SR 04-25-2017 3H
Ci ty Council
Report
City Council Meeting : April 25, 2017
Agenda Item: 3.H
1 of 3
To: Mayor and City Council
From: Andy Agle, Director , Housing and Economic Development, Economic
Development Division
Subject: Approve Lease expenses for off -site City office space
Recommended Action
Staff recommends th at the City Council approve additi onal total lease expenses for
1437 Fourth Street, Suites 300 and 310 , in the amount of $521,440 for the four -year
lease term , and for 1212 Fifth Street, Suite 300 , in the amount of $219,080 for the five -
year lease term .
Executive Summary
On October 25, 20 16, Council approved Item 3 -H , which authorized the extension of
various leases for City uses occupying privately leased space. Following the Council
meeting, staff identified incorrect calculations for some of the lease expenses and
property square foota ge s that were in the Council report. This report provides the
revised and corrected amounts and seeks authorization for the revised lease amounts.
Background
Several City workgroups currently lease space in privately owned offices. Upon
completion of the City Services Building in 202 0 and moderni zation of the City Yards in
2021 , the workgroups w ould be consolidated in to th e new facilities. Recognizing that
four leases w ould be expiring in the near -term , staff recommended that the leases be
extended to coi ncide with the planned opening of the new City facilities.
On October 25, 2016 (Attachment A), Council approved extending the leases and terms
for the four off -site City workgroups in leased spaces at 1437 Fourth Street, 1901 Main
Street, and 121 2 Fifth St reet. Following the Council action, staff identified discrepancies
in the calculations of square footage of the leased areas at 1437 Fourth Street , Suites
300 and 310 , resulting in miscalculations to the annual and total lease term expenses .
Additionally , the total lease expense at 1212 Fifth Street , Suite 300 , was miscalculated
in the staff report based on the length of the term of the lease . The correct ed
information and explanation for the miscalculations are outlined below.
2 of 3
Discussion
The October 25 , 2016 staff report outlined three properties and four leases for
extensions with the annual and total lease -term expense s identified for each property.
Thereafter, staf f identified that the lease costs for 1437 Fourth Street ha d been
calculated based on the net leasable area rather than the gross leasable area, resulting
in a miscalculation of the annual and total four -year lease expense. Additionally, for the
workgroup at 1212 Fifth Street , the total lease expense was calculated based on
occupancy of up to four years, rather than occupancy up to five years, when the
permanent City Yards space is expected to be available .
1437 Fourth Street, Public Works (Engineering and Architecture Services Division ) and
Community and Cultural Services (Cultural Affair s Division )
The Engineering and Architecture Services Division is located at 1437 Fourth Street in
Suite 300 and the Cultural Affairs Division is in Suite 310. In the October 25, 2016
Council report, staff sought to extend the lease terms of each for thre e years with an
additional one -year option ; however, the Council report incorrectly listed the property
description with the usable square footage instead of the gross square footage as
stipulated in the lease agreement . As a result, the lease expense s fo r the property
w ere miscalculated.
The Engineering and Architecture Services Division lease s 9,456 gross square feet in
Suite 300 , which results in a first -year annual lease expense of $595,728. In the
October 25, 2016 Council report, staff incorrectly described the lease area as 7,751
square feet and calculated the first -year annual lease expense of $488,313.
The Cultural Affairs Division leases 1,351 gross square feet in Suite 310 , which results
in a first -year annual lease expense of $85,11 6 . In the October 25, 2016 Council report ,
staff incorrectly described the lease area as 1,107 square feet and listed the first -year
annual lease expense at $69,741.
U sing the appropriate gross square footage as stipulated in the lease for each space
yields a c ombined total lease expense for the four -year lease term for 1437 Fourth
Street of $2,891,196. In the October 25, 2016 Council report, staff incorrectly listed the
combined (Suites 300 and 310) total four -year lease term expense as $2,369,756.
3 of 3
1212 Fifth Street, Public Works - Water Resources Division
The Water Resources Division is located at 1212 Fifth Street in 4,140 square feet in
Suite 300 . In the October 25, 2016 Council report, staff sought to extend the lease term
for three years with two additio nal one -year options; however, in the Council report , staff
incorrectly calculated the total lease expense for the five -year term as $872,966 ,
reflecting a calculation of four years rather than five . The correct total lease expense for
the five -year lease term is $1,092,047.
The additional lease expense for the total lease term of the properties (1437 Fourth
Street and 1212 Fifth Street) is contingent on the lease options being exercised.
Even with the appropriately calculated lease expense s , the cost of a City’s off -site
workgroup relocating and temporarily occupying the City -owned building at 1632 Fifth
Street exceeds the benefits the City would gain in leasing the building for private use as
discussed in the October 25, 2016 Council report .
Financial I mpacts and Budget Actions
There is no immediate financial impact or budget action as a result of the recommended
action since these are future -year expenditures . The additional lease term expenses
will be included in the proposed 2017 -19 Biennial Budget a doption.
Prepared By: Erika Cavicante, Senior Development Analyst
Approved
Forwarded to Council
Attachments:
A. Oct ober 25, 2016 Staff Report