Loading...
HomeMy WebLinkAbout1/9/2024 Item 5h, Horn / Rice - Staff Agenda CorrespondenceG�TY Ofi ��rs o4 DATE: January 9, 2024 TO: Mayor and Council FROM: Matt Horn, Public Works Director Prepared By: Jennifer Rice, Deputy Director of Mobility Services VIA: Derek Johnson, City Manager SUBJECT: Item 5h — APPROVAL OF THE SECOND AMENDMENT TO A LEASE AGREEMENT FOR 837 MARSH STREET Staff received the following questions, regarding the approval of the second amendment to a lease agreement for 837 Marsh Street. The questions are below with staff's response shown in italics: 1) Would the proposed contract amendment provide rent reduction for Jamestown or the Shoe Palace? The City has a direct contract with Jamestown Premier Property to manage this commercial property on behalf of the City. Jamestown has years of expertise and experience managing retail and commercial spaces within the City of San Luis Obispo. Property managers are able to provide value to the City and tenants by acting as a liaison between the tenant and the City, screening tenants, providing marketing and advertising of commercial properties, and are able to attract and negotiate with tenants to minimize vacancy periods. The City's lease agreement is with Jamestown Premier Property as the property manager and not the tenant, therefore the rent reduction is via the agreement between the City and Jamestown. 2) If the rent reduction is with Jamestown, what guarantee does the City have that the Shoe Palace's rent would be reduced by Jamestown? The City contracts directly with Jamestown as the property manager and, therefore has no direct contact with the tenant, Shoe Palace. Jamestown has communicated to the City that the terms proposed in the second lease agreement are those amendable to Shoe Palace in order for them to remain as the current tenant of the space. 3) If the Shoe Palace's rent is reduced, what guarantees does the City have that the Shoe Palace will not terminate its lease and/or vacate the premises? City of San Luis Obispo Item 5h — APPROVAL OF THE 2"d AMENDMENT TO A LEASE FOR 837 MARSH STREET Page 2 The City's lease agreement is with Jamestown Premier Property as the property manager and not the tenant, therefore if the tenant Shoe Palace terminates or vacated the premises; Jamestown would still be required to meet the contractual terms of the agreement. It would be in Jamestown's best interest to maintain Shoe Palace as a tenant or find a new tenant as quickly as possible if Shoe Palace terminates use of the property. 4) Which properties in the Downtown are owned by Jamestown? How many of them are empty? What rents are being charged? The City is aware that Jamestown manages a significant amount of commercial and retail space within the City's downtown, the extent of which is unknown to the City as the holdings are typically held within various LLC's. The terms of those private agreements are not the subject of this agenda item and, therefore have not been researched. 5) Are any of those properties also leased from the City? 837 Marsh Street is the only property in which the City has a lease agreement with Jamestown. 6) Do we have the rental rate data on all properties in the downtown? Or is there any kind of accurate way to determine what a fair market rate for that size space is, especially considering most of the other large spaces are vacant? City staff looked at comparable retail and commercial property rates within the downtown to estimate the current market value. Monthly rental rates in the downtown are consistently between $2-4 for commercial leases ranging in square footage from 1,000 — 26,350. The larger retail spaces, for example the formerly Beverly's Fabric, is $1.99 per square foot per month. 7) Do we have any way of estimating the cost/benefit of breaking this space into smaller units that might be more rentable at higher per -square -foot rates? The City has not conducted such analysis to date for two primary reasons 1) the space has been currently occupied, and 2) property management (including maximizing the revenue of the space) has not been identified as a priority work effort. That said, Council could direct staff to not move forward with a second amendment to the lease with Jamestown and look at other options. The impact of this action would be the likely loss of the current tenant. Alternatively, Council could approve the lease amendment but still direct staff in the future to look at a reconfiguration of the space for maximizing the revenue at a later time. Council should anticipate that a reconfiguration of space will likely require significant capital investment from the Parking fund. Item 5h — APPROVAL OF THE 2"11 AMENDMENT TO A LEASE FOR 837 MARSH STREET Page 3 8) In the financial forecast, what was budgeted for revenue from this location? Was this potential rent reduction taken into consideration when we recently received revenue/expense estimates for the parking fund over the next five years? This rent reduction was not included in the Parking Fund Long Term Forecast (LTF) that was presented to Council during the November 7, 2023 meeting. It will, however, be included in the LTF that will be presented as part of the Mid -Year Review. The impact of approving this amendment to the terms of the lease agreement with Jamestown is an annual revenue reduction received by the Parking Fund of approximately $40, 230.24 ($3, 352.52 monthly reduction x 12 months). The impact of not approving this amendment with Jamestown would be an annual revenue reduction of approximately $132,000 ($11,000 per month x 12 months) until such time as this space could be leased again. Pending Council's determination of the proposed amendment with Jamestown, and if the proposed amendment to the contract is approved, Jamestown has indicated that they will draft an amendment between Jamestown and Shoe Palace including these revised terms.