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HomeMy WebLinkAboutStaff Report 13467 City of Palo Alto (ID # 13467) City Council Staff Report Report Type: Consent Calendar Meeting Date: 8/23/2021 City of Palo Alto Page 1 Summary Title: Palo Alto Players Office Space Lease Amendment at Lucie Stern Title: Approval of a Lease Amendment Between Palo Alto Players and the City of Palo Alto for the Premises at the Lucie Stern Community Center Located at 1305 Middlefield Road for an Approximate 36-month Term, at a starting Base Rent of $1,410.00 per Month and Increasing 3 Percent Annually From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that Council authorize the City Manager or their designee to execute the Second Amendment to Lease contained in Attachment A, between City of Palo Alto and Palo Alto Players-Peninsula Center Stage for the continued use of office space at the Lucie Stern Community Center located at 1305 Middlefield Road. The term will commence upon full execution of the amendment through August 31, 2024. The initial base rent will be $1,410 per month and increase 3 percent annually starting on September 1, 2022. Background Palo Alto Players is the oldest theatre group on the Peninsula, producing diverse programming that highlights local talent and tells stories of resonance for the local community since 1931. During the COVID-19 pandemic, Palo Alto Players has continued to connect with the community, reaching over 1,100 households in 34 states and six countries to date, and has expanded theatre access, through innovations such as closed captioning for virtual shows and Pay-What-You-Choose pricing. The Palo Alto Players have been an advocate and resource for arts organizations and other nonprofits throughout the pandemic. They are on a journey to refine administrative and artistic processes that advance their mission through an Inclusion, Diversity, Equity, Access, and Liberation (IDEAL) lens, setting the example for a theatre of the future that serves the whole community post-pandemic. Palo Alto Players’ annual budget for staffing, general operations, and direct production costs for its season of five plays and musicals at the Lucie Stern Theater is 5 Packet Pg. 12 City of Palo Alto Page 2 approximately $800,000. In a normal season, an estimated 60 percent of each annual budget is earned in ticket sales and other earned income, 35 percent is contributed from donations and grants, and the remaining 5 percent is derived from investments. In addition, per the agreement between the City of Palo Alto and Palo Alto Players, all tickets sold are assessed an additional “facility usage fee” of $4 per ticket ($2 is earmarked for capital improvements for the Stern Theater). These fees are collected and remitted to the City of Palo Alto following each production. Discussion Palo Alto Players currently occupies approximately 500 square feet of office space at the City-owned Lucie Stern Community Center, located at 1305 Middlefield Road, under a lease that was approved by the City Council on May 11, 2015 (CMR 5719). The lease was subsequently amended and expired on June 30, 2021 however, under the holding over provision of the lease, the Palo Alto Players remain in possession of the premises and have continued to be current on all rent payments. City Staff recommends a second amendment to the lease to extend the agreement to August 31, 2024 at a starting base rent of $1,410 per month with annual 3 percent increases starting on September 1, 2022. The extension will provide Palo Alto Players with continued use of the office space to manage, administer, and support the theater programs at the Lucie Stern Theater. The Second Amendment to Lease will extend the term of the agreement through August 31, 2024 and modify the rent as shown in the table below. All other terms will remain the same. PERIOD MONTHLY RENT EXTENSION DATE – 8/31/2022 $1,410.00 9/1/2022 – 8/31/2023 $1,452.30 9/1/2023 – 8/31/2024 $1,495.87 Timeline The Palo Alto Players’ current lease expired on June 30, 2021 however under the holding over provision of the lease they remain in possession of the premises. The term of the Second Amendment to Lease will commence upon full execution and extend through August 31, 2024. Resource Impact The base rent during the final year of the current lease, through June 30, 2021, was $1,365 per month. Under the holding over provision of the lease, the monthly rental obligation increased 10 percent, to $1,501.50, while Palo Alto Players remained in 5 Packet Pg. 13 City of Palo Alto Page 3 possession of the premises. Upon full execution of the Second Amendment, the base monthly rent will be reduced to $1,410.00, but will represent a $45.00, or 3.3 percent, increase over the rent paid during the final year of the previous term. The base rent will increase 3 percent annually, starting on September 1, 2022. This initial base rent is approximately $2.82/sq foot per month. For reference, the overall average asking rent for all office space classes in Palo Alto is $8.06 according to Cushman & Wakefield, and current rent rates at the City’s space in Cubberley ranges from $0.32 to $3.57/square foot per month. If approved, annual rent receipts in this lease are in line with projected rental earnings included as part of the FY 2022 Adopted Budget. If not approved, and the space not otherwise rented out to another service provider, the City would fall below FY 2022 revenue estimates by approximately $17,000. Policy Implications This recommendation is consistent with existing City policies to support the cultural program in the City of Palo Alto to enrich the lives of residents in the local communities. Stakeholder Engagement The Real Estate Division of the Administrative Services Department and the Community Services Department discussed the Palo Alto Players’ proposal to extend their lease. While higher revenue generating programs could be explored for the space, the Palo Alto Players are an excellent tenant and have continued to pay rent