Loading...
SR-10-08-2013-3FID City of I Council Report Santa Monica° City Council Meeting: October 8, 2013 Agenda Item: -F To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: Sublease of Retail Space at 223 Broadway Recommended Action Staff recommends that the City Council authorize the City Manager to: 1. Negotiate and execute a sublease agreement with California Love, LLC for the retail space at 223 Broadway, beginning November 1, 2013 and extending through June 30, 2017, in accordance with the terms described below. 2. Authorize the budget changes outlined in the Financial Impacts and Budget Actions section of this report. Executive Summary The City leases retail space at 223 Broadway for the Big Blue Bus transit customer information store. The current lease term expires on June 30, 2017 with an option to terminate earlier on June 30, 2015. Big Blue Bus (BBB) staff is interested in subleasing the space and relocating the customer service function housed there. California Love, LLC, a fashion clothing retailer, has submitted a proposal to sublease the entire 845 square feet of space beginning on November 1, 2013 and extending through the lease term of June 30, 2017 at an initial rate of $12.54 per sq. ft. with periodic increases. Background On January 24, 2006 the Council authorized execution of a five -year lease with extension options for 845 square feet of retail space at 223 Broadway for the BBB transit customer information center (Transit Store). BBB also uses the Transit Store 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 for bus schedules and other BBB information. On August 23 2011, the Council authorized execution of the First Modification to Lease No. 8549 for the BBB Transit Store to modify the term, rental rate and rate for annual adjustments. 1 Discussion While the downtown location has been ideal for the Transit Store, BBB staff is interested in subleasing the retail space for the remainder of the lease term as a cost - saving measure. The Transit Store would maintain its easily accessible downtown presence by relocating into the Central Parking office located in ground -floor retail space within Parking Structure No. 5 located at 1444 4th Street. This is an ideal colocation opportunity for BBB to maintain a counter presence to sell transit fare media. Central Parking is open 24 hours per day, seven days per week and has committed to selling BBB fare media during BBB's off hours. In addition, this location is a central downtown location. Transit customers and the general public will have similar easy access to the proposed new location on 4th Street as it is located just around the corner from the existing location on Broadway. The new location is ADA accessible. BBB expects to maintain the same level of customer service Downtown with the relocation to 4th Street. In addition, BBB plans to add a customer service location at City Hall in early 2014. BBB plans to make fare media available in City Hall with the installation of a Ticket Vending Machine, and plans to add a BBB customer service phone and a computer to access the trip planning "Route Wizard ". Furthermore, as BBB launches various customer service tools over the next year, customers will have online access to a new fare collection system through the web portal and eventually through mobile applications. As a result, BBB envisions fewer patrons purchasing fare media at the physical storefront outlets. These collective changes will improve BBB customer service options while generating operational savings for BBB. To assist with tenant recruitment to sublease the space, staff conducted a request for qualifications process (RFQ) to solicit the professional services of a commercial real estate broker. The RFQ was advertised on the City's online bidding site and on the Housing and Economic Development Department website. Five brokers submitted statements of qualifications, three were interviewed, and staff selected and entered into a professional service agreement with commercial broker Craig Zund of Corporate 2 Realty Group. Through the efforts of Mr. Zund, a fashion -brand retailer California Love, LLC, a California Limited - Liability Company, has submitted a proposal to sublease the entire 845 square feet of retail space. The sublease would commence November 1, 2013 at a rate of $12.54 per sq. ft. and the sublease would be subject to all of the terms and conditions of the Master Lease. The proposed sublease price per square foot is $1.40 above BBB's current lease rate per sq. ft. of $11.14, which will offset the City's costs for the real estate brokerage service and the offer to provide the sub - tenant three months of rent abatement as a tenant improvement allowance. The sublease will be responsible for meeting all of the terms and conditions of the City's lease including the common area maintenance and utility expenses. Subleasing the retail space at 223 Broadway will result in net expenditure reductions of approximately $219,000 for the BBB through FY 2016 -17, considering current lease and maintenance costs through the early lease termination period against the sublease scenario where sublease revenues offset expenditures. Alternatives Council could decide not to sublease the retail space at 223 Broadway. BBB would maintain the lease and give notice to terminate the lease on the early termination date of June 30, 2015. This option would not generate any cost savings for BBB. Exercising the option at the early termination date of June 30, 2015 would result in continued lease payments totaling approximately $191,000 and Common Area Maintenance (CAM) fees of approximately $36,000. Financial Impacts & Budget Actions Implementing this recommendation will result in net expenditure reductions of approximately $219,000 for the BBB through FY 2016 -17. BBB will continue to make lease payments as budgeted in the amounts of $112,594 in FY 2013 -14 and $116,343 in FY 2014 -15, and the one -time broker payment will be $27,761 in FY 2013 -14. Funds are available in the FY 2013 -14 and FY 2014 -15 Capital Improvement Program N budget at account C410749.589000. The BBB lease expenditures will be offset by new revenues from the sublease. Executing the sublease agreement will require increasing the revenue budget at account 41642.404090 in the amounts below for new sublease revenue: Account FY 13 -14 FY 14 -15 41642.404090 ($84,800) ($129,744) Budget authority for subsequent budget years will be requested in each budget for Council approval. Future funding is contingent upon Council approval and budget adoption. Prepared by: Erika Cavicante, Sr. Development Analyst Approved: Forwarded to Council: Andy Agle, Director Rod Gould Housing and Economic Development City Manager 0 Reference: Agreement No. 9809 (CCS)