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HomeMy WebLinkAbout04-02-07 Finance Com. MinutesFINANCE COMMITTEE OF DUBLIN CITY COUNCIL Monday, April 2, 2007, 5:00 p.m. Minutes of Meeting Mr. Keenan, Chair called the meeting to order in Council Chambers. Committee Members present were Mr. Keenan, Vice Mayor Lecklider, and Mr. McCash. Also present was Mayor Chinnici-Zuercher. Staff members present were Ms. Brautigam, Ms. Grigsby and Mr. Smith. Mr. Keenan noted that the topic of discussion is the Dublin Chamber of Commerce lease of the City-owned building at 129 S. High Street. He asked Ms. Grigsby to provide background regarding the lease. Ms. Grigsby stated that the 20-year building lease was executed on July 1988 with the option for renewal for an additional five years, with the terms of the rent to be negotiated. The current annual rent is $20,000 with a credit of $4,000 or an actual cost of $16,000. The credit reflects the ability of the City to use approximately 20% of the facility on an as-needed basis. The Chamber pays the utilities, maintenance and upkeep of the facility. For approximately ten years, the Dublin Convention and Visitors Bureau subleased about 40 percent of the space from the Chamber and paid 50°~ of the lease. After the Convention and Visitors Bureau relocated its offices, the Chamber has expanded into the additional space. Mr. Keenan noted that the City continues to have the option for use of 20 percent of the space, but uses it infrequently. Ms. Grigsby responded that most of that use is related to having access to restrooms during events and parades in the Historic Dublin District and for use of the conference room for occasional meetings. Mr. Keenan noted that the Chamber report indicates that they have provided space for organization meetings. Although the City has had the right to use of 20 percent of the space, the City probably has not done so. Ms. Grigsby responded that is correct. In previous years, it was used for Council goal- setting sessions. The Dublin Arts Council met there in the past. Currently, the Architectural Review Board meets there one evening of the month. Ms. Grigsby noted that part of the original lease agreement relates to the lease-holder's improvements to the site. Previously, there were two buildings on the site. In 1988, the older building was demolished and the existing building was constructed. The City reimbursed the Chamber up to $220,000. The cost of the improvements in 1988 were either $235,000 or $240,000. Of that total amount, the City reimbursed the Chamber $220,000. Finance Committee Minutes April 2, 2007 Page 2 of 10 Mr. Keenan stated that originally the City was receiving $16,000 annual rent, a total of $320,000 far 20 years. The City contributed $220,000 to the new building, sa the net cost to the Chamber was $100,000 for 20 years or $5,000/year, which equals $1.99/sq. ft. Ms. Grigsby responded that assuming the Chamber purchased 80 percent of the space would result in $6.40/sq. ft.; purchasing 100 percent of the space would result in $5.10/sq. ft. Mr. Keenan stated those numbers do not reflect the $220,000 the City contributed. If that is considered, their actual lease costs were $1.99.sq, ft, which is a very attractive rate. Mayor Chinnici-Zuercher stated that the Chamber's letter of February 15, 2007 indicates that the construction costs were approximately $235,000, and that the lease agreement will be completed by July, at which time the Chamber will have repaid the City. Mr. Keenan stated that their statement indicates a belief that they were repaying the $235,000 through their lease payments. The question then would be what is the lost opportunity cost to the City for the building. Ms. Grigsby stated that the Chamber administered/coordinated the contracts for the building construction. In 1998, the City reimbursed them for $220,000 of those costs. Numerous times, there have been comments that the City issued debt for the construction, and the Chamber was repaying the City. However, no debt was ever issued. Cash payments were made to the Chamber to reimburse their costs. Mr. Keenan noted that, typically, a landlord would make improvements to a site, then expect to collect rent. Initially, he was confused about this part of the information, too. Mayor Chinnici-Zuercher stated that she did not believe it was inclusive of the rent. She thought it was a separate amount of money. Mr. McCash stated that the lease does not terminate in July. The initial 20-year term terminates, but the Chamber can renew the lease in 5-year increments in perpetuity. Ms. Grigsby responded that is true, assuming that the City doesn't declare a need for the building, which would require aone-year notice to the Chamber. Mr. McCash stated there is no need to