HomeMy WebLinkAboutStaff Report 230-06City of Palo Alto
Manager’s Repor
TO:
FROM:
DATE:
SUBJECT:
HONORABLE CITY COUNCIL 8
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
JUNE 5, 2006 CMR: 230:06
APPROVAL OF THE SECOND AMENDMENT TO EXTEND THE
LEASE WITH THOITS BROS., INC.FOR CITY DEVELOPMENT
CENTER AT 285 HAMILTON AVENUE
RECOMMENDATION
Staff recommends that the City Council authorize the Mayor to execute the attached second
amendment to the lease with Thoits Bros., Inc. (TBI) for the 6,361 square foot Development
Center at 285 Hamilton Avenue. The amendment will extend the original 8-year term for five
years, starting February 1, 2007 and ending January 31, 2012. Staff anticipates that by 2012, it
may be possible to move the Development Center back to the Civic Center.
BACKGROUND
In early 1998, after receiving Council authorization to search for additional space to relieve
overcrowding in the Civic Center, staff considered many possible locations and identified the
space at 285 Hamilton Avenue as ideal for the City’s Development Center. On September 22,
1998, Council approved an 8-year lease with Hamilton Palo Alto LLC for 6,361 square feet of
space at 285 Hamilton Avenue for location of the City’s Development Center (CMR 368:98). On
May 19, 1999, the City Manager approved the first amendment to the lease, which expanded the
original 6,361 square foot premises by approximately 702 square feet for a limited time, from
March 1, 1999 until December 31, 1999, to provide temporary office space for City staff.
DISCUSSION
The purpose of the amendment is to extend the term of the lease, which expires January 31,
2007. The amendment also acknowledges agreement between TBI, the landlord, and the City, as
tenant, to continue the original sublease as a direct lease between the property owner and the
City. The amendment modifies the existing lease by: 1) adding a five year term, commencing on
February 1, 2007 and ending on January 31, 2012; 2) establishing rental rates for each year of the
term; 3) adding two 2-year options to extend; and 4) requiring a security deposit in the amount of
$26,144. Major terms of the lease as amended, including rental rates for the five year term, are
summarized in the attached Summary of Basic Lease Information (Attachment A).
CMR:230:06 Page 1 of 3
Rental rates for the new 5-year term are almost one-third (27%) lower than current rental rates.
The monthly rent for the lease year beginning November 1, 2005 and ending January 31, 2006 is
$4.65 per square foot triple net (NNN) or $29,581 per month. Monthly rental cost for the first
year of the new five year term is $3.65 triple net (N~rN) per square foot or $23,318 per month.
The City’s share of support costs (including property tax, insurance, assessments, building
maintenance, gas, water, sewer and garage) is approximately 13.06%, and this percentage will
not change under the amended lease. Support costs for the lease year beginning November 1,
2005 are $6,350 per month.
Should the space at 285 Hamilton be needed beyond 2012, the amendment provides for two 2-
year options to extend the term. The rental for extended terms are to be adjusted to the market
value rent as agreed upon by the TBI and the City but not tess than the previous year’s rental. In
case of disa~eement, the parties split the costs to hire a mutually acceptable appraiser to
establish the market rent.
The $26,144 security deposit required by the lease amendment is to be paid by the City 30 days
prior to the lease commencement. The security deposit for the current lease, paid by the City in
1998 in the amount of $29,507, will be credited to the City’s rent due for January 2007, the final
month of the current lease term.
RESOURCE IMPACT
Annual rental costs for extending the lease for 6,361 square feet at 285 Hamilton Avenue will be
$279,812 for the first year, beginning February 1, 2007, and will increase by 3 percent each year
to $313,725 in the fifth year. Annual support costs will remain at 13.06% and are anticipated to
total approximately $66,000 to $78,000 annually ($5,500 to $6,500 per month). Rental and
support costs for the lease have been and will continue to be a part of the Planning and
Community Environment operating budget.
POLICY IMPLICATIONS
The lease extension is consistent with existing City policy. The continuation of the Development
Center is consistent with Goal B-4, Policy B-16 of the Comprehensive Plan, which states the
City’s commitment to streamline the permit process in order to improve customer service and
staff efficiency.
