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File Number: 20-174
<br />·AGC to spend $8.1M on renovations including the double-deck driving range and
<br />improvements to both courses (plans to include clubhouse renovations were deleted after
<br />unexpected additional costs associated with the course renovations);
<br />·Creation of Golf CIP account - 4% of revenues (green fees, cart fees, and driving range
<br />fees) with City and AGC each contributing 2%;
<br />·Minimum rent of $750K annually, or 75% of the average total annual rent paid for the
<br />previous 3 years, whichever is greater;
<br />·Escalating percentage rent from years 1-10, with the current rate of 30% on golf revenues
<br />and 6% on clubhouse revenues.
<br />Subsequent Lease Agreement addendums included the following:
<br />·2006 - Agreement for AGC to purchase the City’s reclaimed water (essentially at the City’s
<br />cost, with a 2% annual rate increase);
<br />·2010 - Addition of cell sites at the driving range, with agreement that all cell site revenues
<br />would be deposited into the Golf CIP account; and
<br />·2019 - Temporary waiver of payment for reclaimed water.
<br />To date, the City has received more than $17M in golf revenues since AGC began operating the
<br />courses under the 1997 lease.
<br />Analysis
<br />It is noted that the golf industry nationwide suffered a downturn starting in 2006 (from the high at
<br />the time of the Lease Agreement), with more than 1,550 public and private golf courses having
<br />gone out of business since that time, and overall participation and golf revenues declining
<br />throughout the country. Monarch Bay Golf Course has not been immune to the downturn in golf, as
<br />total net golf revenues have varied from a high of $1M in 2011 to less than $650K in 2016. Since
<br />2016, net revenues have begun to increase, and last year’s revenues exceeded $1M for the first
<br />time since 2011.
<br />Under the current Lease Agreement, AGC is responsible for all costs associated with operating
<br />the two golf courses while paying the City 30% on gross golf revenues plus 6% on clubhouse
<br />revenues. Below is a recap of the past seven years of golf revenue, expenses, the City’s
<br />percentage rent and AGC’s net. Both revenues and expenses have increased over this period,
<br />with expenses outpacing revenues by approximately six percent. As a result of the current lease
<br />structure, the City golf rent revenues are up 17% over the seven-year period while AGC’s net
<br />revenues are down more than 47% (including five straight years of losses). These significant
<br />declines are emblematic of why the majority of golf courses throughout the country are now being
<br />operated on a management basis rather than on a lease basis, as golf operators are simply not
<br />making enough net revenue to justify a lease agreement - a major reason for the closure of more
<br />than 1,550 golf courses since 2006.
<br />Year 2013 2014 2015 2016 2017 2018 2019
<br />Revenues $3,089,601 $3,001,054 $3,341,796 $3,152,101 $3,225,840 $3,472,004 $3,578,005
<br />Expenses $2,186,986 $2,266,979 $2,641,979 $2,507,759 $2,535,615 $2,639,407 $2,559,329
<br />Page 2 City of San Leandro Printed on 5/28/2020
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