision land for mitigation/low-cost housing, Avalon H.U.D Apartment Project, Downey 12 -acre vineyard and residence, Bel -Air Dana Point Yacht Club, fair market rent 17-195 Qualifications of Casey O. Jones, MAI Page 3 Newport Beach Tennis Club Lyon Copley Corona Association — 950 -acre planned unit community Port of San Pedro, Terminal and Wharf Facility, leasehold interest Properties with soils, subsidence or construction defects issues in Southern California Fair rental land valuations in Marina del Rey Clients — Attorneys & Corporations (Partial List): Anglin, Flewelling, Rasmussen, Campbell & Trytten, LLP — John Anglin, Attorney Ayres Hotels The Bixby Ranch Company Barger & Wolen — Don Adkinson, Attorney Curci Companies Endangered Habitat League The Irvine Company The Kilroy Realty Corporation La Jolla Bank Nossaman, Guthner, Knox & Elliott — Alvin S. Kaufer, James C. Powers, Attorneys Mira Mesa Shopping Centers Munger, Tolles & Olson LLP — Richard Volpert, Attorney Murphy & Evertz — John Murphy, Jennifer Dienhart, Attorneys Palmieri, Tyler, Wiener, Whilhelm & Waldron — Michael H. Leifer, Attorney The Santa Catalina Island Company Waldron & Bragg, LLP — Gary Waldron, John Olson, Attorneys Clients — Public Agencies, Governmental (Partial List): City of Newport Beach City of San Juan Capistrano City of Long Beach County of Orange County of Los Angeles Beaches and Harbors County of Los Angeles Board of Harbor Commissioners State of California Department of Transportation (Caltrans) State of Nevada Department of Transportation (NDOT) University of California Updated 4/2015 17-196 Attachment E George Hamilton Jones, Inc. Appraisal, dated July 12, 2017 17-197 APPRAISAL OF Market Rental Value City Tidelands and Submerged Land Newport Beach, California Phase 2 Date of Value: Submitted To: March 15, 2016 Mr. Dave Kiff City Manager Date of Report: City of Newport Beach 100 Civic Center Drive July 12, 2017 Newport Beach, CA 92660 Our File No.: 417-1 Submitted By: George Hamilton Jones, Inc. 17-198 GEORGE HRM AMILTON JONES Inc. Real Estate Appraisers & Consultants July 12, 2017 Mr. Dave Kiff City Manager City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 George H. Jones, MAI Stuart D. Duvall, MAI Casey O. Jones, MAI Re: Appraisal of Market Rental Value of City of Newport Beach Tidelands, as Dedicated to Various Commercial and Other Uses — Phase 2 Appraisal Report Dear Mr. Kiff: In accordance with your request and authorization, I have made an investigation and analysis of various tideland parcels in Newport Harbor for the purpose of rendering an opinion of the market rental value of those State of California Tidelands, currently held in Trust by the City of Newport Beach ("City Tidelands") and proposed to be leased to private upland owners for various commercial and other uses. The date of value of this appraisal is March 15, 2016. This appraisal is undertaken in consideration of the general facts and conditions prevailing at the date of value as set out in the Appraisal Report, dated April 7, 2016, which was previously submitted by our office, and is considered a supplement to it. In the earlier appraisal, we formed an opinion of the market rental value of the City of Newport Beach Tidelands for commercial marina use. That analysis was based upon the hypothetical condition of a subject property described as being a "large" commercial marina of 56,000 square feet of vacant tidelands with immediate access to the vacant uplands necessary to support a commercial marina operation. All prevailing legal constraints and development requirements, for both the tidelands and the supporting uplands, were considered to be in effect and operative in determining the highest and best use of the hypothetical subject property. George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-199 Mr. Dave Kiff July 12, 2017 Page 2 of 4 The previous assignment explicitly recognized that, over the course of more than half a century, Newport Harbor had been developed with a wide range of commercial marinas. The commercial marina operations existing at the date of value varied widely in terms of overall size, improvement configuration, access to and character of upland amenities, conformance with current legal/land use standards, harbor location, and other key features. Accordingly, the appraisal was not based upon the specific characteristics of the tidelands associated with any particular marina in the harbor. This approach was undertaken in an attempt to provide as balanced and equitable an analysis of the tidelands in a harbor -wide context as possible. The market rent conclusion for the hypothetical 56,000 square feet of tidelands as dedicated to commercial marina use, which was presented in the April 7, 2016 Appraisal Report, was 8.50% of the gross revenue generated by the marina operation. Expressed on an annual square foot basis, this market rent conclusion was equivalent to $1.17 per square foot of tidelands per year. In the current assignment — Phase 2 — I have been requested to expand the analysis undertaken in the previous appraisal to include other tidelands uses throughout Newport Harbor. The additional categories for which I have developed and expressed an opinion of the market rental value are as follows: • Medium Commercial Marinas • Small Commercial Marinas • Fuel Docks • Shipyards • HOA Marinas • Yacht Clubs (Guest/Instructional Use) • Boat Rentals • Sport Fishing Charters • Restaurant Guest Slips • Vessel Charters • All Others George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-200 Mr. Dave Kiff July 12, 2017 Page 3 of 4 The definition of market rent used in this assignment is consistent with that set out in the Dictionary of Real Estate Appraisal, Sixth Edition: The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIS.) By instruction, the market rent conclusions for each category are to be expressed in terms of annual rent per square foot of tidelands. As will be discussed in the report, the preponderance of the market data to be found in harbors and port districts along the Southern California coast sets market rental rates for various categories of use based upon a percentage of the gross income generated by that use. Furthermore, the market data included land and water area combined, whereas the subject is tidelands only. This situation created significant appraisal challenges in correlating the data to the subject. Extensive investigations and analyses were undertaken to extract out those empirical elements from the data that could be most usefully employed in shedding light on market rent for the subject tidelands. This involved economic inquiries, paired sales/rental analyses, studies of the reciprocal relationships between uses and other methodologies and reasoning. Summary discussions of these analyses will be presented in the following Appraisal Report. Details are held in my files and are available for review upon request. As a result of all my investigations and analyses, I have formed the opinion, that, as of March 15, 2016, market rent for the various categories of use of the subject City Tidelands, expressed on an annual per square foot basis, was as follows: George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-201 Mr. Dave Kiff July 12, 2017 Page 4 of 4 Your attention is invited to the following Appraisal Report which was developed in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). The report sets forth, in brief, premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which formed, in part, the basis of my value conclusions. Supporting documentation and analyses are retained in my files. Respectfully submitted, �z - Casey JoneMAI (State Certifi d General Real Estate Appraiser No. AGO41862) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-202 R COMMERCIAL USE CATEGORY SQFT.R SQ. FT. Large Commercial Marinas $1.17 ( >30,000 square feet ) Medium Commercial Marinas $0.89 ( 13,000-30,000 square feet ) Small Commercial Marinas $0.76 ( <13,000 square feet ) Fuel Docks $0.76 Shipyards $0.38 HOA Marinas (residential use) residential rates commercial HOA Marinas (commercial use) marina rates based on size Yacht Clubs (Guest/Instructional Use) $0.38 Boat Rentals $0.76 Sport Fishing Charters $0.76 Restaurant Guest Slips $0.38 Vessel Charters $0.76 All others $0.76 Your attention is invited to the following Appraisal Report which was developed in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). The report sets forth, in brief, premises and limiting conditions, descriptions, exhibits, factual data, discussions, computations, and analyses which formed, in part, the basis of my value conclusions. Supporting documentation and analyses are retained in my files. Respectfully submitted, �z - Casey JoneMAI (State Certifi d General Real Estate Appraiser No. AGO41862) George Hamilton Jones, Inc. • 717 Lido Park Drive, Suite D • Newport Beach, CA 92663 Phone (949) 673-6733 • Fax (949) 673-6924 • www.georgehamiltonjonesinc.com 17-202 TABLE OF CONTENTS Introductory: Pape Letter of Transmittal 1 Table of Contents 5 Introduction to the Appraisal Problem: Purpose 7 Date of Value 7 Client/Intended User 7 Intended Use 7 Property Rights Appraised 8 Definitions 8 Scope of the Appraisal 9 Property Description: Introduction 14 Location 15 Apparent Owner 16 Parcel Size and Shape 16 Utilities 17 Access 17 Land Use Regulations 17 Current Improvements 19 Market Analysis 19 Highest and Best Use 21 Valuation: Introduction 22 Commercial Marinas 23 Fuel Docks 26 Shipyards 29 HOA Marinas 30 Yacht Clubs (Guest/Instructional Use) 31 Restaurant Guest Slips 32 Boat Rentals, Sport Fishing Charters, Vessel Chargers, Others 34 Summary of Conclusions 36 GEORGE HAMILTON JONES, INC. 5 17-203 TABLE OF CONTENTS - continued Addenda: City of Newport Beach Pier Permit Exhibits Percentage Rent Survey Certification Limiting Conditions Qualifications GEORGE HAMILTON JONES, INC. 6 17-204 INTRODUCTION TO THE APPRAISAL PROBLEM Purpose: The purpose of this appraisal is to render an opinion of the market rent for those State of California tidelands currently held in trust by the City of Newport Beach ("City Tidelands") under the proposed use of being leased to adjacent upland owners for the various purposes set out below: • Medium Commercial Marinas (13,000 — 30,000 square feet) • Small Commercial Marinas (< 13,000 square feet) • Fuel Docks • Shipyards • HOA Marinas • Yacht Clubs (Guest/Instructional Use) • Boat Rentals • Sport Fishing Charters • Restaurant Guest Slips • Vessel Charters • All Others The opinions of market rent shall be expressed in terms of annual rent per square foot of tidelands. Date of Value: March 15, 2016 Client/Intended User: Dave Kiff, City Manager for the City of Newport Beach. Intended Use: The intended use of the report is to assist in setting the market rental rate for various uses of the tidelands throughout Newport Harbor. GEORGE HAMILTON JONES, INC. % 17-205 INTRODUCTION — continued Property Rights Appraised: The market rent of the fee simple interest of the tidelands within the lower bay of Newport Harbor allocated for the various described uses. Definitions: Tidelands_ For the purpose of this study, the public tidelands are considered to consist of that water area extending from the established U.S. Bulkhead Line to the Pierhead Line. Market Rent' (Fair Rental Value): The most probable rent that a property should bring in a competitive and open market reflecting the conditions and restrictions of a specified lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (M.) Market Value': The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: • Buyer and seller are typically motivated; • Both parties are well informed or well advised, and acting in what they consider their best interests; I The Dictionary of Real Estate Appraisal, The Appraisal Institute, Sixth Edition, 2015. 