Anoka County License Center Lease Amendment

Information

The City of Ramsey began leasing space to Anoka County for the License Center July 1, 2010 for a five-year term.  The lease included a tenant option to renew for a five-year term and then two mutual additional five-year terms, bringing the final termination date as late as June 30, 2030.

The financial terms of the lease include an annual base charge on 2,220 sq. ft. of office space that increases by 2% annually thereafter.  For the 2023-2024 lease year, this equals $36,991.92 or $16.81/sq. ft.  Additionally, CAM charges are applied against the office space and 466 sq. ft. of shared space for operating expenses.  CAM is adjusted annually as determined by the City.  For the 2023-2024 lease year, this equals $26,375.92 or $9.89 per sq. ft.
 
The County is requesting an amendment to the terms of the lease regarding the length and financial terms, along with some signage requests.  The signage is at the County’s expense, but they expressed concern about visibility due to the transit skyway blocking existing signage.  The following represents the other proposed lease amendments:

• Extend the lease out to June 30, 2040 through five mutually agreed three-year terms.  Their other lease agreements include three-year terms, and they would like consistency across their leases.
• Reset per sq. ft. base rent to $14/sq. ft. or $30,800 annually, then escalate annually by $0.25 thereafter.  The basis of the request largely relates to the fact that no improvements have been made since the build out was done.
  • Accepting the proposed base rent reduction would equate to a $6,191.92 revenue reduction.  Future increases would be nearly 2% the first year, but then the percentage increase would be lower thereafter.
• Eliminate pro rata share of CAM charges on the shared lease space (466 sq. ft.)  CAM would remain on their 2,200 sq. ft. of office space.  The current CAM rate is $9.89/sq. ft. or $26,375.92 annually.
  • Accepting the proposed CAM charge reduction would equate to a $4,609 revenue reduction initially, but be larger as costs increase in the future.

Lastly, the County has expressed more informally a desire to see the flooring replaced due to wear and tear and some minor safety improvements regarding the door way leading back to the staff side of the counter.  A suggestion has also been shared to add a handicap push button door opener to their space.

Some general retail space leasing costs in Ramsey are $19.50-25/sq. ft. with CAM typically at $12-15/sq. ft. Under our scenario, as a tax-exempt parcel, the CAM is estimated at $8-12/sq. ft.  Some recent new construction lease rates in Ramsey are closer to the $40/sq/ ft. total including CAM charges.

Reactions

• Having the License Center in Ramsey brings visitors to the City and offers a necessary service in close proximity to our residents and businesses.
• We do not have a high need for that space for our own office/personnel needs.  Future extensions are to be mutually agreed to, allowing for regular options to consider our own space needs at timely intervals.
• Operating expenses on the shared space do not drastically change without the occupancy of the License Center.  However, the license center does generate many visitors daily.
• Adjusting License Center signage is a reasonable request.
• Completing a flooring upgrade is a reasonable request knowing the current condition.  Similarly, improving safety changes is in line with what we are considering in other areas of City Hall for our staff.  The handicap door opener is not required, but does provide a good customer service gesture.
• The proposed base rent reduction to $14.00/SF is significantly under market rate.
• Current CAM Seems to be in the market range (lower side)

Options
1. Leave lease as is.

• Pros - The financial terms remain as is for the next year.
• Cons - The future remains uncertain, and they may choose to terminate the lease on June 30, 2025 or after the final five-year extension.

2. Accept the proposed amendments.

• Pros - Increases the likelihood of a long-term agreement and revenue source.  This would maintain a service option within the city for our residents and business community.  Utilizes excess space within City Hall that we do not have a high need for.
• Cons - Reduces revenue now and in the future with smaller escalators tied to future increases.  They may still choose to terminate the lease in the future.

3. Counter offer the proposed amendment to reflect current market conditions.

• Pros - The financial terms would be consistent with market rate, and if accepted, increase annual revenue.
• Cons - The future remains uncertain, and they may choose to terminate the lease on June 30, 2025 or after the final five-year extension.

4. Counter offer the proposed amendment to reduce financial terms.

• Pros - Largely the same as accepting the County's proposal, but does not reduce the annual revenue as much.
• Cons - The future remains uncertain, and they may choose to terminate the lease on June 30, 2025 or after the final five-year extension.

At this point in time, staff does not hold a firm recommendation.

Brian Hagen, City Administrator

Provide consensus direction on support for a lease amendment and the terms for the Anoka County License Center.