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SR 03-01-2016 3A City Council Report City Council Meeting: March 1, 2016 Agenda Item: 3.A To: Mayor and City Council From: Martin Pastucha, Director, Public Works, Airport Division Subject: First Modification to Contract #3022 with Aeroplex Group Partners, LLC for Property Leasing and Management Services Recommended Action Staff recommends that the City Council: 1. Authorize the City Manager to negotiate and execute a first modification to professional services agreement No. 3022 (CCS) in the amount of $325,000 with -based corporation, to provide additional commercial real estate leasing, consulting, and property management services for the Santa Monica Airport. This will result in a one year amended agreement expiring on June 30, 2016 in the amount of $404,990 with two one-year options to renew in the amount of $325,000 in FY 2016-17 and $325,000 in FY 2017-18 at the sole discretion of the City for a total amount not to exceed $1,054,990 with future year funding contingent on Council budget approval. 2. Authorize budget changes as outlined in the Financial Impacts & Budget Actions section of this report. Executive Summary On July 13, 2015, the City entered into a Professional Services Agreement (PSA) with Aeroplex to provide assistance to City staff with commercial real estate leasing and property management services for aviation properties at Santa Monica Airport. Agreement No. 3022 expires on June 30, 2016, with two one-year options to renew at the sole discretion of the City. Staff anticipates that the need for commercial real estate leasing and property management services for City-owned real estate assets in the current and future fiscal years will exceed the current agreement amount of $79,990. Based on Council direction, City staff is currently analyzing policy toward master tenancies. One of them, th Gunnell Properties, is leaving on February 29. They had previously subleased to approximately 75 subtenants. Should the City continue with any of those uses past th departure, additional property management services will be required since the Airport is not currently staffed to manage that large a cohort of direct tenants . Therefore, staff recommends a first modification to increase the agreement with Aeroplex by $325,000 with two annual renewals of $325,000 in FY 2016-17 and $325,000 in FY 2017-18 for a total agreement amount not to exceed $1,054,990 for 1 of 5 additional commercial real estate leasing and property management services for the Santa Monica Airport. Background On March 24, 2015 (Attachment A) Council directed staff to contract for real estate brokerage services and property management firms to assist city staff with commercial real estate leasing and property management services for City-owned properties at the Santa Monica Airport. On July 13, 2015, the City entered into Professional Services Agreement No. 3022 (CCS) with Aeroplex for an amount not to exceed $79,990 to provide assistance to City staff in negotiating leases for City-owned properties located at Santa Monica Airport, including brokerage services for vacancies that might arise within the contract period, and to provide real estate consulting and property management services for those properties. At present, there are a total of 306 tenants at the Airport that are directly managed by City staff. Six of these tenants are master tenants, which have a total of approximately 323 sub-tenancies. Certain buildings that were leased by tenants became City assets on July 1, 2015 (see Attachment A). The decision of whether we use City staff or a property management firm to manage the additional new tenants that will come under the direct control of the City has yet to be finalized. The property that was formerly under the management of Gunnell will be managed by Aeroplex as of March 1, 2016 due to the immediacy of the situation. The current agreement with Aeroplex provides for commissions for completing any renewal, new lease, or other occupancy agreement at the Santa Monica Airport during the contract period. The commission for a month-to-month lease term is a one-time for longer lease terms is calculated at 5% of the gross rent and fees paid by the tenant to the Santa Monica Airport for the term of the lease or agreement. For property management services Aeroplex will receive a fee of 5% of the gross rent. Aeroplex will be reimbursed for any out-of-pocket expenses that are authorized by the City related to property management. All expenditures for the maintenance and capital improvements from properties managed by Aeroplex will be the responsibility of the City. 2 of 5 Discussion Based on market valuations of real estate properties at the Airport, the current contractual terms with Aeroplex, and the cost of the additional services required, will exceed the present contracted amount of $79,990. Leasing needs at the Airport are fluid, dynamic, and somewhat unpredictable, therefore service and that they are available if and when the need arises beginning with the property formerly managed by Gunnell Properties. Under the direction of City staff, Aeroplex will use their expertise to attract new tenants, negotiate optimal lease terms in and manage Airport properties as directed to ensure consistency with city policies. It should be noted that commissions are paid on services rendered and the funds requested in this contract modification are based on anticipated lease vacancies that may occur during the contract period, specifically the imminent departure of Gunnell. If and when master tenancies are phased out, staff anticipates additional expenditures related to property management and leasing to increase with staff returning to Council for additional modifications to this contract as need arises. It is also anticipated that revenues from direct leasing will increase and offset the increased expenditures incurred for the services described in this agreement. Fees for commercial real estate leasing and property management services (such as marketing and showing vacancies, responding to tenant inquiries, coordinating routine and on-call maintenance, and responding to emergencies regarding the property) for City owned real estate assets include $175,000 per annum for anticipated expenses associated with property management costs. Costs to be reimbursed include, but are not limited to, minor repairs to the leased properties, marketing costs, and costs for approved employees hired by Aeroplex to exclusively manage properties at the Airport. Additionally, maintenance and capital improvement costs are not included in the services provided by Aeroplex, however, such costs will be borne by the City and l Improvement budgets. 3 of 5 Consultant Selection On April 1, 2015, the City published a Request for Proposals for commercial real estate firms to act as a leasing and property management agent. The RFP was posted on -line bidding site, and notices were advertised in the Santa Monica Daily Press in accordance with City Charter and Municipal Code provisions. One hundred and thirty four (134) vendors were notified, 21 vendors downloaded the RFP. Five firms (Aeroplex Group Partners, CBRE Group Inc., Corporate Realty Group, PAR Commercial Brokerage, and Property Management Associates) responded. Responses to the RFP were received and publicly opened on May 11, 2015. The Airport Division of the Public Works Department and Housing and Economic Development staff evaluated proposals based on the criteria in SMMC 2.24.073 and listed in the RFP, including real estate, leasing, and property management experience, references, project work plans and timelines, management team qualifications, vast knowledge and experience of the aviation market place, proven experience in the area of negotiating, broker, and property management services for Airport properties, and competitive price. Aeroplex currently manage two Airport facilities in the Southern California region, one at Van Nuys Airport and one at Long Beach Airport. Based on these criteria, staff selected Aeroplex as the best qualified firm to assist City staff in negotiating Airport leases at the Santa Monica Airport, including broker and property management services for vacancies that might arise within the contract period. Financial Impacts and Budget Actions The agreement modification to be awarded to Aeroplex is $325,000 with two annual renewals of $325,000 for FY2016-17 and $325,000 for FY2017-18 at the sole discretion of the City for a total amount not to exceed $1,054,990. Award of the agreement modification requires the following FY 2015-16 budget change: Appropriate $325,000 from the Airport Fund to account 33431.555060 in FY 2015-16 to fund the agreement modification. 4 of 5 Future year funding is contingent on Council budget approval. Prepared By: Stelios Makrides, Airport Manager Approved Forwarded to Council Attachments: A. March 24 2015 Santa Monica Airport - City of Santa Monica (weblink) 5 of 5 Reference: Agreement No.10262 (CCS)