Loading...
HomeMy WebLinkAbout10 RENTAL AGREEMENT FIRST AMENDMENT-15171 DEL AMO AVENUEMEETING DATE: SEPTEMBER 4, 2012 TO: JEFFREY C. PARKER, CITY MANAGER FROM: CITY MANAGER'S OFFICE SUBJECT: FIRST AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS FOR A PORTION OF THE BUILDING LOCATED AT 15171 DEL AMO AVENUE SUMMARY Approval is requested to extend the Term of the Rental Agreement between the City and National Office Liquidators, Inc. (Tenant), for a City -owned property located at 15171 Del Amo Avenue. RECOMMENDATION It is recommended that the City Council authorize the City Manager to execute the attached First Amendment to the Rental Agreement with National Office Liquidators, Inc. and support the finding that the amended Rental Agreement is at market value and no further policy directions, as outlined in Tustin City Code Section 7960(B), are required. FISCAL IMPACT The Rental Agreement requires the Tenant pay rent in an amount of $9,800 per month, to extend the terms of the Rental Agreement an additional nine months for a 28,000 square foot portion of the subject building. The property is being marketed "as is" on a short term or month -to -month basis and the rental rate is competitive within the market area with rents for similar properties with limiting lease terms. After the City pays $2,646 in brokerage fees, the additional nine months will generate $85,554 in net rent proceeds available to the City General Fund. The City has terminated the property management services previously being provided at 15171 Del Amo Avenue at a savings of $500 per month. BACKGROUND The City owns property at 15171 Del Amo Avenue, as part of a larger acquisition associated with the new construction of an on -ramp and an off -ramp providing access to Agenda Report September 4, 2012 Page 2 and from State Route 55 to Newport Avenue and Edinger Avenue. While the building was occupied and rented when the City obtained possession of the property, it has subsequently been vacated. Rather than demolishing the building and associated parking improvements at a cost to the City, it was determined that rental of the premises in the existing condition would provide interim rental revenue until such time as the City develops a comprehensive strategy for marketing the property, market conditions warrant new development, and the City is able to obtain an adequate financial return for its original acquisition expenses. In January 2010, the City entered into a brokerage agreement with Lee & Associates to seek tenants for the building as a light industrial use, distribution use, or warehouse use (the legal non - conforming uses currently authorized on the property). On March 15, 2011, the City Council authorized a Rental Agreement with National Office Liquidators (NOL) to rent approximately one -third of the building or 28,000 square feet of the existing 85,000 square feet building. The lease became effective June 1, 2011 and the base term is 18 months, expiring November 30, 2012. The negotiated rent rate is $.35 per square foot ($9,800 per month) and the premises are rented on a triple -net basis, meaning the Tenant will pay all real estate taxes, insurance, maintenance, repairs, utilities and other items associated with tenancy. The Tenant has requested to extend the Term of the Rental Agreement from December 1, 2012 through August 31, 2013. The negotiated rental rate is proposed at $35 per square foot ($9,800 per month) and the premises would continue to be rented on a triple -net basis. Tustin City Code (TCC) Section 7960, as enacted by Ordinance No. 1389, outlines the process City staff must follow for the approval, extension or modification of any existing City real property lease for less than market value. In the event a lease is less than market value, then staff must seek policy direction from the City Council as outlined in TCC Section 7960(6). Staff, in working with Lee & Associates, has reviewed comparables to confirm current asking rates for dead storage type spaces are in the same market range as the Del Amo building and the proposed First Amendment to the Rental Agreement is not for less than market value. Four (4) properties are currently advertised at a gross rental rate of 35 to 49 cents per square foot. The proposed rental rate for the Del Amo building is 35 cents per square foot net, which is typically 5 to 10 cents a square foot less than a gross rental rate. The 35 cents square foot rental rate is, therefore, a fair comparable since the City does not cover any tenant expenses. Additionally, the Del Amo building is leased on an "as is" basis only and is limited to a short term or month - to -month term, with no guarantee to the Tenant of longer term occupancy (as normal rental rates are usually based on a three (3) to five (5) year initial term). In view of the fact that the City is keeping the transactions shorter and leasing the subject building only on an "as is" basis, staff and Lee & Associates have determined and concur that Agenda Report September 4, 2012 Page 3 the proposed rental rate is at market value. As a result, the proposed First Amendment to the Rental Agreement does not trigger further actions as outlined in TCC Section 7960(6). Staff is available for any questions the City Council may have. Jerry Craig Program M First Amendment to the Rental Agreement FIRST AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS, LLC This FIRST AMENDMENT TO THE RENTAL AGREEMENT (this "First Amendment ") is entered into as of September 4, 2012 (the "Effective Date ") by and between the CITY OF TUSTIN, a municipal corporation of the State of California ( "City "), and National Office Liquidators, LLC, an Arizona limited liability company, ( "Tenant "). City and Tenant are sometimes referred to herein individually as a "Party" and collectively as the "Parties ". RECITALS A. The City and the Tenant entered into that certain Rental Agreement dated as of June I, 2011, (the "Original Rental Agreement ") pursuant to which, among other things, the City agreed to rent to the Tenant certain real property (the "Premises ") as defined in the Original Rental Agreement for the purpose of a showroom for retail sales, distribution and/or warehouse use only; and B. City is the owner of the Premises located at 15171 Del Amo Avenue in the City of Tustin, County of Orange, and State of California as more particularly