REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
March 25, 2025
FROM
TERRY W. THOMPSON, Director, Real Estate Services Department
Tracy Reece, Chief Probation Officer, Probation Department
SUBJECT
Title
Lease Agreement and Option to Purchase with KB Tri-City II MT, LLC, a Delaware Limited Liability Company for Office Space in San Bernardino
End
RECOMMENDATION(S)
Recommendation
1. Find that approval of a Lease Agreement and Option to Purchase with KB Tri-City II MT, LLC, a Delaware limited liability company, for office space is an exempt project under the California Environmental Quality Act Guidelines Section 15301 - Existing Facilities (Class 1).
2. Approve Lease Agreement with KB Tri-City II MT, LLC, a Delaware limited liability company, through the use of an alternative procedure, as allowed per County Policy 12-02 - Leasing Privately Owned Real Property for County Use, to lease approximately 59,018 square feet of office space located at 862 East Hospitality Lane in San Bernardino, for 10 years, with one five-year option to extend the term of the lease, which will commence on the later of substantial completion of the tenant improvements or San Bernardino County’s receipt of a Certificate of Occupancy obtained by KB Tri-City II MT, LLC, a Delaware limited liability company, for a total amount of $22,504,913, which includes a one-time lump-sum cost for tenant improvements.
3. Approve an Option to Purchase the entire property located at 862 East Hospitality Lane in San Bernardino from the commencement of the third year of the lease term through the expiration of the lease term, with an Option Fee of $100.
4. Authorize the Director of the Real Estate Services Department to exercise and execute any other Lease documents and take any other actions necessary to complete the transaction in Recommendation No. 2, subject to County Counsel review.
5. Authorize the Purchasing Agent to issue purchase orders, as necessary, for a total amount not to exceed $200,000, for any contingencies and/or minor change orders that may arise in order to complete turnkey tenant improvements set forth in the lease (Four votes required).
6. Direct the Real Estate Services Department to file the Notice of Exemption in accordance with the California Environmental Quality Act.
7. Authorize the Auditor-Controller/Treasurer/Tax Collector to post the necessary budget adjustments as detailed in the Financial Impact section (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.
Ensure Development of a Well-Planned, Balanced, and Sustainable County.
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). The total cost of the 10-year Lease Agreement (Lease) is $22,504,913, which includes a one-time lump-sum payment of $4,643,327 for tenant improvements which will be held in escrow until the tenant improvements are complete. The Lease, tenant improvements, and contingency payments will be made from the Real Estate Services Department (RESD) Rents budget and reimbursed by contributions made by the Probation Department (Probation) as part of the County Government Center Master Plan (CGC Master Plan (WBSE 10.10.1255)), along with the RESD administrative fee of $139,300. Other associated lease costs, such as operating expenses, taxes and an option fee of $100 will be covered by Probation’s ongoing Proposition 172 funding.
The following budget adjustments are necessary to increase the 2024-25 Rents budget:
|
Fund Center |
Commitment Item |
Description |
Action |
Amount |
WBSE |
|
7700003100 |
54304030 |
Structures & Improvements to Structures |
Decrease |
$4,782,627 |
10.10.1255 |
|
7700003100 |
55305030 |
Operating Transfers Out |
Increase |
$4,782,627 |
10.10.1255 |
|
7810001000 |
40909975 |
Operating Transfers In |
Increase |
$4,782,627 |
- |
|
7810001000 |
52002905 |
Rents & Leases-Structures, Improvements & Grounds |
Increase |
$4,643,327 |
- |
|
7810001000 |
55405012 |
Services & Supply Transfers Out |
Increase |
$139,300 |
- |
|
Year |
Annual Lease Cost |
Estimate of Other Costs Associated With This Lease |
|
*Lump-Sum Tenant Improvement Cost |
$4,643,327* |
$8,853 |
|
1 |
$1,558,075 |
$8,853 |
|
2 |
$1,604,818 |
$8,853 |
|
3 |
$1,652,962 |
$8,853 |
|
4 |
$1,702,551 |
$8,853 |
|
5 |
$1,753,627 |
$8,853 |
|
6 |
$1,806,236 |
$8,853 |
|
7 |
$1,860,423 |
$8,853 |
|
8 |
$1,916,236 |
$8,853 |
|
9 |
$1,973,723 |
$8,853 |
|
10 |
$2,032,935 |
$8,853 |
|
Total Cost |
$22,504,913 |
$88,530 |
*A one-time lump-sum payment for tenant improvements will be held in escrow until the completion of all required improvements.
BACKGROUND INFORMATION
Probation’s Administrative Bureau is currently located at 157 and 175 West 5th Street in San Bernardino. This location houses Probation’s administrative functions consisting of Executive Staff, Finance, IT/Automative Services, Purchasing, Personnel Support Services, External Affairs, Food Service/Culinary Management, Medical Division, Criminal Intelligence Unit, Research, Human Resources, Safety and Emergency Operations, Maintenance, Capital Projects, Professional Standards, Procedures, Audits/Inspections, Compliance, Payroll and Personnel, Accounts Payable, Accounting and associated Analysts and Program Specialists. The existing location no longer meets Probation’s capacity and functional needs.