negotiate a new lease, only to agree on the rental rate. If the City were to indicate that the rent amount will not be changed, then they would continue to pay the same amount for the next five years. Finance Committee Minutes April 2, 2007 Page 3 of 10 Vice Mayor Lecklider noted that the Chamber is not necessarily entitled to a $6.40/sq. fl:. rent. Mr. McCash agreed; it is whatever is re-negotiated. Mayor Chinnici-Zuercher stated that the understanding was, if renewed, the terms of the lease would remain substantially the same. Mr. Keenan responded that the terms that were referred to were the covenants, conditions and maintenance. Renewal of the terms does not refer to the lease cost. Mayor Chinnici-Zuercher responded that the costs are part of the terms. Mr. Keenan responded that the cast is always renegotiated. Mr. McCash responded that is correct, but the City could determine that it did not desire to change the lease cost. Mr. Keenan stated that if the anticipation was not that lease costs would be renegotiated, the Chamber would be able to pay the same amount in perpetuity, perhaps 200 years. The language reads, "the City shall have the right, if it determines it is in the best interest of Dublin, to use the premises for municipal purposes." Mr. McCash noted that it also states, "...with the rent for each such renewal term to be renegotiated by the parties." So the rent is renegotiated, but the terms as far as the other covenants and conditions remain substantially the same. Mr. Keenan stated that the key issue is that the City needs to determine if it is in the best interest of the City to use the building for a municipal purpose. If this lease is the best use of the building, then the discussion is reduced to the amount of the lease. Ms. Grigsby agreed. If the City wants to continue to hold the property, and to continue to lease it, then the issue is only the amount of the rent. Mr. McCash inquired if it were possible for the City to agree to sell the property for $1.00, as requested by the Chamber. Ms. Grigsby stated that it would require a competitive process to sell the building. Mr. Keenan responded that the City cannot agree to such terms. It violates the City's fiduciary responsibility. The building is a City asset and cannot be given away. Vice Mayor Lecklider inquired if there is an estimate of the value of the building. Ms. Grigsby responded that she spoke with Mr. Whittington earlier today. Replacement value of the building is $262,000. The County Auditor shows a value of $332,000 for both land and building. The Auditor's appraised values are typically low. Mr. Keenan noted that would calculate to $125 to $150Isq. ft. value. He would estimate the value of the building at $400,000 to $500,000. Ms. Grigsby stated that for comparison purposes, the City also leases the Dublin Tavern for $9.OOIsq. ft. Prior to that lease, the City had an appraisal done, which indicated a Finance Committee Minutes April 2, 2007 Page 4 of 10 market rate of $10.00/sq. ft. The City lowered the amount due to the improvements being completed by Mr. Picciano. Mayor Chinnici-Zuercher stated that if Dublin Tavern is paying $9.OOlsq. ft., then it seems reasonable to allow the Chamber's rent to remain unchanged. The Chamber allows organizations to use the building at no cost; the public can use the bathrooms. Mr. Keenan stated that although the lease cost is $20,000, the Chamber pays only $16,000. The City pays $4,000 for the space that is sometimes used by the public. Mayor Chinnici-Zuercher responded that it is not only the City that has ability to use the building. The Chamber also makes the building available, free of charge, to other community organizations. Mr. Keenan stated the next question is whose responsibility is that -the City or the Chamber? Mr. McCash responded that the Chamber is required to do that under the terms of the lease -public use of 20 percent of the space, for which the City pays $4,000. Mr. Keenan inquired if Mayor Chinnci-Zuercher is indicating that the Chamber is going "above and beyond the call" of that provision. Mayor Chinnici-Zuercher stated that they are doing what they are required to do. Mr. Keenan stated that this is a business decision. If the City has no other plans for the property in Historic Dublin, then the City would agree to renew the lease with the Chamber in five-year terms. The only remaining question is -what is the lease rate going forward? Mr. McCash stated that the lease indicates a sublease of 20 percent of the premises to the City for the City's use on an as needed basis, as determined by the City in consideration for the $4,000 rent. Therefore, if the Chamber is renting the facility to non profit organizations, that is not something the City is directing. No parties are