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HomeMy WebLinkAbout12 - Lease Agreement for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island DriveQ SEW Pp�T CITY OF z NEWPORT BEACH c�<,FORN'P City Council Staff Report January 28, 2025 Agenda Item No. 12 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Seimone Jurjis, Assistant City Manager/Community Development Director - 949-644-3232, sjurjis@newportbeachca.gov PREPARED BY: Lauren Wooding Whitlinger, Real Property Administrator - 949-644- 3236, Iwooding@newportbeachca.gov TITLE: Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive ABSTRACT: The City of Newport Beach owns and operates the property known as the Balboa Yacht Basin. Constructed in the early 1940s, the Balboa Yacht Basin consists of a marina, shipyard and other commercial uses. The shipyard and marine store, operated by Basin Marine, Inc., has leased a portion of the Balboa Yacht Basin property since it was first constructed. With the current lease term expiring in 2026, the tenant requested a new agreement to continue its business operations at the property. For the City Council's consideration is a new lease agreement with Basin Marine, Inc., for use of a portion of the Balboa Yacht Basin for a term of 20 years, including a request to waive City Council Policy F-7. RECOMMENDATIONS: a) Find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment; b) Authorize the City Manager and City Clerk to execute the Lease Agreement Between the City of Newport Beach and Basin Marine, Inc. for use of a portion of the City property known as the Balboa Yacht Basin at 829 Harbor Island Drive, in a form substantially similar to the attached agreement; and c) Approve a waiver of City Council Policy F-7 — Income and Other Property based on the findings contained in this staff report and the lease agreement, that conducting an open bid process or changing the tenant would result in excessive vacancy, and that charging less than fair market rent promotes the City of Newport Beach's goals to provide essential or unique services to the community, that cannot otherwise be provided if full market rates were charged, and based on the unique services provided by the tenant. 12-1 Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive January 28, 2025 Page 2 DISCUSSION: The Balboa Yacht Basin (BYB) is located at 829 Harbor Island Drive, Newport Beach, and includes a 172-slip marina, a shipyard and marine store, a restaurant, offices, three residential apartments, storage garages, a small 0.05-acre park, and on -site parking. The shipyard and marine store occupy approximately 42,062 square feet of dry land and tidelands along the east side of the property (Premises) as shown in Figure 1 below. Figure 1 The BYB consists of City -owned land and State of California (State) owned filled tide and submerged lands. The tidelands are subject to the trust statutes and managed by the City on the State's behalf under the terms of the Beacon Bay Bill. Basin Marine, Inc. Basin Marine, Inc. (Tenant) is a family owned and operated shipyard and marine store and provides a variety of boat repair and maintenance services. The operation also employs more than 30 highly skilled employees with a combined experience of more than 375 years, as well as uses more than 50 unique trade subcontractors. With the location and size of the Premises, the Tenant is able to offer services such as vessel haul -outs for boats of up to 70 feet and 100,000 pounds, and a telescoping forklift to provide additional services like picking up an engine or generator to allow for repair. Services like fiberglass and gel coat repairs, bottom paint and other painting detail and varnish services are also available. 12-2 Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive January 28, 2025 Page 3 The marine store also sells boat parts and supplies to meet the needs of the boating community in Newport Harbor. The Tenant services more than 3,000 boats per year, or one-third of the number of vessels in the harbor. Additionally, Basin Marine maintains compliance with numerous environmental and regulatory requirements. The Tenant has operated the Premises under various agreements since the 1940s, and the current agreement, dated January 1, 2001, is set to expire December 31, 2026. The Tenant desires to perform capital improvements and repairs to the Premises, including purchasing a new travel lift for vessel haul -outs. A new lease term of 20-years will allow the Tenant to continue its operations of the shipyard, marine store, and boat repair facility at the BYB pursuant to its request letter, dated June 28, 2023 (Attachment C). Lease Agreement Subject to the existing lease (Attachment B) the Tenant currently pays a base rent of $167,000 per year with percentage rent. Rent payments to the City for the last couple of years total approximately $290,000 per year. City staff and the Tenant have negotiated the terms of a new a lease agreement (Lease) (Attachment A). The proposed terms of the Lease, for use of the Premises, are summarized below: 1. The initial term is 20 years, with four 5-year extension options, for a total possible term of 40 years, unless terminated earlier as provided by the Lease. The Existing Lease shall terminate concurrently with execution of the new Lease. 2. Annual base rent of $300,000, or $25,000 per month, shall be paid by the Tenant. Base rent shall be adjusted every three years by the cumulative change in the Consumer Price Index (CPI), and shall not be less than 3% or greater than 21 % for the three-year period. 3. Percentage rent of the monthly gross sales (less the amount paid in base rent) shall be paid by the Tenant for the following sales categories: Sales Category Percentage Rates Shipyard/Boat Repair (including labor 4% of Gross Sales and services) Outside Labor and Materials 10% of Gross Markup, (performed or furnished by 3rd parties) Commission and Fees received by Tenant Equipment and Hardware Sales at 5% of Gross Sales Marine Store (includes internal sale) 12-3 Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive January 28, 2025 Page 4 4. In addition to the payment of rent, each year - free of charge - the Tenant shall provide the City haul -out and re -launch of up to 12 City -owned vessels. The Tenant shall also provide transport and storage of the hauled -out City -owned vessels on the Premises (to facilitate repairs or maintenance) for up to 7 days each. 5. In consideration of the City's potential redevelopment of a portion of the BYB, the Lease reserves the City's right to access the Premises to conduct studies or tests in connection with the redevelopment. The City may also temporarily occupy a portion of the Premises to facilitate the redevelopment project. 6. The Tenant must keep the Premises in good condition at its sole cost and expense. 7. In consideration of the Tenant's proposed capital improvements to the Premises, a one-time rent abatement in the amount of $25,000 will be applied to the Tenant's account. 8. The Tenant shall provide certificates of insurance to the satisfaction of the City's risk manager, naming the City as additional insured. The Lease has been reviewed by the City Attorney's Office and has been approved as to form. The Tenant has reviewed and approved the terms of the Lease. City Council Policy F-7, Income and Other Property Due to the Tenant's long-term use of the Premises, the unique services provided to the marine industry, and the very limited number of similar marine -related services, staff did not conduct an open bid process to solicit proposals from other operators, as is typically required by City Council Policy F-7, Income and Other Property (Policy) (Attachment D). An appraisal of the fair market rental value for the building and property on the Premises was conducted by Curtis -Rosenthal, Inc. (Attachment E). The appraisal concluded annual fair market rent to be $492,000. Staff believes the following findings can be made, as required by the Policy, when an open bid is not conducted, and when less than fair market value rent is received, and a waiver is requested- 1 . Converting the property to another use or changing the operator of the property would result in excessive vacancy, which would outweigh other financial benefits; 2. The Tenant provides an essential or unique service to the community that might not otherwise be provided where full market value of the property is required; and 3. With the proposed rent charged at less than fair market value, the use provides an important marine -oriented business on Newport Harbor, provides marine -related services to the City, and is of statewide benefit and might not otherwise be provided were an open bid or full fair market value of the property is required. 12-4 Lease Agreement with Basin Marine, Inc. for Use of a Portion of the Real Property and Tidelands at the Balboa Yacht Basin Located at 829 Harbor Island Drive January 28, 2025 Page 5 California Surplus Land Act Assembly Bill 1486 was signed into law in 2019, went into effect in 2020, and made significant changes to the California Surplus Land Act (SLA) (Government Code §54220, et seq.). With further updates to the legislation in 2024, and in compliance with the updated SLA, the Lease is not subject to the SLA as its terms do not provide for a "disposition of surplus land" as the Tenant is limited to tenant improvements and no development or demolition of the Premises shall occur. FISCAL IMPACT: Revenues collected pursuant to the proposed Lease will be posted to the Tidelands Fund (10050505), Tidelands Capital Fund (10103), and General Fund (01050505) accounts in the Community Development Department and will be included in future years' budgets. The revenues collected from the existing lease agreement are included in the budget for Fiscal Year 2024-25. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment. NOTICING: The 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 — Lease Agreement Attachment B — Existing Lease Agreement Attachment C — Lease Renewal Request Letter Attachment D — City Council Policy F-7 — Income and Other Property Attachment E — Appraisal Report 12-5 Attachment A Lease Agreement 12-6 LEASE AGREEMENT BETWEEN THE CITY OF NEWPORT BEACH AND BASIN MARINE, INC. This Lease Agreement ("Lease") is made and entered into as of January 28, 2025 ("Effective Date"), by and between the City of Newport Beach, a California municipal corporation and charter city ("City") and Basin Marine, Inc., a California corporation ("Tenant"). City and Tenant are each a "Party," and together the "Parties," to this Lease. RECITALS A. By virtue of a 1978 California legislative grant found in Chapter 74 of the Statutes of 1978, as amended, ("Tidelands Grant"), City acts on behalf of the State of California as trustee of certain tidelands located within the City's limits, including certain harbor frontage tidelands near the Balboa Island Channel ("Tidelands"). City is also the fee owner of certain abutting upland property containing parking and other commercial uses, collectively more commonly known as "Balboa Yacht Basin" located at 829 Harbor Island Drive, Newport Beach, California (APN 050- 210-02), as depicted in Exhibit "A" attached hereto and incorporated herein by reference ("Property"). The City is in the project planning phase to redevelop a portion of the Property during the Term of this Lease as provided in Section 3 below. B. The Tidelands Grant provides that the Tidelands must be used to promote the public's interest in water -dependent or water -oriented activities, and shall not, at any time, be granted, conveyed, given, or alienated to any individual, firm or corporation for any purpose whatsoever except pursuant to City's grant of either a franchise or lease. C. The Tidelands Grant authorizes City to enter into leases of the Tidelands for a period not to exceed fifty (50) years, so long as such leases are consistent with City's obligations to hold the Tidelands in trust for the uses and purposes contained in the Tidelands Grant. D. Since the 1970s, Tenant has operated a portion of the Property, excluding the bulkhead and bulkhead cap, for a shipyard and boat repair facility with a marine hardware store, as depicted in Exhibit "B" attached hereto and incorporated herein, (leasehold APN 988-011-26), with the street address of 829 Harbor Island Drive, Suite A, Newport Beach, California 92660 (the "Premises"), and most recently under a lease agreement dated January 1, 2001, which will expire on December 31, 2026 ("Existing Lease"), and as depicted in the Memorandum of Lease Agreement attached as Exhibit "H" attached hereto and incorporated herein.. 12-7 E. Tenant desires to perform significant capital improvements and repairs to the Premises and requests to extend its lease commensurate with the life of the investment; therefore, Tenant and City desire to terminate the Existing Lease and enter into a new Lease to allow Tenant to continue to operate a shipyard, retail marina store, and boat repair facility on the Premises as a benefit to the harbor and the City's on -site marina operations, for an extended term upon revised terms and conditions as provided in this Lease. F. Pursuant to City Council Policy F-7, City sought the assistance of an appraiser to determine fair market value rent for the Premises and determined that an open bid process is not required because converting the Premises to another use or changing the Tenant would result in excessive vacancy, relocation or severance costs, which would outweigh other financial benefits. Furthermore, the Premises provides marine related services to the public and are utilized by the City, as further detailed in Section 6 below. G. The uses to be made of the property subject to this Lease are consistent with provisions of the Tidelands Grant pursuant to which the City obtained title to the Property. AGREEMENT NOW, THEREFORE, subject to the above Recitals, and in consideration of the respective obligations of each Party and the mutual covenants herein contained, City and Tenant hereby agree as follows: 1. LEASE OF PREMISES 1.1 City leases the Premises exclusively to Tenant and Tenant leases the Premises from City for the Term and on the terms, conditions and provisions contained in this Lease. 1.2 Tenant expressly acknowledges that the legislature of the State of California has placed public trust restrictions on use of the Premises pursuant to the Tidelands Grant as a portion of the Premises constitute filled tidelands. Tenant shall not take any action that would cause the City to be in violation of any provisions of the Tidelands Grant. If the State of California terminates or modifies the Tidelands Grant to prohibit the uses contemplated under this Lease, this Lease shall terminate as a result and the parties shall be released from all liabilities and obligations under this Lease and City shall owe no compensation to Tenant. As of the Effective Date, City confirms the Premises conforms to the Tideland Grant. 1.3 Tenant accepts the condition of the Premises as -is as of the date of this Lease without any current City warranty, representation or repair obligation, except as expressly set forth in this Lease below. Basin Marine, Inc. Page 2 12-8 2. TERM 2.1 Initial Term of Lease. The Term of this Lease shall be twenty (20) years from the Effective Date ("Initial Term") unless terminated sooner in accordance with the provisions of this Lease. 2.2 Option to Extend. Provided Tenant is not then in default beyond applicable notice and cure periods at the time of Tenant's notice of intention to exercise such Option Term, and upon approval of the City, Tenant may extend the term of this Lease for four (4) additional successive terms of five (5) years (each an "Option Term" or together the "Option Terms") commencing on expiration of the Initial Term or an Option Term, as applicable, on the same terms and conditions as contained in this Lease as it may be amended. Tenant must give City written notice of Tenant's intention to extend the Term at least six (6) months prior to the expiration of the then -current Term ("Option Notice"). 2.3 Hold Over. Should Tenant, with City's consent, hold over and continue in possession of the Premises after expiration of the Term, Tenant's continued occupancy of the Premises shall be considered a month -to -month tenancy subject to: (a) termination by either Party upon thirty (30) days advance written notice; and (b) all the terms and conditions of this Lease, except the provisions of Sections 2.1 and 2.2 above. 2.4 Term and Option Terms. The combined duration of the Initial Term and any exercised Option Terms shall not exceed forty (40) years and will collectively be referred to as the "Term." 3. REDEVELOPMENT OF PROPERTY 3.1 During the Term, Tenant understands and acknowledges that the City's redevelopment project at the Property, which currently does not contemplate any modifications to the Premises, may significantly disrupt Tenant's ability to occupy the Premises. Tenant shall fully cooperate with City, and City's tenants (other than Tenant), contractors, representatives and assignees ("Agents") during the redevelopment as follows: 3.1.1 General. Tenant shall allow City and/or its Agents to take any action, including the right to enter the Premises to conduct tests, surveys and studies with respect to the Premises in conjunction with the redevelopment, of the adjoining portions of the Property provided the tests, surveys or studies do not unreasonably interfere with Tenant's ability to conduct business on the Premises. 3A .2 Occupation of Premises. In addition to the general obligation of Tenant to cooperate in redevelopment, City and/or its Agents shall have the right to occupy any portion of the Premises for: (i) one (1) period of up to twelve (12) consecutive months during the Term of this Lease; and (ii) a total of twenty-four (24) months during the Term, each upon three (3) months' advance notice to Tenant before any such City occupation, disclosing what parts or all of the Premises City intends to occupy, and the Basin Marine, Inc. Page 3 12-9 dates of such City occupation. Prior to the City's occupation, the right of City and/or its Agents to occupy a portion of the Premises is contingent upon City's execution of, and compliance with, an agreement with Tenant ("Occupancy Agreement"), that (i) compensates Tenant for the period of occupation as provided in this Section and Section 15 herein; (ii) indemnifies, protects, and holds Tenant harmless from any claim, loss, damage or liability proximately caused from the sole negligence or willful misconduct of the City's negligent occupation of the Premises. City or its Agents shall, in the course of any occupation of the Premises, take all reasonable action to mitigate the impact of any occupation on Tenant; and (iii) incorporates the provisions of Section 3.1.3 below, as applicable. The compensation for occupation shall be calculated on the basis of the average Tenant revenue during the six (6) months prior to start of the City occupation that was derived from for the use of that portion of the Premises being occupied. For example, if the City occupation is four (4) months and the average monthly revenue for the preceding six (6) months from that portion of the Premises was one thousand dollars ($1,000.00), the compensation would be four thousand dollars ($4,000.00). Total Tenant revenue used for this calculation will be the total monthly Tenant revenue previously reported by Tenant to the City for purposes of payment of Percentage Rent, below, for such prior six (6) month reporting period which ended just prior to the start of such City occupancy. 3.1.3 In the event of an occupation of a portion of the Premises, City may authorize Tenant to temporarily conduct its operations from facilities located on adjoining City controlled portions of the Property during the term of the occupation. City's authorization of Tenant to temporarily relocate its operations will take into consideration Tenant's equipment and necessary operating permits, which may preclude Tenant from operating elsewhere. 4. RENT 4.1 Rent. From and after the Effective Date, on the first day of each month Tenant shall pay to City Base Rent, as adjusted periodically pursuant to Section 4.3 below, and Percentage Rent. "Rent" defined herein shall include Base Rent, Percentage Rent, publicity revenue, late payment penalties, interest, taxes, and other similar monetary amounts and charges payable by Tenant under the provisions of this Lease, and may be prorated, as applicable, for any partial month in accordance with the actual number of days in that month. 4.2 Base Rent. "Base Rent" shall be Three Hundred Thousand Dollars and 00/100 ($300,000.00) per year starting on the Effective Date. Base Rent shall be paid, in advance, in equal monthly installments of Twenty -Five Thousand Dollars and 00/100 ($25,000.00) on the first day of each month. Base Rent for any partial month at the beginning or end of the Term shall be prorated in accordance with the actual number of days in that month and shall be due on the first day of that month that falls within the Term. Basin Marine, Inc. Page 4 12-10 4.3 Base Rent Adjustments. Base Rent shall be adjusted on the first (15) day after the end of each Third (3rd) Lease Year, each defined as a "3 Year Base Rent Adjustment." 4.3.1 "Lease Year" is defined as each calendar year (January 1 to December 31) of the Term. 4.3.2 "Adjustment Period" is defined as each just concluded period of three (3) Lease Years. 4.3.3 "Index" is defined as the CPI for the Los Angeles —Long Beach - Anaheim, CA, All Urban Consumers, All Items, Base Period 1982-84=100, as published by the United States Department of Labor, Bureau of Labor Statistics ("Bureau"). Should the Bureau discontinue the publication of the 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. 4.3.4 Each 3-Year CPI is defined as the percentage change between the Base Index and the Comparison Index. "Base Index" shall be the Index for the calendar month which is four (4) months prior to the start of each Adjustment Period and "Comparison Index" shall be the Index for the same calendar month thirty-six (36) months later. The Comparison Index shall become the Base Index for purposes of calculating the next 3-Year CPI. Notwithstanding the actual CPI calculation for each Adjustment Period, the Base Rent Adjustment for each Adjustment Period shall not be less than three percent (3.0%) (1.0% per Lease Year times three Lease Years), nor shall the change be greater than twenty-one percent (21 %) (7% per Lease Year times three Lease Years). 4.3.5 As an illustration: as of the Effective Date, Base Rent Adjustment would first occur on January 1, 2028 and then on each subsequent three (3) year anniversary of such date; the first 3-Year CPI calculation would be based on the Adjustment Period of January 1, 2025 to December 31, 2027; the first Base Index would be the index for September 2024 and the first Comparison Index would be the Index for September 2027. 4.4 Percentage Rent. In addition to the Base Rent, Tenant shall pay to City Percentage Rent, which shall be equal to the amount of the Gross Sales Figure ("GSF") for a given month less the Base Rent due for that month. The GSF shall be calculated by multiplying the "Gross Sales" (as defined in Section 4.8) in each of the following sales categories by the Gross Sales Percentage Rates: Gross Sales Percentage Rates 1. Shipyard/boat repair (labor and services) exclusive of categories 2 & 3 below 4% of Gross Sales. (For illustration, Tenant charges a customer $4,000 for an annual boat haul out and yard set up fee, Basin Marine, Inc. Page 5 12-11 2. Outside labor and materials done or performed by 3rd parties, and not made or provided by Tenant 3. Equipment and hardware sales at Tenant's store on the Premises, to either 3rd party customers or internal sales for Tenant's boat repair business under category 1, above. another $3,800 for labor to clean that boat and paint its bottom done by Tenant employees, so the total customer bill is $7,800, and the GSF for those internal Tenant charges is $312, 4% of $7,800. For further illustration, if $500 of bottom paint is bought from Tenant's store at the Premises and used on this customer's boat, then that item is part of category 3 below.) 10% of gross markup, commission and fees received by Tenant. Gross markup does not contain costs paid to third party. (For illustration, for Tenant's customer in category 1, above, Tenant buys a $500 boat propeller from an outside vendor and charges $700 to Tenant's customer for that same propeller, then the gross Tenant profit is $200, so the GSF due for that item is $20, 10% of that $200 Tenant profit. For further illustration, for Tenant's customer in category 1, above, Tenant marks up the third -party boat engine mechanic's base labor charge of $1,200, to $1,450, for a Tenant profit of $250, so the GSF due for that labor profit is $25, 10% of that $250 Tenant profit.) 5% of Tenant store Gross Sales. (For illustration, a boat mechanic buys $355 of stainless -steel fittings and hose for use on a boat repair off -Premises, then the GSF for those items is $17,75, 5% of $355. For further illustration, Tenant uses $500 of boat bottom paint for the customer's boat in category 1, above, purchased from Tenant's store at the Premises, then the GSF for that paint is $25, 5% of $500.) 4.5 Time of Payment of Percentage_ Rent. No later than concurrently with Tenant's submission to City of each Monthly Sales Statement as defined under Section 4.9 below, Tenant shall pay to City the amount of the Percentage Rent that is owing, if any, for the preceding month as determined by the Monthly Sales Statement. If Percentage Rent is not timely paid, the amount of Percentage Rent shall bear interest as set forth below under Section 4.14. Basin Marine, Inc. Page 6 12-12 4.6 Publicity Revenue. Tenant may allow the Premises to be used for commercial film, television production, advertising production, or other commercial media vehicle only upon written approval from the City, which approval shall not be unreasonably withheld, conditioned or delayed, and in compliance with the Newport Beach Municipal Code. Fifty percent (50%) of all monetary revenue received by Tenant as compensation or other payment for the use of the Premises in a film, television production, advertising production, or other commercial media vehicle shall be paid to City, not later than thirty (30) days after Tenant receives this compensation or other payment. 4.7 Payment Location. All payments of Rent shall be made in lawful money of the United States of America and shall be paid to City in person or by United States' mail, or overnight mail service, at the Cashier's Office located at 100 Civic Center Drive, Newport Beach, California, 92660, or to such other address as City may from time to time designate in writing to Tenant. If requested by City, Tenant shall make payments electronically (at www.new ortbeachca. ov) or by wire transfer (at Tenant's cost) which shall be paid on the payment due date. Tenant assumes all risk of loss and responsibility for late charges and delinquency rates if payments are not timely received by City regardless of the method of transmittal. 4.8 Gross Sales. 4.8.1 The term "Gross Sales" is defined as: 4.8.1.1 All money, cash receipts, assets, property or other things of value, including but not limited to gross charges, sales, rentals, fees and commissions made or earned by Tenant and/or any subtenant or subcontractor thereof, whether collected or accrued from any business, use or occupation, or any combination thereof, originating, transacted or performed, in whole or in part, on the Premises, including but not limited to rentals, the rendering or supplying of services and the sale of goods, wares or merchandise, whether wholesale or retail, whether for cash or credit, or otherwise, and including the value of all consideration other than money received for any of the foregoing, except as Excluded from Gross Sales in Section 4.8.2, deduction for any overhead or cost or expense of operations, such as, but without limitation, salaries, wages, costs of goods, interest, debt amortization, credit, collection costs, discount from credit card operations, insurance and taxes. In accordance with Section 4.8.2, Tenant is not allowed to net under Gross Sales. Each installment or credit sale shall be treated as a sale for the full price in the month during which such sale is made, irrespective of when Tenant receives payment therefor or whether payment is in full or partial. Gross Sales shall include any amount allowed upon any "trade in," the full retail price of any merchandise delivered or redeemed for trading stamps or coupons and all deposits not refunded to purchasers. All sales originating at the Premises shall be considered as made and completed therein, even though bookkeeping and collection of the account may be transferred to another place, and even though actual Basin Marine, Inc. Page 7 12-13 filling of the sale or service order and actual delivery of the merchandise may be made from a place other than the Premises; 4.8.1.2 Orders taken in or from the Premises, even if the orders are filled elsewhere; and 4.8.1.3 Gross receipts of all coin -operated devices that are placed on the Premises by Tenant or pursuant to any rent concession, percentage, license, sublicense or other arrangement, including a separate specification of all amounts paid as deposits, fees, rents, common area charges, monetary equivalents, pass through rents, or other considerations with a monetary equivalent, and such other subcategories of revenues that Tenant may elect to separately report. This includes revenue from any vending machines (but excludes revenue from telephones that are collected by a public and/or private utility). 4.8.2 Exclusions from Gross Sales. Gross Sales shall not include, or if included shall be deducted (but only to the extent they have been included), the following: 4.8.2.1 Sales and use taxes, so-called luxury taxes, consumers' excise taxes, gross receipts taxes, and other similar taxes now or in the future imposed on the sale of merchandise or services, but only if such taxes are added to the selling price and collected from customers; 4.8.2.2 The amount of returns to shippers or manufacturers; 4.8.2.3 The amount of any cash or credit refund made upon any sale where the merchandise sold or some portion is returned by the purchaser. 4.8.2.4 Sales of trade fixtures or personal property to be replaced by Tenant that are not considered stock in trade; 4.8.2.5 Sums and credits received in the settlement of claims for loss of or damage to merchandise; 4.8.2.6 Cash refunds made to customers in the ordinary course of business; 4.8.2.7 Value added taxes ("VAT") or other taxes added to the selling price of products and other similar taxes now or hereafter imposed upon the sale of merchandise or services, whether such taxes are added to, or included in the selling price; 4.8.2.8 Uncollectible credit accounts and other bad debts, not to exceed two percent (2%) of the monthly Gross Sales; and Basin Marine, Inc. Page 8 12-14 4.8.2.9 Amounts paid to charge card or credit card issuers. 4.9 Monthly Sales Statements. 4.9.1 Within twenty-five (25) days after the end of each calendar month, commencing with the twenty-fifth (25th) day of the month following the Effective Date, and ending with the twenty-fifth (25th) day of the month next succeeding the last month of the Term, as may be extended as provided herein, Tenant shall furnish City a written statement on a form satisfactory to City and certified by Tenant, showing the total Gross Sales made in, upon, or from and/or otherwise attributable to the Premises during the preceding calendar month (or fractional month at the beginning of the Term if the Effective Date is other than the first day of a month) ("Monthly Sales Statement"). The Monthly Sales Statement shall include the Gross Sales, applicable Gross Sales Percentage Rate, and GSF for each sales category, Base Rent payable for such prior month, amount of any Percentage Rent due and resulting total Rent due for such month. 4.9.2 If Tenant fails to provide any Monthly Sales Statement at the time and in the manner specified herein, this failure shall constitute a default under this Lease and City shall have the right to terminate this Lease in accordance with Section 18 below, in addition to any other rights or remedies it may have under this Lease. 4.10 Annual Sales Statements. 4.10.1 Prior to April 30th of each Lease Year, Tenant shall furnish City a written statement on a form satisfactory to City and certified by Tenant and a Certified Public Accountant for Tenant to be correct, of Tenant's monthly and annual Gross Sales made in, upon, or from and/or otherwise attributable to the Premises during the previous Lease Year, or any partial Lease Year (if applicable) ("Annual Sales Statement"). The Annual Sales Statement shall include the GSF for each category of sales calculated using the Gross Sales Percentage Rates, including any authorized deductions, the Base Rent and Percentage Rent paid per category for each month and for such entire Lease Year and Base Rent paid by Tenant during such same Lease Year. 4.10.2 If the Annual Sales Statement shows that during the previous Lease Year Tenant paid less Percentage Rent than obligated under the terms of this Lease, Tenant shall pay to City the amount of the underpayment within thirty (30) days of City's receipt of the statement. 4.10.3 If the Annual Sales Statement shows that during the previous Lease Year Tenant paid more Percentage Rent than it was obligated to pay under the terms of this Lease, the amount of this overpayment shall be Basin Marine, Inc. Page 9 12-15 applied to the next monthly installment or installments of Base Rent due or, if the overpayment was in the last year of the Term, City shall refund to Tenant the full amount of this overpayment within thirty (30) days of City's receipt of the statement. 4.10.4 if Tenant fails to provide to City any Annual Sales Statement at the time and in the manner specified herein, this failure shall constitute a default under this Lease and City shall have the right to terminate this Lease in accordance with Section 18 below, in addition to any other rights or remedies it may have under this Lease. 4.11 Sales and Charges. All sales and charges shall be recorded by point of sale ("POS") systems that display the amount of the transaction certifying the amount recorded. The POS system shall log daily sales totals and keep records of the transaction numbers and sales details. 4.12 Production of Statement, Records and Audit. 4.12.1 Tenant Records and City Audit. Tenant shall keep at the Premises (and shall require any permitted subtenant to keep at the Premises) full, complete and proper books, records and accounts of its daily Gross Sales, both for cash and on credit, at any time operated in the Premises. Tenant agrees to make available for inspection by City or its authorized designee at the Premises, a complete and accurate set of books and records of all sales of goods, wares, and merchandise and revenue derived from the conduct of business or activity in, at or from the Premises from which Gross Sales can be determined. Tenant shall also make available, upon City's written request, all supporting records. Tenant shall also furnish City copies of its quarterly California sales and use tax returns filed with the State of California. Tenant shall retain and preserve for at least three (3) years after the end of each Lease Year all records, books, bankbooks or duplicate deposit books and other evidence of Gross Sales for such Lease Year. City shall have the right, not more than once each calendar year, upon reasonable notice, during the Term and within one hundred eighty (180) days after expiration or termination of this Lease to inspect and complete an audit of Tenant's books and records and to make transcripts to verify the Rent due to City. The audit may be conducted at any reasonable time during Tenant's normal business hours. Tenant shall cooperate with City in making the inspection and conducting the audit. The audit shall be limited to the determination of Gross Sales and shall be conducted during Tenant's usual business hours in a manner that minimizes any interference with the conduct of Tenant's regular business operations. If the audit concludes that there is a deficiency in the payment of any Rent, the deficiency shall become due and payable within twenty (20) days and if there is an overpayment, City shall refund the amount of the overpayment within twenty (20) days. City shall bear its costs of the audit unless the audit shows that Tenant understated Gross Sales by more than two percent (2%), in which Basin Marine, Inc. Page 10 12-16 case Tenant shall pay all City's reasonable costs of the audit. City shall not disclose financial information received in confidence and pursuant to this Lease except to carry out the purposes of this Lease unless disclosure is required by law or court order. However, City may disclose the results of any audit in connection with any financing arrangements, pursuant to applicable law, the sale or transfer of City's interest in the Premises, pursuant to order of a court or administrative tribunal, or to collect any outstanding Rent. A copy of any City audit shall be provided to Tenant along with City calculations for any Rent payment due or refund as a result of such City audit. 4.12.2 Tenant's Gross Sales Audit. In the event of any audit by City in accordance with this Lease, Tenant may contest the results of City's audit by performing a confirming audit, at Tenant's expense, within sixty (60) days of receipt of City's audit results and supporting evidence, using an independent Certified Public Accountant reasonably accepted by City in writing. 4.12.3 Additional Audit. If Tenant's audit and City's audit vary by greater than ten percent (10%), and the parties cannot agree on the results of City's or Tenant's audit, then the parties shall identify, after good faith negotiations, a nationally recognized accounting firm acceptable to both parties, to complete a third audit, which audit shall be final. The parties shall equally pay the costs of the third audit. 4.13 Acceptance. The acceptance by City of any money paid to City by Tenant as Percentage Rent for the Premises, as shown by any statement furnished by Tenant, shall not be construed as an admission of the accuracy of said statement, or of the sufficiency of the amount of the Percentage Rent payment, except that City agrees to accept as accurate all such Percentage Rent payments and related documentation disclosed in an Annual Sales Statement after the earlier of either three (3) years after Tenant's submission to the City of such Statement, or Tenant's acceptance of any City audit of such Statement, pursuant to terms of Section 4.12. 4.14 Late Payment. Tenant hereby acknowledges that the late payment of Rent or other sums due hereunder will cause City to incur costs not contemplated by this Lease, the exact amount of which is extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges. Accordingly, any payment of any sum to be paid by Tenant not paid within five (5) days of its due date shall be subject to a ten percent (10%) late charge. City and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to City for its loss suffered by such late payment by Tenant. 4.15 Interest on Unpaid Sums. Unpaid sums due to either City or Tenant under this Lease shall bear interest at the rate of ten percent (10%) per annum on the unpaid balance, including but not limited to late payment penalties, from the date due until paid. Basin Marine, Inc. Page 11 12-17 4.16 Additional Rent. Any provision in this Lease that requires Tenant to pay additional amounts classified as "Additional Rent" shall be paid within ten (10) days of City's written demand therefor (unless a different time for payment is expressly provided in this Lease). Additional Rent does not reduce or offset Tenant's obligations to pay Rent. 5. BUSINESS PURPOSES AND USE OF PREMISES 5.1 Approved Use. The Premises are to be used by Tenant: (a) for the principal operation of a shipyard and boat repair facility; and (b) at Tenant's option, to sell new or used boats and/or marine equipment and hardware, so long as such sales are incidental to the foregoing principal use in this Section 5.1 (a), such as the on and off-loading of boats, merchandise and equipment used at the Premises related to such Tenant business operations (collectively, "Approved Use"). City agrees to not lease any other part of the Property for a business, operation, or use that is similar to and would compete with Tenant's operation of the Premises for the Approved Use. 5.1.1 Subcontracting. Tenant may authorize and utilize contractors, subcontractors and other agents of Tenant to perform and carry out the Approved Uses as long as the following criteria are met: 5.1.1.1 The value of the service, work, labor, and/materials are captured as part of Tenant's Percentage Rent and included as part of Tenant's Gross Sales; and 5.1.1.2 Any contractors and subcontractors hired by Tenant shall be fully licensed and bonded, and shall obtain insurance in an amount and form pursuant to standard industry custom and practice and as outlined in Section 13.3 of this Lease. City shall be named as an additional insured on any contractors, subcontractors, or agent's policies. 5.2 Operation of Premises. Tenant shall operate and manage the Premises in a manner comparable to other high -quality businesses providing similar shipyard and boat repair services in Newport Harbor. Deliveries shall be made and completed at the Premises only between 7:00 a.m. and 6:00 p.m. on non -holiday weekdays. 5.3 Prohibited Uses. 5.3.1 Tenant shall not allow any activity in furtherance of the business purposes in Section 5.1 to be performed by anyone other than Tenant, its employees, contractors, or subcontractors. 5.3.2 Tenant shall not sell or permit to be kept, used, displayed or sold in or about the Property or Premises: (a) pornographic or sexually explicit books, magazines, literature, films or other printed material, sexual paraphernalia, or other material which would be considered lewd, obscene or licentious; (b) any article which may be prohibited by standard forms of fire insurance policies; or (c) any alcoholic beverages, tobacco, vaping Basin Marine, Inc. Page 12 12-18 products, CBD, and marijuana. Vending machines, gaming machines or video or arcade games shall not be used or installed on the Premises, with the exception that vending machines for food products for Tenant's workers are permitted but shall not be located in any publicly accessible areas. 5.3.3 Tenant shall not use or permit the use of the Premises in any manner that: (a) creates a nuisance; (b) violates any law, (c) is not in compliance with all statutes, laws, permits, use restrictions and regulations of City applicable to the Premises, Tenant and/or Tenant's use of the Premises. Tenant assumes the risk of and shall cause all its workman, customers and independent contractors to also comply with all laws regarding their activities at the Premises; or for any other use except with prior written consent of the City. 5.3A No auction, fire, bankruptcy, "going out of business" or other distress sales of any nature may be conducted on the Premises without the prior written consent of the City Manager or his/her designee, which will not be unreasonably withheld, on the condition that such event occurs only once during the Term. 5.4 Sales Restrictions. Tenant shall not display, sell or store merchandise outside the defined exterior walls, permanent doorways, and shipyard area of said Premises, and no sale by auction in, upon or from said Premises, whether said auction be voluntary, involuntary, pursuant to any assignment for benefit of creditors or pursuant to any bankruptcy or other solvency proceedings, shall be conducted except such auctions that may be conducted by officers of a court with respect to any vessels in custody of Tenant. 5.5 Competitive Pricing, Given the exclusive nature of the services provided under this Lease, City and Tenant have a mutual interest in providing competitive pricing for the materials, goods and other items permitted to be sold under this Lease. Therefore, Tenant shall from time -to -time survey the costs charged by other similar shipyard entities engaged in similar businesses as the Approved Use in Newport Harbor and adjust its prices accordingly to remain competitive. The City may audit Tenant's pricing. 5.6 Operation. Tenant shall keep the Premises in operation and open to the public for business during normal business hours, at a minimum between Monday through Friday, between the hours of 8:00 a.m. and 4:30 p.m. and in consideration of the locality of the Premises, at its discretion, Tenant may keep the Premises in operation and open to the public on weekend days at similar hours. Tenant may only close on federal and state holidays, and during periods of remodeling, reconstruction, inventory and emergencies (including substantially inclement weather), or to comply with laws. Tenant closures shall not: (a) excuse Tenant's payment of Base Rent; or (b) be for a period of more than four (4) months during any consecutive five (5) year period of the Term. However, Tenant shall be excused from such operation obligation for those events as described and defined in Section 17 herein. Basin Marine, Inc. Page 13 12-19 5.6.1 Closure for Construction. Pursuant to Section 9, Tenant may close the Premises during periods of remodeling, reconstruction, inventory and emergencies (including substantially inclement weather), with advanced written notice and approval from City, which approval shall not be unreasonably withheld. Any proposed closure shall not foreseeably affect or disturb surrounding tenants. During the period of an approved closure for construction, Base Rent may, with City's prior written approval, be abated on a prorated basis in compliance with Section 15 below. 5.7 Advertising Display. Tenant may, at its own expense, place signs in or upon the Premises subject to the prior written consent of the City as to the location, size, type, number, design and method of installation and in compliance with the City's sign code regulations and the deed restrictions applicable to the Premises. All signage placed by Tenant on, in or about the Premises shall remain the property of Tenant and shall be removed by Tenant upon termination or expiration of this Lease at Tenant's expense; and any damage caused by removal shall be repaired at Tenant's expense. 5.8 Independent Contractor. It is understood that Tenant is an independent contractor and not an agent or employee of City, and City shall have no interest in the business of Tenant, and no liability for the business operations or Gross Sales of Tenant, whether or not caused by City's enforcement of City laws and regulations which apply to the Premises and/or Tenant. 5.9 Parking. City grants to Tenant a non-exclusive right to the parking area on the Property for Tenant's employees and customers. No repair or overnight storage or parking of Tenant customer or employee vehicles is permitted on the Property. Tenant shall comply with the procedures and regulations established by City to regulate the parking area and any modifications or additions thereto which City may from time to time prescribe at its sole and absolute discretion for the purpose of maintenance, operations, safety, traffic flow, parking needs and general order of the parking area. Tenant shall cause its agents, employees, invitees and guests to comply with this Section. Tenant is also granted access across and use of such parking areas and related alleys and driveways on the Property for delivery of supplies and boats to the Premises in connection with Tenant's Approved Use of the Premises, subject to the terms and conditions of any redevelopment of the Property as set forth in Section 3 herein. 5.10 Compliance with Balboa Yacht Basin Rules. Tenant, Tenant's employees, customers, contractors and subcontractors shall comply with the Balboa Yacht Basin Rules and Regulations as set forth in the attached Exhibit "C" and incorporated herein, which may be amended from time to time at City's sole discretion. City will provide Tenant a copy of any such amendments or revisions to the Balboa Yacht Basin Rules and Regulations, which shall be deemed incorporated into this Lease without the need for execution of a formal Lease amendment. Basin Marine, Inc. Page 14 12-20 6. SERVICES FOR CITY 6.1 Tenant shall, in addition to the obligation to pay Rent and perform the other Tenant terms and conditions of this Lease, at Tenant's sole expense, do the following: 6.1.1 Subject to advance written notice by City as provided in Section 6.2, Haul out and relaunch, each Lease Year, up to twelve (12) of the vessels owned and maintained by the City, of a size capable of being handled by Tenant's equipment provided, however, all such twelve (12) City vessels shall be hauled out so that at any time there are not more than two (2) vessels at a time at the Premises; and the City shall deliver each such City vessel to the haul outterane area at the Premises; 6.1.2 Transport the City vessels to an area on the Premises suitable for the purposes of repairs or maintenance in the yard area used in Tenant's business for similar boat repair functions; 6.1.3 Allow each such City vessel to remain on the Premises for a period of seven (7) days starting on the day after such vessel is hauled out and placed on yard support stands; 6.1.4 Permit access to the City vessels by employees or representatives of City for the purpose of repairs and maintenance, which shall be performed by City at no cost or liability to Tenant; and 6.1.5 All extra labor, parts, and materials obtained from Tenant shall be paid for by the City at the then prices and rates charged by Tenant to customers for similar boat repairs. City reserves the right to employ other contractors and workmen not related to Tenant to perform the work contemplated under Section 6.1.4 and this Section 6.1.5 and City shall be responsible for all such contractors and workmen. 6.2 City Notice. City shall give Tenant thirty (30) days advance written notice prior to the date(s) on which City vessels are to be hauled -out; otherwise, Tenant shall not be obligated to provide such haul -out or services on the City's requested date(s). 6.3 Limitation of Tenant's Liability. Tenant shall not be liable to City for any cost, liability or expense arising from any City boat located at the Premises pursuant to Section 6.1.4 nor shall Tenant be liable for City exceeding the twelve (12) City vessel limit for haul out and re -launch for any given lease year. 7. TAXES, LICENSES AND OTHER OBLIGATIONS Payment of Taxes. Tenant acknowledges that this Lease may create a possessory interest subject to property taxation and that Tenant shall pay property taxes levied on such interest. Tenant shall pay directly to the appropriate taxing authorities all taxes applicable to this Lease, fixtures and Tenant's personal property on the Premises that are levied or assessed against Tenant during the Term. Taxes shall be paid before Basin Marine, Inc. Page 15 12-21 delinquency and before any fine, interest or penalty is due or imposed by operation of law. Tenant shall, upon request, promptly furnish to the City satisfactory evidence of payment. City hereby gives notice to Tenant, pursuant to Revenue and Tax Code Section 107.6 that this Lease 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 Tenant. Tenant shall advise in writing any subtenant, licensee, concessionaire or third party using the Premises of the requirements of Section 107.6. Tenant shall pay, before delinquency all taxes, assessments, license fees and other charges ("Taxes") that are levied or assessed against Tenant's interest in the Premises or any personal property installed on the Premises. Taxes on Tenant's Business Operations and Personal Property. Tenant will pay, before delinquency, all taxes, assessments, license fees, and public charges levied, assessed, or imposed on its trade fixtures, inventory, merchandise, and other personal property in or on the Premises. if any of these items of property are levied or assessed against City or City's Property, or if the assessed value of the building and improvements in which the Premises are located is increased by the inclusion of a value attributable to Tenant's property, then Tenant, within thirty (30) days of City's request, will reimburse City for the amount of the taxes levied or assessed against City or City's Property. 