City Council
Report
City Council Meeting: August 27, 2024
Agenda Item: 5.G
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Approval of Fourth Modification to Agreement with JP Morgan Chase for Lease of 1333 Fourth Street
Recommended Action
Staff recommendation that the City Council authorize:
1. City Manager to Negotiate and Execute a Fourth Modification to the lease agreement with JP Morgan Chase for the City-owned property at 1333 Fourth Street to extend the term for two-years from May 1, 2026 through April 30, 2028; and,
2. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) of the California Environmental Quality Act (CEQA) Guidelines.
Summary
The City’s existing lease agreement with JP Morgan Chase (Tenant), located on 1333 Fourth Street, expires on April 30, 2026. The bank is located on a City-owned redevelopment site which is prioritized for affordable housing. As the City evaluates next steps and the timing for the redevelopment, Chase is requesting an extension to the lease in order to continue providing banking services to the community at its current location for as long as feasible. The two-year lease extension (to April 20, 2028) is not anticipated to interfere with the timing of the redevelopment and would preserve an important revenue stream. The short-term extension will generate $2,212,166 in rental revenue through April 30, 2028.
Discussion
The proposed bank lease extension would enable Chase to continue to provide banking services in the City’s Downtown for local businesses, residents, and tourists, 2 of 5
while preserving an important revenue stream for the City during the interim period until redevelopment efforts are initiated for the site. Typically, commercial branch banks require a lead time of two years to identify and move to a new location. Given that the Tenant’s current lease expires in September 2026, Chase approached City staff to review their options with an explicit desire to remain at their current location; otherwise, they would need to start looking for a new location imminently.
The lease agreement is a standard triple net lease. Under a triple net lease, the Tenant pays rent plus all three additional expenses of possessory interest taxes, insurance and maintenance costs. While triple net leases normally apply to long-term leases (e.g. 10 years or more), the Tenant acknowledges and agrees to the interim nature of its lease with the City. The extended term is limited to two years, with three one-year options to extend at the City’s discretion. Except for the new extended term and rental rates, the Original Lease and subsequent amendments shall continue in full force and effect.
The Tenant will pay the City a total of $2,212,166 in rental revenues, $1,106,083 annually, for the two-year term effective May 1, 2026 through April 30, 2028. The proposed rental rate is ten percent (10%) higher than the rate the Tenant currently pays. If the City exercises the options to extend beyond April 30, 2028, Tenant will pay $1,106,083 annually for each option extended.
4 th, 5th and Arizona and the Surplus Lands Act
The City-owned property at 1333 Fourth Street (Property) is part of the 4th and Arizona project site (4AZ) and was originally acquired by the City’s Redevelopment Agency in 2010 as part of a land assemblage to form a redevelopment site (Site) consisting of nine contiguous parcels totaling 112,000 square feet (approximately 2.57 acres) bounded by 4th Street, 5th Street, and Arizona Avenue. The acquisition included two existing bank buildings (JP Morgan Chase and Bank of America) with active leases, which the City inherited. The site has been identified in the City’s Housing Element as a priority site for future affordable housing. Staff will be coming to Council in a few months to receive direction on the prioritization of the Housing Element’s priority redevelopment sites, with 3 of 5
the first solicitation process commencing in 2025. If the 4AZ site is prioritized first, it is not anticipated that a shovel-ready construction project will be ready to start until late 2028 or sometime in 2029 at the earliest.
The Property is subject to the California Surplus Land Act (SLA) pursuant to Government Code 54220 et seq. The SLA governs the sale of surplus lands and requires local agencies to prioritize opportunities for certain uses including affordable housing development for any land the entity may sell or lease. Under the Surplus Land Act, the City must follow a specific statutory noticing and a negotiation period with certain designated entities, including eligible housing sponsors defined by the California Department of Housing and Community Development (HCD).
At its meeting on March 23, 2021, the City Council adopted a resolution declaring 1333 Fourth Street as surplus land and authorized the City Manager to submit the report of declared surplus land and exempt surplus land as part of the Annual Report to HCD. Since that declaration, a series of new bills (AB 480, SB 747, and others) have been passed to tighten up and clarify the SLA. Pursuant to AB 480 as amended on November 17, 2023, public agencies can enter into leases with a term of 15 years or less without triggering the SLA. If no demolition or development occurs, then the lease can exceed 15 years. Therefore, the Fourth Modification is permitted under the SLA.
Environmental Review
The lease extension is categorically exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines. The lease is covered by the commonsense exemption which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” Therefore, it can be seen with certainty that actions would not result in adverse physical impacts on the environment, and as such, is categorically exempt from CEQA.
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Past Council Actions
Meeting Date Description
5/11/2010 (Attachment A) Acquisition of Property at 1301 – 1333 Fourth Street 3/22/2011 (Attachment B) JP Morgan Chase (1333 Fourth Street) Lease Modification
3/23/2021 (Attachment C) Adoption of a Resolution of Inventory of City-Owned Properties Subject to the Surplus Lands Act
2/8/2022 (Attachment D) Council Authorization of Third Modification to Lease Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended action. Staff will return to Council if specific budget actions are required in the future. If the lease extension is approved, the Tenant will pay the City a total of $2,212,166 in rental revenues, $1,106,083 annually, for the two-year term from May 1, 2026 through April 30, 2028. Leasing revenues from the proposed lease extension will continue to be deposited in the General Fund, account 01700014.414000, in FY 2025-26, FY 2026-27, and FY 2027-28.
Prepared By: Nia Tang, Senior Development Analyst
Approved Forwarded to Council
Attachments:
A. Attachment A: 5/11/2010 Staff Report - Acquisition of Property at 1301 – 1333 Fourth Street (Web Link)
B. Attachment B: 3/22/2011 Staff Report - JP Morgan Chase (1333 Fourth Street) Lease Modification (Web Link)
C. Attachment C: 3/23/2021 Staff Report - Adoption of a Resolution of Inventory of City-Owned Properties Subject to the Surplus Lands Act (Web Link) 5 of 5
D. Attachment D: 2/8/2022 Staff Report - Council Authorization of Third Modification to Lease (Web Link)
E. Levine (2024)
F. Oaks (2024)
G. Written Comments