contacting the City to arrange for use of the facility. Ms. Brautigam responded that they are not. Actually, the Chamber is providing that opportunity as a benefit for its members. Mr. Keenan stated that if the building were subleased, technically, it becomes taxable. Presently, the building is tax exempt. Ms. Grigsby stated that issue has been debated over the years with the County. In the past, when the Chamber wanted to sublease some of the space, they were warned that doing so could cause the property to become a taxable property. Mr. Keenan noted that the annual taxes on a $400,000 - $500,000 building are approximately $11,000 - $12,000 anually --- nearly the cost of the rent. Finance Committee Minutes April 2, 2007 Page 5 of 10 Ms. Grigsby noted that the lease terms indicate that the Chamber's responsibility is to pay any and all taxes, ar an additional $700 - $800lmonth. Mr. Keenan stated that the agreement requires the Chamber to pay the insurance. Are they doing so? Ms. Grigsby stated the agreement requires the Chamber to do so, but for the past couple of years, the City has not been able to obtain a certificate of insurance from them, so this building has been included in the City's listing of properties for insurance purposes. Mr. Keenan stated that the lease clearly calls for them to provide the property casualty coverage, so there could very well be double coverage on the building. Ms. Grigsby agreed that it is possible, but the City has not been able to obtain the proof of coverage. Mr. McCash inquired if the Chamber would be considered in default due to that factor. Ms. Grigsby responded that she would not want to pursue that. Mr. Keenan agreed. The City should probably carry the property insurance on its property. The City then has control during a loss, should there be one. However, the Chamber should provide the general liability coverage. There does not seem to be a requirement that the City be named as "additional insured." The City should be provided a certificate of proof that the Chamber has liability coverage and the City should be provided verification that the additional insured status has been added. Vice Mayor Lecklider inquired if the general liability coverage would provide protection for the City. Mr. Keenan responded that if the additional insured status is added, it would. Vice Mayor Lecklider indicated this requirement should be included in the lease with the renegotiations. Regarding the subleasing issue -has the decision been made that there would be no subleasing? Mr. Keenan responded that subleasing would be detrimental to the Chamber. Mr. McCash noted that if the Chamber were to do that, they would then be required to pay property taxes. Mayor Chinnici-Zuercher stated that they would not pursue a sublease, as they need all of their available space. Ms. Grigsby noted that the only occasion on which they entered into a sublease was with the Dublin Convention & Visitors Bureau before they relocated. Ms. Brautigam noted that Leadership Dublin has used space in the building. Mayor Chinnici-Zuercher responded that Leadership Dublin was not a sublease; they were a program of the Chamber at that time. Vice Mayor Lecklider stated that the lease should specify that there can be no sublease. Mr. Keenan responded that the lease already requires that the City must approve any sublease proposal. In the event that another entity, such as the Dublin Arts Council, for Finance Committee Minutes April 2, 2007 Page 6 of 10 instance, may desire to sublease some additional space for a period of time, that might be permitted. Mr. McCash inquired if the potential taxing issue would be dependent upon the type of organization that wished to sublease the space. Ms. Grigsby responded that if it were a private use, it would be taxable. The Dublin Arts Council, however, would be tax exempt. Mr. Keenan stated when he served as a Washington Township trustee, they experienced a problem with this type of situation. Washington Township leased space in the Township administration building to Kinetics, then discovered that made the building taxable. That ruling was appealed, and the final decision was that the space the Township used would continue to be tax exempt, but the remainder of the space would not. The lease rate was $3/per sq. ft. far warehouse space, but the tax bill was $1.50/per sq. ft. - so half of the income was lost. Mr. McCash stated that if Council decides to retain substantially the same terms, then page 4 indicates that the Chamber may lease up to 40% of the premises. Ms. Grigsby noted that the reason that provision was included was to reflect the space the Chamber subleased to the Convention & Visitors Bureau. The agreement also requires the Chamber to pay any and all taxes. If the building