7.1 Payment of Obligations. Tenant shall promptly pay, when due, any and all bills, debts, liabilities and obligations incurred by Tenant in connection with Tenant's occupation and use of the Premises. 7.2 Challenge to _Taxes. Tenant shall have the right in good faith, at its sole cost and expense, to contest the amount or legality of any Taxes on or attributable to this Lease, the Premises, Tenant's personal property, or Tenant's occupation and use of the Premises, including the right to apply for reduction. If Tenant seeks a reduction or contests such taxes, Tenant's failure to pay the Taxes shall not constitute a default as long as Tenant complies with the provisions of this Section. City shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any law require that the proceeding or contest be brought by or in the name of City. In that case, City shall join in the proceeding or contest or permit it to be brought in City's name as long as City is not required to bear any cost. If requested by Tenant, City shall execute any instrument or document necessary or advisable in connection with the proceeding or contest. Tenant, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered, together with all related costs, charges, interest and penalties. Tenant shall indemnify, defend and hold harmless the City, its council members, boards, commissions, committees, officers, employees, authorized representatives, agents and volunteers ("Indemnified Parties") from and against any liability, claim, demand, penalty, cost or expense arising out of or in connection with any contest by Tenant pursuant to this Section. 7.3 No Rent Offset. Except as provided herein, any payments under this Section 7 shall not reduce or offset Rent payments. City has no liability for such payments. As of the Effective Date, the Premises are not assessed secured property taxes because the Premises are owned by City. If that 'no secured property tax' status changes for the Property, such as due to a change in ownership of the Property by the City, Tenant shall Basin Marine, Inc. Page 16 12-22 pay any resulting secured property taxes, and in such event Tenant increased tax payments paid for the Premises shall be added to Base Rent for purposes of calculating Percentage Rent. 7.4 License. Tenant shall maintain in good standing all required licenses and permits required for operation of the business on the Premises, including but not limited to a City Business License. 8. UTILITIES AND REFUSE COLLECTION 8.1 Utilities. Tenant shall be responsible for payment of all utilities furnished to or used on the Premises, including, without limitation, gas, electricity, sewer, water, telephone service, cable TV and janitorial service. Any repair to utility lines serving the Premises located on the Premises is the sole responsibility of Tenant. Any repair to utility lines located on the Property and serving solely City property are the responsibility of the City. Upon Tenant's receipt of any necessary permits and approvals for such work, which shall be obtained at the Tenant's sole cost and expense, City shall allow Tenant access to the Property and other City owned streets for purposes of completing such Tenant utility repairs. Tenant and City shall coordinate efforts for any utility repairs performed on the Property. Tenant bears all risk of interruption, cancellation and/or disruption of utility services, as well as the cost of all utilities Tenant requires for its use of the Premises. City in its capacity as landlord, shall not disrupt any utility servicing the Premises, except for: (1) in the event of any emergency as determined by the City; (2) maintenance and repairs conducted pursuant to Section 11, below; or (3) temporary disruptions related to City's Occupancy under Section 3, above. Tenant shall be responsible for the maintenance, repair and/or replacement of utility lines within and exclusively serving the Premises, or Tenant's pro rats share of utility lines serving Tenant on the Property. 8.2 Refuse Collection. Refuse collection shall occur between 7:00 a.m. and 6:00 p.m. on non -holiday weekdays. Tenant shall make arrangements for and pay for all weekly refuse collection and also Hazardous Substances disposal at least monthly (or more frequently if required by law). Tenant shall keep the Premises free and clean of rubbish and litter and shall deposit accumulated rubbish and litter in containers designated by City. Trash containers shall be kept in an approved enclosed area. Tenant shall comply with the provisions of the Newport Beach Municipal Code and all other laws regarding the use, storage and disposal of Hazardous Substances. In no event shall Tenant allow Hazardous Substances related to the Premises to enter, be disposed of into, seep or otherwise be released into any sewer line, storm drain and/or adjacent bay waterway to the Premises. 9. IMPROVEMENTS AND ALTERATIONS 9.1 Tenant Improvements. 9.1.1. Subject to compliance with all applicable laws, Tenant shall make certain improvements to the Premises as shown on Exhibit "D" ("Tenant Improvements"), attached hereto and incorporated herein, which are Basin Marine, Inc. Page 17 12-23 intended to maintain Tenant's business operations. The Tenant Improvements may be revised by or modified by Tenant in order to obtain entitlements and/or building permits from the applicable local and state agencies. All Tenant Improvements shall be subject to the prior written approval of the City Manager or his/her designee, which approval shall not be unreasonably delayed or withheld. The City Manager's or his/her designee's failure to provide written approval or disapproval of any such submittal by Tenant within thirty (30) days shall be deemed disapproval thereof. The City Manager's or his/her designee's failure to provide such notice shall not relieve Tenant's responsibility to comply with all applicable laws. 9.1.2. Tenant shall submit plans, diligently pursue their approval by City in its regulatory capacity, and any other necessary permits or approvals from federal, state, or local agencies having such oversight, and complete construction of the Tenant Improvements within the first three (3) years of the Initial Term. 9.2 Alterations. 9.2.1 Alterations Costing More than $25,000. With the exception of the Tenant Improvements, Tenant shall not make any improvements, additions, alterations, or modifications of the Premises (collectively "Alterations") costing more than Twenty -Five Thousand Dollars and 001100 ($25,000.00) without the prior written consent of the City Manager which shall not be unreasonably withheld or delayed if such Alterations are consistent with the Approved Use. In granting or withholding consent to proposed Alterations, the City Manager shall consider the impact of the proposed Alterations on public views of adjacent property owners, compliance of City codes and the impact of the proposed Alterations on space available for public use of the Property. The City Manager may require, as a condition of approval, that Tenant agree to amendments to this Lease, including amendments increasing the amount of Rent payable under this Lease if the proposed Alterations would materially increase the floor area or size of the building structures on the Premises. The City Manager may also require Tenant to provide, at Tenant's expense, appropriate engineering and feasibility studies regarding the structural integrity of the Premises. Any damages or destruction to the structural improvements or Tenant equipment at the Premises shall not reduce or excuse Tenant's obligation to pay Rent in full and on time. 9.2.2 Non -Structural Alterations; Trade Fixtures and Equipment. Tenant may make Alterations of a non-structural nature (e.g., interior of Premises and exterior yard area), and Tenant may install such trade fixtures and Basin Marine, Inc. Page 18 12-24 equipment as it may deem advisable for the conduct of its business for the Approved Use of the Premises. 9.3 Permits. As required by law, Tenant shall obtain, and be responsible for the costs for all building permits and other required permits as may be required prior to the commencement of any Tenant Improvements or Alterations. If applicable, Tenant shall be responsible, at its sole cost and expense, for compliance with the California Environmental Quality Act ("CEQA") and the California Coastal Act in connection with Tenant's operation and use of the Premises. 9.4 Prevailing Wages. 9.4.1 Pursuant to the applicable provisions of the California Labor Code, not less than the general prevailing rate of per diem wages including legal holidays and overtime work for each craft or type of workman needed to execute the work contemplated under this Section 9 shall be paid to all workmen employed on the work to be done according to this Section 9 by the Tenant's contractors and any subcontractor. In accordance with the California Labor Code (Sections 1770 of seq.), the Director of Industrial Relations has ascertained the general prevailing rate of per diem wages in the locality in which the work is to be performed for each craft, classification, or type of workman or mechanic needed to execute the Tenant Improvements or any Alterations. A copy of said determination is available by calling the prevailing wage hotline number (415) 703-4774, and requesting one from the Department of Industrial Relations. Tenant's contractors and subcontractors are required to obtain the wage determinations from the Department of Industrial Relations and post at the job site the prevailing rate or per diem wages. It shall be the obligation of Tenant's contractors or any subcontractor under him/her to comply with all State of California labor laws, rules and regulations and the parties agree that the City shall not be liable for any violation thereof. 9.4.2 If both the Davis -Bacon Act and State of California prevailing wage laws apply and the federal and state prevailing rate of per diem wages differ, Contractor and subcontractor, if any, shall pay the higher of the two rates. Said prevailing rate of per diem wages are on file at the City, Office of the City Clerk, 100 Civic Center Drive, Newport Beach, California 92660, and are available to any interested party on request. 9.5 Quality of Work Performed. All Tenant Improvements and Alterations shall be performed in a good and workmanlike manner, shall comply with the plans and specifications submitted to City, and shall comply with all applicable governmental permit requirements and laws in force at the time permits are issued. Any Tenant Improvements and Alterations shall be performed between 7:00 a.m. and 6:00 p.m. on non -holiday weekdays. 9.6 Tenant's Architects and Contractors. All Tenant Improvements and Alterations to the Premises shall be designed, selected or constructed, as applicable, by qualified and licensed (where required) architectural, design, engineering and construction firms selected by Tenant. Any contractors and subcontractors hired by Tenant shall be fully licensed and bonded, and shall obtain insurance in an amount and Basin Marine, Inc. Page 19 12-25 form pursuant to standard industry custom and practice and as outlined in Section 13.3 of this Lease, and approved by the City's Risk Manager covering the Tenant Improvements or Alterations to be constructed. City shall be named as an additional insured on the contractor's and any subcontractor's policies. 9.7 Payment of Costs. Tenant, shall bear all costs and expenses associated with any Tenant Improvements and Alterations, including any fees assessed on the Premises by any governmental, or quasi -governmental agency or authority in connection with any regional transportation or other public improvements and school district taxes, development fees and assessments. 9.8 Disposition of Tenant Improvements and Alterations at Expiration or Lease Termination, Any Tenant Improvements or Alterations to the Premises shall remain on and be surrendered at no cost to City on expiration or termination of this Lease, wear and tear excepted excluding Tenant's fixtures, equipment, furniture, and movable decorations (which Tenant can remove), subject to the right by the City to require Tenant to remove Tenant Improvements and Alterations. Tenant, at its sole cost, shall remove any such items from the Premises before the last day of the Term or within thirty (30) days after notice is given, whichever is earlier. Tenant shall repair any damage to the Premises caused by such removal, ensure that the structural future of the foundation and bulkhead areas of the Premises are not thereby worsened by such removal, and leave the Premises in broom clean and good condition. "Good Condition" shall mean the Premises and each portion thereof is in clean and safe physical condition and suitable for Approved Use by a subsequent tenant. Any Tenant items left at the Property after the removal deadline shall be considered abandoned by Tenant and can be disposed by City in City's sole discretion and without compensation to or other City obligation to Tenant, but also subject to any rights of lien holders to such items under an existing non -disturbance agreement between such lien holder and City. 9.9 Improvements by City. As a part of City's redevelopment of the Property pursuant to Section 3 of this Lease, City agrees not -to construct, or allow any third party to construct any additional improvements at the Property that relate to any third -party commercial enterprise which are reasonably foreseeable to financially conflict or compete with Tenant's business operations on the Premises so long as Tenant operates the Premises for the Approved Use. 10. BONDING 10.1 Bonds Required. City may, in its absolute and sole discretion, require Tenant to obtain, provide, and maintain at their own expense during the term of construction of any Alteration or Tenant Improvement of the Premises or work exceeding a cost of Twenty Five Thousand Dollars and 001100 ($25,000) both of the following: (a) a Faithful Performance Bond in the amount of one hundred percent (100%) of the total amount to be paid to contractor as set forth in their respective contract with Tenant in the form attached as Exhibit "E" and incorporated herein by reference; and (b) a Labor and Materials Payment Bond in the amount of one hundred percent (100%) of the total amount to be paid to contractor as set forth in their respective contract with Tenant and in the Basin Marine, Inc. Page 20 12-26 form attached as Exhibit "F" and incorporated herein by reference. The City will not accept bonds on any other form. Bonds shall be on the forms included in this Lease; the City will not accept bonds on any other form. Said bonds are necessary for City to complete any incomplete Alterations or Tenant Improvements in order to restore the Premises to Good Condition and/or obtain a Certificate of Occupancy and City shall be included as an obligee. 10.2 Bond Issuance, The Faithful Performance Bond and Labor and Materials Payment Bond shall be issued by an insurance organization or surety (a) currently authorized by the Insurance Commissioner to transact business of insurance in the State of California, (b) listed as an acceptable surety in the latest revision of the Federal Register Circular 570, and (c) assigned a Policyholders' Rating A- (or higher) and Financial Size Category Class VII (or larger) in accordance with the latest edition of Best's Key Rating Guide. Property -Casualty. 10.3 Bond Delivery, Prior to commencement of any Alteration of Tenant Improvement of the Premises, Tenant shall deliver to City the Faithful Performance Bond and Labor and Materials Payment Bond, and a certified copy of the "Certificate of Authority" of the Insurer or Surety issued by the Insurance Commissioner, which authorizes the Insurer or Surety to transact surety insurance in the State of California. 11. MAINTENANCE AND REPAIR OF PREMISES 11.1 Maintenance and Repair by Tenant. Tenant agrees that it will keep the Premises in Good Condition, At all times during the Term, Tenant shall, at its sole cost and expense, maintain Tenant Improvements, Alterations, and all Tenant equipment at the Premises and every portion thereof including, but not limited to, storefronts, entrances and exits, plate glass, roofs, doors, exterior and interior painted areas, HVAC equipment, electrical circuits and switchgear, and utility supply lines, plumbing and other fixtures, equipment, interior walls, ceilings and floors, piers, concrete foundations, fencing, gates, asphalt areas, landscaping on areas located within the Premises as shown on Exhibit B, slips, floats and ramps, in good order, condition and repair, and Tenant shall comply with all laws applicable thereto. As of the Effective Date, City confirms that the Premises conform to such Good Condition standard. 11.2 Maintenance and Repairs by City_. 11.2.1 City shall be responsible only for the maintenance, repair and replacement, and all related costs, of the: (a) vertical bulkheads and attached bulkhead caps serving the Premises, excluding damage or deterioration caused to any bulkhead or bulkhead cap by Tenant or Tenant's operations for which Tenant shall be responsible; (b) the parking areas, and driveway(s) and drive aisles on the Property which serve the Premises; and (c) landscaping on areas located on the Property adjacent to the Premises as shown in Exhibit A. Basin Marine, Inc. Page 21 12-27 11.2.2 City's Dock Repairs/Maintenance. The City shall be responsible for performing repairs to the marina at the Balboa Yacht Basin, which may include replacement of docks, exclusive of those within the Premises ("Repairs"). Tenant is fully responsible for any repair, maintenance, and construction or replacement of docks within the Premises and is encouraged to do so concurrently and cooperatively with City's Repairs as a potential cost savings to Tenant. 11.2.3 Cooperation. In addition to the obligation to cooperate set forth in Section 3, when City performs work as set forth in Sections 11.2.1 and 11.2:2 above (collectively "Work"), Tenant shall fully cooperate with City, and City's tenants (other than Tenant), contractors, representatives and assignees ("Agents"). Tenant shall allow City and/or its Agents to take any action, including the right to enter to conduct tests, surveys and studies with respect to the Premises in conjunction with the Work provided the tests, surveys or studies do not unreasonably interfere with Tenant's ability to conduct business on the Premises. Tenant shall allow City and/or its Agents to enter onto the Premises subject only to the obligation of City and its Agents to give Tenant seventy two (72) hours' prior written notice and the obligation of the City to, at its sole cost, to commence repair of any damage to the Premises caused by the City or its Agents, within twenty-four (24) hours after causation. 11.2.4 City may perform maintenance or repairs that Tenant is required to perform but Tenant has failed to complete in the event Tenant fails to commence required maintenance or repairs within the time provided by City in the written notice requesting such maintenance or repair (which shall not be less than thirty (30) days unless in case of emergency or urgent situation and Tenant shall reimburse City for the related City costs incurred as Additional Rent. 11.2.5 Upon twenty-four (24) hours prior written notice to Tenant, City or its authorized City representative(s) may enter upon and inspect the Premises during normal business hours for any lawful purpose. In case of emergency, City or its authorized City representative(s) may, without prior notice, enter the Premises by whatever force reasonably necessary if Tenant is not present to open and permit an entry. Any entry to the Premises by City under this Lease shall not be construed as a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. Any damage caused to the Premises pursuant to this Section 11.2 by the City shall be repaired or replaced by the City at the City's sole expense. 11.2.E Except in the case of an emergency, City shall, at the earliest time reasonably possible given the circumstances that may then exist, provide Tenant with written notice prior to performing any maintenance, repair or remodeling of the Property which may reasonably be expected to adversely Basin Marine, Inc. Page 22 12-28 affect, by interference with access, visibility, availability of utilities or otherwise, Tenant's business operations at the Premises or any portion thereof. 11.3 Tenant Rent Abatement. Tenant's Rent shall be abated as set forth in Section 15.5, to the extent any City required maintenance and repair work as described under this Section 11 interferes with Tenant's use of the Premises for the Approved Use for a period of longer than thirty (30) continuous days, and is not caused by or is otherwise the obligation of Tenant. 12. LIENS 12.1 Liens Prohibited. Tenant shall not permit to be imposed, recorded, or enforced against the Premises or the Property, 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 or Alteration (except from the actions of City) on the Premises, and Tenant shall pay or cause to be paid said liens and claims before any action is brought to enforce the same against Tenant or the Premises, or shall adequately indemnify City and the Premises by payment bonds acceptable to City and as provided for by law. Tenant agrees to hold harmless City and the Premises free and harmless from all liability for any and all such liens and claims and all costs and expenses in connection therewith. Tenant shall give City notice in writing before commencing construction of any kind on the Premises exceeding Two Thousand Five Hundred Dollars and OO1100 ($2,500.00) and provide any additional Tenant insurance required by this Lease. 12.2 Release/Removal of Liens. In the event any lien or stop notice is imposed or recorded during the Term on the Premises, the Property, an Alteration and/or improvement permanently affixed to the Premises or the Property, Tenant 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 Property or the Alteration or improvement. Notwithstanding the foregoing, if Tenant legitimately contests the validity of such lien, claim or demand, then Tenant shall, at its expense, defend against such lien, claim or demand provided that it provide City the indemnity in this Lease and provided Tenant shall pay and satisfy any adverse judgment that may be rendered before any enforcement against City or the Premises or the Property. 13. INDEMNITY AND EXCULPATION; INSURANCE 13.1 Hold Harmless Clause. Tenant releases the City and agrees to indemnify, defend and hold harmless the City, its City Council, Boards, Commissions, Committees, officers, agents, volunteers, and employees, as well as the State of California, its officers, employees and volunteers (collectively, the "Indemnified Parties") from and against any and all claims (including, without limitation, claims for bodily injury, death or damage to property), 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 and nature whatsoever Basin Marine, Inc. Page 23 12-29 (individually, a "Claim"; collectively, "Claims"), which may arise from or in any manner relate (directly or indirectly) to Tenant's, Tenant's employees, contractor, subcontractor, agents, guests, invitees, subtenant's possession, occupation or use of the Premises, specifically including, without limitation, any claim, liability, loss, or damage arising by reason of: 13.1.1 The death or injury of any person or damage to personal property caused or allegedly caused by the condition of the Premises which Tenant, alone, is obligated to maintain, or an act or omission of Tenant or any agent, contractor, subcontractor, supplier, employee, servant, or sublessee of Tenant; 13.1.2 Any work performed on the Premises or materials furnished to the Premises at the request of Tenant or any agent or employee of Tenant, with the exception of maintenance performed by City to the Premises and/or any work done to any City vessel at the Premises by any City employee or agent; or 13.1.3 Tenant's failure to perform any provision of this Lease or to comply with any requirement of law or any requirement imposed on the Premises by any duly authorized governmental agency or political subdivision. 13.1.4 Tenant's obligations in this Section 13 shall survive the expiration or earlier termination of this Lease. 13.2 Tenant's obligations pursuant to this Section shall not extend to any Claim proximately caused by the negligence, willful misconduct, or unlawful or fraudulent conduct on the part of the indemnified Parties, and/or the failure by the City to perform City's obligations under this Lease, such as maintenance and repair of the bulkhead areas as described above. This indemnity shall apply to all claims and liability regardless of whether any insurance policies are applicable. 13.3 Exculpation ofi City• Except as otherwise expressly provided in this Lease, City shall not be liable to Tenant for any damage to Tenant or Tenant's property from any cause other than the sole negligence, intentional or willful or unlawful or fraudulent acts of the Indemnified Parties. Except as otherwise expressly provided in this Lease, Tenant waives all claims against the Indemnified Parties arising for any reason other than the sole negligence, intentional or willful or unlawful or fraudulent acts of the Indemnified Parties. City shall not be liable to Tenant for any damage to the Premises, Tenant's property, Tenant's goodwill, or Tenant's business income, caused in whole or in part by acts of nature, excluding damage to the Premises caused by City's failure to perform City's maintenance and repair obligations under Section 11, above. 13.4 Insurance. Tenant shall continuously maintain insurance in the types and amounts specified in Exhibit "G," attached hereto and incorporated herein by this reference. Basin Marine, Inc. Page 24 12-30 14. DAMAGE OR DESTRUCTION OF PROPERTYIPREMISES 14.1 Destruction of Premises. If the Premises are totally or partially destroyed, rendering the Premises or any portion thereof totally or partially inaccessible or unusable, then, except to the extent the damage or destruction falls within City's maintenance and repair obligation under Section 11.2 or is excluded from Tenant's indemnity obligations under Section 13, Tenant shall restore the Premises to substantially the same condition as immediately prior to such destruction (including all trade fixtures, personal property, Tenant Improvements and Alterations) at its expense. Alternatively, subject to City's obligations to Tenant under this Lease, such as those under Sections 11.2, Tenant may elect to terminate this Lease by giving written notice to City within sixty (60) days after the date of the occurrence of any casualty and also providing to the reasonable satisfaction of City the following: (a) the cost of the restoration exceeds the amount of any available insurance proceeds by at least twice the Total Annual Rent for the most recent two (2) completed Lease Years; (b) at the time of such casualty Tenant maintained all insurance required by this Lease; and (c) no act attributable to Tenant voided insurance coverage otherwise available concerning said loss. Upon such termination of the Lease, Tenant shall: (x) assign to City all insurance proceeds applicable to reconstruction (excluding Tenant's personal property therein); (y) pay any policy deductible to City; and (z) quitclaim title to the Premises to City. Notwithstanding such Lease termination, Tenant shall hold harmless the City from any expenses, liability or loss regarding damage or loss to boats being repaired or stored by Tenant at the Premises and any other liability or loss incurred by Tenant concerning such casualty and event, subject to City's obligation under Section 11.2 and the limitations of Tenant's indemnity obligations under Section 13. Upon such termination, insurance proceeds applicable to reconstruction of the Premises (excluding Tenant's personal property, fixtures, equipment, inventory, and machinery therein) shall be paid to City and Tenant shall have no further liability or obligations under this Lease. 14.2 Replacement of Tenant's Personal Property. In the event of damage or destruction of improvements located on the Premises not giving rise to Tenant's option to terminate this Lease, or City's obligations to Tenant under Sections 11.2 above, Tenant shall, at its own expense, replace and repair any such improvements necessary for Tenant to continue its operations at the Premises for the Approved Use. 14.3 Destruction of Balboa Yacht Basin. In the event that all or a portion of the Property or Premises or Tenant's critical access to the Property in areas to be maintained by City is damaged, deteriorated or destroyed by fire or any other casualty not attributable to Tenant nor covered by Tenant's insurance and as a result the Premises or a material portion thereof becomes inaccessible or commercially unusable (meaning it causes Tenant a loss of more than fifty percent (50%) of Tenant's pre -damage business revenue) for the Approved Use, then: 14.3.1 City shall repair such damage as soon as reasonably possible at City's expense, in which Rent shall be abated in accordance with the procedures set forth in Section 15. If the damage or destruction cannot reasonably be repaired within twelve (12) months after the date of the casualty, or if City fails to commence repairs within one hundred eighty Basin Marine, Inc. Page 25 12-31 (180) days after giving Tenant written notice of its intention to repair, Tenant may terminate this Lease upon giving City written notice and the Lease shall terminate as of the date of notice from Tenant to City. 14.3.2 If such damage, deterioration or destruction is not attributable to the City's failure to perform its obligations under the Lease and Tenant has not provided notice that it will perform repairs at its sole expense, then City shall have the option to terminate this Lease by giving to Tenant written notice within thirty (30) days following the date of the casualty, in which case this Lease shall be terminated thirty (30) days following the date of the notice. 16. ABATEMENT OF RENT 15.1 Tenant Improvements: Approved Construction. Subject to City approval of Tenant's work at the Premises, Tenant shall receive rent abatement during the actual construction or installation time for such Tenant Improvements, of up to a maximum of Twenty -Five Thousand Dollars and 001100 ($25,000.00). 15.2 Tenant's ability, to fully operate its business pursuant to the Approved Uses. Tenant may continue to operate that portion of the Premises not under construction as it may be safe, practicable and commercially reasonable to do so. Tenant shall provide documentation of construction activity at least forty-five (45) days prior to the commencement of the scheduled construction and the City's subsequent written approval. In no way shall abatement of Rent pursuant to this subsection: (a) exceed Twenty -Five Thousand Dollars and 001100 ($25,000.00) in the aggregate during the Term of this Agreement, and (b) exceed six (6) months, whether consecutively or collectively. "Construction" shall mean the installation of Tenant Improvements in strict compliance with the design plans approved in writing by City. 15.3 Damage or Destruction. In the event of damage or destruction of the Premises or to the Property that impacts the Premises and this Lease is not terminated under Section 14, Tenant shall continue to utilize the Premises for the operation of its business to the extent it may be practicable and commercially reasonable. Rent shall abate only in proportion to the area of the Premises that is rendered unusable. The abatement of Rent shall commence on the date that use of the Premises is impacted and continue until the completion of those repairs necessary to restore full use of the Premises and Tenant's re -opening of the Premises. Tenant's obligation to pay Taxes pursuant to this Lease shall not be abated or reduced. Rent shall not abate if the damage or destruction to the Premises is the result of the negligence or willful conduct of Tenant or its employees, officers or agents. Tenant's right to abatement of Rent is contingent on payment of insurance proceeds, if any, equal to the amount of Rent pursuant to Loss of Rent coverage under Tenant's insurance required by the Insurance Requirements. 15.4 No Abatement for Maintenance. Tenant shall not be entitled to any abatement of Rent for any temporary closures for general maintenance of the Premises to keep Tenant's business operating in a manner comparable to other similar businesses. Basin Marine, Inc. Page 26 12-32 15.5 Excused Payment of Rent. Tenant shall be excused for payment of Rent for the period in which any work by City under the Lease materially or fully interferes with Tenant's operation of the Premises for the Approved Use in accordance with Section 14. If such work by City materially interferes with Tenant's operation for more than one (1) year, Tenant has the option to terminate the Lease by providing City with written notice, in addition to Tenant's other recourse under the Lease. 16. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING AND ENCUMBERING 16.1 Prohibition of Assignment. City and Tenant acknowledge that City is entering into this Lease in reliance upon the experience and abilities of Tenant to operate the Premises for the Approved Use. Consequently, Tenant shall not voluntarily assign or encumber its interest in this Lease or in the Premises or assign substantially all or any part of the Premises or allow any other person or entity to occupy or use all or any part of the Premises without the prior written consent of City, which shall not be unreasonably withheld. Any assignment or transfer made without the City's written consent is null and void. City's consent to any assignment or other transfer is subject to Tenant providing City with evidence reasonably satisfactory to City that: (a) the proposed transferee has financial strength and shipyard/boat repair experience comparable to Tenant so that such proposed assignee will not likely cause the Percentage Rent payable to be less than Percentage Rent paid for the most recent completed lease Year; (b) the use of the Premises by the proposed transferee is consistent with the terms of this Lease and is for the Approved Use; (c) proposed transferee agrees to assume all current and future Tenant obligations and agrees that the City is not in default of the Lease; (d) provide services comparable to Tenant to maintain the health of shipyard services and repairs in the harbor; and (e) Tenant is not then in default of this Lease. Except as otherwise expressly provided herein, any dissolution, merger, consolidation, reorganization of Tenant, or the sale or other transfer resulting in a transfer of a controlling percentage of the capital stock of Tenant, shall be deemed a voluntary assignment; provided, however, that the sale or transfer of a controlling percentage of the capital stock of Tenant pursuant to a public offering(s) of equity or debt instruments issued by Tenant, or other transfers of publicly traded capital stock or debt instruments shall not constitute a voluntary assignment and shall not require City's consent or approval. The phrase "controlling percentage" means the ownership of, or the right to vote, stock possession of at least fifty percent (50%) of the total combined voting power of all classes of Tenant's capital stock issued, outstanding, and entitled to vote for the election of directors, except for ownership of publicly traded shares, warrants or similar equity interests in Tenant traded on a national exchange or over-the-counter markets. 16.2 Exceptions. Notwithstanding the foregoing paragraphs or anything to the contrary contained herein, City's consent shall not be required for an assignment or subletting to an Affiliate, Subsidiary, or Successor of Tenant. For purposes hereof, an "Affiliate", a "Subsidiary", and a "Successor" of Tenant are defined as follows: 16.2.1 "Affiliate" is defined as any corporation or other entity which directly or indirectly controls or is controlled or is under common control with Tenant Basin Marine, Inc. Page 27 12-33 (for purposes of this Section, "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities or by contract or otherwise); 16.2.2 "Subsidiary" is defined as any corporation or other entity not less than twenty-five percent (25%) of whose outstanding stock shall, at the time, be owned directly or indirectly by Tenant and which is at least as creditworthy as Tenant; and 16.2.3 "Successor" is defined as an assignee, transferee, personal representative, heir, or other entity in which or with which Tenant is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation of corporations or a corporation, or other entity acquiring a substantial portion of the property and assets of Tenant, succeeding lawfully and pursuant to the provisions of this Lease, to the rights or obligations of Tenant. 16.3 Tenant Financing. If Tenant is not then in default, and Tenant gives City not less than forty-five (45) days advance written notice, then from time to time during the Term, City shall sign a commercially reasonable non -disturbance and attornment agreement or estoppel certificate from an institutional commercial lender or Tenant equipment vendor of Tenant's choice, in a form reasonably acceptable to the City Attorney. City's fee ownership of the Premises and leasehold interest shall be senior to and not a security for such Tenant loan or Tenant equipment lien. 16.4 Continuing Effect. City's consent to any assignment or encumbrance shall not relieve Tenant from its obligations or liabilities under this Lease nor act as a waiver of the requirement that such consent be obtained to any subsequent assignment or encumbrance. 17. FORCE MAJEURE• EXTENSIONS OF TIME OF PERFORMANCE 17.1. Force Majeure. Neither Party shall be liable for any failure or delay in performing an obligation under this Lease that is due to any of the following causes: acts of God, war, terrorist act, government -mandated quarantine restrictions, riot, natural catastrophes, Federal or state governmental acts or omissions, national strikes, fire, or explosion (hereinafter "Force Majeure"), provided that the Force Majeure is unforeseeable, beyond the control of, and not due to the fault or negligence of the Party claiming the Force Majeure. For the avoidance of doubt, Force Majeure shall not include (a) any epidemic, pandemic or government mandated quarantine restriction; ; (b) financial distress or the inability of either Party to make a profit or avoid a financial loss, (c) changes in the market prices or conditions, (d) a Party's financial inability to perform its obligations hereunder, (e) maintenance and repair of the Premises as required by Tenant under this Lease; (f) disruption of utilities; (g) limited or no bay access for the Premises not caused by Tenant; and (h) other causes beyond the control of Tenant that prevent Tenant from operating the Approved Use at the Premises totally or "materially" (which is defined as Basin Marine, Inc. Page 28 12-34 causing Tenant's business revenue to drop by more than thirty percent (30%) over a twelve (12) month period, as compared to such Tenant revenue prior to such event). 17.2. Notice; Excuse or Delay in Performance. A Party claiming Force Majeure shall promptly notify the other Party in writing, no later than fifteen (15) days after the commencement of delay or inability to perform, and the Party shall continue with commercially reasonable diligence in an effort to limit the period of nonperformance or delay. A Party's excuse from failure or delay in performing an obligation under this Lease due to Force Majeure shall only be to the extent caused by the Force Majeure and shall not be any longer than the period commencing from when the requisite written notice is given and ending when the Party is no longer delayed or prevented from performing on account of that noticed Force Majeure event. Time of performance under this Lease may also be extended in writing by City and Tenant. 18. DEFAULT 18.1 Default by Tenant. The occurrence of anyone (1) or more of the following events shall constitute a default and material breach of this Lease by Tenant (each defined as a "Tenant Default"): 18.1.1 The vacating or abandonment of the Premises by Tenant for a period of thirty (30) successive days, without the prior written approval of City or its authorized representative, excluding closures during periods of casualty, condemnation or permitted closures set forth in this Lease; 18.1.2 The failure by Tenant to make any payment of Rent or any other payment required by this Lease, as and when due, and such failure continues for a period of ten (10) days after written notice of default from City to Tenant; 18.1.3 Except as specified in Subsection 18.1.2, the failure of Tenant to observe or perform any of the material covenants, conditions or provisions of this Lease to be observed or performed by Tenant where such failure continues for a period of thirty (30) days after written notice of default from City to Tenant; provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion; however, the thirty (30) day cure period is not allowed for any environmental event involving Hazardous Substances at the Premises caused by Tenant or Tenant's agents or customers. Immediately following any such environmental event Tenant shall use Tenant's best efforts to fully remediate or prove to the reasonable satisfaction of City that remediation is underway and will be completed in ninety (90) days without any risk of further environmental damage to the Premises and/or surrounding area; Basin Marine, Inc. Page 29 12-35 18.1.4 The making by Tenant of any general arrangement or assignment for the benefit of creditors; 18.1.5 Tenant becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); 18.1.6 The appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such appointment is not discharged within sixty (60) days; and 18.1.7 The attachment, execution or the judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within sixty (60) days. 18.2 Remedies. 18.2.1 Cumulative Nature of Remedies. If any default by Tenant shall continue without cure beyond the time permitted under this Lease, City shall have the remedies described in this Section in addition to all other rights and remedies provided by law or equity, to which City may resort cumulatively or in the alternative. 18.2.2 Re-entry Without Termination. City may re-enter the Premises, and, without terminating this Lease, re -let all or a portion of the Premises. City may execute any agreements made under this provision in City's name and shall be entitled to all rents from the use, operation, or occupancy of the Premises. Tenant shall nevertheless pay to City on the dates specified in this Lease the equivalent of all sums required of Tenant under this Lease, plus City's expenses in conjunction with re -letting, less the proceeds of any re -letting or attornment. No act by or on behalf of City under this provision shall constitute a termination of this Lease unless City gives Tenant specific written notice of termination. 18.2.3 Termination. City may terminate this Lease by giving Tenant written notice of termination with a specified termination date. In the event City terminates this Lease, City may recover possession of the Premises (which Tenant shall surrender and vacate upon demand) and remove all persons and property. City shall be entitled to recover the following as damages: 18.2.3.1 The value of any unpaid Rent or other charges that are unpaid at the time of termination; 18.2.3.2 The value of the Rent and other charges that would have accrued after termination less the amount of Rent and charges the City received or could have received through the exercise of reasonable diligence as of the date of the award, provided, however, that City shall use Basin Marine, Inc. Page 30 12-36 its best efforts to re -lease the Premises and upon the City's re -leasing the Premises Tenant shall be released from all further liability for Rent and other charges that would have accrued after termination; 18.2.3.3 Any other amount necessary to reasonably compensate City for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease; and 18.2.3.4 At City'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. City shall be entitled to interest at the rate of ten percent (10%) per annum on all Rent and other charges from the date due or the date they would have accrued. City shall also be entitled to an award of the costs and expenses incurred by City in maintaining or preserving the Premises after default, preparing the Premises for re -letting, or repairing any damage caused by an act or omission of Tenant. 18.2.4 Use of Tenant's Personal Property. In the event of Tenant Default past applicable notice and cure periods, subject to the right of lien holders and the owners of boats then on the Premises to each remove such lien items and boats, as applicable, City may use Tenant's personal property and trade fixtures in which Tenant has an ownership interest located on the Premises and subject also to the rights of any Tenant lien holder with a non - disturbance agreement with City regarding Tenant personal property, or any of such property and fixtures without compensation or liability to Tenant for use or damage. In the alternative, City may store the property and fixtures at the cost of Tenant. City shall not operate, or allow any other person or entity to operate under the same or similar trade name as the Tenant. 18.3 City's Right to Cure Tenant's Default. Upon continuance of any Tenant Default beyond applicable notice and cure periods, City may, but is not obligated to, cure such Tenant Default at Tenant's cost. If City pays any money or performs any act required of, but not paid or performed by, Tenant after notice, the payment and/or the reasonable cost of performance shall be due as Additional Rent not later than ten (10) days after service of a written demand accompanied by supporting documentation upon Tenant. No such payment or act shall constitute a City waiver of such Tenant Default or of any remedy for such Tenant Default or render City liable for any loss or damage resulting from such City performance. 18.4 Waiver of Rights_. Tenant 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, in the event Tenant is evicted or City takes possession of the Premises by reason of any Tenant Default. Basin Marine, Inc. Page 31 12-37 19. CONDEMNATION 19.1 Termination of the Lease. Tenant or the City shall have the right to terminate this Lease as of the date a public agency with lawful authority (excluding City) to condemn obtains possession of or title to any part of the land area at the Premises, or materially impacts Tenant required street or Newport Bay access to the Premises, or the condemnation materially (meaning causes a loss of fifty percent (50.00%) or more of Tenant's then business revenue as compared to before such condemnation) affects the conduct of Tenant's business in the Premises, or the Premises will no longer be suitable for the conduct of Tenant's business for the Approved Use. In the event of Termination pursuant to this Subsection, Base Rent shall be prorated to the date of Termination, any unearned Rent shall be refunded to Tenant and Tenant shall have no further obligations under this Lease. Tenant shall not grant a right of entry to any condemnor without the written consent of City. 19.2 Partial Termination of Lease. If this Lease is not terminated under this Section 19, then this Lease shall terminate as to the portion of the Premises taken upon the date which possession of said portion is taken, but this Lease shall continue in force and effect as to the remainder of the Premises. Tenant shall, in the event of a taking of any portion of the Premises, be entitled to a reduction in the Base Rent in reasonable proportion to the area of the Premises so taken verses its impact on Tenant's continued operations for the Approved Use. 19.3 Allocation of Award. In the event that an award is made for an entire or partial taking or for damage to the Premises or any interest therein in any action in direct or inverse condemnation or in the event of a taking under the power of eminent domain, the Parties hereto agree that their respective rights to the award or compensation paid shall be as follows: 19.3.1 City shall be entitled to that portion of the award received for the taking of the real property within the Premises, the value of this leasehold, including all buildings and other improvements to which City is entitled on expiration or termination of this Lease, and for severance damages. 19.3.2 Tenant shall be entitled to any award that may be made for the taking of or injury to Tenant's business and profits, including any amount attributable to Tenant's personal property, fixtures, installations, or improvements in or on the Premises, Tenant's relocation expenses, but excluding any "bonus value" attributable to this Lease. 19.3.3 Any interest payable on the total award shall be divided between City and Tenant in the same ratio as are the awards allocated to them pursuant to the other provisions of this Section. Basin Marine, Inc. Page 32 12-38 20. SUBJECT TO TIDELANDS GRANT The Premises are located on property that is the subject to the Tidelands Grant, administered by the State of California. Tenant shall not take any action that would cause the City to be in violation of any provisions of the Tidelands Grant. If the State terminates the Tidelands Grant for any reason or prevents the Premises from being used for the Approved Use, this Lease terminates as a result and the Parties shall be released from all liabilities and obligations under this Lease. 21. WASTE OR NUISANCE Tenant shall not commit or permit the commission of any waste on the Premises. Tenant shall not maintain, commit, or permit any nuisance as defined in Section 3479 of the California Civil Code on the Premises. Tenant shall not use or permit the use of the Premises for any unlawful purpose, including, but not limited to, any use that violates the City's charter or Municipal Code. 22. NO CONFLICTS OF USE, HAZARDOUS SUBSTANCES 22.1 No Conflicts of Use. From the Effective Date and throughout the Term, Tenant shall not use, occupy or permit any portion of the Premises or the Property to be used or occupied in violation of any law. City represents and warrants to Tenant that, to the best of City's knowledge, (i) Tenant's use of the Premises does not conflict with applicable laws, and City knows of no reason why Tenant would be unable to obtain all required permits, licenses and approvals from the appropriate governmental authorities; (ii) the Premises is not in violation of any applicable law, rules or regulations and Tenant's contemplated uses will not cause any such violation; and (iii) the Premises is free of any and all Hazardous Substances as of the date of this Lease. In the event that the presence of any Hazardous Substances not caused by Tenant or its customers, guests, invitees, contractors, agents, subcontractors is detected at the Premises at any time during the Term of this Lease all remedial work shall be performed by City at City's expense. Tenant's obligation to open (or re -open, as the case may be) shall be delayed until the remedial work is completed if the remedial work is performed prior to Tenant opening for business. Tenant's obligation to pay Rent shall be abated pursuant to Section 15 to the extent Tenant is unable to conduct its business upon the Premises as a result of any remedial work that is performed subsequent to Tenant opening for business. Tenant shall have the right (but not the obligation) to terminate this Lease, upon thirty (30) days advance written notice to City in the event that Hazardous Substances are detected at the Premises and the presence or the remediation materially affects Tenant's ability to conduct its business at the Premises. 22.2 "Hazardous Substances" 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 Substances Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource Conversation and Recovery Act, 42 U.S.C. Section 6901 et seq. "RCRA"); the Toxic Substances Control Basin Marine, Inc. Page 33 12-39 Act, 15 U.S.C. Section 2601 etseq.; the Clean Water Act, 33 U.S.C. Section 1251 etseq.; 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 etseq. (Underground Storage of Hazardous Substances); the California Hazardous Waste of Concern and Public Safety Act, Health and Safety Code Sections 25169.5 et seq.; California Health and Safety Code Sections 25501 et seq. (Hazardous Substances 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 the "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. 