COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager’s Office

DATE:

August 22, 2007

BOARD MEETING DATE:

September 11, 2007

SPECIAL NOTICE/HEARING:

3 week Publication

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Steve Alms, Manager, Real Property Division

SUBJECT:

Resolution Authorizing the Purchase and Leaseback of Real Property from First American Title Insurance Company (C.O.P. 2688, Lease No. 5322)

RECOMMENDATION

Adopt a Resolution authorizing:

a.

The execution of a Purchase Agreement for real property at 555 Marshall Street from First American Title Insurance Company for $3,900,000,

b.

The execution of a Lease Agreement with First American Title Insurance Company for 10,915 square feet of office space at 555 Marshall Street, at monthly rents of $13,500, $16,000 and $18,500 per month in years one, two and three respectively, and

c.

The County Manager or his designee to sign escrow instructions and execute any and all notices, consents, approvals, deeds, certificates of acceptance and documents in connection with the purchase and lease, including, but not limited to, extension or termination of the lease under the terms set forth therein or to meet the intent of the Resolution.

VISION ALIGNMENT

Commitment: The purchase and lease keep the commitment of responsive, effective and collaborative government.

Goal 20: Government decisions are based on careful consideration of future impact rather than temporary relief or immediate gain. The purchase of the subject property will help meet the need for future construction at County Center and the leaseback is cost-effective toward this end.

BACKGROUND

At the direction of this Board, the Real Property Division pursued the acquisition of 555 Marshall Street in Redwood City as a portion of the site for development of a new County office building. The site consists of Assessor’s Parcel Numbers 052-344-070, 080, 090 and 120, totally approximately 23,029 square feet. The site is improved with an office building of 18,775 square feet, including office space of 7,860 square feet on the ground floor and 3,055 square feet on the mezzanine level, and basement office and storage of 7,860 square feet. The property includes surface parking for approximately 39 cars. With this acquisition, the County will own the entire block bounded by County Center, Middlefield Road and Marshall Street. The property is zoned CB, Central Business District, under the jurisdiction of the City of Redwood City.

The purchase price of $3,900,000 is supported by an internal appraisal prepared by Real Property Services. Closing costs will be shared equally between the parties, with the seller pay the standard CLTA title insurance premium.

The Clerk of this Board has published the Notice of Public Hearing of the intent to purchase the Property once a week for a period of three weeks in the San Mateo Times.

DISCUSSION

As set forth in the Purchase Agreement, the County has a ninety day period to complete all necessary environmental due diligence. After the expiration of this period, the deposit of $80,000 will become non-refundable, but will apply toward the purchase price. The property is being purchased in its existing “AS-IS” condition. The agreement provides that the County releases the Seller from any claims not arising from express obligations set forth in the Purchase Agreement, and that the seller’s maximum liability is $2,000,000. Escrow will close on or before December 15, 2007.

Subject to the terms of the Purchase Agreement, First American will lease the ground floor and mezzanine of the building from the County for a period of up to three years from the date of closing of the sale. The lease term is subject to the tenant’s right to terminate the lease by giving sixty days written notice to the County. The leased portion of the building consists of 10, 915 square feet of office area, together with the parking lot. The initial rent of $13,500 per month is approximately $1.24 per square foot per month. The rent escalates to $16,000 per month ($1.47/s.f.) for the second year and $18,500 per month ($1.69/s.f.) in year three. The lease terms are “triple net”, requiring First American to continue to be responsible for taxes, insurance, maintenance, services and utility costs. The negotiated lease rate represents fair market value for the premises.

FISCAL IMPACT

The $3.9 million purchase price and projected closing costs are included in the Capital Projects 2007-2008 Budget for the acquisition of 555 Marshall Street. The lease will generate rent of $162,000 in year one, payable at the rate of $13,500 per month.