2 This definition of market value is used by agencies that regulate financially insured financial institutions in the United States. GEORGE HAMILTON JONES, INC. b 17-206 INTRODUCTION — continued • A reasonable time is allowed for exposure in the open market; • Payment is made in terms of cash in U.S. dollars or in terms or in terms of financial arrangements comparable thereto; and • The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (12C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994.) Scope of the Appraisal: The scope of the work required to formulate a reliable opinion of value for the appraised properties is outlined below. Assignment Analysis: Define the basic elements of the appraisal problem, and the purpose and intended use of the report. Identify the properties and research property history including current use, prior use, prior leasing information, and current market activity. Site Description and Analysis: Document the physical characteristics of the sites and their surrounding influences. Review and interpret applicable zoning, general plan, environmental restrictions, and developmental agreements that may apply to the subject properties. Analyze the impact of private tidelands that may be adjacent to subject sites. Improvement Description and Analysis: Describe the improvements on the sites, if any. This includes size, construction, finish, age, and condition. Analyze the utility of the existing improvements and the current demand as configured. GEORGE HAMILTON JONES, INC. 9 17-207 REGIONAL MAP Kien Edwards AFB Kramer Hills Hinkley _ Willow Barstow � Yerma Pine Mountain Springs Rosamond Club Lebec Newberry Garman Bp'i rgs i3s rss C4) Helendale Lake Hughes Lancaster Quartz Hill xa7 Lake Las _ Palmdale Angeles Adelanto LittlerockVictorvil le Castaic Acton Apple Valley r _w Ojai to valley Jahrs:.r Phelan Hesperia Vay Valley Fillmore txa Q 8 247 23 Angeles Wrightwoad r 75 National Forest 101, Sart Gabriel Mt San ,sa Ventura „a Simi Valley Mountains... Anton to Q Big Bear Lake Oxnard Camarillo ',a Thousand Port H ueneme Oaks � Y� San Pasadena Bernardino Pia c San Bernardino National Forest 0 San Gorgonio [R -Mountain Los Angeles Pomona Malibu Santa. Monica 1W gi i'ecy Riverside 1 De 0 Beaumont De 9W Q Torrance (W— Anaheim Mt San Jacinto Long BeachPerris Santa Ana r 74) Hemet 704 0 ►g3 xJt i Lake Elsinore Cost Awpart 0 l Murrieta Anxa Temecula nr Dana Point Two Harbors Catalina Island San Clemente Aguanga Essential Fish Habitat... Pala PalornarQ �� Mountain J Cleveiand National Forest Q Ocea n s id 'vista Carlsbad Q Escondido Santa Ysabel Julian Ramona CA) San Clemente 1 island Alpine Pine El Cajon N San Diego = Chula Vista i 041 GEORGE HAMILTON JONES, INC. 17-208 INTRODUCTION — continued This assignment is to form an opinion of the market rent of the tidelands only, absent any improvements. However, the impact of the existing improvements on the highest and best use is appropriate to consider given development/redevelopment constraints imposed by the California Coastal Commission and ADA compliance regulations. Market Analysis: Identify pertinent economic, governmental, social and environmental forces that may influence real property values and market rent considerations for subject tidelands. Highest and Best Use: Analyze highest and best use of the subject tidelands sites as though vacant and as improved. Potential uses and configurations of the tidelands sites were tested to determine which use or uses were physically possible, legally permitted, financially feasible, and maximally productive. Analysis of the economic and legal (land use) issues related to redevelopment of existing improvements on the subject tidelands was undertaken. Market Data: Search and acquire market rental data of properties comparable to the various subject categories of use: • Obtain and verify information of California State Lands Commission benchmark rates for tideland leases. • Obtain and verify information regarding public leases of land and water in joinder for the various use categories that are the subject of this analysis. These data came from Orange County, San Diego County, Los Angeles County and Ventura County. • Investigate economic factors that influenced the lease rates for the various uses analyzed in these different jurisdictions. This included slip rental rates, number of boats in the harbors, density of boat berthing, fuel retail GEORGE HAMILTON JONES, INC. 10 17-209 INTRODUCTION — continued prices, historic fuel gallonage rates, adjacent upland values and other factors. Valuation: Commercial Marinas: Reference was made to the data, economic analyses and reasoning that led to the market rent conclusion set out in the previously submitted, April 7, 2016, Appraisal Report. The conclusion reached in that appraisal reflected a reconciliation between a market data approach and two economic analyses. The result was expressed as a percent of the gross revenue and as an annual rental amount per square foot; specifically, $1.17 per square foot of tidelands. This reconciled indication was used as a benchmark for subsequent studies of different marina sizes. An economic analysis was then undertaken wherein all the key elements leading to a tidelands residual were held constant while only the size of the tidelands area leased for marina use was changed. This led to an indication, derived from these economic factors, that supported a distinction between tidelands rental rates based on the relative size of tidelands area leased. The conclusions of these analyses were as follows: Large Marinas: > 30,000 square feet Medium Marinas: 13,000 to 30,000 square feet Small Marinas: < 13,000 square feet Market rent indications were tested under different potential marina configurations within each size category to yield a reconciled conclusion of the appropriate rental rate for each commercial marina size category. GEORGE HAMILTON JONES, INC. I L 17-210 INTRODUCTION — continued Fuel Docks: Extensive investigations were undertaken analyzing rental rates for fuel docks in harbors from Marina del Rey to the San Diego Port District. These jurisdictions charge rent for tidelands and supporting uplands in joinder based on either a dollar amount (in practice, ¢) per gallon of fuel pumped or as a percentage of the total revenue generated by fuel sales. Information relating to gallons of fuel pumped, the retail price of the fuel and other factors were considered. Adjustments were also made for the economics of the uplands requirements that operators in Newport Harbor face and are distinct from those in other jurisdictions. Shipyards: Paired sales analyses were made between rental rates charged for shipyards in other jurisdictions relative to uplands and tidelands rental rates for higher uses in these other harbors. These ratios were then correlated to similar higher uses in Newport Harbor (such as the large commercial marina benchmark of the previous report) to yield an indication for tidelands rent for a shipyard in Newport Harbor. HOA Marinas An HOA Marina which is restricted to use by residents of the HOA shall be charged tidelands rent at the appropriate residential rates already established and approved. When an HOA Marina makes its facilities available to the general public, it is, in effect, functioning as a commercial marina. Accordingly, the tidelands lease rate should be consistent with the commercial marina rates of a comparable size category. Yacht Clubs — Guest/ Instructional Use This "guest/instructional use" category is distinct from a commercial marina where the operator might also be a yacht club. The guest/instructional use category is considered effectively to be GEORGE HAMILTON JONES, INC. 12 17-211 INTRODUCTION — continued a "transit" use, where there is no permanent berthing and the tidelands are primarily intended for temporary docking and to facilitate access from the water to the land, or vice versa. There is effectively no economic activity generated within the tidelands with this use. Accordingly, such a use was considered to be at the low end of the economic range of tidelands use. The California State Lands Commission benchmark, while not directly comparable to this use, was a helpful indicator. Restaurant Guest Slips These were judged to be comparable to Yacht Club — guest/instructional use. No income is directly generated by the tidelands; rather, the tidelands are an ancillary convenience to the economic driver (the restaurant) which is primarily served by uplands parking. Comparable rent was indicated. Boat Rentals, Sport Fishing Charters and Vessel Charters Comparable rental data from other harbors was examined. All comparable data are based on a percentage of revenue, depending on specific use. These uses include different income potentials and different upland land area requirements. Leverage from a variety of factors is acknowledged in any residual economic analysis with these uses. Such was also the case with the small commercial marina analyses. Accordingly, due to comparability of size and the uncertainty of residual economic utility depending on various use factors, these commercial uses were judged to be in line with small commercial marinas and market rent was estimated accordingly. All (nth er. For general (other) income generating uses in the small marina size category, my analyses indicated that a rental rate comparable to small commercial marinas, boat rentals, charters, etc. is appropriate. GEORGE HAMILTON JONES, INC. 13 17-212 PROPERTY DESCRIPTION Introduction: Due to the multi -faceted nature of this assignment, there is no specific subject property to be described. However, all the properties which are being appraised lie within the tidelands of Newport Harbor, which, among all the harbors and port districts along the Southern California coast, is unique in a number of ways. These harbor -specific characteristics are important factors that have been considered in this valuation assignment and warrant a brief review. In the broadest context, it must be borne in mind that the tidelands of Newport Harbor have been undergoing a slowly evolving process of transformation for more than a century. These changes have been driven by a variety of interdependent forces that have played out in the specific manner they have due, in no small measure, to the private, as opposed to public, ownership of the uplands parcels adjacent to the tidelands. Private ownership, responsive as it is to market forces, has literally shaped the physical characteristics of the harbor over time. One need only think of the creation of Lido Isle from submerged tidal flats, or, in more recent memory, the transformation of Shark Island into the exclusive homes of Linda Isle, as high-profile examples. Demand for the finite supply of waterfront property in an area of broad appeal has provided a strong economic impetus to extract as much utility from the harbor as possible. However, offsetting a strictly mercantile emphasis on the direction of development, there has also arisen social, environmental and conservation considerations that have, and will in the future, continue to shape the harbor. It is in the organic interplay of these forces that the well- recognized charm of Newport Harbor has arisen. Diversity is a hallmark of the land and tidelands uses in the harbor, and this unique feature plays a significant role in attracting large numbers of visitors to the area. Further, from a valuation perspective, private ownership of the uplands adjacent to the tidelands is perhaps the most critical economic influence that distinguishes these waters from so many other port districts GEORGE HAMILTON JONES, INC. 14 17-214 NEWPORT HARBOR TIDELANDS TA }2 BEIACH ere�k� ��""' 4►ne nn r ® a� d `'e' ► 1 umenenl ven il r f I'� 1�111111ruumnmm� ��, r � `n I 1e■ms re lTn }wow e • yt � I�Isorovlclov ` � �.>. r moll xnm� � ��* � .