22.3 Tenant shall 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 22, Tenant is not responsible or liable for any Hazardous Substances that are brought onto the Premises, through migration or other means, by third parties not associated with Tenant. 22.4 Notwithstanding any contrary provision of this Lease, and in addition to the indemnification duties of Tenant set forth elsewhere in this Lease, Tenant indemnifies, defends with counsel reasonably acceptable to City, protects, and holds harmless City and its elected and appointed officials, boards and commissions, officers, employees, agents, and volunteers 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 City and its elected or appointed officials, boards and commissions, officers, employees, agents or volunteers may sustain or incur, or which may be imposed upon them, in connection with any breach of Tenant's obligations or representations in this Lease or the use of the Premises under this Lease, arising from or attributable to the Tenant 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), California Health and Safety Code Section 79860 or other applicable law, to insure, protect, hold harmless, and indemnify City for any claim pursuant to the Hazardous Substance laws or the common law. Basin Marine, Inc. Page 34 12-40 22.5 Tenant does not, and shall 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. 22.6 If at any time during the Term of this Lease, Tenant 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 Substances 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, Tenant shall give City written notice of the release or inquiry within five (5) days after Tenant becomes aware or first has reason to believe there has been a release or inquiry and shall simultaneously furnish to City copies of any claims, notices of violation, reports, warning or other writings received by Tenant that concern the release or inquiry. 22.7 If the presence of any Hazardous Substances brought onto the Premises by Tenant or Tenant's employees, agents, sublessees, licensees, concessionaires, contractors, or invitees ("Tenant Parties"), or generated by same during the Term of this Lease, results in contamination of the Premises or adjacent properties in violation of Hazardous Substance Laws, Tenant shall promptly take all necessary actions, at Tenant's sole expense, to remove or remediate such Hazardous Substances in full compliance with applicable laws. Tenant shall provide notice to City prior to performing any removal or remedial action. Tenant 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 City's written consent. Tenant shall pay any costs City incurs in performing Tenant's obligation to clean-up contamination resulting from Tenant's operations or use of the Premises. 22.8 Should any clean-up of Hazardous Substances for which Tenant is responsible not be completed prior to the expiration or sooner termination of the Lease, including any extensions thereof, then Tenant shall transfer the amounts required to complete clean-up into an escrow account, together with City -approved instructions for the disbursement of such amount in payment of the costs of any remaining clean-up as it is completed. If the nature of the contamination or clean-up required of Tenant is of such a nature as to make the Premises untenable or unleasable, then Tenant shall be liable to City 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 City. 22.9 If City determines, in its reasonable discretion, that Tenant does not have insurance or other financial resources sufficient to enable Tenant to fulfill its obligations under this provision, whether or not accrued, liquidated, conditional, or contingent, then Tenant shall, at the request of City, 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 reasonably acceptable to City as is appropriate to assure that Tenant will be able to perform its duties and obligations hereunder. Basin Marine, Inc. Page 35 12-41 22.10 Tenant's obligations in this Section 22 shall survive the expiration or earlier termination of this Lease. 23. EVENT OF BANKRUPTCY 23.1 If this Lease Js assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Sections 101 et seq. or any similar or successor statute ("Bankruptcy Code"), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to City, shall be and remain the exclusive property of City and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other consideration constituting City's property under this Section not paid or delivered to City shall be held in trust for the benefit of City and be promptly paid or delivered to City. 23.2 Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease and any Amendments on and after the date of such assignment, including the obligation to operate the business which Tenant is required to operate under this Lease. 24. NOTICES Any notice, demand, request, consent, approval, waiver, exercise of a right of a Party under this Lease, such as a Tenant Option Notice under Section 2, above, change of notice information, or other communication (each defined as a "Notice") that either party desires or is required to give under this Lease shall be in writing and shall be deemed given three (3) days after deposit into the United States registered mail, postage prepaid, by registered or certified mail, return receipt requested. Unless Notice of a different address has previously been given in accordance with this Section, all Notices shall be addressed as follows: If to City, to: City of Newport Beach Attn: Real Property Administrator 100 Civic Center Drive Newport Beach, CA 92660 If to Tenant, to: BASIN MARINE, INC. Attention: David L. New 829 Harbor Island Drive, Suite A Newport Beach, CA, 92660 With a copy to: Basin Marine, Inc. Attn: Derek J. New 1318 Dover Dr. Newport Beach, CA 92660 Basin Marine, Inc. Page 36 12-42 Either Party may, by written notice to the other Party hereto, specify a different address for notice purposes or add one (1) additional address for Notice purposes to that Party. 25. SURRENDER OF PREMISES At the expiration or earlier termination of this Lease, Tenant shall surrender, at no cost, to City the possession of the Premises. Tenant shall leave the surrendered Premises, including Tenant Improvements, Alterations, personal property, equipment and fixtures as required by Section 9.8, in broom clean and good condition, reasonable wear. and tear excepted. All property that Tenant is not required to surrender, but that Tenant does abandon shall, at City's election, become City's property at expiration or termination, subject to the rights of any Tenant lien holder with a non -disturbance agreement with the City. City shall owe no compensation to Tenant for any personal property, equipment or fixtures left at the Premises by Tenant more than fifteen (15) days after the expiration or termination of this Lease. 26. COMPLIANCE WITH ALL LAWS Tenant shall at its own cost and expense comply with all statutes, ordinances, resolutions, regulations, rules, administrative orders, and other requirements of all governmental entities, including federal, state, county or municipal, or other government agency or authority having jurisdiction over the parties hereto or the Premises, whether now in force or hereinafter enacted. Further, it shall be the obligation of Tenant to comply with State of California labor laws, rules and regulations. The parties agree that City shall not be liable for any violation by Tenant (or Tenant's agent, sublessee or any party affiliated with Tenant) thereof. 27. WAIVERS The waiver by either party of any breach or violation of any term, covenant or condition of this Lease, or of any ordinance, law or regulation, must be in writing and given by Notice, shall not be deemed to be a waiver of any other term, covenant, condition, ordinance, law or regulation, or of any subsequent breach or violation of the same or other term, covenant, condition, ordinance, law or regulation. The subsequent acceptance by either party of any fee, performance, or other consideration which may become due or owing under this Lease, 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 Lease or any applicable law, ordinance or regulation. 28. SEVERABILITY If any term or portion of this Lease is held to be invalid, Illegal, or otherwise unenforceable by a court of competent jurisdiction, the remaining provisions of this Lease shall continue in full force and effect. Basin Marine, Inc. Page 37 12-43 29. APPLICABLE LAW This Lease shall be construed in accordance with the laws of the State of California in effect at the time of the execution of this Lease. Any action brought relating to this Lease shall be adjudicated in a court of competent jurisdiction in the County of Orange. 30. ENTIRE AGREEMENT; AMENDMENTS 30.1 The terms and conditions of this Lease, all exhibits attached, and all documents expressly incorporated by reference, represent the entire agreement of the parties with respect to the subject matter of this Lease. 30.2 This Lease shall supersede any and all prior agreements, oral or written, regarding the subject matter between Tenant and City, including but not limited to the Existing Lease. 30.3 No other agreement, promise or statement, written or oral, relating to the subject matter of this Lease, shall be valid or binding, except by way of a written amendment to this Lease. 30.4 The terms and conditions of this Lease shall not be altered or modified except by a written amendment to this Lease signed by Tenant and City or City's authorized representative. 30.5 In case of conflict between provisions of this Lease, the more specific provision of this Lease shall then control; however if any conflicts arise between the terms and conditions of this Lease, and the terms and conditions of the attached exhibits or the documents expressly incorporated by reference, the terms and conditions of this Lease shall control. 30.6 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 Lease. 30.7 Each party has relied on its own inspection of the Premises and examination of this Lease, the counsel of its own advisors, and the warranties, representations, and covenants in this Lease. The failure or refusal of either party to inspect the Premises, to read this Lease or other documents, or to obtain legal or other advice relevant to this transaction constitutes a waiver of any objection, contention, or claim that might have been based on such reading, inspection, or advice. 31. TIME IS OF THE ESSENCE Time is of the essence for this Lease. The term "day" or "days" in this Lease each mean calendar day or days, as applicable, unless otherwise defined, and subject to extension to the next day if any deadline occurs on a weekend, Federal Holiday or on a day when banks are not open in Orange County, California. Basin Marine, Inc. Page 38 12-44 32. SUCCESSORS Subject to the provisions of this Lease on assignment and subletting, each and all of the covenants and conditions of this Lease shall be binding on and shall inure to the benefit of the heirs, successors, executors, administrators, assigns, and personal representatives of each respective Party. 33. INTERPRETATION The terms of this Lease 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 this Lease or any other rule of construction which might otherwise apply. 34. HEADINGS The captions of the various sections of this Lease are for convenience and ease of reference only and do not define, limit, augment, or describe the scope, content, or intent of this Lease. 35. GENDER; NUMBER The neuter gender includes the feminine and masculine, the masculine includes the feminine and neuter, and the feminine includes the neuter, and each includes corporation, partnership, or other legal entity whenever the context requires. The singular number includes the plural whenever the context so requires. 36. EXHIBITS All exhibits to which reference is made in this Lease are incorporated into and part of this Lease by reference. Any reference to "this Lease" includes all such matters incorporated by reference. 37. CITY BUSINESS LICENSE Tenant shall obtain and maintain during the duration of this Lease, a City business license as required by the Newport Beach Municipal Code. 38. NO ATTORNEYS' FEES The prevailing party in any action brought to enforce the terms and conditions of this Lease, or arising out of the performance of this Lease, shall not be entitled to recover its attorneys' fees. 39. NONDISCRIMINATION Tenant, for itself and its successors, agrees that in the performance under this Lease, Tenant shall not discriminate against any person because of the marital status, Basin Marine, Inc. Page 39 12-45 ancestry, gender, sexual orientation, etc. of that person or any characteristic listed or defined in Section 11135 of the California Government Code. 40. NO THIRD -PARTY BENEFICIARIES City (both as a lessor and as the City of Newport Beach) and Tenant do not intend, by any provision of this Lease, to create in any third party, any benefit or right owed by one party, under the terms and conditions of this Lease, to the other party. 41. NO DAMAGES Tenant acknowledges that City would not enter into this Lease 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 Lease or any of the matters referred to in this Lease, including, without limitation, any and all plans, permits, licenses or regulatory approvals, CEQA documents and City's obligations, if any, pursuant to Sections 11, 14 and 22. Accordingly, Tenant covenants and agrees on behalf of itself and its successors and assigns, not to sue City (either in its capacity as lessor in this Lease 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 revenues, loss of business opportunity, loss of goodwill or loss of use) or monetary relief for any breach of this Lease by City or for any dispute, controversy, or issue between City and Tenant arising out of or connected with this Lease or any of the matters referred to in this Lease, including, without limitation, any and all plans, permits, licenses or regulatory approvals, CEQA documents, City's obligations, if any, pursuant to Sections 11, 14 and 22 or any future amendments or enactments thereto. The parties agree that declaratory relief, injunctive relief, mandate and specific performance shall be Tenant's sole and exclusive judicial remedies. This clause is only applicable while the City is the landlord under this Lease and does not apply to any successor to all or any part of the City interest in this Lease. 42. GOVERNMENT CLAIMS ACT Tenant and City agree that in addition to any claims filing or notice requirements in this Lease, Tenant shall file any claim that Tenant may have against City in strict conformance with the Government Claims Act (California Government Code Section 900 et seq.), or any successor statute. 43. MEMORANDUM OF LEASE AGREEMENT A Memorandum of Lease Agreement, in a form and content similar to that contained in Exhibit "H" shall be executed by the parties as part of this Lease and then recorded by the parties promptly upon execution of this Agreement. Upon execution by both parties, the Memorandum of Lease Agreement shall be recorded by City against the Premises in the office of the Orange County Clerk -Recorder, as required by Government Code Section 37393, and a recorded copy provided to Tenant. At the end of the Term or Basin Marine, Inc. Page 40 12-46 earlier termination of this Lease, Tenant shall execute the document required by City to terminate such Memorandum as a lien on title to the Premises. 44. COUNTERPARTS This Lease may be executed in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute one (1) and the same fully executed instrument. 46. TERMINATION OF EXISTING LEASE Concurrently with execution of this Lease by the Parties, the Existing Lease is hereby terminated on the Effective Date of this Lease. [SIGNATURE PAGE FOLLOWS] Basin Marine, Inc. Page 41 12-4 7 IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the dates written below. APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE Date: 0 1/ n 6 I: n z s By: Aaron C. Harp City Attorney ATTEST: Date: Bv: Leilani 1. Brown City Clerk Attachments CITY OF NEWPORT BEACH, a California municipal corporation Date: By: Grace K. Leung City Manager TENANT: BASIN MARINE, INC., a California corporation Date: Bw David L. New President Date: By: Derek J. New Secretary [END OF SIGNATURES] Exhibit "A" Property and Balboa Yacht Basin Marina Depiction Exhibit "B" Premises Depiction Exhibit "C" Balboa Yacht Basin Rules & Regulations Exhibit "D" Tenant Improvements Exhibit "E" Faithful Performance Bond Exhibit "F" Labor and Materials Bond Exhibit "G" Insurance Exhibit "H° Memorandum of Lease Agreement Basin Marine, Inc. Page 42 12-48 IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the dates written below. APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE Date: �� 5 CITY OF NEWPORT BEACH, a California municipal corporation Date: By: By: Aaron . Harp Grace K. Leung City Attorney City Manager ATTEST: TENANT: Date: BASIN MARINE, INC., a California corporation Date: 1 '� . 2-42-S By: By: NL__1 Leilani I. Brown David L. New City Clerk President Date: I / ?'/z '�-- By: �= Derek J. Secretary [END OF SIGNATURES] Attachments: Exhibit "A" Property and Balboa Yacht Basin Marina Depiction Exhibit "B" Premises Depiction Exhibit "C" Balboa Yacht Basin Rules & Regulations Exhibit "D" Tenant Improvements Exhibit "E° Faithful Performance Bond Exhibit "F" Labor and Materials Bond Exhibit "G" Insurance Exhibit "H" Memorandum of Lease Agreement Basin Marine, Inc. Page 42 12-49 EXHIBIT "A" Property and Balboa Yacht Basin Marina Depiction Basin Marine, Inc. Page A-1 12-50 EXHIBIT "B" Premises Depiction �ARBOR•[SLµND DR � ` :,� � s: * ' r7 Wjyr� 01 �,• � •w� t}�� � �• -;tea �'���-- � .r 8 _ +,tom►, T ?�' ._� i t � � �a'.'�4 C Dry Area Leased - Wet Area Lease[ NBGS 0 1(}0 200 Disclaimer: €verb reasonable eF1oR has been ar3de t0 assure the accuracy o1 the Feet data provided. however, The City of Nerrpon Beach 3na rts r r W P O R T a r A t N empRyees and ar agents d15Ci3Bn ri and an rest7on9ORY flan Of rVahng to any resuRs obtained m its use Basin Marine, Inc. Page B-9 12-51 EXHIBIT "C" Balboa Yacht Basin Rules & Regulations Basin Marine Inc. Page C-1 12-52 BALBOA YACHT BASIN 829 Harbor Island Drive Newport Beach, CA 92660 (949) 673-0360 Rules and Regulations When a boat enters the Balboa Yacht Basin ("BYB"), it immediately comes under the jurisdiction of BYB and shall be berthed only where ordered and maneuvered as directed. Vessels may be relocated within BYB at City's discretion. The City ordinances, rules and regulations, summarized herein and as amended from time to time, and all other regulations established by regulatory bodies having jurisdiction at BYB, shall form a part of all Slip Rental Agreements as though printed thereon. The Balboa Yacht Basin is owned by the City of Newport Beach ("City") and managed by Bellport Group, Inc., located onsite at 829 Harbor Island Drive. There is no warranty of any kind as to the condition of the floats, walks, gangways, ramps or mooring gear, nor shall City be responsible therefore, or for injuries to persons or property occurring thereon or for any other reason, whether herein specifically stated or not. No Vessel may be moored at the BYB unless a current Slip Rental Agreement or Temporary Slip Rental Agreement (collectively, the "Agreements") is in effect between Vessel Owner and City. All defined terms herein shall have the same meaning as in the Agreements. 2. Only the Vessel described in the Agreements and registered to Vessel Owner may occupy the assigned Slip. Only one boat is permitted to occupy a slip at any one time, unless otherwise approved by the Marina Manager. Use of boats moored at BYB for unauthorized commercial purposes is prohibited. 4. No major repairs or complete overhauls shall be made on boats in BYB. Extent of the permitted repairs shall be at the discretion of the City. Disc sanding and spray painting are strictly forbidden. 5. Supplies, materials, accessories or gear of all kinds shall not be stored within BYB except in approved lockers. No additional locker boxes shall be placed on the docks by Vessel Owner. Maximum weight in lockers shall not exceed 70 pounds. 6. City reserves the right to inspect all boats to determine if they are properly identified and equipped for safe operation in accordance with Coast Guard and other applicable regulations. 7. No Vessel Owner shall throw, discharge, pump or deposit from any boat or float any refuse, oil, spirits, flammable liquid, or other polluting matter into BYB. All such matter shall be deposited in appropriately marked containers within BYB. 12-53 8. Use of boat toilets not equipped with storage devices approved by the state or local health departments is not permitted within BYB. City reserves the right to inspect all boats for installation and proper operation of such devices and holding tanks. 9. Unnecessary operation of engines in berths is not permitted. No excessive noise is allowed. Halyards should be tied away from masts. 10. Except for entering or leaving slips, marine engines, power generating equipment or other noise making machinery shall not be operated between the hours of 5:00 P.M. and 9:00 A.M. Engines may not be operated in gear while boats are secured to dock. 11. Water or power lines shall not cross main walks. 12. All boats shall be moored by Vessel Owner in a safe manner, on cleats, with strong and adequate lines. 13. The speed limit within BYB shall be dead slow, or wakeless speed, whichever is slower. 14. Fishing from the slips is not allowed. No cleaning of fish is permitted in BYB. i 15. There shall be no laundering or drying of wearing apparel on the docks or on the dock or rigging of a boat in BYB. 16. Restrooms will remain locked at all times. All keys must be returned to the Marina Manager office upon termination of the Agreement. if not returned, the Key Deposit will be retained by the City. Keys must not be duplicated. 17. Vessel Owner shall notify the Marina Manager when they expect Vessel to be away from the Slip for any period in excess of thirty (30) calendar days. Vessel Owner shall not sublet or otherwise grant others the use of the Slip. During any absence of the Vessel, City may use the Slip for any purpose without credit or compensation to Vessel Owner. 18. For security reasons, no dinghy, sabot, float or other similar boat shall be permitted to cruise up and down the fairways. All such boats must be kept on Vessel. The use of another slip at any time, for ANY non -emergency reason is not permitted. 19. The maximum distance by which any boat (including all projections such as transom platforms, booms, gait tanks, bowsprits, etc.) may extend beyond the end of the berth may not be more than ten percent (10%) of the length of the Slip beyond the end of the Slip. No part of the Vessel shall at any time extend over any portion of any dock at BYB. No part of any boat shall extend over the main walkway. 20. All equipment and electrical connections made by Vessel Owner must be approved by the Marina Manager. 21. No fueling or transferring of fuel from docks shall be permitted at any time. 22. Vessel Owner shall be responsible for any oil, paint, or other materials spilled, dripped or otherwise applied to the concrete fingers or walks adjacent to the boat slip. 12-54 23. Boat boarding steps shall be a maximum of one-half (112) the width of the finger and shall be of lightweight, open construction. No storage will be allowed under the boarding steps. 24. No dinghies, masts, bicycles, hibachis, etc. shall be stored on the docks. Items left or stored on the docks will be confiscated. 25. Trash containers are provided. Vessel Owners shall not place their own trash containers on the docks. 26. No cleats, dock wheels or other accessories shall be installed by Vessel Owner. The dockmaster should be contacted if additional accessories are necessary. 27. Any paint, varnish, etc, spilled on the docks or lockers shall be cleaned up immediately. If the spill cannot be removed by Vessel Owner, he should contact the Marina Manager for assistance. 28. Vessel Owner is encouraged to inform the Marina Manager of any leaks or other malfunctions with water or electricity, etc., so that they may be corrected as soon as possible. 29. ANIMALS SHALL BE LEASHED AT ALL TIMES. Should the size or temperament of a pet disturb others or should the pet commit any nuisance on the property of BYB, such animal shall be removed from BYB by Vessel Owner. 30. Children under twelve (12) years of age are not permitted on docks without the immediate presence of a parent or other responsible adult. 31. Disorderly or discourteous conduct by Vessel Owner or guests that might injure a person, cause damage to property or harm the reputation of BYB shall be cause for termination of the Vessel Owner's Agreement. 32. Vessel Owner shall park vehicles in areas designated for Basin parking. Parking areas shall not be used for storage of trailers without City's consent. 33. Vessel Owners are advised that it will be unlawful for any unauthorized person to solicit business or to offer goods, wares, merchandise or services for sale on the premises of BYB without the consent of the City. 34. "For Sale" or other unauthorized advertising signs are prohibited in BYB. 35. City is not responsible for any losses or damage to boats at BYB. Each Vessel Owner is responsible for damage which he and/or his boat may cause to other boats or improvements in BYB. 36. No swimming is permitted in BYB waters. 37. The City will not provide space for the storage of dinghies or miscellaneous Vessel Owner equipment on Basin property. 38. Hydro lift hoists will not be allowed in BYB. 12-55 39. The Marina Manager may ascertain that strangers aboard yachts are authorized by Vessel Owner to be aboard. 40. Riding of skateboards, bicycles or motorcycles on the docks is not permitted. Slip Fees specified in the Agreement are determined by the size of the slip space or vessel size and permitted overhang. Rent is due in advance, payable by the first of the month. Electricity is charged for the previous month's use. Vessel is subject to impound if the account is delinquent. Vessel Owner will be liable for any cost of impounding and collection of account. These rules and regulations are subject to change upon five (5) calendar day's notice. Ralph Grippo Balboa Yacht Basin Manager Bellport Group, Inc. 949-723-7788 rqrippo(@bellwether-financialgroup.com Kelly Rinderknecht Balboa Yacht Basin Office Manager Bellport Group, Inc. 949-569-0723 krinderknecht@themarinaatdanapoint.com Revised September 21, 2021 12-56 EXHIBIT "D" Tenant Improvements Tenant shall install certain Improvements to the Premises, which shall include the following: 1. Concrete repairs to the yard; 24,205 sq. ft. 2. Travel lift concrete pier repairs and/or mechanical travel lift replacement 3. Update store fixtures and lighting Basin Marine, Inc. Page D-1 12-57 EXHIBIT'V" CITY OF NEWPORT BEACH BOND NO. FAITHFUL PERFORMANCE BOND KNOW ALL PERSONS BY THESE PRESENTS: THAT WHEREAS, BASIN MARINE, (hereinafter referred to as "Tenant") is a tenant of the City of Newport Beach, a California municipal corporation and charter city ("City"), regarding real property located at the Balboa Yacht Basin, 829 Harbor Island Drive, Suite A, Newport Beach, California 92660, pursuant to a lease agreement dated ("Lease"). WHEREAS, Tenant has awarded to , (hereinafter referred to as the "Contractor") an agreement for the Project (hereinafter referred to as the "Project"). WHEREAS, the work to be performed by the Contractor is more particularly set forth in the Contract Documents for the Project dated , (hereinafter referred to as "Contract Documents"), the terms and conditions of which are expressly incorporated herein by reference; and WHEREAS, the Contractor is required by said Contract Documents and the Lease to furnish a bond for the faithful performance of said Contract Documents for the benefit of City and Tenant. NOW, THEREFORE, we, the undersigned Contractor and as Surety, a corporation organized and duly authorized to transact business under the laws of the State of California, are held and firmly bound unto the City and the in the sum of DOLLARS, ($ ), said sum being not less than one hundred percent (100%) of the total amount of the Contract, for which amount well and truly to be made, we bind ourselves, our heirs, executors and administrators, successors and assigns, jointly and severally, firmly by these presents. THE CONDITION OF THIS OBLIGATION IS SUCH, that, if the Contractor, their or its heirs, executors, administrators, successors or assigns, shall in all things stand to and abide by, and well and truly keep and perform the covenants, conditions and agreements in the Contract Documents and any alteration thereof made as therein provided, on its part, to be kept and performed at the time and in the manner therein specified, and in all respects according to their intent and meaning; and shall faithfully fulfill all obligations including the one (1) year guarantee of all materials and workmanship; and shall indemnify and save harmless the City, the Tenant, and their respective officials, officers, employees, and authorized volunteers, as stipulated in said Contract Documents, then this obligation shall become null and void; otherwise it shall be and remain in full force and effect. As a part of the obligation secured hereby and in addition to the face amount specified therefore, there shall be included costs and reasonable expenses and fees including reasonable attorney's fees, incurred by City and the Tenant in enforcing such obligation. Basin Marine Inc. Page E-1 12-58 As a condition precedent to the satisfactory completion of the Contract Documents, unless otherwise provided for in the Contract Documents, the above obligation shall hold good for a period of one (1) year after the acceptance of the work by City, during which time if Contractor shall fail to make full, complete, and satisfactory repair and replacements and totally protect the City and the Tenant from loss or damage resulting from or caused by defective materials or faulty workmanship. The obligations of Surety hereunder shall continue so long as any obligation of Contractor remains. Nothing herein shall limit the City's or Tenant's rights or the Contractor or Surety's obligations under the Contract, law or equity, including, but not limited to, California Code of Civil Procedure Section 337.15. Whenever Contractor shall be, and is declared by the City or the Tenant to be, in default under the Contract Documents, the Surety shall remedy the default pursuant to the Contract Documents, or shall promptly, at the City's and Tenant's option: Take over and complete the Project in accordance with ail terms and conditions in the Contract Documents; or Obtain a bid or bids for completing the Project in accordance with all terms and conditions in the Contract Documents and upon determination by Surety of the lowest responsive and responsible bidder, arrange for a Contract between such bidder, the Surety and the City, and make available as work progresses sufficient funds to pay the cost of completion of the Project, less the balance of the contract price, including other costs and damages for which Surety may be liable. The term "balance of the contract price" as used in this paragraph shall mean the total amount payable to Contractor by the City under the Contract and any modification thereto, less any amount previously paid by the City to the Contractor and any other set offs pursuant to the Contract Documents. iii. Permit the City to complete the Project in any manner consistent with California law and make available as work progresses sufficient funds to pay the cost of completion of the Project, less the balance of the contract price, including other costs and damages for which Surety may be liable. The term "balance of the contract price" as used in this paragraph shall mean the total amount payable to Contractor by the City under the Contract and any modification thereto, less any amount previously paid by the City to the Contractor and any other set offs pursuant to the Contract Documents. Surety expressly agrees that the City and the Tenant may reject any contractor or subcontractor which may be proposed by Surety in fulfillment of its obligations in the event of default by the Contractor. Surety shall not utilize Contractor in completing the Project nor shall Surety accept a bid from Contractor for completion of the Project if the City, when declaring the Contractor in default, notifies Surety of the City's objection to Contractor's further participation in the completion of the Project. The Surety, for value received, hereby stipulates and agrees that no change, extension of time, alteration or addition to the terms of the Contract Documents or to the Project to be performed thereunder shall in any way affect its obligations on this bond, and it does hereby waive notice of any such change, extension of time, alteration or addition to the terms of the Contract Documents or to the Project. [Signatures on the following page] Basin Marine Inc. Page E-2 12-59 Name of Contractor (Principal) Name of Surety Address of Surety Telephone (Attach Attorney -in -Fact Certificate) Authorized Signature/Title Attorney -in -Fact Print Name and Title (Corporate Sea]) The rate of premium on this bond is per thousand. The total amount of premium charges is $ (The above must be filled in by corporate attorney.) Any claims under this bond may be addressed to: (Name and Address of Surety or Agent for Service in California) APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE Date: By: Aaron C. Harp City Attorney NOTARY ACKNOWLEDGMENTS OF CONTRACTOR AND SURETY MUST BE ATTACHED Basin Marine Inc. Page E-3 12-60 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of } ss. On , 20 before me, , Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California (seal) County of)SS. On , 20 before me, , Notary Public, personally appeared proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that helshelthey executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (seal) Basin Marine Inc. Page E-4 12-61 Exhibit "F" CITY OF NEWPORT BEACH BOND NO. LABOR AND MATERIALS PAYMENT BOND WHEREAS, BASIN MARINE INC. ("Tenant"), is a tenant of the City of Newport Beach, State of California ("Lessor"), regarding property located at the Balboa Yacht Basin, 829 Harbor Island Drive, Suite A, Newport Beach, California 92660 pursuant to that lease dated ("Lease") and has awarded to hereinafter designated as the "Principal," a contract ("Contract") for work consisting of: ("Work"). WHEREAS, the Lease requires Tenant obtain from Principal a labor and materials bond ("Bond") for the benefit of Tenant and Lessor providing that if Principal or any of Principal's subcontractors, shall fail to pay for any materials, provisions, or other supplies used in, upon, for, or about the performance of the Work agreed to be done, or for any work or labor done thereon of any kind, the Surety on this Bond will pay the same to the extent hereinafter set forth. WHEREAS, in accordance with the Lease, Lessor is included as an additional obligee under the Bond. NOW, THEREFORE, we the undersigned Principal, and duly authorized to transact business under the laws of the State of California, as surety, (hereinafter "Surety") are held and firmly bound unto Tenant and Lessor, in the sum of Dollars and 1100 ($ 1 lawful money of the United States of America, said sum being equal to 100% of the estimated amount of the Contract, payable by Tenant under the terms of the Contract; for which payment well and truly to be made, we bind ourselves, our heirs, executors and administrators, successors, or assigns, jointly and severally, firmly by these present. THE CONDITION OF THIS OBLIGATION IS SUCH, that if the Principal or the Principal's subcontractors, fail to pay for any materials, provisions, or other supplies, implements or machinery used in, upon, for, or about the performance of the Work contracted to be done, or for any other work or labor thereon of any kind, or for amounts due under the Unemployment Insurance Code with respect to such work or labor, or for any amounts required to be deducted, withheld and paid over to the Employment Development Department from the wages of employees of the Principal and subcontractors pursuant to Section 13020 of the Unemployment Insurance Code with respect to such work and labor, then the Surety will pay for the same, in an amount not exceeding the sum specified in this Bond, and also, in case suit is brought to enforce the Basin Marine, Inc. Page F-1 12-62 obligations of this Bond, a reasonable attorneys' fee, to be fixed by the Court as required by the provisions of Section 9554 of the Civil Code of the State of California. The Bond shall inure to the benefit of any and all persons, companies, and corporations entitled to file claims under Section 9100 of the California Civil Code so as to give a right of action to them or their assigns in any suit brought upon this Bond, as required by and in accordance with the provisions of Sections 9500 et seq. of the Civil Code of the State of California. Surety, for value received, hereby stipulates and agrees that no change, extension of time, alterations or additions to the terms of the Contract or to the Work to be performed thereunder shall in any wise affect its obligations on this Bond, and it does hereby waive notice of any such change, extension of time, alterations or additions to the terms of the Contract or to the Work or to the specifications. In the event that the Principal executed this Bond as an individual, it is agreed that the death of any such Principal shall not exonerate the Surety from its obligations under this Bond. IN WITNESS WHEREOF, this instrument has been duly executed by the above named Principal and Surety, on the day of , 20 Name of Contractor (Principal) Name of Surety Address of Surety Telephone (Attach Attorney -in -Fact Certificate) Authorized Signature/Title Attorney -in -Fact Print Name and Title (Corporate Seal) NOTARY ACKNOWLEDGMENTS OF CONTRACTOR AND SURETY MUST BE ATTACHED Basin Marine, Inc. Page F-2 12-63 Exhibit "G" Insurance Without limiting Tenant's indemnification of City, Tenant will obtain, provide and maintain at its own expense during the Term of this Lease, a policy or policies of insurance of the type, amounts and form acceptable to City. 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, Tenant shall require each subtenant or subcontractor to similarly maintain workers compensation insurance and employer's liability insurance, including USL&H 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 City, its officers, agents, employees and volunteers for losses arising from work performed by Tenant for City, by endorsement to the policy. (ii) Commercial general liability insurance in an amount not less than Two Million Dollars ($2,000,000) per occurrence and Four Million Dollars ($4,000,000) 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) Fire and Extended Coverage. Tenant shall maintain standard broad form all-risk fire and extended coverage insurance, together with insurance against vandalism, theft and malicious mischief, on the improvements and fixtures, alterations, trade fixtures, signs, equipment, personal property and inventory on or upon the Premises from loss or damage to the extent of their full replacement value. Basin Marine, Inc. Page G-1 12-64 Loss of Rent. Tenant shall maintain loss of rent insurance insuring that the Rent will be paid to City for a period up to twelve (12) months if the Premises are destroyed or rendered unusable or inaccessible for commercial purposes by a risk insured under a special form property coverage policy including vandalism and malicious mischief endorsements. (iv) Automobile Liability Insurance. Tenant and Tenant's consultants, contractors and/or subcontractors shall maintain automobile insurance at least as broad as Insurance Services Office form CA 00 01 covering bodily injury and property damage for all activities of Tenant or all activities of Tenant's consultants, contractors and/or subcontractors arising out of or in connection with work to be performed on the Premises, including coverage for any owned, hired, non -owned or rented vehicles, in an amount not less than two million dollars and 001100 ($2,000,000) combined single limit each accident. (v) Builder's Risk insurance. During construction, Tenant shall require that Tenant's construction contractors and subcontractors maintain Builders Risk insurance or an installation floater as directed by City, covering damages to the work for "all risk" or special causes of loss form with limits equal to one hundred percent (100%) of the completed value of the work, with coverage to continue until final acceptance of the work by Tenant and City. City shall be included as an insured on such policy, and Tenant shall provide City with a copy of the policy. (vi) 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 Tenant, as determined by City depending on services offered by Tenant on the Premises (e.g., fuel 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 final disposal location, including non -owned disposal sites. Productslcompleted operations coverage shall extend a minimum of three (3) years after completion of the work. (vii) 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 settlement 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). Basin Marine, Inc. Page G-2 12-65 (b) Additional Requirements (i) Primary and Nan -Contributory. Policies shall be considered primary insurance as respects to the City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, and employees as respects to all claims, losses, or liability arising directly or indirectly from Tenant's operations. Any insurance maintained by City, including any self -insured retention City may have, shall be considered excess insurance only and not contributory with the insurance provided hereunder. (ii) Liability Insurance. Liability insurance shall act for each insured and additional insured as though a separate policy had been written for each, except with respect to the limits of liability of the insuring company. (iii) Waiver of Subrogation. All insurance coverage maintained or procured pursuant to this Lease shall be endorsed to waive subrogation against the City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, and employees, or shall specifically allow Tenant or others providing insurance evidence in compliance with these requirements to waive their right of recovery prior to a loss. Tenant hereby waives its own right of recovery against City, and shall require similar written express waivers from each of its consultants, contractors or subcontractors. (iv) Reporting Provisions. Any failure to comply with reporting provisions of the policies shall not affect coverage provided to the City of Newport Beach, its City Council, boards and commissions, officers, agents, volunteers, and employees. (v) Notice of Cancellation. The insurance required by this Lease shall not be suspended, voided, canceled, or reduced in coverage or in limits except after thirty (30) days (ten (10) days written notice of non-payment of premium) written notice has been received by City. It is Tenant's obligation to ensure that provisions for such notice have been established. (vi) Loss Payee. City shall be included a loss payee under the commercial property insurance. (vii) 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 Tenant to provide proof of coverage (extending reporting) for a minimum of three (3) years following termination of lease agreement; and (viii) In the event City determines that (i) the Tenant's activities in the Premises creates an increased or decreased risk of loss to the City, (ii) greater insurance coverage is required due to the passage of time, or (iii) changes Basin Marine, Inc. Page G-3 12-66 in the industry require different coverages be obtained, Tenant agrees that the minimum limits of any insurance policy required to be obtained by Tenant may be changed accordingly upon receipt of written notice from City; provided that Tenant shall have the right to appeal a determination of increased coverage to the City Council within fourteen (14) 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 Tenant fails to timely appeal a decision, it shall be deemed final. With respect to changes in insurance requirements that are available from Tenant's then -existing insurance carrier, Tenant shall deposit certificates evidencing acceptable insurance policies with City incorporating such changes within thirty (30) days of receipt of such notice. With respect to changes in insurance requirements that are not available from Tenant's then- existing insurance carrier, Tenant shall deposit certificates evidencing acceptable insurance policies with City, incorporating such changes, within ninety (90) days of receipt of such notice. (ix) 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 VI I (or larger) in accordance with the latest edition of Best's Key Rating Guide, unless otherwise approved by City. (x) All licensees, sub -Tenants (not including slip renters) and concessionaires shall be subject to the insurance requirements contained herein unless written approval is granted by the City. (xi) Tenant shall provide certificates of insurance, with original endorsements as required above, to City as evidence of the insurance coverage required herein. Insurance certificates must be approved by City prior to commencement of performance or issuance of any permit. Current certification of insurance shall be kept on file with City at all times during the Term of this Lease. (xii) All required insurance shall be in force on the Effective Date, and shall be maintained continuously in force throughout the term of this Lease. In addition, the cost of all required insurance shall be borne by Tenant. (xiii) If Tenant fails or refuses to maintain insurance as required in this Lease, or fails to provide proof of insurance, City has the right to declare this Lease in default without further notice to Tenant, and City shall be entitled to exercise all available remedies. Basin Marine, Inc. Page G-4 12-67 Exhibit "H" Memorandum of Lease Agreement Basin Marine, Inc. Page H-1 12-68 RECORDING REQUESTED AND WHEN RECORDED RETURN TO: Office of the City Clerk City of Newport Beach 100 Civic Center Drive PO Box 1768 Newport Beach, CA 92658 [Exempt from Recordation Fee - Govt. Code §§ 6103 & 27383] MEMORANDUM OF LEASE AGREEMENT This Memorandum of Lease Agreement ("Memorandum") is dated , 202_, and is made between City of Newport Beach, a California municipal corporation and charter city ("City") and Basin Marine, Inc., a California corporation ("Tenant"), concerning the Property described and the Premises depicted in Exhibit "A", attached hereto and by this reference made a part hereof, with the abbreviated referenced street address of 829 Harbor Island Drive, Suite A, Newport Beach, California 92660. For good and adequate consideration, City leases the Premises to Tenant, and Tenant leases the Premises from City, for the term and on the provisions contained in the lease agreement dated , 202_, ("Agreement") including without limitation provisions prohibiting assignment, subleasing, and encumbering said leasehold without the express written consent of City in each instance, all as more specifically set forth in said Agreement, which said Agreement is incorporated in this Memorandum by this reference. The Agreement's term is twenty (20) years, beginning , 202, and ending , subject to extension(s) by the parties as provided in the Agreement. 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 of the Agreement shall control. Execution hereof constitutes execution of the Agreement itself. [Signatures on the next page] Basin Marine, Inc. Page H-2 12-69 IN WITNESS WHEREOF, the parties hereto have executed this Memorandum of Lease as of the dates written below. 1W 6" City of Newport Beach, a California Municipal Corporation Date: TENANT: Basin Marine, Inc., a California corporation Date: Bv: Grace K. Leung David L. New City Manager President ATTEST: Date: Leilani 1. Brown City Clerk APPROVED AS TO FORM: Date: Aaron C. Harp City Attorney Date: By: Derek J. New Secretary [END OF SIGNATURES] Attachment: Exhibit A — Legal Description of Property and Depiction of Premises Basin Marine, Inc. Page H-3 12-70 ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of } ss. On , 20 before me, , Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in hislherltheir authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. 1 certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (seal) ACKNOWLEDGMENT A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. State of California County of } ss. On , 20 before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that helshelthey executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatures(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (seal) Basin Marine, Inc. Page H-4 12-71 EXHIBIT "A" Legal Description of Property A parcel of land situated in the Northwest quarter (NW 1/4) of Section Thirty Five (35), Township Six (6) South, Range Ten (10) West, S.B.B.& M., Orange County, California, more particularly described as follows, to -wit: Beginning at a point in the U.S. Bulkhead line between Station No. 200 and Station No. 101 as shown upon a map entitled "Harbor Lines, Newport Bay Harbor, California," approved May 2, 1936, by the Secretary of War, and on file in the office of the U.S. District Engineer at Los Angeles, California, said point of beginning being East 754.25 feet of said bulkhead Station No. 200, running thence North 424.71 feet to a point in the Northerly line of that certain parcel of land conveyed to City of Newport Beach by the Irvine Company, as described in a deed recorded September 25, 1929, in Book 306, Page 375, of official records of Orange County, California; thence South 85' 43' East 772.15 feet to the Northeasterly corner of the last mentioned parcel of land; thence South along the Easterly line of the last mentioned parcel of land 367.01 feet to a point in said U.S. Bulkhead line between Station No. 200 and Station No. 101, thence West along said bulkhead line 770 feet to the point of beginning, containing approximately seven (7) acres. Basin Marine, Inc. Page H-5 12-72 Property and Balboa Yacht Basin Marina Depiction Basin Marine, Inc. Page H-6 12-73 Depiction of Premises MIA fig �y R•lSfArttl P. (1 t_. ��t r h►-.' �' � ter, AFF- Iw �. F. A►�; 32,990.71 ft2 .'C r� fy9,071.4 ttZ. Dry Area Leased _ Wet Area Leasec �. 0 t00 2D0 Disclaimer:raso ,. ���� Every reasonable effort has a,een made ro assure thedits accuracy of the k Feet data plm i havevsE. The Cman1 Neiand 9 a spons and From NEW V O R 1 a E R C /1 emplEs•"_- and agents drSUaEm any and all responsibility from Or relaUnq to any resuhs otslarnm in is use Basin Marine, Inc. Page H-7 12-74 Attachment B Existing Lease Agreement 12- 75 55,,d C-ry LEASE AGREEMENT BALBOA YACHT BASIN BASIN MARINE, INC. THIS LEASE is made and effective as of the 1 st day of January 2001 ["Effective Date"), by and between the CITY OF NEWPORT BEACH, a Municipal Corporation ("City") and BASIN MARINE, INC., a California Corporation ("Tenant"). RECITALS A. City is owner of certain harbor frontage and tidelands, together with ,-ertain abutting upland property known as "Balboa Yacht Basin" located on Harbor Island Drive in the City of Newport Beach, County of Orange in the State of California. A portion of the area of the Balboa Yacht Basin is currently being used by Tenant for a shipyard/boat repair facility with a marine hardware store, ("Premises") and is described in Exhibit "A". Tenant is occupying the Premises pursuant to a Lease dated March 5, 1985, which will expire on June 30, 2010 ("Old Lease"). B. Under the Old Lease terms Tenant agreed to improve and repair the shipyard and boat repair facilities on the Premises under terms and conditions that would allow Tenant an opportunity to recover funds contributed to the redevelopment of the site. The improvements have been completed and Tenant desires a new lease with extended term to replace the Old Lease. C. Landlord with Tenant's concurrence has obtained a recent appraisal (the October 4, 2000 appraisal by George Jones, MAI) of the fair market value rental based upon current conditions. The Base Rent and Percentage Rent described below is based upon such appraisal. D. Tenant and City desire to terminate the Old Lease and enter into a new Lease of the Premises to allow Tenant to continue to operate shipyard/boat repair 12-76 facilities for an extended term upon revised terms and conditions as provided in this Agreement. E. The uses to be made of the Premises are consistent with provisions of the Local Coastal Plan and General Plan of the City of Newport Beach, and the terms and conditions in this Lease are consistent with the provisions of the City Charter and the ordinances of the City of Newport Beach. F. The uses to be made of the property subject to this Lease are consistent with provisions of the Tideland Grant pursuant to which the City obtained title to the property. