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REDUCTION OF LEASED PREMISES AND LEASE EXTENSION FOR 400 EAST MAIN STREET
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Approving a Second Lease Amendment with Chris Neilson, as duly appointed Receiver (Landlord), to reduce the premises currently being leased by City on the seventh floor and extend the lease term for the third and fourth floor at 400 East Main Street; and
2. Authorizing the City Manager, or designee, to take all the necessary and appropriate actions to carry out the purpose and intent of this resolution.
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Summary
The City acquired the Waterfront Office Towers in 2018 to serve as a permanent City Hall. With the current construction schedule for City Hall at the Waterfront Towers, the City must retain offices at 400 East Main Street through March 2025. The Landlord and the City have negotiated to reduce leased space (eliminating City offices on the seventh floor) and extend the lease term. With the reduction of space on the seventh floor, the City will realize an estimated savings of $348,814.08 for the lease obligation through March 31, 2025, should the Council approve the Second Lease Amendment.
DISCUSSION
Background
On February 25, 2015, the City entered into an agreement with William J. Hoffman, duly appointed Receiver (Landlord), to lease office space at 400 East Main Street for an eight-year term, with the option to extend the lease up to an additional four years (Attachment A - Lease). On October 16, 2018, City Council approved a resolution authorizing a first amendment to the standard office lease for reduction of the leased premises and discounted prepayment of the remaining lease obligation. (Attachment B - Resolution 2018-10-16-1402). In March 2021, the Superior Court of the State of California approved a new receiver (Landlord), Chris Neilson.
Under the current terms, the City is leasing a total of 60,829 SF as shown below:
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Size |
Current Use |
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Third Floor |
25,755 SF |
Administrative Services & Human Resources |
|
Fourth Floor |
25,730 SF |
IT, Economic Development & Fire Administration |
|
Seventh Floor |
9,344 SF |
Stockton Kings & Meeting/Training Space |
Present Situation
The current lease term ends on March 31, 2023, with options to extend the full lease in one-year periods through March 31, 2027. The City will require office space through 2025 while construction continues at the Waterfront Towers. During the lease negotiation, the reduction of leased space on the seventh floor was determined to be feasible. As such, the City and Landlord wish to execute a second amendment to the current lease to reduce the premises being leased on the seventh floor by the City and extend the current lease term for the third and fourth floors through March 31, 2025. The City will realize a total savings of more than $348k given the reduction of leased space.
The following are the proposed terms of the Second Lease Amendment, which is included as Exhibit 1 to the Resolution:
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Give Back Premises: |
Reduction of leased space - seventh floor 9,344 SF. The City will retain leased space on the third and fourth floors totaling 51,485 SF. |
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Retained Premises Prepayment: |
The City shall make monthly lease payments of $80,081.23, beginning March 2023. |
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Parking: |
The City shall be entitled to 95 total parking stalls with 26 reserved. |
Under this amendment, the City may elect to exercise an early termination option for the third and/or fourth floors, with a 45-day prior written notice, reducing the monthly rent by $40,056.73 per month, if the City exercises the termination option for just one of the two floors.
FINANCIAL SUMMARY
Approval of the Second Lease Amendment would decrease the City’s monthly lease obligation for the two-year period of March 31, 2023 through March 31, 2025, from $94,615.15 to $80,081.23, resulting in a total savings of $348,814.08. The City will use lease savings to offset the costs of the Waterfront Office Towers tenant improvements and other City Hall move-related costs.
Attachment A - Current Lease
Attachment B - Resolution 2018-10-16-1402