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HomeMy WebLinkAbout11 RENTAL AGREEMENT W/ COLOR MARBLE COMMERCIAL PROJECTSAgenda Item 11 Reviewed: AGENDA REPORT City Manager Finance Director A MEETING DATE: OCTOBER 15, 2013 TO: JEFFREY C. PARKER, CITY MANAGER FROM: CITY MANAGER'S OFFICE SUBJECT: RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND COLOR MARBLE COMMERCIAL PROJECTS, INC. FOR A PORTION OF THE BUILDING LOCATED AT 15171 DEL AMO AVENUE SUMMARY: Approval is requested for a Fifteen (15) Month Rental Agreement between the City and Color Marble Commercial Projects, 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 Rental Agreement with Color Marble Commercial Projects, Inc. and support the finding that the 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 $84.,,000 ($5,600 per month) over a fifteen month term for approximately 14,000 square feet 'in the middle section 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. Depending on market conditions for the full development of the property, the City may extend the Rental Agreement up to nine months. During the initial term of the Rental Agreement, the net rent proceeds available to the City General Fund will be $78,960, net of the one -time broker commission of $5,040. The brokerage fee for this transaction is based on our listing agreement which shall be 6% of the total consideration of the fifteen month term, which the City's broker will be sharing with the Tenant's broker. Agenda Report October 15, 2013 Page 2 ALIGNMENT WITH STRATEGIC PLAN: The Rental Agreement with Color Marble Commercial Projects, Inc. is consistent with the City's value of Fiscal Stewardship. In complying with Tustin City Code Section 7960(B), fact -based financial decisions ensure the City practices sound stewardship of its existing assets. 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 and from State Route 55 to Newport Avenue and Edinger Avenue. 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). Color Marble Commercial Projects, Inc. has submitted a proposal to rent approximately 14,000 square feet of the middle section under the terms of the Rental Agreement. In their proposal, the Tenant requested an eighteen to twenty -four month term. In order to maintain flexibility for site development„ staff is recommending a fifteen month term with the City option at twelve months to review market conditions as to whether or not the term can be extended up to an additional nine months. The negotiated rent rate is proposed at $.40 per square foot ('$5,600 per month) and the premises would be rented on a thple -net basis, meaning the Tenant will pay all real estate taxes, insurance, maintenance, repairs, utilities and other items associated with tenancy. The determination to extend the term includes a City option to increase the rent up to three percent (3 %) for any additional months beyond the initial fifteen month term. The Tenant will also be responsible for any additional capital expenses including tenant improvements and repairs to the facility and will accept the property in an "AS -IS WHERE -IS" condition. 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 Agenda Report October 15, 2013 Page 3 Amo building and the proposed Rental Agreement is not for less than market value. There are two properties advertised at a gross rental rate of 45 to 50 cents per square foot. The proposed rental rate for the Del Amo building is 40 cents per square foot net, which is typically 5 to 10 cents a square foot less than a gross rental rate. The Del Amo building is leased on an "AS IS" basis only and is limited to a short term, month -to- month term, or includes a termination clause which does not completely guarantee a 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 these facts, staff and Lee & Associates have determined and concur that the proposed rental rate of $.40 per square foot is at market value. As a result, the proposed Rental Agreement does not trigger further actions as outlined in TCC Section 7960(6). Upon execution of the Agreement, the Tenant shall be required to pay a security deposit which is the equivalent of one month's rent and the first month's rent. Staff will be available to answer any questions the City Council may have. Jerry Craig Economic Dp'� to t ousing Manager Atkachn ht: Rental Agreement between the City and Color Marble Commercial Projects, Inc.