HomeMy WebLinkAbout08 EIGHTH AMENDMENT TO THE RENTAL AGREEMENT WITH NATIONAL OFFICE LIQUIDATORS, LLCAgenda Item _______
Reviewed:
City Manager _______
Finance Director _______
MEETING DATE: MAY 2, 2023
TO: MATTHEW S. WEST, CITY MANAGER
FROM: ECONOMIC DEVELOPMENT DEPARTMENT
SUBJECT: EIGHTH AMENDMENT TO THE RENTAL AGREEMENT
BETWEEN THE CITY OF TUSTIN AND NATIONAL OFFICE
LIQUIDATORS, LLC FOR A PORTION OF THE BUILDING
LOCATED AT 15171 DEL AMO AVENUE
SUMMARY:
Request for approval of the eighth amendment to the Rental Agreement (Amendment)
between the City and National Office Liquidators, LLC (Tenant), for City-owned property
located at 15171 Del Amo Avenue.
RECOMMENDATION:
It is recommended that the City Council approve the eighth amendment in accordance
with Tustin City Code Section 7960(B) and authorize the City Manager to execute the
Amendment, subject to any non-substantive modifications as may be deemed
necessary and/or recommended by the City Attorney.
FISCAL IMPACT:
The current Rental Agreement with Tenant is for $23,072 per month for 28,000 square
feet and expires July 31, 2023. If approved, the Amendment would become effective
August 1, 2023, and the monthly rent would increase 21.4% to $28,000. The term is for
three years and the rent would increase 15.5% in the second year and 10% in the third
year.
CORRELATION TO THE STRATEGIC PLAN:
This action correlates to the City’s Strategic Plan for Economic and Neighborhood
Development (Goal A).
BACKGROUND:
On March 15, 2011, the City Council approved an eighteen-month Rental Agreement
with the Tenant for 28,000 square feet of the 84,000 square foot City-owned warehouse
AGENDA REPORT
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building located at 15171 Del Amo Avenue. Prior to the economic impacts of the
COVID-19 emergency, the City had entered into five amendments to the 2011 Rental
Agreement that either adjusted leasable square footage and/or extended the lease
term, including the fifth amendment on July 3, 2018. Each of these amendments were
at market rate rents. The fifth amendment extended the Rental Agreement for another
three (3) years through July 31, 2021.
On March 20, 2020, the City Manager, acting in his capacity as Director of Emergency
Services, proclaimed the existence of a local emergency relating to Covid-19, in
accordance with Government Code Section 8630 and Tustin Municipal Code Sections
5204 and 5205(a)(1), and the proclamation of local emergency was subsequently
ratified by the City Council.
On April 7, 2020, to promote stability among commercial tenancies financially impacted
by the COVID-19 pandemic, the City Council adopted Resolution 20 -20, which
encouraged non-residential landlords and utilities to refrain from evictions, foreclosures,
rent increases, or service or utility disconnections for the duration of the COVID -19
emergency, and encouraged non-residential landlords to offer rent-deferral programs to
tenants. Consistent with the City encouraging its commercial landlord community to
defer rent for struggling tenants, and to demonstrate leadership in implementing the
objectives of Resolution 20-21, the City Council authorized City staff to negotiate rent
deferral and recovery options to non-residential tenants on City-owned property for
those tenants that are experiencing a significant reduction in business income related to
the COVID-19 pandemic.
On July 7, 2020, to promote stability among its non-residential tenancies and to
demonstrate continued leadership in working with the City’s business community to
address the financial challenges posed by COVID -19, the City Council authorized the
City Manager, for the duration of the COVID-19 local emergency, to negotiate, approve
and execute lease amendments with non-residential tenants of City-owned property,
including but not limited to authorization to increase, reduce and/or defer rented space
and/or past due or future rent amounts with individual tenants, provided the City
Manager determines that each lease amendment is the most reasonab le economic
mitigation alternative then available to the City. This delegation of authority remained in
place until the City rescinded its proclamation of local emergency regarding COVID -19,
on August 3, 2021.