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, City and Tenant agree as follows: 1. DEFINITIONS 1.1 GeneraL Definitions. As used in this Lease, the following words and phrases shall have the following meanings: (a) Alteration — any addition or change to or modification of, the Premises made by Tenant including, without limitation, fixtures. (b) Annual Total Rent —Base Rent and Percentage Rent for a Lease Year. (c) Authorized Representative — any officer, agent, employee, or independent contractor retained or employed by either Party, acting within authority given by that Party. (d) City — the CITY OF NEWPORT BEACH. (e) Damao — an injury to or death of any Person, or the damage destruction, or loss of property caused by another Person's acts or omissions. _2.. 12-77 (f} Damages — monetary compensation or indemnity that can be recovered in the courts by any Person who has suffered Damage, (g) Days -- means calendar days, subject to extension for any weekend or day when banks are not open in California if a deadline occurs on any such Day. (h) Expiration — the lapse of the time specified as the Term of this Lease, including any extension of the Term resulting from the exercise of an option to extend. (i) Good Condition — the clean, safe, physical condition of the Premises and each portion of the Premises in compliance with all applicable governmental laws and regulations. (j) Hazardous Materials — shall mean any substance whose nature and/or quantity of existence, storage, use, manufacture, disposal or effect, renders such substance and/or the user thereof and/or the owner of real property affected thereby, subject to or controlled by federal, state or local law, or regulation because such substance is actually or potentially injurious or a threat to public health or welfare or to the environment; or because such substance under federal, state or local law requires remediation, removal, cleanup or other action to bring such substance in any areas impacted into conformance with applicable law. (k) Hold Harmless — to protect, defend, indemnify and hold harmless the other party (including that party's employees and, agents) from all liability, losses, penalties, Damage, costs, attorney fees, expenses, causes of action, claims, or judgments arising out of or related to any Damage to any Person or property. -3- 12-78 (I) Law — any judicial decision, statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the Parties and/or the Premises. (m} Lease Year —means each calendar year of the term. (For illustration, Lease Year one (1) is from January 1, 2001 to December 31, 2001. ) (n) Maintenance or Maintain — repairs replacement, maintenance, repainting, and cleaning. (o) Material Default — means the failure of Tenant to cure a default under Section 16, below, by the applicable Tenant cure deadline which cure reasonably exceeds Five Thousand Dollars ($5,000.00). (p) Person — one or more natural persons, or legal entities, including, without limitation, partnerships, corporations, trusts, estates, associations, or a combination of natural persons and legal entities. (q) Premises -- those portions of the Balboa Yacht Basin designated on Exhibit "A" encompassing the marine hardware store and boat repair yard, including all structures and improvements located within the Premises. (r) Provision — any term, covenant, condition, or clause in this Lease that defines, establishes, or limits the performance required or permitted by either Party. (s) Rent — Base Rent, Percentage Rent, late payment penalties, interest, taxes, and other similar monetary amounts and charges payable by Tenant under the Provisions of this Lease. 12-79 (t) Rent Commencement Date — the Rent Commencement Date (and the Effective Date) shall be January 1, 2001. (u) Successor — assignee, transferee, personal representative, heir, or other Person succeeding lawfully, and pursuant to the provisions of this Lease, to the rights or obligations of either Party. (v) Tenant — BASIN MARINE, INC., a California corporation, and any approved Successor. (w) Termination — the termination of this Lease, for any reason, prior to Expiration. 2. LEASE OF PREMISES City leases the Premises to Tenant and Tenant leases the Premises from City for the Term and on the conditions contained in this Lease. 3. TERM 3.1 Base Term. The "Base Term" of this Lease shall be Fifteen (15) years from the Effective Date unless sooner terminated in accordance with the other provisions of this Lease.. 3.2 Option to Extend_ Provided Tenant is not then in Material Default, both at the time of Tenant notice of exercise and also at the start of such Option Term, Tenant may extend the term of this Lease for two additional successive terms of Five (5) years (the "Option Term" or "Option Terms") the first commencing on Expiration of the Base Term and the second commencing on Expiration of the first Option Term (which assumes Tenant has exercised the first option). Tenant may exercise each extension option by giving City written notice of its intention to do so at least Six (6) months prior to Expiration of the Base Term or the first Option Term, as applicable. 3.3 Terms of Lease. The "Term" is defined as the Base Term and each Option Term(s). -5- 12-80 3.4 Hold Over. Should Tenant hold over and continue in possession of the Premises after Expiration of the Term or any Option Term, Tenant's continued occupancy of the Premises shall be considered a month -to -month tenancy subject to. (a) termination by either Party upon Thirty (30) days advance written notice; and (b) also to all the terms and conditions of this Lease, except the provisions of Sections 3.1 and 3.2. 4. RENT From and after the Rent Commencement Date, each month Tenant shall pay to City Base Rent, as adjusted periodically pursuant to Section 4.1(b) below, plus Percentage Rent Base Rent and Percentage Rent are together part of the defined term "Rent." 4.1 Base Rent. (a) Base Rent. Tenant shall pay Base Rent to City in the sum of Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00) per year. Base Rent shall be paid in equal monthly installments of Five Thousand Three Hundred and Three Dollars ($5,303.00). Base Rent for each full month shall be due on the Tenth (101h) day of that month and late on the Twentieth (20111) day of such month. Base Rent for any partial month shall be prorated in accordance with the actual number of days in that month. Any unpaid Base Rent due for Lease Year 2001 will be paid within thirty (30) days of Lease execution. (b) Periodic Adjustment. At the end of every Third (3rd) Lease Year (i.e. the start of Lease Year Four (4) (January, 2004) Seven (7), Ten (10), Thirteen (13), etc.) the Annual Base Rent shall be adjusted to the greater of either: (i) Seventy Five Percent (75%) of the average Reconciled Annual Total Rent for such just ended 12-81 Three (3) Lease Years; or (ii) the Annual Base Rent for the just concluded Lease Year (i.e. Base Rent for Lease Year Three (3), Six (6), Nine (9), Twelve (12), etc.). [For illustration, assume for the periodic Base Rent adjustment for Lease Year Four (4), the Base Rent for Lease Year Three (3) was Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00) and the Reconciled Total Annual Rent for Lease Years One (1), Two (2) and Three (3) was Sixty Eight Thousand Dollars ($68,000.00), Eighty Five Thousand Dollars ($85,000.00) and Seventy Eight Thousand Dollars ($78,000.00), respectively, then the adjusted Base Rent for Lease Year Four (4) would remain at Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00) calculated as follows: Sixty Eight Thousand Dollars ($68,000.00), Eighty Five Thousand Dollars ($85,000.00) and Seventy Eight Thousand Dollars ($78,000.00) equals Two Hundred Thirty One Thousand Dollars ($231,000.00), divided by Three (3) equals Seventy Seven Thousand Dollars ($77,000.00), times Seventy Five Percent (75%) equals Fifty Seven Thousand Seven Hundred Fifty Dollars ($57,750.00), which is less than Sixty Three Thousand Six Hundred Forty Two Dollars ($63,642.00).) 4.2 Percentage Rent. (a) In addition to the Base Rent, during the term of this Lease, Tenant shall pay to City each month„ a Percentage Rent calculated by multiplying the Gross Sales Percentage Rates by the Gross Sales (as defined in Section 4.4) for each of the following sales categories attributable to the Premises during each Lease Year to _7_ 12-82 the extent that such Percentage Rent exceeds the Base Rent due for such month: Gross Sales_ Percenta9e Rates: 1. Shipyard/boat repair (labor, service and materials).... ... 4% of Gross Sales 2. Outside labor and materials .........10% of gross commissions and fees received by Tenant 3. Equipment and hardware sales, exclusive of internal sales to boat repair business.....................5% of Gross Sales. (b) Percentage Rent shall be paid for the preceding month with Tenant's monthly Base Rent payment, under Section 4.1 (a), above. With each monthly Rent payment Tenant shall furnish to City a statement, in writing, signed and certified by Tenant to be correct (a f6Monthly Sales Statement"), showing the total Gross Sales during the preceding calendar month, the applicable percentage for each category, the Percentage Rent for each category, Total Gross Sales plus Percentage Rent, Base Rent payable for such prior month, amount of any Percentage Rent due and resulting Total Rent due for such month. (For illustration of the above categories, percentages and calculation of percentage rent; attached as Exhibit "B" is Tenant's monthly Rent and Statement for May, 2000). (c) Prior to January 31st of each Lease Year, Tenant shall furnish City a statement of Tenant's monthly and Annual Gross Sales made during the previous Lease Year, or any partial Lease Year (if applicable) with each category of sales calculated using the Gross Sales Percentage Rates under Section 4.2(a), above, including any authorized deductions, the Base Rent and percentage Rent paid n 12-83 Per category and total for each month and for such entire Lease Year and Base Rent paid by Tenant during such same Lease Year ("Annual Sales Statement"). The Annual Sales Statement shall be signed and certified as correct by Tenant, or if Tenant is a corporation, by an authorized officer of Tenant, If the Annual Sales Statement shows that during the previous Lease Year Tenant paid less Percentage Rent than obligated under the terms of this Lease, Tenant shall pay to City within Thirty (30) days the amount of any additional Percentage Rent that is payable to City. If the Annual Sales Statement shows that during the previous Lease Year Tenant paid more Percentage Rent than it was obligated to pay under the terms of this Lease, the amount of this overpayment shall be applied to the next monthly installment or installments of Base Rent due or, if the overpayment was in the last year of the Term, or Option Term(s), City shall refund to Tenant the full amount of this overpayment within Thirty (30) days of City's receipt of the statement. The net resulting reconciled Annual Total Rent for a Lease Year is defined as the "Reconciled Annual Total Rent". (For illustration, attached as Exhibit "C" is Tenants Annual Sales Statement for Lease Year 2000, in which the Reconciled Annual Total Rent was ($101,048.17), total Rent paid was $108,170.05, and total credit to Tenant was $7,121.88). (d) If Tenant fails to provide to City any Monthly Sales Statement or Annual Sales Statement at the time and in the manner specified in this Lease, this failure shall constitute a default under this Lease and City shall have the right, in addition to any other rights or remedies it may have under this Lease, to conduct an audit and M 12-84 Tenant shall immediately reimburse City for the cost of the audit on written demand by City. if any Monthly Sales Statement or Annual Sales Statement is found to be more than Three Percent (3%) less than the amount of Tenant's Gross Sales shown by this audit, the understatement shall be deemed willful and City may terminate this Lease upon written notice given at any time within Thirty (30) days after receipt of the audit by City. 4.3 Payment Location. Rent shall be payable at the office of the City's Revenue Division at 3300 Newport Boulevard, Newport Beach, California, or at such other place or places as City may from time to time designate by written notice delivered to Tenant. 4.4 Gross Sales. (a) The term "Gross Sales" means- (1) The entire amount of the actual sales price, whether wholesale or retail, and whether wholly or partly for cash, on credit or in exchange for any other product, commodity, service, commercial paper or forbearance, of all sales of merchandise, labor, service and materials and all charges made by or on behalf of Tenant from or upon the Premises; (2) Orders taken in or from the Premises, even if the orders are filled elsewhere, and sales by any subtenant, or subcontractor in or from the Premises; (3) All sales originating at the Premises shall be considered as made and completed therein, even though bookkeeping and collection of the account may be transferred to another place, and even though actual filling of the sale or service -1 a- 12-85 (b) order and actual delivery of the merchandise may be made from a place other than the Premises. (4) Gross receipts of all coin -operated devices that are placed on the Premises by Tenant or pursuant to any rent concession, percentage or other arrangement (but excluding revenue from one drink vending machine for employees and telephones that are collected by a public and/or private utility). (5) Each sale upon installment or credit shall be treated as a sale for the full price in the month during which such sale shall be made, irrespective of the time when Tenant shall receive payment (whether in full or partial) from its customers. Exclusions from Gross Sales. Gross Sales shall not include, or if included there shall be deducted (but only to the extent they have been included), the following: (1) Sales and use taxes, so-called luxury taxes, consumers` excise taxes, and other similar taxes now or in the future imposed on the sale of merchandise or services, but only if such taxes are separately stated on the invoice and added to the selling price and collected from customers. (2) The amount of returns to shippers or manufacturers. (3) The amount of any cash or credit refund made upon any sale where the merchandise sold or some portion is retumed by the purchaser. (4) Sums and credits received in the settlement of claims for loss of or damage to merchandise. -11- 12-86 (5) Cash refunds made to customers in the ordinary course of business. (6) Value Added Taxes ("VAT") or other taxes added to the selling price of products and other similar taxes now or hereafter imposed upon the sale of merchandise or services, whether such taxes are added to, or included in the selling price. (7) Uncollectible credit accounts and other bad debts, not to exceed Two Percent (2%) of Gross Sales. (8) The proceeds of sale of Tenant's personal property, trade fixtures or business equipment. (c) Statements of Gross Sales. Tenant shall furnish to City statements of Tenant's Gross Sales in accordance with Section 4.2(b) and 4.2(c), above. Each statement shall be signed and certified to be true, complete and correct by an Authorized Representative of Tenant. (d) Sales and Charges. All sales and charges shall be recorded by one of the following means: (1) cash registers that display the amount of the transaction certifying the amount recorded, The register shall be equipped with devices that log in daily sales totals, and record on tapes the transaction numbers and sales details. At the end of each day the tape will record the total sales for that day; (2) or sales invoices. (e) Production of Statement, -..Records and Audit. Tenant agrees to make available for inspection by City, or its Authorized Representative, at the Premises a complete and accurate set of books and records of all sales of merchandise and revenue derived -12- 12-87 from the conduct of business or activity in, at or from the Premises from which Gross Sales can be determined. Tenant shall also make available, upon City's request, all supporting records, including federal, state and local tax returns. Tenant shall also furnish City's Authorized Representative, upon request, copies of its quarterly California sales and use tax returns filed with the State of California. Tenant shall retain and preserve for at least Three (3) years all records, books, bankbooks or duplicate deposit books and other evidence of Gross Sales. City and its Authorized Representative shall have the right, upon reasonable notice, during the Term or any Option Term, to inspect and audit Tenant's books and records and to make transcripts to verify the Rent due City. The audit may be conducted at any reasonable time during normal business hours. Tenant shall cooperate with City in making the inspection and conducting the audit. City shall also be entitled, once during each Lease Year and within Two (2) years after its end, and once within One Hundred Eighty (180) days after Expiration or Termination of this Lease, to an independent audit of Tenant's books of account, records, cash receipts, and other pertinent data to determine Tenant's Gross Sales. The audit shall be conducted at City's sole cost and expense by a certified public accountant designated by City. The audit shall be limited to the determination of Gross Sales and shall be conducted during usual business hours in a manner that minimizes any interference with the conduct of Tenant's regular business operations. If the audit concludes that there is a deficiency in the payment of any Rent, the deficiency shall become due and payable within Twenty (20) days _13- 12-88 and if there is an overpayment, City shall refund the amount of the overpayment within Twenty (20) days. City shall bear its costs of the audit unless the audit shows that Tenant understated Gross Sales by more than Three Percent (3%), in which case Tenant shall pay all City's reasonable costs of the audit. City and City's Authorized Representative shall be required to keep any information gained from such documents, statements, inspections or audits confidential to the maximum extent permitted by law. City and its Authorized Representative shall not disclose financial information received in confidence and pursuant to this Lease except to carry out the purposes of this Lease unless disclosure is required (rather than permitted) by law. However, City may disclose the results of any audit in connection with any financing arrangements, the sale or transfer of City's interest in the Premises, or pursuant to order of a court or administrative tribunal. (f) Tenant's Gross Sales Audit. In the event of any audit by City in accordance with this Lease, Tenant may contest the results of City's audit by performing a confirming audit within Thirty (30) days of receipt of City's audit results and supporting evidence, using an independent public accountant reasonably acceptable to City. If Tenant's audit discloses that City's audit was incorrect by more than Three Percent (3%), then City shall pay the cost of Tenant's contesting audit. (g) Acceptance. The acceptance by City of any money paid to City by Tenant as Percentage Rent for the Premises, as shown by any statement furnished by Tenant, shall not be construed as an -14- 12-89 admission of the accuracy of said statement, or of the sufficiency of the amount of the Percentage Rent payment. 4.5 Late Payment Penalty. Rent shall be late if paid on or after the Twentieth (20") day of the month due. Late Rent shall be assessed a One (1) time penalty of Ten Percent (10%) of the amount due and shall bear interest at the rate of Ten Percent (10%) per annum on the unpaid balance calculated from the date such Rent was due to the date that such Rent, late payment penalty and such interest is fully paid. S. BUSINESS PURPOSES AND USE OF PREMISES 5.1 "Approved Use. The Premises are to be used by Tenant: (a) For the principal operation of a shipyard/boat repair facility; and (b) At Tenant's option, also to sell new or used boats and/or marine equipment and hardware, so long as such uses are incidental to the principal use in Section 5(a) above. (c) Tenant may not use the Premises for any other use except with prior written consent of the City. 5.2 Operation of Premises. Tenant shall operate and manage the Premises in a manner comparable to other high quality businesses providing similar shipyard/boat repair services. Tenant shall not use or permit the use of the Premises in any manner that: (a) creates a nuisance; (b) Violates any Law; or (c) is not in compliance with all statutes, laws, permits, use restrictions and regulations of City applicable to the Premises, Tenant and/or Tenant's use of the Premises. Tenant assumes the risk of and shall cause all its workman, customers and independent contractors to also comply with all laws regarding their activities at the Premises. 5.3 Sales Restrictions. Tenant shall not display, sell or store merchandise outside the defined exterior walls and permanent doorways of said Premises, and no sale by auction in, upon or from said Premises, whether said auction be voluntary, _1 r5_ 12-90 involuntary, pursuant to any assignment for benefit of creditors or pursuant to any bankruptcy or other solvency proceedings, shall be conducted except such auctions that may be conducted by officers of a court with respect to any vessels in custody of Tenant. 5.4 Continuous Operation. Weather permitting, Tenant shall at a minimum keep the Premises in operation and open to the public for business during normal business hours, Monday -- Friday 8:00 A.M. — 4.30 P.M. Tenant may close the Premises on federal and state holidays and during periods of remodeling, reconstruction, inventory and emergencies (including substantially inclement weather) or to comply with laws, but such closure shall not: (a) Excuse Tenant's payment of Base Rent; N Be for a period of more than Four (4) months during any Three (3) Lease Year segment of the Term, with the exception of major repairs or reconstruction exceeding Two Hundred Fifty Thousand Dollars ($250,000.00), when the closure period will be increased to Eight (8) months. 5.5 Advertising Dis la . Tenant may, at its own expense, place signs in or upon the Premises subject to the prior written consent of the City Manager as to the size, type, design and method of installation. All signage placed by Tenant on, in or about the Premises shall remain the property of Tenant and shall be removed by Tenant upon Termination or Expiration of this Lease at Tenant's expense; and any damage caused by removal shall be repaired at Tenant's expense. The permanent signage in place as of the Execution Date of this Lease shall be deemed approved by the City and the City Manager as to graphic design and sign placement. 5.6 Independent Contractor. City shall have no interest in the business of Tenant, and no liability for the business operations or Gross Sales of Tenant, whether 12-91 or not caused by City's enforcement of City laws and regulations which apply to the Premises and/or Tenant. 5.7 No Distress Sales. No auction. fire, bankruptcy, "going out of business" or other distress sales of any nature may be conducted on the Premises without the prior written consent of the City Manager, which will not be unreasonably withheld, on the condition that such event occurs once during the Term. 5.8 Parking. Tenant shall provide a total of Four (4) parking spaces on -site which satisfy Newport Beach Municipal Code requirements. The required parking shall be provided in an area that is visible to Tenant's customers and shall be available for parking at all times. Tenant's employees shall park in City's adjacent marina parking lot located in the northwest corner of such lot, nearest the Beacon Bay development, and shall not exceed 15spaces (no repair, overnight storage or parking of Tenant customer or employee vehicles is permitted, in such adjacent parking area), 6. SERVICES FOR CITY Tenant, in addition to the obligation to pay Rent, shall perform the other terms and conditions of this Lease and shall, at Tenant's sole expense, also do the following: (a) Haul out and re -launch, each Lease Year, up to Four (4) of the vessels owned and maintained by the City, of a size capable of being handled by Tenant's equipment provided, however, all such Four (4) City vessels shall be hauled out no more than Two (2) vessels at a time.; (b) Transport the vessels to an area on the Premises suitable for the purposes of repairs or maintenance; (c) Allow each such vessel to remain on the Premises for a period of Two (2) weeks immediately after haul -out; and (d) Permit access to the vessels by employees or representatives of City for the purpose of repairs and maintenance, which shall be performed by City at no cost or liability to Tenant. -17- 12-92 City shall give Tenant Thirty (30) days' written notice prior to the date on which the vessels are to be mauled -out and City shall waive such Tenant obligation each year unless such City notice is given during such Lease Year. 7. TAXES LICENSES AND OTHER OBLIGATIONS 7.1 Payment of Taxes. Tenant acknowledges that this Lease may create a possessory interest subject to property taxation and that Tenant shall pay property taxes levied on such interest. Tenant shall pay, before delinquency, all taxes, assessments, license fees and other charges (Taxes) that are levied or assessed against Tenant's leasehold interest in the Premises, any Tenant fixture, improvement, equipment and other Tenant property (including any such property of any customer of Tenant) installed or located on the Premises from time to time. Tenant shall pay directly to the appropriate taxiing authorities all such taxes at least Ten (10) days before delinquency and before any fine, interest or penalty is due or imposed by operation of law and furnish to the City with Tenant's next Rent installment a copy of Tenant's payment check and the Tax bill thereby paid. Tenant shall not be required to pay any real property taxes or assessments based upon City's ownership interest in the Premises. 7.2 Payment of Obligations. Tenant shall promptly pay, when due, any and all bills, debts, liabilities and obligations incurred by or charged to Tenant in connection with Tenant's occupation and use of the Premises. 7.3 Challenge to Taxes. Tenant shall have the right in good faith, at its sole cost and expense, to contest the amount or legality of any Taxes including the right to apply for reduction. If Tenant seeks a reduction or contests such Taxes, Tenant's failure to pay the Taxes shall not constitute a default as long as Tenant complies with the provisions of this Section. City shall not be required to join in any proceeding or contest brought by Tenant unless the provisions of any Law require that the proceeding or contest be brought by or in the name of City or any owner of the Premises. In that so 12-93 case, City shall join in the proceeding or contest or permit it to be brought in City's name and City shall execute any instrument or document necessary or advisable in connection with the proceeding or contest as long as City is not required to bear any cost nor be liable for payment of such Taxes. If requested Tenant, on final determination of the proceeding or contest, shall immediately pay such disputed tax and also discharge any decision or judgment rendered, together with all related costs, charges, interest and penalties and provide City with a copy of Tenant's payment and the underlying bill for such Taxes being paid with Tenant's next Rent payment. Tenant shall indemnify and Hold Harmless the City and its officers and employees from and against any liability, claim, demand, penalty, cost or expense arising out of or in connection with any contest by Tenant pursuant to this Section. Any such contest of Taxes by Tenant shall be concluded (meaning that such Taxes shall be fully paid or cancelled by the Tax Authority) by Tenant, using Tenant's reasonable best efforts, within Eighteen (18) months of starting such action, or end of the Term, if earlier. 7.4 License. Tenant shall maintain in good standing all required licenses and permits required for operation of the business on the Premises, including but not limited to a City Business License. 8. UTILITIES AND REFUSE COLLECTION (a) Basic Utilities. Tenant shall make all arrangements for and pay for all utilities furnished to or used on the Premises, including, without limitation, gas, electricity, water, telephone service, cable TV and janitorial service. Any repair to utility lines within the Premises is the sole responsibility of Tenant. Tenant bears all risk of interruption, cancellation andior disruption of utility services, as well as the cost of all utilities Tenant requires for its use of the Premises. (b) Refuse Collection. Tenant shall make arrangements for and pay for all weekly refuse collection and also Hazardous Materials disposal at least 12-94 monthly (or more frequently if required by law). Tenant shall keep the Premises free and clean of rubbish and litter and shall deposit accumulated rubbish and litter in containers designated by City. Trash containers shall be kept in an approved enclosed area. Tenant shall comply with the provisions of the Newport Beach Municipal Code and all other Laws regarding the use, storage and disposal of Hazardous Materials. In no event shall Tenant allow Hazardous Materials related to the Premises to enter, be disposed of into, seep or otherwise be released into any sewer line, storm drain and/or adjacent bay waterway to the Premises. 9. ALTERATIONS TO THE PREMISES (a) Alterations Requiring Building -Permits. Any alteration that requires a building permit from City shall require the written consent of the City Manager which shall not be unreasonably withheld so long as Tenant's Approved Use is not thereby being changed. (b) Non -Structural Alterations. Tenant shall have the right to make, at its sole expense, such non-structural changes, alterations, improvements and additions in and to the interior of the buildings, or to the piers, slips, floats and ramps on Premises, and Tenant may install therein such trade fixtures and equipment as it may deem advisable for the conduct of its business for the Approved Use of the Premises. (c) Alterations Costing More than $50,000. Tenant shall not make any Alterations (other than non-structural Alterations costing less than Fifty Thousand Dollars [$50,000.00]) to the Premises without the prior written consent of the City Manager which shall not be unreasonably withheld if the Approved Use is not thereby changed_ In granting or withholding consent to proposed Alterations by Tenant, the City Manager shall -20- 12-95 consider the impact of the proposed Alterations on public views adjacent property owners, compliance of City codes and the impact of the proposed Alterations on space available for public use of the Balboa Yacht Basin. The City Manager may require, as a condition of approval, that Tenant agree to amendments to this Lease, including amendments increasing the amount of Rent payable under this Lease if the proposed Alterations would materially increase the floor area or size of the building structures on the Premises. The City Manager may also require Tenant to provide, at Tenant's expense, appropriate engineering and feasibility studies regarding the structural integrity of the Premises. Any damages or destruction to the structural improvements or Tenant equipment at the Premises shall not reduce or excuse Tenant's obligation to pay Rent in full and on time. (d) Quality of Work Performed. All work shall be performed in a good and workmanlike manner, shall substantially comply with the plans and specifications submitted to City and shall comply with all applicable governmental permits and Laws in force at the time permits are issued- (e) Payment of Costs. Tenant shall pay all costs related to the construction of any Alterations by Tenant or its agents. Tenant shall keep the Premises free and clear of all mechanics' liens resulting from construction performed at the direction of Tenant. All construction improvements shall, upon completion, become part of the Premises, owned by City. (f) Indemnification. Tenant shall Hold Harmless City and its officers and employees with respect to any Damage or Damages related to any work performed on the Premises by Tenant. City shall promptly provide Tenant with a copy of any claim filed by any third party with respect to work performed by Tenant. City has no obligation to or liability to Tenant -21- 12-96 incident to City's approval of Tenant's plans or issuance of permits for any improvements to the Premises. (g) Disposition of Alterations at Expiration or Lease Termination. Any Alterations made to the Premises shall remain on, and be surrendered with, the Premises on Expiration or Termination of this Lease (Excluding Tenant's fixtures, equipment, furniture, movable decorations and the like). However, City may elect not less than Thirty (30) days prior to Expiration or Termination of this Lease, to require Tenant to remove, at Tenant's cost, any Alterations that Tenant has made to the Premises, except those Alterations existing as of the date of this Lease or approved by City excluding any Tenant related Hazardous Materials or other clean-up of any environmental contamination which shall remain a Tenant obligation. If City requires removal of Alterations, Tenant shall, at its cost, remove the Alterations and restore the Premises to its condition prior to installation of such Alterations, ordinary wear and tear excepted, before the last day of the Term, or within Thirty (30) days after notice is given, whichever is later. Prior to Expiration or within Fifteen (15) days after Termination of this Lease, Tenant may remove any movable partitions, machinery, equipment, furniture, and trade fixtures previously installed by and solely paid for by Tenant, provided that Tenant repairs any damage to the Premises caused by removal and the structural future of the foundation and bulkhead areas of the Premises are not thereby worsened by such Tenant removal. 10. REPAIRS AND MAINTENANCE OF PREMISES 10.1 Maintenance and Repair by Tenant and Cit . Tenant agrees that it will maintain the Premises in Good Condition. City shall be responsible solely for the maintenance of the vertical bulkheads serving the Premises excluding damage or -22- 12-97 deterioration caused to any bulkhead by Tenant or Tenant's operations for which Tenant shall be responsible. Tenant shall also, at its sole cost and expense, at all times during the term hereof, maintain all other improvements and all Tenant equipment at the Premises and every portion thereof including, but not limited to, store fronts, entrances and exits, plate glass, roofs, doors, exterior and interior painted areas, HVAC equipment, electrical circuits and switchgear, and utility supply lines, plumbing and other fixtures, equipment, interior walls, ceilings and floors, piers, concrete foundations, fencing, gates, asphalt areas, slips, floats and ramps, in good order, condition and repair, and Tenant shall comply with all Laws, applicable thereto. City may perform Maintenance or repairs in the event Tenant fails to commence required Maintenance or repairs within Fifteen (15) days after receipt of notice to do so. The cost of any Maintenance or repairs by the City pursuant to this Subsection shall be payable upon billing by City as additional Rent with the Tenant's next monthly Rent payment. (a) Entry by City. City and its Authorized Representatives may enter upon and inspect the Premises at any reasonable time for Maintenance or other purposes. In case of emergency, City or its Authorized Representatives may enter the Premises by the master key if Tenant is not present to open and permit an entry. During entry City and its Authorized Representatives shall exercise reasonable care relative to the Premises and to Tenant's property. Any entry to the Premises by City shall not be construed as a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises or any portion thereof. (b) Additional Covenants of.City Regarding Maintenance Obligations. In addition to other provisions of this Lease: -23- 12-98 (1 } Written Notice Interference with Business ❑ erations and Additional Im rovements. City shall, at the earliest time reasonably possible given the circumstances that may then exist, provide Tenant with prior written notice of its intent to: (i) perform any Maintenance, repair or remodeling of the Balboa Yacht Basin which may reasonably be expected to adversely affect, by interference with access, visibility, availability of utilities or otherwise, Tenant's business operations at the Premises or any portion; or (ii) except in the case of an emergency, enter upon the Premises for any of the purposes set forth in this Lease. City agrees not to construct any additional improvements at the Balboa Yacht Basin that relate to any commercial enterprise which might conflict or compete with Tenant's business operations on the Premises so long as Tenant operates the Premises for the Approved Use. (2) Due Diligence by City Regarding Repairs. Whenever City elects or is obligated to repair or restore the Premises or any portion of the Balboa Yacht Basin, City shall proceed, at City's cost and with due diligence to repair or rebuild the same, including any additions or improvements made by City or by Tenant with City's consent, in accordance with the same plan and design as existed immediately before such City repairs and in accordance with all applicable Laws subject to force majeure and inability to use same materials by the City. The materials used in said repair or -24W 12-99 reconstruction shall be as nearly like the original materials as may then be reasonably procured. 10.2 Tenant is the long-time operator of the Premises, fully aware of the condition of the Premises. Therefore, Tenant accepts the condition of the Premises as of the date of this Lease without any current City warranty, representation or repair obligation. 11. LIENS Tenant shall not permit to be enforced against said Premises, or any part thereof, any mechanics', materialman's, contractors' or other liens arising from, or any claims for damages growing out of, any work or repair or alteration (except from the actions of City), and Tenant shall pay or cause to be paid said liens and claims before any action is brought to enforce the same against Tenant or the Premises, or shall adequately indemnify City and the Premises by payment bonds acceptable to City and as provided for by Law. Tenant agrees to Hold Harmless City and the Premises free and harmless from all liability for any and all such liens and claims and all costs and expenses in connection therewith. Tenant shall give City notice in writing before commencing construction of any kind on the Premises exceeding $2,500.00 and provide any additional Tenant insurance required by this Lease. 12. INDEMNITY AND EXCULPATIONI INSURANCE 12.1 Exculpation of City. Except as otherwise expressly provided in this Lease, City shall not be liable to Tenant for any damage to Tenant or Tenant's property (including any boat owned by any Tenant customer) goodwill, increased Tenant operating costs, or loss of business or income by Tenant from any cause other than the -gross negligent, intentional or willful acts of City or its Authorized Representatives. Except as otherwise expressly provided in this Lease, Tenant releases and also waives all claims against City for Damages arising for any reason other than the gross negligent, intentional or willful acts of City or its Authorized Representatives. City shall -25- 12-100 not be liable to Tenant for any Damage to the Premises, Tenant's property, Tenant's goodwill, or Tenant's business income, caused in whole or in part by acts of nature including, without limitation, waves, wind and tidal flows. 12.2 Tenant Release and Hold -Harmless. Tenant releases the City and also agrees to Hold Harmless the City, its elected officials, officers and employees from any and all claims, liability, loss, Damage, or expenses resulting from Tenant's occupation and use of the Premises, specifically including, without limitation, any claim, liability, loss, or Damage arising by and Tenant assumes all corresponding risk because of: (a) The death or injury of any Person caused or allegedly caused by the condition of the Premises or an act or omission of Tenant or an agent, contractor, employee, servant; sublessee or concessionaire of Tenant; and (b) Any work performed on the Premises or materials furnished to the Premises at the request of Tenant or any agent or employee of Tenant, with the exception of Maintenance performed by City; and (c) Tenant's failure to perform any provision of this Lease or to comply with any requirement of Law or any requirement imposed on the Premises by any duly authorized governmental agency or political subdivision. Tenant's obligations pursuant to this Subsection shall not extend to any claim, loss, liability, Damages, costs or fees that are proximately caused by the sole gross negligence, willful misconduct, or unlawful or fraudulent conduct on the part of the City or its officers or employees. 12.3 Insurance Limits. (a) Liability Insurance. Tenant shall, at its own cost and expense, secure and maintain during the entire Term a broad form commercial general liability insurance policy issued by an -26- 12-101 insurance company reasonably acceptable to City covering the acts and omissions of Tenant, any Tenant employee, agent customer, independent contractor or visitor to the Premises. The policy shall name City, and its officers, employees and agents as additional insureds and protect, against loss or liability caused by or connected with Tenant's occupation and use of the Premises under this Lease in amounts not less than: combined single limit bodily injury and property damage, including products/completed operations liability and blanket contractual liability, of Two Million Dollars ($2,000,000.00) per occurrence, subject to increased limits in accordance with Section 12.3(b) below. (b) City's Ability to Increase Amount of Public Liability and Property Damage Insurance. Not more frequently than once every Five (5) years, Tenant shall increase the insurance coverage as reasonably required by City so that at all times, the amount of public liability and property damage insurance coverage maintained by Tenant reasonably and fully protects the City. (c) Deductibles. Any deductible amount under each insurance policy shall not exceed Seven Thousand Five Hundred Dollars ($7,500.00), and Tenant is responsible for payment of such amount in the event of loss. 12.4 Fire Insurance on Building and Other Improvements. Tenant at its cost shall maintain on the Buildings and other improvements that are or become a part of the Premises a policy of standard broad form all-risk fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least full replacement value, with coverage for demolition and compliance with future Building Codes in a form acceptable to the City's Risk Manager. The insurance policy -27- 12-102 shall be issued in the names of City and Tenant, as their interests appear. The insurance policy shall provide that any proceeds shall be made payable to City and Tenant jointly. 12.5 Determination of Replacement Value. The "full replacement value" of the Buildings and other improvements to be insured under Section 12 shall be determined by the company issuing the insurance policy at the time the policy is initially obtained. Not more frequently than once each year, either Party shall have the right to notify the other Party that it elects to have the replacement value re -determined by such underwriting insurance company. The re -determination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company. Each Party shall be promptly notified of the re -determination by the company. The insurance policy shall be adjusted according to the re -determination. 12.6 Loss of Rent Insurance. Tenant at its cost shall maintain loss of rent insurance (or business interruption insurance) insuring that the Base Rent will be paid to City for a period up to Twelve (12) months if the Premises are destroyed or rendered unusable or inaccessible for commercial purposes by a risk insured under a special form property coverage policy including vandalism and malicious mischief endorsements. 12.7 Workers' Compensation. Tenant shall comply with all of the provisions of the Workers' Compensation Insurance and Safety Acts of the State of California and the applicable provisions of Divisions 4 and 5 of the California Labor Code. 12.8 Waiver of Subrogation. The parties release each other, and their respective Authorized Representatives, from any claims for Damage to any Person or to the Premises and to the fixtures, persona! property, and Alterations of either in or on the Premises that are caused by or result from risks insured against under any insurance policies carried by the parties and in force at the time of any Damage or 12-103 required to be carried under this Lease. Tenant shall cause each insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against the City in connection with any Damage covered by any policy of property insurance. Neither party shall be liable to the other for any Damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by the insurance company issuing policies without a waiver of subrogation, the Party undertaking to obtain the insurance shall notify the other Party of this fact. The other Party shall have a period of Twenty (20) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other Pay and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium. The Party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved if the insurance cannot be obtained with a waiver of subrogation or the other Party refuses to pay the additional premium. 12.9 Other Insurance Matters. All the insurance required under this Lease shall: (a) Be issued by insurance companies authorized to do business in the State of California, with a minimum Best Insurance Guide or financial rating of A-VII unless otherwise approved in advance by City Risk Manager; (b) Be issued as a primary policy; (c) Be noncontributing with any insurance that may be carried by City; (d) Contain an endorsement requiring Thirty (30) days written notice from the insurance company to both Parties before cancellation or -29- 12-104 material change in the coverage, scope or amount of the policy; and (e) Tenant shall maintain insurance for all boats being repaired or stored at the Premises to thereby protect City from any liability concerning such third party property located at the Premises. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with City and on renewal of the policy not less than Thirty (30) days before expiration of the term of the policy. Either Party may maintain for its own account any insurance not required under this Lease, but any such policy shall be separate from and non-contributory in the event of loss covered by insurance carried by the Party responsible for said loss as required by this Lease. 13. DAMAGE OR DESTRUCTION OF PREMISES 13.1 Destruction of Premises. If the Premises are totally or partially destroyed, rendering the Premises or any portion thereof totally or partially inaccessible or unusable, Tenant shall restore the Premises, at Tenant's sole cost and effort, to substantially the same condition as immediately prior to such destruction (including all trade fixtures, personal property, improvements and Alterations as are installed by Tenant, which shall be replaced by Tenant at its expense, unless Tenant elects toterminate this Lease under the conditions of this Section 13.1. Tenant can elect to terminate this Lease by giving notice of such election to City within Sixty (60) days after the date of the occurrence of any casualty and also proving to the reasonable satisfaction of City that each of these conditions are satisfied: (a) the cost of the restoration exceeds the amount of any available insurance proceeds by at least twice the Total Annual Rent for the most recent Two (2) completed Lease Years; (b) at the time of such casualty Tenant maintained all insurance required by this Lease; and (c) no act attributable to Tenant voided insurance coverage otherwise available concerning said loss. If the Lease is so terminated: (x) all insurance proceeds applicable to -30- 12-105 reconstruction (excluding Tenant's personal property therein) shall assigned by Tenant to Landlord; (y) Tenant shall pay any policy deductible to City; and (z) quitclaim title to the Premises to City, as conditions of such termination. Notwithstanding such Lease termination, Tenant shall Hold Harmless the City from any expenses, liability or loss regarding damage or loss to boats being repaired or stored by Tenant at the Premises and any other liability or loss incurred by Tenant concerning such casualty and event. 13.2 Replacement of Tenant's Property. In the event of the damage or destruction of improvements located on the Premises not giving rise to Tenant's option to terminate this Lease under Section 13.1, above, Tenant shall, at its own expense, replace and repair all Tenant's trade fixtures, equipment, machinery, furnishings, furniture and inventory as soon as reasonably possible to permit the prompt continuation of Tenant's business at the Premises for the Approved Use. 13.3 Destruction of Balboa Yacht Basin. In the event that all or a portion of the Balboa Yacht Basin or access to the Balboa Yacht Basin in areas to be maintained by the City either under this Lease or because City owns such other areas, is damaged, deteriorates or destroyed by fire or any other casualty not attributable to Tenant nor covered by Tenant insurance and as a result the Premises or a material portion of the Premises becomes inaccessible or commercially unusable for the Approved Use, and the Damage or destruction cannot reasonably be repaired within Twelve (12) months after the date of the casualty, City shall have the right, by notice to Tenant within Sixty (60) days of such casualty, to either: (a) Terminate this Lease by giving to Tenant written notice (which notice shall be given, if at all, within Thirty (30) days following the date of the casualty), in which case this Lease shall be terminated Thirty (30) days following such City notice; or (b) Within Thirty (30) days of such casualty confirm City's intention to repair such damage as soon as reasonably possible at City's _31_ 12-106 expense, in which event this Lease shall continue in full force and effect, however, Rent shall be abated in accordance with the procedures set forth in Section 14, below. Tenant may terminate this Lease by giving City written notice at any time prior to the commencement of repairs if City agrees to repair the Balboa Yacht Basin pursuant to this Section 13.3(b) and City fails to commence repairs within One Hundred Twenty (120) days after giving Tenant written notice of its intention to repair. In such event, this Lease shall terminate as of the date of notice from Tenant to City, and City shall have no further liability to Tenant under this Lease. 13.4 City Liability After Casualty City has no liability to Tenant concerning such casualty or City election to repair or not repair except solely arising under Section 13.1, above. 