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SR-010808-1I~- ~;tYO, City Council Report Santa Monica City Council Meeting: January 8, 2008 Agenda Item: ~ To: Mayor and City Council Chairperson and Redevelopment Agency From: Andy Agle, Director of Housing and Economic Development Subject: Authorization to Negotiate and Execute a Lease with AMDA, LLC for Space at 1901 Main Street and Lease Renewal for Space at 1212 Stn Street with Wilshire & Stn I & II, LLC Recommended Action Staff recommends that the City Council: 1. authorize the City Manager to negotiate and execute a lease with AMDA, LLC for 13,386 rentable sq. ft. at 1901 Main Street, for aten-year term beginning May 1, 2008, for City offices; 2. authorize the City Manager to negotiate and execute a lease renewal with Wilshire & Stn I & II, LLC., for 5,959 rentable sq. ft. at 1212 Stn Street, for afour- yearterm beginning February 1, 2008, for City offices; and 3. appropriate $98,200 from the General Fund to account 01264.522620.76027W for increased occupancy costs through June 2008; and 4. authorize the expenditure of $600,000 for tenant improvement costs to be constructed by AMDA, LLC. Staff recommends that the City Council and the Redevelopment Agency: 1. appropriate $360,000 from the Redevelopment Agency Fund to account 0170883.589000 for tenant improvements at at 1901 Main Street for Housing and Economic Development Department (HED) offices; and 2. authorize the City Manager and the Executive Director, respectively, to execute a Reimbursement Agreement between the City and the Redevelopment Agency for the advancement of the $360,000. Executive Summary At its retreat on October 13, 2007, the City Council identified a priority of bringing currently scattered City offices back to the Civic Center. Staff is currently assessing opportunities to develop public facilities in the Civic Center to address these needs. During the planning and development process for the permanent facilities, certain city offices will need to remain in leased facilities. Where appropriate during the interim period, staff also is exploring opportunities to bring City services that are currently scattered into close proximity to the Civic Center. Leases at 2121 Cloverfield Boulevard that serve the Housing Division of the Housing and Economic Development Department expire in the coming year. The currently available space at 1901 Main Street, at the southeast corner of Pico Boulevard, would enable these public services to be located in close proximity to the Civic Center. It would also enable the various divisions of the Housing and Economic Development Department that are currently scattered across four sites, to be located in one facility. The rentable space at 1901 Main Street is 13,386 sq. ft. and is situated on the first and second floors of the three-story office building. The proposed term would commence May 1, 2008, and would continue for ten years, with one five-year option. The rental rate is $3.50 per sq. ft. per month for the first floor and $3.70 per sq. ft. per month for the second floor and would increase 5 percent per year. Additional occupancy costs to the City would be for janitorial, utilities and on-site parking spaces for clients and customers. Total monthly occupancy costs during the first year are anticipated to be $54,071. Engineering staff anticipates that the total cost for tenant improvements will be about $832,000 of which the Lessor agrees to contribute a tenant allowance of $181,975 (based on $25 per sq. ft. of first floor rentable space) and to pay for painting and carpeting of the second floor, requiring a need for City funding of $600,000. Leases at 1212 5th Street that serve the Water Resources Division and Energy and Green Programs are to expire January 31, 2008. The Water Resources Division has occupied the 4,140 sq. ft. of the third floor at this location for 13 years and the Energy/Green Building office has occupied the 1,819 sq. ft. of the ground floor for over three years. Staff is recommending afour-year lease extension with afour-year option. The rent for the third floor is proposed to increase from $2.93 per sq. ft. to $3.32 per sq. ft. and the rent for the ground floor is proposed to increase from $3.25 per sq. ft. to $3.90 per sq. ft. Annual lease payments will increase from $231,563.40 to $268,426.80. Background Currently, City offices are located in City Hall and various sites throughout Santa Monica. This decentralized approach results in operational inefficiencies as well as decreased levels of customer service. As a result, creating additional space for City services in the Civic Center has been along-standing City goal. The Civic Center Specific Plan provides for the development of a new, permanent facility to meet some of these needs. On October 13, 2007, the City Council reaffirmed its commitment to fully addressing these needs. 