Item 366/2024
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: 9/10/2024
Subject: Approval of a Lease Agreement with Farmers and Merchants Bank for office space located at 12966 Euclid Street, Garden Grove. (Action Item)
OBJECTIVE
For City Council to consider a lease agreement (the “Agreement”), by and between the City of Garden Grove (the “City” of “Lessor”) and Farmers and Merchant s (F&M) Bank (the “Lessee”), for the property commonly referred to as 12966 Euclid Street, Suite No. 150, Garden Grove (the “Premises”).
BACKGROUND
On November 30, 2023, the City acquired a five-story office building located at 12966 Euclid Street (the “Property”) from LT Properties Company. The office building is approximately 64,402 square feet. The office building was originally constructed in 1985, with an onsite surface parking lot. Currently, the building has eight (8) unoccupied office suites, including the Premises. Upon execution of the Agreement, the building will be at 82% occupancy.
DISCUSSION
The Lessee is seeking a new branch office to replace an existing facility located at 10422 Garden Grove Boulevard. This branch has served the Garden Grove communi ty since 1955.
The Lessee is interested in leasing the Premises, estimated at 5,332 rentable square feet 1, for a term of eleven (11) years , scheduled to expire on September 10, 2034. Staff has negotiated and finalized the attached Agreement which contains the following salient points:
Premises: Suite No. 150, 12966 Euclid Street, Garden Grove, CA 92840. Lease Term: Eleven (11) years, commencing on delivery date, ending last day of the 132nd full calendar month.
Base Rent: $2.50 per square foot per month, starting from the commencement date.
1 Final rentable square footage for the Premises will be measured and calculated after the demising wall is installed pursuant to BOMA (Building Owners and Managers Association) Office Standard.
Item 366/2024
Annual Rent Adjustment: Fixed the first year with potential adjustments outlined in Paragraph 50 of the Agreement.
Operating Expenses: Lessee will cover 8.28% of the building’s operating expenses.
Estimated first-year expenses are $11,530.00.
Parking: Total of 16 spaces; 14 unreserved spaces at no cost and 2 reserved spaces at $125.00 each per month.
Brokerage: City’s leasing agent is CBRE (City professional agreement) and Lessee has no representative.
Security Deposit: Lessee will pay $17,392.63.
Rent Abatement: Twelve (12) months.
FINANCIAL IMPACT
After the 12 month rent abatement period, the estimated gross annual rental income is $162,960, including the two reserved parking spaces. With three percent ( 3%) annual increase per the Agreement, approximately $1,863,762 will be generated over the entire lease term. Additionally, Lessee will contribute 8.28% of the building’s operating expenses annually, equivalently to approximately $11,530.
RECOMMENDATION
It is recommended that the City Council:
Approve the Lease Agreement for the Premises; and
Authorize the City Manager to execute the Agreement, including any minor modifications or amendments as appropriate, and any other pertinent documents necessary to effectuate and/or implement the Agreement on behalf of the City.
By: Paul Guerrero, Senior Real Property Agent
ATTACHMENTS
1. F&M Lease Agreement
2. Lease Amendment