Proposed Amendments for Palomar 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 $ or 78% of total price ($ cost psf vs. sale price of $ 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 Amendments Compared to Transfer If the proposed Amendment is approved – $187,904 one time more to County – $10,000 annually more to County

Proposed Amendments Compared 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:$ Lease 2:$ 11, Lease 3:$ 6, Lease 4:$ 4, Lease 5:$ 2, 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 $ 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 Percentage44%$ 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) MonthlyAnnual 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) AcresMonthlyAnnual Premier14.82 $ 26,932 $ 323,183 JetSource 8.49 $ 17,731 $ 212,777 Magellan16.52 $ 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 ????????????????

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.”