SR 01-10-2017 3E
Ci ty Council
Report
City Council Meeting : January 10, 2017
Agenda Item: 3.E
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To: Mayor and City Council
From: Andy Agle, Director , Housing and Economic Development, Economic
Development Division
Subject: Real Estate Broker Services
Recommended Action
Staff recommends that the City Council:
1. Authorize the City Manager to negot iate and execute a professional services
agreement with Newmark Grubb Knight Frank in an amount not to exceed
$310,000 for a one -year term with a one -year option; and
2. Authorize the budget changes outlined in the Financial Impacts and Budget
Actions sec tion of the report.
Executive Summary
In October 2016, the City published a request for qualifications for a commercial broker
to assist with leasing the 17,000 -square -foot , City -owned building at 1632 5th Street.
Six firms submitted proposals . Staff rec ommends Newmark Grubb Knight Frank as the
best firm to provide the services in an amount not to exceed $310,000. Hiring a private
real estate broker will broaden the exposure of the property to qualified, prospective
tenants and therefore yield the highes t amount of market rent.
Background
In 2009 , the City purchased the office building located at 1632 5th Street as part of land
assemblage within the block bounded by Fourth Street, Fifth Street, Colorado Avenue,
and Olympic Boulevard for future public pur poses including light rail transit, parking,
affordable housing, or other public uses. At the time of acquisition, the building was
occupied by a single tenant and the City assumed the tenant's lease. The long -term
tenant gave notice and moved out on Novem ber 30, 2016. The building is currently
vacant.
At its October 25, 2016 meeting (Attachment A), Council directed staff to seek tenants
to lease 1632 5th Street and to engage a commercial real estate broker to assist in the
leasing of the property. Staff had determined that the 5 th Street building was not
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suitable for City occupancy. The use of a real estate broker improves the marketing
and exposure of the property and increases access to a greater number of prospective
tenants who are interested in lea sing office space.
Council could decide not to utilize a broker to represent the City to lease the space at
1632 5th Street. The City could market the space itself; however, th e approach has
been tried in the past and has not been successful in broadeni ng the exposure of the
property or yielding the highest amount of market rent from prospective tenants.
Discussion
The City received six submittal s of qualifications (SOQs) by the November 15, 2016
deadline. An evaluation panel comprised of staff from th e Economic Development
D ivision reviewed the SOQs. The proposers were evaluated based on the criteria
established in the RFQ , including operational capability and experience, references,
marketing work plan, fee structure, and ability to execute a lease w ithin a reasonable
timeframe.
The evaluation panel recommends the selection of Newmark Grubb Knight Frank
(NGKF) and its sub -consultant Anthony Chamberlain. NGKF's team leader, Steven
Salas, and Mr. Chamberlain each have over 20 years of local real estate experience .
Mr. Chamberlain has successfully represented the City in many real estate transactions ,
including the purchase of the OPCC site at 1751 Cloverfield Boulevard and the
sublease of office space at 1630 17th Street. In addition to the team ’s kno wledge of
and experience with the local office market and prospective tenants, the City also w ould
benefit from NGKF’s global network . NGKF is a multinational real estate service firm
that is able to market the building to local, national , and internation al clients. Th e broad
exposure should assist in locating a qualified tenant and generating maximum market
rent for the building . Staff recommends entering into a professional services agreement
for a term of one -year with a one -year optio n in an amount no t to exceed $31 0,000. The
agreement w ould include a contractual term for compensation, in the form of a
commission, paid to the brokers upon the City executing a contract with a tenant. Real
estate c ommissions are typically paid by the landlord to the bro kers representing the
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landlord and prospective tenant and are typically a one -time payment equal to five or six
percent of the rent anticipated for the primary rental term of the lease. For example, if
the negotiated rental rate is $5.00 per square foot w ith a lease term of 5 years, then the
commission amount, at a 6 percent commission rate, would be $307,800. The actual
amount of the commission is unknown at this time.
Vendor Selection
A request for qualifications (R FQ ) was released on October 27, 201 6, posted on
PlanetBid s (the City's online bidding site), and advertised in the Santa Monica
Daily Press. Additionally, City staff and the previous tenant 's office manager hosted a
walk -through on November 3, 2016 for pro spective brokers to inspect the bu ilding.