14. ABATEMENT OF RENT In the event of Damage or destruction of the Premises or Damage to the Balboa Yacht Basin that impacts the Premises and this Lease is not terminated, Tenant shall continue to utilize the Premises for the operation of its business for the Approved Use to the extent it may be practicable and commercially reasonable. Base Rent shall abate in proportion to the area of the Premises that is rendered unusable for the Approved Use. The abatement of Rent shall commence on the date that use of the Premises is impacted and continue until the completion of those repairs necessary to restore full use of the Premises and Tenant's re -opening of the Premises. Tenant's obligation to pay Taxes and other monetary obligations pursuant to this Lease shall not be abated or reduced. Rent shall not abate if the Damage or destruction to the Premises is the result of the negligence or willful conduct of Tenant or its employees, officers or agents. Tenant's right to abatement of Base Rent is contingent on payment -32- 12-107 of insurance proceeds, if any, equal to the amount of Base Rent pursuant to coverage required by Section 12.6, above. 15. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT SUBLETTING AND ENCUMBERING 15.1 Prohibition ❑f Assi nment. The Parties acknowledge that City is entering into this Lease in reliance upon the business experience and abilities of Tenant and its principals to operate the Premises for the Approved Use, Consequently, Tenant shall not voluntarily delegate, assign or encumber its interest in this Lease or in the Premises, or sublease substantially all or any part of the Premises, or allow any other person or entity (except Tenant's Authorized Representatives) to occupy or use all or any part of the Premises without the prior written consent of City, which may be withheld at the sole discretion of the City unless Tenant provides City with evidence reasonably satisfactory to City that the: (a) proposed transferee has financial strength and shipyard/boat repair experience comparable to Tenant so that such proposed assignee will not likely cause the Percentage Rent payable to be less than Percentage Rent paid for the most recent completed Lease Year; (b) the use of the Premises by the proposed transferee is consistent with the terms of this Lease and is for the Approved Use; (c) proposed transferee agrees to assume all current and future Tenant obligations and agrees that the City is not in default of the Lease; and (d) Tenant is not then in Material Default of this Lease. Except as otherwise expressly provided herein, any dissolution, merger, consolidation, reorganization of Tenant, or the sale or other transfer resulting in a transfer of a controlling percentage of the capital stock of Tenant, shall be deemed a voluntary assignment requiring City's consent above except for inter - Family transfer related David L. New. However, the sale or transfer of a controlling percentage of the capital stock of Tenant pursuant to a public offering(s) of equity or debt instruments issued by Tenant, or other transfers of publicly traded capital stock or debt instruments shall not constitute a voluntary assignment and shall not require City's -33- 12-108 consent or approval if there is no change in the management of Tenant's business and if such successor otherwise maintains the Approved Use and satisfies the prior experience and business expertise tests above and is at least as creditworthy as Tenant at the time this Lease is signed. The phrase "controlling percentage" means the ownership of, or the right to vote, stock possession of at least Fifty Percent (50%) of the total combined voting power of all classes of Tenant's capital stock issued, outstanding, and entitled to vote for the election of directors, except for ownership of publicly traded shares, warrants or similar equity interests in Tenant traded on a national exchange or over-the-counter markets. 15.2 Additional Consideration for Extension of Lease (a) Lessee to pay all appraisal and administrative costs associated with Lease extension. (b) If after satisfying City's approval rights in this Section 15 Tenant transfers, sells or conveys, all or any portion or interest in this Lease, Tenant shall pay City Five Percent (5%) of Tenant's gross proceeds of the sale to City upon the day of such transfer and also provide City with a signed copy of the original sale documents and an amendment to this Lease confirming: (i) Tenant's successor's assumption of all current and future Tenant obligations; and (ii) Tenant's continued liability under this Lease, including all obligations of transferee under this Lease. Excluded from such payment obligation is any Inter -Family transfer allowed under Section 15.1 above. 15.3 Exceptions. Notwithstanding the foregoing paragraphs or anything to the contrary contained herein, City's consent shall not be required for a transfer or assignment of any stock or interest by a share holder or member if the Approved Use of the Premises is maintained, Tenant and transferee provide City the Lease amendment -34- 12-109 described in Section 15.2(b), above, if such transfer is to a spouse, children or grandchildren or an assignment or subletting to an Affiliate, Subsidiary, or Successor of Tenant defined as follows: (a) An "Affiliate" is any corporation or other entity which directly or indirectly controls or is controlled or is under common control with Tenant (for this purpose, "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities or by contract or otherwise); (b) A "Subsidiary" shall mean any corporation or other entity not less than Twenty Five Percent (25%) of whose outstanding stock shall, at the time, be owned directly or indirectly by Tenant and which is at least as creditworthy as Tenant; and (c) A "Successor" shall mean a corporation or other entity in which or with which Tenant is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation of corporations or a corporation or other entity acquiring a substantial portion of the property and assets of Tenant. 15.4 Continuing Effect. City's consent to any assignment, encumbrance, or sublease shall not relieve Tenant from its obligations or liabilities under this Lease nor act as a waiver of the requirement that such consent be obtained to any subsequent assignment, encumbrance or sublease. 15.5 Tenant Financing. If Tenant is not then in Material Default, and Tenant gives City Forty Five (45) days advance notice prior to City, then City shall sign a commercial reasonable non -disturbance and attornment agreement from an institutional commercial lender of Tenant's choice, in a form reasonably acceptable to the City -35- 12-110 Aftorney. City's fee and leasehold interest shall be senior to and not security for such Tenant loan. 16. DEFAULT 16.1 Default by Tenant. The occurrence of any one or more of the following events shall constitute a "Material Default" of this Lease by Tenant: (a) The vacating or abandonment of the Premises by Tenant. (b) The failure by Tenant to make any payment of Rent or any other payment required by this Lease, as and when due, when such failure shall continue for a period of Ten (10) days after written notice of default from City to Tenant. (c) The failure of Tenant to observe or perform any of the "material" (meaning costing Five Thousand Dollars ($5,000.00) or more to fully remedy covenants, conditions or provisions of this Lease to be observed or performed by Tenant where such failure shall continue for a period of Thirty (30) days after written notice thereof from City to Tenant; provided, however, that if the nature of Tenant's default is such that more than Thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said Thirty (30) day period and thereafter diligently prosecutes such cure to completion. However, no Thirty (30) day cure period is allowed for any Tenant caused environmental event involving Hazardous Substances at the Premises or otherwise caused by Tenant or Tenant's agents or customers which likely costs Fifteen Thousand Dollars ($15,000.00), or more, to fully remediate. Immediately following any such environmental event Tenant shall use Tenant's best efforts to fully remediate or prove to the reasonable satisfaction of -36- 12-111 City that remediation is underway and will be completed in Ninety (90) days without any risk of further environmental damage to the Premises and/or surrounding area. (d) The making by Tenant of any general arrangement or assignment for the benefit of creditors. (e) Tenant becomes a "debtor" as defined in 11 U-S.C, Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within Sixty (60) days). (f) The appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such appointment is not discharged within Sixty (60) days. (g) The attachment, execution or the judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within Sixty (60) days. 16.2 Remedies. (a) Cumulative Nature of Remedies. If any Material Default by Tenant shall continue to not be cured after notice and the cure period provided under this Lease, City shall have the remedies described in this Subsection, in addition to all other rights and remedies provided by law or equity, to which City may resort cumulatively or in the alternative. (1) Reentry without Termination. City may reenter the Premises, and, without terminating this Lease, re -let all or a portion of the Premises. City may execute any leases made under this provision in City's name and shall be entitled to all -37- 12-112 rents from the use, operation, or occupancy of the Premises. Tenant shall nevertheless pay to City on the dates specified in this Lease the equivalent of all sums required of Tenant under this Lease, plus City's expenses in conjunction with re -letting, less the proceeds of any re -letting or attomment. No act by or on behalf of City under this provision shall constitute a Termination of this Lease unless City gives Tenant specific notice of Termination. (2) Termination. City may terminate this Lease by giving Tenant notice of Termination. In the event City terminates this Lease, City may recover possession of the Premises (which Tenant shall surrender and vacate upon demand) and remove all Persons and property. City shall be entitled to recover the following as damages: (i) The value of any unpaid Rent or other charges that are unpaid at the time of Termination; (H) The value of the Rent and other charges that would have accrued after Termination less the amount of Rent and charges the City received or could have received through the exercise of reasonable diligence as of the date of the award; (iii) Any other amount necessary to reasonably compensate City for the detriment proximately caused by Tenant's failure to perform its obligations under this Lease; and -38- 12-113 (iv) At City'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. City shall be entitled to interest at the rate of Ten Percent (10%) per annum on all Rent and other charges from the date due or the date they would have accrued. City shall also be entitled to an award of the costs and expenses incurred by City 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 Tenant. (3) Use of Tenant's Personal Property. City may use Tenant's personal property and trade fixtures located on the Premises or any of such property and fixtures without compensation or liability to tenant for use or damage. In the alternative City may store the property and fixtures at the cost of Tenant. City shall not operate the Premises in any manner tending to indicate that the Premises is affiliated with, part of or operated in conjunction with Tenant's business. (b) City's Right to Cure Tenant's Default. Upon continuance of any material default beyond applicable notice and cure periods, City may, but is not obligated to, cure the default at Tenant's cost. If City pays any money or performs any act required of, but not paid or performed by, Tenant after notice, the payment and/or the reasonable cost of performance shall be due as additional Rent not later than Five (5) days after service of a written demand accompanied by supporting documentation. No such payment or -39- 12-114 act shall constitute a waiver of default or of any remedy for default or reader City liable for any loss or damage resulting from performance. (c) Waiver of Rights. Tenant 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, in the event Tenant is evicted or City takes possession of the Premises by reason of any default by Tenant. 17. CONDEMNATION 17.1 Termination of the Lease. Tenant or the City shall have the right to terminate this Lease as of the date a public agency with lawful authority to condemn obtains possession or title to Ten Percent (10%), or more of the land area at the Premises, or the condemnation materially affects the conduct of Tenant's business in the Premises, or the Premises will no longer be suitable for the conduct of Tenant's business for the Approved Use. In the event of Termination pursuant to this Subsection, Base Rent shall be prorated to the date of Termination, any unearned Rent shall be refunded to Tenant and Tenant shall have no further obligations under this Lease. Tenant shall not grant a right of entry to any conderrinor without the written consent of City. 17.2 No Termination of Lease. If this Lease is not terminated under Section 17.1, above, then this Lease shall terminate as to the portion of the Premises taken upon the date which possession of said portion is taken, but this Lease shall continue in force and effect as to the remainder of the Premises. Tenant shall, in the event of a taking of any portion of the Premises, be entitled to a reduction in the Base Rent in reasonable proportion to the area of the Premises so taken verses its impact on Tenant's continued operations for the Approved Use. 12-115 17.3 Allocation of Award. In the event that an award is made for an entire or partial taking or for damage to the Premises or any interest therein in any action in direct or inverse condemnation or in the event of a taking under the power of eminent domain, the Parties hereto agree that their respective rights to the award or compensation paid shall be as follows; (a) City shall be entitled to that Portion of the award received for the taking of the real property within the Premises, the value of this leasehold, including all buildings and other improvements to which City is entitled on Expiration or Termination of this Lease, and for severance damages. (b) Tenant shall be entitled to any award that may be made for the taking of or injury to Tenant's business and profits, including any amount attributable to Tenant's personal property, fixtures, installations, or improvements in or on the Premises, Tenant's relocation expenses, but excluding any "bonus value" attributable to this Lease. (c) Any interest payable on the total award shall be divided between City and Tenant in the same ratio as are the awards granted to them pursuant to the other provisions of this Section. 18. SUBJECT TO STATE LANDS COMMISSION GRANT The Premises are located on property that is the subject of a grant from the State of California to the City that is administered by the State Lands Commission. Tenant shall not tape any action that would cause the City to be in violation of any provisions of that grant. If the State Lands Commission terminates this grant for any reason or prevents the Premises from being used for the Approved Use, this Lease terminates as a result and the Parties shall be released from all liabilities and obligations under this Lease. _4.1 _ 12-116 19. WASTE OR NUISANCE Tenant shall not commit or permit the commission of any waste on the Premises. Tenant shall not maintain, commit, or permit any nuisance as defined in Section 3479 of the California Civil Code on the Premises. Tenant shall not use or permit the use of the Premises for any unlawful purpose. 20. PRIOR TENANT USE AND HAZARDOUS MATERIALS The Parties acknowledge that Tenant has been in possession of the Premises pursuant to the provisions of a Lease since September 20, 1973. Tenant represents and warrants that, to the best of Tenant's knowledge: (i) Tenant's continued use of the Premises does not conflict with applicable Laws; (ii) the Premises is not and has not been operated in violation of any environmental laws, rules or regulations and Tenant's contemplated uses will not cause any such violation; and (iii) the land underlying the Premises is free of any and all Hazardous Materials as of the date of this Lease caused by the Tenant. In the event that the presence of any Hazardous Material caused by Tenant is detected in the land underlying the Premises or the bay or any tidelands' areas adjacent to this Premises at any time during the Term of this Lease and any Option Term all remedial or clean up work shall be immediately performed by Tenant at Tenant's expense to fully remediate such environmental condition so that the Premises and such affected area(s) are promptly brought into full compliance with all Laws. This clause and this lease does not restrict or limit Tenant's right to lawfully use Hazardous Materials on the Premises, if in strict conformance with all Laws. 21. CITY'S DEFAULTSfTENANT'S REMEDIES City shall be in Material Default it it fails to perform, or commence performance if Tenant gives notice of nonperformance specifying the nature of such default and/or City nonperformance and City either does not cure such noticed items) within Thirty (30) days or City does not commence such cure performance within said Thirty (30) days -42- 12-117 and then.diligently completes said cure to City's reasonable best efforts. In the event of City's Material Default, Tenant may: (a) Upon Fifteen (15) days notice to City cure any such default by City and City shall reimburse Tenant the amount of all costs and expenses incurred by Tenant in curing the default, together with interest and expenses at the maximum rate then allowed by law; (b) Terminate this Lease if City's default materially interferes with Tenant's use of the Premises for their intended purpose and City fails to cure such default within Fifteen (15) days after a second demand by Tenant in which case Tenant shall have no further or continuing obligations and City shall have no liability to Tenant; or (c) Commence an action for specific performance and recover costs and expense, including reasonable attorney fees if Tenant is the prevailing party. 22. NOTICES Any notice, demand, request, consent, approval or communication that either Party desires or is required to give shall be in writing and shall be deemed given Three (3) days after deposit into the United States registered mail, postage prepaid, by registered or certified mail, return receipt requested or upon delivery if personally served or upon transmission if sent by facsimile. Unless notice of a different address has been given in accordance with this Section, all notices shall be addressed as follows: If to City: CITY OF NEWPORT BEACH Attention: City Manager 3300 Newport Boulevard Newport Beach, CA, 92658 Facsimile: 949-544-3029 If to Tenant: BASIN MARINE, INC_ Attention: David L. New 829 Harbor Island Drive, #1 Newport Beach, CA, 92660 -43- 12-118 Facsimile: 949-673-4625 23. SURRENDER OF PREMISES At the Expiration or earlier Termination of this Lease, Tenant shall surrender to City the possession of the Premises. Tenant shall leave the surrendered Premises, required personal property and fixtures in good and broom -clean condition, reasonable wear and tear excepted. All property that Tenant is not required to surrender, but that Tenant does abandon shall, at City's election, become City's property at Expiration or Termination. 24. WAIVER The waiver by City or Tenant of any breach of this Lease by the other shall not be deemed to be a waiver of any term, covenant, or condition or any subsequent breach. The acceptance of Rent by City shall not be deemed a waiver of any breach by Tenant other than the failure to pay the particular rent accepted. 25. PARTIAL INVALIDITY If any term or Provision of this Lease is declared invalid or unenforceable, the remainder of this Lease shall not be affected. 26. GOVERNING LAW This Lease shall be governed by the laws of the State of California. Neither City's execution of this Lease nor any consent or approval given by City in its capacity as landlord shall affect City's powers and duties as a governmental body. Any consent or approval Tenant is required to obtain from City pursuant to this Lease is in addition to any permits or approvals Tenant is required to obtain pursuant to law or ordinance. However, City shall attempt to coordinate its procedures for giving contractual and govemmental approvals so that Tenant's requests and applications are not unreasonably denied or delayed. 27. ENTIRE AGREEMENT,• MODIFICATION -44- 12-119 This Lease contains the entire agreement between the Parties. No verbal agreement or implied covenant shall be held to vary the provisions of this Lease. Each Party has -elied on its own inspection of the Premises and examination of this Lease, the counsel of its own attorney or other advisors, and has a complete understanding of the overall warranties, representations, and covenants in this Lease. The failure or refusal of either Party to inspect the Premises, to read this Lease or other documents, or to obtain legal or other advice relevant to this transaction shall not be the basis for later claim that all or part of this Lease is not enforceable or was not understood by a Party when this Lease was signed. No provision of this Lease may be amended or varied except by an agreement in writing signed by the Parties or their respective Successors. Upon execution of this Lease by both Parties, the OLD Lease will be terminated and of no further force and effect. 28. TIME OF ESSENCE Time is of the essence with respect to the performance of every Provision of this Lease in which time of performance is a factor. All time deadlines are meant to be strictly construed. A "day" means a calendar day, with extension if a deadline occurs on a weekend or day when banks are not open in California. 29. SUCCESSORS Subject to the Provisions of this Lease on assignment and subletting, each and all of the covenants and conditions of this Lease shall be binding on and shall inure to the benefit of the heirs, successors, executors, administrators, assigns, and personal representatives of the respective parties. 30. NO BROKERS Each party warrants to and for the benefit of the other than it has had no dealings with any real estate broker or other agent (attorneys excepted) in connection with the negotiation or making of this Lease, and that no commission, fee or other compensation is owed regarding this Lease by such other Party. -45- 12-120 31. GENDER; NUMBER The neuter gender includes the feminine and masculine, the masculine includes the feminine and neuter, and the feminine includes the neuter, and each includes corporation, partnership, or other legal entity whenever the context requires. The singular number includes the plural whenever the context so requires. 32. EXHIBITS All exhibits to which reference is made in this Lease are incorporated by reference. Any reference to "this Lease" includes matters incorporated by reference. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first written above. ATTEST: }}��,, Uol. La onne Harkless City Clerk Am= V 1 D AS TO FORM: R i . Clauson Assistant City Attorney F:\userslcatlshared\da\BaiboaYachtBasinW80601 Final. doc CITY OF NEWPORT BEACH ("City"), a Municipal Corporation By:AVd0&-M Garold B. Adams, Mavo BASIN A!R1 E, INC. A Caiifo iorporation ("Tenant") By: D id L. New It : President By: o 4 ? &,j, Beatrice E. New Its: Secreta and Treasurer 12-121 3 3' . 404 7 0-5 18 o a la �74-jam ',aW E !1. AL PrEF•VE.dG L riV4!Lr CITY OF N EWPORT BEACH PUBLIC WORKS DEPARTMENT A ONAWN� OATE APPROVED 9 PUSUC WORKS DIRECTOR R NO. DRAWING 12-uz- IV EVNPC]fiT ®E ^4--" smear-n�.� s t��o 82P Harhur Wand Drire • 3K"m Be" • CsJifurniil Si'_bW ("]4i 6 n. -U3w • F%x {714) 6",3•136Z5 SALES' VOLUME REPORT Kmm CITY OF ; IEWPIORT BEACH ?INAAiCE DEPARTMENT 3300 NEWPORT BLVD. NEWPORT BF-ACH, CA 92663 MAY I THRU MAY 31. z400 C S Al% !. ACCOVN7S RECEIVABLE SALES S 174,549.15 04% S 6AI-93 2. STORE SA.T.ES 5 3,112.40 03% 3 163.62 3. OUTSIDE LABOR AND MATERIALS S 2,573.87 ? o% S 257.39 4. TOTAL (ADD LINE I,; , A 3 & 180,234.42 S 7,40 4.94 % - S. LESS M1NW..'M RENTAL PAID FOR PU-IU 7D C<)VBR= 4,266.66 6. TOTAL PERCENTAGE RENT PAYABLE S 3.138.28 7, OTHER PAYNMN79 INCLUDE: NIA MINIMUM RENT FOR CURRUN'T PERIOD S 4,266.66 8. TOTAL AMOUNT DUE ON THE : S 7,404.94 L-ESSa. BASIN MARINE, INC. BY: DA -E: r _ EXHIBIT 12-123 r 829 Harbor Island Drive -Newport Beach -California 92660-(949) 673-0360-Fax(949) 673-0625 BASIN MARINE,. INC. SUXWARY OF ANNUAL RENTAL REPORT 2000 ACCOUNTS OUTSIDE RECEIVABLE LABOR AND SALES STORE SALES MATERIAL GROSS SALES: $ 2,473,434.31 $ 42,216.07 $ (20,697.15) RECOVERY: NIA NIA NIA RENTAL %: 4% 5% 10% SUBTOTAL SALES: (SEE SCHEDULE A' SUBTOTAL PAID: (SEE SCHEDULE 91 BALANCE. $ 98, 93T37 $ 2,110.80 $ TOTA 2,494,953.23 - $ 101, 048.17 $ 92,755.87 $ 2,047.44 $ 13,368,74- $ 108,170.05 $ 8,181.50 a 63.36 $ (13,366.74) $ (7,121.88) SUMMARY: SCHEDULE A: TOTAL DUE SCHEDULE B: TOTAL PAID TOTAL DUE OR (CREDIT DUE) $ 101,048.174- $ 108,17 D.05 $ (7,121,88) F I I -I T D I T 12-124 Attachment C Tenant Lease Renewal Letter 12-125 NEWPOFiT BEACH 821) Harbor Bland Drive • Newport Bo,,ich, Ci lifornia 92660 • Phone (949) 673-0360 • Fax (949) 673-0025 June 28, 2023 Lauren Wooding CITY OF NEWPORT BEACH 100 Civic Center Drive Newport Beach, CA 92660 SUBJECT: BASIN MARINE, INC. LEASE RENEWAL Dear Lauren Wooding and City of Newport Beach: I hope this fetter finds you well. As a third -generation single family owned and operated shipyard established in 1939, Basin Marine Shipyard takes immense pride in our long-standing presence in the Newport Beach community. We are writing to formally request the extension of our Lease with the City, which has been continually in effect since 1984, so our family business can continue our operation and long-time horizon enabling replacement of equipment and needed repairs, providing first-class shipyard service, our boating customers have come to expect and require for many years. In review of the City appointed real estate appraisal completed by Curtis -Rosenthal, Inc. in December 2020, we note that it was completed based on the property being a (MU) Mixed Use and a Zone Change. This is of great concern to us. If there were to be a zone change, our business and the entire boating community would be in jeopardy. Basin Marine is located at the "Balboa Yacht Basin" located on the State of California Tidelands Grant. It is zoned as (PF) "Special Purpose Zoning/Public Facilities". Our site, owned by the City, has been solely used as a vitally important shipyard and marine hardware store, continuously since 1939 at 829 Harbor Island Drive. Basin Marine is a third -generation company established in 1939 by Don New, and currently owned, operated, and managed daily on the premises by both Dave New and son Derek New. Newport Harbor is one of the largest recreational boat harbors on the U.S. Coast, with more than 9,000 vessels in our Harbor. Basin Marine each year services more than a third of those vessels here. According to the City, the boating community brings in more than $1 Billion in revenue to the City and Our Harbor is referred to as the "Jewel of the City". If the Harbor is the jewel, then Basin Marine is the essential "Gold Band" which keeps boats here in operating condition. Our facility, shipyard operation experience, tidelands compliance, in -place governmental permits usable only at our site, and required harbor access would, we firmly believe, be almost impossible to replace in our Harbor. We view our present location as the only viable one in our Harbor for our continued operation due to the numerous permits we maintain to operate our complicated and heavily regulated C:VUserslDavelAppDatalLocallMicrosoftlWindows\lNetCachelContent.OutlooklXADHIO661230628 - CNB LISA VERSION - appraisal - JH -_ (002).doc Page 113 12-126 shipyard operations, our continual good -standing in the eyes of our many nearby residential neighbors, the almost impossibility of finding another industrial shipyard site on the bay front with our required boat transport truck access, the likely local opposition to a new site being considered for a commercial shipyard, the hard struggle to obtain the increasing more stringent governmental shipyard operation and also material permits, and simply because our large, long-standing, shipyard customers with boats here in our Harbor require and expect us to be here to provide future shipyard services for them over the long haul. Our leased premises are governed by the California Tidelands rules which also mandate the City, as the landowner, use it for visitor serving uses, and our shipyard, we contend, provides an essential boat related services for a large portion of our boating community. here, which could not be replaced by other smaller existing shipyards or by any future one. Basin Marine is an essential long-term proven shipyard service provider, required for many reasons, for our Harbor. Basin Marine is one of 5 shipyards operating in our Newport Harbor. But Basin Marine is unique and essential because it services more boats annually than any of the other operating shipyards. Basin Marine has built volume over past decades under its Lease with the City, providing essential services to boaters here. Basin Marine has a loyal workforce of over 30 highly skilled employees with combined year's employment with us of over 375 years. Additionally, we engage the expertise of more than 50 subcontractors, each possessing unique trade experience, ensuring the highest quality workmanship, customer service, first-class maintenance, and repair. This is continually confirmed by our long-term repeat customers, which depend on us to maintain their boats, and demand us to keep our shipyard facilities, equipment, and repair techniques top-notch. In addition to providing essential boat shipyard services, Basin Marine actively engages in community initiatives, supporting local events, yacht club events, and many charities building valuable relationships with stakeholders in the harbor as well as the boating community. The lease term extension ensures our family owned and operated shipyard is here long-term, reinforces the City's policy and commitment to the success and stability of essential Harbor businesses, relied upon by our customers, which in turn bolsters the overall premier reputation of our Harbor. Our dedication has earned us a strong reputation among boaters, yacht owners and manufacturers, not only in Newport but across the United States. Basin Marine serves a boating community that extends beyond our Harbor, encompassing over 5 counties, (Orange, San Diego, San Bernardino, Los Angeles, and Ventura). This positively impacts tourism, local businesses, and the overall desirability of Newport Harbor as a boating destination. Providing reliable and timely marine services has resulted in a loyal customer base of well over 4,000 that rely on us year after year, 3,000 boats repaired in our yard, and approximately 1,000 more boats which use our unique bayfront truck yard and crane to launch into our Harbor. The numerous governmental and regulatory requirements of a shipyard are of utmost importance in our harbor. Basin Marine has vast experience and has continually complied with EPA,.AQMD, Water Quality Board, and other County regulations such as the OC Fire Department. Under our long lease with the City of Newport Beach, the City has benefited from our steadily increasing minimum base rent, plus a percentage of our gross sales. Rent payments have been paid C:lUserslDavelAppDatalLocallMicrosaftlwindowsUNetCachelConteni.OutlooklxADHfd68L230628 - CNB LISA VERSION - appraisal - JH -_ (002).doc Page 2 /3 12-127 without fail, on time, and confirmed with multiple successful audits of our sale reports. Our minimum base rent has also increased every 3 years according to a formula in place for many years now, so the City is guaranteed its minimum rent, not related to our sales, continually goes up. In addition to the obligation to pay Rent, Basin Marine provides these services for the City AT OUR SOLE EXPENSE as follows: 1. Haul out and re -launch, each year up to (10) of the vessels owned and maintained by the City. 2. Transport and rack those vessels in our work yard suitable for repairs and maintenance. 3. Allow each vessel to remain here for up to 2 weeks after haul out. 4. Allow City employees and repairmen to do repairs and maintenance. 5. Separately, provide emergency haul out and containment services, at the City's request, for immediate removal of vessels or other large objects that pose an environmental or other hazards in our Harbor. Basin Marine constructed the building, and maintains all improvements, (excluding the bulkheads extending to the bay), at no cost to the City. Time is of the essence in renewing our lease. The most important piece of equipment we own is the Travel Lift which hauls the vessels in and out of the water and is used hourly in our daily operation. Our 50 ton Travel Lift is near the end of its life, and it is necessary to order a custom built lift at the cost of over $900,000 and a lead time of one year to build. It is imperative that we have this equipment, and we are not able to finance it without a long-term lease. Given our deep-rooted history, extensive experience, unwavering trustworthiness, and vital role in serving the boating community, we request the City's extension of the term of our existing lease. Basin Marine Shipyard is necessary for the continued successful boat serving operation of our Harbor. Our shipyard's long-standing contributions to the local economy, employment opportunities, and satisfaction of thousands of boaters each year are all factors which underscore Basin Marine must have its continued operation at our present site owned by the City safeguarded by its Lease being extended Thank you for your time and consideration. Sincerely, N MARINE, INC. David L. New President C:1Users\DaverAppData\Local%MicrosoftlWindowsSlNetCachelContent.OutlooklxADHIO661230628 - CNB LISA VERSION - appraisal - JH -_ (002).doc Page3/3 12-128 Attachment D City Council Policy F-7 12-129 F- 7 INCOME AND OTHER PROPERTY The City owns and manages an extensive and valuable assortment of property including streets, parks, beaches, public buildings and service facilities. The City also owns or ground leases and/or operates a yacht basin, resort hotel and apartment property, a luxury residential development and various other income - producing properties. Much of the income property is tidelands, filled tidelands or waterfront. Unencumbered fee value of income property is substantial. As owner/manager of property, the City is the steward of a public trust, and state law requires the City to maximize its returns on state -managed property or be subject to a charge of making a gift of public funds. Nevertheless, the City Council recognizes the importance of this property not only as a revenue generator, but also as a means to provide otherwise financially less feasible uses and facilities that benefit the community. In managing its property, the City will continually evaluate the potential of all City owned property to produce revenue. This may include leasing or licensing unused land, renting vacant space, and establishing concessions in recreation areas or other similar techniques. The City Council will evaluate the appropriateness of establishing new income generating opportunities on City controlled areas using sound business principles and after receiving input from neighbors, users and the public. The policy of the City Council is that income and other property be held and managed in accordance with the following: A. Whenever a lease, license, management contract, concession or similar action regarding income property is considered by the City, an analysis shall be conducted to determine the maximum or open market value of the property. This analysis shall be conducted using appraisals or other techniques to determine the highest and best use of the property and the highest income generating use of the property. B. All negotiations regarding the lease, license, management contract, concession, or similar action regarding income property shall include review of an appraisal or analysis of the use being considered for the property conducted by a reputable and independent professional appraiser, real estate consultant, or business consultant. C. The City shall seek, whenever practical and financially advantageous, both in the short and long term, to operate or manage all property and facilities directly with City staff or contractors, provided staff have the expertise needed to competently do so, or to oversee the work of contractors. D. In most negotiations regarding the lease, license, management contract, concession, or similar action regarding an income or other property, the City shall seek revenue equivalent to the open market value of the highest and best use; and, whenever practicable the City shall conduct an open bid or proposal process to ensure the highest financial return. 1 12-130 F- 7 E. However, in some circumstances the City may determine that use of a property by the public for recreational, charitable or other nonprofit purpose is preferred and has considerable public support, in which case the City may determine that non -financial benefits justify not maximizing revenue from such property. In such circumstances, the City has a vested interest in ensuring that the lessee of such property operates the activities conducted on or from the property in the manner that has been represented to the City throughout the duration of any lease or contract with the City. F. Whenever less than the open market or appraised value is received or when an open bid process is not conducted, the City shall make specific findings setting forth the reasons thereof. Such findings may include but need not be limited to the following: The City is prevented by tideland grants, Coastal Commission guidelines or other restrictions from converting the property to another use. 2. Redevelopment of the property would require excessive time, resources, expertise and costs, which would outweigh other financial benefits. 3. Converting the property to another use or changing the operator, manager, concessionaire, licensee, or lessee of the property would result in excessive vacancy, relocation or severance costs, real estate commissions, tenant improvement allowances, expenses or rent concessions which would outweigh other financial benefits. 4. Converting residential property to another use or opening residential leases to competitive bid would create recompensable liabilities and other inequities for long-term residents. 5. The property provides an essential or unique service to the community or a clearly preferred use that enjoys substantial support in the community that might not otherwise be provided were full market value of the property be required. 6. The property serves to promote other goals of the City such as affordable housing, preservation of open space, uses available to the public or marine related services. G. Generally, lengths of licenses, leases, management contracts, concessions, or similar agreements will be limited to the minimum necessary to meet market standards or encourage high quality improvements and will contain appropriate reappraisal and inflation protection provisions. Also, all agreements shall contain provisions to assure complete audits periodically through their terms. H. All negotiations regarding the license, lease, management contract, concession or similar action regarding income property shall be conducted by the City Manager or his/her designee under the direction of any appropriate City committees. I. To provide an accurate accounting of actual net revenues generated by the City's income property, all costs directly attributable or allocable to the management of a specific income property shall be charged against the gross revenues collected on that property in the fiscal year the costs are incurred. Costs so chargeable include, but are not limited to, property repairs and maintenance, property appraisals, and consultant fees, as authorized by the City Council, City Manager, or by this Income Property Policy. 12-131 F- 7 J. The City Manager or his/her designee is authorized to sign a license, lease, management contract, concession, or similar agreement or any amendment thereto, on behalf of the City. Notwithstanding the foregoing, the City Manager or his/her designee, or a City Council member, may refer any license, lease, management contract, concession or similar agreement or any amendment thereto, to the City Council for its consideration and/or action. K. The City's portfolio of quality income producing properties adds an element of diversification to a portfolio otherwise invested primarily in financial assets. Certain of those income properties are restricted from sale by their terms of grant, state agency regulations or rules, other federal and state guidelines, private covenant or agreement or otherwise. For those properties not so restricted from sale, an analysis shall be prepared to determine the following prior to such income producing property being offered for sale: 1. The maximum open market value of the City's interest in the property in its as is condition. 2. If the property is in an important location, a determination of the possible future consequences of the City no longer controlling that property. 3. If the current rent is contractually low and significant rent increases are likely within a finite period. 4. The likelihood of significant increases in the ability of the property to generate income after the expiration of any current lease of the property. 5. The likelihood of a lease extension being requested by the tenant and the ability to substantially increase rents or require significant improvements to enhance the utility and the value of the property as consideration for granting such an extension. 6. The value of the revenue stream from (i) lease income over the life of an existing lease and/or (ii) likely lease revenue if an existing lease were to be renewed or the property re -let to a different tenant; and/or (iii) lease income from the property if it were to be converted to its highest and best use, compared with the financial benefits of the use of the proceeds of a sale and if, considering the totality of the circumstances, such use of the proceeds of a sale is preferable to retaining the property in question. History Adopted F-24 — 7-27-1992 Amended F-24 — 1-24-1994 Amended F-7 — 2-27-1995 Amended F-7 — 2-24-1997 Amended F-7 — 5-26-1998 Amended F-7 — 8-11-2009 Amended F-7 — 5-14-2013 Amended F-7 — 2-12-2019 Amended F-7 — 11-14-2023 3 12-132 Attachment E Appraisal Report 12-133 0 AjoCURTIS- R OSENTHAL,INC. REAL ESTATE ,,PPRAISAL & CONSULTINO GIJRTIS-R�SENTHAL,1Nc. REAL'jff ESTATE APPRAISAL �c CDNSLJLTING Basin Marine, Inc 829 Harbor Island Drive, Newport Beach, CA 5901 W. Century Blvd., Suite 1230 Los Angeles, CA 90045 T: 310.215.0482 F: 310.215.3089 www.CurtisRosenthal.com 12-135 CURTIS-RRPEPM�!TNINC. REAL Est E AI�ING December 9, 2020 Lauren Wooding Whitlinger, Real Property Administrator City of Newport Beach, Community Development Department 100 Civic Center Drive, Newport Beach, CA 92660 RE: APPRAISAL REPORT Basin Marine, Inc 829 Harbor Island Drive, Newport Beach, CA CR File # 14558-20 Dear Ms. Whitlinger, Per your request, we have appraised the above -referenced property. Our appraisal is intended to conform to: • The Uniform Standards of Professional Appraisal Practice (USPAP) Our analyses and conclusions are contained in this Appraisal Report which is intended to comply with the reporting requirements set forth in USPAP Standards Rule 2-2. In conformance with the Scope of Work rule of USPAP, the sections below describe the Scope of Work for this assignment. Client - The client for this assignment is City of Newport Beach, Community Development Department, c/o Lauren Wooding Whitlinger, Real Property Administrator. Intended User - The intended user of this report is exclusively the Client. There are no other authorized users of this report. Intended Use - The intended use of this assignment is to assist the City with negotiations to renew the lease agreement with current tenant Basin Marine, Inc. Purpose of this Assignment - The purpose of this assignment is to estimate the Fair Market Rent Value, as defined in the Addenda, of the ownership interest(s) in the subject property stated in the valuation table below, as of the stated effective date(s) of value. Effective Date of Value - The valuation table below includes the date of value for each valuation premise included in this assignment. 5901 W. Century Blvd., Suite 1230 Los Angeles, CA 90045 T: 310.215.0482 F: 310.215.3089 www.CurtisRosenthal.com 12-136 Ms. Lauren Wooding Whitlinger Page 2 Relevant Characteristics of the Subject Property - The subject property is the Basin Marine, Inc. at 829 Harbor Island Drive, Newport Beach and is owned by the City of Newport Beach. The APN # is 050-431-25 and contains 32,990.71 square feet of Landside Area and 9,071.4 square feet of water portion with a total of 42,062.11 square feet or 0.9656 acre. This parcel is within the Balboa Yacht Basin. Basin Marine Inc. is the current tenant of the property. The main structure is a commercial showroom/retail store selling items and hardware related mostly to yachts/ sailing/boating, plus boat slip rentals, and shipyard repairs. The building also houses unisex restroom, breakroom, accounting office, private executive office, yard office, carpenter's shop, mechanic's shop, and shipyard employees' locker, and restroom. The Site Plans received from the client show the building contains 3,560 square feet. The exterior area is shipyard with concrete slab decking, hoist equipment to extract the yachts from the water onto drydock for repairs, painting, and refinishing of fiberglass material. The shipyard has water treatment with "Living Water Environmental M-CAT" automated system. The City of Newport Beach Planning Department zone for the subject property is Special Purpose Zoning/Public Facilities (PF). Analytical Approach- Our analysis included an inspection of the subject property, research of general data relating to the subject locale, research of transactions in the subject market area, as well as research of other market -related influences affecting the subject property. In our analysis, we gave consideration to the applicability of each of the traditional approaches to value including the Cost, Sales Comparison, and Income approaches. The methodology and data used in our valuation of the subject property are detailed in the Valuation Section of this appraisal report Conditions of this Assignment - The analyses and conclusions in this assignment are subject to the Scope of Work described above, the General Assumptions and Limiting Conditions that are contained within this appraisal report, and the following: • Extraordinary Assumptions, which USPAP defines as assignment -specific assumptions as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser's opinions or conclusions. 1. The subject site is zoned PF, Public Facility land uses. After discussions with City of Newport representatives, it is our opinion that the highest and best use of the subject site "as if vacant" is Mixed Use (MU) Commercial/Residential zone. • Hypothetical Conditions, which USPAP defines as conditions directly related to a specific assignment, which are contrary to what is known by the appraiser to exist on the effective date of the assignment results but are used for the purpose of analysis. 1. None • Special Limiting Conditions, which are assignment -specific conditions that limit the use of the report. 1. Market concerns regarding the COVID-19 coronavirus have resulted in substantial volatility in the capital markets, increasing uncertainty in the real property marketplace. It is difficult to predict what may happen in the capital markets going forward. As a result, it is difficult to predict what may happen to real property values over time. Our valuation of the subject property considered the best information that was available at the time of our analysis. Due to on -going volatility in the marketplace, users of this appraisal should consider the current market uncertainty when determining the level of confidence, they choose to place on these analyses Z_ rCURTIS-R❑SENTHAL,INC. 12-137 Ms. Lauren Wooding Whitlinger Page 3 and conclusions. Users are reminded that the appraisal conclusions in this report are effective as of the state dates) of valuation. Significant Valuation Issues- The following are assignment -specific issues which we found to be significant in this valuation assignment. 1. As discussed previously, the current/ongoing Covid-19 global pandemic is having reported impact on financing rates/lender spreads, lowered loan -to -value (LTV) ratios, landlord and tenant cash flows, etc. Given the rapidity of events related to the pandemic that have affected real estate sales, the present risks (as of the effective date of value) appear to be financing related and broad uncertainty in global/national/local economics in the near term. This being the case, price/value discounting for the subject is prudent. 2. Only the site improvements pertaining to the real estate are considered in this valuation. The furniture, fixtures and equipment within the parcel are not included in the valuation of this appraisal. 3. Reportedly, the State of California will not allow residential uses in the filled tideland areas (land held intrust). (source: Lauren Wooding Whitlinger) As a result of our investigation and analysis, the table below presents our Fair Market Rental valuation opinion(s) for the subject property as of the stated effective dates) of valuation. Fair Market Rent Value Leased Fee 10/21/2020 $492,000 Thank you for the opportunity to have been of service to you. If you have any questions regarding the material presented in this report, or if you require any further assistance please give us a call. Sincerely, CURTIS-ROSENTHAL, INC. Joe J. Villegas, MAI David M. Rosenthal, MAI, FRICS CA #AG004648 CA #AG001641 jvillegas@curtisrosenthal.com drosenthal@curtisrosenthal.com ff.,—Avr-URTIS-R❑SENTHAL,INC. 12-138 Ms. Lauren Wooding Whitlinger Page 4 Table of Contents EXECUTIVE SUMMARY..................................................................................................................................1 MARKET AREA ANALYSIS............................................................................................................................... 2 NeighborhoodDescription......................................................................................................................15 PropertyMarket Overview.....................................................................................................................19 SITEDESCRIPTION.......................................................................................................................................29 IMPROVEMENT DESCRIPTION....................................................................................................................37 HIGHEST AND BEST USE..............................................................................................................................56 VALUATION TECHNIQUES AND METHODOLOGY........................................................................................58 Valuation Methodology Used in This Assignment ..................................................................................59 COSTAPPROACH......................................................................................................................................... 60 LandValuation........................................................................................................................................61 FAIR MARKET RENTAL VALUE.....................................................................................................................79 RECONCILIATION......................................................................................................................................... 80 EXPOSURETIM E.......................................................................................................................................... 82 CERTIFICATION............................................................................................................................................83 ADDENDA.................................................................................................................................................... 