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HomeMy WebLinkAboutCouncil Minutes - 1993-07-26 SCOUNCIL\1993-07-26-SPE SPECIAL COUNCIL MINUTES JULY 26, 1993 The Council of the Corporation of the City of Kitchener met this date in special session with all members present, except Alderman J. Ziegler. Notice of this special meeting had been given by the Clerk pursuant to Chapter 25 of the Municipal Code. Mr. B. Allison appeared before the Council to present an Offer to Lease for approximately 1,313 square feet of retail space in the new City Hall. Prior to commencing his presentation, Mr. Allison pointed out that he has not been involved in any negotiations regarding the restaurant space, however, the controversy regarding this issue has made it somewhat difficult for him to deal with prospective tenants for available commercial and office space. The Offer to Lease will, if approved, result in the opening of a Words Worth Book Store in the new City Hall. Mr. Allison outlined the details of the lease and suggested the opinion that, in light of what is happening in todays markets, the Offer is a fair one. It was noted that the proposed tenants and representatives of the Kitchener Public Library, who will be operating a Government Book Store in the new City Hall, were called together to discuss potential problems. Following these meetings it was agreed that both book stores would be able to work together and not unduly infringe on the rights of each other. Mr. Allison did note, however, that the proposed lessee wanted assurances that the Government Book Store would be paying market rent and the documentation before Council at this time has been amended to take this requirement into account. Moved by Alderman B. Stortz Seconded by Alderman M. Yantzi "That the Offer to Lease from Charles D. Erion, as presented to City Council on July 26, 1993, be accepted, and further, That the Mayor and Clerk be authorized to execute any required documentation." Carried. Moved by Alderman B. Stortz Seconded by Alderman T. Galloway "That the City of Kitchener has no objection to a Provincial Lottery Licence being issued to The Big Sisters in conjunction with the Rotary Clubs of Kitchener-Westmount, Grand River and Kitchener to hold a Raffle on October 13, 1993 at the Centre In The Square, Kitchener." Carried. Moved by Alderman G. Lorentz Seconded by Alderman M. Wagner "That Monday, August 2, 1993 be proclaimed 'Civic Holiday' in the City of Kitchener." Carried. It was noted on the agenda for this special meeting of City Council that in accordance with the City's Procedural By-law, Alderman G. Lorentz had given written notice that he would introduce a Motion for Reconsideration on this date relative to Council's July 12, 1993 decision to accept an Offer from William's Coffee Pub, Inc. to establish a restaurant in the new City Hall. Moved by Alderman G. Lorentz Seconded by Alderman G. Leadston "That this Council reconsider its decision dated July 12, 1993, in which it accepted an Offer from William's Coffee Pub, Inc. to establish a restaurant in the new City Hall." Carried, Unanimously. SPECIAL COUNCIL M/NIYFES - 387 - JULY 26, 1993 Mr. Doug Fisher appeared, representing Bill and George Giannakopoulos, who had originally received Council approval to operate a restaurant in the new City Hall. Mr. Fisher advised Council that the original proposal as presented still stands, however, a letter has been submitted offering to withdraw from this proposal subject to certain financial considerations. Mr. Fisher advised that his clients have submitted an amended Offer which would include personal guarantees from the Giannakopoulos Brothers in the form of a $50,000.00 Letter of Credit. The interest on the loan would float at prime and commence on the day that the restaurant opens. The term of the lease would be for a period of 10 years with the rental being $10.00 per square foot for the first year and increasing by $0.50 per square foot per year in each of the next 4 years. The rental for the remaining 5 years of the lease would be $14.00 per square foot. It was noted that there is a 5 year option to renew at the then current market rental. The balance of the amended agreement would result in 6 months free rent commencing on the day that the restaurant opens and the right to franchise would only be available once the loan has been repaid. A clause from the original agreement which called for additional rental based on sales in excess of $500,000.00 is to be deleted. Mr. Fisher suggested to the City that providing a leasehold allowance is a normal course of action for a development of this type. It was also noted that the loan of $176,000.00 will be paid back with interest and it was the view of Mr. Fisher that the amended Offer is likely as good as any that the City will receive. In conclusion, Mr. Fisher advised that if the amended Offer is accepted the Giannakopoulos Brothers will proceed with the project as quickly as possible. When questioned by Alderman T. Galloway, Mr. Fisher expressed the view that the estimated sales figures are conservative and definitely attainable. In this regard, Mr. J. Shivas, Assistant City Solicitor, pointed out