PURPOSE

The purpose of this report is to provide information to the City Council on a proposed amendment to the lease with the Family Service Agency for property located at 2721 W. Burbank Boulevard; and to request City Council and Redevelopment Agency Board approval of necessary budget amendments and a related cooperation agreement.

BACKGROUND

In support of the City Council�s commitment to and support of the non-profit service providers in Burbank, on November 7, 2006, the City Council approved a lease between the City of Burbank and the Family Service Agency for property located at 2721 W. Burbank Boulevard.  The property was acquired last year as a permanent facility for the Family Service Agency; fulfilling the City Council goal of helping the Family Service Agency find a suitable location from which they can continue and expand operations.

The City Council approved the lease with the Family Service Agency as their existing facility is a limiting factor for providing expanded services to Burbank families, youth and adults.  The property at 2721 W. Burbank Blvd. meets the needs of the Family Service Agency and will allow them to maintain, grow and increase its community support.

City assistance to other service providers in Burbank includes Community Development Block Grant (CDBG) funding totaling $1,034,900 to the Burbank Temporary Aid Center to assist in the expansion and rehabilitation of their facility.   In addition, since 1994, the City has leased the former Fire Station 13 to the Boys and Girls Club to further its mission in serving Burbank�s Youth.  The approved lease with the Family Service Agency furthers the City Council�s commitment and support of non-profit service providers in the community.

RECAP OF MAJOR LEASE TERMS

The lease was approved on November 7 and executed on November 20, 2006.   For reference, the main terms of the approved lease are:

• Ten year lease term with two 10-year options to extend for a possible total lease term of 30 years;

• Lease rate of $1,000 per month, with a waiver of rent for the first three years;

• In exchange for discounted rent, the Family Service Agency will provide annual goals and performance measures for youth, families and senior outreach and service;

• Should the lease options be exercised, the rent will be adjusted per the Consumer Price Index at year 10, 15, 20, 25 and 30;

• Option for the Family Service Agency to buy the property within the first ten years of the lease for $2.05 million.  This cost includes the cost to acquire the property at $1.95 million and $100,000 toward the cost of major systems improvements estimated at $100,000;

• Should the Family Service Agency exercise its option to purchase, the City will retain a variable percentage of the property�s equity;

• In addition, a use restriction will be recorded with the grant deed, providing a 55-year restriction for uses consistent with the Family Service Agency�s mission;

• Family Service Agency will be responsible for all routine maintenance and upkeep;

• Family Service Agency will fund all tenant improvements to the building including interior Americans with Disabilities Act (ADA) requirements;

• City will install an elevator for required ADA access and will ensure ADA compliance on the front and/or rear entrances to the building; and

• During the term of the lease, the City will be responsible for all major systems repairs or replacements.

FAMILY SERVICE AGENCY DESIGN/CONSTRUCTION TEAM

Since the approval of the lease agreement last November, the Family Service Agency has formed a qualified and reputable team to complete the rehabilitation of the building.  After reviewing several requests for proposals and qualifications, they have on board the architectural firm of Widom, Wein, Cohen, O�Leary, Terasawa (WWCOT), CresaPartners who will serve in the capacity of project manager and Corporate Contractors, Inc., as the general contractor. 

WWCOT has almost 60 years of experience in providing architectural and design services in Southern California.  The Family Service Agency is working with staff from the Santa Monica office, however, WWCOT has additional offices in California and an office in China.  The firm has experience working with local government, non-profit organizations, and private firms on a wide variety of projects providing architecture, design, adaptive reuse, planning, urban design, interior design and construction support services to name a few.

Also part of the Family Service Agency team is CresaPartners, a corporate real estate services advising firm with offices in Los Angeles and across the nation and Canada.  CresaPartners provides a wide array of real estates services, however, their role on this project is to provide project management services for the rehabilitation of the building.  Strong project management is critical to the success of any construction/rehabilitation project, as the Family Service Agency is a service provider, the agency does not have the experience to manage a construction/rehabilitation project of this nature.  Therefore, CresaPartners brings years of experience in providing clients customized solutions in project management and real estate services.

Finally, the Family Service Agency team includes Corporate Contractors, Inc.  They are based in Monterrey Park and specialize in providing General Contractor services.  They have experience working with pre-construction items such as budgeting, preparing bid packages and all related preconstruction and construction services, and will serve as the General Contractor for this rehabilitation project.  Corporate Contractors, Inc. is a customer service oriented General Contractor founded with the purpose of building quality interiors and timely delivery.

