Title
Recommendation to Authorize the City Manager to Execute an Agreement with Lincoln Property Company (LPC West LP, a Delaware Limited Partnership) for Contracted Property Management Services for Two Years, with Two, Two-Year Options to Extend for a Total Pre-Commission Cost of $14,435,991.83 over Six Years. (Base Reuse and Economic Development 29061821 and 29061822)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
The City of Alameda (City) has long used a contractor to provide commercial and residential property management services for City-owned buildings and land at Alameda Point, in the State Lands Trust, and throughout the rest of the City. The City’s property management contract with Lincoln Property Company (LPC) expired in December 2024, and following a competitive selection process, staff brought a recommendation for a new, two- to six-year contract with LPC to the December 17, 2024 City Council meeting.
At this meeting, City Council and staff discussed concerns regarding the risk and liability clauses of the negotiated agreement. City Council voted to direct staff to renegotiate these terms with LPC, conduct another Request for Proposal (RFP) if needed, and research the steps and implications of bringing property management services in house, to be performed exclusively by City employees.
Staff conducted these activities and the results are summarized below. Based on these findings, staff recommends continuing to contract property management services with modified terms and conditions. Staff completed a second competitive RFP process addressing City Council’s concerns and recommends a new modified agreement with LPC (dba LPC West LP).
BACKGROUND
The City’s real property asset portfolio includes over 4 million square feet of occupied and vacant commercial space and more than 1,500 acres of land at Alameda Point. Alameda Point boasts a unique mix of commercial properties including hangars, warehouses, piers administrative buildings, residential units and lots. Many of these properties are identified as historic and to be preserved for reuse. There are also portions of the land in development (or being held for future development), and properties still in Navy ownership until remediation is completed. Other City-owned properties requiring management that are outside of Alameda Point include various cell towers, marinas, the Grand View Pavillion on Bay Farm Island, the Carnegie Library, and Alameda Theater complex.
The City has long used a third-party company to provide commercial and residential property management services to oversee the City’s asset portfolio. In 2024, staff issued a competitive RFP for a two-year property management services contract with two, two-year options to extend. The City received two responsive proposals from LPC, the City’s current property manager and Clear Blue Commercial. After careful review of the two proposals and responses during interviews, the panel of City staff unanimously scored LPC highest.
On December 17, 2024, the City Council considered the contract with LPC, which included changes to the City’s standard risk and liability provisions included in the Service Provider Agreement. City Council raised concerns about the City taking primary liability for some claims associated with property management activity, rather than LPC. Given these issues, City Council voted at the December meeting to direct staff to enter into a six-month interim agreement with LPC, continue negotiations with LPC or conduct a new RFP, as well as explore the possibility of bringing property management functions in house to be performed exclusively by City employees.
Staff from Base Reuse and Economic Development and Human Resources, with support from Keyser Marston, the City’s real estate consultant, completed this work, and the results are summarized below.
DISCUSSION
Over the last three months, staff performed significant work on three areas supporting this item: a new RFP, evaluating the feasibility of transitioning to in house property management services, and evaluating how other public agencies in California manage the real property that is owned but not managed or operated by the City. The findings are summarized for each area below.
A. New Request for Proposals
On January 16, 2025, staff released a new, modified RFP for property management services. The services scope of work included:
• Tenant relations, including responding to requests and complaints from tenants.
• Coordination of access for showing properties, and maintaining an in-person
o property management office.
• Calculation and collection of rents and other amounts due to the City.
• Preparation of budgets and financial reporting and maintaining books and
o records in accordance with generally accepted accounting principles.
• Review of invoices and payment to service providers and vendors.
• Oversight of third-party service contracts including security, residential property
o management, and others.
• Overseeing repairs and maintenance through third-party vendors.
• 24-7 monitoring and response services and supervision of emergency work.
• Compliance with laws, permits and licenses.
• Negotiating and overseeing short term licenses for certain properties, such as the Northwest Territories area of Alameda Point
Staff modified the initial 2024 RFP to address liability concerns raised by City Council at the December 2024 meeting. The RFP also included a standard fee structure spreadsheet for respondents to use to report the proposed salary, property management fee and other reimbursable expenses.
The City received three responsive proposals and one unresponsive proposal. Staff determined that LPC, Cushman & Wakefield, and Clear Blue Commercial were qualified to perform the City’s proposed Scope of Work. Based on the overall evaluation and scoring, it was clear that LPC submitted the most competitive proposal on several fronts. LPC provided a response with competitive pricing, a thorough understanding of the Scope of Work and necessary staffing classification and headcount to address the City’s requirements. LPC had the lowest average cost for the City per proposed staff member, indicating they were offering competitive pricing compared with the other offers. Most notably, in its proposal, LPC stated it could accept the City’s standard liability language, if it secured an additional insurance policy, which costs $500,000 per year.
Further, a panel of City staff unanimously scored LPC higher during the interview based on LPC staff’s experience and demonstrated ability to deliver a high level of property management and customer service.
Because LPC was the most qualified property management firm to submit and addressed the City’s major risk concern, staff did not pursue negotiations with either of the other two qualified firms.
