REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
August 9, 2022
FROM
TERRY W. THOMPSON, Director, Real Estate Services Department
MARIE GIRULAT, Director, Department of Child Support Services
SUBJECT
Title
Amendment to Existing Lease and New Replacement Lease with DRC 17 Mountain View, LP for Office Space for the Department of Child Support Services in Loma Linda
End
RECOMMENDATION(S)
Recommendation
1. Approve Amendment No. 5 to Lease Agreement No. 98-809 with DRC 17 Mountain View, LP to terminate the lease, effective the date immediately preceding the commencement date of a new replacement lease with DRC 17 Mountain View, LP, which is projected to occur retroactive to July 31, 2022, for approximately 94,121 square feet of office space located at 10417 Mountain View Avenue in Loma Linda, following a permitted holdover for the period of November 1, 2019, through the date immediately preceding the commencement date of a new replacement lease, and provide for the landlord’s refund of an overpayment of rent in the amount of $377,751 for the period of November 1, 2019 through January 31, 2021, that resulted in a total net cost of $5,173,188.
2. Approve the Real Estate Services Department’s use of an alternative procedure in lieu of a Formal Request for Proposals, as allowed per County Policy 12-02 - Leasing Privately Owned Real Property for San Bernardino County Use to lease approximately 94,121 square feet of office space located at 10417 Mountain View Avenue in Loma Linda for the Department of Child Support Services.
3. Approve a new 10-year Lease Agreement, with one 10-year option to extend the term of the lease, with DRC 17 Mountain View, LP, commencing and retroactive to August 1, 2022 through July 31, 2032, for approximately 94,121 square feet of office space located at 10417 Mountain View Avenue in Loma Linda, provide for the landlord’s completion of certain turnkey tenant improvements, with the cost to be amortized and reimbursed to the landlord over the period of the day after the improvement completion date through the then remaining lease term, which is projected to be for the period of April 1, 2024 through July 31, 2032, and provide for messaging on the Jumbotron monitor at the property complex for a total lease cost for the Department of Child Support Services in the amount of $26,342,314.
4. Authorize the Purchasing Agent to issue Purchase Orders, as necessary, for a total amount not to exceed $45,000 for any contingencies and/or minor change orders that may arise in order to complete certain turnkey tenant improvements set forth in the new 10-year replacement lease (Four votes required).
(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 this item will not result in the use of Discretionary General Funding (Net County Cost) as this program is funded federally at 66% by the United States Health and Human Welfare Department and 34% by the State of California Department of Health and Welfare-Child Support Services. The total net cost to San Bernardino County (County) for Amendment No. 5 to Lease No. 98-809 (Existing Lease) is $5,173,188, comprising of $5,550,939 in holdover rents due but offset by the landlord’s refund of $377,751 as a result of the County’s overpayment of rent during a portion of the permitted holdover period. The refund amount will be deposited in the Department of Child Support Services (DCSS) fund (4520001000).
The total cost of the new 10-year replacement lease (Replacement Lease) for rent, amortized improvements, and Jumbotron messaging rent is $26,342,314. Payments for the Replacement Lease will be made from the Real Estate Services Department (RESD) Rents budget (7810001000) and reimbursed from the DCSS budget (4520001000). Other costs associated with the Replacement Lease include custodial, electrical utility, and after-hours heating, ventilation, and air-conditioning (HVAC) service costs, which costs will be paid from the DCSS budget. Sufficient appropriation is included in both the recommended 2022-23 RESD Rent and DCSS budgets and will be included in future recommended budgets. The costs for the Existing Lease and the Replacement Lease are as follows:
Existing Lease:
|
Period |
Lease Cost |
|
11/1/19 - 7/31/22 |
$5,550,939 |
|
11/1/19 - 1/31/21 (landlord refund) |
($377,751) |
|
Total Cost |
$5,173,188 |
Replacement Lease:
|
Period (projected) |
Lease Cost+ |
Estimate of Other Costs Associated With Lease |
|
8/1/2022 - 7/31/2023 |
$ 2,134,416 |
$ 375,000 |
|
8/1/2023 - 3/31/2024* |
$ 1,465,216 |
$ 128,750 |
|
4/1/2024 - 7/31/2024* |
$ 808,801 |
$ 257,500 |
|
8/1/2024 - 7/31/2025 |
$ 2,492,080 |
$ 388,125 |
|
8/1/2025 - 7/31/2026 |
$ 2,558,896 |
$ 401,709 |
|
8/1/2026 - 7/31/2027 |
$ 2,627,968 |
$ 413,760 |
|
8/1/2027 - 7/31/2028 |
$ 2,699,068 |
$ 426,173 |
|
8/1/2028 - 7/312029 |
$ 2,772,904 |
$ 441,089 |
|
8/1/2029 - 7/31/2030 |
$ 2,848,767 |
$ 472,505 |
|
8/1/2030 - 7/31/2031 |
$ 2,926,899 |
$ 489,043 |
|
8/1/2031 - 7/31/2032 |
$ 3,007,299 |
$ 506,160 |
|
Total Cost |
$26,342,314 |
$4,299,814 |
*Partial year periods based on a projected improvement completion date of March 31, 2024.