84 -URTIS-ROSENTHAL,11N REAL ESTATE APPRAISAL & CONSULTING 12-139 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 1 EXECUTIVE SUMMARY PROPERTY IDENTIFICATION: Balboa Yacht Basin 829 Harbor Island Drive Newport Beach, CA 92660 FILE NUMBER: 14558-20 INTENDED USER: City of Newport Beach, Community Development Department c/o Lauren Wooding Whitlinger Real Property Administrator LEGAL DESCRIPTION: Refer to Legal Description ASSESSOR PARCEL NUMBER & LAND AREA: APN: 050-431-25 Land 0.9656 acre/42,062.11 square feet 32,990.71 sq.ft, landside/9,071.4 sq.ft. water Building 3.560+/- square feet total. 2,300 sq.ft. Showroom/1,260 sq.ft. shops PROPERTY TYPE: Retail Sales, Offices, Repair Shop/Shipyard ZONING: Special Purpose Zoning District Public Facilities (PF) HIGHEST AND BEST USE: As If Vacant Mixed -Use Commercial/Residential CRITICAL DATES: Date of Inspection October 21, 2020 Date of Value October 21, 2020 INTEREST APPRAISED: Lease Fee Fair Market Rent Value OPINION OF VALUE CONCLUSION LEASED FEE VALUE FAIR MARKET RENT VALUE: $ 492,000 Our analyses and conclusions are based on the described Scope of Work and the General Assumptions and Limiting Conditions that are made a part of the attached appraisal report. ,ffCURTIS-ROSENTHAL,INC. 12-140 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 2 MARKET AREA ANALYSIS GREATER LOS ANGELES AREA Components of Greater Los Angeles The Los Angeles Metropolitan Area is widely considered to comprise the five counties of Los Angeles, Orange, Riverside, San Bernardino, and Ventura. The map below shows the components of Greater Los Angeles, which form four -Metropolitan Statistical Areas (MSA). These are as follows: Los Angeles, Orange County, Oxnard -Ventura, and Riverside -San Bernardino. A map of the region is located below. Counties Comprising the Los Angeles Region San Bernardino County Ventura County Los Angeles County �Or County Riverside County The region is well served by several international airports (including Los Angeles International), Amtrak (the national passenger rail service), and several east -west and north -south interstate highway systems. Intra-regional transportation service includes a network of freeways, a commuter rail system, several bus systems, and a small but growing system of "subway" and "light -rail" trains. ff7—r-URTIS-ROSENTHAL,INC. 12-141 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 3 ORANGE COUNTY Orange County is in the heart of Southern California, with Los Angeles County to the north and San Diego County to the south. There are currently 34 cities within the county, which extends north to the cities of La Habra and Brea, east to the city of Rancho Santa Margarita, west to the cities of Los Alamitos and Seal Beach, and south to the city of San Clemente. Several cities in Orange County have been incorporated within the last decade. The most recent cities to incorporate were the cities of Laguna Woods (1999), Rancho Santa Margarita (2000), and Aliso Viejo (2001). While the unincorporated land area and related populations remain significant, they are declining in size and number due to recent annexation and incorporation activities. vvn ILSIBr tu..+rryrre1 County Chino Hills South Whittier San Sernar'"c a Hahra County 1 Brea , trvurw r"L2 Mar ffa Yarha LindaCerritos FullertonPlacentia Park ,cypress Orange Stanton Garden Grave 11 t1n Foothills tminster Sant, ley Huntingt Beach Costa Mesa Orange County New rt Beach Los Angeles County Population River Coun El Toro Cleveland National Trabuco Canyon Forest Mission Viejo Laguna F Aliso Viejo Laguna Ni P ha F Orange Caunty R lverslde County San Diego county Orange County is second only to Los Angeles County in population for California counties. According to the Department of Finance's population January 2020 estimates, the county's population exceeded 3.1 million, essentially unchanged from January 2019 estimates. The County's cities had fractional gains and losses over the previous year estimates. Santa Ana and Anaheim are Orange's largest cities with populations of over 357,000 and 335,000, respectively. The tables below show current population figures, forecasts, and trends for Orange County. ff7—r-URTIS-ROSENTHAL,INC. 12-142 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 4 Population 2000 Population 2,846,283 2010 Population 3,010,232 2019 Population 3,252,459 2024 Population 3,368,861 2000-2010 Annual Rate 0.56% 2010-2019 Annual Rate 0,84% 2619-2024 Annual Rate 0.71% Households 2019 Wealth Index 149 2000 Households 935,270 2010 Households 992,781 2019 Total Households 1,060,886 2024 Total Households 1,095,455 2000-2010 Annual Rate 0.60% 2010-2019 Annual Rate 0.72% 2019-2024 Annual Rate 0.64% 2019 Average Household Size 3.02 The household count in this area has changed from 992,781 in 2010 to 1,060,886 in the current year, a change of 0.72% annually. The five- year projection of households is 1,095,455, a change of 0.64% annually from the current year total. Average household size is currently 3.02, compared to 2.99 in the year 2010. The number of familles in the current Year is 756,645 in the specified area. Mortgage Income 2019 Percent of Income far Mortgage 37.7% Median Household income 2019 Median Household Income $811,453 2024 Median Household income $102,755 2019-2024 Annual Rate 3.04% Average Household Income 2019 Average Household Income $121,359 2024 Average Household Income $139,916 2019-2024 Annual Rate 2.89% Per Capita Income 2019 Per Capita Income $39,619 2024 Per Capita Income 545,530 2019-2024 Annual Rate 2.82% Households by Income Current median household income is $58,453 in the area, compared to $60.548 for all U.S. households. Median household income is projected to be 5102,755 in five years, compared to $69,180 for all U.S. households Current average household income is $121,359 in this area, compared to $87,398 for all U.S. households. Average household income is projected to be s139,9L8 in five years, compaired to $99,638 far all U.S. households Current per capita income is $39,615 io the area, compared to the U.S. per capita income of $33,02B. The per capita income is projected to he s45,530 in five years, compared to 536,530 for all U.S. households Housing 2019 Housing Affordabllity Index 65 2000 Total Housing Units %9,434 2000 Owner Occupied Housing Units 574,457 2000 Renter Occupied Housing Units 360,813 2000 Vacant Housing Units 34,164 2010 Total Housing Units 1,04B,907 2010 owner Occupied Housing Units 58B, 313 2010 Renter Occupied Housing Units 404,468 24310 Vacant Housing Units 56, 126 2019 Total Housing Units 1,112,825 2019 owner Occupied Housing Units 602,697 2019 Renter 4ccupi.ed Housing Units 45B, 1139 2019 Vacant Housing Units 51,939 2024Total Housing Units 1,147,134 2024 owner Occupied Housing Units 625,646 2024 Renter Occupied Housing Units 469,309 2024 Vacant Housing Units 51,679 Currently, 54,2% of the 1,112,825 housing units in the area are owner occupied; 41.2%, renter occupied; and 4.7% are vacant. currently, in the U.S., 56.4% of the housing units in the area are owner occupied; 32.4% are renter occupied; and 11.2% are vacant. In 2010, there were 1,04%9D7 housing units in the area - 56.1% owner occupied, 3B.6% renter occupied, and 5.4% vacant. The annual iste of change in housing units since 2010 is 2.6696. Median home value in the area is $6B2,052, compared to a median home value of $234,154 for the U.S. In five years, median value is projected to change by 0.95% annually to $715r049. Source: Site to do Business 2020 C U RTI S- R O5 ENTHAL, INC. REAL ESTATE APPRAISAL & CONSULTING 12-143 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 5 E-1: City/County Population Estimates with Annual Percent Change January 1, 2019 and 2020 City 1/1/2019 1/1/2020Change City 1/1/2019 1/1/2020 Change County 3,192,987 3,194,332 0.0 Lake Forest 84,576 84,711 0.2 Aliso Viejo 49,815 50,044 0.5 La Palma 15,572 15,492 - 0.5 Anaheim 356,669 357,325 0.2 Los Alamitos 11,576 11,567 - 0.1 Brea 44,879 45,629 1.7 Mission Viejo 94,766 94,267 - 0.5 Buena Park 82,422 81,998 -0.5 Newport Beach 85,706 85,780 0.1 Costa Mesa 114,634 114,778 0.1 Orange 140,410 140,065 - 0.2 Cypress 48,976 49,272 0.6 Placentia 51,750 51,494 - 0.5 Dana Point 33,212 33,146 -0.2 Rancho Santa Margarita 49,051 48,793 - 0.5 Fountain Valley 56,099 55,878 -0.4 San Clemente 64,541 64,581 0.1 Fullerton 141,931 141,863 0.0 San Juan Capistrano 36,149 36,318 0.5 Garden Grove 175,052 174,801 -0.1 Santa Ana 337,639 335,052 - 0.8 Huntington Beach 201,239 201,281 0.0 Seal Beach 25,080 24,992 - 0.4 Irvine 277,462 281,707 1.5 Stanton 39,097 39,077 - 0.1 Laguna Beach 22,445 22,343 -0.5 Tustin 80,491 80,382 - 0.1 Laguna Hills 31,674 31,508 -0.5 Villa Park 5,786 5,766 - 0.3 Laguna Niguel 65,363 65,316 -0.1 Westminster 92,737 92,421 - 0.3 Laguna Woods 16,329 16,243 -0.5 Yorba Linda 68,458 68,650 0.3 La Habra 63,319 63,371 0.1 Balance of County 128,082 128,421 0.3 Source: Site to do Business (2020) ff.,-Jvr-URTIS-ROSENTHAL,INC. 12-144 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 6 California Economy The California economy was on fairly solid footing heading into the COVID-19 pandemic. After adding 29,100 jobs in January, employers added 29,000 more in February. What's more, hiring was running at a 1.7% year -over -year rate, on par with the nation. The unemployment rate was unchanged at a record low of 3.9%. February predates the COVID-19 crisis and does not capture the coming tsunami of job losses since mid -March. In order to suppress the spread of COVID-19, nonessential businesses have been forced to shut down and residents have been ordered to shelter -in -place, which together have caused economic activity to ground to a halt in many industries. A clearer indication of what is likely to unfold is provided by the most recent initial unemployment insurance claims, which are released every week. Nationally, jobless claims surged to a record 3.3 million for the week ending March 21, which is 12 times higher than the level registered just one week earlier. Claims in California more than tripled from about 57,600 to 186,800. Even with this record increase, these numbers are likely understated as many states had difficulty processing the extraordinary flood of new applications. More recent reports put the number of claims filed in California over the past two weeks at over one million. Unfortunately, this represents just the tip of the iceberg. Large parts of the California economy remain closed for business. Tourism, travel, and entertainment spending is down 80% or more across the state, resulting in massive layoffs in the state's large hospitality sector. Retailers have also largely shut down, necessitating massive job cuts. Manufacturing and construction are faring somewhat better but will struggle the longer virus -related shutdowns hold down overall economic activity. The sheer size of the California (if it were a separate country, it would have the fifth largest economy in the world) makes the state particularly vulnerable to the adverse effects of the spread of COVID-19. The outbreak began relatively early in the state but has not been nearly as bad as in New York. The shutdowns have been fairly extensive, however. And with immigration tightening, the state's large agriculture sector may have even greater difficulty finding workers. Figure i Figure 2 Callfomia Nonfarm Employment California Vs. U.S. Unemployment Rate rear-ave Yea: Perterc Charge Sea Iu Ilv Jdju5 d 6% 14% C:.. } Feb L. 1.792 U6- a Slag feu L3 1 63_ 97 42 94 96 95 0[ 02 99 CS Of 10 12 14 :6 16 =] SJ 9'_ 94 96 59 Oil 02 01 16 O6 :0 12 1A :6 :6 23 Source: U.S. Department of Labor andlVells Fuugo Seeiulbes California's leisure & hospitality industry is likely to be most directly impacted by COVID-19. As residents either "stay at home" or "shelter in place," many restaurants, hotels and bars have begun to lay off or furlough workers. In addition to domestic travel grinding to a standstill, all nonessential international 1 Wells Fargo Economics Group, Commentary: March 27, 2020 and April 17, 2020 ff.,—Jrr-URTIS-ROSENTHAL,INC. 12-145 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 7 travel has essentially been banned. Hotels have been particularly hard hit and occupancy rates in Los Angeles and San Francisco have collapsed. For the week ending March 21, occupancy rates averaged just 29% in Los Angeles and 16.6% in San Francisco. This time last year, occupancy rates were above 80% in both markets. International trade is also likely to take a hit. Container traffic through the Port of Los Angeles and Port of Long Beach fell sharply in February, although those declines were tied to the timing of the Chinese Lunar New Year. Activity will also likely be off sharply on a year -over -year basis in March, reflecting dislocations tied to the COVID-19 outbreak in China, and remain soft through the first half of this year, reflecting sluggish demand in the United States and slower growth overseas. We currently expect global GDP to decline 2% this year and look for U.S. GDP to decline 2.4% on an annual basis, although we forecast output will fall at a 14.7% annual rate in the second quarter and a 6.3% pace in the third quarter. The slowdown in global trade will fall heaviest on Southern California's transportation and logistics sector, much of which is in the Inland Empire. California's tech sector should hold up reasonably well, although we would expect to see hiring slow at healthier firms and look for layoffs at some of the more thinly capitalized firms. The unusual nature of this recession, which has resulted in large portions of the workforce working remotely, has increased the demand for technology services. Social media and digital streaming have also seen a surge in demand. Advertising revenues for social media and search engines will likely take a hit, however, which may lead to some belt tightening. Capital may also become harder to lock down for some businesses. We expect California's economy to largely track the nation. The business cycle likely peaked in February, as the economy turned down sharply during the second half of March, likely producing a net drop in output for that month as a whole. We expect the recession to be unusually sharp but fairly short. Overall job losses will likely be worse than during the Great Recession, but the composition will be different. Housing, which was at the center of the last recession, should be less impacted during the current downtown and will play a critical role in the recovery. Housing is severely underbuilt throughout California today, and home construction has been deemed an essential industry. Moreover, a great deal of construction work can be done while adhering to the CDC guidelines on social distancing. To be certain, home sales will weaken this spring and home price appreciation will slow, but neither should create a problem. Affordability was already stretched in California's major metropolitan areas and some relief would be welcomed. Manufacturing should also hold up reasonably well, with demand for semiconductors and related equipment expected to remain strong, despite the slowdown in global economic growth. J X- rCURTIS-ROSENTHAL,INC. 12-146 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 8 Figure 3 Cal ifo is Tra Wrtabo & Wai Fe sig Employ—L veal-0v r-YnrPer�M Clarge D% LPR i'2:S--,2, -5 -3, e. r,%+ . ✓ti -r .4 5% -5% 4 1 ! 1 i + .5% Figure 4 Calibmia Employment Growth By Industry Yeer-oxrv'reer P.a Change d]-MMF Gael hndtrm bade, Trams. 8llelm G.en Purl. & Sa Sim. Ed— 9 Firallh Seniors L ezu a and MmalreWq MeauFsannnp Ffahaa8l FLtI•reM Conttr.xtm Other SesHxs -_- I I I I I I I I I F�-10•�': lrlondemn 02 04 06 03 11 12 L4 :6 10 20 Source: U.S. Department a#Labor and 4t ells Fargo Securities Fehruerr 2020 I Mpie Number e6 Ernplv,nes -146 046 1% 246 3% 4% 5% California's Economy Succumbs to COVID-19 Cutback (April 17, 2020) California's longest uninterrupted run of employment gains came to an abrupt end in March, when businesses began to slash payrolls in response to new social distancing guidelines and stay-at-home orders. Restaurants, bars, and entertainment facilities, including movie theaters, theme parks and casinos, all took an immediate hit —losing 67,200 jobs in March. Business, household and personal services and construction also posted notable job losses during the month. On the plus side, government payrolls rose modestly in March and the state's important information sector posted modest gains. Information includes new media such as internet search, software, and digital streaming, as well as motion pictures and slower growing portions of traditional media, such as printed publications and landline telecommunications. With more than two-thirds of the state's job losses occurring in the leisure & hospitality sector, mostly at restaurants & bars, job losses were heavily skewed toward California's largest metropolitan areas. Southern California was particularly hard hit. Los Angeles -Long Beach -Glendale lost 39,600 jobs and Orange County lost 16,500 jobs. Job losses were more modest in the Inland Empire (-4,100), and Ventura County (-500). In total, greater Los Angeles lost 60,700 jobs during the month, while San Diego also had a bad month, posting a net loss of 14,500 jobs. The San Francisco Bay area saw widespread job losses as well. While the Bay area is full of tech companies whose services are in high demand, the region's important tourism sector appears to have been the weak spot. San Francisco lost 13,700 jobs and Marin County lost another 1,400. Job losses were slightly less prevalent in East Bay and South Bay, with Oakland losing 3,300 jobs and San Jose losing 8,400 jobs. As bad as March was, we know job losses are set to surge even further in coming weeks. Weekly initial unemployment claims have surged over the past four weeks, totaling 2.8 million since mid -March. While in a typical recession there would not be a one -for -one decrease in nonfarm employment for each new jobless claim, the relationship is likely to be tighter this go -round because there are so few jobs being created. Jobless claims are also being pushed higher by contract workers, however, which will not be reflected as much in the monthly payroll data. ,,x— rCURTIS-ROSENTHAL,INC. 12-147 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 9 California's economy began to deal with COVID-19 earlier than the rest of the country, and the state's mitigation efforts appear to have produced positive results ahead of many other areas. Restarting the economy will be difficult, however, particularly given that social distancing guidelines are likely to remain in place for quite some time. Tourism and entertainment spending will also take longer to get back on track, particularly from overseas visitors. International trade is also likely to be soft spot until growth rebounds in the U.S. and around the world. California Employment Growth California Initial Jobless Claims Thousand; 1 �u 100 0 -50 E100 -0. O8 09 10 11 L2 13 14 13 16 L7 13 19 2{ County Economy, 150 100 50 0 -50 -100 -150 1250 ■Ap�l7: 660,966 1003 7n 500 250 a4— )a 19 Me•-19 Od-19 1250 INN 730 500 25a 0 F-20 • As one of the wealthiest counties in the region, Orange County has also benefited from lower than average unemployment. This trend, and associate strong real wage growth, is expected to continue. • Employment growth in the county is expected to take place in the middle- and high -skill portions of the education, health and professional services sectors with leisure and hospitality continuing to also be a locus of county job growth. • The high ratio of median home prices to median household income will continue to put pressure on low- and middle -income earners. 2 LAEDC Economic Forecast, 2020 ff.,—Jrr-URTIS-ROSENTHAL,INC. 12-148 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 10 Exhibit 5 Real GDP Growth Real Parsonal Income Growth Tota I Employin ant Growth Unemployment Rake Real Par Capita lu€ome ($2012) Employinant Giowth BySrctor Construction, Natural Resources, and mining Manufa€tuiIng Transportation. TradeanU Utllltles Information Financial Activltles Professional A Business Services Education & Health L215ur2 & Hospitality Other Services Government Housing Permits H ome Ya Wes 2015 2016 2017 20TI1 201d 2020i 2031F 7.4% 0.2% 2.7% 2.7% 2.1% i 1.7% 2.0% 9.3% 2.3% 2.9% 4.1% 3.3% 2.4% 2.6% 48,000 40.200 32.900 33.200 10.000 16;200 19.600 45% 4.0% 3.5% 2.9% 2.9% 2.7% 2.6'% $51,077 551.927 $53.019 $54.969 $56.596 $57.265 $59.364 8,400 5,700 4,600 4,400 900 1.000 1,500 -300 400 2.300 -600 Soo -400 400 3;200 1.100 2.100 1.900 300 -300 200 1.500 1.000 GOO 0 0 0 0 2.500 1.700 1.500 -400 -100 -400 0 9.500 10.100 5.100 12.600 7.100 3.100 5.100 2.000 7.300 9,200 9.200 4,700 8;200 7.600 9.300 9.300 6.100 4,600 6.500 4.900 5,200 1.600 1.600 -100 BOO -900 0 -200 4;200 3.200 600 700 300 -100 -200 1MOO 11.500 9.500 7.500 7.900 7.900 7.700 $592.195 $630.520 5669,763 $709.900 $726.2154 $745,385 5764.271 Quick Facts Population 3,2 million Cuoss Domestic Product 305.3bill Ion M2dlan Hoareholtl Income '$11A760 Medlan HOML5 Prleo to Hous@hotd 1 Income Ratio' Poverty Rate' 10.S% Uncmnployrriont Rate 2.8% Current County Economic Conditions, The unemployment rate in Orange County was 3.6 percent in March 2020, up from a revised 2.8 percent in February 2020, and above the year-ago estimate of 3.0 percent. This compares with an unadjusted unemployment rate of 5.6 percent for California and 4.5 percent for the nation during the same period. Between February 2020 and March 2020, total nonfarm employment decreased from 1,677,800 to 1,664,600, a decline of 13,200 jobs. • Professional and business services posted the largest employment decline with the loss of 5,500 jobs. Fifty-eight percent of the drop occurred in professional, scientific, and technical services (down 3,200 jobs). Administrative and support services decreased by 2,400 jobs which includes temporary help firms. 3 California Labor Market Information Division, Anaheim/Santa Ana/Irvine (Orange County), for April 2020 .P U RTI S- R O S E NTHAL, INC. REAL ESTATE APPRAISAL & CONSULTING 12-149 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 11 • Leisure and hospitality decreased by 3,000jobs. All the payroll decline was in accommodation and food services (down 3,100 jobs) and was offset by a small increase of 100 jobs in arts, entertainment, and recreation. • Four other sectors reported month -over employment declines. Construction (down 2,200 jobs), trade, transportation, and utilities (down 1,900jobs), manufacturing (down 1,200jobs), and other services (down 300 jobs). • Three sectors increased over the month: government (up 500 jobs) and financial activities and educational and health services (up 200 jobs each). Mining and logging and information remained unchanged. Between March 2019 and March 2020, total nonfarm employment increased by 3,600 jobs, or 0.2 percent. ❑ Financial activities posted the largest year -over increase with an overall gain of 5,400 jobs. Eighty-seven percent of the gain was in finance and insurance (up 4,700 jobs), led by advances in credit intermediation and related activities (up 3,900 jobs). • Educational and health services reported a gain of 3,700 jobs. Additions in educational services (up 2,100 jobs) accounted for fifty-seven percent of the increase. Health care and social assistance added 1,600 jobs over the year. • Eight sectors declined over the year. The largest employment loss was in manufacturing (down 2,600 jobs), with 92 percent of the decline in nondurable goods (down 2,400 jobs). ,,x- rCURTIS-ROSENTHAL,INC. 12-150 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 12 State of California April 17, W20 EMPLOYMENT DEVELOPMENT DEPIARTh9ENT Labor Madre# Information Division Maritza Gambna 933 S_ Glendora Ave nue 626-%0-7281 West Covina, CA 51790 IMMEDIATE RELFASE ANAHEIMSANTA ANA-IRYINE METROPOLffAN DIVISION (IIWD� �Oran,ge County) The unemployment rate in Orange County was 3.6 percent in March 2020, up frorn a revised 2.S percent in February 2020, and above the year-ago estimate of 3.0 percent. This compares with an unadyusted unemployment rate of 5_fi percent for {alifamia and 4.5 percent forthe nation during the same period_ Unemployment Rate Histari€al Trend a.sx 2.5% 2.0% Feb-2020 Mar-242O Mar-202O Industry Change Mar-2019 Change Revised Prelim I I Prelim Total, All Industries i 679 644 1566 60O 113 4C' 1 662 900 1,666,600 3,7010 Total Farm 1,840 2, NO 20C 1, 9S0 2,040 100 Total Nonfarm 1 6Ti 840 i 6fi4 600 II3.2C" i 661.WO 11664,600 3 600 Mining, Lagging, =-nd Construction 105,804 103 6C0 2 2C--. 1.05 5U0 103 &DO 1 904' r'lining =-rc Lagging 440 40C 0 50O 440 (1W } cimstru€tion 145,444 103r200 (2r2C- 10ir40O 103,200 {1rS0i]} Manufacturing 158,140 157r5O0 11,2C4 160,100 157,500 M6M Trade, Transportation 8, Utilities 258,344 25GAU0 ;iX' 257r000 25fi,400 (600 Information 25 844 25 W0 0 26,100 25 800 300 Financial Activities 120,844 121,000 24C 115,600 121 C00 5,4011 Professional & &Usi�ness Services 326300 320SCO i5 3CC; 322,430 320 9W 1 64O} Educational & Health Services 235.100 235 300 200 231 60O 235,300 3,700 Leisure & Huspitadity 227,300 224r500 r3.uCC; 225,500 224,5D0 {irOQO} Other Services 50,800 50 500 30u` 51 200 50 5M (700 Government 1 I&B,70131 1fi9,2001 51301 1 1fi6rDD0 169,2D0 3,20U Notes- Data not adjusted for seasonality_ Data may not add due to rounding Labor farce data are revised month to month Add itinna I data are available on I ine at vi ai w.la borma Aetinfo.edd_ca.gov ,JffCLJRTIS-ROSENTHAL,INC. REAL ESTATE APPRAISAL & C0N5UL7r1 NG 12-151 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 13 Largest Employers Allergan Inc Irvine Drug Millers (mfrs) American Funds Irvine Services NEC Anaheim City Hall Anaheim Government Offices-City/Village & Twp Auto Club of S California Costa Mesa Automobile Clubs Irvine Physicians & Surgeons Equip & Supls-Mfrs B Braun Medical Inc Boeing Co Seal Beach Aerospace Industries (mfrs) Boeing Co Huntington Beach Aircraft -Manufacturers Broadcom Corp Irvine Semiconductors & Related Devices (mfrs) California State Univ Fllrtn Fullerton Schools -Universities & Colleges Academic Choc Children's Orange Hospitals Edwards Lifesciences Corp Irvine Biotechnology Products & Services Fairview Developmental Ctr Costa Mesa Hospitals Fountain Valley Regional Hosp Fountain Valley Hospitals Hoag Hospital Newport Beach Newport Beach Hospitals James R Glidewell Dental Crmcs Irvine Dentists Kaiser Permanente Orange Anaheim Hospitals Laguna Woods Village Cmnty Ctr Laguna Woods Senior Citizens Service Media Relations Dept -Ca Dept Anaheim Government Offices -State Mflex Irvine Electronic Equipment & Supplies -Mfrs Quest Diagnostics San Juan Cpstrno Laboratory Analytical Instruments (mfrs) St Joseph Hospital Orange Hospitals St Jude Medical Ctr Fullerton Hospitals University of Ca -Irvine Irvine Schools -Universities & Colleges Academic University -Ca Irvine Anteater Irvine Stadiums Arenas & Athletic Fields Walt Disney Parks & Resorts US Anaheim Amusement & Theme Parks Source: America's Labor Market Information System (ALMIS) Employer Database — 2020 County Transportation Freeways: The region is serviced by the San Diego Freeway (1-405) / Golden State Freeway (1-5) that runs north/south between Los Angeles to the north and San Diego to the south. Other major north/south freeways include SR-73 and SR-55. Major east/west freeways include SR-22 and SR-91. Air: The flourishing John Wayne International Airport provides air freight and passenger service. Additional air services are provided by Los Angeles International Airport (LAX), which is a major transportation hub both for passengers and cargo; and has experienced substantial growth over the past 15 years. In fact, LAX ranks third in the world for the number of passengers and tonnage of air cargo handled. Rail: Orange County is served by the Metrolink, which provides access to the Los Angeles metropolitan area, as well as other areas in the region. ,,ffCURTIS-R❑SENTHAL,INC. 12-152 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 14 CONCLUSION — Market Area Analysis The size, centrality, and diversity of the Greater Los Angeles' economic base is expected to insulate it from the harshest effects of a national recessionary climate. The City of Los Angeles has held a premier position in the world for several years due to its leading role among the trading nations of the Pacific Rim, its extensive and still -developing transportation systems, its vast marketplace in terms of total purchasing power and diversity of consumers, and the establishment of various industrial and commercial headquarters in the city. The region is well positioned to continue economic leadership in the Pacific Rim and the rest of the state and country. Ultimately, the positive features of the Greater Los Angeles area including favorable climate, cultural appeal, and historic presence as a leading metropolitan area are considered to be beneficial traits and are expected to be sufficient to maintain the region as a leading commercial and economic center and should serve as a means of sustaining future economic growth. ,�ffCURTIS-R ❑SENTHAL, INC. REAL E 12-153 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 15 Neighborhood Description The subject property known as the "Marine Basin Inc." in the City of Newport Beach, in Orange County. Newport Beach is bordered on the west by Huntington Beach at the Santa Ana River; on the north by Costa Mesa, John Wayne Airport, the City of Irvine and UC Irvine; and on the east by Crystal Cove State Park and Laguna Woods, and to the south is the Pacific Ocean. Newport Beach was incorporated September 1, 1906 and has an area of 52.92 square miles of which 29.13 square miles is water area. The average elevation of Newport Beach is 10 feet above sea level. Today, Newport Beach is known for surfing and sandy beaches, it once supported maritime industries' however, today it is mostly recreational. Newport Beach is known for its regional shopping center known as "Fashion Island". Along its major arterials example businesses are unique shops for one -of -a -kind merchandises, restaurants, beach front businesses, interior design/accessories and furnishing, new car sales and yacht sales. The subject property is in Lower Bay of Newport formed by sand brought along by ocean currents, which constructed the offshore beach that is now recognized as the Balboa Peninsula of Newport Beach. Newport Harbor is a semi -artificial harbor formed by dredging Newport Bay in the 1900's. The harbor supported maritime industries such as boatbuilding, shipbuilding and commercial fishing, but today it is used mostly for recreation with private upscale homes and private docks and is one of the largest recreational boat harbors on the U.S. west coast. Surrounding community areas include the following: • To the North: Costa Mesa, John Wayne Airport, City of Irvine, and UC Irvine • To the South: Pacific Ocean • To the West: City of Huntington Beach at the Santa Ana River in Los Angeles County • To the East: Crystal Cove State Park and Laguna Woods According to esri, the 2020 population of the subject within a 1-mile radius is 10,106, 2-mile radius is 99,969 and 5-mile radius is 229,736. Entrance into the subject neighborhood is from East Coast Highway, a major arterial of Newport Beach and traveling south on Bayside Drive to the terminus of Harbor Island Drive. This area is upscale custom single-family residential in the millions of dollars range, these homes have private boat slips on their north rear property line at Promontory Bay. To the north of Bayside Drive and across Promontory Bay on Promontory Drive which has a higher elevation are multi -family residential properties, some with ocean views. The subject Basin Marine is just south of the terminus of Harbor Island Drive in the Balboa Basin Yacht Club which has the Galley Restaurant across the street and west of the subject property followed by the Balboa Club Yacht sales office. Boat slips occupy the area to the south. To the east of the subject property is the Promontory Bay with more high -end residential properties and private boat slips, because of the water, this area cannot be accessed from Harbor Island Drive. At the south end of the subject property is Balboa Island North Channel and Harbor Island is to the west and accessed by a bridge. Vehicular ingress/egress is provided from Harbor Island Drive. The subject is not close to freeway access. Harbor Island Drive is a paved east/west two-lane collector street with curbs, gutters, sidewalks, and street lighting. Street parking is allowed on both sides of the street. Inside the Balboa Yacht Basin, the street is paved with curbs, gutters, sidewalks, and street lighting. The subject property has 2 private parking spaces within the Balboa Yacht Basin Marina, they are directly north of the subject building. All other vehicles must park in the public marked spaces. Z_ rCURTIS-R❑SENTHAL,INC. 12-154 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 16 The City of Newport Beach Planning Department zoning for the subject property is PF (Public Facilities). Balboa Yacht Basin Marina is a Cooperative Project funded by the State Department of Boating and Waterways from Boaters Fuel Taxes and operated and maintained by the City of Newport Beach. Property uses immediately surrounding the subject site are: • To the North: Custom built upscale single-family homes with private boat slips on Promontory Bay • To the South: Balboa Island North Channel (Waterway) • To the West: Eaton Wash • To the East: Promontory Bay (Waterway) and custom built upscale single-family homes with private boat slips across the waterway. ff7—r-URTIS-R❑SENTHAL,INC. 12-155 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 17 Location Maps 4� s 4y1. F° Bev d Rj aotu,°e,. cr acre cy,a`a. L7 hVeW Ap #n�nu�aS Yc�4 asIN - h. . T r Y C§ C� dim Pmk ¢p Een Ca'rm_ryie or p e, 0,�G� �'R 1•& ee °^m r 6Y ��'S Yr .N .r—y `A 94 14t xnf »} a,?, m a 9 w G cj "6 Knae Rd 4 i o 1 W C^as° 9. Jq, � f.0 Ruda Isle ' c 91 'Sa 2 G1b�y a �, �8 am `� W n ,Iqq � k ( e. xanoon eeacn w _ e� % tiW Lh Hubr. HarDp'W3rd4 �p e•.y [k�A �415nE' L Eg Lm)vw m ,L FR N Ba C A,y'b 4 � Balboa Pex oa- _. g4 yid �� 61ueq 9 Ba14ont E Jwq+NwanBo-,a,�, Rh e ! F a[ f c o e e a x Blvp E Bay lqe E by gURTIS-ROSENTHAL,INC. REAL ESTATE APPRAISAL & CONSULTING 12-156 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 18 Aerial Photos MW�24 s �>lBRiw3,$ � f •.lISL li 31111 -Ih 1i198 .y�j, � �'i �P+�^ •( >: � �4,i1 ' ^x, I'll IP1=? �.YJ 'Y� >ei' a x � �� ,• l•�y�.. y a � , y r .CURTIS-ROSENTHALNINC. REAL ESTATE APPRAISAL & CONSULTING 12-157 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 19 Property Market Overview 12 Mo deliveries In 8 0 12 Mo Not Absorption In SF (47 K) Retail vacancies in Newport Beach were slightly elevated relative to the fve-year average during the fourth quarter, and they increased modestly in the past 12 months- The rate also comes in below the region's average. Meanwhile, retail rents have slipped over the past year, falling by -0-5%- As for construction, Newport Beach does not appear to face a burgeoning wave of supply pressure, and the pipeline is pretty empty. Retail properties trade with regularity in Newport Beach, KEY INDICATORS Vacancy Rate 2.8% 12 Mo Rent Growth -0.5% but deal Flow fell short of the historical average in the past year. Compared to the overall Orange County area, market pricing sits at $549JSF, which is well above the region's average pricing. However, the coronavirus outbreak has led to considerable uncertainty in commercial real estate. The effects of the pandemic will likely continue having a profound impact on demand, rent growth, and investment trends, and the retail sector, in particular- could face significant headwinds- CumantQuarter RBA Vacancy Rate MarxetRent AvailahilttyRate Net Absorption Deliveries SF Linder SF Construction Malls 1,275.100 rJ:: 53' 66 J'> 0 U Power Center 0 - 0 0 Neighborhood Center 1-472,600 4-5% S46.45 4.19% (13.282) (1 Strip Center 271.205 4A% $46.31 4.3% (5,160) 0 0 General Retail 2-274.134 3.0 $49.99 4.1% {i1.169] 0 U Other 0 - - - 0 0 0 Submarkot 5493AM 2-69e $44.41 3.3 % (29,61t) 9 G Annual Trrnd6 i8 Mor,ryr Hlstoncal Average Forecast Average p� When irnugh When Vamricy Change (YOY) 0.9% 2.6% 3.5:: 4.5% 200602 1.3% 202002 Net Absorp11onSF (47X) 19,123 ;':3.4•:: 140,390 201003 (49,957) 2069Q2 Deliveries SF 0 19.746 9.132 145,488 201001 0 20M 03 Rent Growth -0-5% 1-0% 2.3% 5.4 % 2007 Qt -6-5% 2MP9 04 Sales Volume $46.4 h,' S38M NA $642M 2013 Q2 $2.5M 2009 04 CURTIS-ROSENTHAL,llrya. REAL ESTATE APPRAISAL & CONSULTING 12-158 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 20 Sales Past 12 Months Sale C41ri0ard1319G Avg_ Cap Raba Avg_ PnCOMF Avg. VBtancy At Sala 17 4.5% 19257 4.7% SALE COMPARABLE LOCATIONS f IrViRe Huniin ton Costa Meg Beach (" Callfntnla 5nll'J .I x{ini Ka i5 1rYln2 IgvIYE {llh lL XICLiFEN--ER {E iiJ t 4q Wxy Staging Area All it Bak Camparahks SALE COMPARABLES SUMMARY STATISTICS 3.1-AthrbL*. Ln* A—P WIWI r HO Sale Puce $2,015,000 S4,039,325 5a547,156 S14,049,02B PriceISF 1714 $1,267 $1.197 $1A1 Cap Rate 4.0% 6.5% 4.5% 5.13% Trine Since Sale in Months 0.5 9.0 11.0 11.9 ftq—ty AtlTrin Ler A--p. W8.n 11141h Builcling SF 1,063 2,895 2,393 7,301 Swries 1 2 1 3 TypEcat Floor SF B27 1.m I'm 3.651 Vacancy Bata At Sate ID% 4 796 0% 33 7% Year Built 193A 19B1} 1952 1991 Star Rating * * * * * I * * * * * 22 * * * # * ,,ffCURTIS-R❑SENTHAL,INC. 12-159 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 21 Rent MARKET RENT GRowrK (YDY) i Forill A % 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 mailtt 0 Neighhorho6@ Center 0 General Rataiil E Newport Reach 0 Qrar" County ■ Power Center Strip Center ■ Other MARKET RENT PER SQUARE FEET $80 ;Forecast r $55 i r l r $50 ' r l r l $40 } i $35 # 130 l r r $25 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Mang 0 N6ighhorhoW Center 0 General RBtall E Newpprt;3eath ■ Qrar" County Power Center StripCerrter ■ Other ff.-URTIS-PIOSENTHALIIIINC. REAL ESTATE APPRAISAL & CONSULTING 12-160 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 22 OVERALL & STABILIZED VACANCY 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% I 1 I I I I 1 I 1 1 I I 10 11 12 13 14 15 16 17 16 19 20 21 Overall Vacancy N Stabilized Vacancy ■ Newport Beach Retail SALES VOLUME & MARKET SALE PRICE PER SF $850 $600 $550 M1 $500 �—� $450 $400 $350 $300 $35 $30 $5 so 2015 2016 2017 201-B 2019 2020 2021 2022 2023 2021 a Sales Volume ■ Ne part Beath PrlcetSF 0 Oramoe COurlly PnWSF -URTIS-ROSENTHAL,INC. REAL ESTATE APPRAISAL & CONSULTING 12-161 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 23 Overview New-VWz}ch hEulti-FQmiiy 12 Mo. Delivered Units 12 Mo. Absorption Units vacancy Rate 12 Mo. Asking Rent Growth 0 (126) 5a 6% 1.4% With a rich demographic base, both literally and figuratively, and a strong employment hut? at Newport Center, Newport Beach has the reputation of being one of the best areas to live in all of Southern California. Despite this, developers have generally avoided the submarket over the past 15 years due W the geographic constraints and local opposition, among a myriad of other reasons. Only one community has delivered here this cycle, and with the current economic conditions, the likelihood of new projects in the near term is minimal. Even as Newport Beach boasts an aging profile among ISSY RNoICATORS its stock and amenities that cannot compete with those in new communities in neighboring Irvine, rents are still the highest in the metro_ Residents are in the area for the great shopping and local beaches, and median incomes are the highest in Orange County. These high rents. however, have meant the submarket has been hit particularly hard in the downturn. And even before the coronavirus pandemic, investment activity is perennially among the lowest in the metro. Little inventory comes to market, but when it does• units often trade for some of the highest prices in the metro, with cap rates among the lowest_ Current Quarter Unim Vacancy Rate Asking Rent Etrective Rent Absorption Delivered Units Under Canstr Units Units 3 5 Star 3,344 4.0% $3.543 S3.529 s:• 0 3 Star 4,473 5.6% $2.249 S2.237 _ ff 0 182Stat 1,233 9. % $2.393 S2,380 0 G 0 Subt orkat 91050 6.6% S2r776 S2,,706 (5} 0 0 Annrsl Trends 12lkntlr Newdeal raraceat Peak Wien Trough When Average AwraW Vacancy Change (YGY) 0.2% 6.1% 5.8% 11.0% 201701 4.3% 201602 Absorpton Units 1126) 25 (9) 41D 201801 i1281 2020Q3 ❑slivered Units 0 35 0 524 201704 0 2020 G3 ❑etnoWshedUnits 114 7 11 114 202003 0 202001 Asking Rent Growth (YOY) 1.4% 2.13% 3.7% 7.8% 2005 04 S_9`6 20og 03 Effective Rent Growth (YCY) 1.4% 2.6% 3.6% 7.8% 2005 Q4 -9.0% 2009 Q3 Sales. Voiurrre $31 M $31.6M N!A $246.6M 200501 so 2006 03 ff7—r-URTIS-R❑SENTHAL,INC. 12-162 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 24 Sales Past 12 Months 531e CDMparables Avg. PricafUnit (thous.) Average PHee (rrtll.) Average Vacancy at Sale SALE COMPARABLE LOCATIONS Nuntkrlgton Beach 1 Flhnvmgton Slate 8ml, �f3D _ Lai M ;yi Wlllow j k Slaying Area Alive Um CtIthoahlea �:. .,i. .... aALF COHPARABLES Sl1MMARY STATISTICS SOM Anrft s Lair A PV umpm Koh Bak? Price $2.100,000 I $10-mma 0 $4.025A00 521JM.O00 PricelUnit $m's00 SM.301 $SCEMI 9670,033 Cap Rate -- - - - - Vsosncy Rate At Sale 0% 4_8% 0% 4_1% Tim Ss,ce Sale in Months US I S_1 2.7 11.1 Pmp"Amibwa LAyr Atr+atM NNW HIIIIIIIIII Property Size in UnitE B 21 B 49 Nurrdar of Fk, m 2 2 2 3 Avarage Unit SF 647 709 813 om Year Guill 1968 1963 1959 1974 Star Rating **** ****2.7 ,,ffCURTIS-R❑SENTHAL,INC. 12-163 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 25 MARKET RENT PER UNIT & RENT GROWTH $3.400 12% I Forecast $3,200 10% $3.0000 I $2.800 1 L8%p/ f3% 7 $2.600 r 4% G � CD c $2,400 1■11■1�—' 1 1 I I1 ��A b 2% L-1 $2.200 ,.�Ifrr��1� 0% $2,000 ■ ; -2% $1.800 ; -4% 1I $1,60 I i I I 1 1-6% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Market Rent Growth WY N1arkal Rant Par Unit 0 EffeeGve Rent Per Unil Orange Counly Market Rant Per Unit MARKET RENT PER UNIT BY 6EORCOM S4,500 34,000 S3.500 53,000 S2,500 S2,000 S1,500 S1.000 2015 2016 2017 2018 2019 2020 '�ffCURTIS-R ❑SENTHAL, INC. Reap E 12-164 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 26 After vacancies spiked when the only new inventory of this cycle, fundamentals settled in Newport Beach. Vacancies, at 6.6%, continue to trend around the historical average and just below the metro average due to the underlying demand in the submarket_ Newport Beach is among the most attractive submarkets in the metro in terms of employment and commercial and fecreational activity. The submarket's reputation as one of Orange County's central commercial nodes stems from the presence of several prominent tenants located at Newport Center with a notable footprint, among them RIMCO, Merrill Lynch, Irvine Company, and Chipvtle_ The employment base in Newport Beach is varied and includes a significant white-collar presence, ensuring that fundamentals for this high -rent district remain strong. Its easy accessibility via the 73 by way of the I- 405 positions it well for commuters, not to mention that ASSORP-nON, NET DELIVERIES & VACANCY rs 700 600 500 400 300 200 100 its proximity to John Wayne Airport adds a further layer of convenience_ From the beaches to shopping at renowned Fashion Island, Newport Beach has something for everyone_ Like many coastal areas of Svuthem Califomia, outdoor amenities often replace interior ones_ Newport Beach has the highest median age and household income in the metro-46 and $115,000_ respectively. It also has one of the highest percentages of residents with bachelor's degrees, Two-thirds of residents have a bachelor's or advanced degree_ That lines up neatly with Irvine. Beach towns in Orange County are expensive and often price out the millennial cohort, a demographic that might riot be willing to sacrifice amenities and new construction for older stock with no parking_ especially when neighboring Irvine continues to receive a flood of new supply with rents 10% cheaper than the average rent in Newport Beach. Forooas,t 11% 10% 0 4% -100 3% 1 -200 1 = , 1 1 1 1 1 , 1 I I I I 1 1 1 I I 1 1 1 I I 1 1 1 I I l 1 1 , 1 1 1 1 I 12 f9 2015 2016 2017 2015 2019 2020 2021 2022 2023 2024 0 Absorption iE NeL Oefivenes ■ Vacancy Orange County Vacancy ,,ffCURTIS-R❑SENTHAL,INC. 12-165 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 27 Rents in Newpart Beach are easily the highest in Orange County at around $2,7841month_ They even maintain a significant 10% premium over Irvine and its new communities_ Even with older inventory, people line up to live in Newport Beach and have shown a willingness to sacrifice amenities for proximity to the beach and bay_ The high rents likely are riot prohibitive for the demographic. While median household income is about $115.000, the median renter household income is lower, DAILY ASKING RENT PER SF S2.90 S2.80 52.70 $2,60 $2.50 $2,40 Newport Beach Multi -Family only about $85,000, and average rents account for 35% of income_ Rents tend to pick up noticeably during the summer months, although those gains are usually given back at the end of the year_ Fhowever, rents have dropped significantly since mid -March and now are some of the lowest in the metro at 1.4°%. 2015 2016 2017 201E 2019 2020 ■ Newport Beach ,,ffCURTIS-R❑SENTHAL,INC. 12-166 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 28 . - Newport Beach Multi -Family Turnover in Newport Beach consistently racks near the bottom of the metro, since little product comes to market and since it has one of the metro's smallest inventories. Newport Beach averages about five arms-Iength trades a year, and what does sell is often for the highest price paid per unit in Orange County_ Transactional cap rates often come in near 3%. From 2011-17, only a few properties sold for more than $10 million, three of which sold twice (or more), averaging 35% more for the second sale than the first. Last year did not break the trend as no trade over $10 million took place in 2019, and only three properties had sold_ The largest sale was that of 303 Main St. in May. The 12-4unik property sold for $5.7 million, or $475,0001unit, at a 3.56% cap rate. With sales activity limited throughout the metro due to the economic downturn, trading in Newport Beach has been unsurprisingly been absent As of August, no marketient properties had sold in the submarket, and SALES VOLUME & MARKET SALE PRICE PER UNIT $650.000 0.000 $550,000 $ 500:000 $450.000 Vj $400.000 $350,000 $300, 000 $250.000 that trend looks unlikely to change anytime soon The only trend to buck that trend in the pest few years was 2018_ Not only were there more than five trades in the year, but four of them were also over $10 million. which pushed sales volume to cyclical highs_ The year started strong_ In January 2018, Newport Landing sold for S18.5 million (S355,769funit) at a 3.25% cap rate. It last traded in 2014 for $13_6 million. However, the largest sale to take place happened at the end of the year and was the trade of the Dover Heights Apartments in Deoember. The 3 Star, 60-unit community was sold from a private investor to Irvine -based Waterford Residential for around $30.5 million ($d63,000Iumt) at a little under 3% cap rate_ In addition to these two trades, there were the sales of the 49-unit Newport Terrace for $20.7 million in October and the 26-unit Newport Seaside Apartments for $11.24 million in November. All of these trades retarded cap rates below 3.5%- $70 $60 $50 $40 $30 $20 $10 $0 2015 2015 2017 2018 2019 2020 2021 2022 2023 2024 ■ Sales Voiume 0 Newport Beach PrioElUnit 0 Orange County PrFcelUnit ff.,—Avr-URTIS-R❑SENTHAL,INC. 12-167 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 29 SITE DESCRIPTION Address 829 Harbor Island Drive, Newport Beach, CA Assessor 050-431-25 Parcel No. Legal 050-431-25: Abbreviated Description: N Tr 3867 Blk Lot F source: Dotorree Description S TWP 6 RGE 10 Sec 35 Sec T 6 R 10 Tide Land Strip in Sec source: city of Newport Beach Site Area Landside Area is: 32,990.71 square feet Water Area is: 9,071.4 square feet Total area: 42,062.11 square feet or 0.9656 acre Site Shape "L" Shaped Topography Level with gradual slope to south. Improvement Basin Marine, Inc., showroom and workshops. s Vehicular Harbor Island Drive (paved 2 lane east/west arterial) and Balboa Yacht Basin (paved 2- Access lane east/west road) Pedestrian Harbor Island Drive and Balboa Yacht Basin have concrete sidewalks, curb gutters, and Access public sidewalks. Zoning The Planning Department of the City of Newport Beach zoning for the subject property is PF (Public Facilities). Public Facilities is listed in Special Purpose Zoning Districts, Chapter 20.26. Further, it is our opinion that the subject site has a potential zoning of Mixed Use (MU) Commercial and Residential use. (source: Laura Wooding Whitlinger, Real Property Administrator, City of Newport Beach). The Special Purpose Zoning District proposes the individual special purpose zoning districts and the way they are applied. The Special Purpose Zoning Districts are OS (Open Space), PC (Planned Community), PF (Public Facilities), PI (Private Institutions), and PR (Parks and Recreation. The PF (Public Facilities) Zoning District is intended to Provide for areas appropriate for public facilities including community centers, cultural institutions, government facilities, libraries, public hospitals, public utilities, and public schools. Permitted Use in PF (Public Facilities) is limited to Minor utilities. Uses with MUP (Minor Use Permit) are: Assembly/Meeting Facilities, Cultural Institutions, Parks and Recreation Facilities both active and passive, Schools, Public and Private, Day Care, General, Residential Care, Government Facilities, Marine Services - Boat Storage and Boat Yard, Parking Facilities, Heliports and Helistops, Marina Support Facilities, and Accessory Structures and Uses. Development Development standards for PF (Public Facilities) are established during review of the Standards required permit (conditional use permit or minor use permit). Newport Beach Municipal Code is current through Ordinance 2020-23 passed September 22, 2020. Z— rCURTIS-R❑SENTHAL,INC. 12-168 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 30 Zoning The subject property is legal conforming as to zoning requirements. Compliance Utilities All utilities are available at 829 Harbor Island Drive. Flood Zone Two Zones: Land Area is Zone X, Water Area (Boat Slips Area) is Zone AE. The Panel is 06059C0382K, dated 3/21/2019. Zone X is an area that is determined to be outside the 100- and 500-year floodplains. Zone AE is an area inundated by flooding, for which BFEs or average depths have been determined. Flood insurance is required in AE Zone. Source: FEMA Earthquake Properties in California are subject to some degree of earthquake risk. The subject is Zone not known to be in the Alquist-Priolo Earthquake Special Study Zone for seismic activity. The parcel is within the Newport -Inglewood Earthquake Fault Zone. According to the California Department of Conservation the parcel is in a Fault Zone, Landslide and Liquefaction Zone. We are not seismic engineers and we are not qualified to determine earthquake hazards. Our appraisal assumes that the subject is not adversely impacted by atypical earthquake risk. We recommend obtaining a geologic study to determine any potential earthquake hazard that might impact the subject site Soil No soil report has been provided to us. Our on -site inspection of the subject property Conditions revealed no obvious evidence of adverse geologic or soil conditions on the subject site. We are not geologists or soil engineers and we are not qualified to detect geologic or soil related problems. Our appraisal assumes that no detrimental geologic or soil - related conditions impact the subject property. We recommend consulting with a qualified geologist or soil engineer to determine whether detrimental geologic or soil conditions exist on the subject site. Environment No environmental report has been provided to us. Our on -site inspection of the subject al Conditions property revealed no obvious or apparent evidence of soil contamination or the presence of toxic or hazardous substances. We are not environmental engineers and we are not qualified to detect environmental contamination. Our appraisal assumes the subject site is clean with no contamination. We recommend consulting with a qualified environmental engineer to determine whether environmental contamination exists on the subject site. Easements We are not aware of any easements or encumbrances impacting the subject. Other and easements may be those imposed by local government and quasi -government agencies Encumbrance for common utilities, public rights -of -way, etc. Our appraisal assumes the subject to be s free and clear of any negative easements, restrictions, and encumbrances impacting the subject site. ff.,—Avr-URTIS-R❑SENTHAL,INC. 12-169 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 31 Beacon Bay The State of California granted to the City of Newport Beach and its successors Bill all of the right, title and interest of the State of California that portion of the tidelands and submerged lands, whether filled or unfilled , bordering upon and under the Pacific Ocean or Newport Bay in the County of Orange. A State Tidelands Map is included for reference below. The blue area is identified as the Fill Tidelands. The southeastern portion of the subject site is impacted by the land held in trust. Reportedly, the State of California will not allow residential uses in the filled tideland areas (land held in trust). (source: Lauren Wooding Whitlinger) 1 ! QE Y,ar,ntl�•saa,,.ro.a j NEGi O 0 900 2�0 o�.