Proposed Amendments forPalomar Airport Center

dba Premier Jet

Special Workshop/Meeting

Palomar Airport Advisory Committee

June 14, 2006

Today’s Workshop Meeting

Background Special Workshop/Meeting Proposed Amendments Premier Jet

– Commercial vs. Non-commercial Tenants– Aviation Uses

County’s Analysis – Types of Rent– Spreadsheets

Question and Answer Period Motion and Vote

Background

This item originally discussed at meeting on May 18, 2006

Some PAAC members said they did not have enough information to vote to recommend approval

PAAC voted 4 to 3, with 1 abstention, against recommending Board approval

Background - continued

Staff options: Drop the proposed amendments Move forward with the statement that PAAC

did not vote to recommend Board approval in the letter to the Board

Bring the item back to PAAC for additional information and discussion

Why a Special Meeting?

Staff calls special meetings Advisory Councils for various reasons, for example time sensitive matters or those needing detailed discussion

For issues involving complex financial analysis it can be preferable to have daytime meeting on one topic.

Some members were interested in discussing this item in more detail, so it was determined a special meeting would be best option.

Overview of Proposed Amendments

Staff and Premier Jet have agreed to amend, subject to Board approval, two of the 5 Premier Jet leases, Lease 2 County Contract Number 75628R and Lease 3, Contract Number 75629R

Overview of Proposed Amendments - continued

Clarify the amount of additional rent the County will receive from long term prepaid subleases. – Upfront- Prepaid Rents– Ongoing – Operating Expenses– If additional term ever granted in future

Set County Processing fees for these types of agreements

Issue

There was a disagreement between the County and Premier Jet on how to handle additional rent to County for long term prepaid subleases according to the existing leases

Staff and Premier discussed differences and settled on the terms in the proposed Lease amendment, subject to Board approval

Staff Interpretation

Considers agreements Subleases – Premier Jet pays 5% of all prepaid rent for commercial subleases and ground rent subleases

The estimate of this amount varies depending on the percentage of commercial subleases:

At 33% $ 523,156 At 44% $ 690,875 At 50% $ 785,085 At 60% $ 942,102 At 75% $ 1,177,628 At 100% $ 1,570,171

Difficult to Administer for County

There is a grey area between private use and commercial, County would have to investigate each sublease’s business prior to consent

Use could change over time and additional rent is paid upfront. It would be difficult to go back and collect once escrow is closed.

Other Aviation Leases

Other County leases for prepaid long term subleases or “sale hangars” typically provide alternate formula resulting in monthly payments based on square footage

Premier had agreed to share a percentage of long term prepaid subleases in exchange for other favorable terms.

Premier Jet Interpretation

Considered agreement transfers Premier anticipated paying 5% on net profit

only Construction costs (approximately 78%) were

to be deducted Additional rent to County currently estimated

at $352,077

Construction Costs

Construction costs estimated at $181.64 or 78% of total price ($181.64 cost psf vs. sale price of $225-235 psf)

Costs have risen over earlier estimates due to increased cost of materials

These numbers are estimates, not final

Clear Misunderstanding

Clearly there was a misunderstanding, because Premiers loan docs and business performas show a maximum of 5% on 1/3 of total profits

Premier Jet had previously estimated to County that it’s additional rent for the prepaid sublease would be approximately $400,000

Problem’s with this Option

Leases as currently drafted are subleases not transfers

Due to cost of improvements this amount is lower than anticipated by County

Proposed Solution

Staff and Premier Jet have agreed to amend the lease, subject to Board approval, to clarify that long-term prepaid sublease additional rent to County will 5% of 1/3 of the total prepaid rent

Staff believes this is a fair and reasonable compromise between the 2 interpretations

Additional Provisions

Set processing fees to cover staff costs Establish payment of additional rent to

County for any future term extensions granted to Premier Jet and passed on to long term subleases.

Benefits of Proposed Amendment

More revenue to County than previously anticipated

The amendment will relieve the County of the need to determine commercial/ non-commercial uses and validate construction costs

Additional Rent to County

In addition to ground rent

The estimated additional rent to County would be:5% of 1/3 of all prepaid rent = $539,981 (up

front one time)5% of total short term commercial subleases =

$11,168 (annually)5% of operating expenses = $10,000

(annually)First year total $561,149

Proposed AmendmentsCompared to Transfer

If the proposed Amendment is approved– $187,904 one time more to County– $10,000 annually more to County

Proposed AmendmentsCompared to Traditional Sublease

– Difference varies depending on percentage of commercial use:

33% commercial = $ 21,825 more to County 44% commercial = $ 150,894 less to County 50% commercial = $ 245,104 less to County 65% commercial = $ 402,121 less to County 75% commercial = $ 637,647 less to County 100% commercial = $1,030,190 less to County

Premier Jet

Commercial vs. non-commercial mix Types of uses

Premier Jet Current Monthly Ground Rent (#1)

Lease 1: $ 01.30

Lease 2: $ 11,878.81

Lease 3: $ 6,057.02

Lease 4: $ 4,175.19

Lease 5: $ 2,254.85

Total: $ 25,167.17

Cost to Construct (#2)

Engineering & Inspections 694,368

Soils Testing 141,693

Architectural 871,336

Consultants 236,204

Site Improvements 2,787,564

Permits and Fees 597,735

Direct Construction 19,069,652

Indirect Construction 5,025,852

Marketing Costs 1,224,362

Other       4,946,477

Total 35,595,243

Estimate not final

Cost PSF (#3)

Total cost of Construction $ 35,595,243

Net Leaseable Square Feet 195,968

Cost Per Square foot $ 181.64

Estimate not final

Transfer Calculations (#4)

Gross $ 31,303,410

Cost to Construct $ 24,261,870

Net $ 7,041,540

Total to County as Additional Rent $ 352,077

Sublease Calculations

• Gross Total $ 31,403,410

• 44% Commercial $ 13,817,500

• Total to County • as Additional Rent $ 690,875

Assume 44% Commercial Subleases

Proposed Amendment (#6)

Total Prepaid Hangars $ 20,603,860

Total Prepaid Office $ 10,799,550

Total $ 31,403,410

Total to County as Additional Rent $ 539,981

Proposed Amendments Compared to Subleases (#7)

Total Prepaid $ 31,403,410

Percentage 44% $ 13,817,500

5% to County $ 690,875

Amendment $ 539,981

Difference $ (150,894)

What If? (# 7)

Working Excel Spreadsheet

Total Ongoing Premier Jet Rent (#8)

Monthly Annual

Ground Rent $ 25,167 $ 302,006

Subleases $ 931 $ 11,177

Operating $ 833 $ 10,000

Total Ongoing Rent $ 26,932 $ 323,183

Compared to Other FBOs at CRQ (#9)

Acres Monthly Annual

Premier 14.82 $ 26,932 $ 323,183

JetSource 8.49 $ 17,731 $ 212,777

Magellan 16.52 $ 36,174 $ 434,085

Western Flight 7.98 $ 11,946 $ 143,350

Estimates include ground rent, ongoing sublease rent, and equity payments

Question and Answer

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RECOMMENDED MOTION

“Palomar Airport Advisory Committee recommends that the Board of Supervisors approve the Second Amendment to Aviation Lease for County Contract Number 75629R and Third Amendment for County Contract Number 75628R between the County of San Diego and Palomar Airport Center dba Premier Jet.”