EINWIROB,WIENTAL REVIEW
Leasing of existing office space involving no expansion of use is exempt from California
Environmental Quality Act review pursuant to CBQA Guideline Section 1530 !.
PREPARED BY:
WILLIAM W. FELLMAN
Manager, Real Property
CMR:230:06 Page 2 of 3
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CARL
Director/Admi:Services
EMILY HARRISON
Assistant City Manager
ATTACHMENTS
Attachment A: Amendment to Lease including Summary of Basic Lease Information
cc: Thoits Bros., Inc.
CMR:230:06 Page 3 of 3
ATTACHMENT A
AMENDMENT No. 2 TO OFFICE LEASE
285 HAMILTON AVE
THIS Amendment No. 2 to Office Lease, (the "Amendment") is dated as of
May , 2006, and made by and between THOITS BROS., INC. ("TBI"), a
California corporation ("Landlord"), and THE CITY OF PALO ALTO ("CITY"), a
California municipal corporation ("Tenant"), with reference to the following facts:
A. TBI and HAZEL A. THOITS TRUST as "Lessor", entered into a Master
Lease (the "Master Lease"), dated as of April 9, 1970, with EQUITABLE SAVINGS
AND LOAN ASSOCIATION OF CALIFORNIA, as "Lessee", for the entire five story
building located at 285 Hamilton Avenue, Palo Alto, California (the "Building"). The
term of Master Lease will expire on January 31, 2007.
B. During the term of the Master Lease, TBI acquired the interest of HAZEL
A. THOITS TRUST in the leased property and became the sole Lessor, and GREAT
WESTERN BANK, a Federal Savings Bank became the successor Lessee.
C. TBI, as of October 10, 1997, consented to the Assignment and
Assumption of Master Lease by and between GREAT WESTERN BANK and
HAMILTON PALO ALTO, LLC, a California Limited Liability Company, and
HAMILTON PALO ALTO, LLC became "Lessee". ......
D. HAMILTON PALO ALTO, LLC, entered into an Office Lease (the
"Office Lease"), dated as of October 18, 1998, with CITY for 6361 rentable square feet
of space located on the first floor of the Building, known as Suite 100. Attached to and as
a part of the Office Lease is the Summary of Basic Lease Information (the "Summary").
The Office Lease will expire with the Master Lease on January 31, 2007.
E. HAMILTON PALO ALTO, LLC, entered into the Amendment No. 1 to
the Office Lease, dated as of May 18, 1999, with CITY for an additional 702 square feet
of space located on the third floor of the Building. This amendment and the use of the
additional space terminated on December 31, 1999.
F. TBI, as Landlord, and CITY, as Tenant, now desire to evidence their
agreement to continue the Office Lease as a direct lease by Landlord to Tenant and to
modify and amend the Office Lease, including the Summary, to among other things,
establish a direct relationship between Landlord and Tenant, extend the Lease term,
create two option terms, and modify the base rent effective as of February 1, 2007 (the
"Effective Date").
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and
other good and valuable consideration, the parties hereto agree as follows:
1.SCOPE OF AMENDMENT ANq) DEFINED TERMS.
Except as expressly provided in this Amendment, the terms and provisions of the Office
Lease, which are hereby referred to and incorporated herein by this reference, shall
remain in full force and effect as a direct lease between TBI and CITY as of the Effective
Date.
The Office Lease is hereby amended to provide that on the Effective Date all references
to Landlord in the Office Lease and the Summary shall mean TBI.
2.MODIFICATIONS TO OFFICE LEASE.
On the Effective Date, this Amendment shall modify the Office Lease and the Summary
to extend the term, adjust the Base Rent during the extension term and create options to
extend the term as follows:
(a) TERM
The term of the Office Lease, as referenced in Article 2 of the Office Lease
(Lease Term) and described in the Summary, is hereby amended to extend the
term for five (5) additional Lease Years commencing on February 1, 2007 and
ending on January 31, 2012.
(b) BASE RENT
The Base Rent referenced in Article 3 of the Office Lease and described in the
Summary is amended to add the following schedule commencing on the Effective
Date:.
