HomeMy WebLinkAboutStaff Report 4166
City of Palo Alto (ID # 4166)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 11/18/2013
City of Palo Alto Page 1
Summary Title: Extension of Lease Agreements for the City Development
Center At 285 Hamilton Avenue
Title: Approval of the Fourth Amendment to Extend the Lease with Thoits
Bros., Inc. at 285 Hamilton Avenue, Suite 100 for a Period of 32 Months and
Approval of the First Amendment to Extend the Sublease with Survey
Monkey at 285 Hamilton Avenue, Suite 280 for a Period Of 22 Months for Use
by the City Development Center
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that Council
1. Approve and authorize the City Manager or his designee to execute the attached fourth
amendment to the lease with Thoits Bros., Inc. (TBI) for the 6,361 square foot
Development Center ground floor space at 285 Hamilton Avenue to extend the lease
from February 1, 2014 to September 30, 2016; and
2. Approve and authorize the City Manager or his designee to execute the attached first
amendment of sublease agreement to extend the term the agreement with Survey
Monkey for the 3,133 square foot Development Center second floor space at 285
Hamilton Avenue from November 30, 2014 to September 30, 2016.
Executive Summary
The two proposed extension of the tenancy agreements at the City Development Center at 280
Hamilton Avenue will provide the City with the continuous operation of the Development
City of Palo Alto Page 2
Center to provide services to the Public and will amend the existing agreements termination
dates to coincide at the same date of September 30, 2016 to prevent service interruption due
to ending of the lease and sublease agreements at different time periods.
Background
The Development Center currently occupies 6,361 square feet on the ground floor (Suite 100)
and 3,133 square feet on the second floor (suite 280) of the property, which is owned by Thoits
Bros., INC. (Landlord).
Suite 280
The internet company, Survey Monkey, vacated its leased space on the second floor of 285
Hamilton Avenue because of its growth needs and offered to sublet this space to the City. On
December 13, 2011, the City entered into a sublease agreement with Survey Monkey to occupy
and use approximately 3,133 square feet on the second floor above Development Center in
order to avoid over-crowding. The term of the sublease will expire on November 30, 2014. The
Survey Monkey lease agreement with the Landlord will expire on September 30, 2016.
Suite 100
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, the City 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 18, 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. On June 13, 2006, City and Thoits Bros., INC entered into amendment No. 2 to
continue the Lease directly with the Landlord and to adjust rate and to extend the Lease term
to January 31, 2012. Amendment No. 3 of the Lease was executed on November 1, 2011 to
extend the office lease until January 31, 2014 under the First Option to Extend clause. The City
exercised its second Option per terms and condition of the Lease to extend the Lease for
twenty four (24) months to February 1, 2016. Since then Landlord and Tenant have agreed to
extend the lease for an additional 8 months to bring the total extension to total of thirty two
(32) months to expire on September 30, 2016.
Discussion
The existing lease agreements for the different floors that are occupied by Development Center
and Palo Alto Fire Department are currently set to expire at different times. Based on the
City of Palo Alto Page 3
existing agreements, the lease agreement, including the Option period with Thoits Bros., Inc
will expire on February 1, 2016 and the Sublease Agreement with Survey Monkey will end on
November 30, 2014. The purpose of the amendments recommended in this report is to extend
the term of both agreements for occupancy of the Development Center to ensure the
continuation of operation of the Development Center without interruption and to amend the
expiration date of the Lease with Thoits Bros and the Sublease with Survey Monkey to coincide
together to expire at the same time. In order to accomplish that goal, Real Estate Staff met
with both parties to discuss the amendment of the existing agreements. Survey Monkey agreed
to extend the lease term if City would sublease the space for the entire duration of their lease
with the landlord, TBI which is to expire on September 30, 2016. TBI also agreed to extend the
lease agreement with the City to September 30, 2016. As result, all parties came to agreement
to extend the agreements to expire at the same time and to insure extended leaseholds right
for the City to remain at the Development Center until other options become available.
Amendment of the Sublease with Survey Monkey will add twenty two (22) months to the
sublease agreement, and the amendment with TBI will add eight (8) months to twenty four (24)
months option period resulting in a total of thirty two additional months (32). The base rent will
for both suites will start at $7.00 per square foot and will increase by 3% annually. The lease
terms, rental rates and annual rate increases are summarized in the table below:
Landlord/Suite Future
Commencement
Date
Lease Expiration
date
New Rate CPI Adjustment
TBI/ground
Floor
6,316 sq.ft
February 1, 2014 September 30,
2016
$7.00 *NNN per square
foot starting on
February 1, 2014
3% annual
increase
Survey
Monkey/
second floor
3,133 sq.ft
December 1, 2014 September 30,
2016
$7.00 NNN per square
foot starting on
December 1, 2014
3% annual
increase
*NNN refers to a triple net lease where tenants are responsible for proportional cost of property taxes, insurance,
and maintenance of the building.
