To: Sonoma County Board of Supervisors
Department or Agency Name(s): Public Infrastructure
Staff Name and Phone Number: Johannes J. Hoevertsz, 707-565-2550
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
New Lease with Purchase Option at 400 Aviation Boulevard
End
Recommended Action:
Recommended action
Authorize the Clerk of the Board to publish notice declaring the intent of the Board of Supervisors to execute a lease with an option to purchase with American AgCredit Federal Land Bank Association (FLCA) as Landlord, for 73,036 rentable square feet of Class A office space at 400 Aviation Boulevard, Santa Rosa, for a term of seven (7) years commencing six (6) months from execution of the agreement by all parties, at an initial monthly rent of $160,679.20 ($2.20 per rentable per square foot) for a total annual modified Full Service rent of $1,928,150.
end
Executive Summary:
Staff requests Board consideration of a proposed lease with American AgCredit FLCA (the Landlord) for premises located at 400 Aviation Boulevard, in north Santa Rosa, comprised of 73,036 rentable square feet. The proposed premises is in a Class A office building constructed in 2016 that offers an efficient, open, flexible layout; existing furniture, fixtures, and improvements; and an energy-efficient HVAC system. Provided in the premises for County use is substantially all existing furniture, certain IT systems, fixtures, artwork, and other improvements; free on-site parking; and the building is located close to other County operations, walking paths, and the SMART Airport Station. The proposed lease includes an option exercisable in the first three (3) years of the lease term to purchase the entire property totaling approximately 121,775 rentable square feet on 7.65 acres for $56,100,000 ($460 per square foot).
Discussion:
Background.
In June 2023, the Department became aware of an opportunity to lease and potentially purchase the commercial office property located at 400 Aviation Boulevard in north Santa Rosa.
The property is located in proximity to other County operations, public transportation, vehicle access, walking paths, and retail amenities. The Sonoma County Water Agency is located next door; other departments including Health Services, Human Services, Agriculture Weights & Measures, Sonoma County Employees’ Retirement Association, Santa Rosa Road Maintenance Yard, and the Sonoma County Airport are located and/or operate programs within a mile of the proposed premises. A SMART station is located approximately 250 yards to the west; the Sonoma County Transit bus route 62 that runs from downtown Santa Rosa to downtown Windsor has a stop in front of the property; Highway 101 is about ¼ mile to the east; restaurants and coffee shops are located across the street; and landscaped walking paths and the Airport Health Club are conveniently close by.
In addition to the benefits listed above and below, this opportunity to lease and potentially purchase the building could result in achieving significant cost savings by avoiding the critical remediation of the deferred maintenance for aging and outdated office space that County departments currently occupy. Separate and apart from all of these benefits, it could also have the benefit of potentially reducing the size of the proposed new County Government Center (CGC), a project that is planned to be presented to the Board on April 30, 2024. As a result of this new opportunity, staff embarked on analysis and negotiations which continued through November 2023 when terms were finalized for the County to lease 73,036 square feet of fully furnished Class A office space for a term of seven (7) years at an initial rent of $2.20 per square foot per month. The County would be responsible for its own janitorial in its premises which would be provided by the County’s existing janitorial service at approximately $0.12 per square foot per month included in Public Infrastructure Department’s budget and covered by the cost plan. The lease would commence six (6) months from execution of the agreement by all parties. The lease includes an option to purchase the property, including all buildings comprised of approximately 121,775 square feet and the associated real property consisting of approximately 7.65 acres, for $56,100,000 ($460 per square foot).
If the proposed lease is approved, departments currently housed in 2300 County Center Drive (La Plaza A & B) such as Public Infrastructure Department (SPI) and Regional Parks Department (Parks), (an estimated total of 180 County staff) will be initially considered for relocation to the new leased site.
The new premises will offer County departments an efficient, open, flexible layout and existing furniture, computer monitors, fixtures and improvements, in a location close to other County operations, walking paths, and the Airport SMART Station, while also providing the County with the opportunity to purchase for future County operational needs.
Lease Agreement. The proposed Lease Agreement between American AgCredit FLCA, as Landlord, and the County of Sonoma, as Tenant, contains the following key provisions:
1. Seven (7) year initial lease term. Term will commence six (6) months following execution of the agreement by all parties, or upon the date that the County commences business in the Premises. County may enter the space at least 60 days prior to the Commencement Date, at no charge.
2. Premises totals 73,036 rentable square feet.
3. County accepts Premises “As Is”, with Landlord providing in Premises for County use substantially all existing furniture, fixtures, artwork, and other improvements. Also included are existing IT systems which ISD has been briefed on, including server racks, cabling to work-stations and computer monitors.
4. Initial rent is $2.20 per rentable per square foot per month, Full Service* with the exception that County will pay for and manage janitorial services.
5. Annual rent escalations of three percent (3%), except for Years 4 and 5 when rent will increase 3% plus $.15 per square foot as requested by landlord as an incentive for the County to purchase the property in the first three years of the lease term.
6. On-site parking (3.25 spaces per 1,000 rentable square feet) provided free of charge for a total of 387 parking spaces including county code compliant ADA spaces.