The RFQ indicated that the City is looking for a statement of qualifications from a
licensed real estate broker in order to broaden the exposure of th e property and lease it
to a qualified tenant (s).
Financial Impacts and Budget Actions
The cont ract to be awarded to Newmark Grubb Knight Frank is for an amount not to
exceed $31 0,000. Award of contract requires FY 2016 -17 budget appropriation of
$31 0,000 to p rofessional services account number 012681.555060. Th e one -time cost
w ould be offset by fu ture rental revenues from the lease of the 1632 5th Street property,
to be deposited at account 01263.400770.
Prepared By: Erika Cavicante, Senior Development Analyst
Approved
Forwarded to Council
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Attachments:
A. Lease Modifications 10.25.2016
B. Oaks Form (Newmark of Southern CA, Inc.)
Ci ty Council
Report
City Council M eeting : October 25, 2016
Agenda Item: 3.H
1 of 8
To: Mayor and City Council
From: Andy Agle, Director , Housing and Economic Development, Economic
Development Division
Subject: Lease Modifications for off -site City office space
Recommended Action
Staff recommends that the City Council authorize the Cit y Manager to:
1) Negotiate and execute a lease modification with Folke Investment, LLC at 1437
4 th Street, Suite s 300 and 310 , to extend the lease terms of each for three years
beginning May 1, 2017 and August 1, 2017, respectively, with an additional one -
ye ar option . The first -year annual lease expense w ould be $488,313 (Suite 300)
and $69,741 (Suite 310) for a combined total lease expense of $2,369,756 for
the proposed four -year occupancy period;
2) Negotiate and execute a lease modification including any ne cessary related
business terms with AMDA, LLC at 1901 Main Street to extend the lease term for
two years beginning May 1, 2018, with an additional one -year option , for a first -
year annual lease expense of $962,458 and a total expense of appro ximately
$3,03 3,445 during the proposed three -year occupancy period ; and
3) Negotiate and execute a lease modification with Wilshire & 5 th LLC at 1212 5 th
Street, Suite 300 to extend the lease term for three years beginning February 1,
2017, with t wo additional one -year o ptions , for a first -year annual lease expense
of $205,692 and a total expense of approximately $872,966.64 during the
proposed five -year occupancy period.
Executive Summary
Several City workgroups currently lease space in private ly owned offices. Once th e City
Services Building is completed in 2020, and the relevant phase of the City Yards
Modernization in 2021, the workgroups will be consolidated in City -owned facilities. In
the meantime, four leases will be expiring in the next year or two, and staff r ecommends
that the leases be extended to coincide with the planned opening of the new City
facilities. Extending the existing leases would allow the relevant City workgroups to be
housed during the interim period at prevailing market rates while avoiding the additional
expense of relocation to new facilities following by relocation to the new City facilities.
Additionally, staff evaluated options related to occupying or leasing a City -owned office
building located 1632 5 th St reet, as the current tenant in tends to move out by
November 30, 2016. Given the costs associated with retrofitting the building for City
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use, as well as the building’s limited ability to provide for public interface, s taff
recommends that the City continue to lease the building .
Bac kground
Since City Hall was constructed in 1938 , the City’s services and staffing levels have
evolved and increased to serve the needs of an active community and a vibrant
commercial center. Because City Hall is at capacity , some City workgroups have been
located in privately owned office space in off -site locations.
On April 28, 2015 , Council authorized a contract with Hathaway Dinwiddie Construction
Company for design services (Attachment A) for the City Services Building. The design
services are curre ntly in process with completion of construction anticipated for the third
or fourth quarter of 2020.
