PURPOSE

The purpose of this report is for the Parking Authority and Redevelopment Agency to consider a parking lease agreement with Universal City Studios Credit Union, the purchasers of an office building at 175 East Olive Avenue, to lease spaces in the parking structure located at 120 East Orange Grove Avenue.

BACKGROUND

The office building located at 175 East Olive Avenue (where Kinko�s was formerly located) was first constructed in 1971.  The approximate 40,000 square foot building was constructed with 26 parking spaces (including 14 tandem spaces), which was far short of the number of onsite parking spaces that a typical office building would provide.  In fact, by today�s code they would be required to provide 120 spaces.  As a result, this office building leased parking from the City on nearby public parking lots.

In 1989, A.P.X. Properties (formerly the Cusumano Brothers Partnership) constructed a 455 space parking structure as part of the development of Cusumano Plaza, a four-story office building and restaurant (currently Elephant Bar).  Per the terms of a Disposition and Development Agreement with the Agency and Ground Lease and Operating Agreement, the Agency retained ownership of the land on the parking structure parcel and the right to use 178 parking spaces within the new parking structure.  In addition, the Agency had the right to use 173 of the parking spaces designated for the office users on evenings and weekends.

With the construction of the parking structure, a new lease was executed with the office building property owner at 175 East Olive Avenue to utilize 55 spaces in the parking structure with the option to lease nine additional spaces.  In July 1997, the lease with the property owner was amended to allow them to utilize up to 100 spaces in the parking structure.  One of the reasons that the lease was increased to 100 spaces was to make the office building more viable.  Otherwise, it would have been difficult to attract tenants to the office building, which could create an underperforming property and potentially blighting influence for Downtown.   

The terms of the lease was 12 years expiring in August 2009.  The initial rent was $40.00 per space with annual adjustments based on the Consumer Price Index (CPI).  The current rent with the CPI increases is just over $50.00 per space.  Of these spaces, 55 are located above a parking control arm, which separates the office parking from the public parking.  The other 45 spaces are located below the control arm in the public parking area. 

The current owners of the office property, Olive LLC, is in escrow to sell the property to Universal City Studios Credit Union, who plans to operate a branch on a portion of the ground floor, while leasing the remaining portion to other existing and new office tenants.  Since the current parking lease expires in 2009, the Credit Union wishes to secure a longer term commitment for parking.  After several discussions with staff, a new Parking Lease Agreement has been prepared for the Parking Authority and Redevelopment Agency to consider for approval with the Credit Union as well as a Termination Agreement with Olive LLC upon the close of escrow.

ANALYSIS & CONCLUSIONS

The proposed Parking Lease Agreement calls for an additional ten year term beyond 2009 as well as two 5-year options beyond 2019.  The rent is proposed to be adjusted up to $70.00 per space beginning with the execution of the Agreement.  This rent amount is recommended as the current market rent for similar office parking in Downtown. Under the existing Agreement current rent is at $50.83 per space through 2009, thus the Authority will now receive an increase by nearly $20 per space beginning with the execution of the Agreement.

The rental rate shall increase by the CPI rate each year.  However, the Authority has the right to survey current market rates for office parking in Downtown every three years to see if the fair market rent has increased more than the CPI rate, in which case, the Authority can increase the rental rate to the then current market rate.  In any case, rent shall be no less than $70.00 per space plus each year�s adjustment for CPI.

The lease calls for renting up to 100 spaces per year; however, initially the lease will be for 85 spaces and will increase to 100 spaces as the new owners fill vacancies.

The proposed Parking Lease Agreement also provides additional flexibility to the Parking Authority.  While it is anticipated that 55 of the 100 spaces will remain in this parking structure above the control arm in the office portion of the parking structure, the remaining 45 spaces in the public parking section can be relocated at the Authority�s discretion in another Downtown public parking structure that is within one and one-half blocks of the office building.   This condition has been proposed in case the Authority determines that there are more underutilized parking structures in Downtown (such as in the Village Walk parking structure or lower levels of the Collection parking structure that is currently under construction), thus making potentially more higher demand parking available to the public in the existing structure.

Staff believes this is an equitable transaction that will increase Parking Authority revenue and provide more flexibility in locating the parking, while providing the office building a reliable supply of parking to help ensure that they can continue to lease out office space and avoid high vacancy rates.  

FISCAL IMPACT

The Parking Authority will see an increase in revenue due to the upward adjustment of the rental rates for the parking spaces.  The initial lease amount will be $5,950 per month (85 spaces x $70.00 per space), or $71,400 per year.  This is anticipated to increase to $7,000 per month, or $84,000 per year as the number of spaces increases to 100 spaces. Previously, the spaces were rented at $50.83 per space for 100 spaces representing $5,083 per month, or $60,996 per year. The Parking Authority will therefore receive an increase between $10,404, or $23,004 per year.

RECOMMENDATION

It is recommended that the Parking Authority and Redevelopment Agency adopt the resolution approving the Parking Lease Agreement and Assignment with Universal City Studios Credit Union and Termination Agreement with Olive LLC.