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sr-112310-3l (2)c7® ~tYof City Council Report Santa Monica City Council Meeting: November 23, 2010 Agenda Item: J'-"t- To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: Amend Lease of 1660 Lincoln Boulevard for City Print Shop and Mail Room Activities Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute an amendment to the existing lease to accommodate continued occupancy by the Mail Room and Print Shop at 1660 Lincoln Boulevard to: 1. Eliminate paragraph 54 of the Lease cancelling the City's existing Option to Extend 2. Include a new provision to continue. the lease on a month-to month basis after July 31, 2011 and eliminate paragraph 26 of the Lease prohibiting holdover 3. Effective August 1, 2011, reduce occupancy to 3,723 sq. ft. of space 4. Effective August 1, 2011, reduce monthly base rent to $8,000 and 5. Provide a 90-day notice to vacate by either party, but not before August 1, 2011 for the City or October 1, 2011 for the Landlord Executive Summary The City currently leases 12,000 square feet at 1660 Lincoln Boulevard for the Mail Room, Print Shop and Big Blue Bus warehouse. The proposed lease amendment cancels the City's three-year option, provides for a month-to-month holdover commencing August 1, 2011, in a reduced occupancy to accommodate the Mail Room and Print Shop. Given that the Landlord plans to sell the property, the proposed Lease Amendment will also contain provisions fora 90-day vacation notice by either party, but not before August 1, 2011 .for the City or October 1, 2011 for the Landlord. The rent beginning August 1, 2011 will be reduced to $8,000 per month, or $2.15 per sq. ft. Background In 2001, the City entered into a lease at 1660 Lincolh Boulevard for 12,000 sq. ft. to be , used for the warehouse needs of the Big Blue Bus as well as the City's Mail Room and 1 Print Shop activities. The Mail Room and Print Shop occupy 3,723 sq. ft. of the total leased area. The lease expires July 31, 2011, with one three-year option which must be exercised before February 1, 2011. Current rent for the leased space is $27,884 per month, with the Mail Room and Print Shop contributing $9,495 per month of the total. Discussion The Big Blue Bus is scheduled to relocate its warehouse materials upon completion of its new campus in mid-July 2011. However, the Mail Room and Print Shop would like to remain as tenants until a new site is secured, plans are developed, and tenant improvements are completed. Staff has already initiated the .process of locating a suitable space for the Mail Room and Print Shop and will return to Council for lease authorization. However, a lease modification that allows the City uses to remain on a month-to-month basis in only 3,723 sq. ft. of the space will ensure that an adequate amount of time is available to obtain a new space and complete tenant improvements. The owners of the building are amenable to the Mail Room and Print Shop remaining as a tenant at a reduced rent after July 31, 2011, but because the owners are in escrow to sell the building, they are reluctant to encumber a new buyer with along-term lease to the City for a relatively small area that is located in the middle of the building. Therefore, the following recommended lease terms would satisfy the City's objective of remaining as a tenant until a new space is found and completed, while also providing the Landlord with the required flexibility for negotiations with a potential buyer. The recommended lease terms would satisfy these two objectives as follows: 1. Eliminate paragraph 54, cancelling the three-year option 2. Holdover lease on a month-to-month basis after July 31, 2011 and eliminate paragraph 26 of the Lease prohibiting holdover 3. Reduce occupancy from 12,000 sq. ft. to 3,723 sq. ft 4. Reduce Mail Room and Print Shop .monthly base rent from $9,417.24 to $8,000 after July 31, 2011 5. Provide a 90-day notice to vacate, but not before August 1, 2011 for the City, or October 1, 2011 for the Landlord 2 Alternatives If the City Council decides not to amend the existing lease, staff would continue its search for a new site and would need to secure that site, develop plans and complete construction of tenant improvements prior to July 31, 2011. In addition, the Finance Department is currently conducting- an analysis of the Print Shop and Mail Room functions to determine whether it makes fiscal sense to: (a) continue providing the service in-house as currently structured; (b) relocate/restructure the Print Shop to optimize the City's investment of managing it in-house; -and (c) use a managed print/mail service on-and/or off-site. Staff will return to Council with options and recommendations once this analysis is completed. Financial Impacts & Budget Actions Currently, the Mail Room and Print Shop pay rent of $9,417.24 per month ($2.53/sq.ft). The new rent will be $8,000 per month ($2.15/sq./month) effective August 1, 2011, and will result in approximately $1,417.24 in monthly rent savings to the General Fund. Budget authority for subsequent years will be requested in each annual budget cycle for Council approval. Prepared by: Donna Rickman, Senior Administrative Analyst Andy Agle, Director Housing and Econo Forwarded to Council: ~~._ Rod Gould City Manager 3 Reference Amended Contract No. 8615 (CCS).