City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: October 28, 2024
Report #:2408-3328
TITLE
Approval of First Amendment to Lease Agreement and Third Amendment to Tenant Work Letter between the City of Palo Alto and the Palo Alto History Museum for the Roth Building at 300 Homer Avenue; CEQA Status--Not a Project.
RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager, or their designee, to execute the First Amendment to Lease Agreement and Third Amendment to Tenant Work Letter by and between the City of Palo Alto and Palo Alto History Museum to reflect the addition of the $182,448 Grant Funding Agreement for restoration and repair of the Roth Building windows and the additional $1.0 million of City funding allocated by the Council to the Roth Building Rehabilitation (Phase 1) capital project (PF-23001) as part of the adoption of the FY 2025 Capital Budget. The $1.0M request is a cost sharing between the Museum and City of the $2.0M inflationary cost increase.
BACKGROUND
In December 2022, Council approved a 40-year lease with the Palo Alto History Museum (the Museum) for use of the Roth Building located at 300 Homer Avenue1. A Tenant Work Letter that documented details and obligations related to the construction of various tenant improvements at the property was approved by the Council on April 17, 20232. The Museum subsequently assumed responsibility for the property and started construction. The Tenant Work Letter has been amended twice. Amendments include:
1 City Council, 12/12/2022, Staff Report # 15017,
https://portal.laserfiche.com/Portal/DocView.aspx?id=59025&repo=r-704298fc 2 City Council, 4/17/2023, Staff Report # 2303-1108,
https://portal.laserfiche.com/Portal/DocView.aspx?id=65913&repo=r-704298fc
•Amendment #1: Revise certain insurance requirements, 3 •Amendment #2: Memorialize project schedule and funding information. 4
ANALYSIS
Amendments to Lease Agreement
There are two recommended amendments to the Lease Agreement:
1) Amendment to Exhibit F, County Grant Agreements: Exhibit F to the Lease sets forth the County Grant Agreements that were awarded to partially fund the rehabilitation of the Roth Building. The Museum and City agreed to mutually cooperate to ensure compliance with the requirements and conditions of the County Grant Agreements. Since the lease was signed, the City has entered into an additional Grant Funding Agreement with the County of Santa Clara on July 26, 2023 that provides $182,448 in Historic Heritage Grant Funds for the restoration and repair of the Roth Building windows. The First Amendment to the Lease Agreement shown in Attachment A of this staff report updates Exhibit F of the lease to include the window grant.
2) Add Exhibit H to reflect additional City contribution of $500,000: As part of the City‘s Fiscal Year 2025 Capital Budget, the Council allocated $500,000 in Fiscal Year 2026, pending the City Council’s review and adoption of the Fiscal Year 2026 Budget, to the Roth Building Rehabilitation (Phase 1) project (PF-23001). This funding is intended to assist the Museum’s efforts to attract increased donor participation and fundraising through gallery design and exhibits to be installed after the construction phase of the Roth Building Rehabilitation project. The First Amendment to the Lease Agreement adds a new Exhibit H to address this additional funding contribution from the City.
Amendments to the Tenant Work Letter
Attachment A of the Tenant Work Letter details the funding commitments for construction of the project. Sources of funding for the City contribution consistent with the Tenant Work Letter (TWL) include Transferrable Development Rights and City general funds, Stanford University Medical Center development agreement funds, Santa Clara County Grant Agreements, Development Impact Fees (community center and Library), Park Impact Fees, and City reimbursements for permit fees and payment and performance bonds altogether totaling 3 City Council, 9/5/2023, Staff Report # 2308-1885,
https://portal.laserfiche.com/Portal/DocView.aspx?id=67644&repo=r-704298fc&searchid=1f8930c1-5f75-4135- 908b-d667ef238319
4 City Council, 11/13/2023, Staff Report # 2309-1997,
https://portal.laserfiche.com/Portal/DocView.aspx?id=68638&repo=r-704298fc&searchid=1f8930c1-5f75-4135- 908b-d667ef238319
$10,020,000. In addition, the City has contributed $20,000 in additional insurance costs as noted in the background as part of the prior amendments to the TWL.
On June 17, 2024, the Council adopted the FY2025 capital budget, which includes $672,998 in project funding in FY 2025 and approved the Five-Year Capital Improvement Plan which included $500,000 in FY 2026 (discussed above). FY 2025 funding reflects additional $500,000 to the Museum, a portion of the requested $1.0 million for inflationary cost increases5 for the Roth Building Rehabilitation (Phase 1) capital project (PF-23001). The remaining $173,000 reflects funding for the City archives moving costs and furniture, fixture, and equipment (FF&E) as the City is responsible for these costs per the Lease Agreement. The Third Amendment to Tenant Work Letter shown in Attachment B of this staff report updates Attachment A of the Tenant Work Letter to reflect the additional project funding appropriated in FY 2024 and FY 2025. Specifically, the following changes are reflected in item 2 (A and C):
2. City Contribution. The City Contribution is comprised of the following contributions and reimbursements for construction of the Project, for a total City Contribution of $10,702,448, provided the Museum meets its funding obligations and timely complies with the conditions for Project commencement set forth in this Tenant Work Letter:
A. The City will contribute $5,400,000 from transferable development rights and City general funds.
B. [no changes]
C. The City will contribute $835,448 from funds received pursuant to the County Grant Agreements, which is to be allocated solely for the improvements specified in the County Grant Agreements and conditioned upon the Museum’s compliance with the terms and conditions of the County Grant Agreements, as may be further specified in the Lease.
FISCAL/RESOURCE IMPACT
The First Amendment to the Lease Agreement includes the grant funding agreement for $182,448 to the capital project (PF-23001) for restoration of Roth Building windows on a reimbursement basis. The Museum and City have agreed to cooperate to obtain reimbursement from the County under the County Grant Agreements. Funding of $1.0 million ($0.2 million in interest earnings on Transfer Development Rights funding and $0.8 million in transfers from the General Fund to the Capital Improvement Fund) referenced in the Third Amendment to Tenant Work Letter and First Amendment to the Lease Agreement was allocated to PF-23001 in the FY 2025-2029 Five-Year Capital Improvement Plan (CIP).
5 City Council, 6/17/2024, Staff Report # 2406-3140,
https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=59e55f1a-2e16-432c-90e2-8eaebfd16751
STAKEHOLDER ENGAGEMENT
Staff on the City Construction Liaison Team meet with representatives of the Museum and the contractor Vance Brown once a week to stay current on the project.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because amending the Lease and Tenant Work Letter is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
ATTACHMENTS
Attachment A: First Amendment to Lease Agreement
Attachment B: Third Amendment to Tenant Work Letter
APPROVED BY:
Lauren Lai, Administrative Services Director