Title
Recommendation to Authorize the City Manager to Execute an Agreement with Lincoln Property Company for Management of the City’s Real-Property Asset Portfolio, Including City-Owned or Controlled Commercial and Residential Property at Alameda Point and Other Select Locations Throughout Alameda for an Initial Term of Two Years for a Total Not-to-Exceed Cost of $3,462,138 Plus Commission, with Two Options for Two-Year Renewals for a Total Possible Duration of Six Years And a Total Not-to-Exceed Amount of $11,436,037 Plus Commission.
This action is categorically exempt from further environmental review pursuant to California Environmental Quality Act Guidelines Section 15061 (Common Sense). (Base Reuse and Economic Development 29061822, 21661825).
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
The City of Alameda’s (City) Base Reuse and Economic Development Department issued a public Request for Proposals (RFP) for Property Management Services in October of this year, as the current contract for these services is set to expire on December 31, 2024. These services include the management of the City’s real-property asset portfolio including City-owned or controlled commercial and residential property at Alameda Point, State Lands Trust, and other select locations throughout Alameda, under the direction of City staff. Timely and complete proposals were considered, and interviews were held with respondents. Based on the proposals and interviews, Staff recommends Lincoln Property Company (Lincoln) for a two (2)-year contract with two (2) options for two-year renewals (a possible total duration of six (6) years) with the City of Alameda to provide the required property management services.
BACKGROUND
The City real property asset portfolio includes over 100 properties, and over 1,500 acres of land at Alameda Point, in addition to select properties across Alameda and Bay Farm Island. With complex environmental factors, buildings on the historic registry, and some property not yet conveyed by the Navy, the asset portfolio is considered unconventional and requires a skilled on-site management team. The City currently utilizes Lincoln, a professional Commercial Property Management firm to manage this asset portfolio and assist City staff in overseeing the calculation and collection of rent, taxes, fees and reimbursable expenses, payment of bills and expenses, preparation of financial reports, recordkeeping, as well as the security, maintenance and preservation of leased and unleased non-residential properties and land. Additionally, the City has 67 residential units at Alameda Point, managed by a residential property management firm, Cerda-Zein, which is overseen by Lincoln and City staff.
Lincoln also maintains an in-person Property Management Office located at City Hall West where tenants can come to pay rent directly and meet with a skilled property manager to discuss any concerns or issues they are experiencing. In 2023, Lincoln acquired RiverRock Real Estate Group, Inc., which was the name of the entity selected as part of the prior 2016 public RFP for property management services.
Lincoln’s current service contract with the City expires on December 31, 2024. Given the large scope of work completed by the property manager, and in keeping with best practices to ensure services are being provided at a competitive rate, the City issued a new RFP for property management services on October 11, 2024. Proposals were due October 28, 2024, and two timely and complete responses were received by the City.
DISCUSSION
In an effort to solicit the maximum number of responses to the RFP and most competitive price, a bid package was prepared by City staff including a detailed scope of work, asset description, template service provider agreement and sample insurance requirements. Notices inviting bidders were placed on the City’s web page and published by the Bay Area News Group on October 11 and 18, 2024. After the bidding period closed, two (2) companies submitted bids. The bids were opened on October 28, 2024, with the following results:
|
Bidder |
Proposed Fee Structure |
Estimated Year 1 Expense |
|
Lincoln Property Company |
Monthly Property Management Fee, Staff Salaries, office expenses and Building Engineering Services Plus 5% commission on Licensing program |
$1,611,000 plus commissions estimated between $8,000 to $10,000. |
|
Clear Blue Commercial |
Monthly Property Management Fee of $0.10 per square foot and a Commission on New Leases of 5% and 3% for Lease Renewals |
$3,600,000* plus commissions estimated between $8,000 to $10,000** |
* Calculation is based on a combined estimate 3,000,000 square feet of interior building space.
**Estimated commission on New Leases of 5% not included, as these services were not part of the RFP.
After careful review of the proposals submitted and responses during interviews, the panel of City staff unanimously scored Lincoln higher than the other respondents to the RFP. This was based on their competitive pricing, as well as staff’s experience with Lincoln’s ability to deliver a high level of property management services.
