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Home My WebLink About0457.095• I , ~ ::-.... ' I!:: :<~ " -: • __ " ,eo' ~ , .... -' , -.'-... ~-.-'~ -.-~ < . .. ;-. @ 0 m' City of Palo Alto .\ . ('.t~ " City Manager's Summary Repor! ---~ ATl'ENTION: FROM: HONORABLE CITY COUNCIL POLICY AND SERVICES COMMITTEE CITY MANAGER DEPARTMENT: ADMINISTRA TlVE SERVICES AGENDA DATE: NOVEMBER 13, 1995 CMR:457:l15 SUBJECT: BEOUEST RECOMMENDED REHSIONS TO THE RENTAL RATE STRU(TURE AT C(}BBERLEY AND NEED FOR A LONG TERM ~"'ICIAL PLAN FOR THE CUBBERLEY COMMtJNITY CENTER This report requests Council approval 0(. rental reduction fOe four nonprofit long-term ten.ants aI!he Cubberlcy Community Center and recommends tha! staff return during the 1996-98 budget proeess with options and recommendations fOe along-tenn financial plan fOe the Cnbberley Center_ RECOMMEJIIDATIONS Staff rerommends that Coun<:i1 authorize staff 10 reduce !he rental rates fOe four nooprofit long-term tenants leasing space at the Cubberley Community Center, in or&:. to eliminate inconsistencies in thcir rental rates, and direct staff to return with the 19%-98 budget with • recommeudation fOe a long-term financial plan fOe the Cubberley Community Center. PQl,ICY IMPI.ICAIIONS The report recommends implementation of. revised policy fOe rental rates fOe nonprofit tenants at Cubberley. .Pqel~' .'.- .t ., '.' .. ')., ,,c,""'~' :-' '-t ,.--', o EXf'.CIITIVE SUMMARy III response 10 "'quests from two Cubberley tenants and in an eflOct 10 maintain equily i'1 rental n.!e<., stoff is proposing. reductioo in rental mt., fur four of!he Cubberley nonprofIt tenants. In \he Ioog Ienn, iI has hecome apparenllhat reductions in Cubberley rental revenue and \he fact that utility user tax (UU1) revenues are w.¥e. than what had been previously fure<:ast, require that \he entire financial plan fur Cubberley be .e·evaluated. FISCAL IMlACT The resu/t of de<:reasin8 \he four CUlTent tenants' rental rates 10 \he standard nonprofit rate ls.1oss ofapproximately $80,000 annually. Cubberley rental in<:ome MlI then total $1.2 million, roughly equal'" \he "pass-through" Jeaze revenue due \he Palo Alto Unified School District (pAUSD). However, revenues from the UUf "''''' the pasi several years have been less than originally anticipated, and future I""oj ... ~s do oot I"""'"ide for significant in<:reases in uur revenues. The reduction in expected !JUT revenue, combined with the de<:rease in Cubberley rental income, indicat .. that funds from !hese sources may not be sufflcient 10 Sllpp<lrt future improvements or provide adequate Iong·term maintenance at the Cubberley site. ENVIRQNMENTAL u"f;ssMENT The lease of an existing facllity is categorically exempt under C1ass I • (Existing Facility) requirements of the Califumia Environmental Quality Act (CEQAJ. Related StalIReports: CMR:291:K CMR:445:9 CMR:240,91 CMR:43K:92 PRF..PARED BY: Martha Miller, Financial Analyst " /-J . __ - DEPARTMENT HEAD APPROV AL~_--',(i-/"""-_' .... !'!hJ.'I .... ·l..1.!-<Cc..."'CJ<...:.. • ...;) __ EIill"fY Harrison Deputy City Manager, dministrative . CITY MANAGER APPROVAL: CC:NfA --~ ... ;'<;~~.' ,:' --:". .-~-.