REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
June 23, 2026
FROM
TERRY W. THOMPSON, Director, Real Estate Services Department
Tracy Reece, Chief Probation Officer, Probation Department
SUBJECT
Title
Amendment to Lease Agreement 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 Amendment No. 2 to Lease Agreement No. 25-175 with KB Tri-City II MT, LLC, a Delaware Limited Liability Company, for office space in San Bernardino, is an exempt project under the California Environmental Quality Act Guidelines, Section 15301 - Existing Facilities (Class 1).
2. Approve Amendment No. 2 to Lease Agreement No. 25-175 with KB Tri-City II MT, LLC, a Delaware limited liability company, for office space located at 862 East Hospitality Lane in San Bernardino, to add expansion space and authorize related tenant improvements and project costs, as follows:
a. Add approximately 27,466 square feet of office space, increasing the total leased premises from 59,018 rentable square feet to 86,484 rentable square feet.
b. Approve lease term for the expansion space, to commence upon substantial completion of the expansion space improvements and expire coterminously with the original leased premises 10 years after the later of substantial completion of the original premises tenant improvements or San Bernardino County’s receipt of a certificate of occupancy.
c. Increase the total Lease Agreement No. 25-175 amount by $10,550,235, from $24,034,560 to $34,584,795, inclusive of a one-time lump sum tenant improvement cost of $2,237,749, which shall be deposited into an escrow account and disbursed in accordance with the disbursement agreement authorized pursuant to Amendment No. 1 to Lease Agreement No. 25-175 for completion of the tenant improvements.
d. Authorize the Chair of the Board of Supervisors to execute Amendment No. 2 to Lease Agreement No. 25-175 with KB Tri-City II MT, LLC, a Delaware Limited Liability Company, within five business days after and conditioned upon Board of Supervisors approval and San Bernardino County’s receipt of verification of KB Tri-City II MT, LLC’s reinstatement of good standing by the California Franchise Tax Board and the California Secretary of State, subject to County Counsel review.
3. Authorize the Director of the Real Estate Services Department to approve and execute any other escrow-related documents, including amendments and draws from the Escrow and Disbursement Agreement, and take any other actions necessary to complete the transaction in Recommendation No. 2, subject to County Counsel review.
4. 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).
5. Direct the Real Estate Services Department to file the Notice of Exemption in accordance with the California Environmental Quality Act.
6. 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.
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).
Amendment No. 2 (Amendment) to Lease Agreement No. 25-175 (Lease) increases the total agreement amount by $10,550,235 to expand the existing leased premises, including $8,312,486 in additional lease costs and $2,237,749 in anticipated tenant improvement construction costs.
The additional first year lease cost of $725,102 and tenant improvement costs of $2,237,749 will initially be funded through the Real Estate Services Department (RESD) Rents budget. These costs will be fully reimbursed through contributions from the Probation Department (Probation) as part of the County Government Center Master Plan (CGC Master Plan) (WBSE 10.10.1255). In addition, an additional $19,940 will be required to fund RESD administrative fees associated with the lease expansion and tenant improvement project. Collectively, the additional lease costs, tenant improvement costs, and administrative fees total $2,982,791. Other lease related annual costs of $4,051 will be funded directly by Probation.
RESD requests the Auditor-Controller/Treasurer/Tax Collector to post the following adjustments to the 2026-27 budget:
|
Cost Center |
Commitment Item |
Description |
Action |
Amount |
WBSE |
|
7700003100 |
54304030 |
Structures & Improvements to Structures |
Decrease |
$2,982,791 |
10.10.1255 |
|
7700003100 |
55305030 |
Operating Transfers Out |
Increase |
$2,982,791 |
10.10.1255 |
|
7810001000 |
40909975 |
Operating Transfers In |
Increase |
$2,982,791 |
N/A |
|
7810001000 |
52002905 |
Rents & Leases - Structures, Improvements & Grounds |
Increase |
$2,982791 |
N/A |
Sufficient appropriation will be included in future recommended budgets. Annual lease costs are as follows:
|
Year |
Annual Lease Cost for Expansion Premises |
Estimated Of Other Costs Associated With This Lease |
|
*One-time Lump-Sum Payment |
$2,237,749 |
- |
|
Year 1 |
$725,102 |
$4,051 |
|
Year 2 |
$746,856 |
$4,051 |
|
Year 3 |
$769,261 |
$4,051 |
|
Year 4 |
$792,339 |
$4,051 |
|
Year 5 |
$816,109 |
$4,051 |
|
Year 6 |
$840,592 |
$4,051 |
|
Year 7 |
$865,810 |
$4,051 |
|
Year 8 |
$891,785 |
$4,051 |
|
Year 9 |
$918,538 |
$4,051 |
|
Year 10 |
$946,094 |
$4,051 |
|
Total Cost |
$10,550,235 |
$40,510 |
* One-time lump-sum payment for tenant improvements will be held in escrow until the completion of all required improvements.
BACKGROUND INFORMATION
On March 25, 2025 (Item No. 56), the Board of Supervisors (Board) approved Lease Agreement No. 25-175 (Lease) with KB Tri-City II MT, LLC (Landlord) for approximately 59,018 rentable square feet of office space located at 862 East Hospitality Lane in San Bernardino (Premises) to serve as the Probation’s Administrative Headquarters.
