Committee backs lease amendment for 1691 Michigan Avenue, tying rent to construction milestones

The Finance and Economic Resiliency Committee voted to recommend that the full City Commission approve a first amendment to the ground lease for the city-owned property at 1691 Michigan Avenue, updating rent terms, adding two 20-year option terms and new public benefits tied to the tenant's redevelopment schedule.

Azie Dominguez, division director of asset management, explained staff negotiated several new milestone-based incentives and protections. Under the amended term sheet, the tenant faces stepped increases in a base minimum rent if they miss target dates: the base minimum would rise to $515,000 if the tenant does not achieve temporary certificate of occupancy (TCO) by 2033, and to $575,000 if completion slips to 2034. The lease also includes a one-time, city-manager-authorized six-month extension for a master building permit through July 1, 2031; if the tenant still fails to secure the permit, liquidated damages of $500 per day would begin.

Nicholas Rodriguez, representing the tenant, described the project vision as a two-phase redevelopment that includes roughly $50 million of phase-2 investment to convert an underused rooftop into about 36,000 square feet of office and 6,000 square feet of restaurant space. Rodriguez said the proposed deal is intended to be mutually beneficial: staff estimated the city would receive about $39 million in lease revenue through the initial term with the improvements versus about $21 million without them — an approximate net gain of $18 million.

Commissioners focused questions on the mechanics of the rent guarantee and upside sharing. Staff said the rent structure includes a guaranteed base and a percentage rent (a share of gross) that rises with performance; there is no cap on the percentage upside, while the base-floor protections remain. Staff also reported limits on appraisal-based increases at the end of long terms to avoid an unconstrained rent spike for lenders.

A motion to give MB4 a favorable recommendation to the full commission was made and seconded; the committee recorded the item as passed in committee. The item will return to the full commission for two readings and, if approved there, proceed to any required referendum steps.

The committee directed staff to continue finalizing term-sheet details and to return the item as scheduled to the June 24 commission meeting and subsequent July meeting for final approval steps.