September 26, 2023
Agenda Item No. 8
TO:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM:
Seimone Jurjis, Assistant City Manager/Community Development Director - 949-644-3232, [email protected] PREPARED BY:
Lauren Wooding Whitlinger, Real Property Administrator, [email protected] PHONE:
949-644-3236
TITLE:
Second Amendment to Office Lease with Peregrine Realty Partners, Inc. for Use of Suite 650 Located at 1201 Dove Street ABSTRACT:
The City of Newport Beach (City) acquired the office building located at 1201 Dove Street, Newport Beach (Property) in May 2023. The building has 20 existing tenants, is currently approximately 90% occupied, and has 7,653 square feet being marketed for lease. Given the uncertainty surrounding the nation’s commercial office industry, the Property is well-positioned with existing long-term tenants. Peregrine Realty Partners, Inc. (Peregrine) is an existing tenant requesting to modify and extend its lease. For the City Council’s consideration is a Second Amendment to the Office Lease (Amendment) (Attachment A) with Peregrine, updating the rent to current market rates and extending the length of the term for five years.
RECOMMENDATIONS:
a) Find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment; and b) Authorize the City Manager and City Clerk to execute the Second Amendment to Office Lease between the City of Newport Beach and Peregrine Realty Partners, Inc. for use of City Property, office space Suite 650 located at 1201 Dove Street, in a form substantially similar to the amendment attached to the staff report.
DISCUSSION:
Under its initial Office Lease Agreement (Attachment B) executed in 2013, Peregrine leased its existing space (Suite 650) (Premises) at the Property for an initial term of five years, which expired in 2018. The term of the most recent First Amendment to Office Lease (Attachment B), which extended the term by five years and reset several key financial terms, is set to expire September 30, 2023.
While the existing agreement contains options to extend the term, commercial office market conditions have changed since it was executed, and the tenant desires to amend the lease to reflect the current market conditions, which includes a slight reduction in the rental rate. Additionally, the tenant has fewer staff in the office than in years past and could reduce the square footage of its 4,445 square foot Premises by 1,000 square feet. In lieu of reducing the square footage, the proposed negotiated terms contained in the Amendment allow for rent abatement of the excess space for the first two years of the new term, and payment of market rate for the excess space thereafter. Additional abatements and allowances are included and are consistent with market rate deal terms offered by competitive office properties in the area.
Second Amendment to Office Lease
For comparison, the tenant currently pays a base rent of $3.32 per square foot. The proposed terms of the Amendment, to continue use of Suite 650 at the Property, are summarized below:
The initial term shall commence October 1, 2023, and will terminate on December 31, 2028, with no options to extend the term.
Monthly base rent during the term shall be set as follows:
Period
Monthly Base Rent
Monthly Base Rent Per Rentable Square Foot
10/1/23 – 9/30/24
$13,779.50
$3.10
10/1/24 – 9/30/25
$14,179.55
$3.19
10/1/25 – 9/30/26
$14,624.05
$3.29
10/1/26 – 9/30/27
$15,068.55
$3.39
10/1/27 – 9/30/28
$15,513.05
$3.49
10/1/28 – 12/31/28
$15,957.55
$3.59
Base rent shall be abated in its entirety for the first five months of the term.
For the first two years of the term, base rent shall be abated for 1,000 square feet of the leased Premises.
A general use allowance in an amount not to exceed $15.00 per square foot of the leased Premises (4,445 square feet) may be used towards the payment of alteration costs for the Premises, to be performed by Peregrine, or as additional rent abatement. The alterations must be performed and reimbursed no later than February 29, 2024, or the rent abatement requested by March 1, 2024, or the allowance will be forfeited.
Peregrine will accept the Premises in its current as-is condition.
Peregrine shall continue to provide certificates of insurance to the satisfaction of the City’s property manager, naming the City as additional insured.
The Amendment has been reviewed by the City Attorney’s Office and has been approved as to form. Peregrine has reviewed and approved the terms of the Amendment.
FISCAL IMPACT:
Revenues collected pursuant to the proposed Amendment, $165,354 per year, which shall be increased annually as prescribed in the Amendment, will be posted to the General Fund Real Property accounts in the Community Development Department, 010-01050505. The revenues net of any tenant improvement allowance, rent abatement, or broker fees are included in the budget for fiscal year 2023-2024.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this project is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A – Second Amendment to Office Lease
Attachment B – Office Lease Agreement and First Amendment to Office Lease 8-3
8-1
Second Amendment to Office Lease with Peregrine Realty Partners, Inc. for Use of Suite 650 Located at 1201 Dove Street
September 26, 2023
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