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Current Council Agenda and Past Meeting Information

 

REDEVELOPMENT AGENCY AGENDA ITEM NO. 13

Meeting Date: March 27, 2007

Subject/Title: Adopt a resolution approving the First Amendment to the Industrial Lease and Option to Purchase Agreement with Precision Cabinets, L.C., for 400 Guthrie Lane, and authorizing the Executive Director to execute the First Amendment and to execute such other documents as may be needed to complete the First Amendment transaction.

Prepared by: Gina Rozenski, Redevelopment Manager

Submitted by: Howard Sword, Community Development Director

RECOMMENDATION
Adopt a resolution approving the First Amendment to the Industrial Lease and Option to Purchase Agreement with Precision Cabinets, L.C., for 400 Guthrie Lane, and authorizing the Executive Director to execute the First Amendment and to execute such other documents as may be needed to complete the First Amendment transaction.

PREVIOUS ACTION
On November 8, 2005, a joint meeting of the Council and the Agency was held in which two actions were taken. The first action was City Council Resolution No. 2005-261 to transfer the ownership of 9100 Brentwood Boulevard to the Redevelopment Agency. The second action was Redevelopment Agency Resolution No. 102 for the acceptance of the transfer of 9100 Brentwood Boulevard to the Agency.

The Agency staff then subdivided 9100 Brentwood Boulevard, which houses the police station on the western portion, and reconveyed it back to the City. The subdivision established the existence of the eastern parcel known as 400 Guthrie Lane in preparation for the lease and sale of the property.

On December 13, 2005, the Agency adopted Resolution No. RDA-106 authorizing the Executive Director to execute an Industrial Lease and Option to Purchase Agreement with Precision Cabinets, L.C., for 400 Guthrie Lane (see attached Project Location).

BACKGROUND
In September 2005, City staff began discussions with Precision Cabinets, a local cabinet manufacturer, regarding their need to secure expansion space for their business. At that time, Precision Cabinets employed nearly 300 workers with a large percentage living in Brentwood. Of the nearly 300 jobs, approximately 30 percent are front office administrative, technical and sales jobs. Precision is also a significant business contributor to the City’s sales tax revenue. Precision Cabinet is a valued local business.

During our initial discussions, staff learned that the company was considering relocating a portion of their operations outside the City of Brentwood. Because the City Council has outlined business retention as a stated goal in its Two-Year Plan, and because the Redevelopment Agency adopted a goal to encourage the expansion of local commercial opportunities within the Merged Redevelopment Project Areas through business retention and expansion programs, staff began working with Precision to identify a local solution for their expansion needs.

Following a series of discussions to outline their current and future needs for expansion, it was determined that the most appropriate solution was the City-owned industrial building located at 400 Guthrie Lane. This 20,277 square foot building sits adjacent to the new police headquarters and was part of the City’s acquisition of the U.S Print property in September 2003. The parcel housing the building was transferred to the Agency to complete the lease transaction.

In December 2005, the Agency approved a lease agreement with Precision Cabinets for 400 Guthrie Lane. The following are some highlights of the lease agreement with the option to purchase.

 Three-year lease agreement and purchase option, effective on March 1, 2006.
 Precision Cabinets intended to lease the entire building in phases (see attached Phasing Plan):
o Occupy one-third of the structure in year one (6,759 sf) at $4394 per month (Phase One).
o Occupy two-thirds in year two (13,518 sf) at $8787 per month (Phase Two).
o Occupy the entire building in year three (20,277 sf) at $13,180 per month (Phase Three).
 The lease rate is triple net (NNN), meaning that it does not include any tax liabilities, property insurance, and utilities, which are paid by Precision Cabinets based on their phase-in schedule.
 At the end of the three-year lease, or any earlier agreeable timetable, Precision Cabinets has the option to purchase the building at its fair market value, as determined by an appraisal of the structure.
 Agency subdivided the parcel from the Police Facility in preparation for future sale of 400 Guthrie Lane to Precision Cabinets. This allowed the western portion of the property, where the Police Facility is located, to be re-conveyed back to the City from the Agency.

Prior to starting operations at 400 Guthrie Lane, Precision Cabinets invested in building improvements such as the removal of existing air coolers for the warehouse and the installation of a dust collection system. Precision Cabinets also spent over $1,000,000 in the purchase and installation of state-of-the-art staining and finishing lines. By June 2006, over 30 people were employed at 400 Guthrie Lane. However, the downturn in the residential market significantly impacted the production at Precision Cabinets. In late summer of 2006, Precision Cabinets eliminated its third shift at its Middlefield Court site and closed its operations at 400 Guthrie Lane. While there are no employees at 400 Guthrie Lane and the equipment is idle, Precision Cabinets has continued to make the Phase One rent payments because the line equipment still occupies one-third of the building.