The cost for the proposed new Service Provider Agreement with Lincoln consists of:
• Monthly property management fee of $19,669 through the end of Fiscal Year (FY) 2024-25, increasing to $21,000 at the start of FY 2025-26, with 3% annual increases through the term of the agreement
• Payment of monthly salary costs for property management staff based on a fixed schedule and approximately $81,500 in FY 24-25
• Reimbursement of monthly on-site office expenses of approximately $2,000.
Lincon has proposed, and City staff recommend, adding a new Building Engineering Service under the agreement at a cost of $31,757 per month. This service would be provided by a subcontractor to Lincoln, with the expense reimbursed by the City. The new Building Engineering Service would ensure the City has access to a skilled team of building engineers who can support the City in prioritizing and completing building maintenance and repairs and provide expertise on repairs requiring outside contracted services (such as roofing, fire/life safety, electric and plumbing).
The proposed property management staff salary, on-site office expenses and Building Engineering Services, will have 5% annual increases through the term of the agreement.
In the RFP, City staff requested that proposers include technology platforms, including the selection and implementation of software, for greater oversight and management of the City’s assets. Lincoln provided various options to meet this request and a projected cost of approximately $4,670 per month in the first year with subsequent increases from the software provider also to be reimbursed by the City. The combined costs for salaries, office expenses and services will increase year over year during the life of the contract, and projected annual increases are included in the not-to exceed (NTE) cost projection over the six-year duration of the proposed contact shown in the table below.
Lincoln also proposes to continue to receive the same 5% commission for managing and overseeing the City’s successful Licensing Program. The commission is paid from the City’s lease revenues, and this compensation amount is anticipated to remain similar to what is currently paid with a modest year over year increase. Lincoln’s projected licensing commission income is approximately $75,000 for this current Fiscal Year.
Additionally, the City contracts with outside service providers for other services such as landscaping, security patrol, residential property management, fire/life/safety inspections, property maintenance and repair and Lincoln will continue to support the City in regularly bidding out these vendor services in alignment with the City’s Procurement Policies. Lincoln will support the City in selecting new digital technology solutions to streamline and improve maintenance requests, work orders, and create an online asset management platform.
Agreement Costs
The total not-to-exceed (NTE) cost for the initial contract period and the two option periods is as follows:
|
Term |
Total NTE* |
|
January 1, 2025-December 31, 2026 |
$3,462,138 |
|
January 1, 2027- December 31, 2028 |
$3,800,641 |
|
January 1, 2029-December 31, 2030 |
$4,173,257 |
|
Total over six years |
$11,436,037 |
*Plus 5% commission rate for license fees
In response the RFP, the combined proposed annual NTE expense for the property management services by Lincoln starting in FY 2026 is $1,731,069 (not including Licensing Commissions but including new proposed expenses for new services). This represents an increase in cost of approximately 44% from the current FY 2025 budget and is reflective of an increase in the level of service expected of Lincoln to support the City’s efforts to repair and maintain Alameda Point properties at a higher standard than has previously been expected. The FY 2025 Projected expense of $1,401,664 reflects the revised FY 2025 expense if the new contract is signed and the new proposed services can be added right away.
Staff recommends awarding a new two-year service provider agreement with two (2) options for two-year renewals (a possible total duration of six (6) years) to Lincoln Property Company, the best qualified proposer, for a total NTE cost of $11,436,037 (not including Licensing Program Commission, as those will be paid as earned by Lincoln). This cost to the City is fully offset by the combined proceeds for leasing and licensing the City’s real property asset portfolio. A copy of the agreement is attached as Exhibit 1.
Risk Management Issues
In the 2022 contract negotiations between Lincoln’s predecessor RiverRock and the City, RiverRock expressed concern about its continued financial ability to assume all liability for its managed properties and requested that the City assume more of the liability for its properties, particularly with respect to property conditions that existed before RiverRock became property management. Accordingly, the 2022 agreement executed by RiverRock and the City imposed more limited indemnification requirements on RiverRock than is the City’s standard practice.
As part of the new contract negotiations with Lincoln, Lincoln expressed additional concerns about its financial ability to assume liability for the managed properties. Accordingly, the City Attorney’s Office has opined that the currently proposed agreement with Lincoln, which substantially adds to existing risk-management concessions previously made in the 2022 agreement, results in significant departures from standard contract and risk management practices and creates risks that are substantial and difficult to quantify and mitigate.
