SR 11-01-2016 3E
Ci ty Council
Report
City Council Meeting : November 1, 2016
Agenda Item: 3.E
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To: Mayor and City Council
From: Susan Cline, Director , Public Works, Airport
Subject: Airport Lease Approval with TaskUs, LLC
Recommended Action
Staff recommends that the Council
1. A uthorize the City Manager to negotiate and execute a Lease with TaskUs, LLC,
a California Limited Liability Corporation, (TaskUs) for office spaces located at
3221 and 3233 Donald Douglas Loop South, reflecting the general terms and
conditions in the staff report ; and
2. Authorize budget changes as outlined in the Financial Impa cts & Budget Actions
section of the report.
Executive Summary
In accordance with the recently adopted Santa Monica Airport (SMO) Leasing Policy
(Attachment A), the City is moving forward with leasing city -owned properties. The City
owns the building at 3 233 Donald Douglas Loop South and 3221 Donald Douglas Loop
South, which currently houses Typhoon Restaurant, Inc. (Typhoon) wh ich will vacate
the property on December 31, 2016. The proposed lease with TaskUs is for general
office use including a total of 6 ,193 rentable square feet of space located at 3221 Donald
Douglas Loop South and 3233 Donald Douglas Loop South , Suite C. Additionally,
approximately 1,570 square feet of shared space would be permitted to be used by the
tenant on a non -exclusive basis (Sk y Deck).
The proposed lease agreement with TaskUs is for a period of five years, with an option
for an additional five year period. The base rent at full occupancy is at fair market value
and begins at $19,050.75 per month. The lease includes an annual e scalator of 3%.
Background
Typhoon has been located at 3221 Donald Douglas Loop South since 1990. On June
30, 2015, all Airport leases expired, including the lease for Typhoon. Since then
Typhoon has been operating under a holdover agreement.
On Jul y 14, 2015 (Attachment B ), the City Council authorized the City Manager to
negotiate and execute an agreement with Typhoon for a term not to exceed June 30,
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2018. Negotiations were unsuccessful due to the short lease term, which was deemed
unfeasible by T yphoon.
On April 26, 2016, staff presented to the City Council the outline of a potential lease
agreement with Typhoon during Closed Session. On May 11, 2016 , Commercial Realty
Group (the City’s broker for Airport property ) notified staff that it had an offer from
Typhoon to lease the subject property on terms and conditions that were consistent with
the information provided to City Council during the April 26 Closed Session .
The proposed lease with Typhoon was for a full service restaurant with live
entertainment. Negotiations continued with Typhoon from May until August. The outline
of the agreement was as follows: a lease term of five years with an option to renew for
an additional five years after the initial term expired. The rent rate, based on square
footage, was determined using fair market value. The City also provided a reasonable
tenant improvement package in order to encourage Typhoon to revitalize and
modernize the restaurant space. Negotiations were successful and in early August 2016
bot h sides reached a verbal agreement. However, shortly thereafter, Typhoon
man agement had an apparent change of mind and decided not to sign the Letter of
Intent. Staff also discovered at that time that Typhoon was attempting to sell its
business to another restaurant. On September 2, 2016 , Typhoon withdrew from further
negotiations and its offer to lease the premises and served notice to vacate the property
by December 31, 2016 . The City accepted the notice.
TaskUs has been a tenant at the Santa Monica A irport since January 1, 2011 in various
locations, and most recently as a tenant at 3233 Donald Douglas Loop South , units C
and D. TaskUs provides cloud -based digital customer services. TaskUs is currently
poised to expand its services and staff, and seek s additional office space. TaskUs
made an offer to the City to occupy the premises previously leased by Typhoon.
Discussion
On September 15, 2016, Commercial Realty Group (CRG) notified staff that it had an
offer from TaskUs to lease the subject prope rty which includes the entire space
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occupied by Typhoon as well as one of the office suites currently occupied by TaskUs .
The proposed lease with TaskUs is for 6,193 total square feet for general office use.
The proposed lease would be for a term not to e xceed five years with a monthly rental
rate of $19 ,050.75 per month to be adjusted annually by 3%. This proposal includes an
option to renew for an additional five years at fair market value for similar quality space in
the Santa Monica commercial office market.
