DATE: June 4, 2024
TO: Board of Supervisors
SUBMITTED BY: Edward Hill, Chief Operating Officer/Interim Director of Internal Services/Chief Information Officer
Sanja Bugay, Director, Department of Social Services
SUBJECT: Coalinga Plaza Lease Agreement
RECOMMENDED ACTION(S):
TITLE
1. Approve and authorize the Chairman to execute a Lease Agreement, including an Option to Purchase, with McMahan-Kays, LLC, c/o Douglas Kays, for approximately 21,130 square feet of office space, together with related improvements and parking, located in Coalinga, CA, for use by the Department of Social Services, effective upon execution for a ten-year term, with base rent not to exceed $3,360,000, and estimated possible additional rent of $1,301,880, for a total maximum rent of $4,661,880 for the 10-year term, and set the purchase price to $240,000;
2. Authorize the Director of the Internal Services Department/Chief Information Officer, or their designee, to approve and execute, upon review and approval as to legal form by County Counsel, an Estoppel Certificate, and Subordination and Non-Disturbance Agreement relating to the recommended Lease Agreement, if County is so requested by McMahan-Kays, LLC, c/o Douglas Kays, to sign such documents; and
3. Authorize the Director of Internal Services/Chief Information Officer, or designee, to approve and execute (or accept, as applicable), (a) upon review and approval as to legal form by County Counsel, the Memorandum of Lease, and any notices and documents, instruments, certificates, and documents, relating to the consummation of the recommended Lease Agreement, and (b) any notices and documents relating to the County’s administration of the leased premises under the recommended Lease Agreement.
REPORT
There is no additional Net County Cost associated with the recommended actions, which will authorize the County, through the Department of Social Services (DSS), to continue to lease the space located at 311 and 353 Coalinga Plaza, Coalinga, CA 93210, and 150 West Durian Avenue, Coalinga, California 93210 (the “Property”) for ten years and provide an option to purchase the Property beginning after the completion of year ten of the lease. The maximum total Base Rent for ten years is $3,360,000, and estimated total maximum Additional Rent is $1,301,880, for a total possible maximum Rent amount of $4,661,880 for the ten-year lease term. The recommended agreement will allow the Department to fully use the space and an option to purchase the property at the end of the lease for $240,000.
Approval of the recommended actions will also authorize the Director of the Internal Services Department/Chief Information Officer, or their designee, to execute any documents required by the lessor during the term, including, but not limited to, an Estoppel Certificate, Subordination and Non-Disturbance Agreement, and Memorandum of Lease.
This item pertains to a location in District 4.
ALTERNATIVE ACTION(S):
Your board may direct DSS and the Internal Services Department (ISD) to pursue other facility options. However, it would result in a lost opportunity to select a desirable available property that fulfills DSS needs. DSS is currently leasing the property, and there are limited buildings for purchase in Coalinga with a similar square footage. Your Board may also direct DSS to simply continue leasing the existing location. This is possible however, should the space be leased for an additional 14 years at the current lease rates, DSS will have paid a total of $3.6 million in rent. This is the same cost as the recommended Lease Agreement which will result in County ownership of the building in ten years.
FISCAL IMPACT:
There is no increase in Net County Cost associated with the recommended action(s). The Base Rent for the Property will be $28,000 per month, $336,000 per year, for the entire term of the lease. The Additional Rent, which includes estimated costs for property tax, insurance, maintenance, and a three percent management fee, is estimated to be $103,506 for the first year and is anticipated to increase by approximately five percent each year. The maximum compensation amount of the recommended Lease Agreement for the ten-year period is $3,360,000 in rent and $1,301,880 in additional rents. The County will have the option to purchase the Property at the end of the ten-year period, for $240,000. The cost of the agreement for the Lease and Purchase Option will be off set with State and Federal funds ($3,985,657), 2011 Realignment ($332,465) in lieu of State General Funds for Child Welfare Services and Adult Protective Services Programs that were realigned to counties through Assembly Bill (AB) 118, 1991 Social Services Realignment funds ($307,592) and the required Net County Cost ($36,165) which offsets the General Relief Program share of cost. Sufficient appropriations and estimated revenues have been included in the DSS Org 5610 FY 2023-24 Adopted Budget and will be included in subsequent budget requests.
DISCUSSION:
DSS has leased office space at the Coalinga Plaza for over 20 years. DSS serves some of the most ethnically and culturally diverse communities in the State of California. DSS services include, but are not limited to, CalFresh, CalWORKs, Medi-Cal, General Relief, Employment Services, as well as collaborations with various community-based organizations.
The recommended lease includes the exclusive right to use a building containing approximately 21,130 square feet of rentable office space together with related improvements, and forty (40) paved parking stalls. The recommended lease provides the County with an option to purchase the Property at the conclusion of the ten-year lease for $240,000. Documentation and related materials necessary to exercise the purchase option will be brought back to your Board prior to the conclusion of the lease term.
Under the recommended lease, the County shall also pay to the lessor monthly “Additional Rent” payments, which include estimated costs for property taxes, insurance, and maintenance of the premises, as well as a management fee that shall not exceed three percent (3%) of actual additional rent costs paid per year. At the completion of each year of the term, the lessor will provide to the County an “Actual Cost Statement” of the costs of the “Additional Rent.” Any amounts overpaid by the County will be refunded, and any amounts owed will be paid by the County. Additional Rent payments for the first year are estimated at an annual cost of $103,880 and are estimated to increase by five percent (5%) each year. This amount will be updated annually to reflect anticipated increases in operational costs as needed to reflect the actual operational costs associated with the building. The estimated total amount of Rent and Additional Rent for the total possible 10-year lease term is $4,661,880.
Because the recommended lease extends more than one fiscal year, it needs to satisfy the County’s constitutional debt limitation. As is typical for multi-year municipal leasing arrangements, the recommended lease is structured as a “beneficial use lease,” which means the County agrees to pay the Rent, except where it cannot use the property, e.g., due to damage, destruction, or condemnation. If the inability to use the Property is temporary, the County’s obligation to make rental payments is merely suspended.
The recommended lease also includes a form of the Purchase and Sale Agreement, which would be used in connection with the County’s exercise of its purchase option under the lease.
A Phase I ESA (Environmental Site Assessment) was completed by BSK Associates on December 28, 2022. Although several potential offsite sources of contamination exist, the assessment concluded that further investigation into the site was not warranted at this time. Another assessment will be completed prior to the purchase returning before your Board for final approval.
Approval of the recommended actions will allow DSS to continue leasing the property for a ten-year term with an option to purchase, set the purchase price to $240,000, and authorizes the Director of ISD, or their designee, with the approval of County Counsel to legal form, to execute various documents as necessary to administer this lease.
REFERENCE MATERIAL:
BAI #46, April 9, 2002
BAI #74, July 15, 2014
ATTACHMENTS INCLUDED AND/OR ON FILE:
On file with Clerk - Lease Agreement with McMahan-Kays, LLC
CAO ANALYST:
Ahla Yang