HomeMy WebLinkAboutMINUTES - 06082010 - D.1RECOMMENDATION(S):
CONSIDER options related to the proposed East County Government Center to consolidate
services in Far East County.
FISCAL IMPACT:
Dependent upon option selected as described in report.
BACKGROUND:
In 2006, the County Administrator’s Office completed a Regional Needs Assessment to
determine the allocation of County services and facilities in various areas of the county. The
Assessment noted the significant geographic shift that had occurred in Far East County, and
determined that Far East county residents are geographically disadvantaged when it comes
to receiving County services offered from central county locations. The Assessment further
stressed the need for additional County facilities in Far East County to keep pace with the
growth in that region.
In response to the above study, the Board of Supervisors affirmed the renewal of existing
APPROVE OTHER
RECOMMENDATION OF CNTY
ADMINISTRATOR
RECOMMENDATION OF BOARD
COMMITTEE
Action of Board On: 06/08/2010 APPROVED AS RECOMMENDED OTHER
Clerks Notes:See Addendum
VOTE OF SUPERVISORS
AYE:John Gioia, District I Supervisor
Gayle B. Uilkema, District II Supervisor
Mary N. Piepho, District III Supervisor
Susan A. Bonilla, District IV Supervisor
Federal D. Glover, District V Supervisor
Contact: Lisa Driscoll, County
Finance Director (925) 335-1023
I hereby certify that this is a true and correct copy of an action taken and entered
on the minutes of the Board of Supervisors on the date shown.
ATTESTED: June 8, 2010
David J. Twa, County Administrator and Clerk of the Board
of Supervisors
By: June McHuen, Deputy
cc: Lisa Driscoll, County Finance Director, Michael Lango, General Services Director, Dick Awenius, General Services
D. 1
To:Board of Supervisors
From:Finance Committee
Date:June 8, 2010
Contra
Costa
County
Subject:Finance Committee Report on the Proposed East County Government Center
leases and approved new leases for delivery of County services in Far East county (Table
1). County services currently provided in East County include the District 3 Supervisor,
Conservation and Development (Building Inspection), Employment and Human Services,
and the Health Services departments comprised of approximately 21,000 square feet in 4
separate locations in Brentwood.
In previous reports to the County’s Finance Committee, the Probation Department’s
existing occupancy at 355 E. Leland Road in Pittsburg had been included in the Table 1
summary. Recently, however, and in accordance with Real Estate Asset Management Plan
(RAMP) principles adopted by the Board of Supervisors in 2009, the General Services
Department identified space in the County-owned building located at 4549 Delta Fair
Boulevard in Antioch that was being underutilized. It is anticipated that the Probation
Department will relocate from its current leased space in Pittsburg to the Delta Fair building
in Antioch. Therefore, the Probation Department leased space costs have been removed
from the Table 1 summary.
BACKGROUND: (CONT'D)
Table 1
EXISTING COUNTY LEASES IN EAST COUNTY/Brentwood
Department
Square
Feet
Lease
Expiration
FY 2010/11
Budgeted
Lease Costs *
Current
Total Cost
Per Sq. Ft.Options
Supervisor, District 3
181 Sand Creek Road 1,177 5/14/2011 $36,085 $2.55
2 1-yr
options
DCD (Building
Inspection) 1191 Central
Avenue 1,578 3/31/2011 $53,939 $2.85 None
EHSD
151 Sand Creek Road 8,022 4/30/2011 $205,436 $2.13
2 1-yr
options
HSD (Brentwood Health
Center)
171 Sand Creek Road 10,052 1/31/2015 $392,739 $3.26
2 5-yr
options
Total Budgeted Cost 20,829 $688,199 $2.75
* Rent, maintenance, janitorial, and utilities for FY 2010/11.
Three of the County leases expire in 2011 and two of those leases have options into 2013. The Brentwood Health
Center lease runs through 2015, and has two 5-year options to extend the term. As the leases expire, new
agreements can be negotiated at then current market rents or the leases can be terminated subject to departmental
service delivery requirements. The budgeted cost for the County’s existing leased space in Brentwood is
approximately $688,000 in FY 2010/11.
Given the Board’s direction to provide centralized County services in the region and to proactively plan for future
demand for County services, County staff has pursued the development of an East County Government Center.
This effort included a site selection process to identify suitable locations, and resulted in several presentations of
options and alternatives to the Finance Committee over the past two years.
At the January 2010 Finance Committee meeting, General Services staff presented detailed information regarding
the following three options:
Option 1: Purchase vacant land on Technology Way in Brentwood for future development of the East County
Government Center (Attachment A).
Option 2: Purchase the existing “Building 3” in the Sand Creek Business Center in Brentwood to consolidate at
least some County services in a single location (Attachment A).
Option 3: Purchase both the existing “Building 3” in the Sand Creek Business Center and the land on Technology
Way.