More specifically:
First, Lincoln insists on limiting its overall liability through the life of the contract to $750,000 in the aggregate. This limitation alone creates serious risk for the City. For instance, even a single grossly negligent/reckless/intentional wrongful act by Lincoln creating serious liability (e.g., serious bodily injury or death) could impose liability in the millions on the City, well exceeding this $750,000 cap. Baring major events, multiple smaller events could also easily erode this cap over the life of the agreement. Additionally, it is unclear and potentially unlikely that the City’s existing excess insurance coverage would cover such events, likely placing the risk entirely on the City’s Base Reuse Fund and General Fund. Staff have reached out to the City’s excess coverage agency, California Joint Powers Risk Management Authority (CJPRMA), for a coverage opinion and is awaiting their response. Even if it is covered, this would likely trigger an increase in the City’s coverage premium. Staff is unable to estimate the magnitude of any such increase at least until policy renewal time (around June of 2025).
Second, Lincoln further insists that the City’s insurance be primary with respect to most claims. This limitation is also out of the ordinary; it is likewise unclear/unlikely that CJPRMA would agree to this provision; and similar risk/costs concerns described above apply with equal force here.
Third, Lincoln’s insistence that its indemnity for the City (subject to the $750,000 limitation described above) is not applicable to its performance of its own obligations under the Agreement creates yet further risk for the City for same reasons described above.
Finally, Lincoln’s insistence that the City indemnify Lincoln for all claims arising out of or related to Lincoln’s performance of its own obligations under the Agreement is additionally troubling. Typically, contractors indemnify the City for claims arising out of their work. This reverse indemnification imposes further costs on the City that is potentially significant and likely beyond our insurance coverage.
In totality, this proposed agreement shifts virtually all risk of performance under the contract from Lincoln to the City. Staff, in recognition of these serious risks, nonetheless recommends approval of the contract because:
1. Lincoln is acting as an Agent for the City and under the direct supervision of City staff in the undertaking of all work.
2. Lincoln is managing unique real property assets owned by the City and Navy, and as such, they do not have ownership level control of the buildings, sidewalks, roads, fences, piers, yards, etc. and do not have unilateral ability to address hazards that may be present.
3. At Alameda Point especially, there are many innate hazards as it is a unique historic and utilitarian property, that Lincoln or any Property Manager cannot control for.
4. Lincoln is a national property management firm with a portfolio of managed properties around the country and have explained to the City the liability language they are agreeing in this proposed contract is consistent with the industry standard.
5. If we are unable to come to a resolution of the Risk Management issues with Lincoln, who have served the City in this capacity for many years, it is unlikely that the City will find another professional commercial property management firm that will.
ALTERNATIVES
• Direct the City Manager to execute the Service Provider Agreement as proposed with Lincoln.
• Direct the City Manager to execute a Service Provider Contract with Lincoln for an alternate amount and scope of work.
• Do not direct the City Manager to execute the Service Provider Agreement and give another direction to staff. This action will likely result in the expiration of the existing Service Agreement and a gap in property management services for City tenants, including rent collection.
FINANCIAL IMPACT
The estimated increased contract expense for Property Management Services have not been included in the Projected Fiscal Year (FY) 2024-2025 budget for Base Reuse and Economic Development approved by City Council. However, the funds for this project are budgeted in the following Special Revenue Funds: Alameda Point Fund (Fund 290) and Tidelands (Fund 216). The funding for the annual extensions of the contract for up to two years, if approved, will be budgeted in the Alameda Point Fund for FY 2025-26 and FY 2026-27, subject to City Council appropriations approval. The contract will not have a financial impact on the General Fund.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action does not affect the Alameda Municipal Code. This action supports the City Strategic Plan Priority to Invest in Transportation, Infrastructure, Economic Opportunities and Historic Resources. This action is subject to the Levine Act.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required. Additionally, in accordance with CEQA, this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Section 15061 (Common Sense).
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report
RECOMMENDATION
Recommendation to authorize the City Manager to execute an agreement with Lincoln Property Company for management of the City’s Real-Property Asset Portfolio, including City-Owned or controlled commercial and residential property at Alameda Point and other select locations throughout Alameda for an initial term of two years for a total not-to-exceed cost of $3,462,138 plus commission, with two options for two-year renewals for a total possible duration of six years and a total not-to-exceed amount of $11,436,037 plus commission.
Respectfully submitted,
Abby Thorne-Lyman, Base Reuse and Economic Development Director
By,
Alesia Strauch, Base Reuse Manager
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibit:
1. Service Provider Agreement