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HomeMy WebLinkAboutItem 5h. Authorize Amendment No. 2 to Lease Agreement with Jamestown Premier SLO Retail for 837 Marsh Street Item 5h Department: Public Works Cost Center: 5101 For Agenda of: 1/9/2024 Placement: Consent Estimated Time: N/A FROM: Matt Horn, Public Works Director Prepared By: Jennifer Rice, Deputy Director of Mobility Services SUBJECT: APPROVAL OF THE SECOND AMENDMENT TO A LEASE AGREEMENT FOR 837 MARSH STREET RECOMMENDATION Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, finding a public purpose for temporarily reducing the rent for the Commercial Lease Space located at 837 Marsh Street” to authorize the City Manager or their designee to execute the second amendment to the lease agreement. POLICY CONTEXT The City General Plan Policy 13.1.2 states that City parking programs shall be financially self‐supporting. Resolution No. 10052: Sets the policy authorized by the City Charter. Key provisions are that Council approval is required for any: 1. Sale of real or personal property in excess of $1,000. 2. Lease of personal property for more than three years The proposed lease agreement is not subject to the Surplus Land’s Act because 1) No demolition or redevelopment will occur and 2) It is an amendment to an existing lease agreement that predated requirements under AB 1486 and the action to lease or dispose of the land occurred prior to September 30, 2019. DISCUSSION Staff recommends that the City Council approved a resolution (Attachment A) authorizing the City Manager to execute a second amendment for a lease for 837 Marsh Street (Attachment B). The original lease agreement is included in Attachment C, and the first amended agreement with Jamestown is included as Attachment D. The City’s Parking Services Program manages one commercial lease space located at the Marsh Street Parking Structure at the corner of Marsh Street and Chorro Street addressed as 837 Marsh Street. This commercial property provides a consistent source of revenue for the Parking Fund. Page 281 of 581 Item 5h In May of 1989, the City and the Charles Ford Company, doing business as Riley’s Department Store, executed a building lease agreement (the “Lease”). The City agreed to build the Marsh Street parking structure, which included a 15,000-square-foot retail space to be used by a long-term tenant to ensure parking demand in the parking structure and revenue for the Parking Fund. Copelands acquired the lease for the retail space from Riley’s and was subsequently acquired by Jamestown Premier Property in 2013. At that time, Jamestown and the City agreed upon Amendment 1 (Attachment D) to the Lease, which updated terms including options for an extended lease term, modified rental rates, and maintenance and repairs criteria. Jamestown currently sub-leases this retail space to Shoe Palace and pays $14,352.52 monthly, which expires January 31, 2024. Amendment 1 also provides an option for an additional five-year term of the lease subject to mutual agreement of both the parties. In April 2023, Jamestown representatives notified the City that the current tenant, Shoe Palace, is not interested in renewing their lease with Jamestown at the current rate due to financial impacts of the pandemic and decreased sale volume. Jamestown representatives indicated that they would not be interested in extending the Lease pursuant to the five-year option because large commercial spaces in the downtown are challenging to fill. Jamestown representatives indicated that they would work with their tenant, Shoe Palace, on new lease terms but that would likely require a reduction in monthly rent. In August of 2023, Jamestown provided the City with a new proposal that would allow Shoe Palace to keep operating from this location and in turn, allow the City to continue the Lease with Jamestown. The terms of the proposed amendment to the Lease are as follows and are incorporated via Amendment 2 (Attachment B) into the original agreement: 1. Rent shall be $11,000 per month. 2. The lease agreement will commence on February 1, 2024. 3. Rent shall increase by 3% each year beginning February 1, 2025. 4. The term of the lease agreement will be for five (5) years1. 