� � �s�rme uoen�- � � � ���r°w �� �� ��/eY �r44e/- - •, 1 V 11 � �� � 1��,h1! �111��11 � x , .., ... �` � r� ■Ingle e�. I s Ser /- UI 7L �� �1 � e ��� e��r 44 e�\� /lA ate•<a ! epi ������� �irirrrorrrrri►��i�� ' �� � � C °eei{ik q � s, i. seeneeneeeeneeeeeeeneeeeee � Jlrkhs � 02 IIkINII ieklhll Alnkll7!!r � %m�ii/ilii! : �� �'�' nen Iln�� ep n m!� nml mm o -on: bum nm _ ®lhllklff , i 1llllilllllllil i kAe/{ - ='- -_ -_' - •IIIIIIIIIlII- llfle 1k1 �1/l khk l{Od0/Ik �1N+nIr4/AAASk4iA a _ _ _ __ __ _ • �� k!/fk/!/ /lllPPf81B!/ A�iiflkff p `k _ _e_ __ __ - _ • • _ /N/OA4A/OAl4ll/rkfPk li{/kkkll/..!/Nfgllf �fill�ll�/��` un gq /I 55 II � S � ih _�♦ OOOAAAf AG{A/klll 111 N/N7l/lkkll • � S _ e _ __ - e - -_ � ! M i i �� AA{AA/ A JIl/1!1617 • � p _ � ii{p{// !1}ekfiv 3 ny' �e ��?$�$ Yllliil ene n 1� f1111� !elm unll min puiY :mn !!!!s I!!nf rEn le!!� !i1 � � � " I4xnna nmreue �i •n4eeID irueny°mw „� enp ,qn n� = . • xeueu• axr/kae 4��n 1 knl"'fl nn��4'i°khk • ■ • • ��"�' h�,4/�/��jl IIVIIIII IIIVI Iflllll'o�Elli „II9 EE[Etll�iY,1�,�, • is/� Y, �L°eui4W4pYd� � oY4iY _aY1 Y1 �Y vviGav 4ACp vrax ?44IJ4A 0e•• � i�M e4NOee4eev4Ov 4'aavav`v%r4Nl � �_ - •. nu� s nse4e ue Oep4°��w -fin "mnmrx 4 n rW ejniml h ••MI THE WEDGE E GEORGE HAMILTON JONES, INC. 17-215 PROPERTY DESCRIPTION - continued along the Southern California coast, where a public jurisdiction generally controls both water and adjacent uplands. In summary, the dynamic interplay of forces (economic, governmental, social and environmental) resulted, over time, in there being a wide range of tideland uses and improvement characteristics in Newport Harbor at the date of value. As part of this analysis, each of the tidelands parcels in Newport Harbor currently permitted for use by the City of Newport Beach have been reviewed and analyzed. These investigations took into account various defining features, including, but not limited to, use, size, location, association with private tidelands, and the nature of the supporting uplands. The permitted tidelands parcels reviewed and considered to have been in place at the date of value are summarized in the Addenda section of this report' with further details held in my files. It will be noted that the permit holders are for individual types of uses of the tidelands (such as commercial marina, boat rentals, etc.), as well as, in some instances, for combined uses. Again, while taking into account a variety of factors that may influence market rent, this valuation will ultimately be based on the use to which the tidelands are put, not the unique characteristics of a particular parcel or how a specific permittee has utilized his/her tidelands and/or adjacent uplands. Location: All subject tidelands are in the lower bay of Newport Harbor. They typically include the water area extending from the established U.S. Bulkhead Line to the Pierhead Line. (There are certain exceptions where they project beyond the Pierhead Line.) Because each parcel within the subject tidelands is part of the greater Newport Harbor whole, as well as a contributing component to the surrounding Newport Beach community, they have not been analyzed 1 This information is taken from the City of Newport Beach website: http://nbgis.newportbeachca. gov/NewportHTML5 Viewer/?viewer=pierpermitsinfo GEORGE HAMILTON JONES, INC. 15 17-216 EXAMPLE: BULKHEAD LINE TO PIERHEAD LINE GEORGE HAMILTON JONES, INC. 17-217 PROPERTY DESCRIPTION - continued as strictly independent entities. Joinder within the larger network of harbor and coastal oriented real property interests is an inarguable influence on the nature of the demand for, as well as the economic utility of, each tidelands use. Accordingly, each category of use of the tidelands has been considered in terms of its integrated role within the larger context of Newport Harbor as a whole, as well as its function in the larger community. Apparent Owner: Fee Interest: The subject tidelands are held in fee by the State of California, in Trust to the City of Newport Beach. There has been no change in the ownership of the fee interest for in excess of 10 years. Leasehold Interest: It is recognized that the tidelands parcels that are the subject of this appraisal are not intended to be encumbered by conventional long-term leases, but, rather, by annual permits. It is an assumption of this report that the leasehold/permittee interest in the subject tidelands is held by a well-informed investor and/or operator who is utilizing the property at its effective highest and best use. Parcel Size and Shape: The subject parcels are of various sizes and shapes. The market rent conclusions presented in this report are expressed on an annual dollars per square foot basis. While these rates are intended to be applied to the total area of the tidelands leased to reflect the total market rent for each parcel, with the exception of commercial marinas, or uses analogous to commercial marinas, the rates themselves are based on use and not influenced by the size of the tidelands parcel. GEORGE HAMILTON JONES, INC. 16 17-218 PROPERTY DESCRIPTION - continued However, as will be seen in a following section of this report, a distinction, supported by economic analyses, has been made between commercial marinas in three size categories. These are as follows: Small Commercial Marinas: < 13,000 square feet Medium Commercial Marinas: 13,000 — 30,000 square feet Large Commercial Marinas: > 30,000 square feet HOA Marinas, when made available to the public on an open market basis, were judged to have the same rate structure as commercial marinas. Utilities: As an independent parcel, the subject tidelands have no access to public utilities because they have no legal access to the adjacent uplands from whence the utilities can be obtained. In order to value the subject properties for the various uses wherein utilities are required to facilitate that use, it is an extraordinary assumption of this appraisal that access to utilities from the adjacent uplands is permitted. Access: The subject property possesses legal rights of access from the bayward water area only. Littoral rights of access to the water from the uplands reside within the property rights of the upland property adjacent to the subject tidelands. Again, in order to develop a meaningful indication of subject value for the various uses presented in this report, it is an extraordinary assumption of this appraisal that the subject tidelands parcels will have access from the adjacent uplands. Land Use Regulations: The subject tidelands are under the regulatory supervision of several public entities in addition to the City of Newport Beach. These include the State of California Division of Boating and Waterways, the California Coastal Commission, as well as oversight by the Army Corps of Engineers, the California Department of Fish and Wildlife and others. GEORGE HAMILTON JONES, INC. 17 17-219 PROPERTY DESCRIPTION - continued The standards of development and use of the tidelands themselves are set out in Section 17 of the City of Newport Beach Municipal Code (Harbor Code). However, in order to develop the subject tidelands with the various commercial uses being appraised, it is required that the tidelands be supported by uplands area sufficient to meet the standards that are specific to each particular use. Our previous report, dated April 7, 2016, discussed the uplands requirements for a large (> 30,000 sq. ft.) commercial marina. The requirements for other uses vary significantly. I have reviewed the parking requirements set out in Section 20.40 of the City of Newport Beach Municipal Code and analyzed the development standards for parking areas of 20.40.070 as they may pertain to the various uses considered in this analysis. I have also investigated ADA development standards that may be applicable to the various uses. The impact of regulatory requirements is of significant consequence in considering highest and best use decisions regarding the various tidelands parcels and their potential uses. As an example, market demand for marina configuration has evolved in terms of size (boats have gotten bigger) since many marinas were originally constructed. This exerts a pressure for upgrading and reconfiguration of the marina improvements. At the same time, incorporating ADA requirements has become a critical design factor. A well-informed marina investor/operator must also take into account Coastal Commission and environmental requirements when considering upgrades and/or renovation. The agendas of these various regulatory agencies and economic forces can often be in conflict. This has resulted in circumstances where legal non -conforming uses have been "grandfathered in", and, as permitted, thereby can represent the effective highest and best use. This is because it may not be financially feasible for the operator to make the capital expenditure necessary to upgrade the facilities, meet regulatory obligations, and receive an economic return that warrants the undertaking. In this way, the economic potential of the tidelands may be constrained to the existing use. The financial implications that land use regulations can play in estimating the market rent of the tidelands is not limited to the tidelands GEORGE HAMILTON JONES, INC. 18 17-220 PROPERTY DESCRIPTION - continued themselves. Zoning has a direct impact on value of the uplands parcels. This, in turn, sets the level of economic return required for the uplands area that supports the tidelands use. The higher the level of return necessary, the less residual income is available to pay rent for the tidelands. As discussed at length in the previous Appraisal Report, the division between the return to the uplands and tidelands from the tidelands use must be calibrated to incentivize the uplands owner to dedicate land to tidelands support use. This analysis has taken into account the fact that the same tidelands use may be supported by uplands with different highest and best use potentials arising from different zoning designations. While this would have an implication for residual tidelands rent on a case by case basis, an equitable balance in a harbor -wide context of this influence was judged to be the appropriate basis for determining market rent in this assignment. Current Improvements: The subject tidelands were improved with a wide range of structures at the date of value. Please refer to aerial photos in the Addenda for details. It is an extraordinary assumption of this report that the various subject parcels are adjacent to an uplands parcel with an existing bulkhead and that the bulkhead is considered to be an improvement of the uplands parcel. Market Analysis: The subject properties, in their various uses and configurations, combine to provide the fundamental economic framework that gives Newport Harbor its vibrancy and broad-based appeal. A recent study by Tourism Economics2 indicated that "Newport Harbor generates $202.4 million annually in economic impact to Newport Beach, making it one of the city's most significant economic anchors." 