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sr-120809-1gc7® City Council Report City of Santa Monica City Council Meeting: December 8, 2009 Agenda Item:. j ~~ To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: 1800 Stewart Street Ground Lease Extension Recommended Action Staff recommends that the City's lease with CF Santa Monica Office. V.I., LP for property located at 1800 Stewart Street be extended for 30 months, from July 1, 2030 to January 1, 2033. Executive Summary In August 2007, the City agreed to an assignment of a ground lease from the Richlar Partnership to "CF Santa Monica Office VI, LP," (Lessee) for premises located at 1800 Stewart Street. The Lease expires in 2030. The Lessee has requested a 30 month extension of the term (from July 1, 2030 to January 1, 2033) in order to pursue their on- going sublease negotiations and entitlements with Agensys, a Santa Monica cancer- treatment firm, as permitted under the terms of the Lease. The Lessee and Agensys are negotiating to use the site for astate-of-the-art clean manufacturing and research lab and transit-oriented development. The extended lease would provide on-going lease revenue to support transit operations within Santa Monica. Background The City acquired the nine-acre parcel located at 2525 Michigan/2715 Exposition Boulevard/1800 Stewart Street from Southern Pacific Transportation Company in 1989 for purposes of supporting future transit development in Santa Monica. A portion of the property (four acres), which covers 1800 Stewart Street, was subject to a.50-year ground lease with The Richlar Partnership ("Richlar"), expiring July 1, 2030. The lease was amended in November 2006, updating the method and time for establishing rental adjustments for the remaining 25-year term. In August 2007, the City approved the assignment of the lease from the Richlar Partnership to CF Santa Monica Office V.I., LP ("Lessee"). The lease revenues help to support transit operations within Santa Monica. 1 Discussion After acquiring the lease for 1800 Stewart Street, the Lessee received administrative approval for renovations to the site's existing buildings which consist of a 64,000 sq. ft warehouse and a 60,000 sq. ft. two-story office building. Work began in early 2008. In November 2008, the Lessee began negotiations to sublease the entire site to Agensys: Agensys is a bio-tech firm that has been in Santa Monica since 1997. The company currently employs 125 people and occupies 58,000 square feet across three sites in Santa Monica. Agensys is one of the world's leading biotech firms. Agensys seeks to consolidate its operations into one centralized location in Santa Monica and expand its Santa Monica workforce to a total of 300 employees by 2012. In February 2009, the parties agreed in principle to a long-term lease and in anticipation of Agensys' specialized requirements, the Lessee ceased most of the construction work. Agensys retained consultants. who began preparing detailed plans for the site. All work halted in May 2009 when-the Exposition Construction Authority announced that the site was being considered as a potential location for the Metropolitan Transit Authority's Exposition Corridor Phase II Maintenance Facility. Several months passed before the Exposition Construction Authority determined that this site would not be among those considered for the maintenance yard. Agensys proposes to use the site for astate-of-the-art clean manufacturing and research facility. The transit-oriented development would support ridership of the Metro Light Rail Expo Line. The plans envisioned by Agensys for use of the site are expected to trigger requirements for a development agreement, pursuant to zoning ordinance changes adopted by the City Council in September 2008. The agreement between the Lessee and Agensys is expected to be conditioned upon City approval of a development agreement that meets the requirements of both the Lessee and Agensys. The Lessee has lost nearly one year in an effort to keep Agensys in Santa Monica and faces the possibility of a development agreement process that will take another 12 to 18 months. If the development agreement process is ultimately unsuccessful, the Lessee would have lost over two years of the remaining ground lease term, with only 18 years 2 remaining. As a result, the Lessee has requested that the City extend the expiration of the ground lease from July 1, 2030 to January 1, 2033. Environmental Analysis Approval of the lease extension will have no environmental impacts. The environmental impacts associated with any use of the site that requires a development agreement or other entitlement will be subject to the appropriate level of environmental review. A resulting transit-oriented development will contribute to the Sustainable City Plan's environmental targets. Financial Impacts & Budget Actions There is no current financial impact. The lease will result in guaranteed income for the City for 30 additional months, with increased adjustments at the end of every 30 month period, thereby providing on-going lease revenues to support transit operations in Santa Monica. The Lessee currently pays a base rent of $72,152.24 per month ($865,827 per year). Prepared by: Jennifer Taylor, Senior Development Analyst Approved: Forwarded to Council: Aridy Agle, Dife~tor v ° +~ l P Housing and Economic Development \ Ci Attachments: 1800 Stewart Street Site Plan 3 Attachment A: 1800 Stewart Street Site Plan Reference Amended Lease No. 8654 (CCS).