06 Staff Report - Tait.ForbesMill.LeaseAgreements
PREPARED BY: Robert Schultz
Town Attorney
Reviewed by: Town Manager, Assistant Town Manager, 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: 08/04/2020
ITEM NO: 6
DATE: July 27, 2020
TO: Mayor and Town Council
FROM: Robert Schultz, Town Attorney
SUBJECT: Authorize the Town Manager to Execute Long Term Lease Agreements with
Tait Firehouse LLC and Forbes Mill LLC for the Property Located at 4 Tait
Avenue and 75 Church Ave, Los Gatos
RECOMMENDATION:
Authorize the Town Manager to execute long term Lease Agreements with Tait Firehouse LLC
and Forbes Mill LLC for the property located at 4 Tait Avenue and 75 Church Ave, Los Gatos.
BACKGROUND:
The Town has been actively searching for potential tenants for the properties located at 4 Tait
Avenue and 75 Church Street (“Properties”) since the Museum vacated both in 2016. In 2018,
Imwalle Asset Management Company (“Imwalle”) approached the Town and requested that
negotiations take place regarding the potential renovation, management, and master leasing of
these properties. In March 2019, the Town and Imwalle entered into an Exclusive Negotiating
Agreement to help guide the negotiations of a Lease Agreement. The attached draft Lease
Agreements have now been negotiated between Town staff and Imwalle and are ready to be
presented in open session for approval.
DISCUSSION:
The Lease Agreements for both properties are for a long term (34 years and 11 months) and
creates a Master Tenant/Landlord relationship wherein Imwalle would be 100% responsible for
all costs related to the project of rehabilitation, build out, leasing, and ongoing management
and maintenance of the properties. Both properties need significant improvements easily in
excess of $1,000,000 each to be brought to a leasable market condition. The Lease Agreements
require Imwalle to proceed with normal CEQA review and planning and development
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SUBJECT: Lease Agreements for 4 Tait Avenue and 75 Church Ave, Los Gatos
DATE: July 27, 2020
DISCUSSION (cont.):
application requirements and care would be taken to restore the historic aspects of both
properties while delivering modern upgrades expected in the current commercial market.
Pursuant to the Lease Agreements, payments to Los Gatos would be a hybrid of fixed base
monthly payments and profit participation.
Imwalle has completed almost 100 small scale projects over the last 40 years and has
experience with ground leases, master leases, and public private partnerships in San Jose and
Morgan Hill. Staff performed a side-by-side comparison of the draft lease agreement submitted
to the Town by Imwalle and that of the City of Morgan Hill who has a similar contractual
relationship. Following are some key elements of the Lease Agreements that Town Staff has
been able to negotiate with Imwalle:
• Percentage Rent of the Sublease Income to the Town is 60% instead of 50%.
• Master Tenant management fee equal to 3% of Sublease Income has been deleted.
• Improvement loans funded by Master Tenant shall receive 3% interest instead of 8%.
• Landlord approval required for subtenants.
• Landlord approval required for permitted uses.
• The term is 34 years and 11 months, instead of 25 years with 2 five-year options.
• Prohibition in change of Master Tenant; the Master Tenant Team now consists of
Imwalle, Jim Farley and Jason Farwell.
COORDINATION:
This report was coordinated with the office of the Town Manager’s Department.
FISCAL IMPACT:
There is no fiscal impact to the Town at this time. In the long term the Town will generate Lease
income from the properties.
ENVIRONMENTAL ASSESSMENT:
The proposed lease agreements are exempt from the California Environmental Quality Act
(CEQA) under Section 15061 (b)(3) of the CEQA Guidelines. Further environmental review will
be conducted once the project at each lease site is defined and a planning permit is requested.
PAGE 3 OF 3
SUBJECT: Lease Agreements for 4 Tait Avenue and 75 Church Ave, Los Gatos
DATE: July 27, 2020
CONCLUSION:
Staff recommends that Council authorize the Town Manager to execute long term Lease
Agreements with Tait Firehouse LLC and Forbes Mill LLC for the property located at 4 Tait
Avenue and 75 Church Ave, Los Gatos.
Attachments:
1. Draft Lease Agreement for 4 Tait Avenue.
2. Draft lease Agreement for 75 Church Avenue.