SR-03-18-2014-3HCity Council Meeting: March 18, 2014
Agenda Item: 3—W
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 negotiate and
execute a sublease agreement with Washington Earth Spa, LLC for the retail space at
223 Broadway that would extend through June 30, 2017, in accordance with the terms
described in 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 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.
Washington Spa, LLC, a beauty bar retailer, (Sublessee) has submitted a proposal to
sublease the entire 845 square feet (sq. ft.) of space through the lease term of
June 30, 2017 at an initial rate of $13.00 per sq. ft. with periodic increases.
Background
On January 24, 2006, Council authorized execution of a five -year lease with extension
options for 845 sq. ft. of retail space at 223 Broadway for the BBB transit customer
information center (Transit Store). BBB 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. Additionally, BBB uses the Transit Store
as its primary call center. On August 23, 2011, 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. At its October 8, 2013 meeting, Council
authorized execution of a sublease with California Love, LLC for 223 Broadway.
However, the company changed its business plans and did not complete the sublease
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agreement. The broker continued to market the space and was able to find another
interested subtenant.
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 for selling 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, the office is centrally located
Downtown, just around the corner from the existing Transit Store 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 2014 with a
customer service phone and 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
Old
Realty Group. Through the efforts of Mr. Zund, Washington Earth Spa, LLC a Nevada
based Limited Liability Company, doing business as Lionesse Beauty Bar, has
submitted a proposal to sublease the entire 845 square feet of retail space.
The sublease would commence upon execution of a sublease agreement at a lease
rate of $13.00 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 $1.86
higher than BBB's current lease rate of $11.14 per sq. ft. The property owner, as part of
the consent for the City to sublease the space, is requiring that the Sublessee pay the
rent directly to them but BBB may be able to capture a portion of those revenues to
cover transaction costs. The City would provide the Sublessee two months of rent
abatement as a tenant allowance. The Sublessee would be responsible for meeting all
of the terms and conditions of the City's lease including the common area maintenance
and utility expenses, as well as incur the cost of removing the tenant improvements at
the end of the lease term. Subleasing the retail space at 223 Broadway would result in
net expenditure reductions of approximately $125,000 to $150,000 for the BBB through
FY 2016 -17, depending on the final sublease terms and projected savings from tenant
improvement removal. It is expected that the sublease agreement would be executed
effective April 1, 2014.
Alternatives
Council could decide not to approve a sublease agreement for the retail space at
223 Broadway. BBB would maintain the lease and exercise its option to terminate early
on 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 $144,500 and Common Area
Maintenance (CAM) fees of approximately $26,700.
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Financial Impacts & Budget Actions
Implementing this recommendation would result in net expenditure reductions of
approximately $125,000 to $150,000 for the BBB through FY 2016 -17. BBB would
continue to make lease payments as budgeted in the amount of $18,826 for the
remainder of FY 2013 -14 and the one -time broker payment would be $25,289 in
FY 2013 -14. Funds are available in the FY 2013 -14 Capital Improvement Program
budget at account 0410749.589000.
Prepared by: Erika Cavicante, Sr. Development Analyst
Approved:
Andy Agle, Director
Housing and Economic evelopment
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Forwarded to Council:
Rod Gould
City Manager
Reference:
Agreement No. 9881 (CCS)