The combined annual salary and property management fee for LPC’s contracted property management services in Fiscal Year 2025-2026 ranged from $1.1M to $1.7M. These values do not include other reimbursable expenses that are included in the final contract budget and may also be incurred by in-house staff. These reimbursable expenses include office expense such as janitorial services, and internet.
B. Contracted versus In-House Property Management Services
Staff completed a cost-benefit analysis of contracting property management services versus bringing this function in-house with additional City staff hired to conduct the work. This analysis considered several factors including short term and long-term costs, the transition process, and operational implications. A summary of this information, Matrix Commercial Property Management Options (March 2025) is included as Exhibit 2.
Based on the information provided above, the comparative cost of in-house and contracted commercial property management services is shown below.
|
Attribute |
Contracted Property Management |
In-House |
|
Full-Time Staff Headcount |
8.3 FTE |
9 FTE |
|
|
Overall staffing count is similar in both scenarios. HR worked closely with BRED to understand scope and various roles to identify similar job classifications. |
|
Annual Cost Estimate |
$1,240,000 (Salary) $360,000 (PM Fee) $1,600,000 Total Plus $500,000 reimbursable insurance costs Utilizing cost data obtained from recent RFP for services. |
$1,626,000 (Base Equivalent Positions) $350,000 (Positions under PM Fee) $10,000 (est. after-hours response) $1,986,000 |
|
Transition Cost and Impact |
N/A |
$51,000 (one-time) estimated costs to recruit, hire and on-board new employees. $2-3 million, (one-time) to extend existing PM contract one year for transition time. |
C. Impacts if PM Services Moved In-House
It is anticipated that the transition process would take up to a year to complete to establish new permanent employee positions per civil services rules, recruit, hire and onboard new City staff as well as establishing the systems needed to launch a program of this size with City staff. During that time, the City would need to continue contracting for property management services from a third party. Staff estimated this will cost $2 million to $3 million due to the challenge for a third party company to ensure it can retain qualified staff for only a temporary period, foregoing job security. Further, the transition would require current Base Reuse and Human Resources staff to reprioritize their work, resulting in lost productivity on other City priorities. For Base Reuse staff, this would result in a loss of lease and license revenue as staff would not be able to focus on the work needed to lease properties.
There are also differences in long-term expenses and escalations. A commercial PM company has fixed budget escalation costs of five percent (5%) for staff and three percent (3%) for the fee, based on the recent RFP proposal. In contrast, City staff costs are dependent upon negotiations with bargaining units such as MCEA and ACEA and therefore can be more variable.
D. Operational Implications
Over time, the City intends to sell the bulk of the real property portfolio at Alameda Point to the private sector, which would decrease the property management staffing requirement and costs as the portfolio is reduced. There are limitations in how the City can right-size staffing over time if property management is in-house. City staff headcount would need to be reduced through attrition, reassignment or lay-offs in alignment with collective bargaining agreements and civil service rules. Further, it is unknown what increases to compensation and benefits packages will be negotiated in the short and long term with employees’ bargaining units. Utilizing a contracted property manager, annual salary and fee increases can be negotiated years in advance and subsequently be more accurately budgeted.
A professional contracted property manager also provides the benefits of industry expertise and connections of property management vendors to the larger northern California industry. The City’s contracted property managers are often familiar with the individuals and services provided by various contractors (e.g. electricians, waterproofing, fire/life safety) because of their experiences at other properties, providing important information to ensure the City is securing quality work.
E. Comparison with Other Local Jurisdictions
Staff commissioned Keyser Marston, the City’s real estate and economic consultant, to research how other local jurisdictions, similar to Alameda with former military facilities, manage their property. Approaches to property management can be described in four main categories:
1. Third-party contract property manager
2. In-house property management
3. Privatization through a long-term ground lease, master lease, or sale
4. Combination of one or more of the above approaches, depending on the asset.
Keyser Marston’s major findings are below:
• Most jurisdictions managing commercial property in-house have the intent to retain property in perpetuity (ports/state lands, airports).
• Some jurisdictions with commercial asset portfolios utilize privately managed master leases, and the master tenant provides all direct services to “subtenants” such as the Ferry Building in San Francisco, Mare Island in Vallejo or the Port of Redwood City. This enables jurisdictions to pass on the risk and liability, but also means the jurisdictions have less control over the futures of these areas.
• All jurisdictions with residential portfolios contract out these property management services due to the complex and dynamic nature of rent laws.
• Most jurisdictions with in-house commercial property management staff facilitate maintenance, repair and capital improvement projects via their public works departments. This increased requirement for public works staff was not included in the staffing analysis described above and would result in hiring additional staff above the 9 FTE or additional funding to contract maintenance and repair services.
• Generally, whereas the standard practice in the private sector is for the landowner rather than property manager to accept general liability, the opposite is true for the public sector. These jurisdictions have handled the liability issue through a combination of approaches, including but not limited to, privatizing liability through ground leases, and master lease agreements.
In conclusion, staff found that there are no directly similar comparisons with Alameda due to the scale of Alameda Point, existence of residential properties, and the nature of the development plan.