described in Exhibit A of the Original Rental Agreement, incorporated herein and made a part of this First Amendment as though fully set forth herein (the "Premises "); and C. The extension of the Original Rental Agreement with a First Amendment is at market value and does not trigger further actions as outlined in Tustin City Code Section 7960(B); and D. The Term of the Original Rental Agreement was for eighteen months, expiring November 30, 2012, with an option for the City to extend the agreement up to two (2), six (6) month terms, and the Parties desire to amend the Original Rental Agreement to extend the term of the agreement through August 31, 2013, as permitted under Section 4 of the Original Rental Agreement; and E. The Parties desire to extend the Term and amend the Original Rental Agreement by executing this First Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and of the promises and mutual covenants incorporated within the Original Rental Agreement, which are incorporated in the operative provisions of this Amendment by this reference as though set forth in their entirety, the Parties agree as follows: I. Modification to the Original Rental Agreement The following sections of the Original Rental Agreement are hereby amended as follows: (a) Section 4 is hereby deleted in its entirety and replaced as follows: "4. TERM. The term ( "Term ") of this Rental Agreement shall commence on June I, 2011, ( "Commencement Date ") and shall be in full force and effect through 874942 1 August 31, 2013, ( "Termination Date ") unless otherwise terminated as provided herein. Tenant agrees to vacate the Premises on or before the Tennination Date. The City, at the City's option, may extend this Rental Agreement up to two (2) additional six (6) month terms, by providing the Tenant with notice, at least sixty (60) days prior to the Termination Date, of City's offer to extend the tenancy." (b) Section 5.1 is hereby deleted in its entirety and replaced as follows: "5.1 Base Rent. Tenant shall pay the City the monthly sum of Nine Thousand Eight Hundred and no dollars ($9,800) payable in advance, commencing on the Commencement Date and each subsequent month during the term of this Rental Agreement. If the Commencement Date is other than the first day of a calendar month, the rent payable hereunder shall be prorated by the City on the basis of a thirty (30) day month. Rental installments shall be paid by giving such payments to the City, directed to the Finance Department, at 300 Centennial Way, Tustin, CA 92780. Checks should be made out to the "City of Tustin "." (c) Section 5.3 is hereby deleted in its entirety and replaced as follows: "5.3 Place of Payment. All payments due and owing shall be made by Tenant to the City, or to another party at such other place as the City may designate in writing from time to time. Make checks payable to: City of Tustin, Finance Department, 300 Centennial Way, Tustin, CA 92780." (d) Section 5.4 is hereby deleted in its entirety and replaced as follows: "5.4 Late Charge. If payments of or any part thereof to be made by Tenant to City become overdue for a period in excess of ten (10) calendar days, a late charge equal to ten (10) percent of such overdue amount shall be paid by Tenant for purposes of defraying the expense incidental to handling such delinquent payment. Pursuant to California law, if Tenant passes a check on insufficient funds, Tenant will be liable to the City for the amount of the check plus a service charge of $55.00 for the first check passed on insufficient funds, and $55.00 for each subsequent check passed on insufficient funds. City may require future payments to be in a form other than a personal check in the event of a returned check, at City's sole discretion." (e) Section 6.2 is hereby added to "Section 6. PROTECTION, MAINTENANCE, AND REPAIRS" as follows: "6.2 Freeway visibility. Tenant acknowledges and understands that the Premises will have diminished freeway visibility due to a planned hotel construction to the west of the Premises." (f) Section 20 is hereby deleted in its entirety and replaced as follows: "20. NOTICES. Any notice shall be personally delivered or placed in a sealed envelope postage paid, addressed to the person on whom it is to be served with return receipt requested and deposited in the United States Mail. Personal service shall be deemed complete upon delivery, and service by mail shall be deemed complete upon 2 874942 1 receipt as reflected by the return receipt. The address to be used for any notice served by mail shall be as follows: Tenant: National Office Liquidators, LLC 1502 E. Hadley Street, Suite #150 Phoenix, AZ 85034 City: City Manager City of Tustin 300 Centennial Way Tustin, CA 92780 Attention: Jeffrey C. Parker 2. No Other Changes. This First Amendment is supplemental to the Original Rental Agreement and is by reference made part of said Original Rental Agreement. All sections of the Original Rental Agreement not specifically amended herein shall remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this First Amendment and any provisions of the Original Rental Agreement, the provisions of this First Amendment shall in all respect govern and control. Unless otherwise specifically defined herein, terms used in this First Amendment shall have the same meaning as ascribed to them in the Original Rental Agreement. The execution and delivery of this First Amendment shall not operate as a waiver of or, except as expressly set forth herein, an amendment of any right, power or remedy of either party in effect prior to the date hereof. 3. Counterparts. This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the Parties hereto may execute this First Amendment by signing any such counterpart. « « ««« ««« «Signature page follows » » » » » » » »» 3 874942.1 IN WITNESS WHEREOF, City has authorized this First Amendment between the City of Tustin and National Office Liquidators, LLC to be executed for and on behalf of the City of Tustin, and Tenant has caused the same to be executed by its duly authorized officer on the date first above written. "CITY" City of Tustin, California Dated: Jeffrey C. Parker, City Manager Attest: Pamela Stoker City Clerk APPROVED AS TO FORM David E. Kendig City Attorney "TENANT" National Office Liquidators, an Arizona limited liability company By: Name: Title: By: Name: Title: 4 874942 1