-. .' , PlIgel~' , , I 1 , • I , . ------- City of Palo Alto City :Manager's Report SUBJECT: RECOMMElliDED REVlSIONS TO THE RENTAL RATE STRUCTURE AT CUBBERLEY AlI<'D llrEEO FOR A LONG-TERM FINANCIAL PlAN FOR THE CUBBERLEY COMMUNITY CENTER RECOMMENDATIONS St. "t recommends that Council authorize staff 10 reduce !he rental rates for kur nonpro& long-term tenants leasing space a! the Cubberley C<>mmunlty Center, in or&:r 10 .runina!e inconsistencies in their rental rates, and recommends that .taffreturn during the 1996-98 budget process with options and reconml<'ndations fur a Joog-terrn financial plan !be the Cubberley Community Center. BACKGROUND The renlal rates approved by Cooncil in 1991 were structured so that the noo-sub.Mized ferumls in place when the City firslieased the site from the Palo Alto Unified School District (p AUSD) would remain 81 their curren! "market" rental rates, which ranged from $1.0910 $1.39; and the noopr.,fit rental rate and artist reDial rat. would remain 8t the rates that C.ouncil approved fur the Jordan facility in 1988 (CMR:29H). Ea<:h of ~ t!t= rates have been increased annually by the Consumer Price Index, and the current rat .. are as fuIlows: T):per.fIl .. Nonsu~idi.red Market Rate Nonprofit Artist Repft] R.tes S1.l21O$L49 $.76 10 $1.20 S.42 resident $.46 na.C5idu , In June 1995, the owners of ZoharD:mce C<>mpany senl staff a letter stating that they were applying fur nonprofit status and, theFefure, were requesting. reduction from their current market ren!al rate of $1.14 per ,;quare foot per month to the current nooprofit rental rate of S.76 square lOOt per month. During this same period, staff met wr.h the directors of the facility, previously known as Sy.tex Day Care, now the CIuldren's Preschool <:en:e., and c:r1SC~ optiocs fur renewing 0 sublease wltb!he Children', Preschool Center at a reduced rental rate from its current market ren!al rate ofSl.49fsquare fuotlmonth. The andrea's Preschool Center is a nonprofit organiz.l!tioo. that bas leased approJdmately 8,700 square f<:el '. I ! • "', ," ,. :- \ , . ,/.-_ -, -", ';,-" ___ ,...,.._..:.t!"-~~~., o oC space ot Cubberley since 1984, with • majo.iIy ofits funding provided by the fumler SynteJ< fuporatiort Roche Bioscience fuporation, since acquiring Syntex, has decided that it will no Iooger provide It .. same level oC funamg to operate this day care site. In addition \0 the ChikIren's Preschool <A:nter, there are two otMr nonprofit tenants, the Hua Kuang Chinese Reading Room and the Palo Aho Preparatocy Schoc!, wOOse leases were assigned 10 the City by the Palo Aho Unified Schoo! District (PAUSD) in 1989 and wOOse rents were never acfjUSled downward \0 the nonprofit rental rates approved by Council in 1991 (CMR:44S:9). DISC! ISSION In an effort \0 maintain equity in =tal rates among the nonprofit tenants, staff is proposing that all lOur oCthese nonprofit tenants' rents be r~ \0 the cwren! nonprofit rental rate c,{ $. 76 per square lOo< per month or $120 per square foot per month with weeldy janitO<ial service. Each oCthese tenants is currently provkled weekly janitO<i.1 service, 0 benefit for which the tenants wiD pay a higher rate. Each oC these tenants has approximately three Y."" remaining 00 their current subleases, after which the spac~ will be made avallable \0 other nooprc>flt ~gencies ,i. Request for Proposals. Staff is safu tied that the noosubsKfI1'.ed market rate is sml appropriate, given t.he market reetal rates in the commercial and industrial real estate rental markets in Midtown and the CbarlestooISan Antonio sectioos oC Palo Aho. The noosubsidized market rate is applicable 10 approximately lOur tenants, inclucflDg foothiU ec.Dege. In establishing. sublease and rental rate plan, staffhas attempted 10 maintain an ann uallease revenue sufficient 10 meet an e1emen! oflhe 1989 Lease and C<wcnanl Noclo Develop called "pass through rent· The "pass through rent" due the FAUSD was initially set at $1 million. which was the gross rent exclusive of operational 0< mcinlenance costs that PA USD "as reponedly earning from leases at the sile. The ·pass throogh rene requirement incrc= annually by !he Ioca1 CPI and is currently at approximately S 1.2 milli<HL This amount of lease revenue will be met "ith the proposed new rental structure; ho,,;ever, anyadditiooal funds for providing any capita! improvements oc enlw>ced maintenance will tlOI be feasible. Markel rental rates in !tis ..