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Home My WebLink AboutStaff Report 2605-6406CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, June 15, 2026 Council Chambers & Hybrid 5:30 PM Agenda Item 11.Approval of a First Amendment to Lease With 1900 Embarcadero Property Owner, LP, to Continue Occupying an Approximate 5,469 Square Foot Portion of the Office Building at 1900 Embarcadero Road, Through June 30, 2031, at a Total Base Rent of $1,306,605; CEQA Status – Exempt under CEQA Guidelines Section 15301 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Administrative Services Meeting Date: June 15, 2026 Report #:2605-6406 TITLE Approval of a First Amendment to Lease With 1900 Embarcadero Property Owner, LP, to Continue Occupying an Approximate 5,469 Square Foot Portion of the Office Building at 1900 Embarcadero Road, Through June 30, 2031, at a Total Base Rent of $1,306,605; CEQA Status – Exempt under CEQA Guidelines Section 15301 RECOMMENDATION Staff recommends that the City Council authorize the City Manager or their designee to execute the First Amendment to Lease with 1900 Embarcadero Property Owner, LP, contained in Attachment A, extending the lease for five years. BACKGROUND On June 22, 2021, the City Council approved the current lease with 1900 Embarcadero Property Owner, LP, for approximately 5,469 square feet of office space at 1900 Embarcadero Road, Suites 110, 201, 205, and 207, for use by the Regional Water Quality Control Plant staff (CMR 115431). The lease commenced on July 1, 2021, and will expire on June 30, 2026. The City has an option to extend the term for an additional five years with rent adjusted to 95% of the prevailing market rental. The current base rent is $32,623.66 per month and the City also reimburses the landlord for increases in operating expenses over the 2021 base year amount. The City’s share of the 2026 calendar year expense is estimated at $4,920.68 per month, which brings the City’s total rent to $37,544.34 per month. On August 21, 2023, the City Council authorized staff to explore the purchase of one or more properties adjacent to the RWQCP and to pursue long-term lease options as an alternative to new construction on-site. Aligned with City Council’s direction, staff pursued the option of extending the term for an additional five years while concurrently exploring the possibility of purchasing the property, which is currently on the market, to maintain long-term flexibility and control over this strategically located asset. 1 City Council, June 22, 2021; Agenda Item # 2, CMR 11543, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=2276&dbid=0&repo=PaloAlto&searchid=a5bf666f- f986-41b8-9e70-4a81da2716b1 ANALYSIS Staff and the landlord have agreed to adjust the base rent to $20,508.75 (compared to $32,623.66 currently or 95% of the prevailing market rental) for the first year of the extension term, commencing on July 1, 2026 and increasing 3% annually. The City will continue to reimburse the landlord for increases in operating expenses over the 2021 base year amount which will bring the City’s total rent to $25,429.43 per month. All other terms in the original agreement remain unchanged. Table 1: Lease Key Terms Extension Term July 1, 2026 – June 30, 2031 Premises Leased Suites 110, 201, 205 and 207 Rentable Area of Premises 5,469 square feet Rentable Area of Building 25,303 square feet Base Rent Months of Extension Term Base Rent per Rentable Square Foot Monthly Base Rent 7/1/2026 – 6/30/2027 $3.75 $20,508.75 7/1/2027 – 6/30/2028 $3.86 $21,124.01 7/1/2028 – 6/30/2029 $3.98 $21,757.73 7/1/2029 – 6/30/2030 $4.10 $22,410.46 7/1/2030 – 6/30/2031 $4.22 $23,082.77 City’s Share 21.6% of Rentable space in the Building Base Year Calendar year 2021 Parking Spaces Sixteen (16) unreserved spaces The amended rental costs and estimated operating expenses are within the budget levels in the FY2027 Operating Budget adopted by City Council. No additional funding is required at this time. The Real Estate Division met with Public Works and it was determined that the most optimal option to provide functionality and continuity in service was to extend their current lease at 1900 Embarcadero Road while continuing to explore the possibility of purchasing the property. Real Estate Division staff engaged with the landlord regarding the extension option. Approval of this First Amendment to Lease is exempt from review under the California Environmental Quality Act (CEQA) pursuant to CEQA Guideline Section 15301, Existing Facilities, because it involves negligible or no expansion of existing use. Attachment A: First Amendment to Lease : Lauren Lai, Administrative Services Director 1 FIRST AMENDMENT TO LEASE This FIRST AMENDMENT TO LEASE (“Amendment”) is entered into as of the Effective Date (as defined below), by and between 1900 EMBARCADERO PROPERTY OWNER, LP, a Delaware limited partnership (“Landlord”), and CITY OF PALO ALTO, a California chartered municipal corporation (“Tenant”), with reference to the facts set forth in the Recitals below. RECITALS A. Landlord and Tenant are parties to that certain Lease