REPORT TO COUNCIL
SUBJECT
Title
Action to Delegate Authority to the City Manager to Negotiate and Execute a Second Amendment to Lease with Gahrahmat Family Limited Partnership II, LP to Extend the Existing Lease for Office Space at 881 Martin Avenue, Santa Clara, with Total Costs Not to Exceed $6 Million
Report
BACKGROUND
The City of Santa Clara’s Electric Department, Silicon Valley Power (SVP), continues to experience significant growth in customer demand and staffing.
Since 2015, SVP has leased approximately 32,500 square feet of office space at 881 Martin Avenue (881 Martin) under a lease with Gahrahmat Family Limited Partnership II, LP (Landlord). The original lease (881 Martin Lease) was approved by the City Council on October 27, 2015 (Attachment 1 - RTC# 16B.10 and 881 Martin Lease) and was subsequently amended on April 29, 2020, to extend the term (Attachment 2 - First Amendment to Lease). 881 Martin has reached capacity, with staff sharing cubicles and insufficient space for anticipated new hires.
To provide additional capacity, the City executed a separate lease agreement with the Landlord for 851 Martin Avenue, which provides 50,000 square feet of office space. This lease was authorized by the City Council in February 2025 (Attachment 3 - RTC# 25-53).
Under RTC# 25-53, the City Council also authorized the City Manager to extend the 881 Martin Lease term if needed to facilitate the transition to 851 Martin Avenue. Based on current staffing levels and projected growth, staff recommends that City Council authorize an extension of the 881 Martin Lease to allow concurrent occupancy of both 851 Martin and 881 Martin.
DISCUSSION
SVP’s current lease at 881 Martin expires on October 1, 2025. Staff is seeking City Council authorization to extend the lease for up to five years, rather than a short-term extension that was originally anticipated to support the transition between the two properties.
This recommendation follows a value engineering review in which staff determined that approximately $2 million in tenant improvement costs at 851 Martin can be avoided by retaining the existing critical technology infrastructure in place at 881 Martin Avenue. In addition, leasing both buildings will accommodate other departments that have an identified need for additional space At this time, staff from the Water & Sewer Department are expected to concurrently occupy space at the new 851 Martin location.
Staff is requesting City Council authorization to negotiate and execute the Second Amendment to the lease with the Landlord (Attachment 4), for a term up to five years and with total compensation not to exceed $6,000,000. This maximum authorization includes the base rent, estimated operating expenses, property taxes, insurance, and utilities, and a contingency for unanticipated maintenance, operating, and improvement needs. The duration of the lease of up to five-years would allow time for the City to determine long-term office space solutions for City staff and provide the flexibility to transition staff and technology systems, if a site is identified.
Staff has been negotiating with the owner for some time, and has successfully reached terms, including a discounted rate compared to the current lease rate of $1.86 per square foot (approximately $60,429 per month). Under the amended terms, the monthly base rent will reset to $1.35 per square foot ($43,866.90 per month) beginning November 1, 2026, with 3% annual increases through October 31, 2030. Over the five-year term, the revised rent schedule will save the City approximately $922,000 compared to continuing under the current rate.
Table 1 - 881 Martin Monthly Base Rent Schedule
|
November 1, 2025 - October 31, 2026 |
$60,438.84 ($1.86/SF) |
|
November 1, 2026 - October 31, 2027 |
$43,866.90 ($1.35/SF) |
|
November 1, 2027 - October 31, 2028 |
$45,182.91 ($1.39/SF) |
|
November 1, 2028 - October 31, 2029 |
$46,538.39 ($1.43/SF) |
|
November 1, 2029 - October 31, 2030 |
$47,934.55 ($1.48/SF) |
In addition to the base rent, the City will remain responsible for all operating expenses under the triple-net lease agreement. These include utilities, property taxes, insurance, and maintenance/repair costs, which are estimated at approximately $300,000 to $400,000 annually. Staff will continue to manage and allocate expenses among these categories to ensure the maximum authorization of $6,000,000 is not exceeded.
ENVIRONMENTAL REVIEW
Staff recommends that the City Council determine that the actions being considered are exempt from the California Environmental Quality Act (“CEQA”) pursuant to section 15301 (Class 1 - Existing Facilities) of Title 14 of the California Code of Regulations as there may be improvements and repairs needed during the extended lease term.
FISCAL IMPACT
The FY 2025/26 Adopted Operating Budget for the Electric Utility Fund has sufficient funding to cover the 881 Martin lease payments and operating costs. Future years of ongoing costs for the contract will be incorporated into the budget as part of the regular budget process.
Any required actions, including costs incurred by other departments using the space at 851-831 Martin will be brought forward to the City Council as those items are further identified. For future years, the annual cost will be incorporated into the annual operating budget through the regular process.
COORDINATION
This report has been coordinated with the 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.
RECOMMENDATION
Recommendation
1. Determine that the proposed actions are exempt from CEQA pursuant to Section 15301 (Class 1 - Existing Facilities) of Title 14 of the California Code of Regulations;
2. Authorize the City Manager to negotiate and execute the Second Amendment to Lease Agreement with Gahrahmat Family Limited Partnership I, LP, for the property at 881 Martin Avenue, to extend the term for up to five years, with total costs not to exceed $6,000,000, subject to the review and approval as to form by the City Attorney; and
3. Authorize the City Manager to (1) take any necessary actions to implement and administer the amended lease agreement for 881 Martin; and (2) execute amendments to the agreement, provided that such amendments do not include any additional compensation or lease term extensions, and are subject to review and approval as to form by the City Attorney.
Staff
Reviewed by: Nico Procos, Director of Silicon Valley Power
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. 881 Martin Original Lease and Report to Council
2. First Amendment to 881 Martin
3. RTC# 25-53 from February 11, 2025 Council Meeting
4. Proposed Second Amendment to 881 Martin Lease