-ea of Palo Aho have remained somewhat stagnant over the past several years, and this is JI(J( reflected in the rent due PA USD for the Lease and C<>venant NO! t<> Seu oc Develop, which is increased annually by the CPI.. Re\enues from the utility users tax (UUI) were expected 10 be sufficient 10 cover payments ..-iated with the Lease and Covenant NOIIo Sen or Develop, as weD as 10 provide funcfmg for eliminating !he backlog oC streets and sidewalks repairs over time, provide for operatiooal , . ' and mainlerumce costs associated with the Cubberley CcmmunilY Center, and, over a period ..xyean, fund~ital improvemellts outlined in the Cubl>erley Master Plan (CMR:240:91). However, uur revenues over the past several years have been less than originally anticipated. This is due primarily 10 the increasingly ,ompetitive rate environmetJ1 "ilhin ..tich the City and lelepbooe utilities are operating. Future revenue projections do no! show significant increases in UUT revenues or Cubberley rental income. This means funds will probably no! be sufficient \() support ~ital improvements at the Cubberley site. Of additional conc:ern is the fact I.'un the operatioo and maintenance budget fur the Cubberley site bas remained relatively low, although the growth in boIh the oommunity uses and tenant occupancies have continued \() increase the demand fur operations and maintenance. Exhibit A provides • graphic ill L1Stration of the past two years actual expenses and this year', projection of UUT ",,'eoues and expenses. ALTERNATIVES In light of stagnant VUT funding and the di fficult financial position resulting from pro\iding • community center and rental facUity at below market rental rates, staff believes that funding IOc future capital improvements from current revenue sources supporting CubberIey are no! realistic. Alternatives may include, • Reallocate funding from streets and sidewalks (currently $1 million per year); • Allow capital improvements fur the Cubberley Cooununity Center \0 compete with other General Fnnd projects fOr limited Capitallmprovemenl Program funds; • Re\ise curren! a!location of City revenue generated at Cubbcrley (recreation classes, field uses. etc.) 10 Cubberley operations budget, rather than 10 General Fnnd progr:uns; and • Consider borrowing from General Fnnd reserves 10 pro'ide immediate capital improvements that will augme!1t lease revenue from Cubberle)-and, over time, pay IOc themselves. Staff intends \0 assess these alternatives, and any other aJternztives that may be developed. and will return 10 Council with the 1996-98 budget with a reccmmendation. x···· ~ :"' •• ;0. ----', -.->'-"" , , ... • --,; -. o f.NYJRONMENTAI. ASSESSMENT The lease of an exioting facility is categorically exempt under Class 1 (Existing Facility) ""l"imnenU of!hc California Environmental QuaIity Act (CEQA). AUACHMENIS A) Graph of OUT Incoroeand Expenditures , -'" 7200 7000 ----------.----=---- I 6&lO -"- ----------~~ REVENUES City UtirJties Telephone CubberIey Renla! T o!aI Revenue EXPf:NOITURES Payments 10 PAUSO Operalionl Maintenance &reels & Sidewal\<s ClP T olaI Expen<f~lKes Revenue -Expencfrtures EXHISIT A -------------.. -~ ~-""--~------- . -----.---------------------. • ------------------" I ,_ 1995/96 ----------------J 1993194 1994195 1995196 3,830 3,892 3,831 1,624 1,515 1,523 1,401 1.447 1.460 6,855 6,854 6,B14 • 4.575 4,855 4.739 1,070 1.285 1,340 1,230 1,000 1,000 0 240 350 6,875 7.1S(} 7.429 (20) (326) (615)