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HomeMy WebLinkAbout04 4TH AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY AND NATIONAL OFFICE LIQUIDATORS G1'tl' 0 Agenda Item 4 eReviewed: i AGENDA REPORT City Manager a ` � Finance Director /Sr�` v MEETING DATE: JULY 21, 2015 TO: JEFFREY C. PARKER, CITY MANAGER FROM: CITY MANAGER'S OFFICE — ECONOMIC DEVELOPMENT DIVISION SUBJECT: FOURTH AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS, INC. FOR A PORTION OF THE BUILDING LOCATED AT 15171 DEL AMO AVENUE SUMMARY 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 Fourth 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 current Rental Agreement for 42,000 square feet expires July 31, 2018 and, effective August 1, 2015, requires the Tenant pay a monthly rent of $15,595.23. On May 18, 2015, the Tenant, in accordance with the Agreement's termination requirements, provided the City with a six-month termination notice, requesting to reduce their space to 28,000 square feet. Under the Fourth Amendment, the Tenant will be responsible for the 42,000 square feet at $15,595.23 per month through November 18, 2015, unless a new tenant's Rental Agreement for the 14,000 square feet commences prior to November 18th. If that occurs, the Tenant will pay $10,396.82 per month for 28,000 square feet. Effective November 19, 2015, the Tenant's rent will increase to $12,600 per month for 28,000 square feet. Although it is standard business practice for the brokerage fees to be paid upon agreement execution and to be based on the total rent generated during the term of an agreement, fees will be paid annually in order to reflect the option for either party to terminate at any time during the Rental Agreement. Agenda Report July 21, 2015 Page 2 ALIGNMENT WITH STRATEGIC PLAN: The Fourth Amendment with National Office Liquidators, 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 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. On March 19, 2013, the City Council authorized a Second Amendment, adding an additional 10,000 square feet ($3,500 per month) on a month-to-month basis through the term of the lease, August 31, 2013. On July 16, 2013, the City Council authorized a Third Amendment, increasing the total rental space to 42,000 square feet for a five-year Term. The premises would continue to be rented on a triple -net basis. On May 18, 2015, NOL requested to reduce their space from 42,000 square feet to 28,000 square feet. Under the terms of the Agreement's six-month termination requirements, NOL is financially responsible for 42,000 square feet through November 18, 2015. Lee & Associates has been marketing the soon-to-be vacated 14,000 square feet and has found a prospective tenant. Staff and the City Attorney's office are Agenda Report July 21, 2015 Page 3 currently negotiating the Rental Agreement. While the Fourth Amendment with NOL will become effective August 1, 2015, rent on reduced space obligations does not become effective until one of the following occurs: 1) a Rental Agreement with a new tenant for the 14,000 square feet commences prior to November 19, 2015; or 2) November 19, 2015. Effective August 1, 2015, NOL will pay the City $15,595.23 per month for 42,000 square feet at $.371315 per square foot. If and when a new Rental Agreement commences prior to November 19, 2015, NOL will pay the City $10,396.82 per month for 28,000 square feet at $.371315 per square foot. Effective November 19, 2015, NOL will the pay the City $12,600 per month for 28,000 square feet at $.45 per square foot with a rent escalator of 3% annually. Unless either party provides a six-month termination notice prior to the Agreement's termination, the termination date will remain at July 31, 2018. As noted above, brokerage fees will be paid annually in order to take into account the Rental Agreement can be terminated at any time during the Term. 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 buildings in the same market range as the Del Amo building and the proposed Fourth Amendment to the Rental Agreement is not for less than market value. 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 six-month 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 is at market value. As a result, the proposed Fourth 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 Economic D log e 4t.4lousing Manager Fourth Amendment to the Rental Agreement FOURTH AMENDMENT TO THE RENTAL AGREEMENT BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE LIQUIDATORS, LLC This FOURTH AMENDMENT TO THE RENTAL AGREEMENT (this "Fourth Amendment") is entered into as of August 1, 2015 (the "Fourth 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, and as amended by that Second Amendment to the Rental Agreement ("Second Amendment") dated as of April 1, 2013, and as amended by that Third Amendment to the Rental Agreement ("Third Amendment") dated as of August 1, 2013 (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, 