HomeMy WebLinkAbout09 FIFTH AMENDMENT TO THE RENTAL AGREEMENT WITH KYA SERVICES, LLCAgenda Item _______
Reviewed:
City Manager _______
Finance Director _______
MEETING DATE: MAY 2, 2023
TO: MATTHEW S. WEST, CITY MANAGER
FROM: ECONOMIC DEVELOPMENT DEPARTMENT
SUBJECT: FIFTH AMENDMENT TO THE RENTAL AGREEMENT BETWEEN
THE CITY OF TUSTIN AND KYA SERVICES, LLC FOR A
PORTION OF THE BUILDING LOCATED AT 15171 DEL AMO
AVENUE
SUMMARY:
Request for approval of the fifth amendment to the Rental Agreement (Amendment)
between the City and Kya Services, LLC (Tenant), for City-owned property located at
15171 Del Amo Avenue.
RECOMMENDATION:
It is recommended that the City Council approve the fifth 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 $46,340.11 per month for 56,000
square feet and expires July 31, 2023. If approved, the Amendment would become
effective August 1, 2023, and the monthly rent would increase 20.8% to $56,000. 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 July 21, 2015, the City Council approved a three-year Rental Agreement with the
Tenant for 28,000 square feet of the 84,000 square foot City-owned warehouse building
AGENDA REPORT
DocuSign Envelope ID: 389993D4-99F5-4CCB-9C96-ECD0A74F81E5 9DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
Agenda Report
May 2, 2023
Page 2
located at 15171 Del Amo Avenue. On July 3, 2018, the City Council approved an
amendment to extend the Rental Agreement for another two (2) years through July 31,
2020. Prior to the economic impacts of the COVID-19 emergency, the amendment was
at market rate rents.
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 reasonable 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 July 27, 2020, the City entered into a second amendment with the Tenant for a term
of three (3) years through July 31, 2023 . Based on the market conditions at the time,
the Tenant’s rent was to increase 3% annually. On October 30, 2020 and March 20,
2021, the City entered into a third and fourth Amendments with the Tenant, increasing
their leasable space from the original 28,000 square feet to 36,000 square feet and then
to 56,000 square feet respectively. In the subsequent amendments, the Tenant’s per
DocuSign Envelope ID: 389993D4-99F5-4CCB-9C96-ECD0A74F81E5DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
Agenda Report
May 2, 2023
Page 3
square foot lease rate remained the same, while the total monthly rent increased due to
the larger leased area.
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 63% increase to the Tenant’s current rate of $.828 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 45%.
The Tenant has leased space at the warehouse for eight years, has been an excellent
tenant, and has increased their leased space when another Del Amo tenant reduced
their footprint. 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 45%. 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 ($56,000 per month), which is an increase of
20.8% from their current rate. The first year would generate $672,000 in annual rent.
The second year lease rate would increase 15.5% to $1.155 per square foot for a
monthly total of $64,680 and would generate $776,160 in annual rent. The third year
lease rate would increase 10% to $1.2705 per square foot for a monthly total of $71,148
and would generate $853,776 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 th e
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;
(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.
DocuSign Envelope ID: 389993D4-99F5-4CCB-9C96-ECD0A74F81E5DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
Agenda Report
May 2, 2023
Page 4
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 fifth amendment in accordan ce 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 - Fifth Amendment to the Rental Agreement between the City and
Kya Services, LLC
DocuSign Envelope ID: 389993D4-99F5-4CCB-9C96-ECD0A74F81E5DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
1
1530030.1
FIFTH AMENDMENT
TO THE RENTAL AGREEMENT BETWEEN
THE CITY OF TUSTIN
AND
KYA SERVICES, LLC
This FIFTH AMENDMENT TO THE RENTAL AGREEMENT (this “Fifth Amendment”) is
entered into as of May 3, 2023, (the “Fifth Amendment Date”) by and between the CITY OF TUSTIN,
a municipal corporation of the State of California (“City”), and KYA Services, 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. City and the Tenant entered into that certain Rental Agreement dated as of August 7,
2015, as amended by that certain First Amendment to the Rental Agreement dated as of July 3, 2018, as
amended by that certain Second Amendment to the Rental Agreement dated as of July 27, 2020, as
amended by that certain Third Amendment to the Rental Agreement dated as of October 30, 2020, and
as amended by that certain Fourth Amendment dated March 30, 2021 (collectively, the “Original Rental
Agreement”), pursuant to which, among other things, the City agreed to rent to Tenant and Tenant agreed
to rent from City certain portions of the Premises located at 15171 Del Amo Avenue, Tustin CA 92780,
for the purpose of storage and warehousing use only. Initially capitalized terms not defined herein shall
have the respective meanings assigned to such terms in the Original Rental Agreement; and
B. City is the owner of the Premises as more particularly described in Exhibit “A.5” of the
Original Rental Agreement, incorporated herein and made a part of this Fifth Amendment as though
fully set forth in its entirety; and
C. In accordance with Section 7960(B) of the Tustin City Code, the City Council has
directed extending the Original Rental Agreement by this Fifth Amendment at less than market value;
and
D. Tenant desires to continue renting the Premises for an additional three (3) years through
the execution of a Fifth Amendment to the Original Rental Agreement.
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 Fifth 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:
“5.1 Base Rent.
DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
2
1530030.1
5.1.7 Effective August 1, 2023, the Tenant shall pay the City the monthly sum
of Fifty-Six Thousand Dollars ($56,000), which is a rent increase of 20.85% in year one
of the new lease, for 56,000 square feet of space depicted in Exhibit “A.5”, 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 Sixty-Four Thousand
Six Hundred Eighty Dollars ($64,680). Effective August 1, 2025, the Tenant shall pay
the City the monthly sum of Seventy-One Thousand One Hundred Forty-Eight Dollars
($71,148). 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 $21,000 security deposit to City (thereby
increasing the Tenant’s deposit of $43,680 held on account by City to $64,680 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 Fifth Amendment, shall
continue in full force and effect until July 31, 2026, unless earlier terminated.
3. No Other Changes. This Fifth 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 Fifth Amendment and any provisions of the
Original Rental Agreement, the provisions of this Fifth Amendment shall in all respect govern and
control. Unless otherwise specifically defined herein, terms used in this Fifth Amendment shall have the
same meaning as ascribed to them in the Original Rental Agreement. The execution and delivery of this
Fifth 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 Fifth 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 Fifth Amendment by signing any such counterpart.
DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
3
1530030.1
IN WITNESS WHEREOF, City has authorized this Fifth Amendment between the City of Tustin
and KYA Services, 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
KYA Services, LLC
“TENANT”
By: ________________________________
Brooks Berry, Director
DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB
EXHIBIT “A.5”
15171 Del Amo Avenue, Tustin
Tenant will utilize Loading Dock Doors #4, 5, 6, 7, 8 & 9 and Loading Docks #4, 5, 6, 7 & 8. Tenant will utilize
spaces in front of Subject units in a manner that does not interfere with the operations of adjoining tenants. On
an as needed basis, Tenant 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.
DocuSign Envelope ID: 1E1B762D-4D87-4390-B242-C799CFEBECAB