HomeMy WebLinkAbout07 275 CENTENNIAL WAY OFFICE LEASE EXTENSIONAGENDA REPORT Agenda Item Reviewed: City Manager Finance Director 7 MEETING DATE. FEBRUARY 19 2013 TO JEFFREY C PARKER, CITY MANAGER FROM: SUCCESSOR AGENCY SUBJECT OFFICE LEASE EXTENSION FOR 275 CENTENNIAL WAY SUITE 104 AND SUITE 104A SUMMARY Authorization is requested to execute a lease extension through June 30 2016 for two suites located at 275 Centennial Way to provide supplemental office space for Successor Agency employees and certain operational functions. RECOMMENDATION It is recommended the City Council, acting as the Successor Agency to the former Redevelopment Agency (RDA) authorize the City Manager to execute a lease extension for Suites 104 and 104A at 275 Centennial Way consistent with the general terms identified in this Agenda Report and subject to final review and approval of the lease extension by the City Attorney FISCAL IMPACT Rent during the extension term of the lease would be $3,661 per month with total annual rent of $43 932. The monthly rent will not increase during the lease term and the Landlord is waiving the first three months of rent. The lease, as an RDA obligation necessary for operational support of the Agency has been included in the previous Recognized Obligation Payment Schedules (ROPS) and will be included in the 13 -14A ROPS (4th ROPS) transmitted to the Oversight Board The Redevelopment Obligation Retirement fund will fund this continued operational obligation unless otherwise directed by the Oversight Board in the future, at which point reconsideration and /or termination would be reviewed BACKGROUND In 2007 the City entered into a lease for Redevelopment Agency office space located across the street from City Hall at 275 Centennial Way The original lease had a three Agenda Report — Lease Extension February 19 2013 Page 2 year term with lease extension options. The current one year extension expires February 28 2013 Given the extent of Successor Agency enforceable obligations, additional office space continues to be necessary while the Successor Agency unwinds redevelopment activities and continues to meet or modify its enforceable obligations, based on direction of the Oversight Board In any event, it has been the Agency's and City's position that adequate office space for staff is a necessary operational enforceable obligation that was adopted originally as part of the Fiscal Year 2011 -12 budget and will be necessary for the time being. The current owner's representative for the office building at 275 Centennial Way Kimco Realty Corporation, has recently modified its initial offering to extend the lease after negotiation by staff The following is a summary of the major terms. 1 The term of the lease will be for a period of three years and four months (40 months) with the ability of the City as the Successor Agency to terminate the lease after twelve months with a ninety (90) day notice. 2. The Landlord is waiving the first three (3) months of rent for the renewal term. Beginning June 1 2013 the annual gross rent per month will be $1 75 per square foot, $21 00 SF/YR, payable in advance in equal monthly installments of $3 661 The lease rate of $3 661 per month is the same amount the City is currently paying. Factoring in the three months of waived rent, the effective rate will be $1 62 per square foot, $19 425 SF/YR. There will be no additional common area charges. Landlord is responsible for providing heat and air conditioning services, electricity (within limits of the lease) building janitorial services and building maintenance services 3 If it becomes necessary to terminate the lease during the first year (March 1 2013 — February 28 2014), the City will be responsible for paying the entire year of rent, including the three months of waived rent. If it becomes necessary to terminate the lease during the second year (March 1 2014 — February 28 2015) the City will reimburse the Landlord for two months of waived rent. If the lease is terminated between during the third year (March 1 2015 — February 29 2016), the City will reimburse the Landlord for one month of waived rent. Staff has reviewed current market comparables for Class B and C office space in Tustin. Office comparables have been found in a broad range and not inconsistent with the rent level proposed at the subject property With the close proximity to City Hall and the specific services provided by the owner which would typically result in additional common area charges that can significantly escalate the gross rent expense for a Agenda Report — Lease Extension February 19 2013 Page 3 tenant, the rent proposed seems reasonable and will not result in the City having to incur any additional expenditures for janitorial services or other common area charges. The lease extension for the Successor Agency is an enforceable obligation which will also require Oversight Board approval at their February 26 2013 meeting The City has not yet received the final lease extension from the owner's representative but has received a written proposal which is the basis of the anticipated lease extension. Given the timing related to termination of the current lease (February 29th) staff is requesting that the Council allow the City Manager to execute the final lease extension consistent with the general terms summarized in this report, subject to final review and approval of the City Attorney prior to execution. /Jerry Craig Program M