TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Kristen Crane, Assistant City Manager
PREPARED BY: Martha Samaniego, Management Analyst
SUBJECT: Lease Agreement and Site Preparation Costs for Annex Space for
City Hall
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RECOMMENDATION
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Authorize the six (6) year lease agreement with Golden Spring Capital, LLC for office space located at 24620 Jefferson Avenue, in a form approved by the City Attorney, to be executed by the City Manager;
Approve a budget appropriation from the General Fund Unassigned Fund Balance for the agreed upon lease of $97,788 for the remainder of Fiscal Year (FY) 2023/24 and $237,056 for FY 2024/25, for a total of $334,844 for the first and second year of the site lease and estimated operating expenditures;
Establish Capital Improvement Project (CIP) 21040. Approve a budget appropriation of $467,123, which includes a 10% contingency, for the one-time site preparation and furnishing costs, including office furniture, storage cabinets, information technology connections, network cabling, office equipment, paint and drywall repair, and security equipment for the leased site;
Authorize use of Measure T Facility Repair Reserves of $450,000, which funds were set aside specifically for this purpose. The balance needed for the budget establishment of $17,123 will come from Measure T's Unassigned Fund Balance; and
Authorize the City Manager or designee to execute any agreements on behalf of the City for one-time site preparation and furnishing costs, including office furniture, storage cabinets, IT connections and network cabling, office equipment, paint and drywall repair, and security equipment for a total amount not to exceed $467,123, and authorize the City Manager to execute any amendments or change orders in the amount not to exceed the contingency amount.
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PRIOR ACTION/VOTE
None.
CITY COUNCIL GOAL
Foster and promote an engaged, connected and caring community.
The City of Murrieta (City) has approximately 120 employees that work at City Hall. Within the past year, after having deferred necessary new staff positions for a variety of reasons and following extensive review, the City has added several new employee positions to provide effective and efficient services to the public. Earlier this year, the City also completed a refurbishment to the interior of City Hall, which resulted in approximately 12 additional workstations. Even with those new workstations, the forthcoming positions to be filled will require additional staff workspace.
The City has identified a vacant commercial site located at 24620 Jefferson Avenue (across from City Hall in the retail center) which can optimally hold internal service staff, such as those from the Administrative Services and Community Services departments. The proximity of this location to City Hall makes it ideal to serve as a long-term auxiliary space until a permanent solution is available. When complete, the space is anticipated to provide workspace for up to 21 employees.
Summary of Lease Agreement
The American Industrial Real Estate Association (AIR) Standard Multi-Tenant Shopping Center Lease - Net, together with the First Addendum to Lease Agreement (Lease) with Golden Springs Capital, LLC (Landlord) is attached to this report (Attachment 1). The form used by Landlord was a standard retail lease used for shopping centers. However, since the Landlord does not own the entire Shopping Center but only a single building within the Center, the Lease form had to be extensively modified by the City Attorney to conform to the agreed deal terms.
The following is a brief summary of the key Lease terms:
- Lease Premises: approximately 8,409 square feet (Units B & C) at 24620 Jefferson Avenue
- Right of first offer for adjacent Unit A if and when available
- Term:
- Base term: 6 years
- Two options to extend each for 5 years with rent adjusted to prevailing market terms.
- Use: General and administrative offices and any other legally permitted use.
- Rent:
- Base Rent: $9,249.20 per month, increased annually by 3%. Two months free rent.
- Common Area Operating Expenses: $4,624 (comprised of building expenses and pass through of shopping center expenses prorated and applicable to Building per Shopping Center CC&Rs). Note: If County grants an exemption from real estate taxes for space occupied by City, the benefit of same will accrue to City.
- Condition of Premises: City to accept AS-IS subject to certain representations by Landlord as to condition at Lease commencement and required Landlord improvements.
- Required Landlord Improvements:
- Full separation from Unit A
- Water, gas & electricity to be separately metered.
- Water heater to be modified to serve only Lease Premises.
- Miscellaneous additional requirements.
- Tenant Improvements:
- To be made by City as City requires.
- Tenant Improvement Allowance: $21,170 to be paid after completion.
- Utilities to Premises: City to pay. (Note: water, gas and electricity are separately metered)
- Signage: Right to signage on outside of Premises and a sign on monument sign.
- Commission: The commission is to be paid by Landlord with commission split between Landlord and City’s brokers. No cost to City.
