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HomeMy WebLinkAbout05 15171 DEL AMO LEASE AMENDMENTAgenda item 5 Reviewed AGENDA REPORT City Manager L,N Finance Director IA MEETING DATE: MARCH 19, 2013 TO: JEFFREY C. PARKER, CITY MANAGER FROM: CITY MANAGER'S OFFICE SUBJECT: SECOND 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 Approval is requested to amend 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 Second 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(6), are required. FISCAL IMPACT The Rental Agreement currently requires the Tenant pay rent in an amount of $9,800 per month, for a 28,000 square foot portion of the subject building. On a month-to- month basis, the Tenant has requested to rent an additional 10,000 square feet of the subject building at $.35 per square foot, resulting in an additional $3,500 payment per month. 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 $1,750 in brokerage fees and assuming the Tenant rents the space for the remaining five months of the Rental Agreement, the five months will generate $15,750 in net rent proceeds available to the City General Fund. Agenda Report March 19, 2013 Page 2 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 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. On September 4, 2012, the City Council authorized a First Amendment to the lease, extending the term through August 31, 2013. 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 rent an additional 10,000 square feet at $35 per square foot ($3,500 per month) on a month-to-month basis through the term of the lease, August 31, 2013. 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(B). 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 Second Amendment to the Rental Agreement is not for less than market value. Three (3) properties are currently advertised at a gross rental rate of 30 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- Agenda Report March 19, 2013 Page 3 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 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(B). Staff is available for any questions the City Council may have. Jerry Craig,,, Program,Ma ment: Second Amendment to the Rental Agreement SECOND AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS, LLC This SECOND AMENDMENT TO THE RENTAL AGREEMENT (this "Second Amendment ") is entered into as of April 1, 2013 (the "Second Amendment 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 1, 2011, and as amended by that First Amendment to the Rental Agreement ( "First Amendment ") dated as of September 4, 2012, (collectively, the "Original Rental Agreement ") pursuant to which, among other things, the City agreed to rent to the Tenant a certain portion of the real property located at 15171 Del Amo Avenue in the City of Tustin (the "Original 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 entire premises located at 15171 Del Arno Avenue in the City of Tustin, County of Orange, and State of California as more particularly described in Exhibit A of this Second Amendment, incorporated herein and hereby made a part of the Original Rental Agreement as though fully set forth herein (the "City Parcel ") and C. The extension of the Original Rental Agreement with a Second 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 expires August 31, 2013 with an option for the City to extend the agreement up to two (2) additional six (6) month terms, by providing the Tenant with notice, at least sixty (60) days prior to Termination Date, of City's offer to extend tenancy; and E. Tenant has a desire to rent an additional 10,000 square feet located on the City Parcel and adjacent to the Original Premises, as depicted in Exhibit A (the "Additional Premises "), on a month -to -month basis through the Term of the Original Rental Agreement for the purpose of warehouse use only. The additional 10,000 square feet is not for the purpose of a showroom for retail sales and any use other than for dead storage space of this section of the Premises will constitute a breach of this contract and may result in eviction. F. The Parties desire to amend the Original Rental Agreement by executing this Second 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: 1 915693.1 1. 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: "4.1 TERM. The term ( "Term ") of this Rental Agreement shall commence on June 1, 2011, ( "Commencement Date ") and shall be in full force and effect through August 31, 2013, ( "Termination Date ") unless otherwise terminated as provided herein. Tenant agrees to vacate the Premises on or before the Termination 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. 4.2 Tenant agrees to rent the Additional Premises on a month -to -month basis commencing April 1, 2013 and terminating no later than August 31, 2013, unless terminated sooner by the Tenant. Except as otherwise provided in this Second Amendment, all terms of the Original Rental Agreement shall apply to the rental of the Additional Premises." (b) Section 5.1 is hereby deleted in its entirety and replaced as follows: "5.11 Base Rent. Tenant shall pay the City the monthly sum of Nine Thousand Eight Hundred and no dollars ($9,800) for the Original Premises, 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 ". 5.12 Month -to -Month Rent. Tenant shall pay the City an additional monthly sum of Three Thousand Five Hundred and no dollars ($3,500) for the Additional Premises, payable in advance, commencing on the Second Amendment Date and each subsequent month until the expiration of the Term, unless terminated sooner by Tenant. Rental installments shall be paid as directed in Section 5.11." 2. No Other Changes This Second 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 Second Amendment and any provisions of the Original Rental Agreement, the provisions of this Second Amendment shall in all respect govern and control. Unless otherwise specifically defined herein, terms used in this Second Amendment shall have the same meaning as ascribed to them in the Original Rental Agreement. The execution and delivery of this Second 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. 2 915693.1 3. Counterparts. This Second 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 Second Amendment by signing any such counterpart. IN WITNESS WHEREOF, City has authorized this Second 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: Erica Rabe City Clerk Services Supervisor David E. Kendig City Attorney "TENANT" National Office Liquidators, an Arizona limited liability company By: Name: Title: By: Name: Title: 3 915693.1