F. Staff Recommendation and Next Steps
Based on this analysis, staff recommends continuing to contract out property management services to a third party rather than hiring additional City employees to bring these services in-house. This recommendation is primarily based on the following concepts:
• Bringing these services in-house is overall more costly and time consuming.
• The City intends to ultimately sell most of its portfolio to the private sector which would make in-house staff positions redundant.
• LPC identified and is willing to procure an insurance policy that complies with the City’s standard Service Provider Agreement language.
G. Recommended Contract Overview.
As mentioned above in Section A, staff issued a revised and updated RFP on January 16, 2025, and the City’s selection panel scored LPC the highest with the most competitive proposal. Staff initiated negotiations with LPC and the resulting signed Agreement for Commercial Property Management Services is included as Exhibit 1.
The cost for the proposed new Agreement with LPC consists of:
• Monthly property management fee of $30,000 for Fiscal Year (FY) 2025-26, with three percent (3%) annual increases over the term of the agreement
• Payment of monthly salary costs for property management staff based on a fixed schedule and approximately $103,182 in FY 2025-26 with five percent (5%) annual increases over the term of the agreement.
• Reimbursement of monthly on-site office expenses of approximately $2,700 with 5% annual increases over the term of the agreement
• Annual reimbursement of an upgraded insurance policy at a cost of $500,000 for the first year for LPC to bind the policy and seven percent (7%) increases are estimated annually thereafter. The insurance market is very dynamic and there are many variables involved. LPC will price the policy as early as possible each year to allow time for the City to budget, in case the increase exceeds seven percent (7%).
LPC will also continue to receive the same five percent (5%) commission for managing and overseeing the City’s very successful Licensing Program. Many of the exciting community events at Alameda Point are through the Licensing Program, like the Filipino Heritage Festival, Donut Fun Run and Electrify Expo. The program also provides for the short-term use of many otherwise vacant spaces for a holiday tree lot, contractor staging and driver training courses. The commission paid to LPC is based on the City’s gross revenues garnered from the licenses, and this compensation amount is expected to remain similar to what is currently paid with a modest year-over-year increase. LPC’s projected licensing commission income is approximately $80,000 for this current Fiscal Year. This work brings net positive revenue to the Base Reuse Fund.
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. LPC will continue to support the City bidding of these vendor services in alignment with the City’s Procurement Policies. LPC will also support the City in selecting and launching new modernized technology solutions to streamline and improve maintenance requests, work orders, and create an online asset management platform.
The total not-to-exceed (NTE) cost for the initial Agreement contract period and the two option periods are as follows:
|
2-Year Terms |
Total Not To Exceed* |
|
July 1, 2025-June 30, 2027 |
$4,260,122.95 |
|
July 1, 2027-June 30, 2029 |
$4,593,762.06 |
|
July 1, 2029-June 30, 2031 |
$5,082,058.61 |
|
Contingency** |
$500,000.00 |
|
Total over six years |
$14,435,991.83 |
*Plus five percent (5%) commission rate for Licensing Program
** This contingency amount is included to address unexpected changes in costs, such as insurance premium hikes which are difficult to forecast in today’s market. Any use of contingency requires City approval.
Staff recommends the award of a new two-year Agreement with two (2) options for two-year renewals (a possible total duration of six (6) years) to LPC, the best qualified proposer, for a total not to exceed cost of $14,435,991.83 including the reimbursement of the cost for upgraded insurance coverage that complies with the City’s liability requirements (not including Licensing Program Commission, which will be paid as earned). This cost to the City is fully covered and offset by the combined revenues for leasing and licensing the City’s real property asset portfolio.
ALTERNATIVES
• Authorize staff to enter into a new, two-year agreement, with two, two-year extensions with LPC to function as the City’s primary property manager.
• Direct staff to negotiate different terms with LPC or another property management firm. Changes will be dependent on LPC or another firm’s willingness to accept new terms.
• Direct staff to pursue in-house property management services instead of contracted property management services. The implications of this decision are described in Section C and D of the Discussion section. If City Council directs staff to proceed, staff will attempt to negotiate a one-year extension of LPC’s current agreement with the additional insurance policy, to allow for time for the hiring process and transition.
FINANCIAL IMPACT
Property management services are necessary to continue to generate lease revenue from City-owned properties. Leases currently generate a net revenue to the City of approximately $16 million annually, largely to the Alameda Point (290) and Tidelands (216) funds with smaller amounts to the General Fund and other funds. Contracted property management services are a budgeted expense in the Base Reuse and Economic Development budget for FY 2024-25, and if approved, the above contracted expenses will be included in the updated biennial budget.
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
Authorize the City Manager to execute an Agreement with LPC West LP, a Delaware limited partnership, for contracted property management services for two years, with two, two-year options to extend for a total pre-commission cost of $14,435,991.83 over six years.
Respectfully submitted,
Abigail Thorne-Lyman, Director of Base Reuse and Economic Development
Jessica Romeo, Director of Human Resources
By,
Alesia Strauch, Base Reuse Manager
Financial Impact section reviewed,
Ross McCarthy, Acting Finance Director
Exhibits:
1. Agreement
2. Matrix of Commercial Property Management Options (March 2025)