7. First Right of Refusal to lease any additional space that comes available in the property.
8. Option to purchase the property, including all buildings containing approximately 121,775 square feet, and the associated real property consisting of approximately 7.65 acres, for $56,100,000 ($460 per square foot). Option is exercisable in first three (3) years of Lease term for said purchase price. There are no sale comparables for properties in Sonoma County of similar size or quality. The market value was determined at a discount of an approximate non-prevailing wage cost of $1,200 per square foot for the development of a fully furnished and finished Class-A office building, including the land.
* A Full Service lease is a lease agreement in which most or all of the operating expenses of a property are included in the rent to be paid by the tenant. As is typical for a single-tenant building, janitorial services are excluded in this lease and will be covered by SPI’s cost plan.
County staff determine that the negotiated rent and lease terms represent a fair market rate for the location, which ranges between $1.85 and $2.25 per square foot per month, when considering the quality of the Premises and the option to purchase the property at a price which is approximately $32 million in 2024 dollars less than the building’s 2016 construction cost.
Justification for Relocation to New Premises
• The proposed Premises is already existing and contains many attributes identified as those looking to be achieved with a new CGC and are beneficial to public seeking County services.
• Utilizing existing built structures significantly reduces risk inherent with developing a ground-up project, such as design, environmental, construction, labor agreements, material supply, financial market risks, etc.
• If the option to purchase is exercised, significant cost avoidance of over $100 million by not requiring the development of the equivalent 128,000 square feet in a new CGC at a cost of approximately $1,400 per square foot to house the 500 FTEs from departments identified to otherwise occupy the CGC.
• Offers open and flexible environment of workstations, offices and collaborative spaces with room to grow from an initial occupancy of approximately 190 full-time employees to 500 FTEs reaching a density of approximately 170 useable square feet per FTE.
• Constructed with a raised floor system that houses electrical, power and data systems, and interior walls and work-spaces that can be reconfigured over a weekend thus reducing the cost to the County it would otherwise incur as occupancy grows and department tenancy requirements change.
• Ability to create almost 5 acres of surplus land which could be used for sale or lease to affordable home developers pursuant to the California Surplus Land Act.
• Proposed premises are within a 5-minute walk of the Airport SMART Station and are adjacent to a bus stop for the Sonoma County Transit bus route along Airport Boulevard.
Project Costs and Construction Schedule. The total relocation cost is estimated to be $1,040,000, consisting of: (1) $360,000 for new furniture that includes replacement of approximately 20 work-stations the landlord will be removing from the premises needed for the landlord’s new location; (2) $180,000 for cabling, ISD support, and proximity card installation; (3) and $500,000 for contingency expenses. If approved, staff anticipates the move-in to occur in September 2024.
Procedural Authority. Government Code Section 25350 requires two (2) Board actions, which includes publication of a notice of intent, for the County to lease real property as tenant, and where the lease is valued at more than $50,000. If your Board takes the requested actions, this matter will return to the Board on or after February 27, 2024, for consideration and consummation of the proposed new Lease in accordance with the Government Code.
Strategic Plan:
This item directly supports the County’s Five-year Strategic Plan and is aligned with the following pillar, goal, and objective.
Pillar: Resilient Infrastructure
Goal: Goal 1: Invest in County buildings and technology to enhance service delivery and improve employee mobility
Objective: Objective 1: Design new County Center to be carbon neutral and zero waste; and pursue carbon reduction plans for remaining County facilities
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
None
Fiscal Summary
|
Expenditures |
FY 23-24 Adopted |
FY24-25 Projected |
FY 25-26 Projected |
|
Budgeted Expenses |
|
$3,070,191 |
$2,094,602 |
|
Additional Appropriation Requested |
|
|
|
|
Total Expenditures |
|
$3,070,191 |
$2,094,602 |
|
Funding Sources |
|
|
|
|
General Fund/WA GF |
|
|
|
|
State/Federal |
|
|
|
|
Fees/Other |
|
$3,070,191 |
$2,094,602 |
|
Use of Fund Balance |
|
|
|
|
Contingencies |
|
|
|
|
Total Sources |
|
$3,070,191 |
$2,094,602 |
Narrative Explanation of Fiscal Impacts:
New lease costs are anticipated at $3,070,191 for Fiscal Year 2024-25 and will be funded through the County Center Modernization Fund (23027-40803600), which is sourced from contributions from the County General Fund which currently stands at a balance of $68.25 million as of 12/31/2023 and is expected to receive approximately $19 million annually through FY 2027-2028. Appropriations will be requested as part of the FY 24/25 Recommended Budget.
Total new annual office lease cost, inclusive of Year 1 relocations costs, are estimated to be $3,070,191 for FY 24-25, $2,094,602 for FY 25-26, $2,159,106 for FY 26-27, $2,355,168 for FY 27-28, $2,560,093 for FY 28-29, $2,633,653 for FY 29-30, and $2,716,080 for FY 30-31.
Within the first 3 years of the lease term the Board may consider to exercise an option to purchase the property, consisting of 121,775 square feet of office space, and the associated real property containing approximately 7.65 acres, for a purchase price of $56,100,000 ($460 per square foot). Funding for the purchase of this building will be from County Center Modernization Fund (23027-40803600).
Narrative Explanation of Staffing Impacts (If Required):
None
Attachments:
1 - Copy of proposed Lease between AMERICAN AG CREDIT FLCA and the County of Sonoma
2 - Notice of Intent to Lease
3 - Relocation and Leasing Cost Estimate
4 - Locator Map
Related Items “On File” with the Clerk of the Board:
None