0150-11529-0000TRANSMITTAL

COUNCIL FILE NO.DATETOCouncil

11-06-19

COUNCIL DISTRICTFROM

Municipal Facilities Committee 14

At its meeting held on October 31, 2019, the Municipal Facilities Committee approved the recommendation of the attached General Services Department (GSD) report, with instructions to staff, which is hereby transmitted for Council consideration. Adoption of the report recommendation would authorize GSD to negotiate and execute a new five-year lease, with a retroactive term from April 1, 2019 through March 31, 2024 with S&R Partners, LLC (Landlord). The MFC instructed GSD to provide an updated fiscal impact that is provided through this transmittal.

Under the terms and conditions outlined in the attached report, four City Departments that include the Los Angeles Department of Transportation (DOT), the Los Angeles Police Department (LAPD), the GSD, and the Bureau of Street Services, would occupy office and warehouse space located at 1016 North Mission Road. At this time the Landlord is unable to offer a long-term lease due to a transfer of title pending, but agreed to discuss this issue with the City in 24 months.

Fiscal Impact: For 2019-20, there is a General Fund impact of $279,420 in unfunded costs that will be tracked and addressed through the City's Financial Status Report, which is comprised of: $130,404 for three months of back pay for 2018-19 rents ($43,468 per month); and, $149,019 for 2019-20 rental costs in excess of the level budgeted as part of GSD’s leasing account ($11,507 for nine months and $15,152 for three months). Starting in 2020-21, the annual impact would be $1,513,088 for ongoing leasing costs plus utilities, operating expenses, and rent escalation that would be addressed through the City's budget process.

rRichard H. Llewellyn, Jr/ City Administrative Office!

Chair, Municipal Facilities Commi

RHL:MC:05200068CAO 649-d

City of Los AngelesCalifornia

TONY M. ROYSTERGENERAL MANAGER

ANDCITY PURCHASING AGENT

DEPARTMENT OF

GENERAL SERVICES ROOM 701

City Hall South 111 East First Street

LOS ANGELES, CA 90012 (213) 928-9555

FAX No. (213) 928-9515

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ERIC GARCETTIMAYOR

October 31, 2019

Honorable City Council City of Los Angeles c/o City Clerk Room 395, City Hall Los Angeles, CA 90012

Attention: Leyla Campos, Legislative Assistant

REQUEST FOR AUTHORIZATION TO NEGOTIATE AND EXECUTE A NEW LEASE AT 1016 NORTH MISSION ROAD WITH

S&RPARTNERS, LLC FOR MULTIPLE CITY DEPARTMENTS

The Department of General Services (GSD) requests authorization to negotiate and execute a new lease agreement with S&R Partners, LLC (Landlord) fora privately-owned facility located at 1016 North Mission Road, Los Angeles, CA 90033 (Premises) for multiple City departments. The Premises is a 3.320-acre (164,659 square feet) multi­structure industrial site and is utilized by the Los Angeles Department of Transportation’s' (LADOT) Central Parking Enforcement and Traffic Divisions, the Los Angeles Police Department (LAPD) Assets Forfeiture Division, GSD Fleet Services and the Bureau of Street Services - collectively Departments.

BACKGROUND

On May 29, 1998, the City executed a 15-year lease (Contract C-96777) with one five- year option extension option with the original Premises landlord Riboli Family Trust. In November 2006, the title to the Premises was transferred from the Riboli Family Trust to the newly created S&R Partners, LLC. In April of 2014, the City exercised its five-year extension option to extend the term of the lease from April 1, 2014 to March 31, 2019.

The Landlord desires to execute a new five-year lease with no option to renew and submitted a Letter of Intent to the City to extend the lease through March 31,2024 with a retroactive effective date of April 1, 2019. The Departments affirmed their desire to continue operations at the Premises under a newly executed lease with the proposed

AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER

October 31,2019Honorable City Council -2-

five-year term. The Landlord will work with the City in the delayed lease renewal with the understanding the rent effective date is April 1,2019. Due to the short-term length of the lease, no tenant improvements are planned. The Landlord is unable to offer a long-term lease at this time due to a transfer programmed in 2024 but agreed to calendar the item for discussion with the City in 24 months. The continued use of this site will provide the City with time and opportunity to discuss an alternate, potentially permanent, facility for these various department operations.

