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06 staff report.Forbes Mill with attachmentsReviewed by: Town Manager, Assistant Town Manager, Town Attorney, and Finance Director 110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 03/05/2024 ITEM NO: 6 DATE: February 21, 2024 TO: Mayor and Town Council FROM: Laurel Prevetti, Town Manager SUBJECT: Authorize the Town Manager to Execute a Second Amendment with Forbes Mill, LLC for 75 Church Street. RECOMMENDATION: Authorize the Town Manager to execute a Second Amendment to the Master Lease with Forbes Mill, LLC for 75 Church Street (Attachment 3) in substantially the form presented. BACKGROUND: In March 2019, the Town Council authorized an Exclusive Negotiating Agreement with Imwalle Asset Management, LLC, to help guide the negotiations of a Master Lease Agreement. On August 4, 2020, the Town Council authorized the Town Manager to execute a long term lease agreement with Forbes Mill, LLC for the property located at 75 Church Street (Attachment 1). While Forbes Mill, LLC is a unique entity, Imwalle Asset Management, LLC is the master tenant. The decision to enter into long term leases was predicated on the fact that the approach would allow the property to remain in Town control, maintain the historic value of the property, require no monetary resources from the Town, and ultimately provide an annual revenue stream to the Town. On February 7, 2023, the Town Council authorized a First Amendment (Attachment 2) to the lease to modify the provisions which stipulate that if lease up has not occurred within certain time periods, either party can terminate the leases. The modification extended the deadline for the master tenant to find a subtenant to January 1, 2024. PAGE 2 OF 2 SUBJECT: Authorize the Town Manager to Execute a Second Amendment with Forbes Mill, LLC for 75 Church Street DATE: February 21, 2024 DISCUSSION: On December 22, 2023, Jim Foley (on behalf of Forbes Mill, LLC) contacted the Town to request an additional six-month extension to secure tenants. He explained that he has been trying to secure tenants in a challenging economic environment and expects to find a subtenant acceptable to the Town in the next six months. Attachment 3 contains a draft Second Amendment to provide a six-month extension as of the date of Council action (March 5, 2024). This would give Forbes Mill, LLC until early September to secure a subtenant. CONCLUSION: Staff recommends that the Council authorize the Town Manager to execute a Second Amendment with Forbes Mill, LLC for 75 Church Street in substantially the form presented. COORDINATION: The preparation of this report and the draft Second Amendment were coordinated with the Town Attorney. FISCAL IMPACT: There is no fiscal impact with this Council action. Should Forbes Mill be successfully occupied consistent with the Master Lease, the Town would realize financial benefits as stated in the Master Lease. ENVIRONMENTAL ASSESSMENT: This is not a project defined under CEQA, and no further action is required. Attachments: 1. Master Lease 2. First Amendment 3. Draft Second Amendment with Exhibit C Insurance Requirements ATTACHMENT 1 ATTACHMENT 2 FIRST AMENDMENT TO AGREEMENT This FIRST AMENDMENT TO AGREEMENT is dated for identification this 7th day of February 2023 and amends that certain Lease Agreement for Property Management Services dated October 29, 2020, made by and between the Town of Los Gatos ("Landlord” or the “Town"), and Forbes Mill, LLC, a California Limited Liability Company (“Master Tenant”). RECITALS A. Town and Master Tenant entered into a Lease Agreement for Property Management Services for the management and leasing of the Forbes Mill Property, located at 75 Church Street, dated October 29, 2020 (“Agreement”), a copy of which is attached hereto and incorporated by reference as Attachment 1 to this Amendment. Whereas, now the Town and Master Tenant mutually agree to amend the terms of the Agreement as follows: FIRST AMENDMENT 1.The parties agree that the “Effective Date” referenced on Page 1 of the Master Lease ("Lease") shall be October 29th 2020. 2.Section 1.4 Lease Term. As provided in Section 3 below, the Term of the Lease commences on the Commencement Effective Date and terminates, unless earlier terminated 34 years and 11 months from the Commencement Effective Date as provided in Section 3.1 below. 3.Section 1.5 Lease Contingency. This Lease is contingent on the Master Tenant submitting the necessary applications and documents to the Town for approval of the improvements and use of the property, such as, but not limited to, general plan amendment, a proposed site plan, concept drawings for the site plan, massing diagrams, and renderings identifying the location, general configuration, and proposed design characteristics of the buildings, parking spaces, landscaping, property subdivision, and other aspects of the improvement and uses. The Master Tenant acknowledges that the Project Proposal requires approvals and entitlements from the Town and shall submit a formal application for the Planning Approvals. Costs and fees associated with the Planning Approvals review shall be borne by the Master tenant. Nothing in this Agreement shall be construed to compel the Town to approve or make any findings with respect to Planning Approvals. If Master Tenant is unable to obtain Planning Approvals, either Landlord or Master Tenant may terminate this Lease by giving written notice of termination to the other party. Upon the giving of such notice of termination, this Lease shall terminate without liability of either party to the other. This Lease is also contingent on Master Tenant and a Subtenant having executed a binding initial Sublease for any portion of the Premises and occupancy by Subtenants (the “Contingency”). If the Contingency has not been satisfied or waived by Landlord on or before the date twelve (12) months following the Effective Date January 1, 2024, either ATTACHMENT 2 Landlord or Master Tenant may terminate this Lease by giving written notice of termination to the other party. 