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February 21, 2023
ITEM TITLE
Agreement: Approve an Exclusive Lease Listing Agreement with CBRE Group, Inc. for Millenia Lots 1 and 7 Report Number: 23-0051
Location: Millenia Lot 1, located directly north of the intersection of Millenia Avenue and Bob Pletcher Way and Millenia Lot 7, located at 1775 Millenia Avenue
Department: Economic Development
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Adopt a resolution waiving the consultant selection process, approving the Exclusive Lease Listing Agreement with CBRE Group, Inc., and authorizing the City Manager to execute the agreement.
SUMMARY
As the City moves forward with developing the Think Campus and the Invent Campus in Millenia, the City is seeking high -quality, credit tenants who contribute to the overall vision and value of the University - Innovation District and can occupy the Class “A” office space that will be coming available in Millenia Office.
On February 15, 2022, the City Council approved an agreement with CBRE for real estate advisement, marketing and brokerage services for the larger 383 -acre UID site. Since that time, CBRE ha s amassed valuable knowledge of the University-Innovation District site and project and are best equipped to continue this work in Millenia, an extension of the U niversity-Innovation District. Staff recommends a new listing agreement with CBRE to provide professional real estate services acting as the agent for the City with the exclusive right to list, market and lease up to 1.7 million square feet of space on Lot 1 of Millenia, the Invent Campus, and up to 264,100 square feet available on lot 7 of Millenia, the Think Campus. CBRE will leverage their network of occupiers, along with their higher education, life sciences and tech relationships, to ensure the properties will be marketed to local firms looking to relocate or add additional space and to international firms looking to enter the Chula Vista market or expand their current presence.
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ENVIRONMENTAL REVIEW
The proposed activity has been reviewed for compliance with the California Environmental Quality Act (CEQA) and it has been determined that the activity is not a “Project” as defined under Section 15378 of the state CEQA Guidelines; therefore, pursuant to Section 15060(c)3) of the State CEQA Guidelines, the activity is not subject to CEQA.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
The City of Chula Vista maintains a longstanding vision of establishing a university on 383 acres of City - owned and entitled land in the Otay Ranch. Over the years, the City has taken numerous actions to make this vision a reality. On December 6, 2022 the City Council approved an Exclusive Negotiating Agreement with HomeFed to Negotiate a Master Developer Agreement for the 383 -acre University-Innovation District site and staff and counsel are currently engaged in advancing the MDA.
In recent y ears, staff began pursuing the opportunity to expand the UID into the nearby Millenia SPA as a creative solution to jumpstart the University with significantly reduced capital outlay. In 2022, a confluence of needs created a major opportunity. The alignment of the desire to establish the first phase of the University within the built environment of Millenia to reduce risk and cost per acre combined with two key needs for:
1) a new destination library consistent with the Library Strategic Facilities Plan, an d 2) the vertical development of a Millenia Office building to attract qualified tenants for the remaining 1.8 million square feet of Class “A” office space. These needs presented the opportunity to construct one building on the Think Campus, located on Lot 7 in Millenia, that would serve as the City’s first new library since 1995 and meet the minimum 60,000 square foot need for library space, provide 50,000 square feet for an academic partner to launch the first phase of the University, provide 58,000 squa re feet of Class “A” office space in warm shell condition for an industry user to lease, and provide a 6,100 square foot amenity building for tenant attraction.
In addition to the development on Lot 7, the City is also positioned to acquire Lot 1, directly across the street.
As the City moves forward with developing the Think Campus and the Invent Campus in Millenia, the City is seeking high-quality, credit tenants who contribute to the overall vision and value of the UID and can occupy the Class “A” office space that will be coming available in Millenia Office.
On December 6, 2022, funds were appropriated for the construction of the 168,000 square foot Cinematic Arts Academic Center & Library along with the 6,100 square foot amenity building . In consultation with CBRE, the shifting office landscape is such that amenity -rich buildings are a necessity to attract qualified tenants to Class “A” office space. The 6,100 square foot building would als o be owned and operated by the City. It is contemplated the space could be a fine dining restaurant with outdoor seating and gathering spaces overlooking a beautifully landscaped courtyard. The restaurant could potentially accommodate culinary arts students as an opportunity to gain hands-on experience working for a reputable restaurant. The culinary arts concept would complement the cinematic arts use also on site. The addition of this building contributes to the sense of completeness on the site rather than building a standalone structure for the 168,000 square foot Cinematic Arts Academic Center & Library.
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The last remaining entitled building on Lot 7 is the 150,000 square foot building located directly east of the 168,000 square foot building. While staff is not planning to construct it as part of this project, the opportunity exists for a qualified office user or University partner to fund its development and represents a future expansion opportunity for the Think Campus. The building’s 40,000 square fo ot pad is certified and 100% construction drawings are completed.
In summary, the overall immediate vision for Lot 7 is:
- To construct a 168,000 square foot Class “A” office building owned and operated by the City of Chula Vista with approximately:
o 60,000 square feet planned for the first new library since 1995; o 50,000 square feet planned for a university tenant;
o 58,000 square feet planned for talent attraction of a qualified industry user to pay market rate rent;
- To construct a 6,100 square foot amenity building; and - To construct parking, walkways, supporting sitework and landscaping to connect the site to the adjacent community park.
