File #: 12150   
Type: Consent Status: Passed
File created: 5/9/2025 Department: Real Estate Services
On agenda: 5/20/2025 Final action: 5/20/2025
Subject: Amendment to Lease Agreement with 590 North D Street, a Delaware Limited Liability Company for Clinic Space in San Bernardino
Attachments: 1. ADD-CON-RESD-DPH-052025 Lease Amd w 590 North D Street 23-869 A1, 2. Item #77 Executed BAI, 3. 23-869 A-1 Executed Contract

REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS

OF SAN BERNARDINO COUNTY

AND RECORD OF ACTION

 

May 20, 2025

 

FROM

TERRY W. THOMPSON, Director, Real Estate Services Department

JOSHUA DUGAS, Director, Department of Public Health

         

SUBJECT                      

Title                     

Amendment to Lease Agreement with 590 North D Street, a Delaware Limited Liability Company for Clinic Space in San Bernardino

End

 

RECOMMENDATION(S)

Recommendation

1.                     Find that approval of Amendment No. 1 to Lease Agreement No. 23-869, with 590 North D Street, a Delaware Limited Liability Company for clinic space, is an exempt project under the California Environmental Quality Act Guidelines, Section 15301 - Existing Facilities (Class 1).

2.                     Approve Amendment No. 1 to Lease Agreement No. 23-869, with 590 North D Street, a Delaware Limited Liability Company, to update the term of the lease to reflect the commencement date of November 1, 2024, adjust the rental rate schedule to reflect the new commencement date for the term of November 1, 2024, through October 31, 2039, and update standard lease agreement language, for 14,894 square feet of clinic space, located at 590 North D Street in San Bernardino, for the Department of Public Health, and increasing the total lease amount by $517,562, from $16,696,720 to $17,214,282 for completion of tenant improvements.

3.                     Direct the Real Estate Services Department to file the Notice of Exemption in accordance with the California Environmental Quality Act.

(Presenter: Terry W. Thompson, Director, 387-5000)

Body

 

COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES

Operate in a Fiscally-Responsible and Business-Like Manner.

Provide for the Safety, Health and Social Service Needs of County Residents.

 

FINANCIAL IMPACT

Approval of Amendment No. 1 (Amendment) to Lease Agreement No. 23-869 (Lease) with 590 North D Street, a Delaware Limited Liability Company (Landlord) will not result in the use of Discretionary General Funding (Net County Cost).  The total cost of this Amendment is $17,214,282.  Lease payments will be made from the Real Estate Services (RESD) Rents budget (7810001000) and reimbursed from the Department of Public Health (DPH) budget (AAA PHL).  Other costs associated with this lease include utility expenses, which will be paid from the DPH budget.  The DPH budget is funded by Medi-Cal, Medicare, lab fees collected through MOUs with partnered cities and hospitals, private insurance, private pay, and 1991 Realignment funding.  Sufficient revenue and appropriation have been included in the 2024-25 budget and will be included in future recommended budgets.  Annual lease costs are as follows:

 

Lease Year

Annual Rent

Annual Improvement Cost

Total Annual Cost

Option Fee

(One-Time) $100

 

$100

*November 1, 2024, to November 30, 2024

$20,480

$38,083

$58,563

*December 1, 2024, to December 31, 2024

$28,407

$38,083

$66,490

**January 1, 2025, to October 31, 2025

$409,590

$380,830

$790,420

November 1, 2025, to October 31, 2026

$511,164

$456,996

$968,160

November 1, 2026, to October 31, 2027

$531,612

$456,996

$988,608

November 1, 2027, to October 31, 2028

$552,876

$456,996

$1,009,872

November 1, 2028, to October 31, 2029

$574,992

$456,996

$1,031,988

November 1, 2029, to October 31, 2030

$597,984

$456,996

$1,054,980

November 1, 2030, to October 31, 2031

$621,912

$456,996

$1,078,908

November 1, 2031, to October 31, 2032

$646,788

$456,996

$1,103,784

November 1, 2032, to October 31, 2033

$672,660

$456,996

$1,129,656

November 1, 2033, to October 31, 2034

$699,564

$456,996

$1,156,560

November 1, 2034, to October 31, 2035

$727,548

$456,996

$1,184,544

November 1, 2035, to October 31, 2036

$756,648

$456,996

$1,213,644

November 1, 2036, to October 31, 2037

$786,912

$456,996

$1,243,908

November 1, 2037, to October 31, 2038

$818,388

$456,996

$1,275,384

November 1, 2038, to October 31, 2039

$851,124

$456,996

$1,308,120

***One lump sum payment

 

 

$550,593

Total Cost:

$9,808,749

$6,854,940

$17,214,282

*November 1, 2024, through December 31, 2024, reflects the monthly rental payment. 