4.Section 3.1 Term. The "Term" of this Lease shall commence as of the Effective Date ("Commencement Effective Date") and shall end, unless earlier terminated or extended pursuant to the terms and conditions of this Lease, on the date 34 years and 11 months after the Commencement Effective Date ("Termination Date"). 5.Section 7.3 Continuous Operations. Master Tenant shall use its commercially reasonable efforts, subject to the provisions of Section 7.2 above, to continuously sublet the Premises to approved Subtenants for commercial purposes during the term of this lease. If, for any reason, a Subtenant quits its business operations on the Premises, Master Tenant shall use its commercially reasonable efforts, in accordance with the provisions of Section 7.2 above, to promptly secure another Subtenant reasonably acceptable to Master Tenant and Landlord. If for any reason during the first three (3) years following the Commencement Date after January 1, 2024, the Premises in their entirety are left unleased for a continuous period of eighteen (18) months or more, then either the Landlord or Master Tenant may terminate this Lease by giving written notice of termination to the other, in which case, upon the giving of such notice of termination, each party shall be released of any future liability to the other, except as provided herein. 6.All other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the Landlord and Master Tenant have executed this Amendment. LANDLORD: MASTER TENANT: THE TOWN OF LOS GATOS Tait Firehouse, LLC, a California Limited Liability Co. By: Imwalle Asset Management, LLC a California Limited Liability Co. By: _________________________ By: _________________________ Laurel Prevetti, Town Manager Don Imwalle, Jr., Managing Member Approved as to Form: Attest: ________________________ _________________________ Gabrielle Whelan, Town Attorney Wendy Wood, Town Clerk ATTACHMENT 3 SECOND AMENDMENT TO AGREEMENT This SECOND AMENDMENT TO AGREEMENT is dated for identification this 5th day of March 2024 and amends that certain Lease Agreement for Property Management Services dated October 29, 2020, made by and between the Town of Los Gatos ("Landlord” or the “Town"), and Forbes Mill, LLC, a California Limited Liability Company (“Master Tenant”). RECITALS A.Town and Master Tenant entered into a Lease Agreement for Property Management Services for the management and leasing of the Forbes Mill Property, located at 75 Church Street, dated October 29, 2020 (“Agreement”), a copy of which is attached hereto and incorporated by reference as Attachment 1 to this Amendment. B.Whereas a First Amendment was authorized by the Town Council on February 7, 2023, it was not fully executed. Whereas, now the Town and Master Tenant mutually agree to amend the terms of the Agreement as follows: SECOND AMENDMENT 1.The parties agree that the “Effective Date” referenced on Page 1 of the Master Lease ("Lease") shall be October 29th 2020. 2.Section 1.4, “Lease Term,” is amended to read as follows: “As provided in Section 3 below, the Term of the Lease commences on the Effective Date and terminates, unless earlier terminated 34 years and 11 months from the Effective Date as provided in Section 3.1 below.” 3.Section 1.5, “Lease Contingency,” is amended to read as follows: “This Lease is contingent on the Master Tenant submitting the necessary applications and documents to the Town for approval of the improvements and use of the property, such as, but not limited to, general plan amendment, a proposed site plan, concept drawings for the site plan, massing diagrams, and renderings identifying the location, general configuration, and proposed design characteristics of the buildings, parking spaces, landscaping, property subdivision, and other aspects of the improvement and uses. The Master Tenant acknowledges that the Project Proposal requires approvals and entitlements from the Town and shall submit a formal application for the Planning Approvals. Costs and fees associated with the Planning Approvals review shall be borne by the Master tenant. Nothing in this Agreement shall be construed to compel the Town to approve or make any findings with respect to Planning Approvals. If Master Tenant is unable to obtain Planning Approvals, ATTACHMENT 3 either Landlord or Master Tenant may terminate this Lease by giving written notice of termination to the other party. Upon the giving of such notice of termination, this Lease shall terminate without liability of either party to the other. This Lease is also contingent on Master Tenant and a Subtenant having executed a binding initial Sublease for any portion of the Premises and occupancy by Subtenants (the “Contingency”). If the Contingency has not been satisfied or waived by Landlord on or before September 5, 2024, either Landlord or Master Tenant may terminate this Lease by giving written notice of termination to the other party.” 