Recommendation to authorize City Manager, or designee, to execute any and all documents necessary for a Supplemental Agreement to Management Agreement No. 21667 with ASM Global, a Pennsylvania joint venture, to complete various capital improvements at the Long Beach Convention and Entertainment Center, at 300 East Ocean Boulevard, in the amount of $1,429,962.  (District 1)
Yes. Good evening. Vice Mayor and city council decided is for a supplement supplemental agreement with ASM Global to complete various capital improvements to the Long Beach Convention Entertainment Center. These improvements would include improvements to the areas of the Beverly O'Neill Theater, Terrace, Theater, Terrace, Plaza and Promenade, among others. So this is a typical in arrangement with the city and some global to complete capital improvement projects on behalf of the Public Works Department. Right. Pretty straightforward. Any public comment on this item? No public. Comment numbers. Please cast your vote. Councilwoman Sarah. Motion is carried. Thank you. Item 33, please. Item 33 is reported from Economic Development and Public Works recommendation to execute a hotel management agreement with Evolution Hospitality LLC for the reopening and operation of the Queen Mary District one. Councilman Hassouna. Okay, great. Is there a staff report here? Yes. Vice Mayor So this is a very significant item. We've been for months working on a negotiation to bring this item to you to be able to reopen the Queen Mary. It's been a strategic priority of this council is to get the ship back open again and generating revenue so we can put those revenues back into the asset. So we've worked very closely with the port, with the Harbor Commission on this item. They've been part of it, as we've been contemplating, of course, a future transaction where they would would take over this asset. And I'd like Johnny Boy here to kind of walk us through the concept here, how it would work, what some of our obligations are, and also some of the upside revenue projections that we expect to realize from this from this item. Thank you, Johnny. Thank you. As Tom mentioned, this item is a recommendation for hotel management agreement with evolution, hospitality for Operations Queen Mary. I thought a really brief history of management of Queen Mary would be helpful. So as noted here, the Queen Mary was purchased by the city in 1967, opened to the public in 1972, and was operated by the city for five years. Oversight of the ship was in passing the Port of Long Beach in 1978, whereas operated by Rather Corporation, then Disney under long term lease. Disney terminated their agreement in 1992. And in that same year, the Board of Commissioners transferred control back to the city. Under city control, there have been a series of lessees, including USDA, Save the Queen, Jefferson and Urban Commons, all struggling under the long term lease structure and the debt incurred acquiring the lease. In 2020, the Queen Mary was closed due to COVID, and after several notices of default, the lessee ultimately filed for bankruptcy. Upon notification of bankruptcy by the master lessee, the city engaged evolution hospitality under a caretaker agreement to maintain the ship and former leasehold area. This agreement was minimal in scope, was only meant to provide core maintenance and security of the site. Additional. Additionally, evolution provided support for the Public Works Department and Economic Development Department through the ongoing implementation of critical projects previously approved by City Council. Evolution is also work along the fire department, developing an updated emergency response plan for the Queen Mary and implementing repairs. Improvements to the fire life safety systems. Instructed by the city council, the city the city began negotiating with evolution, hospitality for a broader hotel management agreement. Besides extensive experience with Queen Mary and its unique challenges, evolution together with their parent company, Anchorage Hospitality, is the largest hotel operator in the country. Economic Development staff have worked with staff from Public Works, Hybrid Department and the Office of Special Events and filming to develop a more comprehensive hotel management agreement. We also engage consulting services of Kaiser Master Associates to review aspects of the proposed agreement. It's important to note this is a management agreement as opposed to the former lease structure. So the city retains significantly more responsibility for the asset, such as major capital, such as major capital improvements. But the city also is entitled to a majority of net profits generated at the site. We feel we have developed a comprehensive yet flexible agreement and evolution has made concessions which reflect their commitment to the asset and belief in the viability of the Queen Mary as a hotel and attraction. To that end, we have negotiated five major terms and conditions. This agreement is for an initial five year term with two successive one year options at the discretion of the city. Evolution will be responsible for the former Queen Mary leasehold area, including the Queen Mary and adjacent parking. They will operate and manage the Queen Mary hotel attractions, retail, food and beverage parking and ship based special events. The city will reimburse evolution for reimbursable expenses in the course of the reopening and evolution as their base fee will be paid 2.5% of total operating revenue in year one and 2% in year two and beyond. This is a reduction in their standard 3% base fee. He said he will pay evolution $9,000 a month for centralized accounting and marketing support. As a performance incentive. Evolution may earn 10% of earnings before interest depreciation and amortization in excess of 7.5 million. Please note a slight change in this term as described in the written staff report. Instead, Citi would pay evolution based on an undated financials and reconcile