Probation requested that RESD negotiate a Lease with KB Tri-City II MT, LLC, a Delaware limited liability company (Tri-City), for approximately 59,018 square feet of office space located at 862 East Hospitality Lane in San Bernardino. The Lease term is projected to commence July 1, 2025, subject to the later of: (i) substantial completion of turnkey tenant improvements as set forth in the Lease or (ii) the County’s receipt of a Certificate of Occupancy obtained by Tri-City. Beginning the third year of the Lease term, the County shall have the option to purchase the property. The purchase price of the property shall be the appraised fair market value of the Property. If the purchase of the property is desired, RESD will return to the Board of Supervisors (Board) to exercise the option to purchase and for approval of the Purchase and Sale Agreement (PSA) and Joint Escrow Instructions. The PSA is contingent upon approval by the Board. If the County decides to purchase the property, the County shall be free and clear in fee with no further Lease obligations. Over the course of the Lease term, the County has the first right of refusal as to any other parties who may express an interest in purchasing the property.
Although turnkey tenant improvement costs are to be paid as a one-time lump-sum cost, RESD requests, on behalf of Probation, that the Board authorize the Purchasing Agent to issue purchase orders, as necessary, for a total amount not to exceed $200,000 for any contingencies and/or minor change orders that may arise in order to complete turnkey tenant improvements set forth in the Lease. Public Contract Code 20137 requires four votes by the Board to authorize changes or alterations to a contract where the cost of such change does not exceed 10% of the original contract price but does exceed the amount specified in Public Contract Code sections 20121 and 21031, which are $4,000 and $25,000 respectively. All change orders and/or contingencies will be approved by RESD prior to authorizing any work or payment(s) to Tri-City.
Approval of this item will authorize the Director of RESD to approve and execute any other Lease documents and take any other actions necessary to complete this transaction, subject to County Counsel review. The Lease provides the following authority for the Director of RESD in administering the Lease: to execute estoppel certificates confirming facts regarding the lease and subordination, non-disturbance, and attornment agreements to preserve the County’s lease rights during landlord’s financing transactions involving the real property. The Director of RESD will not be authorized to execute any documents that would bind the County to any actions not contemplated by, or arising from, the transaction which is the subject of these recommendations.
The project to approve the Lease was reviewed pursuant to the California Environmental Quality Act (CEQA) and determined to be categorically exempt under Section 15301 - Existing Facilities because the lease anticipates repairs, leasing and minor alternations of an existing building with no expansion of existing or former use.
|
Summary of Lease Terms |
|
|
Lessor: |
KB Tri-City II MT, LLC, a Delaware limited liability company Jeff Pori, Chief Executive Officer |
|
|
|
|
Location: |
862 East Hospitality Lane, San Bernardino |
|
|
|
|
Size: |
59,018 square feet |
|
|
|
|
Term: |
10 years, commencing the later of (i) substantial completion of the tenant improvements; or (ii) the County’s receipt of a Certificate of Occupancy obtained by KB Tri-City II MT |
|
|
|
|
Options: |
One five-year option |
|
|
|
|
Rent: |
Cost per square foot per month: $2.20 |
|
|
Monthly: $129,839 |
|
|
Annual: $1,558,075 |
|
|
*Mid-range for comparable facilities in the San Bernardino area per the competitive set analysis on file with RESD |
|
|
|
|
Annual Increases: |
3% |
|
|
|
|
Improvement Costs: |
County shall pay a one-time lump-sum cost of $4,643,327 for turnkey tenant improvements |
|
|
|
|
Custodial: |
Lessor |
|
|
|
|
Maintenance: |
Lessor |
|
|
|
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Utilities: |
Lessor |
|
|
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Insurance: |
The Certificate of Liability Insurance, as required by the Lease, is on file with RESD |
|
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Holdover: |
Upon the end of the term, if permitted by Lessor the Lease shall continue on a month-to-month term at a monthly rent that is 150% of the rent applicable during the last rental period, all other terms shall remain the same as the terms and conditions which existed at the time of expiration |
|
|
|
|
Right to Terminate: |
None. |
|
|
|
|
Option to Purchase: Parking: |
County has the right to purchase the property beginning at the third year of the lease term at a fair market value price and the County has the first right of refusal as to any other parties who may express an interest in purchasing the property Sufficient for County needs |
PROCUREMENT
RESD is requesting the Board to approve the use of an alternative procedure in lieu of a Formal Request for Proposals (RFP) as allowed per County Policy 12-02 - Leasing Privately Owned Real Property for County Use, to lease approximately 59,018 square feet of office space located at 862 East Hospitality Lane in San Bernardino, for 10 years for the projected period of July 1, 2025, through June 30, 2035, subject to Tri-City’s completion of turnkey tenant improvements. Beginning at year three of the Lease, the County shall have the option to purchase the property at a fair market value price. Policy 12-02 provides that the Board may approve the use of an alternative procedure to the use 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 approved capacity as the County Administrative Office designee to review proposed real property leases under Policy 12-02, completed a competitive analysis of the area and found the lease rate is competitive for a 10-year term and this premises best meets the requirements of Probation.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (John Tubbs II, and Maria Insixiengmay, Deputies County Counsel, 387-5455) on March 5, 2025; Auditor-Controller/Treasurer/Tax Collector (Charlene Huang, Auditor-Controller Manager, 382-7022) on March 18, 2025; Probation (Thomas Kamara, Director of Probation Administration, 387-5822) on March 4, 2025; Purchasing (Ariel Gill, Supervising Buyer, 387-2070) on February 27, 2025; Finance (Iliana Rodriguez, Administrative Analyst, 387-4205, and Yael Verduzco, Principal Administrative Analyst, 387-5285) on March 18, 2025; and County Finance and Administration (Paloma Hernandez-Barker, Deputy Executive Officer, 387-5423) on March 18, 2025.
(YG: 665-0268)