Item 231/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Ursula Luna-Reynosa
Dept:
City Manager Dept: Economic Development and
Housing
Date: May 28, 2024
Subject: Award a contract to CBRE, Inc. to provide commercial broker, property management, project management, and leasing services for the property located at 12966 Euclid Street, RFP GPM-No. 2401. (Cost: $87,840) (Action Item)
OBJECTIVE
For the City Council to award a contract to CBRE, Inc. (“CBRE)” to provide comprehensive real estate services, including but not limited to, professional third party commercial broker, property management, project management, and leasing operation of the newly acquired City property located at 12966 Euclid Street (“Property”).
BACKGROUND
On August 8, 2023, the City Council approved the acquisition of the Property, a 2.1 acre parcel with a five (5) story office building with 64,400 rentable SF and the transaction closed on November 30, 2023. The Property necessitates the real estate management expertise of a firm offering comprehensive services tailored to the City’s specific criteria and development of a unique service model to achieve the City’s prope rty ownership requirements. The Economic Development and Housing Department, Real Property Division, prepared a Request for Proposals (RFP GPM -NO.2401) with priorities including: advertising and marketing management, lease administration, financial and ope rational reporting, procurement, maintenance and operating expense controls, property tax services, and site security.
DISCUSSION
On January 17, 2024, the City released on PlanetBids a formal request for proposals (RFP) to solicit interest from experienced firms interested in providing comprehensive real estate services requested by the City. On January 23, staff hosted a mandatory site walk, with four (4) prospective firms in attendance.
On February 16, 2024, three (3) proposers submitted formal responses. A selection panel consisting of three (3) key members from the Economic Development and Finance Departments rated the proposals based on the following criteria: experience and Item 231/2024
qualifications, ability to perform scope of services, leasing strategies, financial reporting, repair and maintenance operations, references, and oral interviews.
Following the evaluation, Newmark Knight, ranked first with the highest score, informed the City that they would be withdrawing their proposal due to staffing issues. Consequently, the City proceeded to negotiate with CBRE, the next highest -ranked proposal, to provide the needed services.
SUMMARY TABLE
Raters Silverstone Newmark CBRE
A 2.9 4.9 4.5
B 3.1 5.0 4.3
C 4.9 5.0 4.6
Total Score 10.9 14.9 13.4
CBRE stands as a leader in the commercial real estate industry, boasting a team of seasoned professionals proficient in leasing, property management, capital markets, investment management, and valuations. Since its establishment in 1906, CBRE has been at the forefront of innovation, co nsistently adapting to meet the evolving needs of its clients. With a rich history of managing real estate across both public and private sectors, CBRE is ideally positioned to undertake the management of the Property. Notably, C BRE has been leasing this building, 12966 Euclid Street, since 2008, further solidifying their familiarity and expertise in its operations.
FINANCIAL IMPACT
Under the proposed agreement, CBRE, Inc. has provided fees to be charged for performing all services in the following categories:
Property Management Fee - It is anticipated that the agreement will be established in the not-to-exceed amount of $87,840 for year one (1) with the option to extend the agreement in one (1) year increments, for a total service period of five (5) years. The $87,840 amount includes three cost components: 1. p roperty management fee, 2. m anagement sa lary reimbursement fee, and 3. i nsurance policy reimbursement fee. The proposed property management fee is four percent (4%) of gross revenue or a minimum of $4,000 per month, whichever is greater, and shall be adjusted annually up to five percent (5%) maximum, based on the Consumer Price Index (CPI). The management salary reimbursement fee is $3,200 per month adjusted annually up to a maximum five (5) percent, based on the CPI. Lastly, the insurance policy reimbursement fee is $120 per month adjusted annually.
Leasing Commission Fee – For new tenants, the proposed commission is six percent (6%) of the total rental consideration paid by the tenants for the first five years of a new lease term, three percent (3%) for years six through ten, and one and a half percent (1.5%) after year ten. The tenant’s broker and CBRE will split the commission as negotiated. In cases where no outside brokerage representatives are involved, the proposed commission is four percent (4%) of the total rental consideration paid by the tenants for the first five years of a new lease term, two percent (2%) for years six through ten, and one percent (1.0%) after year ten.
Item 231/2024
NEW TENANT COMMISSIONS
Months With Tenant
Broker
Without
Tenant Broker
0-60 6% of Lease 4% of Lease
61-120 3% of Lease 2% of Lease
120 + 1.5% of Lease 1% of Lease
For existing tenant renewals and/or expansions, the proposed commission is six percent (6%) of the total rental consideration paid by the tenants for the first five years of a new lease term, three percent (3%) for years six through ten, and one and a half percent (1.5%) after year ten. The tenant’s broker and CBRE will split the commission as negotiated. In cases where no outside brokerage representatives are involved, the proposed commission is three percent (3%) of the total rental consideration paid by the tenants for the first five years of a new lease term, one and a half percent (1.5%) for years six through ten, and a half percent (0.5%) after year ten.
EXISTING TENANT RENEWAL/EXPANSION
COMMISSIONS
Months With Tenant
Broker
Without Tenant
Broker
0-60 6% of Lease 3% of Lease
61-120 3% of Lease 1.5% of Lease
120 + 1.5% of Lease 0.5% of Lease
The disbursement of commission fees are fifty percent (50%) of the gross fee is due within thirty (30) days of full lease execution and the remaining amount is due within thirty (30) days of commencement of lease. The annual leasing commission will be dependent upon the amount of space leased, term, and rent and will therefore fluctuate.
Project Management Fee – It is conceivable that the City will utilize CBRE project management and engineering services which will be billed per the rates listed below.
PROJECT MANAGEMENT FEE
Managed Project Cost Percentage Fee
$0 - $100,000 6%
Next $100,00 - $250,000 5%
Next $250,000 - $500,00 4%
$500,000 + 3%
Based on a tenant improvement project and the City’s request for CBRE to project manage, CBRE will add the appropriate percentage fee to the project cost. It is anticipated that the funds will be expended from lease revenues collected.
Item 231/2024
RECOMMENDATION
It is recommended that the City Council:
• Award a contract to CBRE, Inc., to provide commercial broker, property management, project management, and leasing services for the property located at 12966 Euclid Street; and
• Authorize the City Manager to execute the agreement and additional option years, amendments, and make minor modifications as appropriate thereto, on behalf of the City.
By: Paul Guerrero, Senior Real Property Agent
ATTACHMENT
CBRE Professional Services Agreement