4.Section 3.1, “Term,” is amended to read as follows: The "Term" of this Lease shall commence as of the Effective Date ("Effective Date") and shall end, unless earlier terminated or extended pursuant to the terms and conditions of this Lease, on the date 34 years and 11 months after the Effective Date ("Termination Date"). 5.Section 7.3, “Continuous Operations,” is amended to read as follows: “Master Tenant shall use its commercially reasonable efforts, subject to the provisions of Section 7.2 above, to continuously sublet the Premises to approved Subtenants for commercial purposes during the term of this lease. If, for any reason, a Subtenant quits its business operations on the Premises, Master Tenant shall use its commercially reasonable efforts, in accordance with the provisions of Section 7.2 above, to promptly secure another Subtenant reasonably acceptable to Master Tenant and Landlord. If for any reason after September 5, 2024, the Premises in their entirety are left unleased to a sublessee for a continuous period of eighteen (18) months or more, then either the Landlord or Master Tenant may terminate this Lease by giving written notice of termination to the other, in which case, upon the giving of such notice of termination, each party shall be released of any future liability to the other, except as provided herein.” 6.In Section 9.1, “General,” related to insurance requirements, the second paragraph is removed. 7.Exhibit C, “Insurance Requirements for Master Tenant and Subtenants,” is replaced with a new Exhibit C, attached to this Amendment. ATTACHMENT 3 8.All other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the Landlord and Master Tenant have executed this Second Amendment. LANDLORD: MASTER TENANT: THE TOWN OF LOS GATOS Tait Firehouse, LLC, a California Limited Liability Co. By: Imwalle Asset Management, LLC a California Limited Liability Co. By: _________________________ By: __________________________ Laurel Prevetti, Town Manager Don Imwalle, Jr., Managing Member Approved as to Form: Attest: ________________________ _________________________ Gabrielle Whelan, Town Attorney Wendy Wood, CMC, Town Clerk This Page Intentionally Left Blank Attachment 3 Exhibit C Exhibit C: Insurance Requirements for Master Tenant and Subtenant Master Tenant is required to procure and provide proof of the insurance coverage required by Master Tenant as outlined in this Exhibit in the form of certificates and endorsements. Master Tenant shall obtain and maintain insurance against claims which may arise from or in connection with the activities of Master Tenant and its Subtenants, including agents, invitees, employees, and contractors of Master Tenant and its Subtenants, which must remain in full force and effect at all times during the period covered by the Lease Agreement. The coverages may be arranged under a single policy for the full limits required or by a combination of underlying policies with the balance provided by excess or "umbrella" policies, provided each such policy complies with the requirements set forth herein. If Master Tenant fails to provide any of the required coverage in full compliance with the requirements set forth herein, Town may, at its sole discretion, terminate the Lease for default. MINIMUM SCOPE AND LIMIT OF INSURANCE Coverage shall be at least as broad as: 1.Commercial General Liability (CGL): Insurance Services Office Form CG 00 01covering CGL on an “occurrence” basis, including products and completed operations,property damage, bodily injury and personal & advertising injury with limits no less than$2,000,000 per occurrence. If a general aggregate limit applies, either the general aggregate limit shall apply separately to this project/location (ISO CG 25 03 or 25 04) or the general aggregate limit shall be twice the required occurrence limit. i.If liquor will be served, Liquor Liability, either under its CGL policy or asa separate policy, providing protection in the minimum amount of OneMillion Dollars ($1,000,000.00) each claim. 2.Workers’ Compensation insurance as required by the State of California, with Statutory Limits, and Employer’s Liability Insurance with limits of no less than $1,000,000 peraccident for bodily injury or disease. (This applies to Master Tenants with employees). 3.Property insurance against all risks of loss to any tenant improvements or betterments, atfull replacement cost with no coinsurance penalty provision. 4.Automobile Liability covering all owned, non-owned and hired automobiles, against claims and liabilities for personal injury, death, or property damage providing protectionin the minimum amount of One Million Dollars ($1,000,000.00) for bodily injury or deathto any one person for any one accident or occurrence and at least One Million Dollars($1,000,000.00) for property damage. If the Master Tenant maintains broader coverage and/or higher limits than the minimums shown above, the Town requires and shall be entitled to the broader coverage and/or the higher limits maintained by the Master Tenant. Any available insurance proceeds in excess of the specified minimum limits of insurance and coverage shall be available to the Town. Other Insurance Provisions Attachment 3 Exhibit C The insurance policies are to contain, or be endorsed to contain, the following provisions: Additional Insured Status The Town, its elected and appointed officials, employees, and agents are to be covered as additional