Agreement dated as of July 1, 2021 (“Lease”), for certain premises consisting of approximately 5,469 rentable square feet, commonly referred to as Suites 110, 201, 205 and 207 in the Building located at 1900 Embarcadero Road, Palo Alto, California (“Premises”), as more specifically described in the Lease. Except as otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the Lease. B. Pursuant to Addendum I of the Lease, Tenant has exercised its Extension Option to extend the Term of the Lease (which is currently scheduled to expire on June 30, 2026) for an additional period of five (5) years. C. Landlord and Tenant have agreed to make certain modifications to the Lease in connection therewith, as more fully set forth below. AMENDMENT NOW, THEREFORE, in consideration of the Recitals above, the mutual covenants and conditions below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Extension of Term. The Term of the Lease is hereby extended for an additional period of five (5) years (“Extension Term”) beginning July 1, 2026, and expiring June 30, 2031 (the “Expiration Date”), upon all of the same terms and conditions of the Lease, except as specifically modified by this Amendment. As of the Effective Date, the “Term”, as that term is used in the Lease, shall mean the Term as extended by the Extension Term. 2. Extension Term Base Rent. Notwithstanding any provision of the Lease to the contrary, during the Extension Term, Tenant shall pay monthly Base Rent pursuant to the following schedule: Months of Extension Term Base Rent per Rentable Square Foot Monthly Base Rent 7/1/2026 – 6/30/2027 $3.75 $20,508.75 7/1/2027 – 6/30/2028 $3.86 $21,124.01 7/1/2028 – 6/30/2029 $3.98 $21,757.73 7/1/2029 – 6/30/2030 $4.10 $22,410.46 7/1/2030 – 6/30/2031 $4.22 $23,082.77 Docusign Envelope ID: 5FFF8200-10D3-8C4A-814D-C707E0FF5502 2 3. Additional Charges. Notwithstanding any provision of the Lease to the contrary, during the Extension Term, Tenant shall continue to pay Tenant’s Share of Excess Taxes and Excess Expenses in accordance with Article 5 of the Lease. For clarification and the avoidance of doubt, the Base Year during the Extension Term shall remain as calendar year 2021. 4. Condition of Premises. Tenant is in possession of the Premises and accepts the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as expressly set forth in the Lease. Tenant also acknowledges that Landlord has made no representation or warranty regarding the condition of the Premises. 5. Security Deposit. Landlord currently holds a Security Deposit in the amount of $32,623.66, which Security Deposit shall continue to be held by Landlord during the Extension Term in accordance with the Lease. 6. No Options. Tenant acknowledges and agrees that it has no options to extend the Term of the Lease beyond the Extension Term. 7. Non-Appropriation. For clarification and the avoidance of doubt, the Lease shall remain subject to the terms of Section 28.1 thereof during the Extension Term. 8. Brokers. Landlord and Tenant each represents and warrants to the other that no party is entitled to a commission or fee by or through such party in connection with this Amendment. Each party shall hold the other party free and harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any party claiming by or through such party. 9. No Construction Against Party Drafting Amendment. Landlord and Tenant acknowledge and agree that each of them, and their respective professional advisors, have reviewed this Amendment and that the provisions of this Amendment shall not be construed against either party. The rule of construction that ambiguities are to be construed against the party drafting the agreement shall not apply to the interpretation of this Amendment and is waived. 10. Counterpart Execution. This Amendment may be electronically or manually executed in multiple counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall constitute one instrument. 11. Continued Effect. Except as specifically modified by this Amendment, all of the terms, conditions and provisions of the Lease shall remain in full force and effect. [signatures on following page] Docusign Envelope ID: 5FFF8200-10D3-8C4A-814D-C707E0FF5502 3 IN WITNESS WHEREOF, the parties have executed this First Amendment to Lease as of the last date written below or July 1, 2026, whichever occurs earlier (“Effective Date”). “LANDLORD” 1900 EMBARCADERO PROPERTY OWNER, LP, a Delaware limited partnership By: HSRE-BPI II GP, LLC, a Delaware limited liability company, its general partner By: _________________________________ Name: Steve Bollert Title: Authorized Signatory Date: ________________________________ “TENANT” THE CITY OF PALO ALTO, a California chartered municipal corporation By: _________________________________ Name: _______________________________ Title: City Manager Date: ________________________________ Approved as to Form: By: _________________________________ Name: _______________________________ Title: Assistant City Attorney Date: ________________________________ Docusign Envelope ID: 5FFF8200-10D3-8C4A-814D-C707E0FF5502 6/1/2026 Amy Bartell Ed Shikada