EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: September 5, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Humza Javed, Public Works Director
SUBJECT: South Bayside Waste Management Authority (SBWMA) Property Acquisition Recommendation
Adopt a resolution approving the acquisition of real property located at 1245 San Carlos Avenue, Suite E, San Carlos, California by the South Bayside Waste Management Authority’s (SBWMA) for use as the administrative offices for SBWMA.
Background
SBWMA is a joint powers authority formed pursuant to California Government Code Section 6500 et seq. to provide solid waste and recycling services to its 11 Member Agencies, including the City of East Palo Alto. Other member agencies include the County of San Mateo, Belmont, Burlingame, Foster City, Hillsborough, Menlo Park, City of San Mateo, Redwood City, San Carlos, and West Bay Sanitation District. SBWMA’s current administrative office has been located at the San Carlos Library for over 16 years. Under the terms of the current lease, SBWMA occupies 2,429 square feet at a monthly rent of $5,618 or $2.31/sf. The current lease term ends on June 30, 2024, and the City of San Carlos has indicated that the term will not be extended because the space is needed to accommodate San Carlos staff.
Upon receiving this notice from the City of San Carlos, SBWMA Executive Director La Mariana began working with a commercial real estate broker to find affordable office space that would accommodate the current staff and agency/public guests, provide proper space for SBWMA Board and Technical Advisory Committee (TAC) meetings, provide easy access to parking for Board and TAC members, be located near public transit to accommodate staff members wishing to utilize this mode of transportation, and be in close proximity to the Shoreway facility in San Carlos.
Dozens of rental properties were researched. This research demonstrated that current market lease rates for properties comparable to the San Carlos library space are currently being leased at $4.50-$6.50 per square foot per month. This means that monthly rent for a comparable space would be $10,931-$15,789. A number of rental properties were toured and found to be unacceptable due to location; inadequate access to public transit; inadequate or lack of parking; unfavorable lease/purchase rates; lack of building amenities; poor functionality of available workspace; inadequate building/workspace finishes (ADA access/compliance/lack of elevator); distance from the Shoreway Environmental Center facility; deferred maintenance on critical base building systems (i.e., HVAC, electric, plumbing, mechanical, lighting); and non-code compliance with Title 24 and ADA requirements.
In addition to his search of the commercial office rental market, the Executive Director also contacted staff at all Member Agencies to inquire whether they might have suitable available space for long-term leasing within the given mandatory relocation time frame. No sites were identified.
The Executive Director also identified one property currently for sale in the Wheeler Plaza development, located at 1245 San Carlos Avenue, Suite E, in San Carlos (the “Property”).
This is the last remaining commercial space for sale in the Wheeler Plaza development (Attachment 2).
The Property is a Commercial Condominium located directly across the street from the SAMTRANS Building’s main entrance. It is currently zoned MU-DC (Mixed Use-Downtown Core). Zoning clearance for use of the space by SBWMA was issued by the City of San Carlos on May 18, 2023. (See Attachment 3)
The unit is approximately 2,841 square feet in size and is currently an empty shell which would provide adequate space for all SBWMA administrative functions and could be improved to include a large conference room to accommodate Board and TAC meetings along with some community environmental education sessions. The Property has two dedicated parking spaces (below ground) and easy access to the attached 252-space public parking at the adjacent Wheeler Plaza parking garage (no charge), the adjacent 30-space Laurel Street parking lot (600 block), and adjacent neighborhood surface streets. The Property is listed for sale at $1,988,000.
SBWMA had a cost analysis prepared by Rick Simonson of HF&H Consulting by to determine whether purchasing the Property and having the Property improved to meet SBWMA’s needs would be more cost efficient that entering into a lease for office space. Mr. Simonson concluded that the purchase would be most cost-effective option. Specifically, a 25% cost saving (or $1,416,098) when comparing a total purchase and tenant improvement budget of $2.5 million to a long-term lease based on current office market lease rates (Attachment 4).The SBWMA Board met in closed session at its April, May and June 2023 regular meetings to discuss whether to direct staff to pursue further rental options or to offer to purchase the Property. At the conclusion of its June 2023 discussion, the Board authorized the Executive Director to make an offer to purchase the Property. The seller has agreed to a sale of the Property pursuant to the following summary of terms:
Purchase Price: $1,700,000.
Due diligence period: Up to 60 days from agreement execution (this is the period in which SBWMA conducts its due diligence, architectural studies, finance options, etc., and in which SBWMA can
back out of the sale and get its deposit refunded).
Agency contingency: Obtain no less than 2/3 of member agency approvals within 105 days.
Loan to value: Up to 75%.
Deposit: $50,000.
Close of Escrow: No later than 11/15/2023.
Analysis
This item has been placed on the agenda for review and approval because, as noted in the offer’s contingencies, a purchase of real property by SBWMA must be approved by 2/3 of the Member Agencies pursuant to The Second Amended and Restated Joint Powers Agreement Article 7, Powers.
Having considered the option to rent other available office properties or to purchase the Property, the SBWMA Board recommends to the Member Agencies that the purchase of the Property be approved for two reasons. First, the Property meets all the identified criteria regarding location and space. Second, as demonstrated by the Cost Analysis of Offer to Purchase Versus Lease prepared by Rick Simonson, acquisition of the Property would be the most cost-effective approach.
Conclusion
The SBWMA Board recommends that the various City Councils and Boards approve the purchase of the Property for use as administrative offices for SBWMA. Upon receiving approval of 2/3 of the Member Agencies and satisfaction of all other contingencies, the SBWMA Board will, in open session, authorize closing of escrow and purchase the Property.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website and at the San Mateo Co. Library located at 2415 University Avenue, East Palo Alto.
Environmental
The proposed action does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Resolution
2. Property Brochure
3. Zoning Clearance
4. HFH Cost Analysis