Description: Buildings 500, 600, 700 and a portion of Building 200

Lease Term: July 1, 2003 through December 31, 2005

Square Footage: 15,700

Lease Rate / Sq. Ft.: 1^st year $1.75, 2^nd year $1.80, 3^rd year $1.85

Current Lease Rate / Sq. Ft.: $2.15

Current Lease Expiration Date: June 30, 2003

Location: 465 S. Mathilda Avenue (The Tower)

Description: 2^nd and 3^rd Floors

Lease Term: July 1, 2003 through December 31, 2005

Square Footage: 7,260

Lease Rate / Sq. Ft.: 1^st year $2.15, 2^nd year $2.15, 3^rd year $2.15

Current Lease Rate / Sq. Ft.: $3.25

Current Lease Expiration Date: June 30, 2004

These new leases reflect the fact that market rates on office space have decreased dramatically over the past several years in the Bay Area. Because these decreases were so significant, staff asked the owner of 465 S. Mathilda to renegotiate the payment on the remaining year of the NOVA lease. The owner has in effect agreed to lower the per square foot rate from $3.25 to $1.42 during the second and third years of a new lease if NOVA would fulfill its obligation to pay $3.25 /s.f. during the first year. This arrangement is reflected in an average rate of $2.15 /s.f. over the 2.5 year term.

It is recommended that City Council authorize the City Manager to execute two lease agreements; a) with the City of Sunnyvale for office space at Sunnyvale Office Center and b) with Ms. Judith Burns, the owner of the Tower.

The City's Department of Employment Development has rented office space at Sunnyvale Office Center for the past 25 years. Some of the reasons NOVA has stayed so many years at this location have been:

1. the proximity to City Hall,
2. the competitive lease cost,
3. the lack of available office space near City Hall,
4. the ability to expand or contract square footage based upon program funding, and
5. the option to configure the internal office space to meet changing program needs.

At this time NOVA leases 15,700 square feet in the Center. This space includes administrative offices, the NOVA learning lab, case management services, conference and workshop space, and the Employment Connection services offered through the County of Santa Clara.

The Department of Employment Development has also leased office space at 465 South Mathilda for the past 8 years for many of the same reasons listed above. NOVA began leasing Tower space when adequate space was not available at the Center. As space becomes more available at Sunnyvale Office Center, Employment Development staff will try to consolidate all of their operations at the Center and vacate the Tower offices. Currently, NOVA occupies 7,260 square feet on both the second and third floors of the building. This space is used for workforce publication services, business services, and for workshop and conference space.

EXISTING POLICY

The proposed activities are consistent with the City of Sunnyvale’s Socio-Economic Goal 5.1F: Provide job training and employment services, within constraints of operative Federal regulations and available Federal funding to address the locally-determined employment and training needs of economically disadvantaged residents and others with special needs.

Market conditions have changed significantly in the commercial real estate sector due to the economic downturn in Silicon Valley and the associated glut of office space that has accompanied the downturn. Whereas office space had previously listed in the $3-5 per square foot range only a few years ago, now there is an abundance of office space in the range of $1.50-2.00 per square foot. Staff has researched numerous other office listings in the City, with particular attention being paid to properties either adjacent to or close to the subject properties. Staff believes $1.75 per square foot full service represents a fair market rental for the City owned property at 505 W. Olive Avenue. Staff also believes the $2.15 per square foot full service rate being charged at 465 S. Mathilda is also a fair and reasonable amount given the fact that this office building is in superior condition and that the owner has recently completed several major capital improvements at NOVA’s request. Both leases are "full service", which means janitorial services, utilities, taxes and other operational expenses are to be paid by the owner.

Federal funds will be used to pay for both of these NOVA leases. Funds will be allocated as part of the Department of Employment Development Budget. Rental revenue of $843,090 from the Sunnyvale Office Center lease will be deposited to the City’s Capital Projects Fund over the next two and one half years to provide debt service payments on outstanding variable rate bonds that were issued in 2001.

Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk’s Office.

ALTERNATIVES

1.  Authorize the City Manager to execute the two lease agreements as presented.
   

2. Identify other facility options for all or part of the Department of Employment Development and return to Council for further direction.

Staff recommends that Alternative No. 1 that will authorize the City Manager to execute lease agreements for office space at 505 West Olive Avenue and 465 South Mathilda Avenue.

Prepared by:

Michael A. Chan

Senior Administrator /Property Manager

Reviewed by:

Michael Curran

Director of Employment Development

Marvin A. Rose

Director of Public Works

Approved by:

Robert S. LaSala

City Manager

Attachment:

A. Lease Agreements