REPORT TO COUNCIL
SUBJECT
Title
Action on Lease Extensions for Properties at 900 Lafayette Street (Commerce Plaza) and 1000 Lafayette Street (Peddler’s Plaza) until May 31, 2025, with an option to extend until May 31, 2026
Report
COUNCIL PILLARS
Promote and Enhance Economic, Housing and Transportation Development
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The City of Santa Clara (“City”) is the landowner of two downtown properties located at 900 Lafayette Street, known as Commerce Plaza, and 1000 Lafayette Street, known as Peddler’s Plaza. Commerce Plaza is approximately a 3.7-acre site with a seven-story office building. The office building has 90,000 square feet of leasable space with 60 units. Peddler’s Plaza is approximately a 1.3-acre site with a one-story retail and commercial building. Peddler’s Plaza has 10,300 square feet of leasable space with seven (7) units.
On September 28, 2021, the City Council approved an Agreement with Eugene Burger Management Corporation (EBMC) for property management services and also authorized the City Manager to negotiate and execute leases at 900 and 1000 Lafayette Street (RTC 21-1214). At that time, there were 34 leases across both properties, including four of the leases at Peddler’s Plaza (Attachment 1).
On May 23, 2023, the City Council authorized the City Manager to negotiate and execute amendments to the existing leases for the commercial spaces at 1000 Lafayette to extend the term of each lease to May 31, 2024 (RTC 23-579; Attachment 2). There currently are 33 total leases across both properties, including 29 executed leases at Commerce Plaza and four spaces at Peddler’s. The leases at both Commerce Plaza and Peddler’s Plaza will expire on May 31, 2024.
These two properties have long been discussed as integral components of a long-term vision for rebuilding downtown. On December 5, 2023, the City Council adopted Resolution 23-9294 approving the Downtown Precise Plan, including Resolution 23-9295 approving a General Plan text amendment to modify the Downtown Core land use designation and amending the General Plan Land Use diagrams for Phases II and III to reflect the Downtown Precise Plan (RTC 23-1362; Attachment 3). With the Downtown Precise Plan approved, there are a number of significant items that will have long-term impacts that will need to be considered prior to any development of City property. It would be beneficial to the City if there is ongoing occupancy of the facilities until that time.
DISCUSSION
In order to continue occupancy for both properties, the City will need to enter into lease amendments with each of the existing tenants at 900 and 1000 Lafayette Street.
Staff recommends extending the leases at the current rental rates with an option for early termination and no penalty if tenants choose to leave before the extended term of May 31, 2025. Staff will continue to monitor capital improvement projects to make repairs on previously identified and budgeted items. Additionally, Staff is conducting an engineering and feasibility study to determine the cost and feasibility of updating the Property to the highest and best use for the City and community. The feasibility study is set to be completed by the end of FY 2023/24.
With the adoption of the Precise Plan and additional Council actions, it is anticipated that the next steps would generally be as follows:
• Council consideration and review of a feasibility analysis report to identify future long-term uses that align with the Precise Plan.
• Council consideration to declare the property as Surplus Land.
• If declared surplus, a Notice of Availability (NOA) will be issued as required by the Surplus Lands Act.
o If the City receives one or more responses to the NOA within 60 days, the City must engage in good faith negotiations with the responding parties for at least 90 days (90 days is a minimum - good faith negotiations could be much longer).
o If there are offers that could be accepted, negotiations and agreements would likely take over a year.
• If the property is not disposed of through the Surplus Land Act process, then the City can release a Request for Proposals (RFP) for the sale/lease of the property. The steps in this process would be as follows:
o Draft and advertise RFP
o Developer selection
o Developer negotiations
o Contracts for Council consideration
• The above process will require approximately 1.5 - 3 years
After disposition and development contracts are finalized, the developer could move forward with planning and building permits.
Property Management
The Agreement with Eugene Burger Management Corporation (EBMC) for property management services had an initial term ending on September 30, 2023. The City Manager previously exercised the option to extend the term through September 30, 2024. The City Manager has the authority to execute two additional one-year options to extend the term of the Agreement with EBMC until September 30, 2026, subject to the appropriation of funds.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
The estimated revenues are $9,295 per month for Peddler’s Plaza and $117,531 per month for Commerce Plaza, generating approximately $1.5 million annually. These revenues are used to cover the costs for building maintenance and improvements and property management expenses.
The revenues and associated expenditures are incorporated into the annual General Fund operating budget, and there are sufficient funds to cover the costs of this extension in FY 2023/24 and FY 2024/25.
COORDINATION
This report was coordinated with the City Manager’s Office, Finance Department, and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Authorize the City Manager to negotiate and execute amendments to existing leases at 900 Lafayette Street and 1000 Lafayette to extend lease terms from May 31, 2024 to May 31, 2025, with the option to extend for up to one additional year, in final forms approved by the City Attorney; and
2. Authorize the City Manager to negotiate and execute amendments to existing leases at 900 Lafayette Street and 1000 Lafayette to exercise the option and extend lease terms from May 31, 2025 to May 31, 2026, if needed, in final forms approved by the City Attorney.
Staff
Reviewed by: Elycia Knight, Development Project Manager, City Manager’s Office
Approved by: Jovan D. Grogan, City Manager
Attachments:
1. RTC 21-1214
2. RTC 23-579
3. RTC 23-1362