Westminster City Council
SUBJECT
Title
Lease Agreement with the United States Postal Service (USPS) for City-Owned Property Located at 13761 Goldenwest Street.
End
From: Christine Cordon, City Manager
Requested by: Administration
Prepared by: Ryan Salz, Senior Management Analyst
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RECOMMENDED ACTION
Recommendation
A. Authorize the City Manager to approve and execute the Lease Agreement between the City of Westminster and the United States Postal Service (USPS) for the property located at 13761 Goldenwest Street; and
B. Authorize the City Manager to approve and execute the Commission Agreement between the City of Westminster and Jones Lang LaSalle Brokerage, Inc. (JLL); and
C. Approve a budget adjustment to General Fund, General City Contractual Account (20000-43090) to account for this transaction.
BACKGROUND
The City of Westminster has owned the land and building located at 13761 Goldenwest Street since 1991, when it was purchased as part of a public-private partnership during the development of the shopping center that is known as the Westminster Center. At the time of purchase, the building was in a long-term lease with the United States Postal Service (USPS) that was established in 1966. The post office has been operating at the location since that time.
The City inherited the original lease agreement from the previous property owner and it remained in place until the term ended in 2017. Before the term ended, a renewal was approved by the City Council and executed, following a review of similar nearby property transactions that showed the lease rate to be in line with market rates. The main terms of the agreement included an annual lease rate of $258,066 over a five-year term, with USPS having the option to extend the lease for an additional five-year term at an annual lease rate of $283,873, a 10% increase in value from the previous term. USPS exercised the five-year renewal option stated in the current lease agreement (Attachment 1). This lease agreement is set to expire on May 31, 2027.
Jones Lang LaSalle (JLL), the real estate broker representing USPS, proactively contacted the City to propose a new lease agreement (“Lease Agreement”) that would commence on June 1, 2027, if approved. The terms and conditions of the proposed Lease Agreement (Attachment 2) are consistent with the existing agreement, with a key difference being the proposed rent amount and renewal options.
Under the proposed agreement, USPS would pay the City an annual rent of $323,615 and include renewal options for two additional five-year periods. If all renewal options are exercised, the agreement would expire on May 31, 2042. As drafted, the start of each new period includes a 10% rent increase, consistent with the rent value adjustment structure in the current lease agreement.
One other revision was requested by the City following review of the original draft proposal. JLL has served as a Tenant Representative for USPS since April 2017. It is standard practice for JLL and similar firms to be paid a commission to compensate the real estate support services rendered during this type of transaction. USPS requests that the City enter into a Commission Agreement (Attachment 3) with JLL upon execution of the lease. Staff did not object to the structure of the Commission Agreement originally provided by JLL but did protest the expectation that the City would bear full responsibility for the commission costs. In response to the City’s feedback, JLL proposed an alternative solution that increased the rent value to offset the City’s commission payment to JLL. The total commission amount owed to JLL following execution of the Lease Agreement is $64,723. With this revision to the starting rent value, the commission payment to JLL will be almost entirely paid back by the end of the first term. The remaining difference would be paid back in the first year of the first renewal option. The commission payment must be distributed to JLL within 30 days of execution of the agreement. This will require a budget adjustment to the General Fund, General City Contractual Account (20000-43090).
FISCAL IMPACT
The aggregate lease value of the initial term of the Lease Agreement is $1,618,075. This amount would be collected over a five-year period beginning on June 1, 2027. If the renewal options are exercised by USPS, the amount collected by the City will increase. These payments will be deposited directly into the General Fund, General City Revenue Account (20000-33560). The $64,723 cost associated with the Commission Agreement will be expended from the General Fund, General City Contractual Account (20000-43090) within 30 days of the execution of the agreements.
LEGAL REVIEW
The City Attorney’s Office has reviewed as to form.
CONCLUSION
The partnership between the City and USPS provides public benefit to the Westminster community by enabling a post office to be near residents and business owners. It also provides the City with a substantial, recurring stream of revenue that can support the funding of other essential services. To maintain these benefits, staff recommends that the Mayor and City Council authorize the City Manager to approve the Lease Agreement, Commission Agreement with JLL, and the necessary budget adjustment to allow the continuance of USPS’ operation at 13761 Goldenwest Street.
ATTACHMENTS
1. Exercise of Renewal Option on Current Lease Agreement
2. Draft Lease Agreement
3. Draft Commission Agreement
REVIEWED BY
Erin Backs, Finance Director
City Attorney’s Office
Christine Cordon, City Manager