SR 02-08-2022 3C
City Council
Report
City Council Meeting: February 8, 2022
Agenda Item: 3.C
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Approval of Third Lease Modification with JP Morgan Chase for 1333 Fourth
Street Lease
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a lease modification with JP Morgan Chase to extend term from May
1, 2022 through April 30, 2026, providing a total of $4,022,120 in rental revenues during
the four-year term.
Summary
JP Morgan Chase’s lease for the city-owned property at 1333 Fourth Street expires on
April 30, 2022. This property is part of the 4th and Arizona project site. The City has no
immediate plans to redevelop the site and any efforts to re-envision, plan and initiate an
alternative project is anticipated to take four or more years to accomplish. There is an
opportunity to extend the current lease extension through April 2026 which would align
with the other bank lease at the site. The short-term extension will generate $4,022,120
in rental revenue while preserving future redevelopment opportunities.
Discussion
The City-owned property at 1333 Fourth Street (Property) is part of the 4th and Arizona
project site and was originally acquired by the City’s Redevelopment Agency in 2010 as
part of a land assemblage to form a redevelopment site consisting of nine contiguous
parcels (Site) totaling 112,000 square feet (approximately 2.57 acres) bounded by 4th
Street, 5th Street, and Arizona Avenue. The acquisition included two existing bank
buildings (JP Morgan Chase and Bank of America) with active leases which the City
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inherited. The Site was previously approved by Council for a hotel/retail/office/open
space development known as the “The Plaza” development, after a competitive RFP
process; however, Council terminated the negotiations for The Plaza development in
December 2020.
The proposed lease extension would align the JP Morgan Chase lease with the
adjacent Bank of America lease on this larger project site. Staff believes that any effort
to re-envision, plan and initiate an alternative project for this larger 4th and Arizona
project site would take at least the next four years to do and therefore this lease
extension does not hinder the City’s future options while preserving an important
revenue stream.
This is a standard triple net lease. Under a triple net lease, the Tenant pays rent plus all
three additional expenses of possessory interest taxes, insurance and maintenance
costs. While triple net leases normally apply to long-term leases (e.g. 10 years or
more), the Tenant acknowledges and agrees to the interim nature of its lease with the
City. The extended term is limited to four-years, structured to align with the termination
of the City’s lease agreement with neighboring tenant, Bank of America, at 1301 Fourth
Street. Except for the new extended term and rental rates, the Original Lease and
subsequent amendments (Exhibits 1-3) shall continue in full force and effect.
The Tenant will pay the City $4,022,120 in rental revenues, $1,005,530 annually, for the
four-year term. The proposed rental rate is the same rental rate that the tenant currently
pays. Currently, Downtown Santa Monica retail/ground floor office space has a 26%
vacancy rate with average market rent of $6.35 per square foot per month. The lease
extension would result in a monthly lease of $7.03 per square foot per month including
subprime mezzanine space of 3,854 square feet for a building that may otherwise be
challenging to lease due to bespoke fit-out of the bank space and the short-term lease
requirements (under 5 years) due to pending redevelopment. Retaining the existing
tenant represents a win-win for both parties as it guarantees $4 million in rental income
that the City may otherwise not have and allows the Tenant to remain in its current
location.
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The Property is subject to the California Surplus Land Act (SLA) pursuant to
Government Code 54220 et seq. The SLA governs the sale of surplus lands and
requires local agencies to prioritize opportunities for certain uses including affordable
housing development for any land the entity may sell or lease. Under the Surplus Land
Act, the City must follow a specific statutory noticing and negotiation period with certain
designated entities, including eligible housing sponsors defined by the California
Department of Housing and Community Development (HCD).
At its meeting on March 23, 2021, the City Council adopted a resolution declaring 1333
Fourth Street as surplus land and authorized the City Manager to submit the report of
declared surplus land and exempt surplus land as part of the Annual Report to HCD by
April 1, 2021. However, since that declaration, HCD has clarified in their final
regulations that short term leases of less than five years do not qualify as “disposition of
surplus land” within the meaning of the SLA. Therefore, the City does not need to
comply with the noticing procedures of the SLA prior to entering into negotiations or
executing the proposed short-term lease with Chase Bank.