2 Reported Daily Pilot, October 13, 2016; The Log, December 1, 2016 GEORGE HAMILTON JONES, INC. 19 17-221 NEWPORT HARBOR ACTIVITIES w Jill I I 1 ■ ■ I�°���Ii�� �; j ■axe ri s 1����f���� \Iq. MU �i NVEDU GEORGE HAMILTON JONES, INC. 17-222 u MU �i NVEDU GEORGE HAMILTON JONES, INC. 17-222 PROPERTY DESCRIPTION - continued The breakdown of this total indicated that the harbor generated $46 million in annual tax revenue and an additional $156.4 million from harbor visitors who take advantage of retail, dining, and water -oriented recreational opportunities. Further, the study indicated the economic effects extend to Orange County as whole, with $348.1 million dollars in benefits rippling out to the larger community. As noteworthy as these figures may be, visitors and residents alike appreciate that the harbor's value lies in far more than just its economic benefits. The "bay" has always been the defining focal point of Newport Beach. As such, it is central in creating the general lifestyle that distinguishes the city from other coastal communities in Southern California. Pertinent to this analysis, it is recognized that the value of Newport Harbor is unquestionably more than the sum of its parts; that the balanced interplay between different property interests and uses is critical in sustaining the harbor's viability and its fundamental value as a whole. Accordingly, the well-recognized appraisal principle of "zones of value" appears to be operative and well supported when considering the Newport Harbor tidelands as an integrated subject parcel dedicated to various uses. While each use may have inherently different economic potential, they are all ultimately dependent upon each other. Therefore, it is consistent with the zones of value concept that market rent be different as well, depending upon various factors to be presented in the Valuation section of this report. The long history of Newport Harbor shows that there exists established demand for the various uses that are the subject of this appraisal. Further, based upon empirical information presented in the recent Tourism Economics report, there appears to be strong evidence indicating that local residents and the tourism -based users drawn to the harbor will continue to seek out the various commercial uses available. This combination of factors leads to the conclusion that it is reasonable to project that the existing tidelands uses will continue to capture sufficient commerce to remain economically viable into the foreseeable future. GEORGE HAMILTON JONES, INC. 20 17-223 PROPERTY DESCRIPTION - continued Highest and Best Use: Highest and best use is that use or combination of uses, selected from reasonably probable and legal alternatives, that results in the highest land value as of the date of value. The definition of highest and best use is as follows: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, legally permissible, appropriately supported, financially feasible, and that results in the highest value'. Details of the criteria impacting highest and best use conclusions were discussed in the previous (April 7, 2016) appraisal and can be appropriately applied to the various commercial uses addressed in this appraisal. As the foregoing market analysis indicated, all subject tidelands uses appear to be physically possible, legally permissible and financially feasible. Because no specific parcel is being appraised in this report, it is beyond the scope of this analysis to form a judgment as to a maximally productive use that could be applied to each existing tidelands parcel. It is therefore an extraordinary assumption of this report that the use categories which are the subject of this appraisal are the effective highest and best use of those tidelands parcels which are utilized for that use. 3 The Appraisal of Real Estate, 14th Edition, Appraisal Institute. GEORGE HAMILTON JONES, INC. 21 17-224 VALUATION Introduction: The purpose of this appraisal is to form an opinion of the market rent, expressed on annual price per square foot basis, of the various commercial tidelands uses existing in Newport Harbor at the March 15, 2016 date of value. An earlier Appraisal Report, dated April 7, 2016, submitted by this office provided a market rent conclusion for large commercial marinas at the same date of value. That report is considered to be a companion to this Phase 2 Appraisal Report. Certain factual information and data in that document is incorporated in this report by reference. Fundamentally, the objective of this assignment is to form opinions of market rent for the various uses in a manner that reflects the economic potential of each individual use as well as the synergistic relationship that exists between the uses. In this way an equitable balance, supported by economic analysis and reference to market data, between tidelands lease rates throughout Newport Harbor may be achieved. As discussed earlier, this principle is supported by the zones of value concept that is a well -accepted fundamental in real property valuation. The tidelands market data found throughout the Southern California region, is, with the few notable exceptions discussed in the earlier large commercial marina report, inclusive of both tidelands and supporting uplands. This is not the situation in Newport Harbor, where the subject tidelands are "owned" by the City of Newport Beach and the supporting tidelands are under private ownership. Therefore, a direct correlation of the market data (water and land) cannot properly be made with the subject tidelands (water only) without adjustments. The significance of this was presented in the previous appraisal. The reader's attention is directed to that report for detailed discussions of the economic implications of this situation for tidelands use and the market rent thereof. Again, that report pertained specifically to large marinas, but the principle of the need to allocate the income generated from tidelands use between land and water is the same for the other commercial uses that are the subject of this report. An additional complexity in analysis of the market data arose from the fact that, for the uses that are the subject of this market rent study, the annual rent amount in other jurisdictions is typically tied to a percentage of the GEORGE HAMILTON JONES, INC. 22 17-225 VALUATION - continued gross income that is generated by the use. It is not directly tied to the square footage of the area leased. Adjustments were required to correlate these indicators of market rent into the annual price per square foot conclusions that are required in this assignment. The appraisal challenge, therefore, was one of supportably reflecting and reconciling both market data, quantified in different economic terms, and the distinctions that are required to be made between that data and the subject tidelands in regard to the allocation of market rent between land and water that is unique in the Newport Harbor context. Extensive comparative economic analyses were undertaken to incorporate these elements. Summary discussions will be presented in the following pages. Details are retained in my files. Commercial Marinas: The April 2016 Appraisal Report provided an extensive analysis of the factors leading to an annual market rent conclusion for a large commercial marina. The template selected was a 56,000 square foot tidelands with appropriate supporting uplands. Part of this assignment was to determine if a market rent distinction between commercial marina sizes was warranted and supported by empirical information. While the earlier report provided limited market data of relatively large tidelands only leases, there was no such data available for smaller size categories. Therefore, to form an opinion as to whether a distinction in annual market rent rates was warranted for commercial marinas based on size, economic analyses between various marina sizes were required. While it may seem at first impression that "tidelands are tidelands are tidelands", this is not the case in terms of use. The income generated is different and the relative uplands requirements vary depending upon use and size. This dynamic is perhaps most readily appreciated when comparing vacant land. Market evidence shows that a commercial parcel has different value than a comparable residential property. This speaks to use. Further, differences in size impact the unit basis of that value as well. These criteria apply to the tidelands, just as they do vacant land. GEORGE HAMILTON JONES, INC. 23 17-226 Commercial Marina Residual Tidelands Rent Size Transition Study Tidelands Square Footage: 5,000 10,000 12,000 13,000 15,000 20,000 25,000 30,000 40,000 50,000 60,000 Average Slip Size 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150 Number of Slips 4.0 8.0 10.0 11.0 13.0 17.0 21.0 26.0 34.0 43.0 52.0 Average Slip Length 38 38 38 38 38 38 38 38 38 38 38 Lineal Feet 152 304 380 418 494 646 798 988 1,292 1,634 1,976 Overhangs/sideties (5%) 8 15 19 21 25 32 40 49 65 82 99 Total Lineal Feet 160 319 399 439 519 678 838 1,037 1,357 1,716 2,075 Average Slip Lease/ LF/ Mo. $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 $35.00 Potential Gross Income/ Mo. $5,586 $11,172 $13,965 $15,362 $18,155 $23,741 $29,327 $36,309 $47,481 $60,050 $72,618 x 12 = Annual PGI $67,032 $134,064 $167,580 $184,338 $217,854 $284,886 $351,918 $435,708 $569,772 $720,594 $871,416 Vacancy (5%) ($3352 ($6,703 ($8,379 ($9,217 ($10,893 ($14,244 ($17,596 ($21,785 ($28,489 ($36,030 (S43,571 Effective Gross Income: $63,680 $127,361 $159,201 $175,121 $206,961 $270,642 $334,322 $413,923 $541,283 $684,564 $827,845 Annual Rent for Uplands/Tidelands in Joinder @ 25% of EGI $15,920 $31,840 $39,800 $43,780 $51,740 $67,660 $83,581 $103,481 $135,321 $171,141 $206,961 Uplands Requirements: No. of Parking Spaces (0.6/ slip) 2.4 4.8 6.0 6.6 7.8 10.2 12.60 15.6 20.4 25.8 31.2 Sq. Ft. Uplands/ Space 350 350 350 350 350 350 350 350 350 350 350 Total Sq. Ft. for parking 840 1,680 2,100 2,310 2,730 3,570 4,410 5,460 7,140 9,030 10,920 Restrooms/shower/office 250 250 250 250 250 250 250 250 250 250 250 Total Sq. Ft. Required 1,090 1,930 2,350 2,560 2,980 3,820 4,660 5,710 7,390 9,280 11,170 Uplands Value/ Sq. Ft. $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 $315.00 Total Value, Dedicated Uplands $343,350 $607,950 $740,250 $806,400 $938,700 $1,203,300 $1,467,900 $1,798,650 $2,327,850 $2,923,200 $3,518,550 Required Return to Uplands: Return at 5% $17,168 $30,398 $37,013 $40,320 $46,935 $60,165 $73,395 $89,933 $116,393 $146,160 $175,928 Residual to Tidelands @ 5% -$1,247 $1,,443 $2,788 $3,460 $4,805 $7,495 $10,186 $13,548 $18,928 $24,981 $31,034 Percentage of EGI -1.96% 1.13% 1.75% 1.98% 2.32% 2.77% 3.05% 3.27% 3.50% 3.65% 3.75% Note: Adjustment to slips to whole numbers only: all other factors constant; this assumes an implicit adjustment of size/parking space to accommodate GEORGE HAMILTON JONES, INC. 17-227 VALUATION - continued The initial phase of the study was to review the various elements that informed the large marina analysis, reported in April 2016. That appraisal concluded at 8.5% of the potential gross income, expressed as $1.17 per square foot per year. That conclusion was based on a reconciliation of two economic approaches to value and a market data approach to value. The conclusion, therefore, implicitly incorporated all approaches. The strictly economic analysis yielded a result of tidelands rent at 4.61 % of the effective gross income, which was then adjusted based on the market data and secondary economic analysis to the final conclusion of $1.17 per square foot. This economic analysis and its 4.61% indictor was used as a reference point in subsequent economic analyses that were conducted to determine the implications, if any, of marina size on market rent. For the sake of consistency, this study utilized the criteria set out in the April 2016 appraisal. The constants were average slip size, average slip length, average slip lease rate, vacancy factors, relative uplands area requirements, and uplands land value. The variable was marina size. Due to a variety of factors, perhaps the most significant of which was uplands requirements (primarily parking) relative to the number income -generating slips, there was a downward trend in residual income available to the tidelands as the square footage of marina tidelands area decreased. While it was a sliding scale, significant points of demarcation were noted at approximately 30,000 square feet and 13,000 square feet. The residual percentages of effective gross income to be allocated to the tidelands that resulted from this analysis were not the basis for measuring the relative market rent for different marina sizes. This study was primarily intended to measure if, all other things being equal, size had an impact on market rent for commercial marinas. This being established, further studies were undertaken. These