Staff is proposing for CBRE to exclusively list and market the following spaces for leasing opportunities:
- Library Building: 88,000 square feet – 108,000 square feet in Class “A” office building - Future Opportunity: 150,000 square foot development opportunity on adjacent 40,000 square foot pad with 100% construction drawings and paid and pulled permits - Amenity Building: 6,100 square feet for a potential restaurant tenant, culinary arts institute or other necessary amenities as advised by CBRE to attract quality market-rate paying tenant(s) Excusive Lease Listing Agreement Terms
CBRE will help identify and engage al l relevant industry markets with high quality employment and university tie-in opportunities including, without limitation:
• Aerospace
• Cleantech
• Cybersecurity
• Defense
• Engineering
• Life Sciences
• Medical Device
• Multimedia, Entertainment and Film
• Software
• Telecommunications
CBRE will take the following steps to marketing, recruitment and leasing success:
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• Broker outreach and events
• Marketing materials catering to specific targeted users • Offer commute, talent/employment, and demographic studies to potential relocating firms • Press/Social Media coverage
• Engage brokers to fill possible smaller start-up/collaborative spaces • Utilize drone footage to highlight area advantages
• Target tenants being priced out of other submarkets
• Support the development of a marketing center
• Develop “Why Chula Vista?” marketing materials for potential new-to-market large firms • Advertise with industry-specific websites
• Signage at site to highlight superior visibility from access roads CBRE’s term for this engagement is 36 months with optional extension(s) during which time they will be the City’s appointed agent with the exclusive right to list and market the property for lease and to negotiate the lease agreements for the property. CBRE will create and implement a strategy to lease the properties including preparation of marketing materials. The City will retain the right to approve, modify, reject, or disapprove any and all proposals and offers as well as any prospective tenants and can adjust the terms and conditions of any offer made.
Exhibit A to the agreement, the Commission Schedule, outlines commissions in accordance with:
• 7% of the Base Rent payable during the first 60 months of the Lease Term where rent is paid, and • 3.5% of the Base Rent for months 61 through 120 of the Lease Term, and • 2% of the Base Rent for months 121 through 180 of the Lease Term, and • 1% thereafter until the expiration of the Lease Term.
The above percentages assume the Tenant is represented by a cooperating broker as described herein.
Should the Tenant be r epresented by your Listing Team, the percentages above will be adjusted downward as follows:
• 6% months 1-60, 3% months 61-120, 1.5% months 121-180 and .5% thereafter.
Said commissions will be due and payable 50% upon full lease execution and 50% upon the lease commencement date.
As the City had represented itself in negotiations with SDSU, CBRE is no t subject to any brokerage fees for that transaction.
About CBRE
CBRE is uniquely qualified to perform as the consultant for this work as they are the largest and most successful commercial real estate services firm in the world . CBRE has significant and varied resources, including a dedicated Public Institutions Education Solutions business group which has advised over 100 non-federal agencies and universities on complicated and high-profile projects. CBRE also possesses access to significant technological industry advances due to recent investments. Additionally, the proposed consultant provides access to development, university, public -private partners hip specialists and local market experts to execute a transaction in the best interests of the City. CBRE touts an extensive network of P a g e | 5
occupiers, higher education, life sciences and tech relationships that the City will be equipped to leverage to advance the UID. The CBRE team holds over 150+ years of combined experience, has over 20 public-private- partnership projects underway and completed, has represented over 100 public sector clients, transacted over 100 million square feet and has recently generated $3 billion in revenue for government clients.
On February 15, 2022, the City Council approved an agreement with CBRE for real estate advisement, marketing and brokerage services for the larger 383-acre UID site. As part of that effort, CBRE aided in the drafting of the term sheet between the City and HomeFed and worked to evaluate, advise and advocate for the City’s best interests to be represented within the term sheet. Additionally, as part of this agreement, CBRE is providing brokerage and marketing services to ensure the UID is marketed to reputable institutions and companies. They have amassed valuable knowledge of the UID site and project and are best equipped to continue this work in Millenia, an extension of the UID.
Based upon these uniqu e qualifications, staff is recommending that the City Council waive the normally applicable consultant selection process and hire CBRE on a “sole source” basis as permitted under Sections
2.56.070B(3) and 2.56.070B(4) of the Chula Vista Municipal Code.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City Council members and has found no property holdings within 1,000 feet of the boundaries of the property which is the subject of this action. Consequently, this item does not present a disqualifying real property-related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(7) or (8), for purposes of the Political Reform Act (Cal. Gov’t Code §87100, et seq.).
CURRENT-YEAR FISCAL IMPACT
There is no current-year fiscal impact associated with the approval of this item.
ONGOING FISCAL IMPACT
There will be no ongoing fiscal impact to the General Fund as lease revenue will offset the commission fees.
ATTACHMENTS
Exclusive Lease Listing Agreement
Staff Contacts: Miranda Evans, Special Projects Manager Eric Crockett, Deputy City Manager