2 Discussion 1901 Main Street While planning for permanent City facilities continues, staff is exploring opportunities to bring existing City services in off-site spaces in closer proximity to the Civic Center. Such an opportunity currently exists at 1901 Main Street, at the southeast corner of Pico Boulevard. With two leases for the Housing Division at a private office building at 2121 Cloverfield Boulevard expiring in 2008, the available space provides an opportunity to bring these services in much closer proximity to the Civic Center. The largest lease at 2121 Cloverfield expires March 31, 2008, while the smaller lease expires December 31, 2008. The broker for 2121 Cloverfield Boulevard expressed an interest in renewing the lease, but only for a short term, three to five-year period, as the owner plans to redevelop the property in the near term. The two floors of available space at 1901 Main Street are of sufficient size to co-locate all Housing and Economic Development staff operations in one facility. Currently, these operations are located in four facilities. In addition to the customer service, efficiency and management benefits of locating all department operations in one facility, 1901 Main Street is also in close proximity to City Hall and along a major bus route to serve HED's customers. The rentable space at 1901 Main Street is 13,386 sq. ft., with 7,279 sq. ft. on the first floor rented at $3.50 per sq. ft. per month and 6,107 sq. ft. on the second floor rented at $3.70 per sq. ft. per month. Office rental rates have been increasing over the last several years and the proposed rental rates are very competitive for Santa Monica. The ten-year term would commence May 1, 2008, with one five-year option. Rent would increase at a flat rate of 5% per year. The City would be responsible for janitorial and utilities, estimated to cost $5,000 per month, plus $1,000 per month for the cost of ten visitor parking spaces rented at $100 per month per space, increasing at a rate of 4 3 percent per year. Staff would park in the Civic Center public parking lot. If permanent City facilities that could accommodate these public services are built within the Civic Center during the ten-year term, the lease allows the City to sublease the space. The Engineering and Architecture Division has estimated the cost of tenant improvements at $832,000. The first floor will need to be completely gutted, while some of the second floor can be reused. The property owner has offered a tenant allowance of $25 per sq. ft. for the rentable ground floor space and to repaint and carpet the second floor. The total value of the property owner-funded improvements is estimated to be $232,000, leaving the City to fund $600,000 for tenant improvements, relocation and furnishings. 1212 5th Street The Water Resources Division's administrative office has been located at 1212 5th Street on the third floor for 13 years and the Energy and Green Program's administrative office has been located on the first floor for over three years. Both leases expire January 31, 2008, with an option to renew for two two-year periods. The current rate is $2.93 per sq. ft. for the 4,140 sq. ft. on the third floor and $3.25 per sq. ft. for the 1,819 sq. ft. on the ground floor. The proposed rate for the four-year renewal is $3.32 and $3.90 respectively with a 5% increase per year with afour-year renewal option. The monthly cost for 18 parking spaces will increase from $1,255 to $1,530 per month. The property owner will provide $10 per sq. ft. tenant improvement allowance. The ground floor space is more desirable and thus commands a higher monthly rate. Alternatives If the proposed lease with AMDA, LLC for space at 1901 Main Street is not authorized, staff can continue to look for suitable facilities or attempt to renegotiate the lease at 2121 Cloverfield Avenue. If the proposed lease renewal for 1212 5th Street is not approved, staff will seek amonth-to-month extension and immediately begin seeking other space. 4 Environmental Analysis The recommended Council action is exempt from CEQA under Section 15301, Existing Facilities. Financial Impacts & Budget Actions The current expenditure for rent and parking by HED for all locations currently occupied by its staff that would be moved to the new location is $248,956 per year. The proposed annual expenditure for rent and parking at 1901 Main Street in the first year will be $588,868, an increase of $339,912 per year. The increase will be funded with $240,116 from the Redevelopment Agency and $99,794 from the General Fund and will be included in future annual budget requests. In addition, the City will need to continue paying rent on one of the two leased spaces at Cloverfield Boulevard between May 1 and December 31, 2008. If the City is unable to sub-lease the space, the cost of this expenditure will be $56,680. Staff is requesting a current year budget General Fund increase to Account No. 01264.522620.76027W of $98,200 for increased rent during May and June 2008. Funds in the amount of $360,000 for the Redevelopment portion of the tenant improvements should be appropriated from the Redevelopment Agency fund to Account No. 0170883.589000. The City's General Fund will advance project funds to the Redevelopment Agency, and the Redevelopment Agency will repay the City from future tax increment revenues. A Reimbursement Agreement formalizing the agreement between the City and the Agency for the advancement of these funds will be required. Additionally, funds in the amount of $240,000 for the General Fund portion of tenant improvements are available at Account No. 0010361.589000. 5 Lease payments for the remainder of the fiscal year for 1212 5t" Street will increase by $15,359.75. Sufficient funds in the Divisions' budgets will cover this expenditure for the remainder of the year, and on-going costs will be reflected in next year's budget. Prepared by: Miriam Mack, Economic Development Manager Approved: Andy Agle, Director Housing and Econo Forwarded to Council: Ewell 6 Reference Amended Contract No. 8404 (CCS) & Contract Nos. 8874 ~ccs~ & aa~5 (CCs).