Title
Introduction of Ordinance Authorizing the Interim City Manager to Execute a New 36-Month Lease, with Two Three-Year Renewal Options with Rhoads Property Holdings, LLC, a California Limited Liability Company, DBA CSI Mini-Storage, for Buildings 338, 608, and 608A-C Totaling Approximately 70,989 of Rentable Square Feet, Plus Associated Land and Parking, Located at 50 and 51 West Hornet Avenue in Alameda Point.
This action is categorically exempt from further environmental review pursuant to CEQA Guidelines Sections 15301 (Existing Facilities) and 15061(b)(3) (Common Sense). (Base Reuse and Economic Development 29061822, 29161822)
Body
To: Honorable Mayor and Members of the City Council
From: Adam Politzer, Interim City Manager
EXECUTIVE SUMMARY
CSI Mini-Storage provides containerized self-storage and warehouse rentals at Buildings 338, 608, and 608A-C, and associated Land and Parking (Leased Premises) located at 50 and 51 West Hornet Avenue in Alameda Point and have occupied the current Leased Premises in the Enterprise District since 2005. Storage uses are not a desired long-term use of the premises, but will continue to generate lease revenue, and the short-term nature of the new lease will not interfere with the City of Alameda’s (City) plans for future redevelopment of the Enterprise District with more job-intensive uses or any Enterprise Park improvements.
Staff recommends that City Council authorize the City Manager to execute the new lease with an initial term of three (3) years and two additional 3-year options to renew. The Lease includes language that provides the City with a unilateral right to terminate lease after the initial 12-months, to allow flexibility if a redevelopment proposal moves forward.
BACKGROUND
Rhoads Property Holdings, LLC, a California Limited Liability Company, doing business as CSI Mini-Storage (CSI) provides containerized self-storage and warehouse rentals and has operated at the current location since 2005. The lease was renewed in 2015, for a three- (3)-year term that expired in November of 2018, and CSI has remained as a month-to-month tenant. Staff is bringing a new lease to City Council pursuant to the City’s Charter, at a new lease rate that reflects the market rate for a similar type of property.
The Leased Premises are located at 50 and 51 West Hornet Avenue and include Buildings 608, 608A, 608B, 608C and 338 totaling approximately 70,989 of rentable building square footage, combined with associated Land and Parking, the full Premises total approximately 9.59 acres or 417,740 square feet. The Leased Premises are depicted at Exhibit A within the attached Proposed Lease (Exhibit 1) and are primarily located north of West Hornet Avenue, along Central Avenue and the road to the Encinal Boat ramp, but also include a small area south of West Hornet Avenue.
The mini-storage operation is not a desired long-term use of the Enterprise District or Alameda Point but is a reasonable interim use that will enable the City to continue to generate lease revenue, and maintain the property as occupied, thus reducing security concerns at Alameda Point. CSI’s Alameda location supports approximately 10 jobs in maintenance, security and business operations management, but typically, there are two employees regularly working on-site. The new lease will not interfere with the City’s plans for future redevelopment of the Enterprise District, including any Enterprise Park improvements, and it includes an ability for the City to unilaterally terminate under certain defined terms discussed in further detail below.
DISCUSSION
Staff negotiated this lease using a new lease template designed by the City Attorney to provide better protections for the City and clarify policy and process for both the landlord and tenant. This lease template will be standard for future City leases at Alameda Point.
The new lease with CSI includes an adjustment to bring the monthly rent to market rate for this type of use, location, condition of premises and terms. There are no proposed new tenant improvements and no rent credit. The initial proposed new base monthly rent is $71,015.18 for the first 12-month term with a 3% annual increase thereafter. This represents an increase of approximately 8.5% from the monthly rent under the current month-to-month tenancy in the first year.
|
Months |
Base Rent |
|
1 - 12 |
$71,015.80 /month |
|
13 - 24 |
$73,145.45/month |
|
25 - 36 |
$75,339.81/month |
The new lease includes two (2) additional three- (3)-year options to renew, each with an upwards adjustment of base rent at the time they are exercised. The first year renewal rate is the greater of fair market rent or a rate three and a half percent (3.5%) higher than the Base Rent, in effect immediately before the beginning of the Renewal Term. The rental rate will increase annually by three and a half percent (3.5%) on the anniversary date of the renewal term.
