Memo - Stages Lease Discussion Information for Council Work Session on June 8, 2010C]
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FACILITIES DIVISION
MEMORANDUM
To: Honorable Mayor and Members of the City Council
FROM: Jay Strachota, Facilities Director
DATE: June 02, 2010
SUBJECT: Stages Lease Discussion Information for Council Work Session on June 8, 2010
Background:
Stages Theatre Company is a highly valued anchor tenant of the Hopkins Center for the Arts as well as a
valued Hopkins business community member. In May of 2008, the Managing Director of STC, John
Montilino, approached me asking how changes could be made to STC's existing lease with the Arts Center.
This lease is not due for renewal until late 2012. John stated his case that the lease calls for the rent to
increase by 4% each year, and over time this compounding at 4% will make their facilities cost a larger
burden on their budget than is healthy for a mid-sized theater organization such as STC. These increased
facilities costs would be especially problematic for the organization as STC is neither projecting significant
growth nor striving for significant growth. John also requested that STC receive more time in the Mainstage
Theater, but STC did not want to pay more rent for this time, again trying to contain facilities costs. In
exchange, STC would commit to an additional 10 years as a tenant and would bring in the neighborhood of
$400,000 in sound & lighting improvements to the Mainstage Theater.
After this initial discussion John and I met a few more times and we also met with the City Manager and
STC board member Dave Mahler. During this time it was communicated to STC that the City would not
open the existing lease, but would be willing to start work on the future lease recognizing that the one year
window for renegotiation per the lease might be too brief a negotiation period, and recognizing STC's need
to long range plan.
In May of 2009, the City Manager received a letter from STC's board and CEO calling for:
• Meeting ASAP to negotiate lease provisions to take effect in 2012
• Eliminating or substantially reducing the 4 per cent rent escalation
• Extending the number of reserved weeks STC has on the Mainstage from 36-42
• To offset the request, STC expects to take into account STC's investment of $360,000 in upgraded
sound and lighting equipment in the theater, and
• STC's willingness to extend the term of the lease by 10 years
From July 2009 — January 2010, staff and council representatives met seven times with STC leadership to
first look for creative win/win scenarios including facility fees, transfer of the HCA Scheduling Coordinators
position to STC, having the rent escalator tied to certain budget revenues or expenses, etc., and later to
negotiate the key factors of the lease — the escalation percentage and the weeks in the theater. This is
where we were at by the last meeting:
• Agreed the term would be 2012— 2027
• The escalation was still being negotiated but was in the area of 2% for 7 years, 3% thereafter
• STC now requesting 41 weeks in the theater
•
• Payment for additional weeks in the theater were just beginning to be negotiated— City requesting
2 days regular occasional user rental fee per week, STC offering 1 day occasional user rental rate
per week
• Agreed that some JC Studio time could turned back for rent reimbursement.
Currently:
Both John Montilino and I feel we are very close to an agreement. This is what we have agreed on to date:
• Term: to 2027
• Weeks in the Theater - 40 weeks
• Weeks returned from the JC Studio — return reimbursed at a rate of two days occasional user fee
per week returned.
• STC has provided a document that clarifies income sharing on dates that STC releases their rights
to the theater for an occasional user rental. This was left to interpretation in the original lease and
it's important that it's clear in the future lease with additional theater time going to STC, and
• This document also clarifies that certain "regular" occasional users will be grandfathered in and
assured space - groups such as Pen Pals, dance companies, Raspberry Festival, etc.. This is
critical with STC having more theater time.
• Stages has also provided a document for the future lease that clearly spells out their intentions for
hours of usage in other rental rooms which is far more specific than the information in the original
lease and very helpful.
Still in process:
• We are striving to negotiate a rent and escalation rate that includes the additional theater weeks rather than
calling out a lease payment amount for 36 weeks and an add-on amount for the additional 4 theater weeks.
Again John and I feel we are very close. The City's last offer was a 3% escalator over the term of the lease
and the 4 weeks additional theater weeks included in the lease. Over a 15 year lease this works out to an
amount very similar to the 2% for 7 years, 3% thereafter, and two days occasional user fee per additional
week in the theater, which was being considered at our last meeting with STC leadership.
Conclusion:
The process of negotiating this lease has opened a line of communication and understanding between STC
and the City that did not exist prior to these negotiations. Stages Theater Company is a very important part
of the formula for a successful Hopkins Center for the Arts and securing STC as a partner for 15 years
helps promote a successful HCA well into the future. The lease negotiations are drawing to a close. Staff is
looking for any Council input prior to sending information to the city attorney's office to draft our intentions
into lease language. Once the lease reaches a final draft it will be brought to the City Council for approval,
well ahead of the October 2012 ending of the current lease, locking in the future for Stage Theatre
Company and the Hopkins Center for the Arts.
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