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SR-121785-6Melf/ -• ~ DEC 17 1985 C/ED:EDD:EF:mb Council Meeting: December 17, 19135 Santa Monica, California T0: The Mayor and City Council FROM: City Staff SUBJECT: Recommendation to Authorize City Manager to Negotiate and Execute Leases for 4636 Square Feet of Commercial Space in Downtown Parking Structure No. 2 INTRODUCTION This report recommends that the City Council authorize the City Manager to negotiate and execute two (2) leases for a total of 4636 square feet of commercial retail space in Downtown Parking Structure No. 2 pursuant to the terms outlined in this report. BACKGROUND On January 22, 1985, the City Council adopted terms and procP- lures for the leasing of 6,700 square feet of retail space in Downtown Parking Structure No. 2. Following the Council meeting, City staff proceeded to advertise the availability of the retail space with local commercial leasing brokers, with paid advertise- ments published in the Evening Outlook, and recently with the procurement of commercial broker services through Ed Flores Real- ty. To date 890 square feet of commercial space has been leased. All persons inquiring about the space are directed to inspect the site and are informed of the City's requirement that all tenant improvements be paid by the Lessee. Interested parties are then requested to submit a formal proposal for leasing of the space _ 1 _ ~D oEC s ~ specifying proposed lease terms, tenant improvements and local credit references. DISCUSSION Based on the above process, it is recommended that Mr. G. Nabavi, doing business as ITAL ART, and Claudio Carmona and Beth Guynn, doing business as OCUMICHO, be granted commercial leases subject to the terms proposed below. Specific lease terms are the prod- uct of negotiations based on the City's stated terms and the ap- plicant's proposal. The recommended financial terms take into consideration the amount of capital improvements required, the term of the City's lease, the condition of the lease premise, and the estimated schedule for completion of all tenant improvements. A summary description of the proposed lessees and lease terms is provided below. ITAL ART is an established Italian furniture store owned by Mr. G. Nabavi. At this time Mr. Nabavi's main showroom and warehouse facility is located in El Monte, California. Under the terms of the proposed lease, Mr. Nabavi will operate a showroom facility only at the premise and will not be allowed to use the facilities for storage or warehouse facilities. All deliveries to store patrons will be made directly from the warehouse facility. Under the terms of the proposed lease, Mr. Nabavi will make all tenant improvements which include the installation of an acousti- cal ceiling, floor coverings, an upgraded electrical system, and various oth?r improvements associated with the furnishing of a - 2 - furniture showroom. The following terms are proposed for granting a lease to Mr. Nabavi: o monthly rent - $3000 subject to an annual C.P.I. adjust- ment with no cap; o amount of lease space - 3636 square feet; o term of lease - 5 years with an option to extend for additional 5 years with the minimum rent to be re- established at the end of the first five years at the then prevailing market rent; o a rent deposit - equal to 3 months rent ($9000), payable upon execution of the lease by the City; and o a "grace period" - a sixty (60) day grace period is recommended, effective upon the execution of the lease by the City, against the payment of monthly rent to ac- commodate the necessary construction schedule for tenant improvements. Under the terms of the City's agreement with Ed Flores Realty, the firm is to receive a base broker's commission of $7980. Fifty percent of the fee is to be paid upon execution of the lease by both parties, with the remainder to be paid upon the occupancy of the lease space by the lessee. These terms are con- sistent with the current and prevailing industry standards for broker commissions on the WPStside. OCIMICHO - is a new art gallery jointly-owned by Mr. Claudio Carmona and Ms. Beth ~uynn. Under the terms of the proposed - 3 - lease, Mr. Carmona and Ms_ Guynn will make all tenant improvP- mPnts which include the installation of floor coverings, an up- graded electrical system, and various other improvements associ- ated with the furnishing of an art gallery. The following terms are proposed for the granting of a 1eaSP: o monthly rent - $1100 subject to an annual C.P.I. adjust- ment with no cap; o amount of lease space - 1000 square feet; o term of lease - 5 years; o a rent deposit - equal to 2 months rent ($2200), payable upon execution of the lease by the City; and o a "grace period" - a sixty {6U) day grace period is recommended, effective upon the execution of the lease by the City, against the payment of monthly rent to ac- commodate the necessary construction schedule for tenant improvPmPnts. The granting of a lease will not require the payment of a lease commission as the lease was directly negotiated by City staff. Over the next few months it is anticipated that staff will be returning with an additional proposal for the granting of a lease for the remaining 1000 square feet of space. At that time, Coun- cil will once again have the opportunity to review and approve the proposed lessee and lease terms. BUDGET/FISCAL Ity1PACT Given the above recommPndPd lease terms, it is anticipated that during FY 1985-86 the City General Fund Account Number 01-904- - 4 - 077--000--000 will receive an additional total lease revenue of $18,450. On an annual basis thereafter, it is anticipated that the City General Fund will receive a total income frorr~ these leases of $49,200 plus annual C.P.I. adjustrr~ents recommended as part of the lease terrr~s. Funds are currently available in the General Fund Professional Services account, City Planning Divi-- Sion, (01--200--266--000--506) to pay the required broker fee of $7980. RECOMMENDATION It is recorr~rr~erided that the City Council authorize the City Man- ager to negotiate and execute corr~rr~ercial leases with the above referenced lessees consistent with the terms outlined in this report. Prepared by: Ernesto R. Flores, Manager Economic Developrr~ent Division Corr~munity & Economic Development Department Attachments: Lease Agreerr~ents Addendum to Lease Agreement -- Option to Extend ERF : Dib carmona Reference Contract Nos. 4625 and 4626 (CCS).