Based on the summary of qualifications and experience of the Family Service Agency team as outlined above, staff is comfortable that the team has the capability to ensure the successful and timely completion of this project.  WWCOT is an international architectural firm with extensive experience in new and adaptive reuse projects; CresaPartners has a proven track record in providing an array of real estate and project management services; and Corporate Contractors, Inc. has the experience in completing quality projects and forming partnerships with clients to achieve the intended and desired results.

SCOPE OF REHABILITATION WORK

As summarized above, the Family Service Agency is responsible for funding all tenant improvements to the building.  That work will include interior improvements, building exterior (fa�ade) modifications, site work, landscaping, and Heating, Ventilation and Air Conditioning (HVAC) ductwork and distribution (interior improvements).  The City is responsible for the major building systems such as HVAC core system, electrical, roofing, etc.  As contemplated in the approved lease, the City would fund and install an elevator for required ADA access, ensure ADA compliance on the front and/or rear entrances to the building, and replace the roof.  At the time the lease was approved, the estimated cost for these improvements was $100,000.

During the schematic design and design development phases that took place over the last several months, the Family Service Agency (FSA) design team was informed of additional requirements for the rehabilitation of the building.  These items are (and will be described in greater detail later in the report); fire sprinklers and seismic upgrades.  In addition, the scope of work and cost estimates for the following items have changed:  1) the estimated cost for a new elevator was revised based on four estimates from elevator companies (obtained by the FSA design team); 2) the front entry to the building was relocated to the easterly corner in order to allow a new ADA-compliant ramp at the front of the building; and 3) a request has been made for the replacement of the rooftop HVAC units, piping and controls.  The total estimated cost for these new required items and previously expected improvements is estimated to be $509,000.  This estimated cost includes overhead, fees, insurance costs, a 10% contingency and a permit allowance.

NEW REQUIRED UPGRADE COSTS

For Commercial buildings, the threshold that triggers the installation of fire sprinklers is 25% of the replacement value of the building.  Since the estimated construction valuation for the tenant improvements to be completed by the Family Service Agency exceeds 25% of the replacement value, fire sprinklers are required.   The estimated cost for fire sprinklers is $104,000.

Seismic upgrades to the building have also been required because of the installation/addition of the exterior elevator.  Major structural alterations to a building such as a new cut to a building, as is required for the elevator, would require this type of upgrade.  The estimated cost for the seismic upgrades to the building is $42,000.

REVISED ESTIMATED COSTS

As previously discussed, an elevator or ADA-compliant lift was required for the building based on the estimated valuation for the interior rehabilitation work.  At the time of lease approval, staff estimated the cost of a two-stop, hydraulic system, 2,500-pound capacity elevator to be between $65,000 - $70,000.  That estimate was based on the base cost of a three-stop elevator for Ovrom Park (adjusted downward for a two-stop elevator) that would be constructed as part of a new building; not as an add-on structure to an existing building as is the case with this elevator.  At the time of this estimate, staff did not have the benefit of construction documents and plans.  Staff was provided with a preliminary schematic design of the first and second floors (Exhibit A).  There was no clear indication at that time that the elevator would be an addition to the exterior of the building.

Since that estimate, plans have been developed and the elevator was designed as an addition to the exterior of the building (Exhibit B).  In addition, FSA�s contractor received four elevator bids that ranged from $63,750 to $76,400.  These estimates (and staff�s original estimate), however, do not include the cost for structural work required for the new elevator.  The additional cost for that required structural work increases the total estimated cost for the elevator to about $129,000.  Staff further researched the cost of the recently constructed two-stop elevator at the Verdugo Recreation Center completed in FY 2003/04.  That new elevator, similar in scope of work to this project (addition of an exterior elevator to an existing two-story building), cost just under $130,000.  This actual cost validates the estimated cost submitted by FSA�s contractor.

The second ADA requirement for the building is exterior ADA access.  An ADA compliant ramp was not originally anticipated due to site constraints.  Under the building�s existing conditions, there is not enough area at the front of the building to install a new ADA-compliant ramp.  Therefore, the alternative approach was to include a bell or intercom system at the front access point from which a disabled person can alert staff inside the building that assistance is needed.   The rear entry (adjacent to the parking lot) is ADA-compliant.  While a bell or intercom system will meet the federal ADA requirements, it is a deviation from requirements and not the preferred solution.  During the design development phase, the front entry to the building was relocated to the eastern corner of the building.  This change in layout will accommodate a new ADA-compliant ramp for the front entry, which under normal circumstances, is the preferred approach.  The cost for the ADA-compliant ramp (including all associated costs) is estimated to be $13,500.