throughout the COVID-19 pandemic. Having the stability of the office will help them recover from the pandemic and be able to produce their full season of shows again. Environmental Review Approval of the lease for City owned office space is exempt from the requirements of the California Environmental Quality Act. Attachments: • Attachment5.a: Attachment A: Lease with Palo Alto Players, Second Amendment 5 Packet Pg. 14 Attachment A Attachment A - 1 SECOND AMENDMENT TO LEASE THIS SECOND AMENDMENT TO LEASE (this “Second Amendment”) is made and entered into as of _________________, by and between City of Palo Alto, a California municipal corporation (“City”), and PALO ALTO PLAYERS-PENINSULA CENTER STAGE, a 501(c)(3) non-profit corporation (“Lessee”). RECITALS A. City and Lessee are parties to that certain Lease, dated July 1, 2015, as amended by that certain Amendment Number One to Lease Agreement, dated July 1, 2018 (collectively, the “Lease”). Pursuant to the Lease, City has leased to Lessee an office suite containing approximately 500 square feet (the “Premises”) at the Lucie Stern Community Center located at 1305 Middlefield Road, Palo Alto, California (the “Property”). B. The Lease by its terms expired on June 30, 2021 (“Prior Termination Date”), but Lessee has occupied the Premises since that time in holdover on a month-to-month basis pursuant to the provisions of Section 18 (Holding Over) of the Lease. C. The parties desire to extend the Lease Term, all on the following terms and conditions. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, City and Lessee agree as follows: 1. Extension. The Lease Term is hereby extended to and shall expire on August 31, 2024 (“Extended Termination Date”), unless sooner terminated in accordance with the terms of the Lease. That portion of the Lease Term commencing on the date of full execution of this Second Amendment (“Extension Date”) and ending on the Extended Termination Date shall be referred to herein as the “Extended Term”. Lessee shall have no right to extend the Extended Term of the Second Amendment. 2. Base Monthly Rent. As of the Extension Date, the schedule of Base Monthly Rent payable with respect to the Premises during the Extended Term is the following: Period Base Monthly Rent Extension Date – 8/31/2022 $1,410.00 9/1/2022 – 8/31/2023 $1,452.30 9/1/2023 – 8/31/2024 $1,495.87 All such Base Monthly Rent shall be payable by Tenant in accordance with the terms of the Lease, as amended hereby. 3. Miscellaneous. 3.1 This Second Amendment sets forth the entire agreement between the parties with 5.a Packet Pg. 15 Attachment A Attachment A - 2 respect to the matters set forth herein. There have been no additional oral or written representations or agreements. 3.2 Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. In the case of any inconsistency between the provisions of the Lease and this Second Amendment, the provisions of this Second Amendment shall govern and control. The capitalized terms used in this Second Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Second Amendment. 3.3 Submission of this Second Amendment by City is not an offer to enter into this Second Amendment but rather is a solicitation for such an offer by Lessee. City shall not be bound by this Second Amendment until City has executed and delivered the same to Lessee. 3.4 Lessee hereby represents to City that Lessee has dealt with no broker in connection with this Amendment. Lessee agrees to indemnify and hold City harmless from all claims of any other brokers claiming to have represented Lessee in connection with this Second Amendment. 3.5 Each signatory of this Second Amendment represents hereby that he or she has the authority to execute and deliver the same on behalf of the party hereto for which such signatory is acting. 3.6 The Premises have undergone an inspection by a Certified Access Specialist (CASp), and it was determined that the Premises did not meet all applicable construction-related accessibility standards pursuant to California Civil Code §55.51 et seq. To the best of City’s knowledge, there have been no modifications or alterations completed or commenced between the date of the inspection and date of this Second Amendment which have impacted the Premises’ compliance with construction-related accessibility standards. City has provided, at least forty-eight (48) hours prior to execution of this Second Amendment, a copy of such CASp report to Lessee. Because a disability access inspection certificate, as described in subdivision (e) of Section 55.53 of the California Civil Code, was not issued for the Premises, Lessee is advised of the following (pursuant to Section 1938 of the California Civil Code): “A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.” 5.a Packet Pg. 16 Attachment A Attachment A - 3 The parties hereby agree that Lessee shall have the right, but not the obligation, to have a CASp further inspect the Premises. If Lessee elects to obtain a CASp inspection, Lessee shall be responsible for the payment thereof. Additionally, if Lessee elects to make any repairs necessary to correct violations of construction-related accessibility standards, Lessee may do so, at its sole cost and expense. [Signature Page Follows] 5.a Packet Pg. 17 Attachment A Attachment A - 4 IN WITNESS WHEREOF, City and Lessee have entered into and executed this Second Amendment as of the date first written above. CITY: CITY OF PALO ALTO, a California municipal corporation By: ______________________________ Name: ____________________________ Title: _____________________________ Dated: ____________________________ Approved as to form: By: ______________________________ Name: ____________________________ Title: _____________________________ Dated: ____________________________ LESSEE: PALO ALTO PLAYERS-PENINSULA CENTER STAGE, a 501(c)(3) non-profit corporation By: ______________________________ Name: ____________________________ Title: _____________________________ Dated: ____________________________ 5.a Packet Pg. 18