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COUNTY OF SAN MATEO
Inter-Departmental Correspondence
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County Manager's Office
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DATE:
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February 20, 2009
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BOARD MEETING DATE:
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March 3, 2009
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SPECIAL NOTICE/HEARING:
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None
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VOTE REQUIRED:
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Majority
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TO:
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Honorable Board of Supervisors
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FROM:
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Steve Alms, Manager, Real Property Services Division
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SUBJECT:
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Lease agreements with Harbor Belmont Associates, a California General Partnership of two office buildings at 400 Harbor Blvd., Unincorporated Belmont and with Davis Associates, Tenancy In Common, for an office building at 1 Davis Dr., Belmont, for the Human Services Agency. (Lease Nos. 1286 and 1289)
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RECOMMENDATION:
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Adopt a resolution authorizing and directing:
1) The President of the Board to execute a Lease Agreement with Harbor Belmont Associates of two office buildings in the project at 400 Harbor Blvd., Belmont, at an initial monthly rent of $124,351.50 for a term of ten years with two options to extend for an additional five years each, and
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2) The President of the Board to execute a Lease Agreement with Davis Associates of an office building at 1 Davis Dr., Belmont, at an initial monthly rent of $103,805.00 for a term of ten years with two options to extend for an additional five years each, and
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3) The County Manager or his designee to execute any and all written elections, options, terminations, notices and documents in connection with the Lease Agreements for either of the premises, including the exercise of the County's right to modify from time to time during the term the portion of the premises in active use by the County and to make a corresponding adjustment in the rent.
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VISION ALIGNMENT:
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Commitment: Ensure basic health and safety for all.
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Goal(s):
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Goal 8. Help vulnerable people achieve a better quality of life.
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The Agreements contribute to this goal by consolidating administrative functions in a location that will enable the Human Services Agency to efficiently support services throughout the County, and to focus the use of the Harbor Park campus to provide direct services.
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Performance Measure(s):
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Real Property Services strives to maintain an average cost of leased facilities that compares favorably with the average asking rate for comparable facilities in the County. The Harbor Park lease is on a full service basis, which includes in the rent the base year taxes, utilities and operating expenses. The Davis lease is on a “triple net” basis, and the County will be responsible for those additional costs. The equivalent full service rent for the Davis lease is estimated to be $2.60, which includes base rent of $1.85 per square foot and an estimate of $0.75 for the cost of taxes, utilities and operating expenses. Both rates compare favorably with the average asking rate of $3.36 as reported for the fourth quarter of 2008.
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Measure
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Lease - Actual
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Avg. Asking Rate
San Mateo County Q4-2008
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Monthly Rate
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Harbor: $2.10 (full service)
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$3.36
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Monthly Rate
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Davis: $1.85 (net)
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$3.36
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BACKGROUND:
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The renegotiation and extension of the 400 Harbor Blvd. lease and the consolidation of administrative functions at the 1 Davis Dr. location represent the culmination of five years of evaluation, planning and negotiation. The resulting agreements enable the Agency to redistribute personnel currently located in a variety of leased and owned facilities and to position the Agency to accomplish its mission for the next decade, and beyond. Increasing demand for services or new demands placed on San Mateo County through devolution or new state and federal regulations, has resulted in the addition of 155 new positions since July 2004. During the same period no new space, leased or county-owned, has been added.
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400 Harbor Blvd.
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Since1988, HSA has leased all or part of Buildings B and C of the Harbor Business Park complex. The two single story office buildings contain approximately 59,215 square feet. The location is the administrative headquarters of the Agency and is actively used to provide direct services. The current monthly rental rate for the facility, including amortization of the cost of leasehold improvements completed at various times during the term, is approximately $3.71 per square foot.
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The lease for Buildings B and C is one of three County leases at Harbor Park. The Health Insurance Telecenter of HSA occupies approximately 22,000 square feet at 310 Harbor Blvd. (Building E),and the Agency shares with the Department of Housing a 30,000 square foot building at 264 Harbor Blvd. (Building A). The leases for Buildings A and E both expire in April, 2012.
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DISCUSSION:
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400 Harbor Blvd.
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Real Property Services has negotiated a new lease of the existing HSA facilities at 400 Harbor Blvd, including in the terms a significant rent reduction. The initial monthly rate of $2.10 per square foot results in a monthly rent of $124,351.50. In addition, the County will reimburse the landlord for the cost of certain leasehold improvements. The landlord has agreed to an allowance of up to $1,000,000. The amount of the allowance actually used in making the improvements will be amortized over the term of the lease at 9% interest. If the full amount of the allowance is utilized, the monthly payment to amortize the allowance over the ten year term is $12,667.58. Combining the amortization with the base rent, the total monthly payment would be $137,019.08, or approximately $2.31 per square foot. The base rent, excluding amortization, will escalate 3% annually, and the County will pay its share of increases in operating expenses over those of the initial year of the lease.
