sr-052510-1fCity Council Meeting: May 25, 2010
Agenda Item: ~-=~
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: 1338-42 5th Street -Third Amendment to Carlson's Inc. Lease
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a Third Amendment to the Lease with Patricia Polkinghorn dba Carlson's Inc. to
extend the current lease, and modify the rental rate and termination provision.
Executive Summary
Carlson's Inc. has requested an extension of its lease, which terminates on December
31, 2010. The lease space is an approximately 7,150 sq. ft., single story retail building
and includes an adjoining parking lot. The proposed modification would extend the term
through December 31, 2012, provide for three two-year options, and allow for either
party to terminate within the option periods with nine months' notice. The rent would be
$18,500 in the first year, $18,870 in the second year, and would increase annually by
the CPI rate in the option years, at not less than 2 percent or more than 5 percent.
Background
On February 13. 2007, the City Council authorized the acquisition of property located at
1338-42 Fifth Street. Escrow closed on October 10, 2007. The property acquisition
was in accordance with the Downtown Parking Strategy.
As part of the property acquisition, the City assumed the current (Second Amendment)
lease with Carlson's Inc., which expires December 31, 2010. Carlson's has occupied
the space for nearly 15 years and is a well-known appliance store in Santa Monica and
throughout Los Angeles County.
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Discussion
Carlson's Inc. current rent is $18,500 per month, or $2.59 per sq. ft. Staff has reviewed
rental rates of comparable property in the area and found the current rent to be within
the asking range for similar properties. Given the City's intent to plan for the future use
of its properties along Fifth Street over the next two to three years, keeping Carlson's as
a tenant for the next few years would allow the City to continue to earn income from this
property during the planning period. It is not expected that any development on the site
would occur before December 2012.
Staff recommends a Third Amendment to the Lease that would extend the term to
December 31, 2012, and provide for three two-year options that would allow for either
party to terminate at any time during the option period with nine months' notice. During
the first year of the new term, the rental rate would remain at $18,500 per month.
During the second year, the rental rate would increase to $18,870. The rent would
increase annually during the option periods by the CPI rate, at not less than 2 percent or
more than 5 percent.
Alternative
As an alternative, the City could solicit a new tenant for the property. However, given
the short-term nature of any new lease for this property, it is unlikely that the City would
secure a new tenant who would pay more rent than Carlson's is proposing to pay. In
addition, a new tenant would likely request a rent credit as compensation for tenant
improvements.
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Financial Impacts & Budget Actions
Carlson's rent to the City is $222,000 per year in account number 01263.400770. As a
result of this Third Amendment, this revenue stream to the City's General Fund will
continue uninterrupted and will provide a slight increase in rental income in FY 2011-12.
Prepared by: Donna Rickman, Senior Administrative Analyst
Approved:
Andy Agle, Director
Housing and Econo
Forwarded to Council:
Rod Gould
City Manager
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Reference Contract No.
9219 (CCS).