As contemplated in the City Services Feasibility Study (Attachment B), the City would
develop a “one stop” City Hall complex, consolidating services that would include a
permit counter , housing counter , and space for other city departments. As part of th e
effort, all but one of the City workgroup s that currently lease privately owned office
space would eventually move into the new City Services Building an d City Hall for the
purposes of centralizing services and eliminating leasing costs in the future. The other
City workgroup, t he Water Resources Division in Public Works , would mov e to the City
Yards as part of the Modernization Plan in 2021. The four off -site City leases are briefly
summarized below:
Leased Office
Space
Department / Division
Served
Council
Authorization
Lease
Expiration
Leased Square
Footage
1433 Fourth
Street, Suite
300
Public Works /
Engineering and
Architecture Services
Divisions
Sept . 26, 2006
(Attachment C)
April 30,
2017
7,751 sq. ft.
1433 Fourth
Street, Suite
310
Community and Cultural
Services /
Cultural Affairs Division
Feb . 13, 2007
(Attachment D)
July 31, 2017 1,107 sq. ft.
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1901 Main
Street
Housing and Economic
Development, part of
Information Systems
Jan . 8, 2008
(Attachment E)
April 30,
2018
13,386 sq. ft.
1212 Fifth
Street, Suite
300
Public Works / Water
Resources Division
July 12, 2011
(Attachment F)
Jan . 31,
2017
4,140 sq. ft.
The City also leases space at 1717 Fou rth Street, which serves the Finance
Department and Office of Sustainability and the Environment. Because the lease for
th e site expires in 2020, a lease extension is not necessary at this time.
In addition to being a lessee, the City owns and leases pr operties . In 2006 , the City
acquired a small office building at 1632 5 th Street as a part of the land assemblage
within the block bounded by Fourth Street, Fifth Street, Colorado Avenue, and Olympic
Boulevard for future public purpose s includ ing light rail transit, parking, affordable
housing , or other public uses. At the time of acquisition, the building was occupied by a
single tenant and the City assumed the tenant’s lease. Th e long -term tenant has
provided notice that they will move out by November 30, 2016. At this time , there are no
immediate plans for redevelopment of the site.
Discussion
Given the off -site City workgroups ’ needs for office space until the City Services
Building and City Yards space is completed, staff studied the costs and benefits of
occupying the City -owned building at 1632 5 th Street for City purposes , as well as
extending and modifying the existing leases. Staff ’s analysis has de monstrated that
the estimated costs of the City’s off -site workgroups relocating and temporarily
occ upying the City -owned building exceeds the benefits the City would gain in
occupying the building. The following summary describes the recommendations
associated with each property.
1632 5 th St.
Th e City -owned property at 1632 5 th St. (5 th St. Building) is a four -story office building
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with two levels (one below grade) of parking providing 39 spaces and approximately
13,125 sq uare feet of net usable Class B office space . The building was designed to
accommodate a residence on the top floor, though that spa ce has been modified for
office use. The office t enant at the 5 th St. Building has given notice and will vac ate the
property by November 30, 2016. The City receives annual rental revenues of
approximately $675,000 from th e property.
Staff studied the feas ibility of relocating off -site workgroups to th e 5 th St. B uilding ;
however, it is too small to serve the Housing and Economic Development (HED)
Department , and its configuration would not accommodate the direct customer service
functions of HED. Staff eva luated the costs of relocation and tenant improvements to
occupy the building for any of the other three off -site City workgroups . T he City’s
Engineering and Architecture Services (AES) Division s estimated that, at minimum,
relocation costs would be appro ximately $125,000 for each workgroup and an initial
capital investment of at least $400,000 would be necessary to make basic tenant
improvements such as painting and City network connections to the b uilding. AES also
indicated that depending on the tenant improvements required for occupancy, the 5 th St.
Building may need to meet current building and safety standards , including American s
with Disabilities Act (ADA) improvements and seismic upgrades that are estimated at a
minimum of $4.0 million. Potential savings in occupancy costs would not warrant the
short -term investment to comply with current ADA and seismic standards, particularly if
private tenants could occupy the space without significant investment.
Staff also evaluated the amount of lease reve nue that could be produced from the
continu ed leas e of the 5 th St. Building in the current market . Based on recent prevailing
market lease rates of $4 to $5 per square foot for Class B office space , the building
could generate approximately $800 ,000 to $1 ,000,000 in annual lease revenues for
the City. The lease terms could be structured with provisions that the tenant accept the
property in an “as -is” condition, with no warranty and full responsibility for all building
maintenance and expenses. Discussion s with brokers who are active in the area ha ve
indicated that there are a variety of tenants who are willing to lease space without
making significant improvements. The net result of leasing the space is that the City
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would not need to fund tenant improve ments, maintenance , or operational expenses nor
incur relocation costs and would receiv e a lease revenue stream to help off -set leasing
costs elsewhere.
