SR 08-23-2011 3FCity Council Meeting: August 23, 2011
Agenda Item: 3"-~
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Lease Modification for 223 Broadway
Recommended Action
Staff recommends that the Council authorize the City Manager to negotiate and execute
Modification No. 1 to Lease No. 8549 for 223 Broadway, with Third Street Limited, a
California Limited Partnership, for the Big Blue Bus (BBB) transit customer information
center, to modify the term, rental rate and rate for annual adjustments.
Executive Summary
The City leases retail space at 233 Broadway for the Big Blue Bus store. This first lease
modification would extend the term of the lease to June 30, 2017, provide for an
exclusive City-held right of cancellation after the fourth year, increase the rental rate
retroactive to July 1, 2011, from $7,166.85 per month to $8,872.50 per month, and
provide for annual increases of three percent.
Background
On January 24, 2006. the City Council authorized execution of a lease of 845 square
feet at 223 Broadway for the Big Blue Bus transit customer information center (known
as Blue: The Transit Store). The five-year lease, which expired on June 30, 2011,
provides for five one-year options. The rent for each option is subject to separate
negotiation.
BBB uses the transit customer information center as its primary call center. Staff sells
bus passes and merchandise and assists bus riders with trip planning. The store also
serves as a central distribution site throughout the community for racks which hold bus
schedules and other BBB information. The location, near the Third Street Promenade
and adjacent to a bus stop, is convenient for customers. Each month, the Big Blue Bus
store receives approximately 2,100 walk-in visitors and handles 6,300 telephone
inquiries, generating annual sales of $1,100,000.
At the time of the initial leasing, the City invested Big Blue Bus and Federal
Transportation Administration Grant funds to complete substantial tenant improvements.
The tenant improvements involved fiber cabling and installation of other information
technology systems for the computer, server, phone and routing switches, as well as
construction of a mezzanine that added approximately 300 sq. ft. to the leasehold.
Discussion
The existing lease, which expired on June 30, 2011, and is now on a month-to-month
hold over, provides for five one-year options, with a new lease rate to be negotiated in
each option period. The current rent is $7,166.85 per month ($8.48 per sq.ft.) The First
Modification would increase the monthly rent to $8,872.50. This rental amount is based
on a rate of $10.50 per sq.ft. for the original rental area of 845 sq.ft. The effective
monthly rental rate based on the expanded area of 1,145 sq. ft. is $7.75 per sq. ft. The
proposed lease would increase the rental amount three percent per year over the six-
year term. The City would retain an .exclusive right to terminate the lease after the
fourth year.
The location is ideal for the Transit Store as it is near the Third Street Promenade and
adjacent to a bus stop. The term is compatible with goals of the BBB to relocate the
store within the next several years to a permanent location in a nearby Downtown
transit-oriented development along the Exposition Light Rail corridor.
Prior to concluding negotiations with the Landlord, staff evaluated a number of alternate
locations to determine whether rental space could be obtained at a lower cost. The
analysis showed that, even in locations with lower rent per square foot, the estimated
cost to move the operation to a new location, construct tenant improvements in the new
space, and pay the contracted holdover rent for up to the year that it could take to
design and construct the tenant improvements, would offset any potential savings in
monthly rent. Additionally, the City would lose the benefit of the tenant improvements
made at the current site which are valued at over $1 million. Staff has concluded that it
would be more cost effective and less disruptive to the Transit Store's operations to
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remain at its current site for the next four to six years, rather than to relocate now to
another temporary site and then again to a permanent location.
Financial Impacts & Budget Actions
During FY 2011-12, annual rent for 223 Broadway will be $106,470, an increase of
$20,467.80 from the previous year. Over the six year term of this lease, the total cost
including rent, Common Area Maintenance fees and repairs is estimated to be
$831,679.65. Funds are available in Account No. 0410749.589000. Budget authority
for subsequent years will be required in each biennial budget cycle for future Council
approval.
Prepared by: Miriam Mack, Economic Development Manager
Forwarded to Council:
Andy Agle, Director Rod Gould
Housing and Econ mi evelopment City Manager
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Reference
Amended Lease
No. 8549 (CCS)