BOARD AGENDA: 8/25/09 ITEM: 6.1 THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE DATE:

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1 BOARD AGENDA: 8/25/09 TEM: 6.1 THE REDEVELOPMENT AGENCY OF THE CTY OF SAN JOSE MEMORANDUM SUBJECT: REDEVELOPMENT AGENCY SEE BELOW DATE: HARRY S. MAVROGENES EXECUTVE DRECTOR AUGUST 11,2009 SUBJECT: LEASE AGREEMENT OF OFFCE SPACE AT 100 EAST SANTA CLARA STREET FOR DOWNTOWN NCUBATORS, SDFORUM, AND THE ENTREPRENEUR CENTER. RECOMMENDATONS t is recommended that the Redevelopment Agency Board: (a) Approve a Master Lease, with RSTP nvestments, LLC, for 26,075 square feet of office space located at 100 East Santa Clara Street to house the Environmental Business Cluster (EBC), U.S. Market Access Center (US MAC), Software Development Forum (SDForum), and the San Jose Entrepreneur Center (ecenter). (b) Adopt a resolution approving the following adjustment to the FY Adopted Capital Budget as follows: (1) add a new capital project line - Downtown ncubators and fimding of $766,000; (2) reduce the existing lease obligations for the four ncubator Programs by $257,486, as detailed in Attachment A. OUTCOME Approval will allow the Environmental Business Cluster, US MAC, SDForum and ecenter to be consolidated in a centralized location, promoting the Agency and City objectives of corporate growth and innovation, job creation, and economic diversification in San Jose and will save the Agtency approximately $650,000 per year. Over the five-year initial term of the lease, the savings will be over $3 million.

2 Page 2 BACKGROUND \ n 1994 the Agency Board approved the establishment of a business incubation program to support start-up companies in driving industry sectors, with the intention of helping these companies locate and grow in San Jose. The Agency, in collaboration with San Jose State University Research Foundation, supports four business incubators -the SBC, EBC, US MAC (formerly, the nternational Business ncubator), and the San Jose BioCenter. Three of these incubators -the SBC, EBC, and US MAC - are located in Downtown San Jose. The Downtown incubators provide office space and business development services to start-up companies. These services include technology commercialization assistance as well as mentoring, coaching, service provider referrals, consultations, and training. The incubator programs nurture and grow small businesses and create jobs; they populate the Downtown restaurants, businesses, and entertainment venues and generate sales tax for the City. n the past fifteen years, the incubators have assisted over 350 companies and generated more than 2,500 jobs. Founded in 1994, the Environmental Business Cluster is a technology commercialization center that provides assistance to clean energy and clean technology companies. To date, the EBC has assisted over 71 companies with approximately 300 employees. n 2003, the EBC was selected by the California Energy Commission (CEC) to provide incubation and consulting services to CEC grant recipients, with the goal of helping clean energy companies commercialize their technologies. The EBC has received over $1 million in grants from the CEC to provide services to client companies. n 2006, the EBC was rated first in a British survey of 110 clean energy incubators around the world, based on the number of technologies that it has successfully taken to the marketplace. The EBC was awarded the 2008 National Business ncubation Association's Randall M. Whaley ncubator of the Year Award in the technology category. With 15 client companies that employ 42 people, the EBC is currently the largest clean energy commercialization center in the United States not operated by federal or state governments. The U.S. Market Access Center was established in 1995 to attract international firms to San Jose. The US MAC offers home office and business development services to international clients, including extensive research and consulting services. The US MAC also helps foreign governments establish trade connections and incubator programs in San Jose. The US MAC has a partnership with the Japan External Trade Organization and works closely with trade