On May 5, 2026 (Item No. 61), the Board approved Amendment No. 1 to the Lease to increase funding for tenant improvements, contingency, supervision, escrow-related costs associated with the project, and authorized the Director of RESD to execute amendments to the Escrow Disbursement Agreement necessary to administer and disburse the additional tenant improvement funds.
Subsequent to approval of the Lease, additional space within the building became available pursuant to the County’s First Right of Offer provisions under the Lease. The Landlord notified the County that Suite 250, consisting of approximately 27,466 square feet of office space (Expansion Premises), would become available for lease. Probation identified an operational need for the additional office space to support future staffing, operational growth, meeting and training functions, and departmental consolidation efforts.
The recommended Amendment to the Lease adds approximately 27,466 square feet to the existing leased Premises, increasing the total from 59,018 square feet to approximately 86,484 square feet. The Expansion Premises will be incorporated into the existing Premises and governed under the terms of the Lease, as amended. The Lease term associated with the additional office space will commence upon substantial completion of the tenant improvements and the County’s receipt of a Certificate of Occupancy.
The Amendment also authorizes tenant improvements associated with the Expansion Premises, including construction, planning, architectural services, escrow administration, and related project costs. The estimated tenant improvements project budget totals approximately $2,237,749, inclusive of hard and soft construction costs, contingency, work supervision fees, and escrow administration fees. The additional tenant improvements will be incorporated into the existing Tenant Work Letter, performed by the Landlord's contractor, and funded and administered through the existing Escrow and Disbursement Agreement framework established under the Lease.
The Amendment further establishes procedures governing phased occupancy and commencement of rental obligations between the original leased Premises and the Expansion Premises in the event construction is completed at different times. Rental obligations for the Expansion Premises will commence only after the Expansion Premises is substantially complete and Ready for Occupancy. Once both the original leased Premises and Expansion Premises are complete and occupied, rental obligations will apply to the full collective premises of approximately 86,484 rentable square feet.
Prior to execution of the Amendment, the Landlord was found to be in good standing with the California Secretary of State, however, the Landlord’s entity was in “forfeiture” status with the California Franchise Tax Board (CFTB), rendering agreements entered into during such status voidable. While reinstatement is in process and not expected prior to the June 23, 2026 Board meeting, the parties seek to proceed with conditional Board approval to minimalize further delay to the approval and construction progress. The Amendment will not be valid or enforceable until the Landlord provides satisfactory verification of reinstatement, and the County executes the Amendment following such verification. The Chair will execute the Amendment within five business days after, conditioned upon Board approval, the County’s receipt of verification of Landlord’s reinstatement of good standing with CFTB, subject to County Counsel review.
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 section 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 ($4,000) and 21031 ($25,000). All change orders and/or contingencies will be approved by RESD prior to authorizing any work or payment(s) to the Landlord.
Approval of this item will authorize the RESD Director to approve and execute any documents necessary to complete this transaction, subject to County Counsel review. This includes authority to execute amendments to the Escrow and Disbursement Agreement, Notices of Lease Term Dates, and related construction and tenant improvement documents necessary to administer the expansion work within the approved budget authority.
The project to approve the Amendment was reviewed pursuant to the California Environmental Quality Act (CEQA) and determined to be categorically exempt under Section 15301 - Existing Facilities because the Amendment anticipates repairs, leasing and minor alterations of an existing building with no expansion of existing or former use.
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Summary of Lease Terms |
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Lessor: |
KB Tri-City II MT, LLC, a Delaware Limited Liability Company Jeff Pori, Chief Executive Officer |
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Location: |
862 East Hospitality Lane, San Bernardino |
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Size: |
The Original Premises consists of approximately 59,018 rentable square feet and the Expansion Premises consists of approximately 27,466 rentable square feet, for a total of approximately 86,484 rentable square feet |
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Term: |
10 years; commencing upon 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, LLC |
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Options: |
One five-year option |
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Rent: |
Cost per square foot per month: $2.20 |
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Monthly: $60,425.20 |
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Annual: $725,102.40 |
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*Mid-range for comparable facilities in the San Bernardino area per the competitive set analysis on file with RESD |
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Annual Increases: |
3% |
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Improvement Costs: |
County shall pay a total cost of $2,237,749 for turnkey tenant improvements, which include construction costs, a 4% work supervision fee, a 10% contingency for tenant improvement expenses, and escrow administration fees |
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Custodial: |
Lessor |
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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 and conditions shall remain the same as the terms and conditions which existed at the time of expiration |
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Right to Terminate: |
None |
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Option to Purchase: |
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 |
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Parking: |
Sufficient for County needs |
PROCUREMENT
Not applicable.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (John Tubbs II, Deputy County Counsel, 387-5455) on May 27, 2026; Probation (Thomas Kamara, Director of Probation Administration, 387-5822) on May 29; 2026; Auditor-Controller/Treasurer/Tax Collector (Charlene Huang, Auditor-Controller Manager, 382-7022) on June 4, 2026; Purchasing (Ariel Gill, Supervising Buyer, 387-2070) on May 27, 2026; and County Finance and Administration (Matthew Dalton, Administrative Analyst, 387-5005, and Yael Verduzco, Principal Administrative Analyst, 387-5285) on June 8, 2026.
(BR: 531-2674)