REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
January 9, 2024
FROM
TERRY W. THOMPSON, Director, Real Estate Services Department
JACQUELYN GREENE, Director, Preschool Services Department
SUBJECT
Title
Lease Amendment with A.B. Holdings, LLC for Classroom and Office Space, Playground Area, and Parking Spaces in Rialto
End
RECOMMENDATION(S)
Recommendation
1. Find that approval of Amendment No. 6 to Lease Agreement No. 02-455 with A.B. Holdings, LLC is an exempt project under the California Environmental Quality Act Section 15301 - Existing Facilities (Class1).
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 County Use, to extend the term of Lease Agreement No. 02-455 with A.B. Holdings, LLC for five years, for the period of February 1, 2024 through January 31, 2029, add an additional five-year option to extend the term of the lease, for an aggregate term of 31 years and eight months if the option to extend is exercised, following a permitted 12-month holdover for the period of February 1, 2023 through January 31, 2024.
3. Approve Amendment No. 6 to Lease Agreement No. 02-455 with A.B. Holdings, LLC to extend the term of the lease five years, for the period of February 1, 2024 through January 31, 2029, add one additional five-year option to extend the term of the lease, for an aggregate term of 31 years and eight months if the option to extend is exercised, following a permitted 12-month holdover for the period of February 1, 2023 through January 31, 2024, for approximately 6,408 square feet of classroom and office space, and approximately 9,000 square feet of playground area, and 54 parking spaces in Rialto for the Preschool Services Department, in the amount of $1,332,994.
4. Authorize the Auditor-Controller/Treasurer/Tax Collector to post the necessary 2023-24 budget adjustments as detailed in the Financial Impact section (Four votes required).
5. 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.
FINANCIAL IMPACT
Approval of this item will not result in the use of Discretionary General Funding (Net County Cost). The total cost of this five-year amendment is $1,332,994, which includes a holdover period cost in the amount of $202,271. Lease payments will be made from the Real Estate Services Department (RESD) Rents budget (7810001000) and reimbursed from the Preschool Services Department (PSD) budget (5911882220). Other costs associated with this Lease include custodial and ground maintenance costs, which will be paid from the PSD budget. The 2023-24 budget includes $152,100 for this Lease, but the new costs for 2023-24 total $206,819, an increase of $54,719. Additionally, RESD will need to retroactively pay $36,810 for holdovers from 2022-23. The new Lease cost includes a retroactive holdover amount from 2022-23 of $84,280, of which RESD has paid $47,470. In order to cover the total increased costs of $91,529, RESD requests the Auditor-Controller/Treasurer/Tax Collector to post the following adjustments to the 2023-24 budget:
|
Cost Center |
GL Account |
Description |
Action |
Amount |
|
7810001000 |
52002905 |
Rents & Leases-Structures, Improvements & Grounds |
Increase |
$91,529 |
|
7810001000 |
55415013 |
Services & Supplies Transfers In |
Increase |
$91,529 |
Sufficient appropriation will be included in future recommended budgets. Annual lease costs are as follows:
|
Year |
Annual Lease Cost |
Estimate of Other Costs |
Total Annual Lease Cost |
|
February 1, 2023 - January 31, 2024* |
$146,100 |
$56,171 |
$202,271 |
|
February 1, 2024 - January 31, 2025 |
$155,330 |
$57,856 |
$213,186 |
|
February 1, 2025 - January 31, 2026 |
$159,944 |
$59,592 |
$219,536 |
|
February 1, 2026 - January 31, 2027 |
$164,557 |
$61,380 |
$225,937 |
|
February 1, 2027 - January 31, 2028 |
$169,171 |
$63,221 |
$232,392 |
|
February 1, 2028 - January 31, 2029 |
$ 174,554 |
$65,118 |
$239,672 |
|
Total Cost * Twelve-month holdover period |
$969,656 |
$363,338 |
$1,332,994 |
BACKGROUND INFORMATION
Amendment of Lease Agreement No. 02-455 (Lease) with A.B. Holdings, LLC (AB) will provide for the San Bernardino County’s (County) continued use of approximately 6,408 square feet of classroom and office space, approximately 9,000 square feet of playground area and 54 parking spaces for an additional five years, for the period of February 1, 2024 through January 31, 2029, (an aggregate term of 26 years and eight months) following a permitted holdover for the period of February 1, 2023 through January 31, 2024, for the facility located at 485 North Eucalyptus Avenue in Rialto (Premises) because of the continuing need to provide preschool services in the Rialto area.
On June 4, 2002 (Item No. 72), the Board of Supervisors (Board) approved a five-year Lease with AB, with one three-year and one two-year option to extend the term of the Lease, for the period of June 1, 2002 through May 31, 2007, for 6,408 square feet of classroom and office space and 9,000 square feet of playground area and 54 parking spaces located at the Premises.
On March 27, 2007 (Item No. 20), the Board approved Amendment No. 1 to the Lease to extend the term of the Lease three years, for the period of June 1, 2007 through May 31, 2010, through the County’s exercise of the three-year option and adjusted the rent schedule.
On May 11, 2010 (Item No. 67), the Board approved Amendment No. 2 to the Lease, which extended the term for the period of June 1, 2010 through May 31, 2012, through the County’s exercise of the two-year option extension, added two additional three-year options to extend the term of the lease, adjusted the rent schedule and updated standard lease agreement language.
