The City currently owns the Fair Oaks Industrial Complex at 1010-1024 Morse Avenue which is rented/leased to private parties. The property was purchased in 1990 and consists of five buildings with approximately fifty tenants occupying a total of 82,000 square feet. The property generates approximately $950,000 per year in revenue for the City.

Since July 1, 1999, Willis and Company has provided "full service" property management services to the City, including representing the City in all dealings with tenants, administering leases, collecting rents, conducting regular inspections and taking whatever actions are necessary to protect and preserve the property, overseeing improvements and maintenance work performed by contractors, etc.

At the time of contract award, the estimated annual cost of services was $50,000 per year ($25,000 per year less than had been paid to the previous property management firm). Fees are calculated on gross monthly collections and a real estate brokerage commission for lease negotiation.

The actual fees have been higher than expected due to market fluctuations and changes in the tenant base, which has been impacted by the economic decline in the Silicon Valley. Staff, therefore, requests an increase of $20,000 in authorized expenditures under the existing contract which will expire on June 30, 2002.

The recommended increase in authorized expenditures will bring the total cost to the City for the existing three-year contract to $170,000. The cost of the two-year contract extension is anticipated to be a total of $120,000 through June 30, 2004.

It is recommended that Council:

1. Authorize a $20,000 increase in authorized expenditures under an existing contract with Willis and Company, Inc., for the management of the Fair Oaks Industrial Complex; and
2. Extend the existing contract through June 30, 2004, at a cost not to exceed $120,000 for the two-year extension.