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SR 03-22-2016 3I City Council Report City Council Meeting: March 22, 2016 Agenda Item: 3.I To: Mayor and City Council From: Jory Wolf, Chief Information Officer, Information Systems Department, Broadband Andy Agle, Director Subject: Lease Agreement for Office Space at 429 Santa Monica Blvd. For the Community Broadband Division Recommended Action Staff recommends that the City Council: 1. Authorize the City Manager to negotiate and execute a lease agreement with CA- 429 Santa Monica Limited Partnership, a Delaware limited partnership company for office space at 429 Santa Monica Boulevard for a period of 62 months beginning May 1, 2016 at a first year lease cost of $90,568 (including common area expenses and on-site parking costs) and $21,030 for tenant improvements, for a total amount not to exceed $536,323 (including 4% annual increase on base rent) over five years, with future year funding contingent on Council budget approval. Authorize budget changes as outlined in the Financial Impacts & Budget Actions 2. section of this report. Executive Summary The Community Broadband Division (CB Division) currently occupies 220 sq. ft. of privately leased office space shared with Web Development and Software Systems Divisions and the Housing and Economic Development Department at 1901 Main Street. The CB Division, which originated as a pilot program launched in 2006, was established in 2012. Since its launch, staffing in the division has grown from one full-time staff member to four permanent full-time staff, two temporary full-time staff, and seven part-time staff. The shared office space occupied by the CB Division does not adequately accommodate current staff operational needs. Since there is no vacant office space available within existing City offices, staff seeks Council approval to lease office space at 429 Santa Monica Blvd. The available space at 429 Santa Monica Boulevard would enable the CB Division to accommodate its staffing needs, better market its services to local businesses and enable broadband service delivery to additional businesses that occupy the building. The rentable space at 429 Santa Monica Boulevard is 1,326 sq. ft. The proposed term would commence on May 1, 2016, and would continue for just over five years through June 30, 2021. The 62-month lease term would cover the period of time required for 1 of 5 construction and occupancy of the proposed new City Services Building. It is anticipated that CB Division staff would permanently relocate to the City Services Building upon its completion. The rental rate at 429 Santa Monica Boulevard is $5.35 per sq. ft. and would increase 4 percent per year. Additional monthly occupancy costs to the City would include common area expenses and parking costs. Total lease costs during the first year are anticipated to be $90,568 for base rent, common area expenses and parking costs. Total costs for tenant improvements would be approximately $67,440 of which the Lessor agrees to contribute a one-time, non-recurring tenant allowance of $46,410, resulting in $21,030 in costs to the City. The total not to exceed amount for the 62-month lease is $536,323, including estimated 4% lease rate increases per year. The office space to be vacated by CB Division at 1901 Main Street would be occupied by staff from the Web Development Division. Discussion In 2008, the Ci-time staff member to lease dark fiber cable to local businesses that had a need for high bandwidth broadband throughout the downtown area and services a number of commercial buildings. The -effective and secure internet service option for local businesses with high bandwidth broadband requirements has created a revenue source for the City. The program subscriber base has increased and the program offerings to the community have expanded. As a result, the demand for services offered by the CB Division has grown over the last several years. CB Division staffing has grown to comprise four permanent full-time staff and two temporary full-time staff, for a total of six full-time staff members. These staffing levels increase in the summer to 13 full-time members when the workgroup operates special community programs, such as the Youth Tech Program and the Digital Inclusion Program. While the majority of ISD staff are located in City Hall and other City buildings such as the Municipal City Yards, Public Safety Facility, and Big Blue Bus office, the CB Division, Software Systems Division and Web Development Division occupy a small portion of the privately leased office building that the Housing and Economic Development Department occupies. The limited workspace does not allow for the CB Division staff to have the dedicated space needed for vendor setup areas for network upgrades and maintenance, for testing and troubleshooting of network equipment, or a workbench area to set-up and test fiber optic infrastructure. The one room that the CB 2 of 5 Division occupies is not conducive to providing quality customer service, personnel management, or allow storage of required emergency network equipment inventory. Staff evaluated other City offices to move into, but was unable to find any space available for its needs. The 1,326 square feet of available office space at 429 Santa Monica Boulevard is of sufficient size to accommodate the CB Division. The first year rental rate is $5.35 per sq. ft. per month and increases at a flat 4 percent per year. Office rental rates in Santa Monica have been increasing over the last several years and the proposed rental rate is within the downtown Santa Monica office market. Staff from Housing and Economic Development and Information Systems Departments investigated office availability in downtown Santa Monica with space requirements between 1,000 - 1,500 sq. ft. Nine (9) office space options within six (6) buildings located in the downtown area were reviewed and considered for occupancy. The downtown location is ideal for CB Division operations due to the prox minimize the required response time for network incidents. Network incidents impact the City and CityNet business subscribers obtaining broadband services in accordance with industry standard service level agreements. Furthermore, CB Division offices are previously installed at 429 Santa Monica Boulevard and therefore construction costs will be considerably less than to construct to a building located a significant distance from Boulevard also offers the opportunity for the City to service 19 other businesses located in the building that could generate new revenue opportunities to offset a portion of the rent. Housing and Economic Development staff negotiated the lease and contract terms. The proposed term of 62 months would cover the period of time required for construction and occupancy of the proposed new City Services Building. It is anticipated that CB Division staff would permanently relocate to the City Services Building upon its completion. Currently, the CB Division pays rent in the amount of $2,813.40 per month ($5.21/sq. ft.) 3 of 5 with a rate increase effective May 1, 2016 to $2,953.80 per month ($5.47/sq. ft.) for approximately 220 sq. ft. of office space. The CB Division rent is included in the total rent contribution of the Information Systems Department, jointly paid with the Housing and Economic Development Department rent to the property owner. The new base rent at 429 Santa Monica Blvd would be $7,094.10 per month ($5.35/sq. ft.) for 1,326 sq. ft. of office space effective May 1, 2016 and would result in a monthly increase of $4,140.30. Alternatives If the proposed lease with CA-429 Santa Monica Limited Partnership for space at 429 Santa Monica Boulevard is not authorized, staff will continue to look at other alternative spaces in order to accommodate the staff and operations of the Information Systems Department. Financial Impacts and Budget Actions The lease agreement with CA-429 Santa Monica Limited Partnership for space at 429 Santa Monica Boulevard is for an amount not to exceed $536,523. Funding for the two months of lease costs in FY 2015-16 and tenant improvements requires the following FY 2015-16 appropriation: 01248.522620 - $36,125. Budget authority for FY2016-17 will be requested as a part of the proposed FY2016-17 Exception Based Budget for Council Approval. Budget authority for subsequent years will be requested in each budget cycle for Council approval. Future funding is contingent upon Council approval. Prepared By: Gary Carter, Community Broadband Manager 4 of 5 Approved Forwarded to Council 5 of 5 Reference: Agreement No.10271 (CCS)