1437 Fourth Street
The lease for 1437 Fourth Street , Suite 300 expires on April 30, 2017 and has no
a dditional options to extend. The property owner has agreed to e xtend the lease term
for three years with an additional one -year option , allowing the City to extend the lease
as far as April 30, 2021. The annual lease payment and associated parking expense
would be $488,313 for the first year of the extended term. All other terms and conditions
in the lease w ould remain in effect.
The lease for 1437 Fourth St reet, Suite 310 expires on July 31, 2017 and has no
additional options to extend. The property owne r has agreed to extend the lease for
three years with an additional one -year option , allowing the City to extend the lease as
far as July 31, 2021. The annual lease payment and parking expense would be $69,741
for the first year of the extended term. All other terms and conditions in the lease w ould
remain in effect.
1212 Fifth Street
The 1212 Fifth Street lease expires on January 31, 2017 and has no additional options
to extend. The property owner has agreed to extend the lease term for three years wi th
two, one -year options, allowing the City to extend the lease as far as January 31, 2022.
The annual lease payment and parking expense for the first year of the lease extension
would be $205,692. All other terms and conditions in the lease would remain i n effect.
1901 Main Street
The lease for 1901 Main St reet expires on May 1, 2018 and provides a five -year option
to extend until May 1, 2023. Under the current lease term, the City would need to
exercise its option to extend in 2018 , but that would comm it the City to an additional five
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years, extending the lease three years beyond the relocation date into the City Services
Building. Therefore, staff has been in discussions with the property owner to modify the
lease term and option period to align with t he relocation into the City Service Building.
The property owner has agreed to extend the base term by two years with a one -year
option , allowing the City to extend the lease as far as April 30, 2021. The annual lease
payment and associated parking expense would be $962,458 beginning May 1, 2018.
All other terms and conditions in the lease w ould remain in effect.
By negotiating extensions to the current leases, the City is able to extend and align the
expiration of the lease terms with the move -in period f or the City Services Building and
City Yards . The estimated costs related to the off -site workgroups ’ temporarily
relocating and occupying the 5 th Street Building exceeds the benefits the City would
gain leasing the property in “as -is” condition for appro ximately $800,000 to $1,000,000
annually.
Based on the known and the unknown costs for the City to occupy 1632 Fifth St reet ,
staff recommend s seek ing private tenants to lease the building. The projected lease
revenue would off -set a portion of the expens e for the City offices that are in leased
space. To implement the leasing , staff w ould seek real estate brokerage services to
help market and lease the building and return to Council for approval to enter into a
professional services agreement .
Alterna tive Actions
As an alternative to the recommended actions above, Council could consider the
following options:
1. The City could pursue alternative office locations to lease rather than extend the
leases in the current occupied office spaces. However, the Ci ty would incur the
costs of relocation twice in moving from the current office space to an interim
office space before the final relocation into the City Services Building. In addition,
the lease rates proposed in the extensions are comparable within the m arket.
Savings may not be realized as current fair market lease rates are expected to
remain competitive. Additionally, the City could incur additional expenses to build
out new tenant improvements in an interim office space. As a result, the costs to
lea se new office spaces may exceed the costs to extend the current leases.
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2. The City -owned 5 th St. Building could be retained for City use and not leased
out. However, staff ’s evaluat ion d emonstrates that there is no significant
economic benefit to invest in relocating and improving the 5 th St. Building for any
of the four off -site City workgroups. In addition, there are currently no other City
office needs that would require using the building for City use now or in the near
future. Staff proposes to lease the 5 th St. Building for a term of three years and
offer two, one -year options at the City’s sole discretion which would provide the
City with the rights and flexibility to occupy the building in the mid -term if
needed.