Additionally, the City would authorize a tenant improvement credit in the amount of up to
six months rent for the entire leasehold and an additional two months rent for the 3221
Donald Douglas Loop South premises for a total rent credit of $140,5 64.50 following the
tenant’s completion of tenant improvements within the premises. Tenant must complete
the tenant improvements within the first 12 months of the lease in order to receive the
tenant improvement credit.
It should be noted that the subje ct building space at 3221 Donald Douglas Loop South
is currently operated as Typhoon restaurant . The change in use requires extensive
tenant improvements to the interior space. There is also a need to conduct tenant
improvements to the 3233 Donald Douglas Loop South Suite C space that TaskUs
currently occupies . Although TaskUs would modify the building with interior tenant
improvements, TaskUs does not propose to expand the building. TaskUs would employ
approximately 50 workers on site. Therefore, it sh ould be noted that TaskUs would be
subject to the transportation demand management (TDM) requirements of the City.
TaskUs would be required to comply with all city building code regulations, planning
standards, and any applicable FAA regulation s , as a con dition of the lease. The lease
is consistent with the terms of the voter -approved Measure LC passed in 2014 and it
conforms to the City’s Airport leasing policy approved by Council during their March 22,
2016 meeting to regulate future use of SMO property . Additionally, TaskUs is subject to
all terms and conditions required by the standard lease agreement including labor
peace provisions.
Annual rent paid by TaskUs to the City would be between $228,609 for year one and
$257,301 for year five, before t enant improvement credits. The proposed rent reflects
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market price. Securing this tenant helps ensure the Airport Fund’s financial self -
sufficiency and allows it to repay its debt obligation to the City.
Commencement Date: Upon execution of lease docum ent or January 1, 2017,
whichever comes later.
Term Ends: 60 months from the date of lease execution , slated for Dec
31, 2021.
Options: Option to renew for an additional five years at fair market value
for similar quality space in the Santa Monica comme rcial office
market.
Base Rental Rate: $19,050.75/Month/ Modified Gross ($3.08 PSF) Year One
As broken down below: 3233 Donald Douglas Loop South Unit C: 2,153 Square Feet
@ $5,920.75/ Month ($2.75 PSF) Modified Gross
3221 Donald Douglas Loop South 4 ,04 0 Square Feet @
$13,130/Month ($3.25 PSF) Modified Gross
Escalations: 3% per year starting at the anniversary of the execution date
of the lease.
Tenant Improvement
Allowance: Tenant improvement credit in the amount of up to six
months’ rent for the en tire leasehold and additional two
months for 3221 Donald Douglas Loop South premises for a
total rent credit of $140,564.50 following the tenant’s
completion of tenant improvements within the premises.
Tenant must complete the tenant improvements within th e
first 12 months of the lease in order to receive the tenant
improvement credit.
Parking: Tenant shall be able to utilize parking on an un -reserved basis
at the building at a parking ratio of 2 spaces for every 1,000
square feet occupied by Tenant (app rox. 16 spaces). Initially,
Landlord shall not charge for parking, however Landlord shall
have the ability to charge $150 per space per month for any
parked cars above and beyond the ratio referenced above.
Real Estate Commission
A real estate commissio n fee of $21,463 based on 2% of the value of the total five -year
lease term, would be due to Corporate Realty Group (CRG) upon execution of the
proposed lease agreement.
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It should be noted that if TaskUs exercises its option to renew for an additional fi ve -year
lease at fair market value, the City would have a future commission obligation to CRG.
This obligation would be based on 1.5% of the value of the total lease term for year six
through year ten.
Financial Impacts & Budget Actions
The recommended lease with TaskUs, LLC would generate an estimated $114,305
(base monthly rent x 6 months) in Airport revenues for FY2016 -17 at account
33431.402120, if the lease is executed on January 1, 2017. FY 2016 -17 revenue budget
assumed a lower lease amount from the property due to the month to month Hold Over
lease, the new lease is estimated to increase revenue by $45,398 . Revenue account
33431.402120 should be increased by $45,398 for FY 2016 -17 budget.
Prepared By: Kate Schlesinger, Administrative Analyst
Ap proved
Forwarded to Council
Attachments:
A. March 22, 2016 Staff Report
B. July 14, 2015 Staff Report
Reference:
Agreement No. 10390
(CCS)
Reference:
Lease No. 10390 (CCS)