MEMORANDUM. January 5, 2005

Transcription

1 MEMORANDUM January 5, 2005 TO: FROM: SUBJECT: MEMBERS, PORT COMMISSION Hon. Wilfred Hsu, President Hon. Michael Hardeman, Vice President Hon. Sue Bierman, Commissioner Hon. Kimberly Brandon, Commissioner Hon. Ann Lazarus, Commissioner Monique Moyer Executive Director Request for authorization to approve Lease No. L with Architects, Planners and Conservators, Inc. doing business as Architectural Resources Group, for office space located at Pier 9, Suites 107 and 109. DIRECTOR'S RECOMMENDATION: Authorize the Executive Director to negotiate and execute a lease with Architects, Planners and Conservators, Inc. doing business as Architectural Resources Group, in a form consistent with the terms and conditions outlined in this staff report and Resolution No BACKGROUND Architects, Planners and Conservators, Inc. doing business as Architectural Resources Group (hereafter referred to as "ARG"), is a full-service architectural firm, founded in San Francisco in In 1984, ARG relocated their offices to Pier 9. In the ensuing years, ARG has moved their offices within Pier 9 from one location to another, enlarging and improving Port space each time. In 2000, under Lease No. L (terminating on January 31, 2005), ARG converted shed and undeveloped office space into Class B office space. ARG created a larger, two-floor, cohesive integrated office space complete with conference rooms, kitchens and ADA compliant bathrooms. ARG spent approximately $340, for these upgrades qualifying for rent credits of $144, Under proposed Lease No. L (hereafter referred to as the "Lease"), ARG is requesting a fifty-one month lease, seeking rent credits to install new floor coverings and to upgrade the heating ventilation air conditioning system (hereafter referred to as "HVAC") in portions of the premises. Additionally, ARG seeks a monthly rental rate that is slightly below the June 2002 Port Commission Minimum Rental Rate Schedule (hereafter referred to as "Rental Rate Schedule") but consistent with their current rent. THIS PRINT COVERS CALENDAR ITEM NO. 6A

2 Port Commission Page 2 LEASE TERMS AND CONDITIONS Notwithstanding the proposed rent credits and monthly rental rate, ARG will sign the Port's standard form lease document as adopted by the Port Commission. The salient terms and conditions of the proposed Lease include the following: Premises: Parcel A: approximately 7,396 square feet of office space; and Parcel B: approximately 400 square feet of nonexclusive apron space. Location: Pier 9, Suites 107 and 109 Term: February 1, 2005 to April 30, 2009 Base Rent: Parcel A: Year 1 $2.55 PSF ($18, per calendar month) Year 2 $2.63 PSF ($19, per calendar month) Year 3 $2.71 PSF ($20, per calendar month) Year 4 $2.79 PSF ($20, per calendar month) Year 5 $2.87 PSF ($21, per calendar month) Parcel B: Year 1 $0.25 PSF ($ per calendar month) Year 2 $0.26 PSF ($ per calendar month) Year 3 $0.27 PSF ($ per calendar month) Year 4 $0.28 PSF ($ per calendar month) Year 5 $0.29 PSF ($ per calendar month) Net Lease: Rental Rate Adjustment: Tenant responsible for janitorial service, utilities, scavenger service, and maintenance of their interior premises. Port responsible for maintenance of the substructure, apron deck, roof, and exterior walls. Annual 3% fixed adjustment in lieu of CPI increase Use: Parcel A: office Parcel B: nonexclusive use of apron / deck area Rent Credits: Parcel A: New Floor Coverings: $2.50 PSF ($18,490.00) HVAC upgrades: $2.50 PSF ($18,490.00)* *ARG must complete HVAC system improvements within two years of the Anniversary date of the Lease or Tenant forfeits rights to this rent credit. Parcel B: No credits available RENT CREDITS FOR NEW FLOOR COVERINGS AND HVAC ARG is requesting a rent credit to install new floor coverings. The total available rent credit would be $18, ($2.50 per square foot (hereafter referred to as "PSF"). This rate is consistent with

