Agenda - Council Work Session - 08/11/2009

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CITY COUNCIL WORK SESSION Topic Report: Review Letter of Intent and Furniture Design and Construction Project Management Services for Lease of Office Space at Ramsey Municipal Center to Anoka County License Center By: Heidi A. Nelson, Deputy City Administrator/Director of Community Development Background: &..J..- As Council will recall, staff has been in negotiations with Anoka County regarding the lease of office space in the Municipal Center for the relocation of the License Center Site currently located on Highway 10. The County would like to move forward with a Letter of Intent that will serve as the basis of a lease agreement for office space in the Municipal Center. Attached for Council review is the draft Letter of Intent. There are a couple of issues that staff is seeking direction on with regard to the Letter of Intent; they include the following (boldedJitalicized in Letter of Intent document): ~ Cancellation of lease. Staff has proposed to allow for the cancellation of the lease if the State of Minnesota would terminate Anoka County's authority to conduct License Center business/activities, except for the repayment of half the build-out allowance if cancellation is prior to five (5) years from inception of lease. Staff is seeking Council direction with regard that the cancellation provision of the lease. ~ Base rent and CAM. Staff has conducted a study of lease and CAM rates for like office space in the area and has determined that a lease rate of $14 per sf would be the market rate for the north metro. The County is currently paying $14.71 per sf plus a CAM charge that varies monthly based upon actual utility and maintenance costs. Staff initially proposed a lease rate of$13.00 per sf with a CAM charge of $5.20 per sf. The County responded with a lease rate of $11.00 per SF and a CAM of $4.20 per sf. The $13.00/$5.20 rate would yield annual revenue of $42,463; the $11.00/$4.20 rate would yield annual revenue of$35,397. It should be noted that the market for lease of commercial office space has become very competitive with regard to lease rates and build-out contributions due to the current economic conditions. Staff is seeking direction with regard to the lease rate Council would like to establish for this agreement. ~ Annual increase of lease rate. Staff initially proposed an escalator of 2.5%, which would be consistent with market for the north metro. The County responded with an annual escalator of 1.5%. An alternative would be to tie the escalator to an index of some sort (inflationary) rather than a fixed number. Staff is seeking direction with regard to the lease rate escalator. ~ Landlord leasehold improvements. Staff is proposing a leasehold improvement contribution of$25.00 per sf, based upon the 2200 sf leasable space, which equates to $55,000. Staff surveyed the market for