becomes taxable, the Chamber would be the responsible party. Mr. Keenan noted that it may be essential to help the Chamber understand that factor. Mr. McCash noted that this lease also requires the Chamber to conform with any and all City tenets, legislation, orders, rules and regulations. This is City of Dublin property. In the length of time he has served on City Council, he recalls no time at which Council approved use of alcohol at this site. Does that also need to be addressed in this lease? Many events are held in that building -- parties, DIF festivities, St. Patrick's Day, weddings, etc. -which have included alcohol on site. Ms. Brautigam noted that the Taste of Dublin previously was held there, and she recalls signing off on a permit for that event. Mr. Smith stated that he believes the Chamber typically obtains a special permit for those types of events. Mr. Keenan suggested that if the insurance language is being cleaned up, this liability coverage should also be addressed. Mayor Chinnici-Zuercher stated that the Chamber obtains special permits for all the "After Hours" events, so she would assume they would be consistent in doing sa for any other event. Mr. McCash stated that this is City property, and typically an exemption to allow alcohol serving is approved by Council. Finance Committee Minutes April 2, 2007 Page 7 of 10 Mr. Keenan noted that the same situation exists with the Dublin Arts Council. They host many events on the grounds. Mayor Chinnici-Zuercher inquired about the Dublin Tavern, which is located on City property. Mr. McCash stated that it was his understanding the alcohol issue was addressed in the legislation related to those cases. Mr. Keenan stated that is correct. The City is required to carry liquor liability insurance. Ms. Grigsby stated that staff will follow up on those issues. Mr. Keenan inquired what the Committee's recommendation would be for Council. Is there a municipal use for that space in Historic Dublin? If not, it would seem this lease would be renewed. Ms. Brautigam responded that the City has no need to program any use for that space. Mr. Keenan noted that the City has the opportunity every five years to address this question. Vice Mayor Lecklider stated that he would prefer to clarify that the City has no interest in selling the property. The Chamber's correspondence hints otherwise. Mr. McCash stated that the Chamber has indicated they would like to buy the property for $1.00, but they cannot da that. Mr. Keenan stated that they likely do not have the resources to purchase the property. Ms. Grigsby stated that if their request is that the City lower their rent to enable them to meet some of their other programming needs, they probably do not have the ability to purchase the property at this time. Mr. McCash stated that it is not possible to sell the property to the Chamber directly; a competitive bidding process would be necessary. Ms. Grigsby stated that in any discussions she has had with the Chamber on that issue, she has pointed that out. Mr. Keenan asked for direction from the Committee. Mr. McCash inquired about the market rate in the Historic District for office space - he is aware it is $9/sq. ft. for the Village Tavern and $17Isq. ft. for the Town Center. Ms. Grigsby responded that she checked with Mr. Langworthy today an that question. A market assessment is currently being conducted of the Historic District, but that information will not be available until the end of July. Staff could obtain that information on this facility specifically, if Council desires. Mr. Keenan stated that even if the City leaves the rent unchanged, the City will receive $4 more per square foot because it will no longer be necessary to amortize the $220,000. Mr. McCash suggested a 10 percent increase, making the rent $7/sq. ft. Finance Committee Minutes April 2, 2007 Page 8 of 10 Mr. Keenan stated that this meeting was necessary to understand the background on the topic. The next step will be to meet with the Chamber, per their request. Mr. McCash stated that the same issue continues to recur, and Council has come to the same conclusion as in previous discussions about the Chamber lease. Council has made their position clear about selling the building. Does the Chamber want to continue to pursue the goal of having the property given to them? Ms. Grigsby agreed that this topic has come up several times over the past 10-12 years. Mr. Keenan stated that it could be possible to da a lease buy-out, but it would have to be at a fair market value. The amount would have to fulfill Council's fiduciary responsibility, and that would be assuming that Council is not interested in retaining the property. It seems clear that the City is interested in continued ownership of the