On October 23, 2020, the City entered into a sixth amendment with the Tenant to
provide rent relief during the initial months of the COVID-19 local emergency and, as
the economy in their industry rebounded, to incorporate rent adjustments that
recaptured a portion of the reduced rent through the balance of the term ending on July
31, 2021. On June 9, 2021, the City entered into a seventh amendment with the Tenant
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for a term of two (2) years through July 31, 2023. The seventh amendment included
adjustment payments to recapture the balance of the reduced rent from the previous
amendment and contained performance measures, if met, that triggered a rent increase
of 3% in the second year, August 1, 2022 to July 31, 2023 . The Tenant met those
performance measures and their rent increased 3% in the secon d year. All of the
previously reduced rent payments have been recaptured by the City.
City staff, has worked with commercial consultants Lee & Associates, in assessing
comparables to confirm current asking lease rates for buildings in the same market
range and class as the Del Amo warehouse. Comparable market rents are averaging
$1.35 per square foot and higher. An increase to $1.35 per square foot would equate to
a 64% increase to the Tenant’s current rate of $.824 per square foot. Lee & Associates
identified lease renewal rates as being lower and suggested a range of $1.10 to $1.20
per square foot, equating to an increase in rent for the Tenant from 33% to 46%.
The Tenant has leased space at the warehouse for twelve years, has been an excellent
tenant, and has demonstrated outstanding integrity in repaying the reduced rents during
the COVID-19 public health emergency. While a renewal rate of $1.10-1.20 was
suggested, based on the economic market trendlines and the quality of the tenant staff
does not recommend escalating Tenant’s lease rate by 33% to 46%. The
recommendation is for the City to enter into the Amendment, effective August 1, 2023,
with a three-year term at a first year rent rate of $1.00 per square foot ($28,000 per
month), which is an increase of 21.4% from their current rate. The first year would
generate $336,000 in annual rent. The second year lease rate would increase 15.5% to
$1.155 per square foot for a monthly total of $32,340 and would generate $388,080 in
annual rent. The third year lease rate would increase 10% to $1.2705 per square foot
for a monthly total of $35,574 and would generate $426,888 in annual rent. The
premises are rented on a triple-net basis, meaning the Tenant will pay all real estate
taxes, insurance, maintenance, utilities and other items associated with tenancy
(Amendment included as Attachment 1).
Tustin City Code (TCC) Section 7960, as enacted by Ordinance No. 1389, provides for
the procedure for the approval, extension or modification of any existing City or
redevelopment real property leases if for less than market value.
TCC Section 7960 states:
A. No existing City or Redevelopment Agency real property lease for less than
market value shall be approved, modified, or extended without following the
process as identified in this section
B. The City Council or Redevelopment Agency shall direct:
(i) The preparation of a proposed lease, modification, or extension
thereof;
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(ii) The preparation of a request for proposal ("RFP") for a new
leasehold from interested parties; or
(iii) Take such other action as deemed appropriate.
C. A request for proposals process shall include the submission of prior business
experience, financial strength, proposed uses of property, credit history,
market rental conditions, and such other information as deemed appropriate.
Notwithstanding the increase above the current rate, Tenant’s annual rent under the
proposed Amendment would be less than market value. Therefore, staff is
recommending the City Council approve the eighth amendment in accordance with
Tustin City Code Section 7960(B)(i) and authorize the City Manager to execute the
Amendment, subject to any non-substantive modifications as may be deemed
necessary and/or recommended by the City Attorney.
