June 15, 2004

SUBJECT: Award of Request for Proposals No. F0204-88 for Property Management Services for Fair Oaks Industrial Park

Approval is requested for the award of a three-year contract, with an option to extend the contract for two additional one-year periods, to GS Management Company of Pleasanton to manage City-owned property at 1010-1024 Morse Avenue for the Department of Public Works.

The City currently owns a parcel of industrial property at 1010-1024 Morse Avenue which is known as the Fair Oaks Industrial Complex. This five-acre property consists of five buildings with approximately fifty tenants occupying a total of approximately 82,000 square feet.

The Fair Oaks Industrial Complex has a historical occupancy rate of 90-95% although this rate has decreased by 5-10% over the last few years as the result of the economic downturn. Revenues over the past five years have averaged $910,000 per year. Operating expenses are budgeted at $285,000 for Fiscal Year 2003-04.

Since purchasing this property in 1990, the City has outsourced the management of the Fair Oaks Industrial Complex. On May 4, 1999, Council awarded a one-year contract to Willis and Company, the City's current property management firm (RTC 99-182). This contract was subsequently extended through July 14, 2004. Willis and Company has indicated that they are focusing on larger commercial properties at this time and are not interested to continuing this arrangement.

Purchasing and Public Works staff developed specifications, and Request for Proposals No. F0204-88 was directly distributed to ten local commercial property management firms. In addition, notice inviting proposals was advertised on the City's website and distributed through the DemandStar by Onvia public procurement network.

The proposal due date was May 19, 2004. A single proposal was received from GS Management Company of Pleasanton.

The sole proposal was evaluated based upon the proposer's qualifications and experience, approach to performing the services, office proximity to the Fair Oaks Industrial Complex and proposed fee structure. GS Management Company was founded in 1990 and currently manages over 5 million square feet of commercial property and owners' associations throughout the Bay Area. The firm's principals have extensive experience managing, leasing and renovating multi-tenant industrial properties, such as the Fair Oaks Industrial Complex. In fact, GS Management's President, Phyllis Osaki, personally managed the property in the early 1990s while employed by Koll Management Services, the City's first property management firm. Although the firm is headquartered in Pleasanton, services will be performed out of its Sunnyvale office on Oakmead Parkway.

In addition to reviewing GS Management's proposal, staff has met with representatives of the firm and is confident the firm is both qualified and capable of successfully performing the required services.

GS Management has proposed a fee schedule that includes a monthly property management fee equal to 3.5% of gross property income or a minimum of $1,900 per month, whichever is greater. In addition, they propose a commission on new and renewed leases, ranging from 2.0% to 4.5% of gross rents. This fee structure is similar to fees paid to previous property managers.

At this time, it is difficult to predict what the total cost to the City will be in the next three years. Payments to Willis and Company, the current property manager, during the past year total $41,500.

Funds have been budgeted in Public Works Special Project No. 808100 - Morse Avenue 1010-1024.

It is recommended that Council award a three-year contract, with an option to extend the contract for two additional one-year periods, to GS Management Company of Pleasanton to manage City-owned property, known as the Fair Oaks Industrial Complex, at 1010-1024 Morse Avenue.

Prepared by:

Elaine Wesely
Purchasing Officer

Reviewed by:

Mary J. Bradley
Director, Finance

Reviewed by:

Marvin Rose
Director, Public Works

Approved by:

Amy Chan
City Manager

Draft Service Agreement (.pdf format)