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HomeMy WebLinkAbout2001 NS Purchasing - Terradotta.com Lease Status at 501 W. Franklin Street, Chapel Hill 3 Memorandum TO: John Link, County Manager From: Pam Jones, Director of Purchasing and Central Services RE: Coldwell Banker's Imminent Lease Expiration at 501 W. Franklin Street Date: October 11, 2001 Purpose: The purpose of this memorandum is to discuss options regarding the use of space currently leased from the County by Coldwell Banker at 501 W. Franklin Street, Chapel Hill. This matter is time sensitive in respect to the notice that we should give the tenant if we choose not to renew their lease. Background As you are aware, the largest rental suite at 501 West Franklin Street is the only one with street-front exposure and is occupied by Coldwell Banker. Their lease expires February 28, 2002. When the County purchased this property, which is adjacent to the Skills Development Center, the Board of Commissioners expressed a desire to see the property eventually convert to rent-paying public purpose tenants. Various suites have become available during the approximately six years in which the County has owned the property, however, no eligible agency has chosen to relocate to this space. With the impending opportunity to move the overall site tenancy closer to the Board's long-term wishes, in April 2001 1 contacted the Town of Chapel Hill, the Orange County Visitor's Bureau, Orange Community Housing, Inter-faith Council and Habitat for Humanity, to test their interest in the leased space. Inter-Faith Council inquired about the space in passing, but has not shown further interest since that time. With the exception of the Visitor's Bureau, the others declined. The Visitor's Bureau has expressed formal interest in occupying the suite at such time Coldwell's lease terminates. Per my conversations with Joe Blake, they have a need for additional space to accommodate not only their existing operation, but also the eventual integration of a Visitor's Center with the Bureau. Further, the street-front location would be a real boost to the visitor's ease of access, which is critical for effective Bureau service delivery. It is my belief and understanding that the Visitor's Bureau Board has formally supported this position and is prepared to execute a lease for approximately 3800 square feet of space. Since the subject was discussed in the context of the Visitor's Bureau budget and since the Board of Commissioners approved the renovation and increased rent funds in the Visitor's Bureau budget, I presume that the Board would endorse the use of the space for the Visitor's Bureau. However, prior to giving formal notice to Coldwell Banker I wanted to confirm that assumption. 4 Options Coldwell Banker Suite Options In my opinion, the following options are available to us in leasing this space: 1) Lease the space to the Visitors Bureau as per their request. a) Were the Board to support this position, it is suggested that we begin the Visitors Bureau lease at $12.50 per square foot, which is a little less than market for that area, but in view of the upfit work that the Bureau will pay for, I think a fair one. b) We would anticipate asking the Board to approve a lease for the space as with any other agency. The lease would recommend a 3% annual cost of living increase, thereby raising the cost per square foot to approximately $12-88 in year two and $13.26 in year three. 2) Allow Coldwell Banker to extend their lease for a period not to exceed three years. a) As a point of information, Coldwell Banker currently pays around $14.31 per square foot. They have requested several upgrades to the space through our agent, Steve Manton, if the County chooses to let them renew their lease. We would likely spend several thousand dollars if we honored their request. b) Exercising this option would not appear to further the County's long-term desire to see the building used by non-profit agencies with similar business interests. Existing Visitor's Bureau Suite Options If the Visitors Bureau relocates to the Coldwell Banker suite, the County will need to re-let their existing rented space in the building. Options that have been identified in that regard are as follows: 1) One option would be to market the space and rent it out to whomever shows interest in paying the rent. As referenced earlier, we have already solicited statements of interest in the space for non-profit groups who have previously shown interest and had no takers. 2) Another option is to consider establishing the satellite office of the Human Rights and Relations Department (HRR) as recommended in the Space Study at this location. That option is presently being discussed with Annette Moore, Director of Human Rights and Relations/Commission for Women, however no resolution has been reached. The reasoning for this action is as follows: a) A substantial number of the clients served by HRR are residents from the southern part of the County and HRR recognizes that there is a service need in the area. b) The specifications for the satellite office would closely correlate to the Franklin Street location being proposed (accessible, adequate parking, adequate space, etc). This move would not replace the Space Study recommendation that their Hillsborough location be moved to the Whiffed Building at such time expansion may be constructed. However, the Chapel Hill office would serve as their sole location during the period of time between expiration of the lease at their current location (December 1, 2003) and the Whitted expansion proposed in the Study. The Whitted expansion was proposed in the Study as a Level 3 project (development within 7-10 years). 