5. There is no option to renew the lease. Finding of a Public Purpose for Proposed Lease Amendments It should be noted that the proposed terms require a reduction in rent by $3,352 per month, and no property improvements are required. It is recommended that the Amended Lease be approved, nonetheless, as the continuation of the proposed terms provide an overall public benefit to both the downtown and the Parking Fund (see Attachment A). Larger retail spaces such as this one can be difficult to fill and generally the proposed lease rate is consistent with rates for this size of building. Attachment A includes a resolution with finding for public purposes to support the reduction in lease rates. 1 This lease term will provide the equivalent of the original lease term plus the option to extend the lease provided for in Amendment 1. No additional lease extension is proposed beyond what was previously contemplated. Page 282 of 581 Item 5h Locally, the City has seen these types of spaces vacant for months if not years, while smaller spaces tend to fill rapidly. Given the size and structure of the Shoe Palace retail space, if it were to become vacant it could remain that way for a significant period of time, and may need significant investments in tenant improvements in order for a new tenant to move in. Having the space occupied benefits downtown businesses through ongoing activation and foot traffic, and stimulation of the local economy. In addition, having the space occupied benefits the City financially. The monthly rent provides a consistent source of revenue to the Parking Fund, and the sales tax generated by the space being occupied provides further revenue to the City. Previous Council or Advisory Body Action On November 5, 2013, Council approved Amendment No. 1 with Jamestown Premier Property. ENVIRONMENTAL REVIEW The recommended actions were reviewed in accordance with the California Environmental Quality Act (CEQA) Guidelines. The recommended actions are determined to be exempt from environmental review pursuant to the General Rule under SEQA Guidelines Section 15061 (b)(3), which exempts activities that can be seen with certainty to have no possibility for causing a significant effect ton the environment. Additionally, the recommended action is exempt pursuant to Categorical Exemption: Existing Facility 15301. FISCAL IMPACT Budgeted: N/A Budget Year: 2024 - 2029 Funding Identified: N/A Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund N/A State Federal Fees Other: Total N/A Page 283 of 581 Item 5h The following table provides the proposed annual lease revenues over the five-year term of the amended lease agreement terms. Proposed Lease Revenue 2024-25 $ 132,000.00 2025-26 $ 135,960.00 2026-27 $ 140,038.80 2027-28 $ 144,239.96 2028-29 $ 148,567.16 Total $ 700,805.92 There are no direct costs associated with entering into this lease agreement. The proposed lease terms will generate $700,805.92 in revenue for the Parking Fund lease revenue over the term of the agreement from CY 2024-25 to FY 2028-29. The current market value and price of the City’s commercial lease spaces are generally $1.75 per square foot, according to an in-house review of the downtown market values. At 15,000 square feet, this lease space would be $26,250 a month (compared to the $11,000/month lease proposed). However, the City has received very little interest in the rental of this space due to the size and location. Virtually all of the retail space in the downtown in excess of 15,000 square feet is experiencing challenges or has remained vacant. Earlier this year, Jamestown representatives indicated that Shoe Palace may not be interested in continuing the lease. At the time, City staff had conversations with Jamestown representatives about the potential for a new tenant, and Jamestown shared their difficulties in identifying other possible tenants for the space. Also at that time, staff contacted representatives at California West, another property management company who handles the management for several residential properties owned through the City’s Parking Fund. California West confirmed that there was limited interest in properties of this type and location. ALTERNATIVES 1. Council could choose not to approve the modification to the existing retail lease agreement. Staff does not recommend this alternative because the current lease will expire and it is unlikely that the City will be able to find a new tenant for a retail space of this size for an undetermined amount of time, which would leave the space vacant and detract from the vibrancy of downtown . Revenue generated through this agreement supports the overall goals of the City and Parking Fund . 