The new lease provides the City with the right, given 6-months prior notice to the tenant, to unilaterally terminate for any reason following the expiration of the twelfth (12th) month of the initial lease term. This unilateral termination right also applies to the renewal option periods. This termination right allows the City to continue to receive revenue from the Leased Premises, while providing the City with flexibility to act when a development proposal moves forward that impacts the Leased Premises. In this instance, the City would terminate the current lease, and seek to renegotiate a new lease if there are opportunities to operate with a smaller Premises footprint and depending on CSI's willingness to do so.
Staff engaged in direct negotiations with the existing long-term tenant, CSI, for the new lease rather than initiating a formal public bidding process. Staff determined that the early termination right necessary to accommodate future development of the Enterprise District was an essential term for any new lease. As the existing operator, CSI was willing to accept this requirement in a new lease, but a new storage operator would incur start-up costs to initiate operations at the site and would likely not agree to these terms or would seek rent abatement that would reduce the City’s lease revenue. In addition, by maintaining CSI’s continuity of operation, the City will minimize impacts on its customers, the majority of whom are Alameda residents. While the City anticipates redevelopment and a change of use in the future the Enterprise District, this interim use fills an important role for the City in generating revenue and managing the property.
ALTERNATIVES
After opening the public hearing and considering all the documents and testimony, City Council may consider several alternative courses of action, including:
• Approve the first reading of the ordinance authorizing the City Manager to execute the new lease with CSI on the terms described in this staff report.
• Choose not to approve the first reading and direct the City Manager to terminate negotiations with CSI. In this scenario, the City Council should provide specific direction for a different interim use for the property.
• Elect not to approve the first reading and direct the City Manager to continue negotiations with CSI. In this scenario, the City Council should identify the specific lease terms or conditions that require further negotiation.
FINANCIAL IMPACT
The lease will contribute base lease revenues of $2,634,013 (net present value of $2,366,300) over the 3-year term. These funds will be apportioned and deposited into the Alameda Point Fund (Fund 290) and Alameda Point Tidelands Fund (Fund 291) and will assist with the operating expenses for City-owned Alameda Point properties and may also be allocated in part to funding the infrastructure requirements in the Alameda Point Master Infrastructure Plan.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The proposed uses for the building are consistent with General Plan policies for Alameda Point and the Enterprise-1 subdistrict and consistent with the Alameda Municipal Code zoning requirements for the property. The recommended lease is also consistent with the 2023 Keyser Marston Property Disposition Framework Analysis and is in alignment with 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 CEQA Guidelines Section 15378 and therefore no further CEQA analysis is required.
Additionally, this action is categorically exempt from further environmental review pursuant to CEQA Guidelines Sections 15301 (Existing Facilities) and 15061(b)(3) (Common Sense).
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report
RECOMMENDATION
Introduce an ordinance authorizing the Interim City Manager to execute a new 36-month lease, with two (2) three (3)-year renewal options, with Rhoads Property Holdings, LLC, a California Limited Liability Company, DBA CSI Mini-Storage, for Buildings 338, 608, and 608A-C totaling approximately 70,989 of rentable square feet, plus associated Land and Parking, located at 50 and 51 West Hornet Avenue in Alameda Point.
Respectfully submitted,
Abigail Thorne-Lyman, Base Reuse and Economic Development Director
By,
Alesia Strauch, Base Reuse Manager
Financial Impact section reviewed,
Ross McCarthy, Finance Director
Exhibit:
1. Lease