Consideration and Approval of Lease Renewal Amendments:  Lease No: GS-09P-LAZ94446 for Building 3 and GS-09P-LAZ03408 for Buildings 4 and 5 of the United States Geological Survey (USGS) facility located at 2255 North Gemini Drive.

1. Approve the lease renewal amendments to extend the term of the leases from 12/31/2023 to 12/31/2028 with an option to extend for an additional 5 year term until 12/31/2033. 
2. Authorize the City Manager to execute the necessary documents.

The City owns the USGS campus located at 2255 N. Gemini Drive.  The current leases for Buildings 3, 4, and 5 at the USGS campus expire on December 31, 2023. 

City staff is recommending that the City Council approve lease extensions for a  five-year term, expiring 12/31/2028, with the option to renew for an additional five-year through through 12/31/2033.  The GSA is offering a firm four-year commitment through 12/31/2027. 

The City needs to make repairs and improvements to the Buildings 3, 4 and 5, which were built in the 1970s, in order to provide the level of service expected from these leases.  The City is preparing capital renewal projects based on an independent needs assessment estimated at $3,000,000.

To offset the capital renewal expenditures and to bring the leases in line with market rent, the lease rates reflected in the extension are improved compared to the current terms. Notably, Buildings 4 and 5 are both leased under the same lease, but they are fundamentally different use types. Building 5 is warehouse and Building 4 is office. The new rate breaks out the square footage of both and updates the office square feet with the rate used for Building 3 ($23.20/sqft) and keeps the warehouse square feet in line with Costar comps in the area, ($12.00/sqft). This improvement will see an additional $1,294,636.00 in lease revenue over the life of the initial five year term, assuming 3% consumer price index adjustments to operating costs. A 5% increase to the shell rate for the additional five-year term, should it be exercised was added as consideration for the extension.
 

Buildings 4 and 5 Lease Rate

Connection to PBB Key Community Priorities/Objectives & Regional Plan:

Council Goal || Economic Development  Grow and strengthen a more equitable and resilient economy.    Council Goal || Climate Change  Take meaningful climate change action.     Regional Plan Goal || Environmental Planning & Conservation   Reduce Greenhouse Gas Emissions (E&C.2)    Regional Plan Goal || Energy  Increase Energy Efficiency (E.1)   Regional Plan Goal || Community Character  Support and promote art, science, and education resources for all to experience   Priority Based Budget Community Priorities and Objectives || Environmental Stewardship  Actively manage and protect all environmental and natural resources  Provide environmental community outreach, education, and volunteer opportunities   Priority Based Budget Community Priorities and Objectives || Livable Community   Support diverse employment opportunities that provide residents with a living wage   Priority Based Budget Community Priorities and Objectives || Robust Resilient Economy  Attract employers that provide high quality jobs and have a low community impact

On September 15, 2020, Council approved a new build-to suit lease with GSA in the amount of $1,894,137.78 annually and for a duration of 10 years firm; option for 20 years. This lease was not executed as there was a need to update some of the design standards and construction costs. On November 16, 2021, Council approved the decision not to execute a build-to-suit lease with GSA, because construction costs for the build-to-suit facilities had soared by approximately 70%.  Instead, the direction was given to work with the GSA on extending the existing leases for up to 10 years, giving the GSA the opportunity to issue a new competitive solicitation for USGS facilities.

The City has the option of not renewing the leases, however, this is not recommended. The USGS is an important part of the Flagstaff business and scientific community.