SR-03-18-2014-3LCity Council Meeting: March 18, 2014
Agenda Item: 3—L®
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Sublease of Space at 1630 17th Street
Recommended Action
Staff recommends that the City Council authorize the City Manager to:
1. Negotiate and execute a sublease agreement with the Santa Monica - Malibu
Unified School District for the space at 1630 17th Street, beginning April 1, 2014
and extending through August 31, 2021, 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
In 2011, the City leased space at 1630 17th Street to serve the Print Shop and Mail
Room. The lease has an expiration date of August 31, 2021. Staff has determined that
it would be more cost efficient to sublease this space and relocate the Print Shop and
Mail Room to the City Corporation Yards located at 2500 Michigan Avenue (Corporate
Yards). The Santa Monica - Malibu Unified School District (SMMUSD) has submitted a
proposal to sublease the entire 4,528 square feet (sq. ft.) of space through the lease
term of August 31, 2021 at an initial rate of $2.00 per square foot with periodic rent
increases.
Background
In 2011, the City entered into a lease at 1660 Lincoln Boulevard for 12,000 sq. ft. to be
used for Big Blue Bus warehouse needs, as well as the City's Print Shop and Mail
Room, which is part of the Records and Elections Department. The Print Shop and Mail
Room began sharing 3,723 sq. ft. of the leased area in 2002. On November 23, 2010,
in anticipation of a reduction in space needs following Big Blue Bus' relocation to its new
campus, Council approved an addendum to the lease to reduce the leased space to
1
3,723 sq. ft. to solely accommodate the Print Shop and Mail Room, as well as change
the lease term to month -to- month.
On April 9, 2013, Council approved amending the Print Shop and Mail Room's lease
agreement at 1660 Lincoln Blvd., its existing location, to extend its lease term to
March 31, 2014 and to provide a month -to -month lease option.
Discussion
In 2010, the Print Shop needed to relocate from the leased premises at
1660 Lincoln Blvd. because the owners were selling the building. On August 31 2011,
the City executed a ten -year lease with STG Three Properties, LLC located at
163017 th Street for 4,528 sq. ft. of space for the Print Shop and Mail Room.
However, during the design phase of the tenant improvements for the 1630 17th Street
space, staff developed a new strategic plan for operations and determined it would be
more cost efficient for the Print Shop and Mail Room to relocate into the City
Corporation Yards located at 2500 Michigan Avenue. The City is currently leasing two
spaces, 1660 Lincoln Blvd. as well as 1630 17th Street, for the Print Shop and Mail
Room operations. As a cost - saving measure, the City is interested in subleasing the
space at 1630 17th Street for the remainder of the lease term.
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 and three were interviewed. Staff selected and entered into
a professional service agreement with commercial broker Anthony Chamberlain of
CB Richard Ellis. Through the efforts of Mr. Chamberlain, the SMMUSD, an existing
tenant in the business park, has submitted a proposal to sublease the entire
4,528 sq. ft. of space. At the same time, Mr. Chamberlain received a second proposal
to lease the entire space from an architectural firm, but the terms were not as favorable.
E
The sublease with SMMUSD would commence upon execution of a sublease
agreement at a rate of $2.00 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 $0.15 above the City's current lease rate per sq. ft. of $1.85, which would offset
the City's cost for the real estate brokerage service and the offer to provide the
sub - tenant two months of rent abatement as a tenant improvement allowance.
The sub - tenant would 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 space at 1630 17th Street would result in net expenditure reductions of
approximately $985,000 for the City through the end of the lease term, FY 2021 -22,
Alternatives
Council could decide not to sublease the space at 1630 17th Street. The City would
maintain the lease through its expiration date of August 31, 2021. This option would not
generate any cost savings and would result in continued lease payments totaling
approximately $835,000 and Common Area Maintenance (CAM) fees of approximately
$160,000.
Financial Impacts & Budget Actions
Implementing this recommendation would result in net expenditure reductions of
approximately $985,000 for the City through FY 2021 -22. The City's total projected rent
and common area maintenance fees through FY 2021 -22 are an estimated $995,000.
Under the sublease, expenditures for rent and brokerage fees would be almost entirely
offset by sublease revenue. The City would continue to make lease payments as
budgeted in the amount of $25,185 in FY 2013 -14 and the one -time broker payment
would be $43,568 in FY 2013 -14.
K,
Funds are available the FY 2013 -14 budget in division 214; expenditures would be
charged to account number 01214.522620. Fiscal Year 2013 -14 revenues would be
deposited at account number 01214.400774. Staff would include associated FY 2014-
15 revenue and expenditure budget changes for Council approval with the FY 2014 -15
exception -based budget. Budget authority for future budget years would 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:
Andy Agle, Director
Housing and Economic Development
id
Forwarded to Council:
Rod Gould
City Manager
Reference:
Agreement No. 9882 (CCS)