At the conclusion of the meeting, the Finance Committee directed that the proposed East County Government
Center report be presented to the Board of Supervisors. Subsequently, the developer presented additional
information related to the Building 3 purchase option (Option 2), which required further discussion and evaluation.
The details associated with these discussions and the corresponding options are presented below.
Option 1: Purchase undeveloped land on Technology Way. The Technology Way property consists of two
building sites shown as Parcels 1 and 2 on Attachment B. Parcel 1 is 1.37 acres and Parcel 2 is 1.46 acres for a
combined total of 2.83 acres. The properties are ideally located near the intersection of Sand Creek Road and
Brentwood Boulevard. All utilities and roads have been extended to the land. Bus lines also run along Sand Creek
Road and Brentwood Boulevard. The combined 2.83 acre building site could accommodate approximately 50,000
to 55,000 square feet of office space.
Although the Technology Way property has not been formally appraised, the owner has suggested an asking price
of $2 million ($16.22 per square foot) for the two sites. Financing $2 million over 20 years at 5% interest would
cost approximately $160,000 per year. If staff is directed to pursue this option, the Technology Way property will
be appraised to determine its current fair market value prior to initiating negotiations for the possible purchase.
Option 2: Purchase “Building 3” at the Sand Creek Business Center . The building is located at 181 Sand Creek
Road in the Sand Creek Business Center in Brentwood (Attachment C), and contains 15,264 of rentable space. The
owner of the property has represented that, as of May 1, 2010, the building was 100% occupied, including 1,177
square feet occupied by the District 3 Supervisor’s office. There are 11 suites in the building. Three of the suites are
leased on a month-to-month basis, one expires in 2010, and the remaining seven leases will expire within the next
three years.
For this report, staff used income and expense information provided by the property owner for the months of
January through October 2009, and annualized that information to represent the entire calendar year. The annual
gross income for Building 3 in 2009 was approximately $276,000, and the common area maintenance (CAM)
expense was approximately $76,000. Approximately $55,000 of the CAM was reimbursed by the tenants resulting
in an estimated annual net operating income of approximately $255,000. This amount includes $24,000 in rent paid
by the County for the District 3 Supervisor’s lease.
County occupancy. Attachment D is a 10-year projection that illustrates the County’s cost structure if the Sand
Creek building was 100% occupied by County departments. Attachment D assumes the County purchased the
building for $3 million and spent another $1 million renovating the building for County occupancy.
Assuming a total project cost of $4 million financed at 5% interest over 20 years, the County’s total annual
finance cost would be approximately $321,000. Given the projected finance costs and the County’s estimated
annual occupancy cost of approximately $136,000 (utilities, insurance, maintenance), the County’s total
occupancy expense would be approximately $457,000 in the first year and approximately $498,000 in the 10th
year.
A.
Non-County occupancy. Attachment E is a 10-year projection that shows the initial cost structure if the County
purchased the Sand Creek building for $3 million, did not complete tenant improvements, and continued to
lease a majority of the space to non-County tenants. Because of the current level of private tenant’s in the
building, tax-exempt financing would not be available. Assuming a purchase price of $3 million financed at
7.5% interest over 20 years with annual debt payments, the County’s total annual finance cost would be
approximately $294,000. County occupancy expenses are estimated to be approximately $119,000 per year,
including the District 3 Supervisor’s space.
Given the above financial assumptions and estimated expenses, the County’s gross cost to finance and
maintain the building would be approximately $413,000 (including the District 3 Supervisor’s expense) in the
first year of ownership. Based on the property owner’s income and expense information for 2009, and
assuming an 8% vacancy factor, purchasing the building would result in a net annual expense to the County of
approximately $106,000 in the first year of ownership. Of that amount, the County is already paying
approximately $36,000, including rent and CAM charges, for the District 3 Supervisor’s occupancy.
Therefore, the net additional expense to the County resulting from the purchase of the building in the first year
of ownership would be approximately $70,000. The annual additional expense would decrease in subsequent
years and in the 10th year would be essentially zero, assuming rent revenue and occupancy costs increase as
projected in Attachment E.
Managing Building 3 with non-County tenants will also require additional County staff time to maintain,
market, and re-lease various suites in the building as vacancies occur. In addition, although the County’s
B.
purchase of the building as currently occupied by non-County tenants would not qualify for tax-exempt
financing, the County could refinance the property at a lower cost as the County occupies the building over
time and it becomes eligible for tax-exempt financing.
While buying a building that is occupied by private tenants does provide revenue that can be used to offset a
portion of the County’s debt expenses, it also presents risks for the County. For example, as vacancies occur
in the building, the County would be without that portion of revenue used to offset its debt expense, and that
additional expense would have to be paid by the County until the vacant space is re-leased or occupied by a
County department. The short-term nature of the private tenant leases provides flexibility in moving County
occupants into the building, but also represents less stability in retaining revenue from non-County sources to
offset debt expenses.
