Enter Into Lease Agreement With Pact Charter School For Storage Space at 6701 Highway 10

Premier Properties, the contracted property managment company that now handles the property management of several properties on Highway 10 for the City, had presented to the City Council a Letter of Intent (LOI) from Pact Charter School at its worksession on June 25, 2013, with formal adoption of the LOI at the City Council meeting of June 25, 2013.  Per the LOI, Pact Charter School proposed to enter into a lease agreement for 420 square feet of heated storage space and 5,040 square feet of cold storage space at 6701 Highway 10 with the intention of storing 10 school buses.  The lease price would be $1.00 per square foot which calculates to $5,460 per year or $455.00 per month.  

The LOI also included that the Pact Charter School would make the following improvements to the space:  Door Openers for garage doors and electrical sub-meter and wiring for outlets to power engine block heaters.  The City Council made the request that these improvements remain the property of the City and the proposed lease agreement states as such (Section 8 of lease).














Observations/Alternatives:



SUMMARY OF LEASE:


Premises: 22,000 square feet, paved/fenced in area only
Term: two year term, beginning March 1, 2013
Termination: one year termination clause for City
Insurance: $1,000,000 public liability insurance
Rent: $650 monthly, $7,800 annual
Property Taxes: City responsible (similar to other RALF properties, covered in base rent)The 2012 taxes on the entire parcel were $12,268.00.
Permitted Use: the subject Property will be used and occupied by tenant solely for the purpose of outside storage, display and sales of boats, snowmobiles and similar recreation equipment and accessories as an accessory use of the Tenant’s primary business operation located at 6781 West Highway 10.
 


CONSIDERATIONS:
•Due to City code, the only available users for the Subject Property is Pro Power Sports and Ramsey Bicycle (outside storage is an accessory use).
•Council has indicated a desire develop lease rates as close to market as possible.
•Based on previous lease for the Subject Property, rent for the same area was about $800 per month.
•Previous lessee indicated a reason for their departure was a too expensive lease rate ($800 per month).
•Based on input from Premier Commercial Realty, Staff's recommendation is reasonable given the circumstance even though is  sightly below market rental rate.
•Staff's recommendation covers all City fixed costs and more. Considering how the negotiation process has transpired, Staff feels $650 per month is a reasonable rate for both parties.  Attached is a rent analysis for Council's ingormation.
•Pro Power,s  asking rental rate is  .27 per square foot,  the City,s proposal is .355 per square foot and low end of the  market rental rate is .40 per square foot.
ITEM TO NOTE (History):

Pro Power Sport did   move a number of empty snowmobile crates onto the Subject Property in mid December.  Staff contacted Mr. Amar and requested removal of all crates.  Mr. Amar requested to remove the crates after Christmas.  Staff indicated removing crates after Christmas would be acceptable.  After the New Year, said crates had not been removed as agreed.  Staff was unable to contact Mr. Amar until mid January to express the need to remove said crates from the Subject Property.  In late January, Staff notified Mr. Amar he must vacate the Subject Property immediately.  At that time, Mr. Amar indicated said crates were frozen to the pavement and could not be removed;.  Then, Mr. Amar began negotiating a lease agreement for the Subject Property with staff.  The case before the Council is a result of the negotiation process that transpired over the last month.
 

ALTERNATIVES:
 

1.  Approve the proposed lease with Pro Power Sports, INC. as proposed. [Staff Recommendation]
 

Staff believes the proposed lease is reasonable for both parties, and meets two Council objectives: retaining flexibility to terminate lease within one year and to set lease rates as close to market rates as possible.
 

2.  Amend and approve the proposed lease with Pro Power Sports, INC. as proposed.
 

As mentioned, Pro Power Sports INC. did partially use the Subject Property for about two months free of charge.  If the Council desires to recapture lost rent, Staff could include a charge in this agreement.
 

3.  Deny the proposed lease with Pro Power Sports, INC. and or direct different terms.
 

Original Letter of Intent dated June 5, 2013 and proposed lease agreement signed by the Pact Charter School Board on July 11, 2013.

SUMMARY OF LEASE:
 

Premises: 5,460 square feet (420 heated, 5,040 square feet cold storage)
Term: one-year term, beginning August 1, 2013 Insurance: $1,000,000 public liability insurance
Rent: $455, $5,4600 annual
Property Taxes: Will remain tax exempt - City and Pact are both tax-exempt entities
Permitted Use: the subject Property will be used and occupied by tenant solely for the purpose of storage of 10 school buses with Tenant’s primary business operation located at 6701 West Highway 10.
 

Based on the approval of the City Council at its June 25, 2013 meeting to accept the LOI with the condition that all improvements remain with the Landlord (the City).

Right-of-Way Acquisition Loan Fund (RALF) funded.  Rent revenues are to be used withing th RALF guidelines.

Motion to approve the proposed lease with Pact Charter School as proposed.