Regardless of lack of occupancy, Phase Two rent commenced on March 1, 2007.

CURRENT STATUS
Precision Cabinets has advised staff that it plans to commence operations again at 400 Guthrie Lane, but in a limited capacity. On February 6, 2007, Precision Cabinets requested the Industrial Lease be amended as follows:

 Precision Cabinets agrees to occupy only the square footage allowed by the Phase One for the first six months of Phase Two.

 Precision Cabinets to pay Phase One lease rate of $4394 for the first six months of the Phase Two. The lease rate for the second six months of Phase Two shall remain at $8787.

 Precision Cabinets agreed to make the Phase Two lease rate of $8787 starting March 2007 until the Lease Agreement can be formally amended with the understanding that if the First Amendment is approved, the amended lease rate will be retroactive to March 1, 2007.

However, Precision Cabinets did not make the Phase Two lease payment as agreed for March 2007. Rather they paid the Phase One Rent due to expense-cutting measures caused by significant reduction of work force and shortened work week. Precision Cabinets requests that Phase One Rent be acceptable until such time the retro-activity issue is considered by the Council.

Staff gave notice to Precision Cabinets to immediately pay Phase Two Rent as required by the Lease Agreement pending Council consideration of this First Amendment. The Lease Agreement states that the Tenant will be in default of the Lease Agreement following a period of 5 days after Landlord’s notice of breach, and Tenant has 90 days to diligently and continuously prosecute a cure before the Landlord considers remedies, including termination.

 Since the original intent of the parties was to sell the building to Precision Cabinets, the Agreement has no provision to terminate the lease by either the Tenant or Landlord, except only by Landlord for breach of contract or default. Precision Cabinets wishes to amend the Lease Agreement to provide for a 30-day termination clause for both the Agency and Precision Cabinets. Precision Cabinets wants the flexibility to react to market changes in the future by having the option to terminate the lease. The Agency would like a reciprocal termination clause. No revision to the Agency’s right to terminate the lease for reasons of breach or default is proposed.

FISCAL IMPACT
Anticipated revenue for year two of the Lease in the amount of $105,444 ($8,787 per month) will decrease to $79,086 ($4,394 for 6 months and $8,787 for 6 months). The future lease revenues are shared between the City and Agency in proportions that will reimburse the Agency for its direct expenses.

Attachments:
Resolution
First Amendment to Industrial Lease
Project Location
Phasing Plan

RESOLUTION NO. RA

RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF BRENTWOOD APPROVING THE FIRST AMENDMENT TO THE INDUSTRIAL LEASE AND OPTION TO PURCHASE WITH PRECISION CABINETS, L.C., FOR 400 GUTHRIE LANE

WHEREAS, the City Council of the City of Brentwood ("City") approved and adopted the Redevelopment Plan for the Brentwood Redevelopment Project ("Project") on July 13, 1982, by Ordinance No. 333, as amended; and

WHEREAS, the Redevelopment Agency of the City of Brentwood ("Agency") is carrying out the Redevelopment Plan and, in connection therewith, adopted an Implementation Plan for the Project on March 8, 2005, by Resolution No. RDA-97 in accordance with Health and Safety Code Section 33490; and

WHEREAS, the Agency desires to eliminate physical and economic blight conditions by the re-use of the vacant, under-utilized building at 400 Guthrie Lane, desires to create jobs and increase sales tax generation, desires to provide development opportunities, and encourages private re-investment through business retention and expansion programs; and

WHEREAS, on December 13, 2005, the Agency adopted Resolution No. RDA-106 which authorized the Executive Director to execute an Industrial Lease and Option to Purchase Agreement (“Lease”) with Precision Cabinets, L.C. (“Precision”), pursuant to which the Agency proposed to lease to Precision a building of approximately 20,277 square feet and adjacent parking areas at 400 Guthrie Lane (“Site”) located within the Project area for the purposes of expanding and retaining Precision’s business; and

WHEREAS, the economic downturn in the residential market has significantly impacted the production demand at Precision resulting in Precision closing its operations at the Site. Precision has continued to make the rent payments required by the Lease due to its line equipment still occupying one-third of the building; and

WHEREAS, Precision plans to commence operations again at Site, but in a limited capacity; and

WHEREAS, the Agency and Precision desire to amend the Industrial Lease and Option to Purchase Agreement (“First Amendment”) pursuant to which the Agency and Precision propose to amend the rent and operating expense phases, to provide for a 30-day termination clause, and to apply the First Amendment retroactively to March 1, 2007.