�i>ta»rn. is ano '•��" Every rease a hay yawn rc�90. ro aewra Ne asuacy e[ [fIe t S� F--{ ea a OrOvitlae nowerer TRa City o! IJaxpan Beaen antl rla �. l rale[iny�s ane agents oisd.im any entl erl rasaenainil�ry Iran er a ro a [a ymanrey m n, �aa ,,ffCURTIS-R❑SENTHAL,INC. 12-170 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 32 Plat Map The City of Newport Beach may grant franchises thereon for a period not exceeding 50 years for wharves and other public uses and purposes and may lease the lands, or any part thereof, for terms not exceeding 50 years for purposes consistent with the trust upon which the lands are held by the State of California. The consideration received by the City for such leases shall be the fair market rental value of such lots as finished subdivided lots with streets constructed and all utilities installed. All money received by the City from existing and future leases of those lots shall be deposited in the City Trust Funds as provided in Section 2. The City shall establish a separate tidelands trust fund, and the city shall deposit in the fund or funds all money received directly from, or indirectly attributable to, the granted tidelands in the City. 80% of the money received shall be deposited in the Tideland Capital Fund and in the Tideland Operation and Maintenance Fund, the allocation between those funds to be determined by the City of Newport Beach. 24 pp 4a 0wm G OF/yE. — raacrEA�oo s E 431 N a Icl a �i Y�F.,rc E3v+Y.c�i NO 3867 ea HARBOR ISC A NO /e.e rs: o[ RAI — ORIVE �Vg 21 E I aARCH 1s73 TRACT NO Jeff M.N. 301-40TJ46— N NOiE-n55E550' etOCa a 7j$ A55E550R'S MAP O FARCE! NUMBERS BOOK 501— 43 SHOWN IN CINCLES C'Ol1NTY OF ORANGE Z—Tr-URTIS-R❑SENTHAL,INC. 12-171 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 33 Exhibit A Plat Map \� / �J0E �111111 11I lu 6-, a " � S B4'46 aE a and a _ _BQ Y � BGLBD.tl YQC/�T pG5/iC/ J I fr -0— TO U• DO - u5 CUG�I�a u�7E cBdG BGA /d6AN0 C"'Vevel- 41, p. 4.1Eri✓E.40 6 //VE !/•G. 41AI-W CITY OF NEWPORT BEACH PUBLIC WORKS DEPARTMENT B�! L. ,QO A' Y4 CA,' T Ba S /.t/ 8007- YA,2O G45.J-F_ V99'O5":3e'G+' JCL . Z 9C.4LE'I �=c'�i�J DATE APPROVED PUBUC WORKS DIRECTOR R.E. NO. DRAWING NO. P/GY J��BI-L '�ffc ❑SENTHAL, INC. 12-172 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 34 Lot Size Map 3 4 '4�ila CJbin -h .. 9.071.4ft .4 aonoI Gry A.ae Leased - Wel Ara. Leases NHS 200 Disclaimer �F Ever/ reaea4ante eltdtl 1116 Dam nude q ass,aAe the a[CUrgLy d the a n A r a a t r Feet ddla 111o�rdeo. na vw TTe GtY of N&wW 80,Xr and M1S eaobyees and agents asGLviR ally and as mspmst ly km Dr reiatnq to arty resuhs obtained n M1s use. CURTIS-ROSENTHAL,11IN REAL ESTATE APPRAISAL & CONSULTING 12-173 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 35 FEMA Flood Map National Flood Hazard Layer FIRMette FEMA Legend 0 250 500 1,000 1,500 2.000 r 'ef fahha FiaveAen I9FEI n SPECIAL ROOD InaiE er parrue aa,mnx �aa HAEARD AREAS aoegimmry FlheaxaF n2x AnnualCnenre Aane xetam_ area s «19G annual pnanee apph w11M1 ererepp Eep,l less Ivan one fool «won emxdge anasp one square tulle za.rr #` Cnance expo xaxara sanm�al OTHER AREAS OF Area veln Reeapetl Flpeh -1 eue hf levee. 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Seale nan map areanhn cem_c umry axmllerc M panel n�mhen ane FIRM ercectlre ease. map Imegeskr mappeh am unmphemleee ueaa cannd he asap Apr regulatory purppus. .CURTIS-ROSENTHAL,INC. REAL ESTATE APPRAISAL & CONSULTING 12-174 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 36 Earthquake Data Map E Cdlkfornla r,�_ Deparltinent of Conservation r View Map Full Screen California Department of Conservation California Geological Survey 1 Ythquake Zones of Required Investigation CGS Homel 929 Harbor Island Dr. Newport B X Q Show search res�l!c for 824 Harbor ls... I 713 � 724 i30 P30 I �. 748 767 V iatl 88o e05 Bt2 \\\ --_--_—__— —_—I J 070 824 830 0% gy7 1 :1 ri--I_____— --� r rARBOR ISLAND OR 'BR - Address: 829 HARBOR ISLAND DR STE 5 I $ I APN 05C-210-02 City NEWPORTBEACH Street 824 HARBOR ISLAND DR STE 5 Address Fsulk Zone This parcel is NOTWlTHIN an Earthquake Faulk Zone. Liquefecvon All or a portion of this parrel Zone IDES WITHIN a Liq uef—t— Zone. Landdide This parcel is NOTWHHINa Zone Land slide Zone. "' m to ••• ff.-URTIS-ROSENTHALoNC. REAL ESTATE APPRAISAL & CONSULTING 12-175 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 37 IMPROVEMENT DESCRIPTION Overview Type of Use Basin Marine, Inc Year Built Estimated originally constructed in 1945. source: David New, President, Basin Marine, Inc. Based on pictures of the building and cars in photos. Reconstructed 1985. Source: City ofNewport Beach Gross Building Area 3,560 square feet GBA Source City of Newport Beach Site Plans Net Rentable Area 3,560 square feet Source City of Newport Beach Site Plans and appraisers measurements. Building Area For exact measurements, we recommend retaining a surveyor. '�ffCURTIS-R ❑SENTHAL, INC. REAL E 12-176 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 38 Comments The appraisers where escorted through the building on October 21, 2020 by David L. New, President, Basin Marine Inc. The entire property was toured and described as follows: Mr. New took the appraisers through a quick tour of the property, explaining the various operations and then returning to the Basin Marine Hardware Store for a more detailed inspection. Beginning at the interior entry of the Basin Marine Hardware there are dual white wood French doors and an entry tile and pebble design of a fish with black border and ceramic tile for the rest of the flooring in the retail area. The ceiling is T-B with acoustic tile and indirect fluorescent lighting. Windows are white vinyl with dual glazed panes. The northwest corner of the room has a conversation area with leather couches and coffee table. The southwest corner is the customer service counter with white enameled wood paneling and white upper display cabinets with glass sliding doors and a pegboard merchandise area for small hanging items on the back wall. There are adequate windows including a bay window on the north wall. The northeast corner of the area has a unisex restroom with manufactured wood flooring, white enameled wood wainscot and chair rail and blue painted drywall above with white painted drywall ceiling. The restroom has a wall mount wash basin with wrapped pipes, commercial grade toilet with grab bars, incandescent lighting, mirror, and paper towel holder, etc. The southeast corner of the commercial retail area has a breakroom with white upper and lower kitchen cabinets with 2 countertops of Formica material. The ceiling is T-Bar with acoustical tiles and indirect fluorescent lighting. The flooring in this room is ceramic tile. Appliances include refrigerator, electric 4 burner stove and oven, micro -wave, stainless steel bar type sink and an area for 2 bar stools, and coffee maker area. The two accounting offices are at the center of the south wall. Entry into this office is through dual white French doors. Flooring in this area is manufactured wood flooring. The clerical office has a white wood reception and work desk that matches the front customer service counter and has a grey Formica counter -top, a computer area and file cabinets, photo -fax machine are at a 2nd counter area. The ceiling has T-Bar with acoustic tiles and indirect fluorescent lighting. The private accounting office is like the above office with "U" shaped desk to match the decor of the offices and 2"1 countertop cabinet area on the north wall. There is a central hall that leads to the Executive Office on the west side of the hall and to the south the hall leads to the Shipyard Offices. The Executive Office has manufactured wood flooring, it is a larger office with windows to the west. The office has the same ceiling T-Bar system as the rest of the office areas. The executive desk and storage cabinet, display cabinetry is at the east end of the room with area rug in the middle of the room and 2 large leather couches at the west end next to the windows. Wide blade white shutters are the window treatment. Walls are white painted drywall. Z_ rCURTIS-R❑SENTHAL,INC. 12-177 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 39 The interior commercial retail area of Basin Marine Hardware has been designed to co-ordinate together in an attractive nautical design that flows from one area into another, which is neat, clean, and attractive. The above -mentioned central hall has a solid core passage door with lock that when open leads three steps down into the Yard Office, and Carpentry Shop. There is a skylight in this area. The Yard Office is where work orders, job sheets, and employee time sheets are kept. The room has white painted drywall ceilings and walls, epoxy coated (black and white specks on grey background) cement flooring, fluorescent lighting fixture mounted to sloped ceiling. There are waist - high white lower wood cabinets along the west wall with white Formica countertops and a stool for sitting. Windows are above this clerical area. The north wall has electrical power supply and breaker panel. The south wall is partitioned off with a storage area and then the passage door that opens onto the Shipyard. To the east of the Yard Office is the Carpentry Shop. This can be accessed from the Central Hall or from the Shipyard. The Carpentry Shop has a 15' x 9' roll -up metal overhead door that allows entry from the Shipyard and a passage door from the interior central hall. Walls, ceilings, and lighting are the same as the Yard Office. The flooring is cement. There is a built-in wood cabinet at the north wall with wood countertop. The shop is designed for saws, drills, plastic wrapping, and storage. At the northwest corner of the room is the passage door to the hall and an area for electric extension cords of various sizes and shapes. An air hose reel is at the ceiling next to the Mechanical Shop. A sliding glass patio door gives access to the Mechanic's Shop to the east as well as the exterior roll -up overhead door at the south wall. Mechanical Shop has the same walls, ceiling, lighting, and flooring as the Carpentry Shop. The southeast corner of the shop has a dust collector for sawdust. This shop also has a metal roll -up door 15' x 9' at the south exterior wall. On the east wall is a glass enclosure with glass door that houses a Kaeser Compressor Si5 Sigma. The shop has 2 cabinets with wood countertops that provide foundations for vices to hold objects, and drills. Pegboards holds hand tools. There is a small GE elec. water heater and compressor tanks. Shipyard Marina The exterior area east of the Mechanical Shop and west of the boundary block wall that is the east property line of the subject property is a concrete pathway with a drinking fountain mounted to the building, refrigerator/freezer with ice maker and 3 microwaves. There is an Enviro Water Separator for the Mechanical Shop and compressor equipment, and wrapped tank. Three steps up from this area is a privacy area with white lattice covering an area above the block wall. This area is for employee lockers, fresh uniform shirt open closet. An open doorway unisex restroom is on the west side of the path. The restroom has linoleum flooring in a stone pattern, large plastic utility sink, rubberized floor bas, mirror, paper towel holder and soap dispenser. Walls are waterproof paneling in white. Lighting is ceiling mount fluorescent fixture. There Z_ rCURTIS-R❑SENTHAL,iNC. 12-178 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 40 is 1 urinal, 1 regular commode enclosed stall. This restroom is not handicap equipped, no wrapped pipes or grab bars. The Shipyard Marina area south of the building and immediately along the exterior east block wall is the lunch, break area with 3 picnic tables and canopy cover for shade. Directly west of this area is the Shipyard Repair/Drydock platform area where large yachts are under repair, polishing, and painting. At the time of the appraisers' inspection the yachts farther to the south were smaller and approximately 15 yachts, a sail ship and boats were on the Drydock platform for various repairs and/or painting. At the south center of the parcel is a dock and ramp to pull boats from the water, this is done with a hoist by Marina Travelift. The 2 ramps are each 90 feet in length and 5' in width and are constructed of concrete and are in a "U" shape. One ramp is for the operation of the Marina Travelift and the second ramp in the same area is for access to the boat slips on the east and west of the equipment. The second ramp is constructed of wood with concrete pavers and has metal handrails for safety. The Travelift is a large piece of personal equipment owned by Basin Marine Inc. Another hoist is a large Devault hoist (also personal property) attached to the concrete of shipyard platform at the southwest corner of the parcel. To the north of this area on the east side of the platform are two portable woodsheds. Shed One is used in refinishing Fiberglass surfaces. Shed Two is used in repair of Fiberglass surfaces and storage of needed equipment and the exterior serves as storage for ladders, etc. Each shed measure 10' x 30', they have unfinished wood walls, ceilings, and wood flooring with skylights. The Lean-to structure on the southeast corner of the parcel is divided into two partitions. The Lean-to is "L" shaped. The construction is 5' height of concrete block, and 3' high of fiberglass panels with metal roof support framing and fiberglass panels serving as the roof. The south end partition stores various paint supplies and materials with a fiberglass door. The north partitioned area contains the Living Water Environmental MCAT automated water treatment system which delivers 22 gallon per minute into holding tanks. This portion of the Lean To measures 12' x 23' part concrete is 5' height and 3' height fiberglass. The north side of this part of the lean-to is open. Note: The personal property of furniture, fixtures and equipment described within section are not part of the Fair Market Rent Value of the Real Property of this appraisal report. Exterior There are dual chain -link gates to the southern area of the Shipyard Marina area from the public parking approach of the Balboa Basin Yard. There is another dual chain -link driveway gate into the Shipyard Marina area just to the south of the Basin Marine building. The parcel has wrought iron and block walls that provide the property line on both the east side and the west side of the parcel from the water channels. ff7—r-URTIS-R❑SENTHAL,iNC. 12-179 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 41 Mr. New stated his desire is to replace the Shipyard platform concrete flooring which has many cracks throughout, he estimates the cost will be $300,000. Exterior of Basin Marine Building The exterior of the building is a board and batt wood siding in a light blue grey with white trim. White vinyl windows with side shutters, a bay window on the north side. At the northeast corner of the building is evidence of the original masonry building, the brick in this area has been painted to match the wood siding. The roof is metal. The building has downspouts and gutters, exterior security lighting and security cameras. There are floral planted and maintained planter boxes around the building, an entry ramp for handicap and two private parking spaces to the north of the building. #. of Buildings One plus 2 portable sheds and two Lean-to sheds #. of Stories One #. of Tenant Spaces One Floor Area Ratio 0.0846 Exterior Shell Building Structure Wood frame and siding and considered (Class D), with reinforced concrete slab foundation. Exterior Walls Wood trim and wood siding and small area at northeast corner of building is masonry finish. Exterior Windows Dual Wood French Doors, Dual Glazed White Vinyl Windows with White molding, White wood shutters trim on some windows and additional trim work at some windows. One bay window on the north side of the building. Roof Metal Roofing ff7—r-URTIS-R❑SENTHAL,iNC. 12-180 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 42 Interior Finish Floors Ceramic Tile, Wood types of flooring, Linoleum, Epoxy coated cement, and cement. Ceilings Drywall, T-Bar acoustic tiles Walls/Partitions Drywall Lighting Recessed lighting, Indirect fluorescent lighting, ceiling mount fluorescent light fixtures. Systems HVAC Central heating and air conditioning Plumbing Assumed Adequate. There are two restrooms, one is the unisex restroom in the commercial/retail area and the other is the shipyard employees' restroom at the east side of the building. Electrical 600 amps, 3 phase, 4 wire. Fire Protection Smoke Detectors and Fire Extinguishers Parking # of Spaces and The subject has two marked private spaces for Basin Marine, Inc. Customers use Type the public parking spaces available in the Balboa Yacht Basin Marina ff7—r-URTIS-R❑SENTHAL,INC. 12-181 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 43 Parking Ratio 2 private marked and paved spaces with a Parking Ratio of 0.56 Site Improvements The exterior planters and landscaping around the building are well maintained. The common area street parking is asphalt paved, and the two private spaces are marked, and asphalt paved. The property is overall well maintained and very attractive. Fencing 1. 47 lineal feet x 6' wide concrete block wall. Measurements 2. 65 lineal feet x 3 'wide concrete block wall. 3. Wrought iron 65 lineal feet x 3' wide 4. Chain -link 3' Bar with screen slats 15 lineal feet x 6' (Roll Type) 5. 313 lineal feet x 5' Block wall at south side perimeter 6. 28 lineal feet x 4' block wall 7. 18.5 lineal feet x 6' plus 12.4 x 6' Marina Travelift Ramp #1: 90 lineal feet x 5' concrete Ramp #2. 90 lineal feet x 5' concrete Concrete area between ramps 40' x 20' 8. Chain -link sliding gate with slats 30' x 6' Docks/Ramps 1. Ramp #1 Southside 26 lineal feet x 3 feet (wood & concrete pavers) Metal handrails. 2. Dock #2: 46 lineal feet x 4 feet wide, concrete plank 3. Boat slip 25' wide x 46 lineal feet. 4. Dock #3: 35 lineal feet x 4 feet, concrete plank 5. Boat slip 25' wide x 46 lineal feet. 6. Dock #4: 46 lineal feet x 4 feet, concrete plank 7. Boat slip 30' wide x 62 lineal feet. 8. Dock #5: 50 lineal feet x 4 feet, concrete plank 9. Dock #6: 64 lineal feet x 4 feet, concrete plank 10. Dock #7: 39 lineal feet x 4 feet, concrete plank 11. Dock #8: 56 lineal feet x 4 feet, concrete plank 12. Ramp #2 North side 26 lineal feet x 3' with metal handrails 3' height and 26 lineal feet (wood & concrete pavers). 13. Dock #9: 26 lineal feet x 4 feet concrete plank 14. Dock #10: 66 lineal feet x 4 feet concrete plank 15. Dock #11: 45 lineal feet x 4 feet concrete plank Portable Sheds Paint room is 10' x 30'. Repair, equipment, and storage room 10' x 30' Lean-to's 6' x 19' Part concrete.5' height, part fiberglass 3' height. 12' x 23' part concrete 5' height, 3 height fiberglass. ff7—r-URTIS-R❑SENTHAL,INC. 12-182 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 44 Aooraiser Observations Quality Good Condition Good Deferred Main. None Functional Utility Conforms with typical market standards General Comments The subject improvements are considered good for overall quality of construction including the basic structural system, the exterior walls and roof, mechanical systems. The overall condition of the property is considered good. Improvements-Age/Life, Depreciation (includes parking structure) Actual Age 35 years Effective Age 20 years, per our observation and estimate Economic Life 45 years, per Marshall and Swift Valuation Service Remain. Econ Life 25 years, per our observation and estimate Depreciation Effective Age / Economic Life = Depreciation 20 years / 45 years = 44% Z— rCURTIS-R❑SENTHAL,INC. 12-183 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 45 FLOOR, ELEVATION, AND SITE PLANS .-URTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-184 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 46 ,,ffCURTIS-R❑SENTHAL,INC. 12-185 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 47 ,,ffCURTIS-R❑SENTHAL,INC. 12-186 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Photographs of the Subject Property Taken October 21, 2020 Street view of Harbor Island Drive Front customer service counter Retail/Office Unisex Restroom Front Elevation of Basin Marine Retail Hardware Store Lima) •>I Retail/Office Breakroom Page 48 ff.-URTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-187 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 49 Photographs of the Subject Property Taken October 21, 2020 Private Accounting Office Executive Office Yard Office Carpentry Office Mechanical Office Shipyard Employees Restroom ,,ffCURTIS-R❑SENTHAL,INC. 12-188 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 50 Photographs of the Subject Property Taken October 21, 2020 Narrow Boat Slip (not a part) Boat Slip A-1 Rental (not a part) Boat Slip looking south, Hoist Platform to left Large Slip with 2 Boats @ southeast corner Boat Slip A-3 Rent (not a part) Travelift Hoist that pulls ships up to drydock for repairs ff.-URTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-189 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Photographs of the Subject Property Taken October 21, 2020 2 Portable Sheds /southwest corner of parcel Shed Two — Fiberglass Repair & Storage h0.7kh �p�c Rf{EA �l nurHoR 0!!M Yip PEH,^��IYflLY Southwest Paint & Storage Area Fiberglass Refinishing @ Shed One Ladder storage @ exterior of Shed 2 Water Treatment Area Page 51 ff.-URTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-190 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Photographs of the Subject Property Taken October 21, 2020 Boat Slip on east side Southeast corner of parcel & boat slip Boat Side -tie Slip on east side .YL Boat slip on east side Page 52 Looking north at property at water treatment Public Parking Lot looking south to shipyard tanks and hoist ff.-URTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-191 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 53 Photographs of the Subject Property Taken October 21, 2020 Looking south at Shipyard from Carpentry Shop Basin Marine looking northeasterly Shipyard looking south, Public Parking to right of vehicle gate Basin Marine 2 Private Parking Spaces ff.-URTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-192 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 54 Real Estate Taxes Current property tax information is shown below. ASSESSED VALUE (2020-2021) APN Land Improvement Total Total Taxes 050-431-25 N/A N/A $0 Exempt TOTALS $0 $0 $0 $0 TAX RATE AREA: 07-001 -------------- - TAX RATE: 1.052850% ---------------------------- DIRECT ASSESSMENTS: $0.00 The subject property is exempt from real property taxes as it is owned by the City of Newport Beach, CA. According to California Proposition 13, real estate taxes in California are limited to 1.00%of assessed value plus limited amounts for bonded indebtedness. Properties are reassessed upon sale or transfer of over 50% of the ownership interest, and when significant remodeling or new construction is completed. The new assessed value would be based on the current market value of the property on the date of sale, which typically corresponds with the purchase price paid for the property, or on the date of reassessment. Since the definition of value for this assignment assumes a sale of the property, our valuation analysis uses a property tax liability based on our appraised value estimate for the subject property as though a sale had occurred. Our inquiry with the County Tax Assessor's Office did not reveal any past -due taxes currently impacting the subject property. The property is exempt of real property taxes. Our appraised value estimate of the subject is higher than the current assessed value due to improved market conditions since the date of acquisition. Ownership History The following table presents the current ownership and recent ownership history of the subject property. Ownership History Transaction Doc. No. Buyer Seller Date of Sale Sale Price N/A N/A City of Newport N/A N/A N/A Beach, CA We are not aware of any other sales, listings, escrows or pending sales of the subject property during the past three years. ff7r_ URTIS-ROSENTHAL,INC. 12-193 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 55 Discussion of Contract Rent The subject property is leased to Basin Marine, Inc., a California Corporation (lessee) and between the City of Newport Beach, a Municipal Corporation (lessor) as of January 1, 2001. The original lease term was 15 years plus two 5-year options to extend the lease. The base term was 15 years and expired December 31, 2015. The first 5-year option commenced January 1, 2016 and expires December 31, 2020. The 2"d option will commence January 1, 2021. A portion of the site area is currently being used by tenant for a shipyard/boat repair facility with a marine hardware store. The marine hardware store improvements contain a gross area of approximately 2,300 square feet plus workshop area of 1,260 square feet which is leased at a base rent of $11,399.58 per month plus a percentage rent as follows. Gross Sales Percentage Rates: 1. Shipyard/boat repair (labor, service and materials) at 4% of gross sales. 2. Outside labor and materials at 10% of gross commissions and fees received by tenant. 3. Equipment and hardware sales, exclusive of internal sales to boat repair business at 5% of gross sales. Periodic Adjustment of Rent At the end of every V lease year the annual base rent shall be adjusted to the greater of either: 75% of the average reconciled annual total rent for such just ended 3 lease year period or the annual base rent for the just concluded lease year. The appraisers reviewed the existing Lease Agreement. The complete lease for the tenant was provided to the appraisers. The Lease Agreement is triple net which means the tenant is responsible for all real estate taxes, fire and public liability insurance, all utility services and all repairs and maintenance. The tenant, in addition to paying rent, at tenant's sole expense shall do the following. 1. Haul out and re -launch, each lease year, up to four of the vessels owned and maintained by the City, of a size capable of being handled by tenant's equipment provided, however all such four City vessels shall be hauled out no more than two vessels at a time. 2. Transport the vessels to an area on the Premises suitable for purposes of repairs or maintenance. 3. Allow each such vessel to remain on the Premises for a period of two weeks immediately after haul -out. 4. Permit access to the vessels by employees or representatives of the City for the purpose of repairs and maintenance, which shall be performed by City at no cost or liability to tenant. ff7—r-URTIS-R❑SENTHAL,iNC. 12-194 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 56 HIGHEST AND BEST USE Highest and Best Use is defined as follows: "The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the Highest and Best Use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity." An analysis of Highest and Best Use must consider a property As If Vacant and As Improved. Analysis of Land, As If Vacant Physically Possible: The subject site is level with access from Harbor Island Drive. No physical impediments were observed that would prevent the subject site from being developed to its Highest and Best Use. Legally Permissible: The zoning of the subject site PF, Public Facility District. Based on the zoning of the subject site, legally permissible uses of the site would include a mixed -use development of residential and commercial uses. Reportedly, the State of California will not allow residential uses in the filled tideland areas (land held in trust). (Source: Lauren Wooding Whitlinger) Financially Feasible: The subject's immediate neighborhood primarily consists of an area of upscale single family and multi -family residences and limited commercial retail uses. The general composition of uses in the subject area is generally consistent with the legally permissible uses as prescribed by local zoning standards. Therefore, if the subject was vacant and suitable for development, it is our opinion that the most financially feasible alternative would appear to be represented by the development of a mixed -use single-family or multi -family residential and commercial use. Maximally Productive: The maximally productive use is that use which provides the greatest return and the most profitable alternative. Physically the subject site would not specifically preclude any type of development. Legally the zoning allows for various types of uses as discussed above. From the legally permissible uses, it is our opinion that financially feasible uses would include mixed use residential and retail uses. Our analysis indicates that of the financially feasible uses, the maximally productive use of the subject site would be mixed -use single-family or multi -family residential and commercial use. Note, that the subject site has water area that include boat docks and slips. With respect to the water areas, given that water parcels or parcels containing both land and water areas, rarely sell, the rental value of the water areas is based on a direct rental comparison approach, considering other boat slip rental rates in the immediate and general subject area. Therefore, it is our opinion that the Highest and Best Use, As If Vacant of the subject site would be single- family or multi -family residential and commercial use. ff7—r-URTIS-R❑SENTHAL,INC. 12-195 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 57 Analysis of the Property, As Currently Improved The analysis of the subject property, As Improved, relies on the same basic criteria outlined in the discussion of Highest and Best Use of the subject site assumed vacant. However, the current discussion focuses on whether the existing improvement program offers any contributory value. The subject is generally functional for its intended use and is operating successfully under a ground lease dated January 1, 2001. A review of the subject's physical traits did not suggest any specific items or modifications that would need to be completed in order to achieve the subject's Highest and Best Use. Our analysis indicates that the existing improvement program offers substantial contributory "value in use" over and above the underlying land value. Therefore, it is our opinion that the Highest and Best Use, As Currently Improved of the subject property, is to continue the existing use of the property as presently configured. Z- Fr URTIS-R❑SENTHAL,INC. 12-196 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 58 VALUATION TECHNIQUES AND METHODOLOGY Valuation Techniques Three approaches to value form the foundation for current appraisal theory. These approaches are Cost Approach, Sales Comparison Approach, and Income Capitalization Approach. Cost Approach - Utilized This approach is based on the proposition that an informed purchaser would pay no more for a property than the cost of producing a substitute property with the same utility. It is particularly applicable when the subject property involves relatively new improvements that represent the Highest and Best Use of the land, or when relatively unique or specialized improvements are located on the site for which there exist no comparable properties in the market. Sales Comparison Approach - Utilized This is an appraisal procedure in which the market value estimate is predicated upon prices paid in actual market transactions and current listings. The former fixes the lower limit of value in a static or advancing market (price -wise) and fixes the higher limit of value in a declining market. The latter fixes the high limit in any market. It is a process of analyzing sales of similar, recently sold properties in order to derive an indication of the most probable sales price of the property being appraised. The reliability of this technique is dependent upon: 1. The availability of comparable sales data; 2. The verification of the sales data; and, 3. The degree of comparability or extent of adjustment necessary for time differences affecting the sales price. Income Capitalization Approach — Not Utilized This approach is widely applied in appraising income -producing properties and ground leased land. Anticipated present and future income, as well as any future reversions, is discounted to the present value through a Discount Cash Flow Analysis. Z_ rCURTIS-R❑SENTHAL,iNC. 12-197 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 59 Valuation Methodology Used in This Assignment Our valuation of the subject property includes the following analyses: • Cost Approach Valuation Significant valuation issues we addressed are cited below: 1. The valuation of the subject improvements does not include furniture, fixtures and hoist equipment, per our scope of work we were not asked to appraise the furniture, fixtures and hoist equipment only the site improvements pertaining to realty. 2. Note, that the subject site has water area that include boat docks and slips. With respect to the water areas, given that water parcels or parcels containing both land and water areas, rarely sell, the rental value of the water areas is based on a direct rental comparison approach, considering other boat slip rental rates in the immediate and general subject area. 3. As discussed previously, the current/ongoing Covid-19 global pandemic is having reported impact on financing rates/lender spreads, lowered loan -to -value (LTV) ratios, landlord and tenant cash flows, etc. Given the rapidity of events related to the pandemic that have affected real estate sales, the present risks (as of the effective date of value) appear to be financing related and broad uncertainty in global/national/local economics in the near term. This being the case, price/value discounting for the subject is prudent. 4. Reportedly, the State of California will not allow residential uses in the filled tideland areas (land held in trust). Z- Fr URTIS-R❑SENTHAL,iNC. 12-198 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 60 COST APPROACH The Cost Approach is based on the economic principle of substitution. A cornerstone of this valuation approach is the premise that an informed buyer would not pay more for a property than the cost of acquiring a comparable vacant site and constructing an improvement program of similar utility. The fundamental steps of the Cost Approach are outlined below: 1. Estimate the value of the site assumed vacant and available for development to its Highest and Best use. 2. Estimate the total reproduction or replacement costs associated with the improvement program. These costs include direct or hard costs such as building materials and labor, as well as indirect or soft costs such as financing charges, real estate taxes during construction, professional fees, carrying charges, etc. Reproduction costs are used when it is necessary to estimate the costs to exactly replicate a building in every detail. Typically, a replacement cost estimate is more appropriate and useful. The replacement cost estimate is based on the expense associated with developing a similar building of equal utility and function. 3. Estimate an appropriate level of entrepreneurial profit. This cost reflects the required return to the developer for assuming the time, coordination, and risk associated with project development. This cost is distinct from contractor's profit and overhead which is incorporated as a direct cost. 4. Add together the total construction costs (i.e.-direct costs, indirect costs, and entrepreneurial profit) associated with development. 5. Subtract any observed levels of depreciation impacting the subject property. Depreciation may stem from physical deterioration, functional obsolescence, or economic obsolescence. The total construction cost adjusted for accrued depreciation yields the Replacement or Reproduction Cost less Depreciation. 6. Add the total depreciated improvement value to the estimated land value to derive the value indicated by the Cost Approach. In this assignment the Cost Approach is applicable for the following reasons: The subject property is a viable boat repair yard, showroom/retail sales building and site improvements. The site improvements pertain to realty. ff7—r-URTIS-R❑SENTHAL,iNC. 12-199 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 61 Land Valuation Our Land Valuation analysis uses the Sales Comparison Approach which is a method of valuation that compares prices paid for similar properties in an open and free marketplace. We surveyed the market in the subject area in order to locate comparable sales of similar sites which would aid in forming an opinion of land value for the subject property. Our search parameters are summarized below. Primary Search Parameters for Land Sale Comparables Location Newport Beach & Surrounding Cities Sale Date January 2019 to November 2020 X acre to 1 Acre of Residential and Mixed -Use Property Type Land Method of Analysis _F Our research indicated most investors Price Per SF analyze land sale comparables on this basis. ff7—r-URTIS-R❑SENTHAL,iNC. 12-200 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA 92660 Page 62 Map of Comparable Land Sales A L - �J ' -osta es to Av Uni ers is Land Listing 5 Land Sale 4 504 29th St. 2820 Lafayette Ave. New ort Beach s Newport Beach Is `� Land Sale 2 La u#a W Newport Balboa 1514 E. Balboa Blvd. g Beach New ort Beach ona 73 el Mar Subject if 829 Harbor Island Land Sale 3 Dr. Newport Beach 130 Irvine Cove Ct. Crystal cove Laguna Beach Wilderne iso VI Par Laguna Emerald Bay Canyon Acres aguna Beach Aliso & Wood Canyons Park South P a c i f i c O c e a n Copvright© and (P) 1988-2012 Microsoft Corporation and/or its suppliers. All rights reserved. Arc 518 Foothill Ranch Po a o q �l- 74 n Juan a Land Sle 1 41 Strand Beach Dr. o a Dana Pint L 1 Capistrano Beach an ff e 'AffiC U RTI 5' R O5 ENTHAL, INC. REAL ESTATE APPRAISAL & CONSULTING 12-201 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 63 SUMMARY OF EFFECTIVELY VACANT LAND SALES ITEM STREET ADDRESS SALE DATE ZONE CASH EQV. PRICE CITY STATE ZIP DOCUMENT NO. SQUARE FEET PRICE PSF ASSESSOR'S PARCEL NUMBER SELLER ACRES PRICE PACRE BUYER 1 41 Strand Beach Drive September 29, 2020 R1 $ 12,500,000 Dana Point, CA 92629 533798 10,215 $ 1,223.69 672-641-29 Donna & Douglas Neff & OCCF 0.23 53,303,965 Bryan & P eatt Taylor Living Tr. 2 1514 E. Balboa Blvd. September 25, 2020 R1 $ 6,150,000 Newport Beach, CA 92663 525579 9,540 $ 644.65 048-182-13 So. Cal Land Co. LLC 0.22 28,081,132 Golden Opportunity No. 17 LP 3 130 Irvine Cove Court October 21, 2019 R1 $ 4,000,000 Laguna Beach, CA 92651 411254 11,930 $ 335.29 496-191-15 The Sue J. Gross Living Trust 0.27 14,605,197 Brighton Road Investments, LLC 4 2820 Lafayette Ave. Under Contract MU-H2 $ 3,550,000 Newport Beach, CA 92663 N/A 4,800 $ 739.58 047-023-01 & 02 2820 Lafayette LLC 0.11 32,216,250 Not Disclosed net usable area 5 504 29th St. Listing MU-H2 $ 2,395,000 Newport Beach, CA 92663 N/A 4,500 $ 532.22 047-051-07 2820 Lafayette LLC 0.10 23,183,600 Not Disclosed Z— rCURTIS-R❑SENTHAL,INC. 12-202 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 64 Photographs of Comparable Sales Sale Number One Sale Number Three Listing Number Five (Google Photo) Sale Number Two Sale Number Four AVCURTIS-ROSENTHAL,�N REAL ESTATE APPRAISAL & CONSULTING 12-203 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 65 Plats of Comparable Land Sales Sale Number One Sale Number Three r _05 3 w \'� \ I Listing Number Five 7 Sale Number Two a, oz F � ` J `a �i 41, Sale Number Four ff.,URTIS-ROSENTHAL, INC. REAL ESTATE APPRAISAL & CONSULTING 12-204 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 66 Land Sale Adjustment Grid Sale Price Site Size (sf) Acres $ SF Rights Conveyed Adjusted $ SF Financing Terms Condition of Sale Adjusted $ SF Date Adjusted $ SF General Location Specific Location Site Configuratior Site Shape Topography Utility Status Zone/Density Filled Tidelands Site Improvements Site Size (ac) Subtotal of Adjustma FINAL INDICATORS Overall Comparability ADJUSTMENT OF COMPARABLE LAND DATA SUBJECT One Two Three Four Five N/A $12,500,000 $6,150,000 $4,000,000 $3,550,000 $2,395,000 32,990.71 10,215 9,540 11,930 4,800 4,500 0.76 0.23 0.22 0.27 0.11 0.10 N/A $1,223.69 $644.65 $335.29 $739.58 $532.22 0% 0% 0% 0% 0% 0% N/A $1,223.69 $644.65 $335.29 $739.58 $532.22 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -10% N/A $1,223.69 $644.65 $335.29 $739.58 $479.00 November-20 0.0% 0.0°% 0.0% 0.0°% 0.0°% N/A $1,223.69 $644.65 $335.29 $739.58 $479.00 Newport Beach similar similar similar similar similar Harbor Island Drive Water Front similar inferior inferior similar inferior Interior Site similar superior similar superior superior "L" Shape superior superior similar similar superior Level similar similar similar similar similar Water, Power, Gas similar similar similar similar similar Best Use (Potential Mixed Use) inferior inferior inferior similar similar No Residential Use superior superior superior superior superior Assume Vacant similar similar similar similar inferior 0.76 superior superior superior superior superior its -40% -40% -30% -55% -50% Adjusted $ SF $734.21 Superior $386.79 Superior $234.70 Inferior $332.81 Superior $239.50 Inferior ff7—r-URTIS-R❑SENTHAL,INC. 12-205 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 67 Valuation Analysis Our analysis of the comparable sales takes into account features of comparison that a knowledgeable buyer in the subject marketplace would consider. The adjustments applied are not based on paired -data analysis and they are not intended to be viewed in a precise or absolute context. Rather, they are intended to offer general insight with regard to the order of magnitude afforded each of the adjustment categories, based on our research in the subject marketplace. Market Conditions (Time) According to Trends 2020 in Retail Rent Growth as of the 3rd quarter of 2020 was reported by Costar at -0.06%. Multi -family Residential land Rent Growth increased in the last 12 months was reported by Costar at +1.4%. Further, the appraisers considered the opinion of Evan Forrest, Senior Consultant with Metro Study, that land prices are flat in 2020 due to COVID19 Pandemic and that land sales in 2018 and 2019 increased slowly. Therefore, no time adjustments are warranted. Our discussion of each of the Comparable Sales is presented below. Comparable Sale Number One — refers to a closed sale in September 2020. The parcel is zoned R1, one dwelling unit per parcel. This property has water frontage and level from within a gated residential community known as the Strand at Headlands. There is water, sewer and power in the street. The shape is rectangular. The parcel is a finished lot. The buyer's intended use is for future single-family residential development. According to Maleny Rodriquez assistant for Tim Smith, listing agent and the Regional MILS, the sale was confirmed at $12,500,000 with no concessions to the buyer. The comp's general location is similar to the subject. The specific location is similar to the subject property. The comparable's utilities (water, sewer and power) are similar to the subject property. The comp is an interior site and rated similar to the subject. The comp has a lesser highest and best use than the subject's MU zoning. The rectangular shape/utility of the comp is superior to the subject property. The level topography is similar to the subject. The comparable has paved road access and is similar to the subject property. The parcel is a vacant finished lot and is similar to the subject property. The smaller size of the comp is superior to the subject property (economies of scale). The lack of residential use in the filled tideland areas are rated superior to the subject. All factors considered; the subject property's unit value is below this indicator. Comparable Sale Number Two — refers to a closed sale in September 2020. The parcel is zoned R-1, one dwelling unit per parcel. This property is a corner site without water frontage. There is water, sewer and power in the street. The shape is rectangular. The parcel is three contiguous finished lots. The buyer's intended use is for single family development on each lot. According to Kimberly Bibb, listing agent and the Regional MILS, the sale was confirmed at $6,150,000. There is a tennis court on the site. The comp's general location is similar to the subject. The specific location is inferior to the subject. The comparable's utilities (water, sewer and power) are similar to the subject property. The comp is a corner site and rated superior to the subject. The comp has a lesser highest and best use than the subject's MU zoning. The rectangular shape/utility of the comp is superior to the subject property. The level topography is similar to the subject. The comparable has paved road access and is similar to the subject property. The parcels are vacant finished lots and is similar to the subject property. The smaller size of the comp is superior to the subject property (economies of scale). The lack of residential use in the filled tideland areas are rated superior to the subject. All factors considered; the subject property's unit value is below this indicator. ff7—r-URTIS-R❑SENTHAL,INC. 12-206 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 68 Comparable Sale Number Three — refers to a closed sale in October 2019. The parcel is zoned R1, single family residential of one dwelling unit per parcel. This property has no water frontage and is accessible from the gated residential community known as Irvine Cove. The site is a vacant finished lot with ocean views. There is water, sewer and power in the street. The shape is irregular. The buyer's intended use is for future residential development. According to Kathryn White, listing agent and the Regional MLS, the sale was confirmed at $4,000,000. There is gated paved road access to the site. The comp's general location is similar to the subject. The specific location is inferior to the subject property. The comparable's utilities (water, sewer and power) are similar to the subject property. The comp is an interior site and rated similar to the subject. The comp has a lesser highest and best use as compared to the subject's MU zoning. The irregular shape/utility of the comp is similar to the subject property. The level topography is similar to the subject. The comparable has paved road access and is similar to the subject property. The smaller size of the comp is superior to the subject property (economies of scale). The lack of residential use in the filled tideland areas are rated superior to the subject. All factors considered; the subject property's unit value is above this indicator. Comparable Sale Number Four — refers to a Pending sale due to close escrow in November 2020. The parcel is zoned MU-1-12, mixed use commercial and residential zone. This property is a level corner site with water frontage. The site is within the Cannery Village. There is water, sewer and power in the street. The shape is irregular. The parcel is a finished lot consisting of 6,900 gross square feet with a net land area of 4,800 square feet. The buyer's intended use no plans for development. According to Chris Maddy, listing agent and LoopNet, the Pending sale was confirmed at $3,550,000. There is paved road access to the site. The comp's general and specific locations are similar to the subject. The comparable's utilities (water, sewer and power) are similar to the subject property. The comp is a corner site and rated superior to the subject. The comp has a similar zoning. The irregular shape/utility of the comp is similar to the subject property. The level topography is similar to the subject. The comparable has paved road access and is similar to the subject property. The parcel is a vacant finished lot and is rated similar to the subject property. The smaller size of the comp is superior to the subject property (economies of scale). The lack of residential use in the filled tideland areas are rated superior to the subject. All factors considered; the subject property's unit value is below this indicator. Comparable Listing Number Five — refers to a current listing. The parcel is zoned MU-1-12, mixed use commercial and residential zone. This property is a level corner site without water frontage. The site is within the Cannery Village. There is an older commercial building which will be demolished (no value assigned to the improvements). There is water, sewer and power in the street. The shape is rectangular. The parcel is a finished lot consisting of a net land area of 4,500 square feet. The buyer's intended use is for an automobile storage garage. According to Chris Maddy, listing agent and the MLS, the listing was confirmed at $2,395,000. There is paved road access to the site. This comparable listing was adjusted downward from the listing price to an estimated closed sale price. The comp's general location is similar to the subject. The specific location is inferior to the subject property due to its lack of water frontage. The comparable's utilities (water, sewer and power) are similar ff7—r-URTIS-R❑SENTHAL,INC. 12-207 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 69 to the subject property. The comp is a corner site and rated superior to the subject. The comp has a similar zoning. The rectangular shape/utility of the comp is superior to the subject property. The level topography is similar to the subject. The comparable has paved road access and is similar to the subject property. The parcel is improved with an older commercial building and is rated inferior to the subject property relative to demolition costs after the purchase. The smaller size of the comp is superior to the subject property (economies of scale). The lack of residential use in the filled tideland areas are rated superior to the subject. All factors considered; the subject property's unit value is above this indicator. Sales Comparison Approach Conclusion VALUE ARRAY Sale Number Overall Comparison Adjusted $/SF 1 Superior $734.21 2 Superior $386.79 4 Superior $332.81 Subject 5 1 nferior $239.50 3 1 nferior $234.70 The adjusted value range is from $234.70 per SF to $734.21 per SF. Consideration has been given to each of the comparable sales. Greatest weight is given to Sale Four and Listing Five. Listing Five suggests the lower value range of $239.50 per SF for the subject property. Sale Four suggests the upper value range of $332.81 per square foot for the subject property. The appraisers reconciled the preceding value range at $250.00 per square foot. Land Size Unit Value Value (SF) X ($/SF) = Conclusion 32,990.71 X $250.00 = $8,247,677.50 Covid-19 Market Impact As discussed previously, the current/ongoing Covid-19 global pandemic is having reported impact on financing rates/lender spreads, lowered loan -to -value (LTV) ratios, landlord and tenant cash flows, etc. Given the rapidity of events related to the pandemic that have affected real estate sales, the present risks (as of the effective date of value) appear to be financing related and broad uncertainty in global/national/local economics in the near term. This being the case, price/value discounting for the subject is prudent. Based on published information on the virus impacts available to us and our discussions with industry professionals, it is considered that an applied 5% risk discount for the subject is warranted and prudent. This being the case, an adjusted value for the subject that considers this nominal risk discount is estimated as $8,247,677.50 X .95 = $7,835,294, rounded to $7,835,000. Z— rCURTIS-R❑SENTHAL,iNC. 12-208 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 70 Based on the data and analysis