used existing commercial marinas, but incorporated variables for improvement configuration (number and size of slips), uplands legal requirements (and reasonable variances thereof), and uplands land value. (It is recognized that land value is significantly impacted by zoning, location and size.) It is beyond the scope of this report to present all variables considered. In general, it was recognized that marina configuration can impact highest GEORGE HAMILTON JONES, INC. 24 17-228 VALUATION - continued and best use in terms of maximizing the economic utility of the available tidelands. However, for existing marinas, reconfiguring to a higher use may not be legally or financially feasible, based on regulatory constraints and the costs of redevelopment. Uplands requirements include parking spaces, restrooms and showers, and (potentially) office space. The design and implementation of these elements will naturally be adjusted with marina size. Parking will not only change in terms of the number of parking spaces required, but also the configuration of the parking area, which can be dependent upon both the size of the uplands parcel and the size of the marina. All these elements were considered. Further, the price of the uplands and the corresponding level of the return required to support the tidelands use is highly variable throughout Newport Harbor. Market data of waterfront land values in the different settings where existing marinas are located were reviewed. These figures were incorporated in the analysis to provide a range of indications of residual income available for tidelands rent. All these economic studies were reconciled to conclusions, which, in my judgment, reflected an equitable balance between the various influences that are to be found throughout Newport Harbor. (Details of these analyses are retained in my files.) The $1.17 per square foot previously concluded incorporates both economic and market data analyses. The economic analysis for tidelands market rent was 4.61% of the effective gross income. The study for the medium and small marinas related the conclusions of the economic analysis for each size to the benchmark of 4.61 % in a proportional relationship to the $1.17 per square foot reconciled conclusion. Medium Size Marinas (13,000 — 30,000 sq. ft.): Conclusion of % EGI: 3.50% 3.50% / 4.61% = 0.76 0.76 x $1.17 = $0.89 GEORGE HAMILTON JONES, INC. 25 17-229 VALUATION - continued Small Size Marinas (< 13,000 sq. ft.): Conclusion of % EGI: 3.00% 3.00% / 4.61 % = 0.65 0.65 x $1.17 = $0.76 Fair Market Rent Conclusion Annual Rent per Square Foot of Tidelands per Year Commercial Marinas Small Commercial Marinas: $0.76 Medium Commercial Marinas: $0.89 Large Commercial Marinas: $1.17 Fuel Docks: Fuel docks play an indispensable role in the stable and ongoing operations of nearly all water -oriented commercial and recreational activities within and around a harbor. The importance of this fact was underscored recently in Huntington Harbor, where the only fuel dock was closed from October 1, 2015 to May 25, 2016. This created a significant disruption in harbor activities, with some waterfront homeowners even expressing concern about the potential impact on property values. It is widely recognized that fuel docks are difficult businesses to operate. In addition to uncontrollable fluctuations in fuel prices, commensurate variations in demand, and strict environment controls, narrow fuel profit margins create a challenging business environment. It is undoubtedly due to these factors that market rent for fuel docks throughout Southern California harbors is based on either a percentage of the income generated from fuel sales or on the volume of fuel pumped. As with commercial marinas, the area leased for fuel dock operations in these other jurisdictions includes both land and water. In some cases, improvements are included in the leased area as well. Adjusting the available market data for comparison to the subject tidelands, as dedicated to fuel dock use, involved investigations into a number of factors. These included, but were not limited to, retail fuel rates (diesel and gas) at the various data locations for comparison with the subject, GEORGE HAMILTON JONES, INC. 26 17-230 k AIF � a ;. w - ."� o- ��•�ii kbit .\�.. Cot 4 V i�f i r iA VALUATION - continued direct and indirect analysis of the volume of fuel pumped at the data locations, and consideration of the relative uplands contribution of the different data items. (Review of uplands market data indicated that the price per square foot of the land necessary to support the tidelands for fuel dock use in Newport Harbor is significantly higher relative to the land values in other jurisdictions where the comparable fuel dock data is located.) The table below summarizes the primary data reviewed and analyzed. Aerial images of the data items can be found on facing pages. MARKET DATA As can be seen, a distinction is typically made between the percentage rent applied to diesel fuel and gasoline. On average the ratio of demand for diesel in comparison to gasoline is on the order of 80% to 20%. Blending these ratios and applying them to a market rent per gallon indications can give an average rent per gallon indication. As an example, GEORGE HAMILTON JONES, INC. 27 17-232 Fuel Dock Regular Diesel Rental Basis Del Rey Fuel 1 13800 Bora Bora Way $5.20 53.91 $0. I5lgallon of all fuel sales Marina del. Rey Rocky Point Marine Fuel 2 310 Portofino Way 55.38 $4.01 5.5% of all fiiel sales King Harbor Redondo Beach Liana Point Fuel Dock 3 34661 Puerto Place 53.49 $2.67 Diesel = 2_5% of sales Gasoline = 3.01-. o1 ,ally Dana Point Dana Landing 4 2590 Ingraham Strut $4.00 $3.35 Diesel = 1.5°1 gross Gasoline = 3.0°!o gross Mission Bay, San Diego Hyatt Regency Spa & Marina 5 1441 Quivim Road $4.19 $3.49 Diesel = 1.5`:{a gross Gasoline = 3.0°!6 gross Mission Bay, San Diego Harbor Island west B 2040 Harbor Island Drive 54.42 $4.32 Diesel = $0.02Jgallon Gasoline = $0.041ga1[oI_ San Diego Port District PearSons 7 2435 Shelter Island Drive $3.92 $3.67 Diesel = $OAVgallon Gasoline = $0.041ga1[on San Diego Port District High Seas 8 2540 Shelter Island Drive $4.00 $3.45 Diesel = $0_02,1gallon Gasoline— S0.041gal[on San Diego Port District As can be seen, a distinction is typically made between the percentage rent applied to diesel fuel and gasoline. On average the ratio of demand for diesel in comparison to gasoline is on the order of 80% to 20%. Blending these ratios and applying them to a market rent per gallon indications can give an average rent per gallon indication. As an example, GEORGE HAMILTON JONES, INC. 27 17-232 i e "u, t, �1►. VALUATION - continued the San Diego Port District charges rent based on $0.02 per gallon for diesel and $0.04 per gallon for gas. Applying the ratio results in the following: 80% x $0.02 = 20% x $0.04 = Combined: $0.016 $0.008 $0.024 per gallon Likewise, in the City of San Diego, where rent is based on a percentage of the gross income, the charge is 1.5% for diesel and 3.0% for gasoline. 80% x 1.5% = 1.20% 20% x 3.0% = 0.60% Combined: 1.80% of revenues There was strong data from the Beaches and Harbors Division of the County of Los Angeles indicating that the Del Rey Fuel Dock (Parcel 1) in Marina del Rey pumped approximately 745,000 gallons in 2016. This was in a marina comprising approximately 5,500 vessels. A recent study in Newport Harbor indicated that there are approximately 4,000 — 5,000 boats in the harbor. Based on comparison with Marina del Rey, this would correlate to a demand of approximately 600,000 gallons per year in Newport Harbor. This information was processed through various comparative analyses based on projected income and projected volume at a "typical" subject fuel dock while taking into account the particular characteristics of the tidelands use of the two primary fuel docks in the harbor — Island Marine Fuel and Hill's Boat Service. This included the surrounding influences and the high level of supporting uplands land value. No consideration of the relative gallonage or retail prices between these two competitors was given. As with all the commercial operations in the harbor, it was the utility of the tidelands, not a particular operation, that was the basis for setting market rent. As a result of these analyses, I formed the opinion that the annual market rent for subject tidelands, dedicated to fuel dock use, was $0.76 per square foot. GEORGE HAMILTON JONES, INC. 28 17-234 t 41 r rfe NN". �t 4 `R 01- $ , SO, IF 0 Al � 4�' �• �°' ��„ �- Ate. ;�� ,�_ r' J 4 _ VALUATION - continued Annual Fair Market Rent Conclusion Fuel Dock Use $0.76 per square foot Shipyards: Like fuel docks, shipyards are a necessary component to any harbor. They are also similar to fuel docks in terms of the varied challenges that operators face both in terms of economics and governmental regulations (primarily environmental.) A further consideration for this analysis is that the bulk of the operations occur on land; the tidelands are typically little more than a transit zone facilitating the movement of vessels from the water to the "dry" work area. Shipyard rental arrangements in various jurisdictions were investigated. They are typically quite complex and intermingled with other elements that are not directly applicable to the subject analysis. However, Parcel 53 in Marina del Rey ("The Boat Yard") provided useful information for analysis. On Parcel 53, the area dedicated to shipyard use is approximately 77,500 square feet of uplands and 13,000 square tidelands. (This is exclusive of the adjacent marina use, which is also on Parcel 53.) Therefore, the total area dedicated to shipyard use was approximately 90,500 square feet. The percentage rent charged for boat hauling and launching, repairs and pump out was 4% of gross income. Office space used for a commercial repair shop for boat services was 16% of the gross. The total rent paid for the years 2014 — 2016 for the shipyard use was equivalent to $1.01, $1.22 and $1.66 per square foot for the 90,500 square feet. Approximately 85% of this area was land that was dedicated to industrial shipyard use. This land rent was compared to the higher residential use of apartments found at nearby Parcel 64, a very comparable parcel of land. This was done in order to judge the discount that the County of Los Angeles deemed to be warranted, in terms of rent received, to facilitate the existence and operation of an essential shipyard use in Marina del Rey. The ratio ranged from 23% to 35%. Again, this includes the land, not just the tidelands. GEORGE HAMILTON JONES, INC. 29 17-236 VALUATION - continued It is worth noting that Parcel 65 (UCLA Boathouse), which is restricted to eleemosynary (non-profit/educational) use, paid rent at generally the same level ($1.32 - $1.69 per square foot) as Parcel 53 for shipyard use over the same period. This implicitly supports the concept that a shipyard provides essential services and benefits to the harbor as a whole. Market evidence indicates that this use is incentivized by a discounted rental rate relative to other for-profit commercial uses. Application of this principal to the "highest use" benchmark tidelands rent of $1.17 per square foot in Newport Harbor indicates that shipyards should pay 25% to 35% of that amount. This is equivalent to $0.29 to $0.41 per square foot per year. The State Lands Commission Benchmark rental rate for tidelands under its jurisdiction in Southern California was established in October 2016 at $0.374 per square foot per year'. It is recognized that this benchmark was intended primarily for recreational uses and is not directly comparable to the subject shipyard use, but, in my judgment, it provides a solid lower limit indicator. This is particularly true in the context of Newport Harbor where overall rates and values are significantly higher than the average used in the State Lands Commission