3 Page 3 commissions and incubators from ndia, Hong Kong, Korea, Malaysia, the United Kingdom, Finland, Belgium, Mexico, and other Asian, European, and Latin American countries. To date, the US MAC has assisted 168 companies, creating 330 jobs in San Jose. The US MAC currently has 31 resident companies and organizations and is providing consulting services to an additional 29 non-resident clients. The Software Business Cluster, founded in 1994, provides office space and business development services to start-up software companies. Over the past 15 years, the SBC has graduated over 67 start-up companies, including companies such as Agile Software, Calico Commerce, and Callidus Software which have gone public or have been acquired by other companies. n 2009, the Agency commissioned a study of all the incubators and business service programs. The study found that although SBC has had many years of success, the program is no longer viable and has passed its useful life span and should be discontinued. The SBC's current space is mostly occupied by mature companies that have passed the incubation stage or are not in the software development field. Other resources and programs, like the SDForum, provide support services to young software companies in San Jose. i SDForum is a not-for-profit organization dedicated to advancing software development and emerging technologies in San Jose and Silicon Valley through networking, education, and programming. SDForum provides business and technology support to software professionals, other technologists, entrepreneurs, venture capitalists, and established companies, helping them gain a competitive edge in this dynamic industry. SDForum fosters a business-friendly environment that facilitates collaboration, cooperation, partnership, and allows members to share insights on emerging technology trends. SDForum events and programs have shaped the software industry in Silicon Valley. Member software companies share best-in-class business practices, receive business development mentoring, and connection with venture capitalists as well as angel funding groups. The ecenter, founded in 2000, began as a unique collaboration with the U.S. Small Business Administration (SBA), San Jose State University Research Foundation, non-profit business service providers and private industry sponsors to provide training and loan packaging opportunities for small businesses and entrepreneurs. n June 2008, Humboldt State University's Sponsored Programs Foundation replaced the San Jose State University Research Foundation as the fiscal sponsor and operator of the ecenter.

4 Page 4 The ecenter's mission is to provide small businesses and entrepreneurs with a full range of support services, in one convenient Downtown San Jose location, and to help them succeed in today's competitive economy. The ecenter is one of only two Entrepreneur Centers in the country that is totally dedicated to small business development. This is especially noteworthy because the City of San Jose is the largest city in the United States without a U.S. Small Business Administration office. During the eight-year existence of the ecenter, various tenants have operated their training and loan programs from the ecenter and have assisted over 86,000 individuals who own or anticipate starting a small business with training or loan packaging assistance. Cisco, Bank of America, Microsoft, BM, Greater Bay Bank, Bridge Bank, Symantec, Chevron, Comerica and Wells Fargo are some of the ecenter corporate sponsors over the past eight years. The Agency has supported the SBC, EBC, US MAC, SDForum and ecenter by funding 100% of the leased space rent. The Agency currently leases: 1) approximately 24,300 square feet of space at 2 North First Street, where the SBC and EBC are housed; 2) approximately 14,700 square feet of space at 11 1 North Market Street, where the US MAC is located; 3) approximately 7,500 square feet of space at 11 1 West St. John Street, where the SDForum is housed; and 4) approximately 16,350 square feet of space at 84 West Santa Clara Street, where the ecenter is located. These leases terminate on October 31,2009, November 14, 2009, September 30,2009, and August 31,2009, respectively. Some of these leases might have to be extended on a short-term basis to accommodate sufficient time for relocation to the new location. The total of the Agency's lease payments for the four Downtown locations in FY was $1,12 1,000. ANALYSS The proposed lease at 100 East Santa Clara Street (see attachment) would consolidate the EBC, US MAC, SDForum, and ecenter into one building and create a unique synergy and environment to foster the growth of small businesses. Locating the downtown incubators, SDForum and ecenter in the same building allows for a more efficient use of space through shared common amenities such as conference room space, network systems, and cross utilization of resources. The building would be known as the San Jose nnovation Center to give the incubators an identifying nomenclature. The consolidation will provide significant cost savings to the Agency over the term of the lease. The lease payment for FY would be $391,125, plus

