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.
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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
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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
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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
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Reference:
Agreement No. 9809
(CCS)