Past Council Actions
Meeting Date Description
5/11/2010 (Attachment A) Acquisition of Property at 1301 – 1333 Fourth Street
3/22/2011 (Attachment B) JP Morgan Chase (1333 Fourth Street) Lease
Modification
3/23/2021 (Attachment C) Adoption of a Resolution of Inventory of City-Owned
Properties Subject to the Surplus Lands Act
Financial Impacts and Budget Actions
The FY 2021-22 budget includes lease revenues from JP Morgan Chase of $837,942,
for 10 months. Under the proposed lease extension, the twelve-month revenue will be
$1,005,530. The additional $167,588 in FY 2021-22 revenues will be deposited in the
General Fund, account 01700014.414000. The FY 2022-23 revenue adjustment will be
included in the FY 2022-23 Exception-Based budget.
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Prepared By: Nia Tang, Senior Development Analyst
Approved
Forwarded to Council
Attachments:
A. Attachment A: Acquisition of Property at 1301–1333 Fourth Street (Web Link)
B. Attachment B: JP Morgan Chase (1333 Fourth Street) Lease Modification (Web
Link)
C. Attachment C: Adoption of a Resolution of Inventory of City-Owned Properties
Subject to the Surplus Lands Act (Web Link)
D. Exhibit 1 - 1333 4th St. Lease
E. Exhibit 1.a - 1333 4th St Lease - Addendum 2006
F. Exhibit 1.b - 1333 4th St Lease - Assignment 2008
G. Exhibit 2 - 1333 4th St. Lease - 1st Amendment
H. Exhibit 3 - 1333 4th St. Lease - 2nd Amendment
I. Written Comment
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Packet Pg. 42 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 43 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 44 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 45 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 46 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 47 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 48 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 49 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 50 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 51 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 52 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 53 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 54 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 55 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 56 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 57 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 58 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 59 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 60 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 61 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 62 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 63 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 64 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 65 Attachment: Exhibit 1 - 1333 4th St. Lease (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 66 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 67 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 68 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 69 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 70 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 71 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 72 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 73 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 74 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 75 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 76 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 77 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 78 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 79 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 80 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 81 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 82 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 83 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 84 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 85 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 86 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 87 Attachment: Exhibit 1.a - 1333 4th St Lease - Addendum 2006 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 88 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 89 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 90 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 91 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 92 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 93 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 94 Attachment: Exhibit 1.b - 1333 4th St Lease - Assignment 2008 (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 95 Attachment: Exhibit 2 - 1333 4th St. Lease - 1st Amendment (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 96 Attachment: Exhibit 2 - 1333 4th St. Lease - 1st Amendment (4959 : 1333 Fourth Street Lease - Third Amendment)
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Packet Pg. 97 Attachment: Exhibit 2 - 1333 4th St. Lease - 1st Amendment (4959 : 1333 Fourth Street Lease - Third Amendment)