Cost Analysis
The total cost for the first year of the Lease is $234,690 comprised of (a) Base Rent of $110,990, (b) estimated Common Area Operating Expenses (CAM) cost of $55,500, and (c) estimated cost for utilities in the amount of $68,200. Over the initial Lease Term (6 years), the City is expected to pay (i) $717,931 in Base Rent payments, (ii) $358,997 in CAM costs, and (iii) $419,567 for utilities, for a total cost of $1,496,496. Table 1 shows the projected expenditures over the initial 6 year Lease Term.
Table 1 - Annual Cost for Lease and Operating Expenditures
|
Year |
Annual Base Lease |
Est. CAM Annual Costs |
Est. Operating Expenditures |
Total Annual Payment |
Lease Period (Feb. To Jan.) |
|
1 |
$110,990 |
$ 55,500 |
$ 68,200 |
$ 234,690 |
2024 to 2025 |
|
2 |
$114,320 |
$ 57,165 |
$ 68,882 |
$ 240,367 |
2025 to 2026 |
|
3 |
$117,750 |
$ 58,880 |
$ 69,571 |
$ 246,201 |
2026 to 2027 |
|
4 |
$121,282 |
$ 60,646 |
$ 70,267 |
$ 252,195 |
2027 to 2028 |
|
5 |
$124,921 |
$ 62,466 |
$ 70,969 |
$ 258,356 |
2028 to 2029 |
|
6 |
$128,668 |
$ 64,340 |
$ 71,679 |
$ 264,687 |
2029 to 2030 |
|
Total |
$717,931 |
$358,997 |
$419,567 |
$1,496,496 |
|
In addition, the City will be responsible for the cost of utilities, including but not limited to electricity, water, trash, and other services needed.
The Lease Term will commence on the first to occur of either (i) the date the City opens the office space to the public on the Lease Premises, or (ii) one hundred twenty (120) days after the Landlord delivers possession of the Lease Premises to the City. At this time, it is anticipated the space will be open for service approximately February 1, 2024.
Tenant Improvements and Furnishings
To make the site a usable workspace, minor alterations and improvements are needed, such as office furnishings; office equipment; printers; network cabling and internet connection points; security systems, such as motion sensors, and door access controls; and minor interior renovations. The current estimated cost for these improvements is $424,657, as shown in Table 2. The requested appropriation includes an additional contingency of ten percent (10%), amounting to $42,466, for unforeseen expenditures. NOTE: The City will be reimbursed by Landlord for $12,170 as the Tenant Improvement Allowance.
Table 2 - Estimated Cost for Site Preparation and Furnishing (CIP Budget)
|
Category |
Total Cost |
|
Office Equipment and Furniture |
$303,700 |
|
Tenant Improvements |
$ 24,400 |
|
Security |
$ 89,557 |
|
Misc. Expenditures (Movers, Carpet Cleaning) |
$ 7,000 |
|
Estimated Total Cost for Site Preparation |
$424,657 |
|
|
|
|
Contingency (10%) |
$ 42,466 |
|
Total Project Cost |
$467,123 |
The City’s Purchasing Policy allows for procuring goods and services through cooperative purchasing agreements per Murrieta Municipal Code Section 3.08.295, which states the City “may buy directly from a vendor at a price established by another public agency when the other public agency has made its purchase in a competitive manner.” These “piggyback” contracts are already vetted through other public agencies’ public procurement process and their agreements have clauses that establish and allow other public agencies such as the City to use the same pricing for the same service. As an example, G/M Business Interiors which provides office and cubicle furniture, has an existing agreement with the County of Riverside and a piggyback clause exists. As such, the City can use the County’s agreement to obtain services through G/M Business Interiors in compliance with the City’s Municipal Code. Per that provision, the City is proposing to obtain services, including the purchase of cubicles and office furniture through G/M Business Interiors, Inc. Other purchases and services needed to complete the site preparation and move will be procured in conformance with the City’s Purchasing Policy.
Following the completion of tenant improvements and the delivery of furnishings, the site is expected to be operational by February 2024.
FISCAL IMPACT
In addition to the appropriations requested below, staff also requests the appropriation of Measure T Facility Repair Reserves of $450,000 to defray the cost of this project. Other than the amount from the Facility Repair Reserves, the balance of the funding will come from the General Fund and Measure T Unassigned Fund Balances.
ATTACHMENTS
1. AIR CRE Standard Multi-Tenant Shopping Center Lease - New with attached First Addendum to Lease Agreement with Golden Spring Capital, LLC in Draft Form