Should the space at 285 Hamilton be needed beyond 2016, City would embark to negotiate
with Landlord, TBI, more than a year before expiration of the terms to establish acceptable
rates and duration time to extend the lease.
Resource Impact
City of Palo Alto Page 4
Annual rental costs for extending the lease for 6,361 square feet for Suite 100 will bring the
total rent charges to $534,324 for the first year, beginning February 1, 2014, and will increase
by 3 percent each year until September 30, 2016. Common area maintenance (CAM) charges,
(including property tax, insurance, assessments, building maintenance, gas, water, sewer and
garage) to support occupancy expenses are approximately at $1.00 per square foot or at 14.3%
of the total cost of tenancy at this location. Anticipated CAM cost will run approximately
$76,000 to $78,000 annually ($6,300 to $6,500 per month). Annual rental cost for extending
the lease for 3,133 square feet for suite 280 will be at $263,172, beginning on December 1,
2014 and will increase by 3% to end of the lease term. Common area maintenance (CAM)
charges, (including property tax, insurance, assessments, building maintenance, gas, water,
sewer and garage) to support occupancy expenses are approximately at $1.00 per square foot
or at 14.3% of the total cost of tenancy at this location.
Rent expense for both floors is budgeted in the Planning and Community Environment
Department. The 2014 Adopted Operating Budget included $790,000 for the first and second
floor rental costs. The recommendations included in this report will result in total expenses for
renting the Development Center of approximately $851,000, or $61,000 more than the
budgeted amount. The Planning and Community Environment Department is working with the
Office of Management and Budget to determine whether or not an augmentation request will
need to be brought forward to the City Council as part of the mid-year budget report. The
amendments recommended in this report will result in Fiscal Year 2015 costs of approximately
$935,000, or $144,000 more than the Fiscal Year 2014 Adopted Operating Budget. This
increased cost will be included in the proposed Fiscal Year 2015 Base Budget to ensure Planning
and Community Environment has sufficient resources to support the increased costs.
Policy Implications
The lease and the sublease extensions are consistent with existing City policy. The continuation
of the Development Center is consistent with Goals of the Comprehensive Plan, which states
the City’s commitment to streamline the permit process in order to improve customer service
and staff efficiency.
Environmental Review
Leasing of existing office space involving no expansion of use is exempt from California
Environmental Quality Act review pursuant to CBQA Guideline Section 15301.
Attachments:
Attachment A: City of Palo Alto - First Amendment to Sublease Agreement (DOCX)
Attachment B: City of P A Amendment 4 to Lease- 285 Hamilton (DOC)
FIRST AMENDMENT TO SUBLEASE AGREEMENT
This FIRST AMENDMENT TO SUBLEASE AGREEMENT (the “First Amendment”)
is dated as of September 5, 2013 (“Effective Date”), for reference, and made by and
between CITY OF PALO ALTO, (“Subtenant”), and SURVEYMONKEY INC.
(formerly known as SurveyMonkey.com, LLC “Sublandlord”), with reference to the
following facts:
A. Sublandlord and Subtenant entered into that certain Sublease Agreement dated
December 13, 2011, whereby Subtenant sublet a portion of the second floor of the
building known as Suite 280 (“Second Floor Space”) located at 285 Hamilton
Avenue, Palo Alto, California, consisting of approximately 3,133 rentable square
feet (the “Sublease”). The Commencement Date of the Sublease prior to this
First Amendment is December 15, 2011.
B. Sublandlord and Subtenant now desire to amend the Sublease to among other
things (i) extend the term of the Sublease through September 30, 2016 (the
“Extension”), (ii) set forth the Monthly Base Rent payable by Subtenant during
the Extension, and (iii) modify various other terms and provisions of the Sublease
as more particularly provided herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the mutual covenants set
forth herein and other good and valuable consideration, the parties hereto agree as
follows:
1. Capitalized Terms. All capitalized terms when used herein shall have the same
meaning as is given to such terms in the Sublease unless expressly superseded by
the terms of this First Amendment.
