06-22-2015 Council Packet - Laserfiche WebLink

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C�ity` 66 tiatnada 515 Little Canada Road, Little Canada, MN 55117-1600 (651) 766-4029 / FAX (651) 766-4048 www.ci.l ithe-canada.rnn.us MEMORANDUM TO: Mayor Keis & Members of the City Council FROM: Joel Hanson, City Administrator DATE: June 19, 2015 RE: Lease Amendment — Crown Castle MAYOR John Keis COUNCIL Rick Montour Michael McGraw Tom Fischer Christian Torkelson ADMINISTRATOR Joel R. Hanson When the City purchased the Donovan Construction site at 53 South Owasso Boulevard in 2013, we also purchased the existing cell tower lease for $250,000. The lease currently pays us $14,352 per year. (Note: the current lease expires on 12/121/20. Staff has been negotiating with Crown Castle for the last number of months given the fact they would like additional land at the site to allow the construction of a generator. We have looked at two options. One is a direct lease purchase for about $400,000. The other is an extension to the current lease that would start at $30,000 per year and escalate at 3% per year through the potential term of the lease, with all extensions executed, to 12/31/2116. Here are some other highlights of the situation: • We would receive a $7,500 signing bonus upon execution of the new lease. • We would receive another $7,500 "Expedite Fee" if we complete the transaction by June 23rd (This was a new provision added last Friday and we may need to extend it a bit which 1 believe they will do if we are close to a deal.) • We will continue our 3% per year inflationary increase. If the lease runs through 2116, the annual payments would escalate to over $576,000 per year! • They offered an escalator clause that would be between 2% and 4% a year based on the actual CPI. In doing a historical comparison, we are better off at our current 3% escalator due to years the CPI has been negative and years the CPI was over 4%. • We will be adding a "redevelopment clause" that will enable us to reposition roads and access points without going through a cumbersome easement release process with the lessee. Staff has struggled to determine what option makes the most sense for us long tern; i.e. taking a cash buyout of $400,000 now or having a long-term lease extension. Once we are able to get the lease payment to start at $30,000 in 2016 with a 3% annual escalator, this seems like the best option. For perspective, if you look at income of$30,000 per year on our $250,000 investment, that yields a 12%