The final cost anticipated at the time of lease approval was the replacement of the roof.  Based on two separate cost estimates from local roofing companies, the cost of a non-specific roof with an approximate 25-year life expectancy was estimated to be $23,500.  FSA�s contractor received three bids on a specific type of roof - Title 24, four (4) ply, mineral surfaced built up roof system.  Based on those bids, the estimated cost of a new roof is $42,000.  Public Works staff received an additional, independent estimate using the same specifications.  That estimate came in at $43,000; in line with FSA�s contractor�s estimate.  The total cost for the roof (permits, fees, contingency, etc.) is estimated to be $54,000.

NEW HVAC SYSTEM

During several tours of the building, the HVAC system appeared to be in working order.  Therefore, it was not anticipated to replace the system at this time.  However, while the system is in working order now, many of the eight units are at least 17 years old and will require replacement in the next year or two.  The typical life of an HVAC system for a commercial building of this nature is 15 years.  In discussions with Public Works staff, staff agrees that the installation of a new HVAC system now is the most cost effective option.  While this is a substantial cost up front (total cost of $199,500), the repair costs of maintaining an older system would be expensive and not the most advantageous way of spending the City�s maintenance dollars.  In addition, in one or two years, the City may need to fund a new system for the building.

It is also important to consider the potential of voiding a new roof warranty.  Keeping the existing system would mean having to make cuts in the roof material to remove the existing equipment in the future and cutting new holes for the new equipment.  Also of note, a new HVAC system will be significantly more energy efficient; of benefit to both the City and the Family Service Agency.  If a new HVAC system is approved, it would be installed before the roof is replaced, thereby not jeopardizing the warranty on the new roof (a critical component and cost saving measure).  The estimated cost to the City for the proposed new HVAC system is $166,500.  The Family Service Agency would pay for the HVAC ductwork and distribution as part of the tenant improvements estimated to be $33,000 for a total of $199,500.

Staff completed an in depth review and analysis of these revised and new cost estimates (due diligence).  First and foremost, staff met with the FSA design team on more than one occasion to go over cost estimates, bids and scope of work.  In addition, staff held several follow-up calls and discussions with several members of the FSA design team to clarify and itemize the scope of work and estimates being proposed.  Finally, staff developed new and separate cost estimates based on the same specifications used by the FSA contractor (for an accurate comparison of costs).  Staff�s estimates for an HVAC system (new), roof replacement (revised), elevator (revised) and fire sprinklers (new), are less than 1% off from the figures provided by the FSA contractor for these items.

The following chart summarizes the original and revised estimates, along with the new costs, required for the building and major building systems:

PROPOSED LEASE AMENDMENT

The scope of work as outlined above:  1) elevator, 2) roof, 3) ADA compliance (exterior), 4) fire sprinklers, 5) seismic upgrades and 6) HVAC system, are improvements required for the building, no matter the use, therefore are considered major building systems.  As described in the summary of the lease terms, the City will be responsible for all major building systems repairs or replacements during the term of the lease.  In order to complete the scope of work as outlined above, an additional appropriation of $409,000 will be required ($100,000 already appropriated for a total of $509,000).

As outlined in the summary of terms, should the Family Service Agency opt to purchase the property within the first 10 years of the lease, they will pay the cost to acquire the property at $1.95 million and an additional $100,000 toward the cost of major systems improvements; for a total purchase price of $2.05 million.  The $100,000 is to reimburse the City for the estimated cost of the elevator and roof (the cost for the bell/intercom system, suggested for ADA compliance, was nominal).  Using this same logic, staff recommends amending the lease to increase the reimbursement amount an additional $100,000 for a total of $200,000.  The $200,000 reimbursement would cover the revised estimated cost of the elevator, elevator related seismic upgrades (a new cost) and roof.  If approved, the new purchase price for the property would be $2.15 million.

The Family Service Agency has stated they would like to bid the project and would complete the improvements at prevailing wages (as would be required of the City).  This allows them to expedite the rehabilitation, retain full control of the schedule and to better coordinate all improvements.  Staff agrees that bidding the entire scope of the rehabilitation (tenant improvements and improvements to the building proper), and completing the improvements all at once by the same contractors, would be the most time saving and cost effective option. 