Lease Year
Feb. 1, 2007 through Jan. 31, 2008
Feb. 1, 2008 through Jan. 31, 2009
Feb. 1, 2009 through Jan. 31, 2010
Feb. 1, 2010 through Jan. 31,201!
Feb. 1,2011 through Jan. 31, 2012
Monthly Rent R~e MontNy
(Per Rentable Sq. Ft).Base Rent
$3.65 $23,217.65
$3.76 $23,971.36
$3.87 $24,617.07
$3.99 $25,380.39
$4.11 $26,143.71
2
(c) OPTIONS TO EXTEND
The Office Lease is hereby amended to add Article 3.5 OPTIONS TO EXTEND
TERM~ as follows:
Landlord grants to Tenant two (2) options to extend the term of the Office Lease,
each for an additional term of two (2) years, the first option term commencing on
February 1, 2012 and the second on February 1, 2014. In order to exercise the
option to extend, Tenant must not be in default under the Office Lease and must
give written notice of such election to Landlord at least 6 months but not more
than 9 months prior to the date that the option term would commence. If the first
option is not exercised or the Office Lease is terminated during the option term,
the second option shall terminate and be of no force or effect. If the Option is
exercised, the Base Rent for the premises shall be the greater of the rent paid
during the last month of the then existing term or the then current fair market
monthly rent for the premises as of the Option exercise date.
The Base Rent shall be adjusted to the Market Value Rent (the "MVR") of the
property as fol!ows:
On or before four months prior to each Option period commencement date, the
parties shall attempt to agree upon what the MVR will be during the option term.
If agreement cannot be reached within thirty days then:
Landlord and Tenant shall immediately appoint a mutually acceptable
appraiser or licensed real estate broker to establish the new MVR within
the next 30 days. Any associated costs will be equally split between the
parties; or, if the parties cannot agree on an appointee,
Both Landlord and Tenant shall each immediately make a reasonable
determination of the MVR and submit such determinations, in writing to
arbitration in accordance with the following provisions:
ii.
Within 15 days thereafter, Landlord and Tenant shall each select a
licensed real estate broker with not less than five years of
experience in leasing comparable Palo Alto property to act as an
arbitrator. The two arbitrators so appointed shall immediately
select a third mutually acceptable consultant to act as a third
arbitrator.
The 3 arbitrators shall, within 30 days of the appointment of the
third arbitrator, reach a decision determining the actual MVR for
the property, and whether Landlord’s or Tenant’s submitted MVR
is the closest thereto. The decision of a majority of the arbitrators
shall be binding on the Parties. The submitted MVR which is
determined to be the closest to the actual MVR shall be the rent
during the option term.
iii.
iv.
If either of the Parties fails to appoint an arbitrator within the
specified 15 days, the arbitrator timely appointment by one of them
shall reach a decision on his or her own, and said decision shall be
binding on the Parties.
The entire cost of such arbitration shall be paid by the party whose
submitted MVR is not selected, i.e. the one that is NOT the closest
to the actual MVR.
3.Notwithstanding the foregoing, the new MVR shall not be less that the
base rent for the month immediately preceding the option term.
4.Upon the establishment of each new MVR, the new MVR will become the
new Base Rent for the purpose of calculating any further adjustments.
(d) SECURITY DEPOSIT
The Security Deposit as referenced in Article 21 of the Office Lease and
described in the Summary is amended as of the Effective Date as follows
30 days prior to the Lease commencement. Tenant shall deposit with Landlord a
Security Deposit in the amount of $26, 144.
(e) SUMMARY
The Summary of Basic Lease Information referenced throughout the Office
Lease, is deleted in its entirety and replaced with the revised Summary of Basic
Lease Information, dated March 1, 2006, attached to and made a part of this
Amendment No. 2, and shall be effective as of the Effective Date (February 1,
2007).
3.PAYMENT OF COMMISSIONS.
In connection with this Amendment No. 2, each party represents and warrants that it has
not used the services of a broker or other real estate licensee. In the event of a claim for
broker’s fee, finder’s fee, commission or other similar compensation in connection
herewith based on a relationship with or through such party, that party agrees to protect,
defend and indemnify the other party against and hold the other party harmless from any
and all damages, liabilities, costs, expenses and losses (including, without limitation,
reasonable attorneys’ fees and costs) which such party may sustain or incur by reason of
such claim.