NOW, THEREFORE, be it resolved by the Redevelopment Agency of the City of Brentwood as follows:

1. The Agency hereby approves the First Amendment to the Industrial Lease and Option to Purchase Agreement, with such minor technical and clarifying revisions as shall be approved by the Executive Director in consultation with the Agency Counsel.

2. The Agency hereby authorizes the Executive Director to execute the First Amendment to the Industrial Lease and Option to Purchase Agreement on behalf of the Agency and to take all further actions and execute all documents reasonably necessary to carry out the provisions of the First Amendment.

PASSED, ADOPTED AND APPROVED by the Redevelopment Agency of the City of Brentwood at its regular meeting on the 27th of March 2007 by the following vote:

FIRST AMENDMENT TO INDUSTRIAL LEASE

This First Amendment to Industrial Lease (the “First Amendment”) is entered into as of , the date of last execution, by and between the Redevelopment Agency of the City of Brentwood (“Landlord”) and Pct Enterprises, Inc., a California corporation, dba Precision Cabinets and Trim (“Tenant”).

Recitals

A. Landlord and Tenant entered into that certain Industrial Lease, dated January 1, 2006, for the Tenant’s lease of certain Landlord-owned property defined as the Premises (the “Lease”). Any capitalized term not defined herein shall have the definition set forth in the Lease.

B. The Lease provides for the lease of the Premises in phases, with an annual increase in Rent to coincide with the increased square footage being occupied.

C. Since the effective date of the Lease, circumstances have changed and the Tenant is not able to fully occupy the Premises in the phased approach set forth in the Lease.

D. The parties desire to amend the Lease to (1) increase the first phase of the Lease to 18 months; and (2) provide for the termination of the Lease upon 30 days written notice.

Terms

NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the parties agree as follows:

1. Amendment of Section 1.4. Section 1.4 of the Lease is hereby deleted in its entirety and replaced as follows:

”1.4. Rent.

(a) During the first 18 months of the Term, Tenant shall pay a monthly rent (“Rent”) of $4,394. If Tenant uses more than 6,759 square feet during this period, Tenant shall pay Rent as provided in section (b) below.

(b) During the next six months of the Term following the 18-month period described in section (a) above, Tenant shall pay a Rent of $8,787. If Tenant uses more than 13,518 square feet during this period, Tenant shall pay Rent as provided in section (c) below.

(c) During the last 12 months of the Term, Tenant shall pay a Rent of $13,180.”

2. Amendment of Section 1.5. Section 1.5 of the Lease is hereby deleted in its entirety and replaced as follows:

“1.5. Tenant’s Share. (“Tenant’s Share”)

(a) Shall be 34% of the Common Area Operating Expenses and 34% of the Building Operating Expenses (as those terms are defined in subsections 4.2(a) and 4.2(b)), respectively for the first 18 months of the Term. If the Tenant uses more than 6,759 square feet during this period, Tenant’s Share shall be the share as provided in section (b).

(b) Shall be 67% of the Common Area Operating Expenses and 67% of the Building Operating Expenses (as those terms are defined in subsections 4.2(a) and 4.2(b)), respectively for the next 6 months of the Term. If the Tenant uses more than 13,518 square feet during this period, Tenant’s Share shall be the share as provided in section (c).

(c) Shall be 100% of the Common Area Operating Expenses and 100% of the Building Operating Expenses (as those terms are defined in subsections 4.2(a) and 4.2(b)), respectively for the last 12 months of the term of this Lease.”

3. Addition of Section 17 on Termination. Section 17 is hereby added to the Lease as follows:

“17. Termination. This Lease may be terminated by Landlord or Tenant at any time upon 30 days written notice to the other party. The termination shall be effective 30 days after deemed receipt of such notice in accordance with section 16.5, or such later time as set forth in the notice, provided the termination date does not exceed the Term. Tenant shall be responsible for all Tenant costs, including Tenant’s share of Common Area Operating Expenses and Building Operating Expenses, incurred as of the effective date of the termination.”

4. Effective Date. This First Amendment shall be effective as of, and retroactive to, March 1, 2007.

5. Lease in Full Force and Effect. Except as amended by this First Amendment, the Lease remains in full force and effect.

Tenant:

Pct Enterprises, Inc.

By:
Printed Name:
Title:

Date:

Landlord:

Redevelopment Agency of the City of Brentwood

By:
Donna Landeros, Executive Director

Date:

ATTEST:

By:
Margaret Wimberly, Secretary

APPROVED AS TO FORM:

By:
Damien B. Brower, Agency Attorney


PROJECT LOCATION

PHASING PLAN
(attached)

 

City Administration
City of Brentwood City Council
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Brentwood, CA 94513
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