DEPARTMENT: Center City Development & Operations
DEPARTMENT HEAD: John Jacks
COUNCIL DISTRICTS IMPACTED: 5
SUBJECT:
An extension of an existing lease with 1400 Flores 2014, Ltd for 28,242 square feet of office space located at 1400 South Flores Street in Council District 5 for a three year term.
SUMMARY:
This ordinance authorizes the extension of an existing lease of 28,242 square feet of office space in a building located at 1400 South Flores Street with 1400 Flores 2014, Ltd for an extended term of three years commencing October 1, 2019. The initial annual rent during the extended term will be $672,729.12 in FY 20 increasing each year during the extended term with an estimated annual rent of $715,092.00 during the final 12 months of the term.
BACKGROUND INFORMATION:
The City has occupied the subject building since 2004. The facility presently houses the Neighborhood & Housing Services and Planning Departments as well as the Office of Sustainability. Though the renewal term will end on September 30, 2022, as part of the City’s strategy to relocate staff in certain leased facilities into the refurbished Municipal Tower, all of these uses could be relocated to the consolidated municipal office building and it is expected that this lease may be terminated prior to that date. Therefore, a termination right has been incorporated into the lease allowing the City to vacate the property at or any time after September 30, 2020. Until that time the City has a continuing need for this facility.
ISSUE:
As presently structured, this lease will terminate on September 30, 2019 with no rights to renew after the date. Based on current projections, the schedule for the renovation of the Municipal Tower has City staff beginning to move in October 2020. Staff has negotiated terms that allow the extension of the lease with flexible termination rates at a rate competitive in the marketplace to meet this schedule.
ALTERNATIVES:
The City could choose not to extend the lease term and with no renewal rights available in the lease, commence a month to month occupancy when the present lease expires in October 2019. However, that strategy would leave the City vulnerable to the landlord increasing the rent significantly with no option to the City but to pay the demanded rent due to the fact that the renovated Municipal Tower would not be ready for occupancy. Given that we know the Municipal Tower will not be ready any sooner than October 2020, an approach that renews the lease early and provides flexible termination rights is the most appropriate course of action based on current planning.
FISCAL IMPACT:
Under the terms of the lease renewal, the following chart summarizes the salient points as follows:
Term |
Existing Lease |
Amended Lease |
Net Change |
Term Length |
Ends Sept 30, 2019 |
Ends Sept 30, 2022 |
3 year extension |
SF Occupied |
28,242 SF |
28,242 SF |
No change |
Annual Rent |
$557,060.25 |
$672,729.12 as of 10/1/2019 |
$115,668.87 more |
Termination Right |
Anytime |
Anytime after 10/1/2020 |
1 year firm |
The chart below outlines the rent to be charged for the three remaining months of FY 18 and the other fiscal years thereafter during the term:
Fiscal Year |
Total Annual Rent |
2018 |
$139,265.07 |
2019 |
$557,060.28 |
2020 |
$672,729.12 |
2021 |
$689,850.00 |
2022 |
$715,092.00 |
The annual rent is comprised of base rent, and operating rent. The Adopted FY 18 Budget includes funds to pay for the lease of space in this facility. The rent for FY 19 may remain unchanged depending on any increase in the consumer price index which could result in an increase in the operating rent only. Commencing in FY 20 the rent will increase as indicated in the chart above.
RECOMMENDATION:
Staff recommends approval of this ordinance authorizing the three year extension of the lease with 1400 Flores 2014, Ltd for 28,242 square feet located at 1400 South Flores Street.