The lease agreement, however, would need to be amended to allow the Family Service Agency to bid, oversee and construct the entire contract (the current language states the �City agrees to install an elevator�).  Specific bid and construction requirements have been added to the lease agreement to ensure compliance with prevailing wages. If so authorized by the City Council, staff recommends the funds be wired into an escrow account and paid out in progress payments.  These progress payments will be clearly itemized so that staff can review the invoices and confirm the work has been completed before payment is released.  Public Works staff will be closely involved in this process and physical inspections will be conducted prior to release of progress payments.

Finally, the last major change relates to maintenance of the improvements.  It is the responsibility of the City to maintain major building systems (i.e. HVAC, electrical, roofing, etc.).  However, as part of the proposed amendment, language has been added that requires the Family Service Agency to exhaust all warranty and guarantee policies on the improvements.  If this proposed amendment is approved, those warranties and guarantees will be held by the Family Service Agency and not the City.  Therefore, it will be the responsibility of the Family Service Agency to exhaust those options before turning to the City for the maintenance, repair or replacement of major building systems.  All other major lease terms previously approved by the City Council remain the same.

CONSTRUCTION SCHEDULE

The Family Service Agency has completed the schematic design and design development phases for the rehabilitation of the building.  They are in the construction document phase, and expect to finalize plans immediately should the proposed lease amendment be approved.  Should the proposed amended lease agreement be approved, they are scheduled to finalize plans and submit them to the City for review by the end of August.  Once plans are approved, the estimated timeframe to complete the entire scope of work is six to nine months.  The critical path to completing the rehabilitation of the building is the elevator.  Should approval be granted, it takes six to nine months to complete shop drawings and the design of the elevator; and to fabricate and install the elevator which is reflected in the project schedule.  This timeframe has been confirmed by the elevator companies that submitted cost estimates to the FSA design team.  Furthermore, the schedule takes into account state elevator approvals that usually take long lead times to get scheduled and approved.  Therefore, should the proposed amended lease agreement be approved this evening, the Family Service Agency expects to be complete with the rehabilitation of the building within six to nine months.  That timeframe takes into account finalizing construction documents, plan check and permit process.

FUNDING SOURCE

As was the case with property acquisition and funding of the initial $100,000 for major systems improvements, staff recommends funding the additional cost as previously outlined above (in the amount of $409,000 for a total of $509,000) with debt reimbursement funds from the Redevelopment Agency.  While the Agency needs to maintain as much Agency debt as possible in order to maximize the collection of tax increment revenue, currently there are not sufficient General Fund monies available for this cost without foregoing other needed City projects and programs.

CONCLUSION

As previously described, the majority of terms, conditions and requirements contained in the approved lease agreement have not changed.  The proposed changes relate to the required costs for the building and major systems (that are the obligation of the City to fund as the property owner), and allowing the Family Service Agency to bid and complete the work.  Should the City Council approve the additional funding necessary to complete the improvements, staff recommends amending the purchase price to include an additional $100,000 in reimbursement funds.  Therefore, should the Family Service Agency choose to buy the property within the first 10 years of the lease, the purchase price will be the cost paid to acquire the property at $1.95 million and a $200,000 reimbursement (for the cost of the roof, elevator and related seismic upgrades), for a total purchase price of $2.15 million.

As previously described, the Family Service Agency team is ready to move forward immediately to complete the project.  They have assembled a qualified and reputable team, have completed the schematic and design development phases, and are in the process of finalizing construction documents.  If the proposed lease amendment is approved, they will immediately proceed with the bid and selection of an elevator company that will complete the shop drawings on the elevator as that component of this rehabilitation project will take at least six months from the time shop drawings are ordered and the elevator is installed.  The total estimated time for project completion and move-in is six to nine months from approval of the proposed amended lease agreement.

FISCAL IMPACT

Should the proposed amended lease be approved, the funds necessary to complete the improvements to the building and major systems (estimated to be $409,000; $100,000 previously approved and appropriated) are available in the Merged Project Area Fund, Unappropriated Fund Balance Account 306.ND000.30004.0000.  Upon approval of a cooperation agreement, the funds will be transferred to the City�s General Fund, Account 370.CD21A.70005.0000.18007 (General Fund Capital Projects Account).

RECOMMENDATION

Staff recommends the City Council adopt the proposed resolutions approving the: proposed amended lease agreement between the City of Burbank and the Family Service Agency; appropriation of funds; and related cooperation agreement with the Redevelopment Agency.  Staff also recommends the Redevelopment Agency adopt the proposed resolution amending the FY 2007-08 budget and approving the proposed cooperation agreement with the City.

EXHIBITS

Exhibit A � Preliminary Floor Plans

Exhibit B � Revised Floor Plans

Exhibit C � Amended Lease Agreement

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