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In addition to the leasehold improvements for the County, the landlord will complete other improvements to the Harbor Park facility at its sole cost. Those improvements include extensive renovation of the restrooms, new carpet and paint throughout the premises, and compliance with all requirements of the Americans With Disabilities Act as identified in a survey completed by the County’s ADA Compliance Committee.
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1 Davis Dr.
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The 69,925 square foot facility at the southeast corner of Davis Dr. and Ralston Ave. includes two levels of offices of 30,000 square feet each and a 9,925 square foot basement improved as break room, conference and training space. The building is constructed on stable soil, has been seismically upgraded, and is served by a dedicated emergency generator that has adequate capacity to power the entire building. As a result, HSA anticipates using the location as its departmental emergency operations center.
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Under the terms of the proposed lease, the County will lease the entire building, but occupy and pay for only the basement and ground floor (the “Base Premises”), a total of 39,925 square feet. The 30,000 square foot second floor of the building will be held as “Expansion Space”, with rent paid only if it is occupied. Upon delivery of written notice from the County Manager, the County has the right to utilize all or part of the Expansion Space at any time during the term. Expansion Space occupied continuously for two years must be occupied for the balance of the lease term.
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The Davis Dr. premises will be delivered to the County on a “Plug & Play” basis. The landlord, at its sole cost, will complete the design and improvement of the facility, and will purchase and install the furniture systems, all as shown in plans that have been developed and approved by the County. Included in the improvements is a retrofit of all light fixtures to achieve greater energy efficiency. The landlord recently completed the installation of a new roof, as well as a new computer controlled heating, ventilation and air-conditioning system. Both the Base Premises and the Expansion Space will be fully improved, furnished and ready for occupancy. In addition, the landlord will pay the cost of installation of telephone and data cabling throughout the facility. The County will supply its own computers, servers and telephone equipment.
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The Davis lease is a “net lease”, with payments by the County calculated based on the “net” rental rates shown below, plus the operating costs of the building, including janitorial service, maintenance, insurance, utilities, and real estate taxes. The monthly rate per square foot will escalate bi-annually as shown in the table below.
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Monthly Rate (net)
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Yrs. 1 & 2
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Yrs. 3 & 4
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Yrs. 5 & 6
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Yrs. 7 & 8
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Yrs. 9 & 10
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Base Premises
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$1.85
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$1.95
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$2.10
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$2.20
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$2.30
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Expansion Space
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$2.00
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$2.10
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$2.25
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$2.35
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$2.45
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The County will pay no rent at 1 Davis for the first four months following completion of improvements. Thereafter, the County will pay the initial monthly rent of $103,805.00, which is expressed here as a “full service” equivalent, including all operating costs. The calculation of this full service equivalent rent includes net rent at the initial rate of $1.85 per square foot, plus monthly operating expenses for the initial year at the rate of $0.75 per square foot.
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Facility Consolidation
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While the lease at 1 Davis involves an additional 40,000 square feet, the Agency will coordinate an offsetting reduction of more than 18,000 square feet of leased office space. The net effect of the changes will be an expansion of approximately 21,000 square feet, while decreasing the Agency’s annual lease charges.
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Relocation of the Office of the Director and a portion of Program Support to 1 Davis will facilitate reorganization of the Agency’s various leased facilities at Harbor Park. The Agency’s Health Insurance Telecenter (HIT) will move to Building C, and Alcohol and Other Drugs (AOD), now a program of Behavioral Health and Recovery Services in the Health System, will move from Building C to Building E. As a result, HIT will have emergency power without incurring the additional cost of $250,000 to install a generator, and AOD will expand its office from 3,000 square feet to 12,000 square feet without incurring an increase in annual lease charges. The Building E lease also provides the right to reduce the area of the premises from 22,000 square feet to 12,000 square feet, with a corresponding reduction in rent. That right will be exercised as HIT and AOD relocate.
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In addition to resolving space requirements related to the long range needs of the Agency, the changes result in improved operating efficiency and direct construction cost savings. The Agency will avoid the need to install an emergency generator at its Harbor Business Park campus, a cost of $250,000 that is included in the 2008/2009 budget. In addition, the landlord has projected a cost saving of approximately $600,000 resulting from the ability to renovate 400 Harbor while significant portions of the facility are vacant.
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The Housing, Health and Human Services Committee reviewed this matter at its January 27, 2009 meeting. The Committee and The Director of the Human Services Agency concur in this recommendation. The City of Belmont has been provided notice of the intent to enter a lease as required by Government Code §25351.
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FISCAL IMPACT:
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When compared to rent for the current 400 Harbor Blvd. lease, the combined rent for 400 Harbor Blvd. and 1 Davis Dr. will represent a reduction in the Agency’s rent and corresponding Net County Cost for the balance of Fiscal Year 2008/2009, as well as those projected for Fiscal Year 2009/2010.
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