1 Vernice Hankins
From: Clerk Mailbox
Sent: Sunday, February 6, 2022 3:51 PM
To: councilmtgitems
Subject: FW: Item 3C on Council Agenda for February 8
‐‐‐‐‐Original Message‐‐‐‐‐
From: Stanley H Epstein <[email protected]>
Sent: Sunday, February 6, 2022 10:36 AM
To: Clerk Mailbox <[email protected]>; David White <[email protected]>; [email protected]; Joseph Lawrence <[email protected]>; Sue Himmelrich <[email protected]>; [email protected]; Phil Brock <[email protected]>; Gleam Davis <[email protected]>; Oscar de la Torre <[email protected]>; Lana Negrete <[email protected]>
Subject: Item 3C on Council Agenda for February 8
EXTERNAL
Dear Gentlemen and Ladies. Thank you to the City Manager, Attorney, and Clerk for posting Friday the crucial Addendum to the Chase bank lease that had been omitted on Wednesday. Perhaps the City Manager and Council will consider measures to stop future separations of portions of important documents. The Lease was skillfully negotiated and drafted in 2006 by real estate executives and lawyers for the several property owners at that time, and for Washington Mutual, the predecessor in interest of JP Morgan Chase. However, in the Original Lease and in the two Amendments thereafter,and in David Martin’s Staff Report, there are a few important problems. First is a question of a non‐legal nature, which is the rent amount during all of the 4 year period.The annual rent is the same as the current annual rent of $1,005,530, or $4,022, 120 for the entire 4 years.The sole justification provided by David Martin is that “ Currently, Downtown Santa Monica retail/ground floor office space has a ….average market rent of $6.35 per square foot per month. The lease extension would result in a monthly lease of $7.03 per square foot per month” I find several deficiencies in this analysis. David omits the number of square feet in the exclusive use area provided to the tenant of 34 parking spaces in his rent calculation per square foot. Clearly wrong. He says nothing about the fact that the property is owned by the City, and therefore I believe there are no real estate taxes that usually are paid by all net, net lease tenants. He says nothing about the fact that many retail tenants pay percentage rent in addition to basic rent , whereas Chase does not. Finally, average rents in Downtown is not particularly meaningful. Location,Location. If the rent should be 25% more, that would mean $1 Million over the extended term more, which could pay for a year of much needed cops or Code Enforcement people. I think no one at the Council meeting is a sufficient expert in relevant rental values, and respectfully suggest the City hire a consultant simply to recommend and perhaps negotiate an appropriate fair rent for the extended term. The lease allows the premises to be used for any lawful purpose by any affiliated entity or by any unaffiliated assignee. Approval rights to an assignment are very liberal and the City can be successfully sued if it fails unreasonably to give consent. I suggest the City limit the permitted uses or prohibit undesirable but legal uses. The S.M. City Attorney’s office made a drafting error in the 2016 Second Amendment to Lease. It allowed the skilled real estate lawyer for Chase to slip in a clause stating that “ For purposes of the Lease, the definition of Term provided in Section 1.3 of the Original Lease shall be deemed to include the Extended Term and any FUTURE( caps are mine) renewal Term for which Tenant timely and properly exercises its option.” There is another provision incorporating all provisions of the original agreement except the rent and lease term. Bottom line is that a Third Amendment must clearly say there is no future option period! I understand there are issues related to homeless people in the adjoining parking areas ,which are Chase’s responsibility, and near the building The City might consider whether it should provide 2 in the lease specifically with regard to that type of issue. Finally, Council should feel comfortable that future development possibilities will not be curtailed by the lease of the building or the provisions relating to the exclusive use of the parking areas. Sincerely, Stanley H. Epstein