presented above, it is our opinion that the following value is indicated for the subject property according to the Sales Comparison Approach. Value Conclusion — Sales Comparison Approach "Fair Market" Value Conclusion $7,835,000 ,�ffC U RTI S' R O S ENTHAL, INC. REAL ESTATE APPRAISAL & CONSULTING 12-209 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 71 Cost Data The analysis of the subject development via the Cost Approach has been undertaken utilizing a study based on cost data published by Marshall Valuation Service. The replacement cost and physical depreciation estimates presented are based on cost data from Marshall Valuation Service, a national cost estimating service, together with other cost data maintained in our files. These costs include direct costs, overhead, and contractor's profit. The replacement cost new for the showroom/workshop building areas, Section 14, pages 31 and 32, dated February 2020, equipment shed buildings, Section 17, page 12 dated May 2019. The concrete paving and asphalt paving costs were found in Section 66, page 1, dated December 2019. The chain link fencing and gate costs were found in Section 66, page 4, dated December 2019. The masonry wall cost were found in Section 66, page 4, dated December 2019. The deck and ramp costs were found in Section 67, page 6, dated December 2019. The handicapped ramp were found in Section 66, page 2, dated December 2019. Current Cost multiplier of 1.05 were found in Section 99, page 3 and Local Cost Multiplier of 1.25 was found in Section 99, page 6 dated September 2020 and July 2020, respectively. The cost factors from the Marshall Valuation Service of Marshall & Swift are based on a survey of actual, final costs to the owner. These costs include the following: 1. Architect's and Engineer's fees, which in turn includes plans, plan check, building permits, and surveys to establish building lines and grades; 2. Normal interest on building funds during the period of construction. These financing costs have been extrapolated and deducted from the base cost factor used in our analysis. They are added back in as separate items for explanatory purposes; 3. Sales taxes on materials; 4. Normal site preparation including excavation for foundation and backfill; 5. Utilities from structure to lot line (figured for typical setback); 6. Contractor's overhead and profit, including job supervision, workmen's compensation, fire and liability insurance, unemployment insurance, etc. A detailed breakdown of the direct and indirect costs applied in the Cost Approach via Marshall & Swift is provided on the following page. ff7—r-URTIS-R❑SENTHAL,iNC. 12-210 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 72 SUMMARY OF COST APPROACH ANALYSIS ESTIMATION OF DIRECT COSTS Component Sq. Ft. /S . Ft. Building Improvements (Showroom) 2,300 x $ 176.00 = $ 404,800 Building Improvements (Workshops) 1,260 x $ 63.00 = $ 79,380 Portable Shed Improvements 600 x $ 30.00 = $ 18,000 Site Improvements 0 x $ - _ $ 355,963 TOTAL DIRECT COSTS $ 858,143 ESTIMATION OF INDIRECT COSTS Financing Cost During Construction Loan Amount $ 858,143 Construction Period (months) 12 Average Outstanding Balance 65% Interest Rate 5.00% Total Interest Payment $ 27,890 Points to Secure Financing 2.00% $ 17,163 Lease -Up Costs Rentable Area Average Market Rent psf $ - Typical Lease Term (months) Broker's Fee 0.00% Total Lease -Up Cost $ - Contingencies (change orders, etc.) 2.00% $ 17,163 Real Estate Taxes During Construction Land Value $ 7,835,000 Construction Period (months) 8 Tax Rate 1.052850% $ 54,994 TOTAL INDIRECT COSTS 12% $ 117,209 TOTAL COST NEW PRIOR TO DEVELOPER'S PROFIT 100% $ 975,352 PLUS DEVELOPER'S PROFIT 15% _ $ 146,303 TOTAL COST NEW INCLUDING DEVELOPER'S PROFIT $ 1,121,655 LESS ACCUMULATED DEPRECIATION Effective Age 20 Years Economic Life 45 Years Physical 44% _ $ 498,513 Functional 0% _ $ - Economic 0% _ $ - $ 498,513 ESTIMATED REMAINING IMPROVEMENT VALUE $ 623,142 PLUS LAND VALUE $ 7,835,000 VALUE INDICATED BY COST APPROACH $ 8,458,142 ROUNDED $ 8,500,000 Therefore it is our opinion that the Market Value of the subject property as of the stated date of valuation, according to the Cost Approach, is: $ 8,500,000 ff.,—Jvr-URTIS-R❑SENTHAL,INC. 12-211 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 73 The base factor utilized in our analysis is based on Marshall & Swift's category for Class-S, Metal and Class D wood frame Construction properties. Effective age for the showroom and workshop building, were estimated at 20 years and a total economic life of 45 years which results in 44% physical depreciation. Physical depreciation is calculated based on the effective age/life method as follows: Effective age divided by estimated economic life equals depreciation percentage. The subject property is proposed. Therefore, the amount of depreciation is applicable. Functional Obsolescence stems from features intrinsic to the subject property such as poor design features, building inadequacies, or features of the property that are deemed super -adequate. The subject improvements as designed do not reflect Functional Obsolescence. Economic Obsolescence is loss in value stemming from sources outside the subject property such as changes in surrounding uses, declination in market conditions, or offensive byproducts or pollution emanating from nearby uses. There are no external surrounding uses that reflect External Obsolescence. Developer's profit is the economic return required by a developer as compensation for taking on the entrepreneurial risk of development. Developers typically calculate profit based on any of the following relationships: As a proportion of direct costs; as a proportion of direct plus indirect costs; as a proportion of direct, indirect and land costs; and finally, as a proportion of the total value of the project. The same dollar value of profit could result in a wide range of proportions due to differing basis of comparison. A survey of developers for properties similar to the subject in its general area indicated that profit is typically calculated as a percentage of total direct and indirect costs. This survey dictated a typical required profit of 10% to 20% of that base. This method of calculation has been used in our Cost Approach analysis, assuming a 15% required profit. Conclusion of Market Value — Cost Approach Therefore, in our opinion the Market Value of the Leased Fee Interest in the subject landside property, as of our date of inspection, is rounded to $8,500,000. ff7r_ URTIS-ROSENTHAL,INC. 12-212 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 74 Landside Area: RATE OF RETURN Upon determining the market value of the landside area and related land improvements (showroom, workshops and site improvements) a rate of return was employed to estimate the market rental value. The rate of return employed in the subject case is derived based on Capitalization Rates (1) Costar Newport Beach Submarket retail and multi -family rates (2) Realty Rates.Com retail and apartment land leases and (3) Price Waterhouse Real Estate Investor Survey (PWC) of Net Lease Investments and apartment investments. Retail Market Cap Rates MARKET CAP RATE 7 So._ 7.0% 6.5% 6-0% 5.5% 5.0 % 4.5% 4.0% 3.5% 10 I I I I 11 12 13 14 15 18 17 18 19 20 0 Mall 0 Neighborhood Center Strip Center 0 General Retail 0 Newport Beach Multi -family Market Cap Rates MARKET CAP RATE 5.5% 5.0% 4.5 % 4-0 % 3-5 % 3.0% I I I I I I I I I I I I 10 11 12 13 14 15 16 17 18 19 20 21 0 Newport Beach 3 Star 0 Newport Beach 4-5 Star 0 Newport Beach Orange County ,,ffCURTIS-R❑SENTHAL,INC. 12-213 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 75 The preceding Market Cap Rate graph for retail properties was reported by Costar at 4.5% and for Multi- family properties at approximately 4.0%. Realty Rates.com Land Leases The following table summarizes prevailing land lease capitalization and discount rates. The former reflect initial rates of return on appraised values For vacant land proposed for development. They do not address increases in land lease payments or the reversion but may include percentage rent- The latter are internal rates of return being achieved by landowners on improved properties- ftis such, they include ehanges in land lease payments, percentage rent where applicable, and the reversion of the entir>r property at the termination of the lease. Total lease terms range from 40 to 99 years, while fixed rent periods range from one to 10 years. Generaliy, short -berm (1-3 years) fixed rent periods auto -adjust based on a national reference rate such as the Consumer Price Index, while long-term (5.10 years) fixed rent periods are based on appraised values but afe often subject to negotiation andfor arbitration - LAND LEASES Capitalization Rates Discount Rates propeelf7wr His. Mau. Aug. Min. Max. Avg. Apartments 14Y/. t.37'r- 5.16% 4.02% 8.87% 6.18'/. 301f 1.63X 14.57Y 7.49x 4.23i 15.07'%. 6.49i He i I th C ar 91 St ni o r Hous i ng 1.79X 9ipAr. 3A7% ON 10.15x 6.87% Industrial 1 Sttf 8 77. 5."'A 4.12Y 8.27Y 8.58Y Lodging 1)= 13,92. 649% 4.22Y. 14.42X 7.08Y Mobile HornalRV Park 1.%% I1,41tY 6.44x 3,74Y 11.85X 7.44X office 1-42% $_r9X 6.0% 4.03Y UN 8.08X Restaurant 2-43% t16k 7.13M 5.03X 14113M 8.13'l. Retail 1-47x WU52 5.73x 4.67x 10.12% 6.73i Self -Storage 1-47% 9.15X 6.70Y. 4.07'/. 9.65X 7.70'I. Special Purpose 2ffl% IFLM 7.46% 5.47'/. 17.34X 8.34'/. AIIProperties 1.14x TLM 6.25% 3.74i 15.07'%. 7.13i '2nd Roamer 2020 Data Copyright 2020 Re ItyRatc:._Mm The preceding Market Cap Rate graph for retail land leases was reported by RealtyRates.com at an average of 5.73% and for Multi -family properties land lease rates was reported at an average of 5.18%. ,,ffCURTIS-R❑SENTHAL,INC. 12-214 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 76 PWC Real Estate Investor Survey OVERALL CAPITALIZATION RATE ANALYSIS Third Quarter 2020 OVERALL CAP RATES BASIS POINT CHANGE FORECAST CHANGE (SIX MONTHS) Range Average Quarterly Year Ago Increase Decrease Hold Steady National Roglonaf Mall 4.50%- 15.00% 6.93% - 2 75 1000/0 UK ovo Power Center 5.50❑/o - 9.00❑/❑ 6.81 % 6 41 83% 17❑/c 0940 Strip Shopping Center 4.75% - 10.00% 6.84% 9 7 830/❑ 00/0 17❑/0 CBDOffice 3.75% - 7.509/a 5.59%❑ 4 7 71%a 09/0 299/h Suburban Office 4.00❑/0-7.50%❑ 6.C594❑ 5 -23 40%❑ 00/❑ 60%❑ Net Lease 4.00❑/0-8.000/❑ 6.22% 0 -28 75% 00/0 25% Medical Office Buildings 4.25% - 10.50% 6.73❑/0 5 12 20% 0%❑ 80% Secondary Office 6.00%-9.5C% 7.69❑/❑ 1 9 83% 0% 17%❑ Warehouse National 3.40❑/0-7.00%❑ 4.84% 0 1 90/❑ 9❑/❑ 82% ENC Region 4.00%-6.009/b 5.C5% 2 -13 20% 0%❑ 80% Pacific Region 3.70% - 5.50❑/❑ 4.179'o 0 -23 0% 20% 809/0 Apartment National 3.500/❑-8.000/❑ 5.22% 3 12 22%❑ 00/❑ 780/❑ Mid -Atlantic Region 4.00%-6.75% 5.43% 0 30 33% 0% 67% Pacific Region 4.009/o - 6.000/❑ 4.80% 0 26 20% 00/❑ 809/0 Southeast Region 4.000/❑-6.500/❑ 5.CC% -3 2 09/o 00/❑ 100❑ro Individual Office Markets Atlanta 5.00%-8.50% 6.72%❑ -1 -8 43% 0% 57❑/v Austin 5.00% - 8,00% 6.23% - 4 34 500/❑ 00/0 509/0 Boston 4.250/o - 9.509/o 6.04% 4 - 3 601ya 00/❑ 40% Charlotte 5.00%-7.50%❑ 6.29A -5 -13 0❑/❑ 0% 100% Chicago 5.509/o -12.00% 7.86% 8 36 75% 00/❑ 25% Dallas 5.00% - 8.50% 6.630/a 49 45 60❑/a 0%o 40%❑ Denver 5.50%-10.00% 6.96% 9 61 80% 0% 20% Houston 5.75% - 10.00% 7.42% 3 26 501yo 0%a 509/6 Los Angeles 4.500/❑ - 8.50% 6.21% 4 17 830/0 0% 17% The preceding Market Cap Rate graph for retail Net Lease properties was reported by PWC at an average of 6.22% and for Multi -family properties in the Pacific Region at an average of 4.80%. The PWC survey is more broadly based survey, and typically involves major income producing properties. Primary weight has been assigned to (1) the capitalization rates derived from the Newport Beach Submarket survey, having a range from 4.0% to 4.5% for both property types and (2) the RealtyRates.com Investor survey, having a range from 5.18% to 5.73%. Given that the subject property represents a net lease investment and considering that the value is derived from the Cost Approach, a rate at the upper end of survey's (1) and (2) is employed herein. The indicated rate of return applied to the subject landside area, inclusive of the underlying land value, building and site improvements, is estimated at an annual rate of return of 4.5%. ,,ffCURTIS-R❑SENTHAL,INC. 12-215 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 77 Water Area: As stated, the rental value of the water area is based on a Direct Rental Comparison Approach. The water area of the subject site is typically suitable to support boat slips. As is typical with water parcels, many of which are developed with marinas, the rental rate for the water area is based on the boat slip rental rates, typically expressed as a rate per lineal foot. The boast slip rental rates are all inclusive of the water area, boat slips and the dock improvements. A survey was conducted of certain other marinas in the immediate subject area to determine the rental rate (per lineal foot) applicable to boat slips. It should be noted that given there is generally greater demand for larger slips, the greater the slip length, the higher the rate per lineal foot. The reader is referred to the summary of certain boat slip rental rates below. Boat Slip Survey: Balboa Yacht Basin, Newport Beach Slip Length 2020-2021 Slip Rate (per foot per month) 20' $25.82 25' $26.78 31' $29.35 32' $29.84 34' $34.14 35" $34.14 37' $34.24 40' $37.75 50' $46.84 60' $51.69 75' $54.79 Lido Yacht Anchorage Marina Slip Length 2020-2021 Slip Rate (per foot per month) 40' $48.00 45' $40 to $49.00 60' $57.00 Marina at Dana Point Slip Length 2020-2021 Slip Rate (per foot per month) 40' $19.68 45' $20.07 50' $20.80 60' $22.90 CURTIS-ROSENTHALoN REAL ESTATE APPRAISAL & CONSULTING 12-216 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 78 Newport Marina at Bayshore Drive Slip Length 2020-2021 Slip Rate (per foot per month) 45' $40.00 Balboa Marina Slip Length 2020-2021 Slip Rate (per foot per month) 58' $44.83 With respect to the subject water areas, the City of Newport Beach owner of the water area) constructed all landside and water improvements. Hence, it is necessary to estimate the rental value of the effective "unimproved" water areas. For the unimproved water area, is typically based on a percentage rent of the total gross revenue derived from the boat slips. According to Section 9 (e) "all construction improvements shall, upon completion, become part of the Premises, owned by the City of Newport Beach," (costs pertinent to the docks/slips). AS noted, the boat slip rental rates are within a generally tight range, when considering the overall rate per lineal foot and slip length. In the case of the subject property, there are three boat slips and one side - tie slip. The side -tie slip according to Chris Miller, City of Newport Beach Public Works Department would be leased at the same rental rate as the boat slips. The sizes are restated below with our estimate of fair market rent for the slips. Sizes Rent Per Lineal Foot Monthly Rent 1. 46-If by 25' wide $40.00 $1,840 2. 46-If by 25' wide $40.00 $1,840 3. 62-If by 30' wide $52.00 $3,224 4. 46' side -tie dock $40.00 $1,840 Following is a survey of percentage rental rates for boast slips at various marinas in the Southern California area: Port of Los Angeles 20% to 25% Dana Landing Marina 25% Marina del Rey 25% Port of San Diego 22% to 25% Balboa Yacht — Newport Beach 31% As noted, the percentage rates range from 20% to 31%. The 31% rate at Newport Beach is deemed far superior given the location. The vast majority of percentage rates at Marina del Rey (20+/- master lessee tenants) is 25%. The majority of the percentage rates at Port of San Diego owned marinas is 22%. Given the subject is located in the Newport Beach Harbor Marina, a percentage rate of 30% is deemed applicable to the subject slips. Note, that the 30% percentage rate is applied to the fair market annualized gross slip rental rates set forth above. ff.,—Jvr-URTIS-R❑SENTHAL,INC. 12-217 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 79 FAIR MARKET RENTAL VALUE Water Rental Value: Boat Slip 1. 46-If by 25' wide 2. 46-If by 25' wide 3. 62-If by 30' wide 4. 46' side -tie dock Subtotal: Plus, Land -Side Area (Cost Approach) $8,500,000 Total Fair Market Base Rent: Historical Percentage Rent Paid: Year End — 2018 Year End — 2019 Average Annual Rent Paid: Average Monthly Rent Paid: February 2020 March 2020 April 2020 May 2020 June 2020 July 2020 August 2020 Total (7 months) Average Monthly Rent Paid: Slip Rate/year Water % Rent Annual Land Rent $22,080.00 0.30 $ 6,624 $22,080.00 0.30 $ 6,624 $38,688.00 0.30 $11,606 $22,080.00 0.30 6,624 $31,478 Rate of Return Annual Landside Rent 0.045 $382,500 $413,978 $73,727.24 or $6,144 per month (average) $70,360.29 or $5,863 per month (average) $72,043.76 $6,003.65 $ 6,655.83 $ 8,888.01 $ 9,536.69 $ 2,189.05 $15,367.87 $ 8,201.93 9,050.68 $59,890.06 $ 8,555.72 The economic impact by the Corona Virus Pandemic from March thru August 2020 suggest that the percentage rent is more in -line with the average annual rent paid in 2018 and 2019 of $72,043.76. Therefore, we have reconciled the annual 2020 rent at $6,500 or $78,000 per year. Reconciled Monthly Percentage Rent: $ 6,500.00 Reconciled Annual Percentage Rent: $ 78,000.00 Plus, Base Rent: $413,978.00 Fair Market Rent: $491,978.00 Rounded to: $492,000.00 CURTIS-ROSENTHAL,INC. REAL ESTATE APPRAISAL & CONSULTING 12-218 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 80 RECONCILIATION Our valuation analyses presented in this appraisal report concluded to the following opinions: Valuation Approach Value Conclusion Cost Approach $8,500,000 Sales Comparison Approach Not Applicable Income Capitalization Approach Not Applicable The Cost Approach is considered to be a strong indicator of value in recently constructed buildings, particularly when current construction costs are available and there is recent comparable land sale data that would lead to an accurate estimate of the underlying site value. This approach is weakened, however, as a building grows older because of the difficulty in accurately measuring physical depreciation. On special purpose properties, the Cost Approach can provide a reasonable return on the land and improvements. The Cost Approach is applicable to this assignment for the following reasons: • The subject property is improved land and, • A reasonable annual return rate is the conventional approach relied upon by participants in the subject's marketplace for the land and improvement valuation. The Sales Comparison Approach can be a strong indicator of value when there is an adequate number of comparable property sales that are similar to the subject in physical, functional, economic and location characteristics. This approach is weakened when the quantity or nature of available market data is insufficient for purposes of direct comparison. We gave primary consideration to the Sales Comparison Approach for the land valuation. The Income Capitalization Approach via the Discount Cash Flow analysis considers the future expectations of investors for properties such as the subject. It considers current market rate -of -return requirements through the selection of a market -derived discount rates. This approach is most relevant when there are adequate market data from which to determine market discount rate requirements. We gave primary consideration to the Cost Approach and applicable annual return rates for the subject property because the subject property is encumbered by a short-term ground lease (five years remaining). Z_ rCURTIS-R❑SENTHAL,INC. 12-219 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 81 CONCLUSION Our research indicates that the Cost Approach should be given the greatest consideration in our final determination of the Leased Fee value. Therefore, based on the data and analysis above, the table below presents our final valuation conclusion(s) of the stated ownership interest, as of the stated date(s) of valuation. Fair Market Rental Value Leased Fee 10/21/2020 $492,000 ,,ffCURTIS-R❑SENTHAL,INC. 12-220 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 82 EXPOSURE TIME Exposure Time is defined as "The estimated length of time the property interest being appraised would have to have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal." The following table shows exposure times for each of the land comparable sales reported in the Sales Comparison Approach. Sale Comp # Exposure Time 1 1 day 2 1 day 3 367 days 4 188 days 5 89 days In addition, we inquired with knowledgeable local brokers about a reasonable exposure time that would have been required to sell the subject property as of the date of valuation. Our research indicates that a reasonable exposure time estimate for the subject property would have been 3 to 4 months. ff7—r-URTIS-R❑SENTHAL,INC. 12-221 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA Page 83 CERTIFICATION We certify that to the best of our knowledge and belief: • The statements of fact contained in this report are true and correct. • The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions. • We have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved. • We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. • Our engagement in this assignment was not contingent upon developing or reporting predetermined results. • Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. • Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. • The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. • The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. • As of the date of this report, Joe Villegas, MAI and David Rosenthal, MAI have completed the continuing education program for designated members of the Appraisal Institute. • We have had ample experience with the subject property type and marketplace, and we possess the requisite knowledge to perform this appraisal assignment competently. • Joe Villegas, MAI and Naomi Jean Bonner have made a personal inspection of the property that is the subject of this report. David Rosenthal, MAI, FRICS has not made a personal inspection of the property that is the subject of this report. • Joe Villegas, MAI has performed the selection of comparable properties, collection and verification of data, and preliminary analysis. David Rosenthal, MAI, FRICS has reviewed and approved the final selection of comparable properties, and the final analysis and conclusion of value. Other than those mentioned, no one provided significant real property appraisal assistance to the person(s) signing this certification. • We have not performed appraisal services, as appraisers regarding the property that is the subject of this report, immediately preceding acceptance of this assignment. Joe J. Villegas, MAI David M. Rosenthal, MAI, FRICS CA #AG004648 CA #AG001641 jvillegas@curtisrosenthal.com drosenthal@curtisrosenthal.com ff7—r-URTIS-R❑SENTHAL,INC. 12-222 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA U1�7171101�7_� DEFINITIONS GENERAL ASSUMPTIONS AND LIMITING CONDITIONS APPRAISER QUALIFICATIONS AND LICENSES PARTIAL LIST OF CLIENTS -URTIS-ROSENTHAL,IN REAL ESTATE APPRAISAL & CONSULTING 12-223 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Definitions Definitions are cited from The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), published by the Appraisal Institute, unless otherwise noted) Appraisal — "1. The act or process of developing an opinion of value. 2. An opinion of value." As Is Market Value - "The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date." Extraordinary Assumption — "An assignment -specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser's opinions or conclusions. Comment: Uncertain information might include physical, legal, or economic characteristics of the subject property; or conditions external to the property, such as market conditions or trends, or the integrity of data used in an analysis." (USPAP 2018-2019) Fair Market Value - "The price at which the property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." (IRS Regulations 26 CFR 20.2031-1b and 26 CFR 25.2512-1) Fee Simple Estate - "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." Ground Lease — "A lease that grants the right to use and occupy land. Improvements made by the ground lessee typically revert to the ground lessor at the end of the lease term." Hypothetical Condition — "A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results but is used for the purpose of analysis. Comment: Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis." (USPAP 2018-2019) Leased Fee Estate — "A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord -tenant relationship (i.e., a lease)." Leasehold Estate — "The tenant's possessory interest created by a lease." Market Rent - "The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement, including permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (Tls)." ff7—r-URTIS-R❑SENTHAL,INC. 12-224 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Market Value -The following definition of Market Value is used by agencies that regulate federally insured financial institutions in the United States (U.S. Code Title 12, CFR Banks and Banking, Part 323.2 as published in the Federal Register): "The most probable price which 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: a. buyer and seller are typically motivated, b. both parties are well-informed or well-advised, and acting in what they consider their best interests; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto, and e. 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." Prospective Opinion of Value — "A value opinion effective as of a specified future date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific future date. An opinion of value as of a prospective date is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long-term occupancy." Retrospective Value Opinion — "A value opinion effective as of a specified historical date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with this term is appropriate, e.g., "retrospective market value opinion." Sandwich Leasehold Estate — "The interest held by the original lessee when the property is subleased to another party; a type of leasehold estate." Stabilized Occupancy — "An expression of the expected occupancy of a property in its particular market considering current and forecasted supply and demand, assuming it is priced at market rent." ff7—r-URTIS-R❑SENTHAL,INC. 12-225 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA General Assumptions and Limiting Conditions This appraisal report has been made with the following General Assumptions: 1. No responsibility is assumed for the legal description or for matters including legal or title considerations. Title to the property is assumed to be good and marketable unless otherwise stated. 2. The property is appraised free and clear of any or all liens or encumbrances unless otherwise stated. 3. Responsible ownership and competent property management are assumed. 4. The information furnished by others is believed to be reliable. However, no warranty is given for its accuracy. 5. All engineering is assumed to be correct. The plot plans and illustrative material in this report are included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or apparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them. 7. 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 appraisal report. 8. It is assumed that there is compliance with all applicable zoning and land use regulations and restrictions unless nonconformity has been stated, defined, and considered in the appraisal report. 9. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. 10. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. ff7—r-URTIS-R❑SENTHAL,INC. 12-226 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA This appraisal report has been made with the following General Limiting Conditions: 1. The distribution, if any, of the total valuation in this report between land and improvements, applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 2. Possession of this report, or a copy thereof, does not carry with it the right of publication. 3. The appraisers, by reason of this appraisal, are not required to give further consultation, testimony, or be in attendance in court with reference to the property in question, unless arrangements have been previously made. 4. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or the firm with which the appraisers are connected) shall be disseminated to the public through advertising, public relations, news, sales, or other media without the prior written consent and approval of the appraiser. 5. Any value estimates provided in the report apply to the entire property, and any proration or division of the total into fractional interests will invalidate the value estimate unless such proration or division of interests has been set forth in the report. 6. The appraisers assume that the reader or user of this report has been provided with copies of available building plans and all leases and amendments, if any, encumbering the property. 7. No survey was furnished so the appraisers relied on the assessor's plat map to ascertain the physical dimensions and acreage of the subject property. Should a survey prove these characteristics inaccurate, it may be necessary for this appraisal to be adjusted. 8. The forecasts, projections, or operating estimates contained herein are based upon current market conditions, anticipated short-term supply and demand factors, and a continued stable economy. These forecasts are, therefore, subject to changes in future conditions. 9. Complete building plans and specifications were not available for use in the preparation of this appraisal. The analysis, therefore, is subject to review of the final plans and specifications when available. 10. Any proposed improvements are assumed to have been completed unless otherwise stipulated. Any construction is assumed to conform to the building plans referenced in the report. 11. Since earthquakes are not uncommon in the area, no responsibility is assumed due to their possible effect on individual properties, unless detailed geologic reports are made available. 12. No termite inspection report was available. The appraisers personally inspected the subject property and found no significant evidence of termite damage or infestation. No guarantee that none exists, however, should be construed. 13. No consideration has been given in this appraisal to the value of property considered by the appraisers to be personal, located on the premises, orthe cost of moving/relocating such personal property. Only the real estate has been considered. ff7r_ URTIS-ROSENTHAL,INC. 12-227 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA 14. In this appraisal assignment, the existence of potentially hazardous materials used in the construction or maintenance of the building, such as the presence of asbestos or urea formaldehyde foam insulation, and/or the existence of toxic waste, which may or may not be present on the property, has not been considered. The appraisers are not qualified to detect such substances. We urge the client to retain an expert in the field if desired. 15. Unless otherwise stated, no responsibility is assumed for any damage sustained in connection with actual or potential deficiencies or hazards such as, but not limited to, inadequacies or defects in the structure, design, mechanical equipment or utility services associated with the improvements, air or water pollution, lead paint, noise, flooding, storms or wind, traffic and other neighborhood hazards, radon gas, asbestos, natural or artificial radiation, or hazardous materials or toxic substances of any description, whether on or off the property appraised. The appraisers are not qualified to detect hazardous waste or materials on, in or under the land or the improvements. Such a determination requires the investigation of a qualified expert in hazardous materials and assessment. In this appraisal assignment, the existence of potentially hazardous material used in the construction or maintenance of the building, such as the presence of asbestos or urea formaldehyde foam insulation, and/or existence of toxic waste, which may or may not be present on the property, has not been considered. The appraisers are not qualified to detect such substances. We urge the client to retain an expert in this field if desired. 16. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific survey or analysis of the subject property to determine whether the physical aspects of the improvements meet the ADA accessibility guidelines. Since compliance matches each owner's financial ability with the cost -to -cure the property's potential physical characteristics, the real estate appraiser cannot comment on compliance with ADA. A brief summary of the subject's physical aspects is included in this report; however, this does not suggest ADA compliance by the current owner. Given that compliance can change with each owner's financial ability to cure non - accessibility, the value of the subject does not consider possible non-compliance. Specific study of both the owner's financial ability and the cost -to -cure any deficiencies would be needed for the Department of Justice to determine compliance. 17. The appraisers made no engineering survey of the subject property. Except as specifically stated, data relative to size and area has been taken from sources considered reliable, but no guarantee of accuracy is expressed or implied. Interested parties should retain a surveyor or other qualified professional for exact measurements of the subject property. ff7r_ URTIS-ROSENTHAL,INC. 12-228 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA SPECIAL ASSUMPTIONS AND CONDITIONS The applicability of Extraordinary Assumptions, Hypothetical Conditions or Special Limiting Conditions is addressed in the Scope of Work section of this report. Market concerns regarding the COVID-19 coronavirus have resulted in substantial volatility in the capital markets, increasing uncertainty in the real property marketplace. It is difficult to predict what may happen in the capital markets going forward. As a result, it is difficult to predict what may happen to real property values over time. Our valuation of the subject property considered the best information that was available at the time of our analysis. Due to on -going volatility in the marketplace, users of this appraisal should consider the current market uncertainty when determining the level of confidence, they choose to place on these analyses and conclusions. Users are reminded that the appraisal conclusions in this report are effective as of the stated date(s) of valuation. ff7—r-URTIS-R❑SENTHAL,INC. 12-229 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Appraiser Qualifications Professional Qualifications of JOE VILLEGAS, MAI EDUCATION Bachelor of Arts Degree, 1974 California State University, Fullerton, Fullerton, California Major in Art and History PROFESSIONAL DESIGNATIONS Appraisal Institute No. 9196 MAI Member State of California, Bureau of Real Estate Appraisers Certified General Real Estate Appraiser (#AG004648) State of California, Real Estate Broker (License # 00380118) International Right of Way Association Member and Past President of Inland Empire Chapter 57 EXPERIENCE CURTIS - ROSENTHAL, Inc., 2016 to date — Regional Manager Inland Empire Perform field appraisals, and review appraisals for public and private sector clients. Properties appraised include: residential, apartments, commercial, industrial, special purpose, vacant land and part takes. Villegas Appraisal Co.,-1987-2015 Real Estate Appraiser Responsible for the appraisal of retail shopping centers, office buildings, restaurants, motels, apartment complexes, cold storage facilities, mixed use commercial projects and residential subdivisions. Completed hundreds of appraisal assignments for public and private sector clients throughout Southern California. Experience includes providing reviews of commercial and residential appraisal reports for the banking industry. Extensive experience providing expert witness services including deposition and trial testimony. EXPERT WITNESS Accepted as an expert witness in Los Angeles County Superior Court and Orange County. PROJECT EXPERIENCE • California High -Speed Rail Authority, First Construction Section, Fresno County, CA • De Anza Boulevard Realignment Project, City of Calexico, CA • Caltrans, Region 7, 710 Freeway Corridor Project, Cities of South Pasadena, Pasadena and Los Angeles, CA • Southern California Gas Company Pipe Line Upgrade Project, San Luis Obispo County and City of Pismo Beach, CA • Southern California Gas Company Pipe Line Upgrade Project, Kings County, CA • Yucaipa Boulevard Widening Project, City of Yucaipa • Palm Canyon Drive Widening Project, City of Palm Springs • Alder Avenue Widening Project, City of Rialto • Avenue E Roundabout Project, City of Yucaipa • Renaissance Parkway Project, City of Rialto • Former Youth Correction Facility, Paso Robles for the CA Department of General Services ff7r_ URTIS-ROSENTHAL,INC. 12-230 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Current Appraiser License R m N O ff.EAL,URTIS-ROSENTHAL,INC. RESTATE APPRAISAL & CONSULTING 12-231 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Professional Qualifications of PROFESSIONAL DESIGNATIONS DAVID M. ROSENTHAL, MAI, FRICS Appraisal Institute MAI Member, Appraisal Institute (MAI #8024) Member of the Regional Ethics & Counseling Panel, 1994-1997, 2000-2003 Royal Institution of Chartered Surveyors Fellow of the Royal Institution of Chartered Surveyors, (FRICS #1291058) State of California, Bureau of Real Estate Appraisers Certified General Real Estate Appraiser (#AG001641) EDUCATION Master of Management Degree (MBA), 1980 J.L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois - Concentrations in Finance and Accounting Bachelor of Science Degree, 1978 University of Florida, Gainesville, Florida Major in Business Administration - concentration in Finance EXPERIENCE CURTIS - ROSENTHAL, Inc., 1983 to present - President & CEO Founding principal of regional commercial real estate appraisal and consulting firm. Perform field appraisals and review appraisals for: Commercial Mortgage Lenders (Banks, Life Insurance Companies, CMBS, Pension Funds), Public Agencies (City Governments, Transit Agencies), Law Firms (Real Estate Litigation, Estate and Trust, Lease Negotiation), Corporations (Valuation for Financial Reporting), and Accounting Firms. Properties appraised include: retail, office, industrial, apartments, condominiums, mixed -use, special purpose, and vacant land. Areas of experience include southern and northern California, Arizona and Nevada. Security Pacific National Bank, 1981-1982 - Corporate Loan Officer Responsible for portfolio of loans consisting primarily of real estate companies. Projects financed included construction and renovation of income properties and development of new residential tracts. EXPERT WITNESS Accepted as an expert witness in the following courts: Federal Bankruptcy Court - California Central District Superior Court - Los Angeles County and Orange County Municipal Court - Orange County INSTRUCTOR Loyola Marymount University, 1987 - 2016 College of Business Administration, Finance Department - Guest Instructor Federal Reserve Bank of San Francisco, 2015 Risk Connection 2015, Risks with Construction Development Lending -Guest Trainer University of California at Los Angeles, 1988 UCLA Extension, Financial Institutions Management Program - Guest Instructor ,,ffCURTIS-R❑SENTHAL,INC. 12-232 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Professional Qualifications of DAVID M. ROSENTHAL, MAI, FRICS (Cont'd) PROFESSIONAL AFFILIATIONS Appraisal Institute, 1989-present Strategic Planning Committee, Chairman 2014 IRS Valuation Summit, Los Angeles, Conference Co -Chair 2013; Washington D.C., Planning Committee 21 California Bankers Association, Affiliate Member 2009-present California Mortgage Bankers Association (CMBA), Affiliate Member, 2001-2014, 2017, 2018 Planning Committee for Commercial Real Estate Finance Conference, 2003-2014 Entrepreneurs Organization (EO, formerly YEO/WEO), 1997 to 2007 International Council of Shopping Centers (ICSC), 2011, 2017 Los Angeles Economic Development Corporation, 2004 Los Angeles Estate Planning Council (LAEPC), 2009-present; Program Chair 2009-2010 Los Angeles Mortgage Association (LAMA), Co -Founder, Co -Chair 2000-present Royal Institution of Chartered Surveyors, 2010-present Society of Chief Appraisers (SCA), Planning Committee, 2009-present Southern California Real Estate Alliance (SCREA), 1987-present; Co -Chair 1995-1996, 2003 Western Independent Bankers, Affiliate Member 2009-2011 SPEAKING ENGAGEMENTS Appraisal Institute IRS Valuation Summit, Conference Co -Chair 2013; Moderator -Partial Interest Valuation Panel 2013, 2014 Western Regional Conference, 1996-1999 SF Bay Area Fall Conference, 1998 California Bankers Association, Chief Credit Officers Symposium, 2008-2010 California Bar Association, Real Property Law Section, 2011 California Mortgage Bankers Association, Commercial Real Estate Finance Conference, 2003-20C California CPA Education Foundation, 1998 CREFC Capital Markets Conference, 2014 Crittenden National Conference, 2009 ICSC/LAMA Capital Markets Conference, 2011-2012 IMN Troubled Assets Conference, 2010 Institute of Management Accountants, 1997 International Right of Way Association, IRWA/AI Joint Conference, 2002, 2008 Los Angeles Estate Planning Council, 2009 National Council of Real Estate Investment Fiduciaries (NCREIF), National Conference, 2005 Society of Chief Appraisers 2009-2015 Special Assets Management Association, 2010-2012 Western Independent Bankers, Troubled Asset Forum, 2009, 2011 PUBLICATIONS California Mortgage Bankers Association Legal News Valuation Clauses in Leases, Ground Leases and Purchase Options, September 2011 California Mortgage Finance News Silicon Beach, The New Frontier, September2015 Life Company Risk -Based Capital for Commercial Mortgages, September 2013 Understanding the New Interagency Appraisal and Evaluation Guidelines, May 2011 California Real Estate Journal Telling the Story - A Solutions Approach to Appraisal, September 2003 Real Estate News Television (RENTV.com) Economic Update, Regular Column 2002 to 2015 Real Estate Southern California What Happened to CMBS? September 2007 The ABC's of CDO's, September 2006 The CMBS Market Comes of Age, March 2006 Real Estate Cycles - A Long Term Perspective, September 2005 Western Independent Bankers - Lending and Credit Digest Evaluations in Compliance with the Interagency Appraisal and Evaluation Guidelines, June 2012 Assessing Collateral Values, October 2010 Commercial Bank Appraisal Administration, July 2010 ff.EAL,URTIS-ROSENTHAL,INC. RESTATE APPRAISAL & CONSULTING 12-233 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Current Appraiser License ff..URTIS-P,OSENTHAL,INC. REAL ESTATE APPRAISAL & CONSULTING 12-234 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Partial List of Clients Served COMMERCIAL BANKS MidFirst Bank American Continental Bank Mission Bank Americas United Bank Mission Valley Bank Bank of America NARA Bank Bank of Manhattan National Bank of California Bank of Hemet Northern Trust Bank Bank of the Ozarks Pacific Alliance Bank Bank of Santa Clarita Pacific Capital Bancorp Bank of the West Pacific City Bank Bank One Arizona Pacific Commerce Bank Bofl Federal Bank Pacific Mercantile Bank Borel Private Bank & Trust Co. Pacific Premier Bank Boston Private Bank & Trust Co. Pacific Western Bank Builders Bank Philippine National Bank California Business Bank Popular Community Bank Capital One Bank Preferred Bank Cathay Bank Premier Business Bank Centennial Bank Premier Commercial Bank Citigroup Provident Bank Citizens Business Bank Provident Savings Bank City National Bank Rabobank City State Bank Regents Bank Coast National Bank Royal Business Bank Community Bank Saehan Bank CTBC Bank Security Bank of California Eastern International Bank Silvergate Bank East West Bank Sunwest Bank EverTrust Bank The Private Bank of California Far East National Bank United Business Bank Farmers and Merchants Bank Universal Bank FDIC US Bancorp First Commerce Bank US Metro Bank First Foundation Bank Vibra Bank First General Bank Wells Fargo Bank First National Bank of Northern California Wilshire Bank First National Bank of Southern California Zions Bank First Republic Bank Grandpoint Bank CREDIT UNIONS Greater Bay Bancorp Habib American Bank Altura Credit Union Hanmi Bank American First Credit Union Heritage Oaks Bank California Coast Credit Union Independence Bank California Credit Union JP Morgan Chase Bank Extensia Financial Key Bank Kinecta Federal Credit Union Korea Exchange Bank LA Fireman's Credit Union La Jolla Bank Mission Federal Credit Union Luther Burbank Savings Bank NuVision Credit Union Macquarie Bank Orange County's Credit Union Marshall & Isley Bank Premier America Credit Union Mellon First Business Bank Southland Credit Union Mercantile National Bank Z— rCURTIS-R❑SENTHAL,INC. 12-235 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Partial List of Clients Served (Cont) INSURANCE COMPANIES COMMERCIAL MORTGAGE BANKERS/ BROKERS AEGON USA Alison Mortgage Company Allianz Life Insurance Company Amherst Real Estate Capital Allstate Investments, LLC Balboa Financial American Equity Investment Life Insurance Co. Barry S. Slatt Mortgage Company American National Insurance Company Berkadia Commercial Mortgage American United Life Insurance Company Bond Street Capital Assurant Inc. Buchanan Street Partners Chubb Group of Insurance Companies Burnham Capital Markets Columbian Mutual Life Insurance Company Cohen Financial Genworth Financial George Elkins Mortgage Banking Company Golden State Mutual Life George Smith Partners, Inc. Great West Life Insurance Company Grandbridge Real Estate Capital Hartford Insurance Company Highland Realty Capital, Inc. Home Life Insurance Company Holiday Fenoglio Fowler, LP IDS Life Insurance Company iCap Realty Advisors ING Life Insurance Company Koss Financial Corporation John Hancock Real Estate Finance Love Funding Corporation Kansas City Life Insurance Company Marcus and Millichap Capital Corporation Lafayette Life Insurance Company Mason McDuffie Financial Corporation Lincoln National Life Insurance Company Meridian Capital Group, Inc. MetLife Capital Financial Corporation Newmark Realty Capital, Inc. Nationwide Insurance Company NorthMarq Capital, Inc. Principal Global Investors Pacific Southwest Realty Services Protective Life Insurance Company Partners Realty Capital, LLC Prudential Mortgage Capital Pathfinder Mortgage Corporation Riversource Q10 National Mortgage Co. Southern Farm Bureau Life Insurance Sunrise Mortgage & Investment Company Stancorp Mortgage Investors, LLC Terrix Financial Corporation State Farm Insurance Company Walker and Dunlop Sun Life Insurance Company SunAmerica Insurance Company Symetra Financial PENSION FUNDS / ADVISORS Thrivent Financial for Lutherans Union Central Life Insurance Company Alcatel Lucent Asset Management Corp. Union Labor Life Insurance Company American Realty Advisors United Farm Family Life Insurance Company CALPERS United Olympic Life Insurance Company California State Teachers Retirement System United Security Insurance Company Construction Laborers Pension Trust Crosson Dannis, Inc. MULTI -FAMILY LENDERS Emerson International Equitable Real Estate Investment Mgt., Inc. ABN/AMRO Apartment Lending Essex Property Trust Ameriprise Financial Guggenheim Trust Company, LLC Amerisphere Multi -Family Finance Heitman/JMB Institutional Realty Advisors Arbor National Mortgage J.P. Morgan Investment Management Beech Street Capital Olympic Realty Advisors Centerline Capital Group Principal Real Estate Investors CW Capital Standard Management Company Deutsche Bank Mortgage Capital Mark One Capital, Inc. PNC/ARCS Commercial Mortgage Prudential Huntoon Paige Walker &Dunlop �'CURTIS-R❑SENTHAL,INC. 12-236 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Partial List of Clients Served (Cont) CMBS SPECIAL SERVICERS PUBLIC AGENCIES C-III Asset Management, LLC California Housing Finance Association Key Bank Carson Redevelopment Agency LNR Partners, LLC City ofAdelanto Midland Loan Services City of Chino Helios AMC, LLC City of Colusa Berkadia Commercial Mortgage City of Gardena TriMont Real Estate Advisors City of Grand Terrace City of Inglewood City of Los Angeles CMBS LENDERS City of Montebello City of Norco Barclays Capital Real Estate, Inc. City of Palos Verdes Bridger Commercial Funding City of Pasadena CIBC World Markets Corp. City of Rialto Credit Suisse City of Riverside CW Capital City of San Louis Obispo, Housing Authority Deustchebanc Mortgage Capital City of San Mateo JP Morgan Mortgage Capital City of Santa Monica Key Commercial Mortgage City of Vernon Morgan Stanley City of Whittier Natixis Real Estate Capital, Inc. City ofYukaipa RBS Greenwich Capital Coachella Valley Mountains Conservancy Redwood Trust Compton Unified School District UBS Securities, LLC Consulate General of Poland County of San Mateo Inglewood Redevelopment Agency CORPORATIONS Inglewood Unified School District Los Angeles Community College District Alta Hospital System Los Angeles Housing Department ATT Wireless Services, Inc. Los Angeles Unified School District Best California Gas Co. Los Angeles World Airports (LAWA) Bridgestone Retail Operations Metropolitan Transit Authority (MTA) Brotman Hospital Mountains Recreation & Conservation Authority California Sports, Inc. Newport Harbor Nautical Museum Chevron Oil Company Oakland Community Housing, Inc. Getty oil Company Philippine Consulate IMAX Corporation Rosamond Community Services District Los Angeles Orthopedic Hospital Foundation San Fernando Valley Economic Development Corp. Mercury Air Cargo, Inc. Santa Monica College Mobil oil Corporation Santa Monica -Malibu Unified School District Neiman-Marcus Group, Inc. Simi Valley Unified School District Pandemic Studios The Port of Long Beach Rite Aid Corporation The Port of Los Angeles Safeway Corporation US General Services Administration Salvation Army US Postal Service Santa Monica Home Owners Corporation Thrifty Oil Company Wal-Mart Stores, Inc. Whirlpool Financial Corporation ffA , 7CURTIS-R❑SENTHAL,INC. 12-237 APPRAISAL REPORT: 829 Harbor Island Drive, Newport Beach, CA ADDENDA Partial List of Clients Served (Cont) ATTORNEYS Akin Gump Strauss Hauer & Feld, LLP Allen Matkins Leck Gamble Mallory & Natsis Arter & Hadden Barnes & Thornburg LLP Bird Marella Booth, Mitchel & Strange, LLP Brownstein, Hyatt, Farber, Schreck, LLP Bryan Cave Burhenn & Gest, LLP Cadden & Fuller, LLP Charlston, Revich, & Williams Chrystie and Berle Coudert Brothers, LLP Cox, Castle, & Nicholson DeCastrow, West, Chodorow, Glickfield & Nass Engstrom, Lipscomb and Lack Frandzel Robins Bloom & Csato, LC Gianelli and Morris Gibson, Dunn and Crutcher, LLP Goodson and Wachtel Greenberg, Glusker, Fields, Claman and Machtinger Greenberg Traurig Haight, Brown, & Bonesteel Hoffman, Saban and Watenmaker Holt Ney Zatcoff & Wasserman, LLP Inman, Weisz, & Steinberg Jeffer, Mangels, Butler, & Mitchell K&L Gates, LLP Kane, Ballmer & Berkman Katten, Muchin, Zavis and Weitzman King, Holmes, Paterno & Berliner, LLP Levin & Seligman Levinson & Lieberman Loeb and Loeb Luce, Forward, Hamilton & Scripps LLP Manatt, Phelps & Phillips, LLP Marlin and Saltzman McDermott, Will & Emery McGuire Woods McNicholas & McNicholas, LLP Mindlin and Tigerman Mitchell, Silberberg, & Knupp, LLP Morris, Polich and Purdy, LLP Munger, Tolles, & Olson Murchison & Cumming Musick, Peeler & Garrett, LLP Nixon Peabody, LLP O'Melvany and Meyers Orbach Huff Suarez & Henderson, LLP Parker Milliken Pillsbury, Madison, and Sutro Pircher, Nichols, and Meeks Resch Polster & Berger, LLP Robinson, Diamant, & Brill Rodi, Pollock, Pettker, Christian & Pramov Rucker and Clarkson Shapiro, Poesell, & Close Shiotani & Inouye Sidley and Austin Smith and Hilbig Thomashow, Brown and Paiallii, LLP Tilem and Gole Troy and Gould Weinstock Manion White & Case Wolf, Rifkin, Shapiro & Shulman Youngerman and McNutt, LLP DEVELOPERS Athena Group, LLC California Landmark Development Catellus Development Corporation Champion Real Estate Services CIM Group Cloverfield Group Combined Properties Daiwa House Corporation First City Goldrich and Kest Industries Haseko, Inc. HB Drollinger Company Held Properties, Inc. Jamison Services, Inc. Kennedy Wilson Koar Development Group, LLC O&S Holdings Regency Centers Roberts Companies Soboroff Partners Trammel Crowe Z— rCURTIS-R❑SENTHAL,INC. 12-238