TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Libby Bretthauer, Finance Director
Masa Alkire, Community Development Director
SUBJECT:Title
Consideration of a Resolution Approving an Amended and Restated Ground Lease and Parking Lot Lease Between the City and Bay Club for the Manhattan Country Club Properties Located at 1330-1332-1334 Parkview Avenue (Partially Budgeted) (Finance Director Bretthauer).
ADOPT RESOLUTION NO. 26-0109
Body
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RECOMMENDATION:
Staff recommends that the City Council: 1) adopt Resolution No. 26-0109 approving an amended and restated ground lease and parking lot lease (“Lease”) with Bay Club for the Manhattan Country Club Property Located at 1330 Parkview Avenue; and 2) authorize the City Manager to execute the Lease.
FISCAL IMPLICATIONS:
The City currently receives approximately $671,000 in rent payments from the Bay Club for the ground leases at the Manhattan Country Club, the 1334 Office Building, and 50 parking spaces near Manhattan Village Field. These payments break down as follows:
|
Current Leases |
FY 2027 Budget |
|
Country Club |
$570,000 |
|
1334 Office Building |
59,000 |
|
Parking Spaces |
42,000 |
|
Total |
$671,000 |
The existing leases generate revenue on various bases, some of which will no longer apply under the amended Lease. The Country Club lease terms are currently based on a fixed rent plus a percentage from tennis tournaments, food and beverage, and retail/office rentals. This lease structure does not capture the Country Club’s primary revenue stream from membership dues, resulting in the City’s revenue remaining relatively flat over time.
The Office building, which is planned for demolition, currently pays rent based on a fixed amount plus a percentage rent from tenants. Rent from the parking spaces is a fixed amount.
The renegotiated Lease includes one fixed rent payment with annual CPI adjustments no less than 2% and no greater than 5%. (Historically, CPI has averaged 3.04% since the inception of the original ground lease.) The annual base rent will be set at $1,681,770 and will be paid in monthly installments of $140,148. With the new lease terms beginning in January, actual lease revenues are expected to exceed the budget by approximately $505,000 in FY 2027.
|
July - December Rent |
$336,000 |
|
January - June Rent |
840,885 |
|
Total FY 2027 Revenue |
$1,176,885 |
|
|
|
|
Estimated FY 2028 Revenue |
$1.7 million |
The City’s consultant, Keyser Martson Associates Inc., modeled several scenarios to estimate payments based on membership assumptions, economic conditions, inflation, and other factors. In an absolute base-case scenario with 2% CPI escalation, the City’s annual rent payment would grow from $1.68 million to $4.9 million in 2082, netting the City an additional $12.5 million in revenue over the full lease term (compared to the existing leases). In a high inflation scenario (initial 10 years modeled at the maximum 5% escalator, reverting to a 3% escalator for the remainder of the lease term), the City’s annual rent payment could grow from $1.68 million up to $9.9 million in 2082, netting the City additional revenue of $21.4 million.
A more likely scenario, assuming a 3% CPI escalation (based on historical precedent), would result in the City’s annual rent payment growing from $1.68 million to $8.3 million in 2082, netting the City an additional $16.8 million in revenue over the full lease term.
The agreed-upon fixed-rent model provides the most stability for the City’s revenue projections while also adding protection against inflation with annual CPI increases. A fixed-rent model reduces audit and dispute risk between the City and Bay Club over revenue definitions and exclusions and protects the City against evolving revenue streams that render existing lease terms obsolete or no longer applicable (e.g., the current lease based on tennis tournament revenues that are no longer a primary revenue source).
BACKGROUND:
The City of Manhattan Beach owns the properties at 1330, 1332, and 1334 Parkview Avenue, where the Manhattan Country Club and an office building are located. The property has been ground leased since 1981. The original lessee constructed the Manhattan Beach Country Club facility at 1330-1332 Parkview Avenue and a three-story office building at 1334 Parkview Avenue. In 2001, the lessee requested that the original lease be bifurcated into two leases, one for the Country Club facility and one for the office building, to enable the lessee to transfer one or both of the properties in separate transactions. In 1985, 50 parking spaces at 1300 Parkview Avenue (behind the Manhattan Village Mall and adjacent to Manhattan Village Field) were also leased to the Manhattan Country Club.
In 2017, all three leases were transferred to The Bay Club Company upon its acquisition of the Country Club and office building properties. Per the lease requirements, the City received a 1% transfer fee at the time.
On May 13, 2026, the Planning Commission approved a Planned Development Plan Amendment to amend and supersede all prior approvals to allow for the demolition of the existing office building, construction of a new private pool and pool amenities, and an increase in club memberships for the continued operation of the Manhattan Country Club. The Planning Commission’s approval (Resolution No. PC 26-04) is contingent upon the City Council approving an amended lease agreement between the City and the Bay Club.
DISCUSSION:
Since the development of the Manhattan Country Club in 1981, several external conditions have changed, shifting the site's favorable uses and economics. The current Office building at 1334 Parkview is outdated and no longer a favorable use of the site, considering the surplus of available office space along the Rosecrans corridor. Additionally, country club facilities have generally evolved to offer more expansive wellness and fitness amenities, as well as family-friendly and resort-style upgrades. The Bay Club’s significant capital investment and redevelopment plans for the Manhattan Country Club align with this shift in modern-day country clubs as exclusive social and lifestyle hubs with multigenerational appeal.
The Bay Club received approval from the Planning Commission to demolish the Office Building and redevelop/expand the Manhattan Country Club facilities on May 13, 2026. This approval is contingent on the City Council’s approval of an amended lease agreement.
The City Council discussed potential lease amendments at agendized Closed Session meetings on September 15, October 6, and October 20, 2026. The City’s negotiators, including Keyser Marston Associates, Inc., met with Bay Club representatives to negotiate the lease terms as directed by the City Council.
Key provisions in the Lease include:
• Combining the City’s three current leases for the Manhattan Country Club, Office Building, and Parking spaces into one Lease.
• Term: The Lease will take effect on January 2, 2027, and terminate on January 1, 2044, which coincides with the term of the current leases. The Bay Club then has three options to extend the current terms through a final ending term date of January 1, 2082.
• Rent: The Lease has a fixed rent payment starting at $1,681,770 (paid in monthly installments) and subsequent annual CPI adjustments of no less than two 2% nor more than 5%, resulting in additional General Fund revenue to the City of $505,000 in FY 2027. In future fiscal years, the City will receive approximately $1.0 million more per year than the current leases provide.
• Use: The Lease provisions were updated to reflect the Uses per Planning Commission Resolution No. PC 26-04 (attached to Lease as Exhibit “D”).
o Membership Cap: The allowable membership cap increased from 1,400 (including 50 corporate memberships) up to 2,757 based on the number of parking spaces available.
• Other: Other Lease provisions, such as Insurance and Indemnification, were updated to reflect modern standards.
In consideration of the Bay Club’s agreement with the terms requested by the City Council, staff recommends the City Council approve Resolution No. 26-0109 and authorize the City Manager to execute the Lease.
PUBLIC OUTREACH:
After analysis, staff determined that public outreach was not required for this issue.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed project for compliance with the California
Environmental Quality Act (CEQA) and has determined that the proposed project was
adequately covered in a previously adopted Notice of Exemption (SCH Number 2026050707). Thus, no further environmental review or documentation is necessary.
LEGAL REVIEW:
The City Attorney has approved the agreement as to form.
ATTACHMENT:
1. Resolution No. 26-0109
2. Amended and Restated Ground Lease and Parking Lot Lease