In support of the new lease, on October 9, 2019 the Council approved a motion directing GSD to negotiate this new lease agreement (CF19-0984).

The Premises is a triangular lot consisting of two industrial warehouse-office buildings (Building A and B) and a small office building (Building C) and substantial parking for approximately 150 parking enforcement vehicles, heavy-duty street maintenance vehicles and a vehicle maintenance bay within Building A.

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BUILDING/SPACE

Sqare Feet (sf)

Proposed

Monthlv

Rate ($/sf)

Sub-Total

Monthlv

Sub-Total

Annual

DEPARTMENTS

(User Group)USE TYPE

8 C YARDA

LADQT -Central Pa rki ag Enforcers ent/Traffic Div. LADOT-Central Parking

■Enforcemant/Ttaffrc Div.

Bureau of Street

Services (8SS)$2.00 $20,684 $248,2089,142 1,200OFFICE

GSD Fleet Services

LAP D-Assets Forfeiture Div.

$49,854$1.20 $598,24812,971INDUSTRIAL 28,574

LADQT/LAPB/GSD/BSS $0.35 $39,470 $473,642112,772PARKING

$110,008 $1,320,098TOTAL Lease Cost:

TOTAL Lease Cost Less $2,000 Discount: $108,008 $1,296,098

Notes: Building A is tilt-up industrial warehouse building utilized as warehouse, storage and vehicle maintenance space with

a total of 28,574 square feet (sf). Building B is a wood frame and metal building utilized os warehouse, storage and office

space with a total of 22,113 sf (12,971 industrial sf and 9,142 office sf). Building Cisa wood frame and stucco building

utilized as office space with a total of 1,200 sf. The Premises also contains standard and oversized exterior stall parking with

a total of 112,772 sf. The total Premises square footage is 164,659 (41,545 industrial sf; 10,342 office sf; 112,772 parking sf).

MARKET ANALYSIS

The current lease payment is $78,039 per month and the total Premises square footage is 164,659 which equates to $0.47 per square foot monthly ($5.69 per square foot annually). The minor Tl Reimbursement costs (i.e., new flooring or blinds) are collectively referred to as Maintenance Fees.

The market rate in the Landlord’s proposal employs the following rental rates as indicated in the chart below: $1.20 per sf foot for industrial space, $2.00 per sf of office space and $0.35 per sf of exterior parking space. This amounts to a total base rental rate of $110,008. GSD was able to further negotiate an additional $2,000 per month discount resulting in the proposed monthly total base rental rate of $108,008. The projected total monthly lease cost of $121,507 will include the base rental rate of $108,008 plus Maintenance Fees of approximating $13,498.

BUILDING/SPACE Square Feet (sf) Rate

Total(S)YARDA B C

$1.20 $49,854INDUSTRIAL 28,574 12,971$2.00 $20,684OFFICE 9,142 1,200

PARKING $0.35 $39,470112,772

$110,008SUB-TOTAL Lease Costs:

$108,008TOTAL Monthly Lease Costs Less $2,000 Discount:

$1,296,098TOTAL Annual Lease Costs Less $2,000 Discount:

October 31,2019Honorable City Council .4.

At this rate, the Premises cost per square foot is 38.86 annually ($0.74 monthly).

GSD ordered a Class A appraisal of the Premises which determined a combined Industrial and Office space rate is $1,85 per square foot for comparable properties. The weighted average rate for Industrial and office space proposed by the landlord is $1.36 per square foot. This rate is below the Class A appraisal of the premises ordered by GSD, resulting in an overall favorable base lease rate for the City.

Furthermore, Additional Rent will include Maintenance Fee passthroughs which includes insurance costs, janitorial costs, management fees, operating costs, real estate taxes and tenant improvements costs.

Maintenance Fees$ 1,361Insurance$Janitorial 2,395s 667Management Fees$ 6,667Operating Costs

Re3l Estate Tax $ 2,373$ 35Tenant Improvement

$Maint Mo, Total 13,4984 108,008Base Rent$____ 121,507Monthly Total

An n u a l To tal $ 1,458,078

With the addition of Maintenance Fee passthroughs, the monthly lease costs will be approximately $121,507 or $1,458,078 annually.