3 Port Commission Page 3 the Port Commission approved rent credit for new floor coverings available to the Port's fully serviced office tenants in the Agricultural Building and Roundhouse Plaza. As to the rent credit to improve the HVAC, an upgraded HVAC system will provide consistent heating throughout the entire premises. The Port has been provided with an engineering and cost estimate from ARG. The estimate anticipates an HVAC expenditure by the tenant of $22,260.00, including the Port s permit fee. The tenant is requesting that the Port reimburse the tenant, through rent credits, for a portion of this expenditure. The Port engineering staff has reviewed this estimate and determined that the scope of work and related costs are conservatively projected. Under the terms of the Lease, the Port will retain the benefit of the new HVAC system in the future. The useful life of a typical HVAC system is approximately twenty years. The total available HVAC rent credit would be $18, ($2.50 PSF). Port staff recommends that the terms of the proposed Lease include rent credits for new floor coverings and HVAC upgrades not to exceed $2.50 PSF, respectively. When certified, the rent credits for floor coverings and HVAC will be applied against one half (1/2) of the tenant's monthly rent obligation, in successive months, until fully applied. The tenant will be solely responsible for any and all costs in excess of the available rent credits or the $2.50 PSF rent credit, whichever is lower. In no event will the tenant be entitled to rent credits exceeding its actual Port certified expenditures. If unapplied at the termination of the lease, tenant will have no right to any other form of reimbursement. PROPOSED MONTHLY RENTAL RATE ARG's current lease was negotiated over five years ago at the height of the dot-com phenomena. Market rental rates for similarly situated properties are now significantly lower than were prevalent during that period. Current market rental rates in the Northeast Waterfront hover around $20.00 to $24.00 PSF per year with a $20.00 PSF tenant improvement allowance. (Source: CB Richard Ellis San Francisco Office Market Summary dated September 15, 2004) The proposed rate of $2.50 PSF ($30.00 PSF per year) is significantly higher than these current market rates. The acceptability of this higher rate reflects the superior waterside location at Pier 9. Current Port rates for new leases at the Agricultural Building and Roundhouse Plaza range from $1.75 to $2.00 PSF for fully serviced offices. The proposed lease with ARG is a net lease with the Port not having to provide the utilities and janitorial services of a full service lease. ARG will be responsible for janitorial service, utilities, scavenger service, and all maintenance pertaining to their interior premises. The Port will only be responsible for maintenance of the substructure, apron deck, roof, and exterior walls. The adopted Port Commission Rental Rate Schedule for Pier 9 is $2.80 per square foot. This rate was set at the height of the commercial real estate market (June 2002) and no longer reflects current market conditions. A new Rental Rate Schedule is under development by Port staff and will be presented to the Commission in the spring.

4 Port Commission Page 4 Under the terms of their current lease, ARG's monthly rent is $2.55 PSF. The tenant is requesting a rate that reflects current market conditions. Based on the above mentioned market analysis, Port staff believes that the proposed $2.55 PSF rate meets or exceeds current market rates. RECOMMENDATION Authorize the Executive Director to negotiate and execute a lease with Architects, Planners and Conservators, Inc. doing business as Architectural Resources Group, in a form consistent with the terms and conditions outlined in this staff report and the attached Resolution No Prepared by: Richard A. Rovetti, Commercial Property Manager

5 PORT COMMISSION CITY AND COUNTY OF SAN FRANCISCO RESOLUTION NO WHEREAS, WHEREAS, Charter Section B3.581 empowers the Port Commission with the authority and duty to use, conduct, operate, maintain, manage, regulate and control the lands within the Port jurisdiction; and Architects, Planners and Conservators, Inc. doing business as Architectural Resources Group (hereafter referred to as "ARG") proposes and Port Staff agrees to a fifty-one month Lease for approximately 7,396 square feet of office space and approximately 400 square feet of nonexclusive apron space located at Pier 9 commencing on February 1, 2005; and WHEREAS, ARG will pay to the Port the base rent of $18, per month with an annual 3% rental rate adjustment; and WHEREAS, ARG proposes and Port Staff recommends rent credits for new floor coverings at $2.50 per square foot, totaling $18,490.00, and HVAC system improvements to premises at $2.50 per square foot, totaling $18, with a two-year expiration date; now, therefore, be it RESOLVED, that the San Francisco Port Commission hereby approves the proposed lease of a portion of Pier 9, on the terms and conditions set forth in the staff report on file with the Secretary of the Port Commission and authorizes the Executive Director, or her designee, to negotiate and execute a final lease with said tenant in a form consistent with this resolution and as approved by the Office of the City Attorney. I hereby certify that the foregoing resolution was adopted by the Port Commission at its meeting of January 11, Secretary

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