SR-05-13-2014-3KCity Council Meeting: May 13, 2014
Agenda Item: ® K,
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 Gelatoro, LLC, or an alternate subtenant, 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 as they have relocated the customer service function housed there.
Gelatoro, LLC, an Italian gelato 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. In the event
the Gelatoro, LLC is unable to execute the sublease, staff would identify a suitable
replacement and execute the sublease under the same terms described below.
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 sold bus passes and merchandise and
assisted bus riders with trip planning. The store also served as a central distribution site
for bus schedules and other BBB information. Additionally, BBB used 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.
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However, the company changed its business plans and did not complete the sublease
agreement. At its March 18, 2014 meeting, Council authorized execution of a sublease
with Washington Earth Spa, LLC for 223 Broadway. However, the company also
changed its business plans and did not execute the sublease agreement. The broker
continued to market the space and was able to find another interested subtenant
quickly. In the event Gelatoro, LLC is unable to execute the sublease, staff would
identify a suitable replacement and execute the sublease under the same terms
described below.
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 recently relocated into the Central Parking office located in
ground -floor retail space within Parking Structure No. 5 located at 1444 4th Street in
order to maintain its easily accessible downtown presence. 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.
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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; however, BBB expects to receive a portion of those revenues to
cover transaction costs. The City would provide the Sublessee one month 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
(CAM) 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 mean that the City would no longer
be responsible for approximately $149,000 in lease payments and CAM fees through
the end of FY 2014 -15. This savings is offset by a $9,000 cost for the one -month tenant
allowance in FY 2013 -14, for a net expenditure reduction of approximately $140,000
related to the sublease agreement. It is expected that the sublease agreement would
be effective June 1, 2014.
Consultant Selection
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
Realty Group. Through the efforts of Mr. Zund, Gelatoro, LLC, a California Limited
Liability Company doing business as The Stick House, has submitted a proposal to
sublease the entire 845 square feet of retail space.
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Alternatives
Council could decide not to approve a sublease agreement for the retail space at
223 Broadway. Although the BBB no longer occupies the space, it would be required to
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 $125,700 and Common Area Maintenance (CAM) fees of
approximately $23,100.
Financial Impacts & Budget Actions
Implementing this recommendation would result in net Big Blue Bus expenditure
reductions of approximately $140,000 through the end of FY 2014 -15. The Big Blue
Bus would continue to make payments as budgeted in the amount of $9,413 for the
remainder of FY 2013 -14, for the tenant improvement credit, and would, pay the
one -time broker payment of $24,772 in FY 2013 -14. Funds are available in the FY
2013 -14 Capital Improvement Program budget at account C410749.589000. Should
BBB receive revenue related to the sublease agreement, staff will deposit funds in
account 41642.404090.
Prepared by: Erika Cavicante, Sr. Development Analyst
Approved:
Andy Agle, Direct
Housing and Economic Development
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Forwarded to Council:
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Rod Gould
City Manager
Reference:
Agreement No. 9905
(CCS)