+ Includes rent, amortized improvements as the projected date of April 1, 2024, and Jumbotron messaging rent.
BACKGROUND INFORMATION
The recommended actions will approve an amendment to the Existing Lease with DRC 17 Mountain View, LP (DRC) to terminate the agreement effective on the date immediately preceding the commencement date of the Replacement Lease, which will occur retroactively on July 31, 2022, for approximately 94,121 square feet of office space at 10417 Mountain View Avenue in Loma Linda (Premises). The lease termination follows a permitted holdover for the period of November 1, 2019, through the date immediately preceding the commencement date of the Replacement Lease and provides for DRC’s refund to the County of an overpayment of rent. The recommended actions will also approve a new Replacement Lease with DRC for the Premises for a 10-year term, with one 10-year option to extend the term, commencing and retroactive to August 1, 2022. The Replacement Lease provides for the landlord’s completion of turnkey improvements, which are projected to be completed on March 31, 2024, with the cost to be amortized and reimbursed to the landlord over the period of April 1, 2024 through July 31, 2032, and provides for not less than 24 messages per lease year on the Jumbotron monitor at the property.
On September 22,1998 (Item No. 11), the Board of Supervisors (Board) approved the Existing Lease with DRC’s predecessor-in-interest for the Premises. In the 23 years since the Existing Lease was originally approved, the Board has approved four amendments extending the term of the Existing Lease through October 31, 2019, adding one five-year option to extend the term of the Existing Lease, adjusting the rental rate schedule, providing for tenant improvements, reflecting a change in the ownership of the property, and updating standard lease agreement language.
|
Amendment No. |
Approval Date |
Item No. |
|
1 |
April 19, 2005 |
43 |
|
2 |
October 27, 2009 |
34 |
|
3 |
March 26, 2013 |
36 |
|
4 |
August 26, 2016 |
61 |
DCSS initially requested that RESD amend the Existing Lease to extend the term through the exercise of the County’s available five-year extension option and include the landlord’s completion of certain turnkey tenant improvements with the cost to be amortized over the extended term. Upon review of the estimated cost of the desired improvements and a review of the Existing Lease provisions, it was determined that a Replacement Lease with updated standard lease agreement language and a longer term to amortize the improvement cost would better serve the purposes of DCSS. During protracted negotiations for the Replacement Lease, the Existing Lease went into a month-to-month holdover on November 1, 2019, and the County commenced paying holdover rent in the amount of $181,946 per month, which included $25,183 for amortized payments for certain tenant improvements, fully amortized when the Existing Lease expired. Amendment No. 5 provides for the Existing Lease to be terminated effective on the date immediately preceding the commencement date of the Replacement Lease and DRC’s refund of an overpayment of rent in the total amount of $377,751 for a portion of the holdover period of November 1, 2019 through January 31, 2021.
On, August 3, 2022, the County Administrative Office (CAO) approved Capital Improvement Program (CIP) request No. 23-068 to continue to lease the Premises and provide for turnkey tenant improvements therein consisting of construction of employee common areas on the second and fourth floors, repurposing of an area on the first floor to a Job Resource Room and repainting and recarpeting of the all the floors of the building. The Replacement Lease for the Premises will be for a term of 10 years, with one 10-year option to extend the term of the lease, commencing the first day of the month following full execution (projected to be August 1, 2022). This Replacement Lease will provide for DRC’s completion of turnkey tenant improvements projected to be completed March 31, 2024, at a cost of $1,904,830, which will be amortized and repaid to the landlord over the period of the day after the improvement completion date and the then remaining term of the Replacement Lease, which is projected to be for the period of April 1, 2024 through July 31, 2032. The Replacement Lease also requires that DRC provide the County with the right to display not less than 24 messages per lease year at the Jumbotron monitor located at the property complex. The initial messaging cost is $450 per month with three percent annual escalations.