5 Page 5 approximately $250,000 in tenant improvements and moving expenses. The Agency is responsible for the security deposit of $39,112 and a portion of the utilities including electricity, gas, and janitorial service which is estimated to be approximately $85,000 for FY The savings in rent associated with the consolidation is approximately $650,000 annually with the exception of the first year of the lease due to tenant improvement cost, four to six months of rent for the existing leases, and moving expenses. Over the initial five-year term of the lease, the cumulative savings would be over $3,000,000. SUMMARY OF KEY LEASE TERMS Premises: Landlord: Use: 100 East Santa Clara Street (at Third Street). RSTP nvestments, LLC. Offices and meeting space for business development, training and counseling providers. Floor Area of Premises: 26,075 rentable square feet. nitial Term: Five Years. Monthly Base Rent: Months 1-24: $1.50 per square foot Months 25-36: $1.53 per square foot Months 37-60: $1.53 per square foot plus CP adjustment not to exceed 3% per annum applied on months 37 and 49 for each following 12 month period. Option to Extend: One five-year option to extend at 95% of fair market rental value of the Premises. nsurance, Maintenance Taxes and Utilities: Landlord shall be responsible for the following:. Fire nsurance Property Taxes Property Maintenance Water Elevator Maintenance. Elevator phone line and Fire Monitoring phone line HVAC maintenance and upkeep Trash and Recycling Services

6 Page 6 Agency shall be responsible for PG&E and Janitorial Services. Security Deposit: Equal to first month's rent. Lease commencement September 1,2009. Date: Tenant mprovements: Landlord shall be responsible for constructing tenant improvements. Agency is responsible for cost of all tenant improvements, including plan check and permit fees, not to exceed $250,000. Parking: Furniture: First Right of Refusal: Landlord shall provide 30 parking spaces at no additional cost in the adjacent parking lot. Agency may rent 30 additional parking spaces at 60% of current market rate. f the adjacent parking lot is unavailable, the Landlord is required to provide parking spaces at another parking garage or lot within a 750 foot radius of the building. Landlord to provide all existing furniture at no cost to the tenant. Agency shall have the first right of refusal to purchase the building if the Landlord decides to sell the building during the lease period. EVALUATON AND FOLLOW-UP Staff will provide the Agency Board with periodic updates on the transition progress and operation status at the new building. PUBLC OUTREACH/NTEREST The proposed action meets Criterion 1 for added outreach efforts. This staff report was distributed 14 days prior to the Agency's Board meeting. t was posted on the Agency's website and made available for public review in the Agency's public lobby area. 4 Criterion 1: Requires Board action on the use of public funds equal to $1 million or greater.

7 Redevelopment Agency Board Page 7 Criterion 2: Adoption of a new or revised policy that may have implications for public health, safety, quality of life, or financiaveconomic vitality of the City. Criterion 3: Consideration of proposed changes to service delivery, programs, or staffing that may have impacts to community services and have been identified by staff, the Board or Council, or a community group that requires special outreach. COORDNATON This action was coordinated with the San Jose State University Research Foundation, Humboldt State University's Sponsored Programs Foundation and operators of the Environmental Business Cluster, U.S. Market Access Center, SDForum, ecenter and the Agency's General Counsel. FSCAL MPACT The proposed action requires adjustment to the FY Adopted Capital Budget: adding $766,000 to a new capital project line-downtown ncubators Lease; reducing $109,250 from the Software Development Forum Lease; adding $60,490 to the Software and Environmental Business Cluster Lease; reducing $54,692 from the US Market Access Center Lease and reducing $154,034 from the Entrepreneur Center Lease project line in the Merged Redevelopment Area, which will have a net decrease of $508,514 to the Capital Reserve, as detailed in Attachment A. Exempt, File NO. PP ROGENES Executive Director Attachments

8 THE REDEVELOPMENT AGENCY OF THE CTY OF SAN JOSE PROPOSED ADJUSTMENTS TO THE FY ADOPTED BUDGET Agency's Business Unit Number Project Budget Year Adopted Budget FY Net Change Revised Adopted Budget FY USE OF FUNDS Merged Area (Fund #090) Downtown ncubators Lease FY SDForum Lease FY , Software and Environmental Business Cluster FY , US Market Access Center Lease FY , Entrepreneur Center Lease FY ,519 CAPTAL RESERVE +766, , ,490-54, , , ,000 98, , , ,485

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