study. In light of the above, as well as other analyses retained in my files, I have concluded that the market rent for subject tidelands, as dedicated to shipyard use, should be $0.38 per square foot per year. Annual Fair Market Rent Conclusion Shipyard Use $0.38 per square foot HOA Marinas Our investigations indicate that HOA -owned marinas can be utilized either exclusively for the use of the residents of the homeowners association, or they can be offered to the public generally. ' California State Lands Commission, Calendar Item 65, 10/13/16. GEORGE HAMILTON JONES, INC. 30 17-237 VALUATION - continued In the case of exclusive use by homeowner residents, my independent analysis and investigations uncovered no information or data that would suggest the tidelands should be charged at any rate other than the established rate for residential tidelands use. On the other hand, when the same tidelands are put to a profit generating use with the capacity to receive market slip rental rates comparable to other commercial marinas in the harbor, there was similarly no supportable information indicating that the tidelands rental rate should be any different than the market rent charged for comparable commercial marinas. Annual Fair Market Rent Conclusion HOA Marinas Exclusive Use by Residents: Established Residential Rates Commercial Use by Public: Market Rates — Commercial Marinas Yacht Clubs (Guest/ Instructional Use): Yacht clubs are typically non-profit entities that, in addition to serving the needs of their membership, provide educational and recreational activities that enhance the overall balance of water -oriented uses throughout the harbor. Community benefits are created by attracting visitors to Newport Beach for regattas and other affiliated activities. Further, yacht club members are recognized to offer experienced stewardship of the waters in Newport Harbor and the surrounding ocean in a wide range of areas. The beneficial dynamics inherent in yacht club presence within the harbor is implicitly recognized by the fact that the land zoning for yacht clubs is PI (Public Institutions). In this subject use category, the tidelands are considered to be for guest/instructional use. They are not intended for long-term berthing such as would be the case with a marina. The subject tidelands are to serve as a transit area for members and guests between the bay and shore, as well as for short-term docking of vessels. There is no for-profit income directly generated by the use of this tidelands area. In many ways, a yacht club use can be compared to Parcel 65 (UCLA Boathouse) in Marina del Rey (discussed above). This is a non-profit/ GEORGE HAMILTON JONES, INC. 31 17-238 VALUATION - continued educational use that serves both its own constituency and members of the public drawn to the facility for regattas and other related activities. While not directly comparable, it is also worth noting that in Newport Harbor the County of Orange leased The School of Sailing and Seamanship to Orange Coast College and the Newport Sea Scout Base on a rent-free basis because these were considered to be non-profit uses that benefit both the harbor and the community at large. The County also leased uplands and tidelands in Dana Point to the Ocean Institute for $1.00 per year. The available market data for yacht club uses related primarily to income sources generated by the uplands and were not judged to be reflective of the specific tidelands use that is the subject of this analysis. Based on the non -incoming generating nature of the yacht club (guest/instructional) tidelands use, the ancillary benefits which yacht clubs contribute to the harbor environment, and reference to non-profit/ educational lease rates in Newport Harbor as well as other jurisdictions, I concluded that market rent for this category was indicated to be at the low end of the range, comparable to shipyard use, or $0.38 per square foot per year. Annual Fair Market Rent Conclusion Yacht Clubs (Guest/ Instructional Use) $0.38 per square foot Restaurant Guest Slips: The use of tidelands for guest slips to serve adjacent, privately owned restaurants is undoubtedly a benefit to the restaurant, but not a use upon which the operation of the restaurant is dependent. A small percentage of the guests of waterfront restaurants avail themselves of guest docks; most use uplands parking. There is no direct fee charged to the guest/users of the tidelands that generates income to the restaurant. Like the yacht club guest/instructional category, this tidelands use facilitates transit for customers/guests between the bay and the land-based restaurant. These are short-term users, and no effective enhancement in profit is generated by this use. GEORGE HAMILTON JONES, INC. 32 17-239 VALUATION - continued One key element distinguishing this ancillary use of the tidelands from commercial uses dependent on the tidelands for income generation is the fact that guest slips do not require supporting uplands parking; in fact, they reduce parking and traffic burdens on the city streets by replacing vehicle transport. Further, guest slips generate wider, multi-purpose activity on the water. This is considered to be a positive enhancement of the overall atmosphere of the harbor environs, particularly for visitors to the area. There was no comparable market data information from other jurisdictions for this narrowly defined use. I have considered it appropriate to analyze restaurant guest slips by the same criteria as I did other non -income generating uses of the tidelands. Accordingly, I concluded that market rent for restaurant guest slips was $0.38 per square foot per year on the date of value. Annual Fair Market Rent Conclusion Restaurant Guest Slips $0.38 per square foot GEORGE HAMILTON JONES, INC. 33 17-240 VALUATION - continued Boat Rentals, Sport Fishing Charters, Vessel Charters, Others: The Percentage Rent Survey in the Addenda Section of this report provides a summary of percentage lease rates for a variety of uses in various jurisdictions throughout Southern California. As mentioned several times previously, these rental rates are for land and water in joinder. The subject properties in this appraisal are the tidelands only, under the assumption of joint use with the adjacent privately -owned uplands. The percentage rents of the market data are based on projections of the income generating capacity for the various uses identified. They differ based on the anticipated level of income for each use, as well as demand and other factors. This assignment is not to reach a percentage rent conclusion for these various commercial uses, but, rather, to form an opinion of market rent on an annual dollars per square foot of tidelands basis. As the Percentage Rent Survey shows, percentage rents for a particular use can vary significantly between jurisdictions. For example, the data for sport fishing charters ranges from 3.5% to 10% of gross income, while the range for boat rentals is also generally from 3.5% to 10% but with King Harbor showing a range of 12.5% to 20.0%. The difficulty and uncertainty of extracting the tidelands contribution from the uplands (and, in some cases, improvement) contribution embedded in this market rent data is apparent. Further, correlating percentage rent to a price per square foot amount creates several challenges as well. However, these data were a useful guide of the relative relationships of rent levels between the various uses. In those instances where actual rental amounts could be correlated to the tidelands and uplands area used (as was discussed in the shipyard section of this report with Parcel 53 in Marina del Rey), a meaningful relationship of rental levels could be developed. It was particularly helpful to analyze the actual tidelands uses in Newport Harbor and to study the relationships between them. An example of this is presented on the following facing page where six tidelands use categories are adjacent to each other. With the exception of the guest slips, all categories in this example require the direct use of the tidelands to generate the primary business GEORGE HAMILTON JONES, INC. 34 17-241 Balboa Peninsula — Pavilion Area — Commercial Tidelands GEORGE HAMILTON JONES, INC. 17-242 VALUATION - continued income. This characteristic distinguishes them from the yacht club and restaurant guest slip analyses discussed immediately above. The concluded small commercial marina rate ($0.76/ sq. ft.) previously presented in this report was supported by correlation of the conclusion from the April 2016 report for large marinas through economic analyses to reflect the small marina size. The fuel dock rental rate conclusion ($0.76/ sq. ft.) was based on an extensive analysis of market data and an empirically supported estimate of fuel demand (gallonage) in Newport Harbor. It can be seen that, in the illustration opposite, these two uses essentially bookend the other categories of use. Further, these uses also generally share the feature of requiring relatively small tidelands areas to operate efficiently. In some sense, then, the specific areas allocated for these tidelands uses can be seen to be somewhat interchangeable. When this consideration is combined with the fact that use of the tidelands is mutually indispensable to their business operations, a certain equity between the uses, in terms of a reasonable rental obligation, is indicated. Accordingly, I have concluded that these relatively small -in -size, tideland -dependent commercial uses pay rent at the same level as small commercial marinas and fuel docks. This rate is $0.76 per square foot of tidelands per year. Annual Fair Market Rent Conclusion Boat Rentals Sport Fishing Charters Vessel Charters Others $0.76 per square foot GEORGE HAMILTON JONES, INC. 35 17-243 VALUATION - continued Summary of Conclusions: In light of all the foregoing, and a result of all my investigations and analyses, I have formed the opinion, that, as of March 15, 2016, market rent for the various categories of use of the subject City Tidelands, expressed on an annual per square foot basis, was as follows: GEORGE HAMILTON JONES, INC. 36 17-244 RATE PER COMMERCIAL USE CATEGORY SQ. FT. Large Commercial Marinas $1.17 ( >30,000 square feet ) Medium Commercial Marinas $0.89 ( 13,000-30,000 square feet) Small Commercial Marinas $0.76 ( <13,000 square feet ) Fuel Docks $0.76 Shipyards $0.38 HOA Marinas (residential use) residential rates commercial HOA Marinas (commercial use) marina rates based on size Yacht Clubs (Guest/Instructional Use) $0.38 Boat Rentals $0.76 Sport Fishing Charters $0.76 Restaurant Guest Slips $0.38 Vessel Charters $0.76 All others $0.76 GEORGE HAMILTON JONES, INC. 36 17-244 Addenda GEORGE HAMILTON JONES, INC. 17-245 City of Newport Beach Pier Permit Exhibits (Alphabetical by Permittee) 126 Properties LLC (Morehart) Address: 2812 Lafayette Commercial Marina: 497 s.f� Private Tidelands: 816 s.f. Total: 1,313 s.f. }, `" 126 Properties - N Morehart LJ Bahia Corinthian Yacht Club Address: 1601 Bayside Drive Commercial Marina: 65,655 s.f Private Tidelands: 10,109 s.f. Total: 75,764 s.f` i °• + f o Bahia Corinthian Yacht Cluu Balboa Boat Yard Address: 2414 Newport Blvd. t Shipyard: 1,443 s.f. Private Tidelands: 1,039 s.f. Total: 2,482 s.f. :y 4 �y111`��_ •� pyo � - - Ir GEORGE HAMILTON JONES, INC. 17-246 Balboa Manor (Balboa Pavilion) , Address: 400 Edgewater r t Vessel Rental Facility: 6,703 s.f. Vessel Charter Business: 5,646 s.f. 4 Restaurant: 3,961 s.f. Sport Fishing Charter: 2,885 s.f. t Building Over Tidelands: 13,196 s.f. Total: 32,391 s.f. — Balboa Manor Balboa Yacht Club Address: 1801 Bayside Drive"` Yacht Club Guest Slips: 8,541 s.f. , Total: 8,541 s.f. �`• Balboa Yacht Club pP' Barton/Beek (Island Marine Fuel) Address: 406 S. Bay Front •_ Fuel Dock: 3,617 s.f. Total: 3,617 s.f. .h' Island Marine Fuel.