Memo. TO: Mayor and City Council FROM: Dave Kanner, city administrator DATE: September 12, 2012 RE: Potential lease and other costs for a day center
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1 Memo TO: Mayor and City Council FROM: Dave Kanner, city administrator DATE: September 12, 2012 RE: Potential lease and other costs for a day center At its meeting of August 6, the Council asked me to investigate and report back on the potential lease and other costs of a day center for the homeless in Ashland. For purposes of this report, I assumed that any potential day center operator would cover any remodeling costs of a leased facility. Those costs can vary widely depending on what services are to be offered. It s further assumed that an operator would be responsible for land use permits if the facility is not located in an E-1 or C-1 zone, where a day center is a permitted use. There is no centralized database of commercial properties available for lease in Ashland. According to one commercial property broker with whom I spoke, the best way to identify suitable properties would be on craigslist. A review of craigslist found very few suitable (1,000 SF+) properties available in Ashland. Triple-net leases 1 in Ashland currently run from $1 to $1.25 per square foot, depending largely on the quality of the space. The most recent utility cost shown below is the annual cost of water, sewer, electric, gas (if available and applicable) and utility tax (does not include storm drain or street utility fee) for each property s most recent full-year period of occupancy, as determined by billing patterns. It s not possible to know what actual utility costs would be for a day center, since we don t have good comparables. I have attached copies of some of the property advertisements on craigslist. Some of these are old and I don t know if these are still available. (I could not find property 1 advertised on craigslist.) They, and the discussion below, are provided for illustrative purposes only. Property 1: 1951 Hwy. 66 (Former Cebolla Bar & Grill) Zoning: E-1 1 Triple-net means the lessee agrees to pay all taxes, building insurance and maintenance, including utilities. Assuming the day center would be run by a 501.c.3 non-profit, there would be no property taxes.
2 Memo This property is for sale, however the owner indicates he s willing to lease it for a market rate. The building includes a full commercial kitchen that the owner will not allow to be removed, thus reducing the usable square footage. Monthly lease: $3,500 (2,800 $1.25/SF) Most recent utility cost: $5,864 (natural gas estimated on incomplete history) Projected annual property insurance cost: $1,288 Annualized cost of lease, utilities and insurance: $49,152 Property 2: 370 E. Main St. (This is the former 2,200 SF laundromat next to the Village Baker.) Zoning: C-1-D Monthly lease: $3,495 Most recent utility cost: $7,415 (does not include water and sewer, which were billed to a different, unknown account) Projected annual property insurance cost: $1,012 Annualized cost of lease, utilities and insurance: $50,367 (+ water and sewer?) Property 3: Tolman Creek Shopping Center, unit B Zoning: C-1 Monthly lease: $1,500 (1,200 $1.25/SF. Craigslist ad does not provide a lease price. Says lease is negotiable.) Most recent utility cost: $1,145 (does not include water and sewer; no history of natural gas usage at this site) Projected annual property insurance cost: $552 Annualized cost of lease, utilities and insurance: $20,192 (+ water and sewer?) Property 4: Tolman Creek Shopping Center, no.204 Zoning: C-1 Monthly lease: $1, (895 $1.25/SF. Craigslist ad does not provide a lease price. Says lease is negotiable.) Most recent utility cost: $1,644 (does not include water and sewer; no history of natural gas usage at this site) Projected annual property insurance cost: $412 Annualized cost of lease, utilities and insurance: $15,481 (+ water and sewer?) Property 5: 1908-A Ashland St. Zoning: C-1
3 Memo Monthly lease: $1,150 (1,006 $1.15/SF. This is a modified gross lease. Water, sewer and exterior maintenance are included in the lease cost.) Most recent utility cost: $2,108 (electric and gas only) Projected annual property insurance cost: $463 Annualized cost of lease, utilities and insurance: $16,143 Property 6: 1644 Ashland St. #1 (Ashland Shopping Center) Zoning: C-1 This property is currently divided into offices, however the walls are easily removed to create an open space or any other desired configuration. Monthly lease: $3,044 (2,435 $1.25/SF) Most recent utility cost: $4,956 (Natural gas only. The space has not been separately metered for city utilities. Separate meters will be installed for a new tenant.) Projected annual property insurance cost: $1,120 Annualized cost of lease, utilities and insurance: $42,610 + water, sewer and electric utilities Note: There is also a 3,607 SF space in the shopping center that was formerly used as a theater. It has concrete floors and a separate side entrance. It, too, has not been metered separately for utilities. Insurance The insurance costs shown above are very rough estimates for property insurance only (building and contents) based on $.46/SF. Actual cost could be higher or lower depending on the age, location, size and configuration of the building. CIS will not allow us to add a leased day center facility to the City s property insurance policy. In addition, liability insurance is likely to be at least $5,000 per year. Competitive procurement It is not advisable for the City to directly lease a property and then contract with a provider to operate a day center, as this could result in the provider having to pay prevailing wage for improvements to the property, depending on the value of the improvements. In addition, although any contract with a provider would presumably transfer liability to the provider, there are circumstances in which the City could not completely escape liability regardless of contract language. The preferable course of action would be to determine how much money the City is willing to provide for this purpose and offer it in the form of a grant to a provider who would then be responsible for leasing appropriate space with the grant funding. Because there are multiple providers capable of offering the service, it would be necessary for the City to award the funding through a competitive grant process, similar to the process used for social service and economic development grants.
4 Memo The source of funding I would recommend treating the funding for this as a one-time capital expense and taking the money from the City s reserve fund. Per Council resolution, this would require the concurrence of the Budget Committee as part of the budget process in the spring. Too, the City could provide the funding from some other already-appropriated source and then repay that source from the reserve fund, but this also would require Budget Committee concurrence, which is not guaranteed. The only other viable alternative I can envision is to take the money from the pool of money set aside in the General Fund for social service grants and reduce the amount available to other social service agencies. Conclusion Without knowing how much space a potential provider would need and how the facility would actually be used, it s not possible to come up with a reliable cost estimate. If the intention is to offer showers, laundry and food in addition to case management services, utility bills will be significantly higher and more space will be required than in a facility that offers only case management services. Based on the properties shown herein, it can be assumed that at the high end, annual lease, utility and insurance costs would be slightly over $50,000, while at the low end, those costs would be about $15,500.
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