On June 26, 2012 (Item No. 60), the Board approved Amendment No. 3 to the Lease, which extended the term of the Lease three years, for the period of June 1, 2012 through May 31, 2015, and adjusted the rent schedule.
On July 28, 2015 (Item No. 69), the Board approved Amendment No. 4 to the Lease, which extended the term of the Lease three years, for the period of August 1, 2015 through July 31, 2018, following a permitted holdover for the period of June 1, 2015 through July 31, 2015, through the County’s exercise of the second of two three-year options to extend the term of the Lease, adjusted the rent schedule and updated standard lease agreement language.
On January 7, 2020 (Item No. 29), the Board approved Amendment No 5 to the Lease, which extended the term of the Lease three years for the period of February 1, 2020 through January 31, 2023, following an 18-month permitted holdover for the period of August 1, 2018 through January 31, 2020, adjusted the rent schedule, adjusted the In-Kind and Cost Sharing schedule, revised the maintenance responsibilities and updated standard lease agreement language.
In August 2022, PSD requested RESD to initiate discussions with A.B. to determine the status of the Premises to inquire if the landlord had decided to repurpose the Premises or to continue the Lease in its present use and allow the County to occupy the Premises on a longer-term basis, which included a request to add an additional five-year option to extend the term of the Lease. RESD completed a market survey and established the market range for the Premises and attempted to initiate renewal discussions. However, due to the interest of AB in business opportunities outside of the country, AB did not respond to attempts to discuss the renewal. On February 1, 2023, the Lease went into holdover and the County has continued to occupy the Premises and abide by the terms of the Lease. Recent negotiations concerning the market rate for properties in the Rialto area with AB to establish the terms and provisions of the agreement have delayed presentation of this amendment for approval by the Board. Amendment No. 6 to the Lease accomplishes the request of PSD.
The project to approve Amendment No. 6 to the Lease was reviewed pursuant to the California Environmental Quality Act (CEQA) and determined to be categorically exempt under Guidelines Section 15301 - Existing Facilities (Class 1) because approval of a lease agreement for existing facilities is an exempt activity under CEQA. There is no possibility that the leasing of the subject property will have a significant effect on the environment; therefore, the activity is not subject to the provisions of CEQA.
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Summary of Lease Terms |
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Lessor: |
A.B. Holdings, LLC (Mark Barnhart, Member) |
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Location: |
485 North Eucalyptus Avenue, Rialto |
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Size: |
Approximately 6,408 square feet of classroom and office space, approximately 9,000 square feet of playground area and 54 parking spaces |
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Term: |
Five years, commencing February 1, 2024 through January 31, 2029 |
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Options: |
One five-year option to extend the term of the Lease |
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Rent: |
Cost per square foot per month: $2.02* |
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Monthly: $12,944 |
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Annual: $155,330 |
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*Mid-range for comparable facilities in the Rialto area per the competitive set analysis on file with RESD |
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Annual Increases: |
3% |
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Improvement Costs: |
None |
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Custodial: |
Provided by County |
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Maintenance: |
Provided by Lessor; except County provides landscape maintenance |
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Utilities: |
Provided by County |
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Insurance: |
The Certificate of Liability Insurance, as required by the Lease, is on file with the 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 upon the same terms and conditions which existed at the time of expiration |
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Right to Terminate: |
The County has the right to terminate with 90-days’ notice |
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Parking: |
Sufficient for County needs |
PROCUREMENT
On June 4, 2002, the Board approved the Lease which was procured according to County Policy 12-02 - Leasing Privately Owned Property for County Use (Policy) via a Solicitation of Proposal.
The Policy provides that the Board may approve the extension of the Lease five years for the period of February 1, 2024 through January 31, 2029, through the use of an alternative procedure instead of a formal Request for Proposals (RFP) 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. The Policy also requires a thorough and detailed review by the County Executive Officer or designee to validate the need for and provide a competitive analysis of any lease with a term of more than 20 years. RESD, acting as the delegated agent of the County Administrative Office, completed a competitive analysis of comparable properties and found the proposed rental rate to be competitive. Extending the term of the Lease five years will provide for an aggregate term of 26 years, eight months. The site best meets the long-term requirements of PSD, and if the extension is approved by the Board, would minimize disruption to PSD’s operations and save moving costs. RESD requests the Board approve the use of an alternative procedure in lieu of an RFP to extend the term of the Lease five years for the period of February 1, 2024 through January 31, 2029.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (John Tubbs II, and Adam Ebright, Deputies County Counsel, 387-5455) on December 8, 2023; Preschool Services (Jacquelyn Greene, Director, 383-2025) on December 5, 2023; Purchasing (Ariel Gill, Supervising Buyer, 387-2070) on December 6, 2023; Auditor-Controller/Treasurer/Tax Collector (Charlene Huang, Auditor-Controller Manager, 382-7022) on December 22, 2023; Finance (Paul Garcia, 386-8392, and Garrett Baker, 387-3077, Administrative Analysts) on December 14, 2023; and County Finance and Administration (Valerie Clay, Deputy Executive Officer, 387-5423) on December 15, 2023.
(KB: 677-7961)