property. Mr. McCash stated that even with a lease buy-out, there is the need for a competitive process. He inquired if the Chamber understands the existing lease is not terminated, just the original 20-year term and the amount. Ms. Brautigam responded that the Chamber does understand that. What they are doing is bringing up a long-held belief on their part to see if the City would agree. The City does need to send the Chamber a letter saying that {1) the City is interested in renewing their lease and would like to hear from them regarding terms and conditions, and {2} list the changes the City wants to make to the agreement. The letter should clarify that the City has na intention of selling the property to them, nor the ability to do so. She is hopeful this lease renewal presents the opportunity to put to rest the idea that the City would sell them the property far $1. Mr. Smith noted that the building was in a serious state of disrepair in 1988 and the Chamber has turned it into a valuable building, which the City paid for. Mr. Keenan noted that in 1988, $220,000 was a substantial sum of money. Vice Mayor Lecklider stated that this is an opportunity not only to revise the language, but also the rate. He is not interested in asking for $17/sq. ft. Mr. Keenan agreed, but the City has to balance the rate amount with what the Chamber provides to the community. Vice Mayor Lecklider responded that not only is there the issue of what they do for the community, but there are other locations available to them. The City owns a prime location within the Historic District. While this may be a great location for the Chamber, is there something else that could be located there? Mayor Chinnici-Zuercher noted that it is not really a prime location, as it is not near SR 161. Finance Committee Minutes April 2, 2007 Page 9 of 10 Vice Mayor Lecklider inquired what the other landlords are asking in terms of rent for their properties. Mr. Keenan noted that it is necessary to have comparables for the area. The Town Center would not be a comparable. Ms. Grigsby responded that staff would obtain that information for Council. Vice Mayor stated that he is certain there are other businesses on this street that would be very interested in space at $7/sq. ft. Mayor Chinnici-Zuercher noted that those businesses also are not providing to the community what the Chamber does. Vice Mayor Lecklider responded that of course a balance of the two factors is necessary, but he would like to know what that number is - 25 or 30 percent of the market rate? He is not comfortable with simply bumping the amount up by 10 percent. Mr. McCash stated that it would be worthwhile to compare what use the Chamber gives to the community of their space versus what they provide to their members. How much of the space do they make available to groups that are not members? Mayor Chinnici-Zuercher stated that the facility can be used by Chamber members, non-profit and school groups. Mr. Keenan inquired if they charge a fee to cover clean up. Mayor Chinnici-Zuercher responded they do not. Mr. McCash inquired if staff has a rough estimate of the cost per square foot of rent for the Dublin Arts Council. Ms. Grigsby responded that they are paying $68,000/year; she cannot recall the square footage. Staff can also obtain that information. Mr. Keenan noted that the Arts Council does not provide space free of charge. He inquired if the meeting with the Chamber should be held prior to a letter from the City clarifying the City's intent to retain the property, or should the letter clarifying the City's position be forwarded to them prior to the meeting? Ms. Brautigam responded that she believes the Chamber should understand the City's position prior to the meeting. Mr. Keenan summarized the next steps: staff will develop a letter of response to the Chamber; staff will gather the comparables; and he will schedule another Finance Committee meeting, which the Chamber would be invited to attend. Mr. McCash stated any agreement should not be negotiated in that meeting. Finance Committee Minutes April 2, 2007 Page 10 of 10 Ms. Grigsby stated that staff would provide the comparables to the Committee. If the Committee would give direction to staff regarding the amount to pursue related to square footage, staff would then draft a tentative agreement for the Committee {and Council) to review. Mr. Keenan stated that Council will also need information from the Chamber regarding how much public use is occurring, so the lease payment can be balanced. Ms. Brautigam responded that the Chamber would present additional information for the next Finance Committee meeting. When a final document has been negotiated, it will be brought to Council. Mr. Keenan adjourned the meeting at 6:40 p.m. Clerk of Council