2. Council could reject the lease agreement and direct Staff to pursue changes to the layout of the floor plan to make it more attractive to retailers whom are generally seeing smaller retail space. Staff does not recommend this alternative as it would take years to begin planning and redesigning the space. Staff does intend to begin this work in light of the general changes in the retail market which favor smaller more boutique space. Page 284 of 581 Item 5h ATTACHMENTS A - Draft Resolution temporarily reducing the rent for 837 Marsh Retail Space B - Draft Lease Agreement Amendment 2 with Jamestown C - Original 837 Marsh Street Lease Agreement D - Lease Agreement Amendment No. 1 with Jamestown Page 285 of 581 Page 286 of 581 R ______ RESOLUTION NO. _____ (2024 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, FINDING A PUBLIC PURPOSE FOR TEMPORARILY REDUCING THE RENT FORTHE COMMERCIAL LEASE SPACE LOCATED AT 837 MARSH STREET WHEREAS, the Parking Fund manages commercial lease spaces located 837 Marsh Street; and WHEREAS, the Parking Program has a role in the fiscal health and customer satisfaction of the downtown area; and WHEREAS, there are economic uncertainties for businesses including lease spaces managed by the City’s Parking Fund; and WHEREAS, the original lease was executed on May 15, 1989 between the City of San Luis Obispo and Charles Ford Company, Inc; and WHEREAS, on March 2, 1993, Charles Ford Company, Inc. and Copelands Investment Partnership entered into an agreement of Assignment and Assumption of Lease in which the Assignment of the Lease was assigned to Copelands Investment Partnership; and WHEREAS, in 1993 Copelands Investment Partnership subleased the space to Copelands Sports; and WHEREAS, on November 5, 2013, the City of San Luis Obispo and Jamestown Premier SLO Retail, L.P., as a successor to Copelands, executed Amendment 1 to the Lease for 837 Marsh Street; and WHEREAS, the basic terms of Amendment 1 to the Lease included a rental rate beginning February 1, 2014 at $11,330 per month, with 3% increase each year after until January 31, 2024 and improvement repairs to be completed by the tenant; and WHEREAS, Jamestown Premier SLO Retail, L.P. currently subleases the space to Shoe Palace, and has since 2014; and WHEREAS, Jamestown Premier SLO Retail, L.P. will agree upon an extension of the existing lease only with a reduced rent from the original agreement , as proposed in Amendment 2 to the Lease; and WHEREAS, Shoe Palace intends to remain the tenant in the space for another 5 years if the lease is amended as proposed in Amendment 2; and Page 287 of 581 Resolution No. _____ (2024 Series) Page 2 R ______ WHEREAS, the basic terms of Amendment 2 to the Lease included a rental rate beginning February 1, 2024 at $11,000 per month, with 3% increase each year after until January 31, 2029, and a term length of 5 years; and WHEREAS, retail spaces similar in size to 837 Marsh Street have been difficult to fill, post-pandemic; and WHEREAS, maintaining an occupied space benefits the public through increased activation of the downtown and foot traffic as well as stimulus of the local economy; and WHEREAS, maintaining an occupied space benefits the City by providing revenue in monthly rent, as well as revenue from the sales tax generated by having the space occupied; and WHEREAS, the Parking Fund’s 2023-25 Financial Plan incorporated work programs intended to support the local economy and, specifically, downtown economic vitality. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: Page 288 of 581 Resolution No. _____ (2024 Series) Page 3 R ______ SECTION 1. Accepting a reduced rent from Jamestown Premier SLO Retail, L.P. for the commercial lease space located at 837 Marsh Street for the five-year term is of public benefit. Upon motion of _______________________, seconded by _______________________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of ___________________ 2024. ___________________________ Mayor Erica A. Stewart ATTEST: ________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ________________________. ___________________________ Teresa Purrington City Clerk Page 289 of 581 Page 290 of 581 1 SECOND AMENDMENT TO BUILDING AGREEMENT AND LEASE FOR 837 MARSH STREET THIS SECOND AMENDMENT TO BUILDING AGREEMENT AND LEASE ("Second Amendment”) is made and entered into on __________________________________________ by and between THE CITY OF SAN LUIS OBISPO ("City" or "Landlord") and JAMESTOWN PREMIER SLO RETAIL, L.P, as