Title
Final Passage of Ordinance Approving a Lease and an Option to Purchase and Authorizing the City Manager to Execute Documents Necessary to Implement the Terms of a 10-Year Lease and Option to Purchase with Natel Energy, Inc., a Delaware Corporation, for Building 23 located at 2401 Monarch Street at Alameda Point. [Requires four affirmative votes] (Base Reuse 819099)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Final Passage of Ordinance Approving a Lease and an Option to Purchase and Authorizing the City Manager to Execute Documents Necessary to Implement the Terms of a 10-Year Lease and Option to Purchase with Natel Energy, Inc., a Delaware Corporation, for Building 23 located at 2401 Monarch Street at Alameda Point
BACKGROUND
Natel Energy, Inc. (Natel) designs and manufactures innovative hydropower systems that generate renewable energy and was founded at Alameda Point in 2009. With funding from the United States Department of Energy and the Small Business Innovation Research Program, Natel is growing and commercializing their invention, thus prompting their expansion and relocation to a new location in Building 23 at Alameda Point (Exhibit 1). Natel proposes to use the premises at Building 23 as office, research and development, and light manufacturing. Together, with existing clean energy companies like Wrightspeed, Google, Saildrone, and Kai Concepts, Natel is creating a niche for the clean tech industry at Alameda Point. Much like Spirit’s Alley, the City greatly welcomes this clean tech cluster that is growing on the base as it is consistent with the long-term vision for Alameda Point in the City’s existing planning documents.
DISCUSSION
Natel previously occupied Building 400A and currently occupies Building 19 at Alameda Point under a license agreement ending in December of this year. At Buildings 400A and 19, Natel quickly grew from 4 to 20 employees. At their new location at Building 23, Natel is expected to expand to approximately 150 employees.
Building 23 consists of approximately 65,000 square feet of rentable space with adjacent parking in front of the premises. The current rent is $29,250 per month. The proposed 10-year lease with Natel for Building 23 requires payment of $35,100 monthly for year one and year two of the term with an escalation for future years (Exhibit 2). The lease contains one 5-year renewal option and the standard insurance, indemnity, assignment and termination clauses the City of Alameda requires in all its leases. Please find below a detailed rent schedule for the 10-year term.
|
Months |
Rent/SF |
Monthly |
|
1-8 |
$0.54 |
$35,100.00* |
|
9-12 |
$0.54 |
$35,100.00 |
|
25-36 |
$0.56 |
$36,153.00 |
|
37-48 |
$0.57 |
$37,237.59 |
|
49-60 |
$0.59 |
$38,354.72 |
|
61-72 |
$0.60 |
$39,505.36 |
|
73-84 |
$0.63 |
$40,690.52 |
|
85-96 |
$0.64 |
$41,911.24 |
|
97-108 |
$0.66 |
$43,168.57 |
|
109-120 |
$0.68 |
$44,463.63 |
|
|
|
*Months 1-8 are subject to abatement pursuant to Section 4.1 (b) in the attached lease agreement (Exhibit 2). |
The Natel Lease also includes a purchase option with an option price of $8 million. Staff believes a purchase option is warranted in this case because of the high-quality nature of the prospective buyer, the proposed clean-tech use, and expected job generation. These attributes are highly compatible with the City’s 1996 Community Reuse Plan and the City’s other planning documents for Alameda Point. Natel Energy represents a growing employment-generating use that includes high-paid, high-tech jobs in the clean-tech industry, which is a growing industry cluster that the City is trying to attract and cultivate at Alameda Point and throughout the City. Additionally, Natel plans on investing approximately $10 million in Building 23, which is a significant investment that would unlikely be possible without the security of a purchase option. Purchase options are often required in order to attract high-quality users that need to attract significant capital investment and to maintain long-term security in terms of its business location for attracting a highly trained and competitive workforce. The City does not otherwise have the funds to invest these level of improvement into Building 23 without private owners and users that have access to private capital, such as Natel.
City staff and its leasing agent, Cushman & Wakefield, believe that the option price of $8 million represents a reasonable market price for this building that is supported by comparables in the market (Exhibit 3). Assuming 50 percent building to land coverage based on the 55,000 square foot building footprint, the extra land of 120,868 square feet valued at $25 per square foot is worth $3,021,700. The balance of $4,978,300 applied to the 55,000 square foot footprint equates to $90.51 per square foot, which exceeds the value for comparable class C manufacturing space; however, the higher price is justified in this case given the views that the site offers.
As set forth in the Master Infrastructure Plan for Alameda Point (MIP) and the Development Impact Fee Ordinance for Alameda Point, all new development and property owners are required to pay their fair-share of the overall cost of new infrastructure planned for Alameda Point. The option price for Building 23 will be used to fund new infrastructure at Alameda Point that the City does not otherwise have access to and significantly exceeds the minimum infrastructure allocation for this parcel by more than $2.68 million [$8 million purchase price less $5.3 million infrastructure burden (5.3 acres x $1,003,439 per acre for commercial uses)].
Lastly, this property similar to other properties at Alameda Point will be subject not only to all of the relevant provisions of the City’s Alameda Municipal Code (e.g., Design Review Ordinance, Historic Preservation Ordinance, and Sewer Laternal Ordinance), but also specific restrictions applied solely to Alameda Point, such as the Alameda Point Zoning Ordinance, mitigations in the Alameda Point Environmental Impact Report, the Declaration of Restrictions setting forth the biological restrictions on the property, and any conditions placed on future parcel maps for the property. These regulations on future property owners at Alameda Point will help ensure that any future development and improvements to the properties performed under private ownership will be consistent with the City’s long-term vision for Alameda Point.
The lease with Natel Energy allows the placement of up to 20 containers on the lease premises outside of their building restricted to only portions of the property (see Exhibit A3 of the Lease) to minimize visibility and maintain views. The containers must be single-stacked, kept in good condition and look aesthetically similar. It is estimated that all 20 hangars at most would use approximately 4,800 square feet out of 175,000 square feet of outdoor premises.
FINANCIAL IMPACT
The monies from the new lease will be deposited into the Base Reuse Department lease revenue fund and are limited to uses permitted under the Economic Development Conveyance Memorandum of Agreement (EDC MOA) with the United States Navy. The $8 million option price will be used to fund infrastructure at Alameda Point pursuant to the MIP and EDC MOA.
Under private ownership, it is currently estimated that the property would generate approximately $67,000 per year in property tax to the City’s General Fund. All new development and private properties, including Natel Energy, are required to pay a fair-share of municipal services costs.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with Chapter 9 of the General Plan, the MIP, Alameda Point Zoning Ordinance, and 1996 Community Reuse Plan.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15301(c) (Existing Facilities).
RECOMMENDATION
Approve an ordinance authorizing the City Manager to execute documents necessary to implement the terms of a 10-year lease and option to purchase with Natel Energy, Inc., a Delaware corporation, for Building 23 located at 2401 Monarch Street at Alameda Point.
Respectfully submitted,
Jennifer Ott, Chief Operating Officer - Alameda Point
By,
Nanette Mocanu, Assistant Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Diagram of Building
2. Lease
3. Recent Comparable Sales for Building 23 Purchase Price