4
IN WITNESS WHEREOF, The undersigned have duly executed this Amendment as of
the date first above written.
Landlord:
Thoits Bros., Inc.,
A California Corporation
Tenant:
THE CITY OF PALO ALTO,
a California Municipal Corporation
By:
Name:
By:
Mayor
It s:ATTEST:
City Clerk
APPROVED AS TO FORM:
By:
Senior, City Attorney
RECOMMENDED FOR APPROVAL:
By:
Assistant City Manager
By:
Director of Planning and
Community Development
5
REVISED SUMMARY OF BASIC LEASE INFORMATION
March 1, 2006
EFFECTIVE February 1~ 2007
This Revised Summary of Basic Lease Information (the "Summary") is hereby
incorporated into and made a part of the attached Amendment No. 2 to the Office Lease
(the Summary, the Office Lease and Amendment No. 2 to be known collectively as the
"Lease") which pertains to the "Project," as that term is defined in the Office Lease,
commonly known as 285 Hamilton Avenue located in Palo Alto, California. Each
reference in the Office Lease, as amended, to any term of this Summary shall have the
meaning as set forth in this Summary for such term. In the event of a conflict between
the terms of this Summary and the Office Lease, as amended, the terms of the Office
Lease, as amended by Amendment No.2, shall prevail. Any initially capitalized terms
used herein and not otherwise defined herein shall have the meaning as set forth in the
Office Lease as amended.
TERMS OF LEASE DESCRIPTION
(References are to the Office Lease and Amendment 2)
Lease Dated as of:
Amendment 1 Dated as of:
Amendment 2 Dated as of:
Landlord
Address of Landlord
October 31, 1998
May 18, 1999 (terminated)
THOITS BROS., INC, a California Corporation
Thoits Bros., Inc.
629 Emerson Street
Palo Alto, California 94303
Tenant THE CITY OF PALO ALTO, a California
Corporation
o Address of Tenant Chief Building Official
P.O. Box 10250
Palo Alto, California 94303
and
Manager, Real Property
250 Hamilton Avenue
Palo Alto, California 94303
o Premises (Article 1)
6.1 Building:The five-story office building located at 285
Hamilton Avenue, Pato Alto, Calif. 94501
6.2 Premises:Approximately 6,361 rentable square feet of space
located on the first floor of the Building, as set
forth in Exhibit A attached hereto, known as Suite
100
6.3
of Building:
Rentable Square Feet 47,578 rentable square feet
Term (Article 2)
7.1 Lease Term: 5 years
Lease Amendment 2
Commencement
Date:
7.2
7.3 Lease Expiration
Date:
February 1, 2007
January 31, 2012
Base Rent (Article 3):
Lease Year
Feb. 1, 2007 through Jan. 31, 2008
Feb. 1, 2008 through Jan. 31, 2009
Feb. 1, 2009 through Jan. 31, 2010
Feb. 1, 2010 through Jan. 31, 2011
Feb. 1,2011 through Jan. 31, 2012
Options to Extend (2)
(Article 3.5)
9.1 Term: Option 1
9.2 Notice:
9.3 Rent:
9.4 Term: Option 2
9.5 Notice:
9.6 Rent:
Monthly Rent Rate
(Per Rentable Sq. Ft).
$3.65
$3.76
$3.87
$3.99
$4.11
Two Years ( February 1, 2012)
9 months Prior (April 30, 2011)
Market
Two Years (February 1, 2014)
9 months Prior (April 30, 2013)
Market
Monthly
Base Rent
$23,217.65
$23,971.36
$24,617.07
$25,380.39
$26,143.71
10.
11.
Additional Rent (Article 4)
10.1 Tenant’s Share Approximately 13.06%
Security Deposit (Article 21) $_6,14~.71
12.
13.
14.
Number of Parking Passes
Brokers (Article 28)
Tenant Improvement
Allowance
Tenant shall have no parking rights
No Broker Representation
No Allowance
EXHIBIT A
OUTLINE OF PREMISES
EXI IIBIT A .- Page l
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