______________________________
Christopher Koster
Director of Economic Development
________________________________
Jerry Craig
Deputy Director of Economic Development
Attachment 1 - Eighth Amendment to the Rental Agreement between the City and
National Office Liquidators, LLC
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1530030.1
EIGHTH AMENDMENT
TO THE RENTAL AGREEMENT BETWEEN
THE CITY OF TUSTIN
AND
NATIONAL OFFICE LIQUIDATORS, LLC
This EIGHTH AMENDMENT TO THE RENTAL AGREEMENT (this “Eighth Amendment”)
is entered into as of May 3, 2023, (the “Eighth Amendment Date”) by and between the CITY OF
TUSTIN, a municipal corporation of the State of California (“City”), and National Office Liquidators,
LLC, a California limited liability corporation, (“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, and as amended by that Fourth
Amendment to the Rental Agreement (“Fourth Amendment”) dated as of August 1, 2015, and as
amended by that Fifth Amendment to the Rental Agreement (“Fifth Amendment”) dated as of July 3,
2018, and as amended by that Sixth Amendment to the Rental Agreement (“Sixth Amendment”) dated
as of October 23, 2020, and as amended by that Seventh Amendment to the Rental Agreement (“Seventh
Amendment”) dated as of June 9, 2021, (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,
28,000 square feet, located at 15171 Del Amo Avenue in the City of Tustin (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 as more particularly described in Exhibit “A.1” of the
Original Rental Agreement, incorporated herein and made a part of this Eighth Amendment as though
fully set forth in its entirety; and
C. The Term of the Original Agreement expires July 31, 2023; and
D. The Tenant desires to extend the term of the Original Rental Agreement through July 31,
2026, and, in accordance with Section 7960(B) of the Tustin City Code, the City Council has directed
extending the Original Rental Agreement by this Eighth Amendment at less than market value.
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 Eighth 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) Subsection 5.1.7 of Section 5.1 is hereby amended to read as follows:
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“5.1 Base Rent.
5.1.7 Effective August 1, 2023, the Tenant shall pay the City the monthly sum
of Twenty-Eight Thousand Dollars ($28,000), which is a rent increase of 21.4% in year
one of the new lease, for 28,000 square feet of space depicted in Exhibit “A.1”, payable
in advance. In the subsequent year(s), the rent shall increase 15.5% and 10%. Effective
August 1, 2024, the Tenant shall pay the City the monthly sum of Thirty-Two Thousand
Three Hundred Forty Dollars ($32,340). Effective August 1, 2025, the Tenant shall pay
the City the monthly sum of Thirty-Five Thousand Five Hundred Seventy-Four Dollars
($35,574). 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".
(b) Section 5.7 is hereby amended to read as follows:
“5.7 Additional Security Deposit. No later than five (5) business days from August 1,
2024, Tenant shall provide an additional $22,540 security deposit to City (thereby
increasing the Tenant’s deposit of $9,800 held on account by City to $32,340 in total,
thereafter the “Deposit”), which shall be refundable upon termination of the Original
Rental Agreement provided that the Premises is returned to City upon termination in the
condition in which it was first received. No part of the Deposit is to be considered an
advance payment of rent, including last month’s rent, nor is it to be used or refunded prior
to the leased premises being permanently and totally vacated by Tenant. The Deposit
made by Tenant may be applied by City for all purposes provided for in Civil Code
section 1950.7(c), including default in rent, repair of the premises, or expenses of cleaning
premises and may be further be applied for any other payment incurred by City as may
be permitted under California law.”
2. Term. The term of the Original Agreement, as amended by this Eighth Amendment,
shall continue in full force and effect until July 31, 2026, unless earlier terminated.
3. No Other Changes. This Eighth 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 Eighth Amendment and any provisions of
the Original Rental Agreement, the provisions of this Eighth Amendment shall in all respect govern and
control. Unless otherwise specifically defined herein, terms used in this Eighth Amendment shall have
the same meaning as ascribed to them in the Original Rental Agreement. The execution and delivery of
this Eighth 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.
4. Counterparts. This Eighth 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 Eighth Amendment by signing any such counterpart.
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IN WITNESS WHEREOF, City has authorized this Eighth 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: _______________ _____________________________
Matthew S. West, City Manager
ATTEST
______________________________
Erica N. Yasuda
City Clerk
APPROVED AS TO FORM
_______________________________
David E. Kendig
City Attorney
National Office Liquidators, LLC
“TENANT”
By: ________________________________
Monte Knudson, Owner/President
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EXHIBIT “A.1”
15171 Del Amo Avenue, Tustin
The number of parking spaces for the subject unit is not to exceed 14 and will remain at 14 under the Eighth
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 #1 – #3 and Loading
Docks #1 – #3. On an as needed basis, the new tenant occupying the middle section will provide NOL with
access to Loading Dock Door #4. 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.
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