against added financials if needed. We've obviously set a performance threshold whereby the city would have the right to terminate the agreement without penalty if certain performance measures are not met. If, though the city decides to terminate the agreement for the sale or lease of the asset or otherwise defaults within the first two years, the city would be required to pay a termination fee, which is calculated based on previous base fee and monthly operations. For reference, a simple calculation based on a second year termination would result in approximately $500,000 termination fee. For the period prior to reopening. The city will pay evolution $25,000 a month and cover documented reimbursable evolution will proceed. We'll provide a reopening budget, setting forth the proposed costs and expenses anticipated to be incurred during this reopening period. This is currently estimated at approximately 1.6 million. Also to safely reopen in limited hotel attraction and visitor services services. Approximately $1 million in improvements are needed for such items as those noted here. Boilers, piggyback repairs, elevators, etc.. All funds received by evolution in the operation of the Queen Mary, including working capital furnished by the city, will be deposited into an operating account. To the extent funds are available in the operating account, evolution shall pay all operating expenses as part of its audit rights. The city will have the right to inspect this operating account at any time. At the end of the fiscal year, evolution will distribute to the city all sums, all sums in the operating account in excess of the working capital requirements. To ensure the ability to pay for eligible operating expenses and in accordance with industry norms. The city will provide $1.5 million in working capital to be placed in the offering account upon execution of the agreement. Please note for accounting purposes, this will be booked as prepaid expense does not affect the city's net position of the City Fund and does not represent any additional compensation or expense other than that already contemplated in the agreement. Its working capital level will be maintained and anticipated to be supported by revenue generated upon reopening of the ship. 4% of total operating revenues shall be allocated and paid monthly to an FINI reserve for replacement substitution and additions to furniture, fixtures and equipment. Any funds remaining in the FFP nine reserve at the end of the fiscal year will be rolled over to the next fiscal year, and upon expiration or term termination of this agreement, evolution shall remit all remaining amounts in the FFP reserve to the city. Evolution will also be required to produce monthly financial reports and annual audited financial reports showing the results of operations of the asset throughout the fiscal year. Evolution will keep full and accurate books of account and other records reflecting the operation of the Queen Mary. And those records will be available to the city and its representatives for examination, audit and inspection. Evolution will provide an annual operating budget and capital budget prior to the beginning of each fiscal year. The capital budget will set forth in reasonable line item detail proposed capital projects and expenditures, including planned FMA opening expenditures. The city will provide approval or disapproval of these budgets within 30 days. City will be responsible for the cost of larger capital improvements to the ship and for restoration and preservation of historic items beyond maintenance of those items. Evolution will continue to engage the services of a historic resource advisor, so evolution can probably maintain and manage historic assets and identify priority projects prior to the hotel's closure in 2020. Evolution How Labor Agreements with Seafarers, International Union and International Brotherhood of Teamsters for All Hourly Associates that totaled approximately 300 staff. Evolution will continue to honor these agreements upon the hotel's reopening. Evolution will also make every effort to provide employment opportunities for those that were previously employed on the ship. Insurance Liability Terms. The proposed agreement have been reviewed by Citi's risk manager. I will note that the indemnity provisions for hotel management agreements per industry norms are unique in that the city retains much of the liability associated with operation of the ship, although this liability is typically covered by insurance. The rationale being that operator fees are relatively low and the owner in this case the city, retain a vast majority of net operating profits. His recommended. The recommended action will result in approximately $2,870,500 in estimated pre-opening and reopening costs in Foyer 22 in the Thailand Area Fund Group. This estimate includes ¥1.6 million, pre-opening costs for staffing and other approved costs. 1 million of pre-opening improvements for priority visitors serving project needed to safely reopen the ship, an 8.5% contingency and reopening service fees. These expenses will be offset to the extent possible by revenue generated from the Queen Mary. Harry Bridges Special Events Park and leases in the vicinity of the former Queen Mary leasehold. Any expense is not offset within the title injury fund group may need to be covered by Title Thailand's Operating Fund. Evolution and staff projections anticipate the ship's operations can fully offset expenses for FY 23, with net revenue to the city approaching $1,000,000. After all costs are settled for FY 24 and beyond, the net revenue projections to the city may exceed $7 million annually. This does not even include revenue generated at Harry Bridges Special Events Park or from leases in the vicinity of the Queen Mary, such as Carnival Island Express helicopters or Catalina Express. This concludes my staff report. Thank you. All right. Thank you. Is there any public comment on this item?