Financial Impacts and Budget A ctions
There is no immediate financial impact or budget action as a result of the recommended
action. If Council authorizes staff to negotiate and execute lease modifications, staff
would seek appropriate budget adjustments during the 2017 -19 Biennial Bud get
adoption.
Prepared By: Jason Harris, Economic Development Manager
Approved
Forwarded to Council
Attachments:
A. April 28, 2015 Staff Report
B. January 27, 2015 Staff Report
C. September 26, 2006 Staff Report
D. February 13, 2007 Staff Report
E. September 8, 2008 Staff Report
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F. July 12, 2011 Staff Report
Oaks Initiative Notice
CITY OF SANTA MONICA
NOTICE TO APPLICANTS, BIDDERS, PROPOSERS
AND OTHERS SEEKING DISCRETIONARY PERMITS, CONTRACTS, OR OTHER
BENEFITS FROM THE CITY OF SANTA MONICA
Santa Monica’s voters adopted a City Charter amendment commonly known as
the Oaks Initiative. It prohibits a public official from receiving specif ied personal benefits
from a person or entity a fter the official votes, or otherwis e takes official action, to award
a “public benefit” to that perso n or entity. Examples of a “public benefit” include public
contracts to provide goods or services worth more than $25,000 or a land use approval
worth more than $25,000.
The Oaks Initiative requires the City to provide this note and information about
the Initiative’s requirements. An information sheet on the Oaks Initiative is attached.
You may obtain a full copy of the Initiative’s text from the City Clerk.
In order to facilitate compliance with the requirements of the Oaks Initiative, the
City compiles and maintains ce rtain information. That info rmation includes the name of
any person who is seeking a “public benefit.” If the “public benef it” is sought by an
entity, rather than an individua l person, the information includes the name of every: (a)
trustee, (b) director, (c) partner, (d) officers, or (e) ten percent interest in the entity.
Therefore, if you are seeki ng a “public benefit” covered by the Oaks Initiative, you must
supply that information on the attached form (Attachment A).
DocuSign Envelope ID: D1DC9B46-BE33-4EBC-8ECC-EC54CF983693
(Attachment A)
City of Santa Monica
Oaks Initiative Disclosure Form
All persons or entities receiving public benefits defined below from the City of Santa Monica
shall provide the names of trus tees, directors, partners and o fficers and names of those with
more than a 10% equity, participation or revenue inte rest. This information is required by City
Charter Article XXII—Taxpayer Protection.
Name of Entity: ____________________________________________
NAME(S) OF PERSONS OR ENTITIES RECEIVING PUBLIC BENEFIT:
NAME(S) OF TRUSTEES, DIRECTOR S, PARTNERS, AND OFFICERS:
NAME(S) OF THOSE WITH MORE THAN A 10% EQUI TY, PARTICIPATION OR
REVENUE INTEREST:
Public benefits include:
1. Personal services contracts in exce ss of $25,000 over any 12-month period;
2. Sale of material, equipment or supplies to the City in excess of $25,000 over a 12-month period;
3. Purchase, sale or lease of real property to or fro m the City in excess of $25,000 over a 12-month period;
4. Non-competitive franchise awards with gross revenue of $50,000 or more in any 12-month period;
5. Land use variance, special use permit, or other exception to an established land use plan, where the decision has a value
in excess of $25,000;
6. Tax “abatement, exception, or be nefit” of a value in excess of $5,000 in any 12-month period; or
7. Payment of “cash or specie” of a net value to the recipient of $10,000 in any 12-month period.
Prepared by: __________________________ Signature: ________________________
Date: __________________________ Title: ________________________
FOR CITY USE ONLY:
Bid/PO/Contract # ___________________________ Permit # _____________________________________
(1/06)
DocuSign Envelope ID: D1DC9B46-BE33-4EBC-8ECC-EC54CF983693
EVP Managing Director
Greg May
12/20/2016
Newmark of Southern California, Inc.
100% owned by BGC Partners, Inc.
Directors: Howard W. Lutnick, Stephen M. Merkel, Michael Lehrman, Barry Gosin
Officers: Barry Gosin, James D. Kuhn, Jeffrey Gural, Michard A Maletsky
Newmark of Southern California, Inc.
Reference:
Agreement No. 10410
(CCS)