„ , GEORGE HAMILTON JONES, INC. 17-247 Boat Service, Inc. (Hill's) Address: 814 E. Bay Avenue ` x ' 4C Commercial Marina: 5,767 s.f. ' Fuel Dock: 6,793 s.f. Private Tidelands: 583 s.f. i Total: 13,143 s.f. n +f . ti+ Hills Boat Service AEMA- California Recreation Co., LLC �- (Balboa Yacht Club Marina) - Address: 1701 Bayside Drive F ' Commercial Marina: 62,912 s.f. -- Y Private Tidelands: 27,152 s.f. Total: 90,064 s.f. Balboa Yacht Club Marina r�R California Recreation Co., LLC (Bayside Marina) Address: 1137 Bayside Drive i Commercial Marina: 128,560 s.f Total: 128,560 s.f. f. 1 " e r r Cal Rec - Bayside Marina GEORGE HAMILTON JONES, INC. 17-248 California Recreation Co., LLC (Villa Cove Marina) ------ _ . Address: 1001 Bayside Drive r < Commercial Marina: 58,274 s.f.t Total: 58,274 s.f. 1 f Y --------------- Cal Rec - Villa Cove Marina Cannery LLC Address: 3010 Lafayette 1 � r�t.• Restaurant: 2,202 s.f. Total: 2,202 s.f. x ` Cannery LLC Cannery Village LLC (Condominiums) Address: 700 Lido Park Drive - Commercial Marina: 3,540 s.f. Private Tidelands: 13,993 s.f v Total: 17,533 s.f.+� y. 1 '"� 'II r Cannery Village, LLC 0 GEORGE HAMILTON JONES, INC. 17-249 Cannery Village Marina Partners � y. (28th Street Marina) Address: 2602 Newport Blvd. Commercial Marina: 8,034 s.f. = � Private Tidelands: 8,481 s.f. Total: 16,515 s.f. r = 28th Street Marina O C7 Cannery Village Marina Partners _ r (Cannery Village Marina) K�. k Address: 2800 Lafayette Commercial Marina: 675 s.f.' f •: ,- Private Tidelands: 502 s.£ Total: 1,177 s.f. ✓ �,�= 1 Cannery Village Marina Dicks Dock LLC (Rusty Pelican),,. Address: 2735 W. Coast Hwy. Commercial Marina: 8,761 s.f. Total: 8,761 s.f. - sip Dick's Dock (Rusty Pelican) GEORGE HAMILTON JONES, INC. 17-250 Elks Lodge #1767 Address: 3456 Via Oporto Commercial Marina: 2,803 s.f. Total: 2,803 s.f. Elk's Lodge ,? Fun Zone Boat Company Address: 700 Edgewater Place Commercial Marina: 6,630 s.f. Vessel Charter Business: 2,660 s.f. Total: 9,290 s.f. s s Fun Zone Boat Co` 'w ©_ Gilbert Property, LLC (Newport Landing) Address: 503 Edgewater r , Vessel Rental Facility: 4,351 s.f. `� 4 Sport Fishing Charter: 3,134 s.f. U Fuel Dock: 1,616 s.f. Total: 9,101 s.f. Gilbert Property, LLC GEORGE HAMILTON JONES, INC. 17-251 Golden Hills Properties, LLC - dba Newport Harbor _ Address: 3333 W. Coast Hwy. Commercial Marina: 58,166 s.f. City Tidelands: 13,595 s.f. Private Tidelands: 2,069 s.f. .A� Total: 73,830 s.f. Golden Hills Properties, LLC ID Goodin Family Trust (Norman P. Goodin) FN Address: 2527 W. Coast Hwy. 16, Commercial Marina: 5,129 s.f. Vessel Charter Business: 3,411 s.f. Private Tidelands: 4,058 s.f. S Total: 12,598 s.f. Goodin Family Trust Khoshbin's Landing, LLC �a a Address: 2801 W. Coast Hwy Commercial Marina: 9,765 s.f. Private Tidelands: 1686 s.f. 11,451 s.f. r� GP's Landing, LLC M° (2801) GEORGE HAMILTON JONES, INC. 17-252 Khoshbin's Landing, LLC Address: 2751 W. Coast Hwy Commercial Marina: 8,273 s.f. Private Tidelands: 5,600 s.f 13,873 s.f. i L J GP's Landing, LLC (2751) o James Boys, LLC (James, Steve) # 3 Address: 2404 Newport Blvd.'` Restaurant: 4,511 s.f. 1 Total: 4,511 s.f. 1 { A, James Boys LLC Morehart, John M. r Address: 2808 Lafayette Commercial Marina: 863 s.f. , Private Tidelands. 2,265 s.f. Total: 3,128 s.f. 4 _ John M. Morehart t, GEORGE HAMILTON JONES, INC. 17-253 JRNP, LLC (Schock Boats) Address: 2818 Lafayette Shipyard: 1,002 s.f.� , Private Tidelands: Total: 2,248 s.f. 3,250 s.f. ! `I 1 t JRNP, LLC `' O JRNP, LLC (Schock Boats) &bog— Address: 2900 Lafayette { Shipyard: 1,756 s.f. '"� �fi 16� Private Tidelands: Total: 2,733 s.f. 4,489 s.f. :, ., _mum� r AI JRNP, LLC 4-- O Lido Group Retail, LLC - Address: 3400 Via Oporto Commercial Marina: 55,010 s.f. ..� Vessel Charter Business: 16,030 s.f. Vessel Rental Facility: 10,790 s.f. Total: 81,830 s.f. V Y ,1 Lido Group Retail, LLC il.�7— GEORGE HAMILTON JONES, INC. 17-254 Lido Park Place Condominium Address: 621-633 Lido Park Drive Homeowners Association Non -Members: 12,534 s.f� Members Only: 2,735 s.f Total: 15,269 s.f `* ` ,. eN 4y O w+ n Lido Park Place Condominium Lido Peninsula Company, LLC dba Lido -` Address: 711 Lido Park Drive' � Commercial Marina: 15,242 s.f. Total: 15,242 s.f. 4r Lido Peninsula Resort o Lido Peninsula Company, LLCx -��V dba Lido Peninsula Yacht Anchorage Address: 717 Lido Park Drive Commercial Marina: 185,938 s.f. Shipyard: 19,177 s.f. Private Tidelands: 68,651 s.f. Total: 273,766 s.f. N i ,�lLido Peninsula Yacht Anchorage � GEORGE HAMILTON JONES, INC. 17-255 Lido Sail Club Prop (Windward Sailing) k Address: 3300 Via Lido Commercial Marina: 11,166 s.f. Total: 11,166 s.f. i. Windward Sailing [rr,N.. Marina Properties (Parker) (Joe's Crab Shack) Address: 2607 W. Coast Hwy. Commercial Marina: 9,608 s.f. Total: 9,608 s.f. --:! s q'IT Marina Properties - Parker (Joe's Crab Shack) Mariners Mile LLC (VMA Mariner's Mile) Address: 2505 W. Coast Hwy. t/ ' �Y Commercial Marina: 8,365 s.f. s Shipyard: 3,635 s.f. Private Tidelands: 7,367 s.f. Total: 19,367 s.f. VMA Mariner's Mov GEORGE HAMILTON JONES, INC. 17-256 Mariners Mile LLC (VMA Mariner's Mile — Hornblower), Address: 2439 W. Coast Hwy. J Vessel Charter Business: 12,000 s.f. `,' • Private Tidelands: 6,965 s.f. � y Total: 18,965 s.f. 4. VMA Mariner's Mile (Hornblower) o Mariners Mile South, LLC (Dwyer/Olincy) (Duffy Boats)ti �P ' Address: 2001 Coast H wy. Vessel Rental Facility: 8,000 s.f'` Private Tidelands: 1,070 s.f. Total: 9,070 s.f. r Duffy Boats Morehart / Cervantes Address: 2814 Lafayette Commercial Marina: 491 s.f. -_ y- Private Tidelands: 807 s.f. / 9 Total: 1,298 s.f. / GEORGE HAMILTON JONES, INC. 17-257 NB Mariner's Mile LLC r: i' • Address: 2101 W. Coast H' Commercial Marina: 55,999 s.f. Private Tidelands: 24,459 s.f. Total: 80,458 s.£ 4 Newport Bay Management LLC (The Larson Group) Address: 2703 W. Coast Hwy. Commercial Marina: 4,360 s.f. Shipyard: 3,639 s.f. . Total: 7,999 s.f. W r Newport Bay Management Larson's Newport Bay Towers Address: 310 Fernando;- Homeowners Association , Non -Members: 14,896 s.f. Total: 14,896 s.f. A , a a � Newport Bay Towers GEORGE HAMILTON JONES, INC. 17-258 Newport Bay Villas, LLC (340 Inc) ; Address: 2408 Newport Blvd. Commercial Marina: 3,007 s.f. Total: 3,007 s.f. � t ir► 1 340 Inc r 0 Newport Harbor Nautical Museum � T (Discovery Cube's OceanQuest)' (Explorocean) Address: 600 E. Bay Ave. ; r, Commercial Marina: 2,685 s.f. Vessel Rental Facility: 15,566 s.f. Vessel Charter Business: 3,112 s.f. Total: 21,363 s.f Discovery Cube's OceanQuest Newport Harbor Yacht Club Address: 720 & 800 W. Bay Avenue a Commercial Marina: 14.252 s.f. „e= Yacht Club Guest Slips: 27,624 s.f. Private Tidelands: 15,092 s.f. Total: 56,968 s.f. DIY 4-1 ort Harbor Yacht Club (1 & 2) GEORGE HAMILTON JONES, INC. 17-259 NP Beach Marina LLC (Newport Bay Marina).' Address: 2300 Newport Blvd. { '. Commercial Marina: 26,110 s.f. l:- Private Tidelands: 5,657 s.f. Total: 31,767 s.f. NEWPORT BAY r MARINA Overstreet, Dennis/Christine Address: 2816 Lafayette Commercial Marina: 494 s.f. • 'i Private Tidelands: 812 s.f.-„ Total: 1,306 s.f. r I / ®ennis Overstreet Plaza del Sol (Jakosky) Address: 3101 Coast Hwy. Commercial Marina: 6,219 s.f. j i • - `. �'� , ti Vessel Charger Business: 6,909 s.f. s-_ Private Tidelands: Total: 14,946 s.f.°I 28,074 s.f. wY� . Plaza del Sol o (Jakosky) o' GEORGE HAMILTON JONES, INC. 17-260 Port Calypso (Parker) Address: 2633 Coast Hwy. Commercial Marina: 9,000 s.f. A Private Tidelands: 5,989 s.f. Total: 14,989 s.f Z �. Port Calypso (Parker) o Primm Family Trust (Div Bar) �y Address: 2601 W. Coast Hwy.fl Restaurant: 4,000 s.f. Private Tidelands: 1,814 s.f. Total: 5,814 s.f. �4. Div Bar Primm � - RREF II — WPG Waterfront, LLC Address: 919 Bayside Drive a ;i Commercial Marina: 29,453 s.f. Private Tidelands: 8,500 s.f. Total: 37,953 s.f. RREF II - WPG Waterfront, LLC (919 Bayside Drivel GEORGE HAMILTON JONES, INC. 17-261 South Coast Shipyard (leased from Sea Spray Boatyard — Pappas) Address: 226 21St Street , �a Commercial Marina: Shipyard: 4,840 s.f. 1,640 s.f. . w Private Tidelands: 463 s.f. Total: 6,943 s.f. �` o A South Coast Shipyard South Coast Shipyard Address: 223 21St Street Shipyard: 3,630 s.f. < . Total: 3,630 s.f. iA rjjj(( '- t South Coast Shipyard Sullivan, Robert L. Address: 227 20th Street *. Commercial Marina: 6,690 s.ff Total: 6,690 s.f. i eF"v ss° � .` Jf Newport Bay Villa HOA o GEORGE HAMILTON JONES, INC. 17-262 Teller, Robert Address: 504 S. Bay Front Commercial Marina: 8,657 s.f° Total: 8,657 s.f Teller - 504 Bay Front S m11 The Winery, LP (3131 Pacific Coast), Address: 3131 W. Coast Hwy. -,--- Restaurant: 1,075 s.f. r �r ► ' ' '''� is Private Tidelands: 6,055 s.f. •= �' Total: 7,130 s.f. The Winery, LP o ° Ursini Family Limited Partnership and Blue Lido Real Estate Investment LP- (Ursini, Francis / Bluewater) Address: 630-670 Lido Park Drive Commercial Marina: 4,929 s.f. �F Restaurant: 1,218 s.f Vessel Charter Business: 3,539 ,� s.f 014'1" Private Tidelands: 3,785 s.f� Total: 13,471 s.f. * �► BI'Lu water Marina �' GEORGE HAMILTON JONES, INC. 17-263 Vallely Investments (Balboa Boat Rentals — Rodheim) 4 Address: 511 Edgewater Place Vessel Rental Facility: 7,082 s.f. Sport Fishing Charter: 5,333 s.f. Total: 12,415 s.f. 1 Vallely y .- Balboa Boat Rentals (Rodheim) ; Vallely Marina Address: 508 S. Bay Front • Commercial Marina: 3,159 s.f. .., Total: 3,159 s.f. Vallely - 508 Bay Front Vikings Port Marina, LLC RE (Lenich Living Trust) kv, Address: 2547 W. Coast Hwy Commercial Marina: 4,000 s.f.-'` Private Tidelands: 2,090 s.f. r Total: 6,090 s.f. Vikings Port a..°°b"°1'h' Mo GEORGE HAMILTON JONES, INC. 17-264 Vista del Lido Address: 611 Lido Park Drive I Commercial Marina: 15,674 s.f. °= Total: 15,674 s.f.'� ' � Vista Del Lido 0 Waterfront Newport Beach, LLC Address: 2901 W. Coast Hwy. r ;: r Vessel Charter Business: 15,224 s.f. Total: 15,224 s.f. =V Waterfront Newport Beach Woody's Wharf Address: 2318 Newport Blvd. Restaurant: 4,510 s.f. Total: 4,510 s.f. GEORGE HAMILTON JONES, INC. 17-265 PERCENTAGE RENT SURVEY FUEL SALES JURISDICTION % RENT RANGE Marina del Rey $0.15/gallon King Harbor/Redondo Beach 5.50% Dana Point Diesel = 2.5% Gas = 3.0% Mission Bay/San Diego Diesel= 1.5% Gas = 3.0% San Diego Port District Diesel = $0.02/gal Gas = $0.04 Port of Los Angeles Diesel = $0.005-0.025/gal Gas = $0.025/gal Ventura Harbor Diesel = $0.018/gal Gas = $0.015/gal SPORT FISHING CHARTERS JURISDICTION % RENT RANGE Marina del Rey 4.5-6.0% Mission Bay/San Diego 7.0% San Diego Port District 6.0% Port of Los Angeles 3.5% Ventura Harbor 6.0-8.5% Sunset Harbor, Huntington Beach 10.0% Channel Islands Harbor, Oxnard 5.0% BOAT RENTALS JURISDICTION % RENT RANGE King Harbor/Redondo Beach 12.5-20.0% Mission Bay/San Diego 7.0-10.0% San Diego Port District 10.0% Port of Los Angeles 3.5-5.0% Ventura Harbor 7.0% Sunset Harbor, Huntington Beach 10.0% Channel Islands Harbor, Oxnard 5.0% SHIP CHANDLERY JURISDICTION % RENT RANGE Marina del Rey 2.0% King Harbor/Redondo Beach 4.0-5.0% Mission Bay/San Diego 2.0-4.0% San Diego Port District 4.0% Port of Los Angeles 1.0-4.0% Ventura Harbor 3.0% Sunset Harbor, Huntington Beach 5.0% Channel Islands Harbor, Oxnard 3.0% GEORGE HAMILTON JONES, INC. 17-266 BAIT SALES AND EQUIPMENT RENTAL JURISDICTION % RENT RANGE Marina del Rey 4.0-5.0% King Harbor/Redondo Beach 5.5% Mission Bay/San Diego 7.0% San Diego Port District 6.0% Port of Los Angeles 3.0-3.5% Ventura Harbor 5.0% Sunset Harbor, Huntington Beach 5.0% Channel Islands Harbor, Oxnard 5.0% BOAT SALES - New and Used JURISDICTION % RENT RANGE Marina del Rey 1.0% King Harbor/Redondo Beach 1.0-1.5% Mission Bay/San Diego 2.0% Port of Los Angeles 1.0% Ventura Harbor 1.0% Sunset Harbor, Huntington Beach 1.0% Channel Islands Harbor, Oxnard 1.0% YACHT CLUB DUES AND GUEST FEES JURISDICTION % RENT RANGE Marina del Rey 15.0% King Harbor/Redondo Beach 6.0% Mission Bay/San Diego 7.0% San Diego Port District 9.4% Channel Islands Harbor, Oxnard 10.0% Santa Barbara Harbor 10.0% GEORGE HAMILTON JONES, INC. 17-267 CERTIFICATION The undersigned hereby certifies that: 1. I have made personal inspections of the subject properties throughout Newport Harbor on various occasions over the past 25 years. 