**January 1, 2025, through October 31, 2025, reflects a 10-month total cost. 

***One lump sum payment reflects the total additional cost for tenant improvements, which will be paid directly to the landlord.

 

BACKGROUND INFORMATION

On August 22, 2023 (Item No. 66), the Board of Supervisors (Board) approved the Lease, with one five-year option to extend for a total of 14,894 square feet of clinic space, located at 590 North D Street in San Bernardino (Premises).  The original projected term was from July 1, 2024, through June 30, 2039, subject to the landlord’s completion of certain turnkey tenant improvements, with one five-year option to extend the term.  The Lease also included an option to purchase the premises, with an Option Fee of $100, located at the Premises for $10,000,000, less rents, specifying a closing date no earlier than the Landlord’s receipt of a temporary certificate of occupancy for the Premises, following substantial completion of the improvements.

 

On November 1, 2024, DPH took possession of the first floor of the Premises, followed by possession of the second floor on December 20, 2024.  As a result, the commencement date of the Lease was revised to reflect a new commencement date for the term beginning November 1, 2024, and ending October 31, 2039.  As the first floor was the only occupied space during November 1, 2024, through December 31, 2024, the rent was adjusted accordingly to reflect the occupancy during that period, resulting in a decrease of lease costs by $33,031.

 

During the tenant improvements, DPH exceeded the allocated change order allowance due to necessary modifications required to accommodate operational needs.  The original total tenant improvement cost of $6,854,940, which was amortized over the term of the Lease, increased by $550,593.  This additional amount will be paid to the Landlord in a one-time lump sum no later than May 30, 2025.  As a result, the total tenant improvements cost increased to $7,405,533.

 

The project to approve the Amendment was reviewed pursuant to the California Environmental Quality Act (CEQA) and determined to be categorically exempt under CEQA Guidelines Section 15301 - Class 1 Existing Facilities because the Amendment is to secure property to operate within the existing structure with no expansion of the existing Lease.

 

Summary of Lease Terms

 

Lessor: 

590 North D Street, a Delaware Limited Liability Company Jason Tolleson, Member

 

 

Location:

590 North D Street in San Bernardino

 

 

Size:

14,894 square feet of clinic space

 

 

Term:

November 1, 2024, through October 31, 2039

 

 

Options:

One five-year option

 

 

Rent:

Cost per square foot per month: approximately $5.31 Full-Service Gross*

 

Monthly:  $79,042

 

Annual: $790,420 (prorated) *High-range for comparable facilities in the San Bernardino area per the competitive set analysis on file with RESD; base rent at $2.75 per square foot per month, plus tenant improvements at $2.56 per square foot per month

 

 

Annual Increases:

4%

 

 

Improvement Costs:

$7,405,533

 

 

Custodial:

Provided by County

 

 

Maintenance:

Provided by Lessor

 

 

Utilities:

Provided by Lessor, County to pay utility costs in excess of $30,000 per lease year or $0.17 per square foot per month (utility expense cap) subject to 3% annual increases

 

 

Insurance:

The Certificate of Liability Insurance, as required by the Lease, is on file with RESD

 

 

Holdover:

County has the right to Holdover subject to a 90-day termination notice

 

 

Right to Terminate:

Lease terminates upon close of escrow at any time after County takes occupancy; County has the right to terminate the Lease with 90-days’ notice at any time during any extended term

 

 

Option to Purchase:

If exercised, County has the right to purchase property at $10,000,000; Option Fee is $100

 

 

Parking:

Sufficient for County needs

 

PROCUREMENT

Not applicable.

 

REVIEW BY OTHERS

This item has been reviewed by County Counsel (John Tubbs II, and Adam Ebright, Deputies County Counsel, 387-5455) on April 29, 2025; Public Health (Shannon Bailey, Division Chief, 387-9146) on April 23, 2025; Purchasing (Dylan Newton, Buyer III, 387-3377) on April 23, 2025; Finance (Iliana Rodriguez, 387-4205, and Eduardo Mora, 387-3077, Administrative Analysts) on May 1, 2025; and County Finance and Administration (Paloma Hernandez-Barker, Deputy Executive Officer, 387-5423) on May 4, 2025.

 

(DM: 677-8388)