The lease will contain the following:

TERMS AND CONDITIONS

1016 North Mission Road, Los Angeles, CA 90033LOCATION:

LANDLORD: S&R Partners, LLC

Office, Storage and Vehicle Maintenance and RepairUSE:

Five Years (60 Months) retroactive from Lease Effective DateTERM:

Tenant will pay Real Estate Tax Reimbursement as part of Maintenance Fees Passthroughs (See MAINTENANCE FEE PASSTHROUGHS below)

PROPERTY TAXES:

Triple-Net (NNN)LEASE TYPE:

October 31, 2019Honorable City Council -5-

LEASEEFFECTIVE DATE: April 1, 2019 (Retroactive Effective Date)

OPTIONS: None

HOLDOVER: Month-to-Month

RENTAL RATE: $1,296,098 Annually ($108,008 Monthly) Effective Date of April 1,2019

Retroactive

Maintenance Fees Pass throughs (See MAINTENANCE FEE PASSTHROUGHS below)

ADDITIONAL RENT:

RENT ABATEMENT: None

ESCALATIONS: Annual rent escalations to be based on Consumer Price Index, with a minimum increase of 3% and a maximum of 5% per year to coincide with April 1, 2019 retroactive date.

164,659 (Industrial 41,545, Office 10,342, Parking 112,772)SQUARE FEET:

SECURITY DEPOSIT: None

UTILITIES'. Tenant is responsible for all utility costs including gas, electric and water.

PARKING: Tenant entitled to use ail available parking on the Premises.

CUSTODIAL: Landlord provides Janitorial services. Included in the Maintenance Fees Passthroughs (See MAINTENANCE FEE PASSTHROUGHS below).

MAINTENANCE FEE PASSTHROUGHS: Tenant will pay for Maintenance Fees similar to previous

lease, which includes cost related to maintenance of structural portion of Premises and minor repairs. Landlord will perform premises and structural maintenance and repairs, and bill tenant through Maintenance Fee Passthroughs. Current Maintenance Fees are approximately $13,498 monthly and are subject to change. Maintenance Fees include Insurance, Janitorial, Management Fees, Operating Costs, Real Estate Tax Reimbursement and Tenant Improvement Reimbursement.

HEAT,VENTILATION AND AIR CONDITIONING: Landlord shall furnish Heat, Ventilation, and Air Conditioning

(“HVAC”) to the Premises in the Building.

October 31,2019Honorable City Council -6-

TENANTIMPROVEMENTS: Tenant will pay for all City related tenant improvements during

lease term.

JANITORIAL: Landlord shall provide janitorial service to the Premises in the Building. Janitorial services are to be provided during hours established by Landlord.

INSURANCE: City shall indemnify and hold harmless Landlord from and against any and all loss, liability, or expense for claims for injury or damage arising or alleged to arise from the acts or omissions of City or any of its officers, agencies, employees, contractors, licensees or invitees, jointly or severally, in the occupancy or use of the Premises.

PROP 13 PROTECTON: Landlord will not provide Prop 13 protection.

COST

The current lease is funded for $1,320,000 in 2019-20. The new proposed lease costs, retroactively effective April 1,2019, will be $1,296,098 annually plus annual maintenance fees of $161,982 totaling $1,458,078. The increased difference between the current and new rate will be $149,016 annually or $12,418 monthly, The total estimated lease cost for the entire five-year lease term is $7.7 million. It is anticipated the City will have to pay retroactive rent back to April 1, 2019 totaling $279,420.

FISCAL I IMPACT

The full-year General Fund impact for 2019-20 is an estimated $1.6 million which includes the retroactive rent base rate effective date of April 1, 2019 and monthly maintenance fees. Funds totaling $1,320,000 have been budgeted for this purpose. GSD will request an additional appropriation of $279,420 through the CAO Financial Status Report if needed.

RECOMMENDATION

That the Los Angeles City Council, subject to the approval of the Mayor, authorize the Department of General Services to negotiate and execute a lease with S&R Partners, LLC, under the terms and conditions substantially outlined in this report for industrial, office and parking space at -1,pi6 North Mission Road, Los Angeles, CA 90033.

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t.Tony M. Royster---...."General Manager