Staff has reviewed the recommended actions pursuant to the California Environmental Quality Act (CEQA) and has determined that it does not constitute a project. Accordingly, no further action is required under CEQA.
|
Summary of Replacement Lease Terms |
|
|
Lessor: |
DRC 17 Mt. View, LP (Owen Frost, Authorized Signatory) |
|
|
|
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Location: |
10417 Mountain View Avenue, Loma Linda |
|
|
|
|
Size: |
94,121 square feet of office space |
|
|
|
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Term: |
10 years, commencing and retroactive to August 1, 2022 |
|
|
|
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Options: |
One 10-year option |
|
|
|
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Rent: |
Cost per sq. ft. per month: $1.89* |
|
|
Monthly: $177,868 |
|
|
Annual: $2,134,416 |
|
|
*Mid-range for comparable facilities in the Loma Linda area per the competitive set analysis on file with RESD; cost includes amortized improvements and Jumbotron rent |
|
|
|
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Annual Increases: |
3% |
|
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Jumbotron: |
County has the right to display not less than 24 messages per lease year at the Jumbotron monitor situated at the property complex; initial messaging cost is $450 per month with three percent annual escalations |
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Improvement Costs: |
Provided by Lessor at a cost of $1,904,830, which is amortized and reimbursed to the landlord over the remaining eight years, four months of the initial lease term, provided that any additional costs for unanticipated code compliance work that exceeds $20,000 shall also be amortized over the same period, and an allocation of $45,000 for any contingencies and/or change order work for the tenant improvements set for the in the Replacement Lease to be authorized by DCSS representatives and paid by Purchase Orders as needed |
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Custodial: |
Provided by County |
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Maintenance: |
Provided by Lessor |
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Utilities: |
Provided by Lessor, except that County shall pay the cost of electric utility service and after-hours HVAC service |
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Insurance: |
The Certificate of Liability Insurance, as required by the lease, is on file with RESD |
|
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Right to Terminate: |
The County has the right to terminate at any time after the end of the 84th month of the initial term, provided that County reimburses landlord for all then unamortized improvement costs within 60 days after the effective termination date; County has the right to terminate at no cost at any time during any extended term |
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Parking: |
Sufficient for County needs |
PROCUREMENT
On September 22, 1998 (Item No. 11), the Board approved the Existing Lease, which was procured in accordance with County Policy 12-02 - Leasing Privately Owned Real Property for County Use (Policy), using a procedure similar to a Request for Proposals (RFP), because the Policy was not adopted until August 2, 2001. The procurement process required by the Policy does not apply to an amendment of existing leases, provided the amendment does not exceed the maximum term (including options) of the lease.
RESD is requesting the Board approve the use of an alternative procedure in lieu of a Formal RFP as allowed per the Policy to enter into the Replacement Lease. The Policy provides that the Board may approve the use of an alternative procedure in lieu of a Formal RFP process whenever the Board determines that compliance with the Formal RFP requirements would unreasonably interfere with the financial or programmatic needs of the County or when the use of an alternative procedure would otherwise be in the best interest of the County.
RESD, acting in its capacity as the CAO designee to review proposed real property leases under the Policy, completed a competitive analysis of the Loma Linda area and found the negotiated rental rate is competitive. The Premises best meet the requirements of DCSS and DCSS will not incur disruptions of services provided through a move to a new location.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Agnes Cheng, Deputy County Counsel, and Ramona Verduzco, Deputy County Counsel, 387-5455) on June 30, 2022; Child Support Services (Larita Manalili, Deputy Director, 478-7423) on June 2, 2022; Purchasing (Bruce Cole, Supervising Buyer, 387-2148) on June 7, 2022; Finance (Paul Garcia, Administrative Analyst, 386-8392, and Carl Lofton, Administrative Analyst, 387-5404) on July 26, 2022; and County Finance and Administration (Valerie Clay, Deputy Executive Officer, 387-5423) on July 26, 2022.
(KB: 677-7961)