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REDEVELOPMENT AGENCY AGENDA ITEM NO. 23



Meeting Date: June 12, 2007

Subject/Title: Adopt a resolution approving the First Amendment to Industrial Lease with Pct Enterprises, Inc., doing business as 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 First Amendment to Industrial Lease with Pct Enterprises, Inc., doing business as 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).

On March 27, 2007, a proposed First Amendment to the Industrial Lease was continued by the Agency Board for further consideration and discussion.

At this time, Precision Cabinets is not in default of its obligations under the terms and conditions of the Industrial Lease and has made full payment of Rent as defined by the Industrial Lease.

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 $2,000,000 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 opened discussions with the Agency regarding amendments to the Industrial Lease. The following represents the mutually agreeable recommended amendments:

 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 agrees 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.

 Precision Cabinets and the Agency wish to amend the Lease Agreement to provide for a 90-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.

 Agency shall have the right to sell the premises at 400 Guthrie Lane at any time during the term of the Lease giving Precision Cabinets the first right to purchase the property at same terms as the Agency intends to sell the property. This first right to purchase shall be exercised by Precision Cabinets, if at all, within 10 days of the receipt of the notice from the Agency that it has decided to sell the property.

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), a loss of $26,358. 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 INDUSTRIAL LEASE WITH PCT ENTERPRISES, INC., DOING BUSINESS AS PRECISION CABINETS, L.C., FOR 400 GUTHRIE LANE AND AUTHORIZING THE EXECUTIVE DIRECTOR TO EXECUTE THE FIRST AMENDMENT AND TO TAKE ALL FURTHER ACTIONS REASONABLY NECESSARY TO CARRY OUT THE PROVISIONS OF THE FIRST AMENDMENT


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 (“First Amendment”) pursuant to which the Agency and Precision propose to amend the rent and operating expense phases, to provide for a 90-day termination clause, to apply the First Amendment retroactively to March 1, 2007, and to provide Precision with a first right to purchase the property should the Agency decide to sell during the remaining term of the Lease.

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 12th of June 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 Effective Date (defined below), by and between the Redevelopment Agency of the City of Brentwood a public body (“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) provide the correct term of the Lease as acknowledged by the parties; (2) increase the first phase of the Lease to 18 months; (3) provide for the termination of the Lease upon 90 days written notice; and (4) provide Tenant with a right of first refusal in the event Landlord decides to sell the Premises to a third party.

Terms

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

1. Effective Date. This First Amendment shall be effective as of, and retroactive to, March 1, 2007 (the "Effective Date").

2. Term.

(a) Amendment of Section 1.3. Section 1.3 of the Lease is hereby deleted in its entirety and replaced as follows:

"1.3. Term. The term of this Lease (the "Term") shall commence on March 1, 2006 ("Commencement Date") and end on February 28, 2009 ("Expiration Date") unless sooner terminated in accordance with Section 17 herein."

(b) Acknowledgement by Parties. Landlord and Tenant hereby acknowledge that the Term originally set forth in the Lease prior to the Effective Date was stated incorrectly and the Term set forth in Section 2(a) of this First Amendment reflects the correct Term that was initially agreed upon by the Landlord and Tenant when entering into the Lease.


3. 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 sections (b) and/or (c), as applicable.

(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."

4. 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 as provided in section (b) and (c), as applicable.

(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 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."

5. 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 90 days prior written notice to the other party. The termination shall be effective 90 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.”

6. Addition of Section 18 on Right of First Refusal. Section 18 is hereby added to the Lease as follows:

"18. Right of First Refusal.

18.1. Grant. So long as Tenant is not in default under any of the terms of conditions of the Lease and subject to the terms and conditions of this Section 18, Tenant shall have a right of first refusal ("Right of First Refusal") to purchase the Premises together with the Building Parcel (collectively, the "Premises/Parcel").

18.2. Term. The term of the Right of First Refusal ("Refusal Term") shall begin as of the Effective Date and shall remain in effect until the Expiration Date or the earlier termination of the Lease, as provided herein.

18.3. Notice. If at any time during the Refusal Term Landlord desires to sell the Premises/Parcel to a third party ("Third Party Sale"), then, prior to selling the Premises/Parcel or entering into any agreement to do so, Landlord shall provide Tenant with written notice specifying the significant terms and conditions of any proposed Third Party Sale (the "Third Party Offer Notice").

18.4. Exercise.

(a). Exercise Period. Tenant shall have the right to exercise its Right of First Refusal by written notice to Landlord for a period of 10 business days ("Exercise Period") following Tenant's receipt of a Third Party Notice.

(b). Exercise and Failure to Exercise.

1. If Tenant exercises its Right of First Refusal as to a Third Party Sale, Landlord shall sell the Premises/Parcel to Tenant on the same terms and conditions set forth in the Third Party Offer Notice. If Tenant fails to exercise its Right of First Refusal by the end of the Exercise Period, Landlord may thereafter sell the Premises/Parcel at the price and on substantially the same terms and conditions set forth in the Third Party Offer Notice.

2. If the Premises/Parcel is not sold in accordance with the terms of the Third Party Offer Notice within 180 days following Tenant's failure to exercise its Right of First Refusal, or such longer time as may be provided in the Third Party Offer Notice, Landlord may not thereafter sell the Premises/Parcel without again complying with the provisions of this Section 18 and giving Tenant another opportunity to purchase the Premises/Parcel in accordance with the terms herein."

7. 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., a California corporation
dba Precision Cabinets and Trim


By:
Printed Name:
Title:

Date:

By:
Printed Name:
Title:

Date:



Landlord:

Redevelopment Agency of the City of Brentwood, a public body


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
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Brentwood, CA 94513
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