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SR 05-28-2019 3D City Council Report City Council Meeting: May 28, 2019 Agenda Item: 3.D 1 of 3 To: Mayor and City Council From: Andy Agle, Director, Housing and Economic Development, Economic Development Division Subject: Lease Modification for City Office Space at 1717 4th Street Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute a lease modification with Santa Monica Hotel Owner, LLC for City offices at 1717 4th Street, to extend the lease term to May 31, 2020 for a monthly rent of $93,723.50. Summary The City currently leases office space at 1717 Fourth Street, which houses the offices of the Finance Department and the Public Works Department’s Office of Sustainability and the Environment, from Santa Monica Hotel Owner, LLC. Staff currently working at the Fourth Street building will relocate to the new City Services Building and to the South Wing of the historic City Hall. These projects will consolidate staff from various leased locations to a central civic center campus. The City Services Building (CSB) will open in April 2020 and the tenant improvement for the south wing of City Hall will be completed in July 2021. The lease at 1717 Fourth Street, however, is scheduled to expire on January 31, 2020. Staff recommends a lease extension to allow sufficient time to relocate staff to the new CSB, historic City Hall, and the City-owned building at 1632 Fifth Street in the interim. Discussion Since 1990, the City has leased office space in a privately owned building at 1717 Fourth Street. The current lease, authorized by Council on March 2 4, 2009 with PCA I, LP (PCA), expires on January 31, 2020. Santa Monica Hotel Owner, LLC purchased the office building and adjacent DoubleTree Hotel from PCA in September 2018. The lease includes 20,703 square feet of office space (9,462 sq. ft. on 2 of 3 the first floor and 11,241 sq. ft. on the second floor) at a rate of $69,303.60 per month and 420 square feet of storage space at a rate of $560 per month. The building currently houses the offices of the Finance Department (Finance) and the Public Works Department’s Office of Sustainability and the Environment (OSE). A portion of Finance and OSE are scheduled to move into the CSB upon its completion. The rest of Finance is scheduled to move into remodeled space in City Hall in July 2021. On an interim basis, the portion of Finance scheduled to move to City Hall will temporarily move to a City-owned office building at 1632 Fifth Street, currently housing the City Attorney’s Office on an interim basis. Santa Monica Hotel Owner, LLC has agreed to modify the terms of the lease to provide for an initial four-month extension, plus an option to extend for an additional six-month period. Staff anticipates that the initial four-month extension will be sufficient. The initial four-month lease extension would commence on February 1, 2020 and expire on May 31, 2020 at a rate of $4.50 per square foot for the office space and $560 for the storage space, for a monthly lease expense of $93,723.50 and a total expense of $374,894. Although staff does not anticipate a need to exercise the option to extend the lease for an additional six-month term through November 30, 2020, the option would be included in the lease modification at a rate of $7 per square foot for the office space and $560 for the storage space, for a total monthly lease expense of $145,481 and a total expense of $872,886. No other lease terms would be amended. Past Council Action Meeting Date Description 03/24/09 (attachment A) Authorization to lease office space at 1717 4th Street Financial Impacts and Budget Actions Recognizing that the lease term at 1717 Fourth Street ends on January 31, 2020, staff anticipated that the City would need to extend the lease to allow for a coordinated relocation of City staff to the CSB in spring 2020. The proposed lease extension and 3 of 3 associated expense outlined in this report would not negatively impact the long-term return on investment projected for the CSB. Funds for the remainder of the current lease term and the initial four-month lease extension are included in the FY 2019-21 Proposed Biennial Budget in the Finance and Public Works departments, and in the Finance Department’s Expenditure Control Savings account. Lease costs will be charged to the following accounts : Finance, 01300001.524700; Risk Management, 75300001.524700; and Office of Sustainability and the Environment, 01500003.524700. Prepared By: Erika Cavicante, Senior Development Analyst Approved Forwarded to Council Attachments: A. March 24, 2009 Council Report to lease office space at 1717 4th Street B. Santa Monica Hotel Owner LLC Oaks Initiative 4/22/2019 Office Space Lease at 1717 4th Street - City of Santa Monica https://www.smgov.net/departments/council/agendas/2009/20090324/s2009032401-L.htm 1/2 City Council Meeting: March 24, 2009 Agenda Item: 1-L To: Mayor and City Council From: Andy Agle, Director of Housing and Economic Development Subject: Office Space Lease at 1717 4th Street Recommended Action Staff recommends that the Council authorize the City Manager to negotiate and execute a Lease with PCA I, LP for City offices at 1717 4th Street. Executive Summary The City currently leases and subleases 20,703 sq. ft. of office space and 420 sq. ft. of storage space at 1717 4th Street. The City leases 6,434 sq. ft. from the building owner to house the Finance Department and subleases an additional 14,269 sq. ft. from the Los Angeles Times. The leases and subleases expire January 31, 2010. The Tribune Company, parent company of the Los Angeles Times, has filed for Bankruptcy and seeks to terminate certain unexpired leases including its lease at 1717 4th Street. The owner of the building is willing to consolidate the City’s lease for a term of ten years, with two five year options. Discussion Currently, the City leases 6,434 sq. ft. in 1717 4th Street from PCA I, LP and subleases an additional 14,269 sq. ft. from the Los Angeles Times/Tribune Company. The lease and sublease expire January 31, 2010. On March 9, 2009, the City was notified that the Tribune Company has filed a motion with the Bankruptcy Court to reject several leases, including its lease at 1717 4th Street. Prior to notification by the Tribune Company of the bankruptcy action the City had begun discussions with the building owner about extending its lease and the building owner was amenable to leasing the space directly to the City for a term that would have begun February 1, 2010. In light of the bankruptcy action, the owner is willing to negotiate a lease for all the space the City currently occupies. Staff is still negotiating some of the deal points, but the minimum acceptable terms are described below. Commencement Date: As soon as final lease documents are executed. Term Ends: February 1, 2020 Options Two five-year options Base Rental Rate Until January 31, 2010, no more than the amount City currently pays; beginning February 1, 2010, $2.80 per sq. ft adjusted by escalation rate. Storage Rental Rate $560 per month with escalations defined below Escalations CPI, no less than 2% and not to exceed 3% per year 4/22/2019 Office Space Lease at 1717 4th Street - City of Santa Monica https://www.smgov.net/departments/council/agendas/2009/20090324/s2009032401-L.htm 2/2 Right of First Refusal to Lease or Acquire Property Owner shall provide Lessee Right of First Refusal to lease additional space or to acquire the property should Owner sell the office building separately from the hotel Tenant Improvement Allowance An allowance of $360,000 Parking Eight parking spaces to be provided free plus ten complimentary validations per month Financial Impacts & Budget Actions Lease payments will be charged to account 01221.522620, 59229.522620 and 01207.522620. Sufficient funds in the department’s budget will cover this expenditure for the remainder of the year, and on-going costs will be reflected in next year ’s budget. Prepared by: Elana Buegoff, Sr. Development Analyst Approved: Forwarded to Council: Andy Agle, Director Housing and Economic Development P. Lamont Ewell City Manager REFERENCE: Contract No. 10849 (CCS)