3.C.hPacket Pg. 98Attachment: Exhibit 3 - 1333 4th St. Lease - 2nd Amendment (4959 : 1333 Fourth Street Lease - Third Amendment)
3.C.hPacket Pg. 99Attachment: Exhibit 3 - 1333 4th St. Lease - 2nd Amendment (4959 : 1333 Fourth Street Lease - Third Amendment)
3.C.hPacket Pg. 100Attachment: Exhibit 3 - 1333 4th St. Lease - 2nd Amendment (4959 : 1333 Fourth Street Lease - Third Amendment)
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Vernice Hankins
From:Clerk Mailbox
Sent:Sunday, February 6, 2022 3:51 PM
To:councilmtgitems
Subject:FW: Item 3C on Council Agenda for February 8
‐‐‐‐‐Original Message‐‐‐‐‐
From: Stanley H Epstein <stanatty@yahoo.com>
Sent: Sunday, February 6, 2022 10:36 AM
To: Clerk Mailbox <Clerk.Mailbox@santamonica.gov>; David White <David.White@santamonica.gov>;
davidmartin@smgov.net; Joseph Lawrence <Joseph.Lawrence@santamonica.gov>; Sue Himmelrich
<Sue.Himmelrich@santamonica.gov>; kristinmccowan@smgov.net; Phil Brock <CommissionerBrock@gmail.com>;
Gleam Davis <Gleam.Davis@santamonica.gov>; Oscar de la Torre <Oscar.delaTorre@santamonica.gov>; Lana Negrete
<lananegrete@me.com>
Subject: Item 3C on Council Agenda for February 8
EXTERNAL
Dear Gentlemen and Ladies. Thank you to the City Manager, Attorney, and Clerk for posting Friday the crucial
Addendum to the Chase bank lease that had been omitted on Wednesday. Perhaps the City Manager and Council will
consider measures to stop future separations of portions of important documents. The
Lease was skillfully negotiated and drafted in 2006 by real estate executives and lawyers for the several property
owners at that time, and for Washington Mutual, the predecessor in interest of JP Morgan Chase. However, in the
Original Lease and in the two Amendments thereafter,and in David Martin’s Staff Report, there are a few important
problems. First is a question of a non‐legal nature, which is the rent amount during all of the 4 year
period.The annual rent is the same as the current annual rent of $1,005,530, or $4,022, 120 for the entire 4 years.The
sole justification provided by David Martin is that “ Currently, Downtown Santa Monica retail/ground floor office space
has a ….average market rent of $6.35 per square foot per month. The lease extension would result in a monthly lease of
$7.03 per square foot per month” I find several deficiencies in this analysis. David omits the number of square feet in the
exclusive use area provided to the tenant of 34 parking spaces in his rent calculation per square foot. Clearly wrong. He
says nothing about the fact that the property is owned by the City, and therefore I believe there are no real estate taxes
that usually are paid by all net, net lease tenants. He says nothing about the fact that many retail tenants pay
percentage rent in addition to basic rent , whereas Chase does not. Finally, average rents in Downtown is not particularly
meaningful. Location,Location. If the rent should be 25% more, that would mean $1 Million over the extended term
more, which could pay for a year of much needed cops or Code Enforcement people. I think no one at the Council
meeting is a sufficient expert in relevant rental values, and respectfully suggest the City hire a consultant simply to
recommend and perhaps negotiate an appropriate fair rent for the extended term. The lease
allows the premises to be used for any lawful purpose by any affiliated entity or by any unaffiliated assignee. Approval
rights to an assignment are very liberal and the City can be successfully sued if it fails unreasonably to give consent. I
suggest the City limit the permitted uses or prohibit undesirable but legal uses. The S.M. City
Attorney’s office made a drafting error in the 2016 Second Amendment to Lease. It allowed the skilled real estate lawyer
for Chase to slip in a clause stating that “ For purposes of the Lease, the definition of Term provided in Section 1.3 of the
Original Lease shall be deemed to include the Extended Term and any FUTURE( caps are mine) renewal Term for which
Tenant timely and properly exercises its option.” There is another provision incorporating all provisions of the original
agreement except the rent and lease term. Bottom line is that a Third Amendment must clearly say there is no future
option period! I understand there are issues related to homeless people in the adjoining
parking areas ,which are Chase’s responsibility, and near the building The City might consider whether it should provide
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Packet Pg. 101 Attachment: Written Comment (4959 : 1333 Fourth Street Lease - Third Amendment)
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in the lease specifically with regard to that type of issue. Finally, Council should feel comfortable that future
development possibilities will not be curtailed by the lease of the building or the provisions relating to the exclusive use
of the parking areas. Sincerely, Stanley H. Epstein
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Packet Pg. 102 Attachment: Written Comment (4959 : 1333 Fourth Street Lease - Third Amendment)