insureds on the CGL policy with respect to liability arising out of work or operations performed by or on behalf of the Master Tenant or any Subtenants including materials, parts, or equipment furnished in connection with such work or operations. General liability coverage can be provided in the form of an endorsement to the Master Tenant or any Subtenants insurance (at least as broad as ISO Form CG 20 10 11 85 or if not available, through the addition of both CG 20 10, CG 20 26, CG 20 33, or CG 20 38; and CG 20 37 if a later edition is used). Primary Coverage For any claims related to this contract, the Master Tenant ’s insurance coverage shall be primary and non-contributory and at least as broad as ISO CG 20 01 04 13 as respects the Town, its elected and appointed officials, employees, and agents. Any insurance or self-insurance maintained by the Town, its elected and appointed officials, employees, or agents shall be excess of the Master Tennant’s insurance and shall not contribute with it. This requirement shall also apply to any Excess or Umbrella liability policies. Umbrella or Excess Policy The Master Tenant may use Umbrella or Excess Policies to provide the liability limits as required in this agreement. This form of insurance will be acceptable provided that all of the Primary and Umbrella or Excess Policies shall provide all of the insurance coverages herein required, including, but not limited to, primary and non-contributory, additional insured, Self-Insured Retentions (SIRs), indemnity, and defense requirements. The Umbrella or Excess policies shall be provided on a true “following form” or broader coverage basis, with coverage at least as broad as provided on the underlying Commercial General Liability insurance. No insurance policies maintained by the Additional Insureds, whether primary or excess, and which also apply to a loss covered hereunder, shall be called upon to contribute to a loss until the Master Tennant’s primary and excess liability policies are exhausted. Legal Liability Coverage The property insurance is to be endorsed to include Legal Liability Coverage (ISO Form CP 00 40 04 02 or equivalent) with a limit equal to the replacement cost of the leased property. Notice of Cancellation Each insurance policy required above shall provide that coverage shall not be canceled, except with notice to the Town. Waiver of Subrogation Master Tenant hereby grants to Town a waiver of any right to subrogation which any insurer of said Master Tenant may acquire against the Town by virtue of the payment of any loss under such insurance. Master Tenant agrees to obtain any endorsement that may be necessary to affect this waiver of subrogation, but this provision applies regardless of whether or not the Town has received a waiver of subrogation endorsement from the insurer. Self-Insured Retentions Self-insured retentions must be declared to and approved by the Town. The Town may require the Master Tenant to purchase coverage with a lower retention or provide proof of ability to pay losses and related investigations, claim administration, and defense expenses within the retention. The Attachment 3 Exhibit C policy language shall provide, or be endorsed to provide, that the self-insured retention may be satisfied by either the named insured or Town. The CGL and any policies, including Excess Liability policies, may not be subject to a self-insured retention (SIR) or deductible that exceeds $25,000 unless approved in writing by Town. Any and all deductibles and SIRs shall be the sole responsibility of Master Tenant who procured such insurance and shall not apply to the Indemnified Additional Insured Parties. Town may deduct from any amounts otherwise due Master Tenant to fund the SIR/deductible. Policies shall NOT contain any self-insured retention (SIR) provision that limits the satisfaction of the SIR to the Named. The policy must also provide that Defense costs, including the Allocated Loss Adjustment Expenses, will satisfy the SIR or deductible. Town reserves the right to obtain a copy of any policies and endorsements for verification. Acceptability of Insurers Insurance is to be placed with insurers authorized to conduct business in the state with a current A.M. Best’s rating of no less than A:VII, unless otherwise acceptable to the Town. Verification of Coverage Master Tenant shall furnish the Town with original certificates and amendatory endorsements or copies of the applicable policy language effecting coverage required by this clause and a copy of the Declarations and Endorsements Pages of the CGL and any Excess policies listing all policy endorsements. All certificates and endorsements and copies of the Declarations & Endorsements pages are to be received and approved by the Town before work commences. However, failure to obtain the required documents prior to the work beginning shall not waive the Master Tenant ’s obligation to provide them. The Town reserves the right to require complete, certified copies of all required insurance policies, including endorsements required by these specifications, at any time. Town reserves the right to modify these requirements, including limits, based on the nature of the risk, prior experience, insurer, coverage, or other special circumstances. Special Risks or Circumstances Town reserves the right to modify these requirements, including limits, based on the nature of the risk, prior experience, insurer, coverage, or other special circumstances.