that, other than the personal guarantees now being suggested by the Giannakopoulos Brothers, the only security to the City for the loan will be the assets within the restaurant. Alderman C. Zehr pointed out that there will be an equity within the proposed facility of approximately $700,000.00 to $800,000.00 and the net values of these assets, along with a personal Letter of Credit in the amount of $50,000.00, will provide the City with reasonable security. When questioned by Alderman M. Wagner, Mr. Fisher suggested that generally people want large portions of food for a Iow price. This is the type of service which will be provided in the new restaurant. Mr. W. Buschert appeared before the Committee and advised that he was a former employee of the Mediterrean Cafe which was run by the Giannakopoulos Brothers. It was the view of Mr. Buschert that the proposed restaurant would be beneficial to the Downtown area and, accordingly, suggested that the original deal should be maintained. When questioned by Alderman G. Lorentz, Mr. Buschert advised that until recently he was a resident and taxpayer of the City of Kitchener, however, this is no longer the case. Mr. P. Martin appeared before Council and advised that he was originally against the proposal because of the lack of security for the $176,000.00 loan. Mr. Martin advised that after reviewing the latest information he would now like to see the restaurant go ahead. When questioned by Alderman G. Lorentz, Mr. Martin advised that he was satisfied that there is sufficient security available to protect the City and pointed out that the Giannakopoulos Brothers do not want this undertaking to fail because that would also result in them loosing their own money. Mr. Q. McCarthy appeared before Council and advised that he has no concern with the abilities of the Giannakopoulos Brothers to run a successful restaurant business. He did indicate, however, that he was somewhat frustrated because of declining business in the Downtown area and the fact that incentives were being offered to a new restaurant which will be operating in direct competition to other existing facilities in the Downtown area. In reply to questioning, Mr. McCarthy expressed the view that a restaurant is a high risk undertaking at this point in time but suggested that if appropriate security is available to guarantee the amount of the loan then the proposal should likely proceed. Alderman M. Wagner expressed the view that a thriving restaurant in the Downtown area may be of SPECIAL COUNCIL M/NIYFES - 388 - JULY 26, 1993 benefit to the other restaurants because of the additional patrons that will be attracted to the area. Mr. J. Shivas advised Council that the Giannakopoulos Brothers will be putting up $70,000.00 of their own money and the City will be putting up $104,000.00 as a leasehold allowance. In addition, the City will be providing a loan in the amount of $176,000.00. If this business were to go bankrupt, the available assets would amount to approximately $105,000.00. A Letter of Credit in the amount of $50,000.00 would secure the backend of the loan and would mean that the City's exposure to a possible loss would be significantly reduced. Mr. Shivas pointed out, however, that a Letter of Credit has not been negotiated at this time. In this regard, Mr. Fisher advised Council that the Giannakopoulos Brothers are quite prepared to provide the City with a Letter of Credit in the amount of $50,000.00. When questioned by Alderman J. Smola, Mr. Fisher agreed that, if the restaurant were to go bankrupt and no one wanted to buy the assets, then they would be of very little value. Mr. H. Krebs appeared before Council and indicated his opposition to the proposed lease because, in his opinion, it is being subsidized by the City and will provide the Giannakopoulos Brothers with an unfair advantage at the taxpayers expense. Mr. Kreb questioned whether or not any market studies had been undertaken and noted that there is a restaurant facility right next door which has been vacant for quite some time. Mr. Krebs indicated that he is not opposed to competition as long as it is not subsidized by the taxpayers of the City of Kitchener. It was also the view of Mr. Krebs that the income projections provided by Mr. Fisher were totally unrealistic. Alderman C. Zehr pointed out that the Giannakopoulos Brothers have not been treated any differently than others who submitted proposals regarding the restaurant operation. Mr. D. Kresky appeared before Council of behalf of Waterloo Region Tax Watch and suggested that additional time should be taken to properly evaluate this proposal prior to reaching a final decision. It was the view of Mr. Kresky that the City of Kitchener should not be in the banking business and, accordingly, the proponents of this restaurant should be arranging for a bank loan. Moved by Alderman C. Zehr Seconded by Alderman B. Stortz "That the Offer dated July 10, 1993 from William's Coffee Pub, Inc. to establish a restaurant in the new City Hall, as adopted by City Council on July 12, 1993 (Item B.20 of the Committee of the Whole Report), be amended as follows: personal guarantees on the loan from Bill and George Giannakopoulos and a $50,000.00 Letter of Credit to secure the last $50,000.00 of the $176,000.00 loan; 2. interest to float at prime and commence on the day that the restaurant opens; 3.