On August 8, 2023, the City Council approved the acquisition of the Property—a 2.1 acre parcel with a five (5) story office building with 64,400 rentable SF and the transaction closed on November 30, 2023. The Property necessitates the real estate management expertise of a firm offering comprehensive services tailored to the City’s specific criteria and development of a unique service model to achieve the City’s property ownership requirements. The Economic Development and Housing Department, Real Property division, prepared a Request for Proposals (RFP GPM-NO.2401) with priorities including: advertising and marketing management, lease administration, financial and operational reporting, procurement and project management of capital improvements, maintenance and operating expense controls, property tax services, and site security.

On January 17, 2024, the City released on PlanetBids a formal request for proposals (RFP) to solicit interest from experienced firms interested in providing comprehensive real estate services requested by the City. On January 23, staff hosted a mandatory site walk, with four (4) prospective firms in attendance

On February 16, 2024, three (3) proposers submitted formal responses. A selection panel consisting of three (3) key members from the Economic Development and Finance Departments rated the proposals based on the following criteria: experience and qualifications, ability to perform scope of services, leasing strategies, financial reporting, repair and maintenance operations, references, and oral interviews.

Following the evaluation, Newmark Knight Frank, who was ranked with the highest score, withdrew their proposal due to staffing issues. Consequently, the City negotiated with CBRE, the next highest-ranked proposer to provide the City with the needed services.

CBRE stands as a commercial real estate industry leader, boasting a team of seasoned professionals proficient in leasing, property management, capital markets, investment management, and valuations. Since its establishment in 1906, CBRE has been at the forefront of innovation, consistently adapting to meet the evolving needs of its clients. With a rich history of managing real estate across both public and private sectors, CBRE is ideally positioned to undertake the management of the Property. Notably, CBRE has been leasing this building since 2008, further solidifying their familiarity and expertise in its operations.

It is proposed to enter into an agreement with a one-year term with the option to extend for four additional terms for a total of five years. 

Under the proposed agreement, CBRE, Inc. has provided fees to be charged for performing all services in the following categories:

Property Management Fee - The proposed property management fee is four percent (4%) of gross rents or a minimum of $4,000 per month, whichever is greater, and a flat salary reimbursement fee of $3,200 per month.  The minimum property management fee and management salary reimbursement will be adjusted by the CPI (consumer price index) annually , not to exceed five percent (5%) per year. 

Leasing Commission Fee – For new tenants, the proposed commission is six percent (6%) of the total rental consideration paid by the tenants for the first five years of a new lease term, three percent (3%) for years six through ten, and one and a half percent (1.5%) after year ten. The tenant’s broker and CBRE will split the commission as negotiated. In cases where no outside brokerage representatives are involved, the proposed commission is four percent (4%) of the total rental consideration paid by the tenants for the first five years of a new lease term, two percent (2%) for years six through ten, and one percent (1.5%) after year ten.

For existing tenant renewals and/or expansions, the proposed commission is six percent (6%) of the total rental consideration paid by the tenants for the first five years of a new lease term, three percent (3%) for years six through ten, and one and a half percent (1.5%) after year ten. The tenant’s broker and CBRE will split the commission as negotiated. In cases where no outside brokerage representatives are involved, the proposed commission is three percent (3%) of the total rental consideration paid by the tenants for the first five years of a new lease term, one and a half percent (1.5%) for years six through ten, and a half percent (0.5%) after year ten.

As an example, Suite 500 of the Property is 3,337 SF. If CBRE were to lease this space for 10 years at a rate of $2.00 per square foot with a 2% rent escalation the below table shows the amount of commission owed:

Fifty percent (50%) of the gross fee is due within thirty (30) days of full lease execution and the remaining amount is due within thirty (30) days of commencement of lease.

The annual leasing commission will be dependent upon the amount of space leased, term, and rent and will therefore fluctuate. The annual cost of property management and related fees is $86,400 for the base year which will adjust annually based on CPI with a maximum increase of five percent (5%). Also, it is conceivable that the City will utilize project management and engineering services which will be billed per the rates listed below and provided in the proposal.

Notwithstanding the foregoing, to the extent that the project is a tenant improvement project in excess of $100,000 where the tenant is given an allowance and will perform the work, the percentage fee to Project Management will be 3% of managed project cost.

Funds will be expended from lease revenues collected. The financial activities associated with the 12966 Euclid Street building will be tracked in a separate Enterprise fund.

It is recommended that the City Council:

• Award a contract to CBRE, Inc., to provide commercial broker, property management and leasing services for the property located at 12966 Euclid Street; and

• Authorize the City Manager, or designee(s), to execute the agreement and additional option years, sign amendments, and make minor modifications as appropriate thereto, on behalf of the City; and

• Approve additional appropriations in the amount of $86,400. 

By:  Paul Guerrero, Real Property Agent