Committee backs amended Java House lease, approves sale to new operator with conditions

Chair Sandra Lee Feuer moved the Budget and Finance Committee to forward a resolution to the full Board recommending approval of an amended and restated lease for the Java House restaurant at Pier 40½.

Mark Lozovoy, assistant deputy director of real estate and development for the Port of San Francisco, told the committee the Java House has been run by the Papadopoulos family for more than three decades and currently operates under a 15‑year lease that expires August 31, 2023. Lozovoy said the proposal before the committee would allow the current owners to sell the original lease to a new entity, Frankie's Java House LLC, with the family retaining a 15% stake. "The proposed amendment and restatement of the lease would require Frankie's to make a capital investment of no less than $737,000 into the facility," Lozovoy said, adding that the amount includes previously uncompleted improvements the current tenant had been required to make.

The Port's proposal would increase base rent from the current $3,314 per month to $4,000 per month and preserve percentage rent at 7.5% of gross food-and-beverage sales. Under the plan, the new tenant would complete the capital improvements and construct an addition to allow outdoor seating and alcohol sales; Lozovoy said the investor, Michael Heffernan, indicated he would condition the 10‑year lease extension on successful completion of the improvements and would provide a personal guarantee for construction costs.

The Budget Analyst Office, represented by Sevin Campbell, summarized the rent components and the requirement that the tenant put in approximately $737,000 in tenant improvements. Campbell noted the lease was being handled as a sole‑source transaction permitted by the Port's retail leasing policy when a tenant is in good standing and the terms are financially reasonable, and recommended approval.

Committee members asked for clarification on the extension mechanics. Lozovoy explained that if the option is exercised, base rent would be subject to a ratcheting methodology tied to percentage‑rent experience (described in the record as 85% of percentage rent experience over the preceding three years) with a mid‑option mark‑to‑market adjustment. Supervisors also sought assurances about the continuing involvement of the Papadopoulos family; Lozovoy said the family's 15% stake would remain initially but that future ownership changes are possible.

The Chair moved the item to the Board with a positive recommendation and it was taken without objection. The committee record shows the port will receive a 12% share of sale proceeds (roughly $63,000 as stated in the presentation) and a $51,000 penalty from the original tenant for failing to complete prior improvements on time. The lease term currently ends 08/31/2023; the option to extend would add 10 years to that term (to 02/2033 under the mechanics described in committee).