5 Leased space at 110 S. Churton Street 1) As you know, HRR is housed in leased space at 110 S.,Churton Street. The lease for that space expires on December 1, 2003. When the lease expires, we would not anticipate recommending it for renewal for a number of reasons, including, but not limited to the following: a) First, the Human Rights/Commission for Women function that was originally moved to this location found the space suitable for their operation. However, with the significant growth of the department over the past few years and the evolution of their function, the facility serves neither the department nor their clients adequately. b) Further, the OPC Family Counseling Center that occupies the upper floor of the building has also outgrown the space and is seeking alternative rental space. Tom Maynard, OPC Executive Director advises me that they will secure and pay for the leased space on their own. c) Yet another issue associated with this leased premises is that part of the approximately $63,000 annual lease payment for this location includes the Landlord's responsibility to pay costs of utilities. Four times during the past year, services have interrupted due to his non-payment of bills. Although we have counseled the landlord numerous times regarding the unacceptability of this type of behavior, our efforts have been only marginally successful. The latest episode of water service interruption occurred less than 30 days ago. For these and other reasons, I believe it prudent to not renew the lease at its expiration. Additional Fiscal Considerations 1) By the end of the lease period for 110 S. Churton Street (Dec 1 2003), the annual lease amount will be in excess of$65,000. It may be worth reminding ourselves that the revenue derived from the rented space at 501 W. Franklin St. serves to support debt service payments for the entire facility. Although we would not charge rent for the space occupied by HRR, the significant expenditure reduction would lessen the impact of any lost revenue. 2) In addition, you may recall that the Skills Development Center (SDC)financing had two components. One portion of the loan for the SDC side was deemed public purpose and therefore borrowed at a lower rate, while the loan on the 501 portion of the building carried a higher rate because its primary occupants were not public purpose. If the Board chooses to allow the Visitor's Bureau and HRR to locate in this building, that public/private balance will swing to the public side and 1 am advised by the Finance Director that refinancing the loan at a lower rate can occur, thereby saving additional money over the remaining life of the loan. 6 3) The following table is intended to depict the various options and their corresponding financial impact: Estimated Suite S .Ft. Per Square Foot Cost Estimated Annual Rent Current: Coldwell Banker 382 $14.31 $54,707.1 Visitor's Bureau 1500 $9.38 $14,070.0 Current Annual revenue $68,777.1 Option I: Renew Coldwell Banker for 3 years.Assumes 3%annual COLA Coldwell Banker 382 $14.74 $56,348. Visitor's Bureau 1500 $9.38 $14,070.0 Annual Revenue Option 1 $70,418.3 Option 2:Visitor's Bureau takes Coldwell S ace Visitors Bureau 382 $12.50 $47,787.5 Re-rent Visitor's Bureaus ace 150 $14.00 $21,000.0 Minimum Annual Revenue Option II $68,787.5 Difference between Current Annual Revenue and Option 2 -$10.3 Maximum Difference between Option 1 to Option 2 $1,630. In the event HRR moved to Visitor's Bureaus ace,the rent from 110 S.Churton Street would be eliminated at a minimum savings of $63,012.0 Recommendations Based on my evaluation of the various options available to us, I would make the following recommendations to you and the Board: 1) Coldwell Banker. a) Give them written notice of our intent to non-renew their lease at February 28, 2002. b) Offer them an extension of the lease through May 31, 2002 if they need the additional time to upfit new space and relocate. 2) Visitor's Bureau. a) Approve the Visitor's Bureau request to occupy the current Coldwell Banker suite. b) Develop a lease for BOCC approval that establishes a $12.50/square foot rent amount, with a 3% annual escalation and they pay for upfit. This lease would be brought to the Board by the end of November. 3) Work with Human Rights and Relations regarding the pros and cons of relocating to 501 West Franklin Street. 4) In the absence of an acceptable solution for HRR at the 501 site, place the suite on the open market and request the property agent to begin seeking a tenant. In the interest of providing sufficient response time to Coldwell Banker, we need to decide the status of their lease extension within the next few weeks. To that end, I would request that the item be calenda red for the November 7 Board meeting. In the meantime, should you have questions or comments regarding this issue, I invite you to call me directly. Thanks, John.