Option 3: Purchase Building 3 and the Technology Way Land. This Option includes purchasing both Building 3 in
the Sand Creek Business Center for either County or non-County occupancy, and the land on Technology Way,
under the conditions described in Attachments D and E.
COST COMPARISON OF OPTIONS
Table 2 compares the additional annual cost of buying the undeveloped land on Technology Way, the existing
Sand Creek – “Building 3,” or both, with the County’s existing lease obligations. Option 2 compares the cost of
buying Building 3 and either using it for County offices or continuing to rent it to non-County tenants. Since the
Sand Creek building is limited in size, if the County bought that building, it is assumed that the County will
continue to lease space for the Brentwood Health Center. Therefore, the cost of the Health Center space remains
constant for comparative purposes at approximately $393,000 in all of the options.
Table 2
PRELIMINARY COST COMPARISON OF OPTIONS
Existing Lease
Cost FY 2010/11
Estimated
Additional
Annual Cost
Estimated
Total Annual
Cost
Option 1: Cost of Existing Leased Space and Annual Cost of Buying the
Technology Way Land $688,200 $160,000 1
$848,200
Option 2A: County Purchases the Existing Sand Creek Building for
County Occupancy $393,000 $457,000 2 $850,000
Option 2B: County Purchases the Existing Sand Creek Building
(Non-County Occupancy)$688,200 $70,000 3 $758,200
Option 3A: County Purchases the Existing Sand Creek Building for
County Occupancy and Technology Way Land $393,000 $617,000 $1,010,000
Option 3B: County Purchases the Existing Sand Creek Building
(Non-County Occupancy) and Technology Way Land $688,200 $230,000 $918,200
1 Assumes $2 million acquisition cost financed at 5% over
20 years
2 Assumes $3 million acquisition costs, $1 million building
renovation financed at 5% over 20 years
3 Assumes $3 million acquisition cost financed at 7.5% over
20 years
One of the benefits of owning real estate is equity build-up over time. To illustrate this, Table 3 projects the
estimated value and equity of the “Building 3” real estate and the Technology Way land after 20 years comparing
a financed purchase with a cash purchase.
The Table 3 figures assume real estate values will appreciate 2% annually over the 20-year period. It also assumes
the County will spend an estimated $750,000 during the 20-year period for Building 3 capital renewal (i.e. roof,
mechanical, and building systems). These assumptions indicate the building will have a value of approximately
$4.5 million after 20 years and the Technology Way land will have a value of approximately $2.9 million at the
end of 20 years. Table 3 does not include any estimated revenue and equity projections for Options 2B or 3B
because it is not intended that the County would buy Building 3 to rent out to private tenants for 20 years.
Table 3
CONCLUSION
The purpose of establishing an East County Government Center in Brentwood is to accomplish the Board of
Supervisor’s goal of providing County services in Far East county from a multi-use facility at a centralized
location, and to reduce facility related costs over time by owning rather than leasing County office space. In
addition, investment in owned real estate can provide the County with an equity position that can be leveraged in
ESTIMATED 20-YEAR ASSET VALUE PROJECTIONS
Original
Cost Interest Cost Estimated 2
20-Year Value Equity
Option 1:
County Purchases the Technology Way
Land (100% Financed)
$2 million $1.2 million 1 $2.9 million ($300,000)
Option 1: Cash Acquisition $2 million -0-$2.9 million $900,000
Option 2A:
County Purchases Building 3 for County
Occupancy (100% Financed) 4
$4 million 3 $2.4 million 1 $4.5 million ($2,650,000)
Option 2A: Cash Acquisition 4 $4 million -0-$4.5 million $250,000
Option 3A:
County Purchases Building 3 for County
Occupancy and Technology Way Land
(100% Financed) 4
$6 million $3.6 million 1 $7.4 million ($2,950,000)
Option 3A: Cash Acquisition 4 $6 million -0-$7.4 million $650,000
1 Assumes purchase price financed at 5% over 20 years.
2 Assumes a 2% annual appreciation, not including the $1 million in initial renovations to Building 3.
3 Assumes $3 million purchase price and $1 million in renovations (applies to all building purchase options).
4 Option 2A and Option 3A “Equity” figures include an additional expense of $750,000 in capital improvements
over 20 years.
the future.
Attachments:
Attachment A – Proposed ECGC Sand Creek Road & Technology Way Site
Attachment B – Proposed ECGC Technology Way Site
Attachment C – Sand Creek Development
Attachment D – Existing Sand Creek Building 3 w/all County Occupants
Attachment E – Existing Sand Creek Building 3 w/Non-County Occupants
CLERK'S ADDENDUM
DIRECTED General Services to obtain an appraisal of the undeveloped land on Technology Way in Brentwood,
commence real property negotiation for purchase, identify any alternatives to cash reserves for funding, include
what the financial impact of those alternatives would be, and report back to the full Board.
ATTACHMENTS
Attachment A
Attachment B
Attachment C
Attachment D
Attachment E