REPORT TO COUNCIL
SUBJECT
Title
Action on Authorizing the City Manager to Negotiate and Execute a Lease Agreement for the Commercial and Warehouse Property Located at 751 Nuttman Street, Santa Clara, for Materials Storage and Construction Support Purposes
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The City of Santa Clara’s Electric Department, Silicon Valley Power (SVP), continues to experience significant electric load growth driven by increased demand from customers. SVP has a long-term capital improvement strategy to expand and modernize its electric infrastructure to meet this growth and will need ongoing resources to maintain the expanded system. As previously discussed with the City Council, SVP’s customer demand for electric power is expected to nearly double over the next decade.
In 2024, SVP reached a new system peak demand of 722MW, surpassing the 2022 peak of 703MW. With planned system expansion projects, including the California Independent System Operator (CAISO) transmission line to be constructed by LS Power, SVP’s peak demand is expected to reach approximately 1,300MW by 2030. To support this growth, SVP has a robust capital program that includes the following large projects with construction scheduled to begin in 2025:
• Expansion of the Northern Receiving Station (NRS), Scott Receiving Station (SRS), and Kiefer Receiving Station (KRS)
• Construction of a 115kV Transmission Line
To successfully implement these projects and manage the associated materials, equipment, and contractors, SVP requires additional space for storage and logistics. The existing Central Warehouse located at 1705 Martin Avenue, Santa Clara, is insufficient to accommodate the large-scale materials and equipment required for upcoming capital projects and ongoing maintenance needs, including contractor staging areas and laydown areas. Moreover, other SVP construction projects also add to demands regarding warehouse operations and space availability.
DISCUSSION
SVP identified a property at 751 Nuttman Street that meets the City’s requirements for additional warehouse and laydown space. The property is approximately 2.65 acres and includes common areas, parking, and a 12,616 square foot office and a cross-dock building.
Lease Terms
Working with the City’s real estate brokers (CBRE), staff has negotiated a non-binding Letter of Intent (LOI) for the lease of the property. The proposed lease is structured as a triple-net agreement, under which the City would assume responsibility for paying additional rent. Based on the LOI, key lease terms will include:
• Initial Term: 124 months (10 years and 4 months)
• Base Rent: $50,181 per month, with abatement in months 1-3 and month 13. This results in nine months of payments totaling $451,629 in the first year.
• Annual Rent Escalation: 3% per year, with rent increasing to $67,439 per month by the final year of the term. Over the full 124-month lease term, total Base Rent payments are projected to be approximately $7 million.
• Additional Rent (Triple-Net Costs): The City will also be responsible for additional rent, which includes property taxes, insurance premiums, maintenance and repair expenses. These may be paid directly to the property owner or applicable vendors depending on the final lease structure.
• Utilities: Water, gas, sewer, and electricity will be paid directly by the City to the respective utility providers.
To ensure sufficient funding to cover all obligations under the proposed lease, staff recommends authorization of up to $10 million in total payments over the 124-month term.
Table 1 - Lease Cost Summary Table
|
Description |
Estimated Total Cost |
|
Estimated Base Rent (124 months) |
~$7,000,000 |
|
Estimated Additional Rent and Contingencies |
~$3,000,000 |
|
Total Not-to-Exceed Authorization |
$10,000,000 |
ENVIRONMENTAL REVIEW
Staff recommends that the City Council determine that the action being considered is exempt from the California Environmental Quality Act (“CEQA”) pursuant to the following section 15301 (Class 1 _Existing Facilities) of Title 14 of the California Code of as minor alteration to the 751 Nuttman Street to accommodate the City’s use.
FISCAL IMPACT
The annual cost of the property in the first year is anticipated not to exceed $550,000 (including lease costs and additional costs such as taxes, insurance, maintenance, repair, and utilities). Sufficient funding is available in the Electric Utility Fund for FY 2024/25. Funding for future years is incorporated into the FY 2025/26 and FY 2026/27 Proposed Operating Budget.
COORDINATION
This report has been coordinated with the Finance Department, Human Resources, 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 action is exempt from CEQA pursuant to Sections 15301 (Class 1 - Existing Facilities) of Title 14 of the California Code of Regulations;
2. Authorize the City Manager or designee to Negotiate and Execute a Lease Agreement (Lease Agreement) for the Commercial and Warehouse Property located at 751 Nuttman Street, Santa Clara, on the terms presented in this report for an amount not to exceed $10 million over a 124-month term beginning on or around June 1, 2025, subject to the appropriation of funds and the review and approval as to form by City Attorney;
3. Authorize the City Manager or designee to amend the Lease Agreement to make de minimis no cost revisions, subject to the review and approval as to form by the City Attorney; and
4. Authorize the City Manager or designee to take any actions as necessary to implement and administer the Lease Agreement, including (1) execution of estoppel certificates and an environmental questionnaire and disclosure statement; (2) provide written notices as may be required; and (3) terminate the Lease Agreement upon material breach.
Staff
Reviewed by: Nico Procos, Acting Director of Electric Utility
Approved by: Jovan D. Grogan, City Manager