REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF THE COUNTY OF SAN BERNARDINO
AND RECORD OF ACTION
February 11, 2020
FROM
TERRY W. THOMPSON, Director, Real Estate Services Department
LARRY AINSWORTH, Interim Chief Information Officer, Information Services Department
SUBJECT
Title
Amendment No. 1 to Revenue Lease Agreement with Summit Career College, Inc. for Office Space Acquired for the Information Services Department in Colton
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RECOMMENDATION(S)
Recommendation
1. Approve Amendment No. 1 to Revenue Lease Agreement No. 18-921 with Summit Career College, Inc. to retroactively extend the term of the lease five months and three days, for the period of September 28, 2019 through February 29, 2020, adjust the rental rate for 32,695 square feet of occupied space, waive rent for 42,305 square feet of unoccupied space so long as it remains unoccupied, and revise the holdover rate for office space totaling 75,000 square feet, which was acquired for use by the Information Services Department at 851 South Cooley Drive in the City of Colton in the amount of $382,500.
2. Approve a one-time waiver of the holdover rent of $5,000 per day for the period September 28, 2019 through February 29, 2020.
(Presenter: Terry W. Thompson, Director, 387-5252)
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COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
FINANCIAL IMPACT
Approval of this item will not require additional Discretionary General Funding (Net County Cost) as it is a revenue lease agreement. The County will receive total revenue for the General Fund in the amount of $382,500 for this five-month, three-day amendment. Revenue for the term of Amendment No. 1 is as follows:
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Period |
Lease Revenue |
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September 28 - 30, 2019 |
$ 7,500 |
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October, 2019 |
$ 75,000 |
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November, 2019 |
$ 75,000 |
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December, 2019 January, 2020 |
$ 75,000 $ 75,000 |
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February, 2020 |
$ 75,000 |
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Total |
$382,500 |
Due to protracted, good-faith negotiations, total rent revenue of $382,500 is recommended in lieu of holdover rental estimated at $775,000 for the term September 28, 2019 through February 29, 2020. The total rent charged was reduced because Summit reduced the area it was occupying from 75,000 square feet to 32,695 square feet. Nevertheless, the rental rate for the occupied area was increased from $2.00 per square foot to $2.29 per square foot.
BACKGROUND INFORMATION
The recommended action will amend existing Revenue Lease Agreement 18-921 with Summit Career College, Inc. (Summit) to retroactively extend the term of the lease for the period of September 28, 2019 through February 29, 2020, adjust the rental rate for 32,695 square feet of occupied space, waive rent for 42,305 square feet of unoccupied space so long as it remains unoccupied, and revise the holdover rate for office space totaling approximately 75,000 square feet at 851 South Cooley Drive in the City of Colton for the Information Services Department in the amount of $382,500. The recommended action will also provide a one-time waiver of the holdover rent of $5,000 per day for the period September 28, 2019 through February 29, 2020.
On June 26, 2018 (Item No. 48), the Board of Supervisors (Board) approved the acquisition from Summit of an approximate 6.84-acre site improved with a 75,000 square foot office building (Property) for the Information Services Department (ISD). On that date, the Board also approved a leaseback of the Property to Summit for a term of one year following the close of escrow for the Property with rent for the one-year term in the amount of $350,000 to be pre-paid by taking a credit against the purchase price. In addition, the Board approved the form of a revenue lease and delegated authority to the Director of the Real Estate Services Department (RESD) to execute the revenue lease with Summit upon close of escrow. Escrow for the Property closed in September 2018 and the RESD Director executed the revenue lease agreement for a term that commenced on September 28, 2018 and expired on September 27, 2019. The lease provided that if Summit remained in possession of the premises beyond September 27, 2019, Summit would pay a holdover rate of $5,000.00 per day.
On September 25, 2019, Summit advised RESD that, due to unexpected delays, their relocation site was not ready and requested that, in lieu of paying the holdover rent, the lease be extended through December 31, 2019 at a negotiated rate. During negotiations, the parties agreed that Summit would only occupy approximately 32,695 square feet on portions of the first and third floors of the building and remove its personal property from the remaining 42,305 square feet on portions of the first and third floors and all of the second floor, leaving those portions unoccupied. Although Summit would continue to lease the entire 75,000 square foot building since the unoccupied portions are scattered throughout the building and not easily separated for surrender, Summit would only pay rent on the occupied portions of the building at the rate of approximately $2.29 per square foot or $75,000 per month, which compares favorably with the holdover rate under the original lease of $2.00 per square foot. If, however, Summit resumed occupancy of the unoccupied portions of the building during the extended term, rent would retroactively be charged, commencing on the date Summit resumed occupancy. The holdover rate was also increased from $5,000 per day to $7,000 per day if Summit continued in possession of the building beyond the extended term. During discussions of the terms for the proposed extension, Summit realized they would need an additional two months of occupancy, and their request was updated for a term through February 29, 2020. RESD determined that the proposed extension was possible since construction to perform improvements to the building for ISD’s occupancy is pending. During the extended term, RESD may request access to the unoccupied portions of the building to conduct architectural investigations. Because Summit submitted their extension request during the final month of the original lease term, and the time it took to complete negotiations for the extended term, this request is necessarily retroactive in nature.
Staff has reviewed the recommended action 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.
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Summary of Revenue Lease Terms |
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Lessee: |
Summit Career College, Inc. (Jay Murvine, CEO) |
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Location: |
851 South Cooley Drive, Colton |
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Size: |
75,000 square feet office building |
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Term: |
Five months and three days, retroactive to September 28, 2019 |
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Options: |
None |
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Rent: |
Cost per sq. ft. per month: $2.29* |
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Monthly: $75,000 |
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*High-range for comparable facilities in the Colton area per supporting lease comparables on file; based on 32,695 square feet of occupied space; rent waived for 42,305 square feet so long as it remains unoccupied |
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Annual Increases: |
None |
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Improvement Costs: |
None |
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Custodial: |
Provided by Lessee |
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Maintenance: |
Provided by Lessee |
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Utilities: |
Provided by Lessee |
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Insurance: |
The Certificate of Liability Insurance, as required by the lease, is on file with the Real Estate Services Department. |
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Right to Terminate: |
None except due to default |
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Parking: |
Not applicable |
PROCUREMENT
On June 26, 2018 (Item No. 48), the Board of Supervisors (Board) approved the purchase of the Property pursuant to Government Code Section 25350 and approved a leaseback of the Property to Summit for a term of one year, following the close of escrow for the Property. Escrow for the Property closed in September 2018 and the RESD Director executed the revenue lease agreement for a term that commenced on September 28, 2018 and expired on September 27, 2019.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Agnes Cheng, Deputy County Counsel and Bonnie Uphold, Deputy County Counsel, 387-5455) on February 3, 2020; ISD (Tim Trager, Chief, Telecommunications Division, 388-5563) on January 30, 2020; Finance (Monique Amis, Administrative Analyst, 387-4883 and Joon Cho, Administrative Analyst, 387-5402) on February 3, 2020; and County Finance and Administration (Matthew Erickson, County Chief Financial Officer, 387-5423) on February 4, 2020.
(BJO: 659-4676)