42,000 square feet, 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 Amo Avenue in the City of Tustin, County of Orange, and State of California as more particularly described in Exhibit A of this Fourth 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 Fourth Amendment is at market value and does not trigger further actions as outlined in Tustin City Code Section 7960(B); and D. On May 18, 2015, the Tenant provided the City with a six month notice of intent to vacate 14,000 square feet of the 42,000 square feet space occupied by Tenant under the Original Rental Agreement. Tenant desires to decrease its total rental space from 42,000 square feet to 28,000 square feet (the "Reduced Rental Space") for the remainder of the Term of the Original Rental Agreement; and E. While the Tenant desires to vacate 14,000 square feet of the Original Premises ("Vacated Space") immediately and to utilize only the Reduced Rental Space, Tenant shall remain responsible for paying rent for the entire 42,000 square feet Original Premises, inclusive of the Vacated Space through November 18, 2015, or until such earlier time as the City executes a new rental agreement for the Vacated Space; and E. The Parties desire to amend the Original Rental Agreement by executing this Fourth Amendment. 915693.1 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. Modification to the Original Rental Agreement. The following sections of the Original Rental Agreement are hereby amended as follows: (a) Section 5.1 is hereby deleted in its entirety and replaced as follows: "5.1 Base Rent. 5. 1.1 Effective August 1, 2015 and until the earlier of such time as the City executes a new and separate rental agreement for 14,000 square feet of the 42,000 square feet space rented by the Tenant pursuant to this Agreement ("Third Party Rental Agreement"), or November 19, 2015, the Tenant shall pay the City the monthly sum of Fifteen Thousand Five Hundred Ninety -Five Dollars and Twenty -Three Cents ($15,595.23) for the 42,000 square foot Original Premises. If a Third Party Rental Agreement is entered into before November 19, 2015, the Tenant shall pay to the City the monthly sum of Ten Thousand Three Hundred Ninety -Six Dollars and Eighty -Two Cents ($10,396.82) for a reduced 28,000 square feet space ("Reduced Rental Space"), payable in advance. If the Fourth Amendment 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. 5.1.2 Effective November 19, 2015, the Tenant shall pay the City the monthly sum of Twelve Thousand Six Hundred Dollars ($12,600) for the Reduced Rental Space, payable in advance. In subsequent years, the rent shall increase 3% annually. Effective November 19, 2016, the Tenant shall pay the City the monthly sum of Twelve Thousand Nine Hundred and Seventy -Eight Dollars ($12,978) for the Reduced Rental Space. Effective November 19, 2017, the Tenant shall pay the City the monthly sum of Thirteen Thousand Three Hundred and Sixty -Seven Dollars and Thirty -Four Cents ($13,367.34) for the Reduced Rental Space. If the Fourth Amendment 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". 2. No Other Changes. This Fourth 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 Fourth Amendment and any provisions of the Original Rental Agreement, the provisions of this Fourth Amendment shall in all respect govern and control. Unless otherwise specifically defined herein, terms used in this Fourth Amendment shall have the same meaning as ascribed to them in the Original Rental Agreement. The execution and delivery of this Fourth 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 Fourth 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 Fourth Amendment by signing any such counterpart. IN WITNESS WHEREOF, City has authorized this Fourth 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 APPROVED AS TO FORM David E. Kendig City Attorney "TENANT" National Office Liquidators, an Arizona limited liability company By: Name: Title: By: Name: Title: 915693.1 EXHIBIT "A" 15171 Del Amo Avenue, Tustin � ' y ❑epe nding upon whichever occurs - ) first, a new Tenant renting NOL's 14,000 square feet in the mid die r 7 section or Novem her 19, 2015, NOL r will reduce the rentah le space to % 28,000 sq. ft., in the southern most J r section oft he building. r /L / a 7 i � . r / � r r rf 4 The number of parking spaces for the subject unit is not to exceed 14 and will remain at 14 under the Fourth Amendment. Tenant will utilize spaces in front of Subject units in a manner that does not interfere with the operations of adjoining tenants. Tenant will be limited to utilizing Loading Dock Doors 91 — 93 and Loading Docks 91 — 93. On an as needed basis, the new tenant occupying the middle section will provide NOL with access to Loading Dock Door 94. The overnight parking of trailers is limited to the loading docks. Trailers not parked at a loading dock shall not be parked overnight for more than two (2) consecutive nights.