successor in Interest to COPELANDS' PROPERTIES, LLC, which was the successor in interest to CHARLES FORD COMPANY, INC., ("Tenant"), with respect to that certain Building Agreement and Lease, dated May 15, 1989, as amended by that certain First Amendment to Building Agreement and Lease for 837 Marsh Street, dated as of November 5, 2013 (collectively, the "Original Lease") between Landlord and Tenant, relating to the retail commercial space commonly known at 837 Marsh Street, San Luis Obispo, California ("Premises"). All capitalized terms not otherwise defined in this First Amendment shall have the meaning given in the Original Lease. AGREEMENT: WHEREAS, on May 15, 1989 the City entered into a building and lease agreement with Tenant to build the Marsh Street parking structure and a 15,000 square foot retail space at 837 Marsh Street to be rented by Tenant as a long-term lease (the “Original Lease”); and WHEREAS, on November 5, 2013 the City and Tenant agreed to a first amendment to the building and lease agreement amending Article 1 – Term, Section 2 of the Original Lease, Article V – Rent, Sections 1, 2, and 3 of the Original Lease, and Article VII Maintenance and Repairs, a new Section 6 added to the Original Lease; and WHEREAS, the City and Tenant desire to amend the Original Lease as set forth herein, NOW THEREFORE, the City and Tenant, in consideration of the mutual representations, warranties and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, subject to the terms and conditions hereinafter set forth, and intending to be legally bound, do hereby mutually agree as follows: 1. Article I - Term, Section 2 of the Original Lease shall be deleted in its entirety and shall be replaced as follows: 2. TO HAVE AND TO HOLD said premises with all the rights, privileges, appurtenances thereunto beginning and attaching, unto the Tenant, its successors and assigns for the term of approximately thirty-five (35) years commencing as set in the Original Lease, which term terminates on January 31, 2024 (the “Initial Term”). City and Tenant hereby extend the Term of the Lease for an additional five years commencing on February 1, 2024 and ending on January 31, 2029 (said five (5) year extension is referred to herein as the “First Extended Term”), unless sooner terminated in accordance with the terms of the Lease. For the avoidance of doubt, the parties acknowledge that Tenant has no other options to extend the term of the Lease and any modifications or amendments to terms subject to mutual negotiation and agreement of the parties. Page 291 of 581 2 2. Article V - Rent, Sections 1, 2 and 3 of the Original Lease shall be deleted in their entirety and shall be replaces as follows: A. Rental rate during the First Extended Term shall be as follows: 1. From February 1, 2024, to January 31, 2025, rent shall be $11,000 a month. 2. Thereafter, from February 1, 2025, to January 31, 2029, rent shall increase on February 1 of each year by 3%. 3. Except for the amendments set forth above, the Original Lease shall remain in full force and effect. 4. This Second Amendment may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this instrument to be executed the day and year first written above. LANDLORD: CITY OF SAN LUIS OBISPO, A municipal corporation and Charter City By: ___________________________ Derek Johnson, City Manager ATTEST: APPROVAL AS TO FORM: ________________________ ____________________________ Teresa Purrington, City Clerk J. Christine Dietrick, City Attorney TENANT: Jamestown Premier SLO Retail, L.P., a Delaware limited partnership By: JAMESTOWN Premier SLO Retail GP, LLC, a Delaware limited liability company, its general partner By: ______________________________ Name: ______________________________ Title: ______________________________ Page 292 of 581 3 Page 293 of 581 Page 294 of 581 Page 295 of 581 Page 296 of 581 Page 297 of 581 Page 298 of 581 Page 299 of 581 Page 300 of 581 Page 301 of 581 Page 302 of 581 Page 303 of 581 Page 304 of 581 Page 305 of 581 Page 306 of 581 Page 307 of 581 Page 308 of 581 Page 309 of 581 Page 310 of 581 Page 311 of 581 Page 312 of 581 Page 313 of 581 Page 314 of 581 Page 315 of 581 Page 316 of 581 Page 317 of 581 Page 318 of 581 Page 319 of 581 Page 320 of 581 Page 321 of 581 Page 322 of 581 Page 323 of 581 Page 324 of 581 Page 325 of 581 Page 326 of 581 Page 327 of 581 Page 328 of 581 Page 329 of 581 Page 330 of 581 Page 331 of 581 Page 332 of 581 Page 333 of 581 Page 334 of 581