HomeMy WebLinkAboutResolution No. 2023-28Sponsored by: Administration
CITY OF KENAI
RESOLUTION NO. 2023-28
A RESOLUTION APPROVING A TWELVE-MONTH EXTENSION OF TIME FOR GOOD CAUSE FOR
THE COMPLETION OF PERMANENT IMPROVEMENTS FOR A LEASE BETWEEN THE CITY OF
KENAI AND SCHILLINGS RENTALS, LLC FOR AIRPORT RESERVE LANDS DESCRIBED AS LOT 5A,
BLOCK 1, FBO SUBDIVISION 2018 REPLAT.
WHEREAS, Resolution No. 2020-14 approved a lease between the City of Kenai and Schillings Rentals,
LLC for Lot 5A, Block 1, FBO Subdivision 2018 Replat; and,
WHEREAS, Ordinance No. 3150-2020 allowed for an extension of execution of the same lease until May
31, 2021; and,
WHEREAS, the lease requires the lessee to construct a steel hanger with crew quarters by May 31, 2023
with an aggregate cost of at least $1,200,000; and,
WHEREAS, the lessee has requested a two-year extension to complete the improvements due to market
challenges related to costs of construction materials and ability to secure and deliver steel structures in
a timely manner; and,
WHEREAS, KMC 21.10.080(g)(5) allows the Council to extend the time for completion of permanent
improvements required in a lease for up to twelve months for good cause; and,
WHEREAS, market conditions related to construction material costs and the ability to secure steel
structures in Alaska constitute good cause justifying a twelve-month lease extension.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA:
Section 1. That the City Council agrees to amend the Lease with Schillings Rentals, LLC for Lot 5A,
Block 1, FBO Subdivision 2018 Replat to extend the date that improvements are required to be completed
to May 31, 2024 for good cause as described above. The Council further authorizes the City Manager to
execute a lease amendment with Schillings Rentals, LLC to effectuate the extension.
Section 2. That this Resolution takes effect immediately upon passage.
PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, THIS 19T" DAY OF APRIL, 2023.
Brian Gabriel Sr., Mayor
ATTEST:
Michelle M. finer, MMC� City Clerk
New Text Underlined; [DELETED TEXT BRACKETED]
KFNAI
I nai 1 210 Fidalgo Ave, Kenai, AK 99611-77941 907.283.75351 www.kenai.city
MEMORANDUM
TO: Mayor Gabriel and Council Members
FROM: Scott Bloom, City Attorney
DATE: April 13, 2023
SUBJECT: Resolution 2023-28 — Schillings Lease Extension
Administration has had numerous conversations with Shillings Rentals, LLC regarding options
moving forward to complete the intended improvements on the subject lease lot on the airport
reserve consisting of a steel hangar and crew quarters. Due to market conditions which have
driven construction costs and limited availability of steel structures, Schillings Rentals, LLC has
not begun the physical construction process in the preceding two years since lease inception. As
you can see from the attached letter from Schillings Rentals, LLC, they have requested a two year
extension to complete their required improvements. However, Administration is currently only
supportive of a one year extension as allowed in code pursuant to KMC 21.10.080(g)(5). If a
building is ordered in a reasonable timeframe but cannot reasonably be delivered.or erected in
the additional one year period, Administration would be supportive of a future non -code ordinance
allowing additional time to complete the project if justified.
Schilling Rentals LLC
PO Box 3426
MR Kenai, AK 99611
907-931-6676
February 27, 2023
Linda Mitchell, Planning Director
City of Kenai
210 Fidalgo Avenue
Kenai, AK 99611
RE: Extension on Lot 5A, Block 1(City lease 2021-006562-0)
Dear Linda:
We are writing you in reference to lease 2021-006562-0 for the Premises located at:
Lot Five A (5A), Block One (1), FBO Subdivision 2018 Replat, according to the official plat thereof,
filed under Plat Number 2019-2, Kenai Recording District, Third Judicial District, State of Alaska
In review of Article XIV subsection B clause (1) there are certain required improvements as part of the
referenced lease. There is a stated deadline to complete improvements by May 31, 2023, with an
aggregate cost of $1,200,000.
Due to unforeseen circumstances regarding Schilling Rentals' intention to develop and further improve
the leased Premises, Schilling Rentals will be unable to perform the required improvements before May
31, 2023.
Schilling Rentals still intends to further develop the Premises, however, given the current market
conditions and very long lead times from contractors and steel building suppliers, Schilling Rentals
requests an extension on the required completion date to May 31, 2025. This requested change would
also move the evidence of cost date from July 30, 2023 to July 30, 2025.
The primary reasons for this request:
1. Timeline —even if Schilling Rentals ordered the steel from a steel building supplier today,
feedback from multiple suppliers is that due to backlogs in engineering, operations, steel
supply, etc. the order would likely not be delivered to Alaska until Summer 2024 at the earliest.
a. It should be noted that if the City of Kenai did not approve this request and canceled
the existing lease on June 1, 2023; then, a new tenant signed a lease for the Premises,
the timeline would simply be shifted to 2025 or later for the new tenant since the
building limitations would remain unchanged.
b. It should also be noted that due to the short construction window in Kenai, Alaska and
a building requirement ending in May (per the current lease), the tenant of the
Premises loses a whole summer of erection capabilities.
2. Cost —given the current market environment in steel supply costs and construction labor costs,
the erection costs to put up a building on the Premises are cost prohibitive and no potential
tenants could afford to sublease the Premises. Schilling Rentals would request that the City of
Kenai be reasonable and understand that the proposed use of the Premises is still the best long
SCHILLING
Schilling Rentals LLC
PO Box 3426
Kenai, AK 99611
907-931-6676
term use of the land. However, in the current environment it is not feasible for anyone to erect
a hangar or structure on the Premises.
We understand that the City of Kenai administration is only supportive of a one-year extension, but we
are asking for a two-year extension based on the previously noted reasons.
Proiect Update
Schilling Rentals' original intention for the Premises was to house the Guardian Hangar #1 project, with a
hangar and crew quarters to meet Guardian's needs; however, due to delivery times from suppliers and
budgetary limitations we had to remodel an existing hangar to meet Guardian's budget and timeline.
The second plan for the Premises was to house the Guardian #2 project; however, due to the reasons
noted in this request and Guardian's budgetary limitations, Schilling Rentals has had to improvise and
offer other alternatives so that Guardian does not lease its second location on the Peninsula somewhere
other than the Kenai airport. Schilling Rentals is in the process of reviewing options to remove the crew
quarters from the project and relocate the hangar that we originally intended to build on the Premises
down closer to the Guardian #1 structure (and share/utilize the crew quarters with Guardian #1). Our
assumption is that building costs should decrease over time, and we can go back to the original plan to
build the Guardian #2 hangar on the Premises with crew quarters. However, it is also entirely possible
that building costs could go up even further next year.
We appreciate your consideration of this request. If there is anything further you need from us, please
advise.
Best regards,
David K. Lunt
Chief Financial Officer