2. To the best of my knowledge and belief, the statements of fact contained in this report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the assumptions and limiting conditions stated herein, and are the personal, unbiased professional analyses, opinions, and conclusions of the undersigned. Those limiting conditions (imposed by the terms of the assignment or by the undersigned) considered to affect the analyses, opinions, and conclusions are contained in this report. 4. I have no present or prospective interest in the properties that are the subject of this report. I have no personal interest or bias with respect to the subject matter of this report or the parties involved. This report is Phase 2 of an appraisal of City of Newport Beach Tidelands. The first report (Phase 1), the subject of which was tidelands dedicated to large commercial marina use, was submitted by this office on April 7, 2016. Otherwise, I have not performed any services, as an appraiser or in any other capacity, regarding the properties that are the subject of this report within the three-year period immediately preceding the acceptance of this assignment. 5. The engagement of my firm and the compensation for this assignment are not contingent upon the development or reporting of a predetermined value or result, or direction in value, that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 6. This report is not conditioned upon a requested minimum valuation, a specific valuation, or the approval of a loan. GEORGE HAMILTON JONES, INC. 17-268 7. This report, and the analyses, opinions, and conclusions contained herein, have been made in conformity with and are subject to the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute, and the Uniform Standards of Professional Appraisal Practice. 8. No one other than the undersigned prepared the analyses, conclusions, and opinions, or provided other significant professional assistance concerning the real property interests that are the subject of this report. 9. The Appraisal Institute conducts a program of continuing education for its designated members. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. Casey 4.es, MAI (State Ce ified General Real Estate Appraiser No. AG041862) GEORGE HAMILTON JONES, INC. 17-269 LIMITING CONDITIONS The Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute require that all assumptions and limiting conditions that affect the analysis be clearly and accurately set forth. To assist the reader in interpreting this report, the primary assumptions and limiting conditions affecting the analysis of the subject properties are set forth below. Other assumptions and conditions may be cited in relevant sections of the following report. 1. That the date of value to which the conclusions and opinions expressed in this report apply is March 15, 2016. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American dollar existing on that date. 2. That the appraiser assumes no responsibility for economic or physical factors which may affect the opinion herein stated occurring at some date after the date of value. 3. That the appraiser reserves the right to make such adjustments to the valuation herein reported, as may be required by consideration of additional data or more reliable data that may become available. 4. That no opinion as to title is rendered. Data related to ownership and legal description was obtained from public records, and is considered reliable. Title is assumed to be free and clear of all liens and encumbrances, easements and restrictions, except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Investigation of the property's history is confined to examination of recent transactions or changes in title or vesting, if any, and does not include a "use search" of historical property utilization. 5. That no engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area was taken from sources considered reliable and no encroachment of real property improvements is considered to exist. 6. That maps, plats, and exhibits included herein are for illustration only as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. 7. As a premise of this report it is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the following analysis. GEORGE HAMILTON JONES, INC. 17-270 LIMITING CONDITIONS - continued 8. That no opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. It is assumed that there are no hidden or unapparent conditions of the property that render it more or less valuable. No responsibility is assumed for such conditions or for the arranging of studies that may be required to discover them. The function of this report is to provide an opinion of the value of the real property as herein defined. Under no circumstances should this report be considered as providing any service or recommendation commonly performed by a building inspector, structural engineer, architect, pest control inspector, geologist, etc. 9. That no soil reports concerning the subject property were available. This valuation is based upon the premise that soil and underlying geologic conditions are adequate to support standard construction consistent with highest and best use. 10. That no specific information was available for my review relating to hazardous materials or toxic wastes that may affect the appraised property. Unless otherwise stated in the report, I did not become aware of the presence of any such material or substance during our investigation or inspection of the appraised property. However, I am not qualified by reason of experience or training to identify such materials or substances. The presence of such materials and substances may adversely affect the value of subject property. This valuation is predicated on the assumption that no such material or substance is present on or in the subject properties or in such proximity thereto that it would prevent or impair development of the land to its highest and best use or otherwise affect its value. The appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state, and local environmental laws, regulations, and rules. 11. This Appraisal Report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. Disclosure of the contents of this appraisal report is governed by the By -Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected, or any reference to the Appraisal Institute, or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the author. GEORGE HAMILTON JONES, INC. 17-271 QUALIFICATIONS OF CASEY O. JONES, MAI Member of the Appraisal Institute California Certified General Real Estate Appraiser, License No. AG041862 Education: University of Southern California, Bachelor of Arts Advanced Study - University of Southern California, Master of Fine Arts, 1978 Real Estate Appraisal Courses (Appraisal Institute): Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice Business Practices and Ethics Apartment Valuation Advanced Income Capitalization General Market Analysis and Highest and Best Use Advanced Sales Comparison and Cost Approaches Report Writing and Valuation Analysis Advanced Applications Comprehensive Appraisal Workshop Litigation Professional Program Federal and California Staturory and Regulatory Law Course Real Estate Appraisal Seminars (Partial List) Litigation Seminars, 2007, 2009-2012, 2014-2016 Market Trends Seiminars: LA/ OC/ Inland Empire Conservation Easement Valuation Real Property Damages Valuation Project Delay Economics Hydraulic Fracking and Property Rights Entitlements in Real Property Appraisals Professional Affiliations: Appraisal Institute (MAI Member No. 12935) Regional Representative (Region VII), 2012-2015 International Right of Way Association Chapter 67 Valuation Chair, 2011-2012, 2014-2017 17-272 Qualifications of Casey O. Jones, MAI Page 2 Employment: 1/91 - Present: Real Estate Appraiser and Consultant George Hamilton Jones Inc., Newport Beach, California Scope of Experience (Partial List): Appraisal experience includes valuations of most categories of real property and appraisal reviews. Interests appraised include fee simple, leased fee, leasehold, fair market rent, partial acquisitions, easements and rights-of-way. Work has been primarily carried out throughout Southern California. Property Types: Single Family Residences Condominiums Commercial Buildings Industrial Buildings Retail Centers Vacant Lots/ Land (All types) Mobile Home Communities Conservation/Mitigation Land Church Hotels Right of Way Corridors Tidelands Apartments Residential Subdivision Acreage Retail Buildings Office Buildings Service Stations Medical Buildings Marinas Leasehold/ Leased Fee (Residential and Commercial) Waterfront and Oceanfront Properties Yacht Clubs Wetlands Shipyards Speicalized Properties and Assignments (Partial List): Marina Pacifica — 569 -unit condominium underlying land revaluation, Long Beach Kilroy Airport Center Office Complex, Long Beach Leasehold Residential Subdivision Land, Custom Waterfront Lots, Newport Beach Tidelands, fair rental value at Harbor Island, Newport Beach Tidelands, Lido Marina Village, Newport Beach Colonies Parkway, Upland — commercial/residential planned community/water rights Inland Center Mall — partial acquisition freeway on/off ramp Residential Subdivison — Regulatory Taking, Inverse Condemnation, San Juan Capistrano BNSF Railway — aerial and other easement acquistions, Anaheim Valley View Grade Separation — land and easement acquisitions, Santa Fe Springs 245 acres of conservation/mitigation land, San Diego County 100 acres wetlands, Huntington Beach Avalon Canyon Road right of way acquistion, Avalon, Catalina Island Mt. Ada Historic Property, value restricted to elemosynary purposes, Avalon Residential subdivision land for mitigation/low-cost housing, Avalon H.U.D Apartment Project, Downey 12 -acre vineyard and residence, Bel -Air Dana Point Yacht Club, fair market rent 17-273 Qualifications of Casey O. Jones, MAI Page 3 Newport Beach Tennis Club Lyon Copley Corona Association — 950 -acre planned unit community Port of San Pedro, Terminal and Wharf Facility, leasehold interest Properties with soils, subsidence or construction defects issues in Southern California Fair rental land valuations in Marina del Rey Rancho Mission Viejo — Trampas Reservoir Mt. Ada/Wrigley Estate (Catalina Island) — eleemosynary valuation Clients — Attorneys & Corporations (Partial List): Anglin, Flewelling, Rasmussen, Campbell & Trytten, LLP — John Anglin, Attorney Ayres Hotels The Bixby Ranch Company Barger & Wolen — Don Adkinson, Attorney Borchard Redhill, LP Curci Companies Endangered Habitat League Greenberg Traurig, LLP — Cris K. O'Neall Hines Hampton LLP — Brian Pelanda, Nicole Hampton The Irvine Company The Kilroy Realty Corporation La Jolla Bank Lanphere Law Group — Michael A. Lanphere Nossaman, Guthner, Knox & Elliott — Alvin S. Kaufer, James C. Powers, Attorneys Mira Mesa Shopping Centers Munger, Tolles & Olson LLP — Richard Volpert, Attorney Murphy & Evertz — John Murphy, Jennifer Dienhart, Attorneys Palmieri, Tyler, Wiener, Whilhelm & Waldron — Michael H. Leifer, Attorney The Santa Catalina Island Company Rutan & Tucker, LLP — Stephen A. Ellis Sall Spence Callas & Kreuger — Suzanne Burke Spencer Stephens Friedland LLP — Todd Friedland Waldron & Bragg, LLP — Gary Waldron, John Olson, Attorneys Clients — Public Agencies, Governmental (Partial List): City of Newport Beach City of San Juan Capistrano City of Long Beach County of Orange County of Los Angeles Beaches and Harbors County of Los Angeles Board of Harbor Commissioners Santa Margarita Water District State of California Department of Transportation (Caltrans) State of Nevada Department of Transportation (NDOT) University of California (Updated 1/17) 17-274