2. Term. Section 2 of the Sublease is hereby deleted in its entirety and replaced with
the following text:
“2. Term. The term of this Sublease shall commence on December
15, 2011 (the “Commencement Date”) and shall expire on
September 30, 2016 (the “Sublease Term”), unless sooner
terminated under the provisions of this Sublease or unless the
Master lease is sooner terminated.”
3. Monthly Base Rent. The table setting forth the Monthly Base Rent in Section 3 of
the Sublease is amended by adding the following rows to the table:
Dates (Inclusive)
Rent/sq.ft./monthly Totally Monthly Base Rent
December 1, 2014 to
November 30, 2015
$7.00 $21,931.00
December 1, 2015 to
September 30, 2016
$7.21 $22,588.93
Attachment A
4. No Other Amendment; Conflict. Sublandlord and Subtenant acknowledge that as
of the effective date of this First Amendment neither party is in default of its
obligations under the Sublease. Except as set forth in this First Amendment, the
Sublease shall remain in full force and effect. If the provisions of this First
Amendment conflict with the provisions of the Sublease, then the provisions of
this First Amendment shall prevail.
5. Entire Agreement. The First Amendment amends and is incorporated into the
Sublease. The Sublease and this First Amendment constitutes the entire
agreement (“Agreement”) between Sublandlord and Subtenant with respect to the
subject matter therein and herein and may not be modified orally or in any manner
other than by an agreement in writing signed by all the parties to the Agreement
or their respective successors and permitted assigns.
6. Counterparts. This First Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, and when taken together
they shall constitute one and the same amendment.
IN WITNESS WHEREOF, the undersigned gave duly executed this First Amendment as
of the Effective Date.
SUBLANDLORD: SUBTENANT:
SURVEYMONKEY INC. CITY OF PALO ALTO
By:
By:
Name:
Name:
Title:
Title:
LANDLORD’S CONSENT
Subject to the terms and conditions of the Sublease, Landlord hereby consents to
the foregoing First Amendment pursuant to Section 12 of the AIR Commercial Real
Estate Association Standard Multi-Tenant Office Lease – Net dated November 1, 2010
(as amended, the “Lease”). This consent shall not constitute a waiver of Landlord’s right
to withhold consent to any future assignment or sublease, nor a release of Sublandlord
from any of its obligations under the Lease.
LANDLORD:
THOITS BROS., INC.
a California corporation
By:
Print name: __________________________
Title:
Attachment B
AMENDMENT No. 4 TO OFFICE LEASE
285 HAMILTON AVE
THIS Amendment No. 4 to Office Lease, (the “Fourth Amendment”) is dated as of
September 3, 2013, 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 expired 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 6,361 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 expired 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, entered into the Amendment No.
2 to the Office Lease, dated June 13, 2006, 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, to establish a direct relationship between Landlord and Tenant, to adjust the Lease
base rent and extend the Lease term until January 31, 2012, and create two option terms.
G. TBI, as Landlord, and CITY, as Tenant, entered into the Amendment No.
3 to the Office Lease, dated November 1, 2011, to extend the Office Lease until January
31, 2014, under the First Option to Extend.
2
H. Tenant has exercised its Second Option to Extend, and Landlord and
Tenant have agreed on terms for the thirty two (32) month extension of the lease term,
and now desire to evidence this agreement by this Fourth Amendment.
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 AND DEFINED TERMS.
Except as expressly provided in this Fourth Amendment, the terms and provisions of the
Office Lease, including the Amendments To The Office Lease No. 1 through No. 4,
which are hereby referred to and incorporated herein by this reference, shall remain in
full force and effect.
2. TERM
The term of the Office Lease, is hereby amended to extend for thirty two (32) additional
Lease Months commencing on February 1, 2014 and ending on September 30, 2016.
3. BASE RENT
The Base Rent is hereby amended to add the following schedule:
Lease Year Monthly Rent Rate Monthly
(Per Rentable Sq. Ft). Base Rent
Feb. 1, 2014 through Jan. 31, 2015 $7.00 $44,527.00
Feb. 1, 2015 through Jan. 31, 2016 $7.21 $45,863.00
Feb. 1, 2016 through Sept. 30, 2016 $7.43 $47,262.00
4. BROKERAGE
In connection with this Fourth Amendment, 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,
3
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.
IN WITNESS WHEREOF, the undersigned have duly executed this Fourth
Amendment as of the date first above written.
Landlord: Tenant:
TBI,
a California corporation
By:
Name:
Its:
CITY OF PALO ALTO,
a California municipal corporation
By:
Name:
Its: