Harbor commissioners for the Port of Los Angeles have approved a lease with SpaceX under which Elon Musk’s company will build a research, development, manufacturing and recovery facility at a dilapidated terminal.
The lease agreement, which the harbor board approved on Thursday, now goes to the Los Angeles City Council for a vote.
SpaceX would pay $1,699,990 during the first year, with the cost adjusted annually according to the consumer price index (CPI). Assuming SpaceX renews the lease for years 11-30, total lease payments through year 20 would total $52,888,933.
SpaceX would make improvements in the property that would enable Elon Musk’s company to offset much of the lease cost. The Harbor Department would also assume some of the expenses associated with the site.
However, it is important to note that over this initial 20-year period, SpaceX can apply $44,100,000 in tenant credits to offset invoiced amounts due. Furthermore, staff estimates that the Harbor Department will be responsible for $326,301 in cumulative property insurance costs over the initial 20-year period. Staff has also estimated that the Harbor Department will forego the receipt of $360,000 for one year of recovery operations which are currently being performed under RP 15-19, but will now be performed under the proposed Permit No. 949.
After subtracting the anticipated $44.8 million in aggregate estimated costs from the $52.9 million in aggregate estimated revenues, Staff has estimated net receipts to the Harbor Department of approximately $8.1 million over the initial 20-year term of the proposed Permit. After all tenant credits are exhausted, staff has estimated the receipt of $40.2 million in net receipts over Years 21 -30 such that cumulative net receipts over the maximum 30-year permit term may reach $48.3 million.
At the end of the 30-year permit, the land committed under the permit to SpaceX will revert back to the Harbor Department with an estimated future value of over $71 .2 million, as would the estimated $10.8 million future value of improvements completed by SpaceX during the permit term.
The summary said that the benefits to the Harbor Department do not meet the financial goals of the port’s leasing policy.
“The estimated financial rate of return associated with Permit No. 949 meets neither the 10 percent target rate of return for land nor the 12 percent target rate of return requirement for improvements as stated in the Port’s Leasing Policy,” the document said.
“While the estimated financial rate of return falls below the blended target rate of return, intangible benefits associated with attracting increased aerospace industry business activity to the Port may potentially mitigate the rate of return deficiency associated with the proposed Permit,” the summary added.