(a) 1 0 year term: $10.00 sq.ft. (year 1); $10.50 sq.ft. (year 2); $11.00 sq.ft. (year 3); $11.50 sq.ft. (year 4); $12.00 sq.ft. (year 5); $14.00 sq.ft. (remaining 5 years); (b) 5 year option to renew: go to market rent; 4. 6 months free rent to commence on the day that the restaurant opens; 5. right to franchise only upon repayment of the loan; and 6. deletion of 5% additional rent on sales in excess of $500,000.00." Alderman C. Zehr expressed the view that original deal with the Giannakopoulos Brothers was a good business deal but, because of the controversy which arose, steps have been taken to overcome some of the perceived concerns. As a result, the changes being proposed at this time result in the City becoming a true Landlord rather than a partner in a business operation. Alderman Zehr also pointed out that the lease arrangements being presented at this time are very similar to those which were approved for the book store earlier at this meeting. Alderman Zehr did acknowledge that the one major difference between the two leases is that the one for the restaurant contains provisions for the City to make a loan of $176,000.00. Alderman Zehr was of the view, however, that adequate security is available for the loan SPECIAL COUNCIL M/NIYFES - 389 - JULY 26, 1993 and the amended lease arrangements are good for the City of Kitchener. Alderman G. Leadston expressed difficulty with the City acting as a banker for a loan in the amount of $176,000.00. He indicated he had no concern with the parties involved being able to provide appropriate levels of service, however, he could not support either the original or amended proposal because of the loan provision. Alderman B. Stortz pointed out that, apparently, banks do not lend money to restaurants and, accordingly, if the City wants a restaurant in their new City Hall then they may have to provide financial assistance of this nature. Alderman Stortz also pointed out that the City already acts as a banker for some Downtown businesses by way of monies which are provided through the Facade Improvement Loan Program. Alderman Stortz suggested that adequate securities are available to protect the City and its taxpayers. Mr. B. Allison suggested to Council that they take more time in reaching a decision and contact people who are knowledgable in the restaurant field to obtain their opinion as to the viability of the amended agreement. Alderman J. Smola was of the opinion that taxpayers money should not be used to provide an unsecured loan which will be used to develope a restaurant within the City Hall. Alderman G. Lorentz also expressed concern about the City acting as a banker for a $176,000.00 loan. It was the view of Alderman Lorentz that the public perception is that this is an inappropriate way for this deal to proceed. Alderman M. Yantzi indicated that he will be supporting the amended lease arrangements because, in his view, a good restaurant operation will result in an expanded rather than shrinking market. Alderman M. Wagner suggested that this proposal will, hopefully, in a small way help to start the revitalization of the Downtown area. It was noted that many other steps will be required before the Downtown will be revitalized, however, it was the view of Alderman Wagner that it is appropriate to use City funds to assist in the improvement of the Downtown area. Alderman C. Weylie advised that the amendments to the original agreement, as presented at this meeting, have answered her concerns. Alderman T. Galloway expressed concern about the sales estimates which have been provided because, in his opinion, they may not be attainable. Alderman Galloway also suggested that the perception of fairness cannot be overlooked and for this reason he would prefer if the restaurant operators were to obtain their loan from a source other than the City of Kitchener. His Worship Mayor D. Cardillo indicated his support for the amended lease. The motion by Alderman C. Zehr to accept the amended Offer to Lease from William's Coffee Pub, Inc. was voted on and CARRIED, on a recorded vote. IN FAVOUR: His Worship Mayor D.V. Cardillo, Alderman C. Weylie, Alderman M. Yantzi, Alderman C. Zehr, Alderman M. Wagner, Alderman B. Stortz. CONTRA: Alderman T. Galloway, Alderman G. Leadston, Alderman J. Smola, Alderman G. Lorentz. Alderman G. Lorentz indicated that he would like to go on record and wish the Giannakopoulos Brothers the best of luck now that the lease arrangements have been approved for a restaurant in the new City Hall. It was the hope of Alderman Lorentz that the residents of the City of Kitchener will patronize this new facility. Moved by Alderman B. Stortz Seconded by Alderman C. Weylie "That leave be given the Mover and Seconder to introduce a by-law to confirm all actions and proceedings of the Council and that the same be taken as read a 1st, 2nd and 3rd time and numbered 93-146 by the Clerk." SPECIAL COUNCIL ~VHNUTES - 390- On motion, the meeting adjourned. JULY ~6, 1993 Carried. MAYOR CLERK