12. City/BALSCO Lease - PECDD Office - 248 3rd Ave EastiheCityof Kalispell
Incorporated 1892
Planning, Economic &
Community Development Department
P.O. Box 1997
Kalispell, MT 59903-1997
MEMORANDUM
TO: Bruce Williams, City Manager
FROM: Lawrence Gallagher, PECDD, Director
DATE: May 22, 1995
SUBJECT: BALSCO/CITY Lease of PECDD Office - 248 3rd Avenue East
248 Third Avenue East
(406) 758-7740
(406) 758-7739 (office fax)
(406) 758-7758 (City Hail fax)
Recommendation: City Council approval for you to execute a new Lease for
period May 1, 1995 through April 30,1997.
Attached is a copy of (I) a Memorandum to BALSCO LEASE FILE-PECDD
OFFICE LEASE, dated May 17, 1995, which memorialized a May 17, 1995, meeting with the
BALSCO partners and an explanation of the City's offer and terms; and, (ii) a copy of Randall S.
Ogle's May 18, 1995, letter accepting the offer and suggesting "a two year lease now to avoid the
necessity to deal with the issue again next year."
Based on my meeting and discussion with you late Wednesday, I concur with
Mr. Ogle's suggestion for a two year lease with an option to renew for an additional one year
term. The CPI annual adjustment needs to be considered each year and it will be necessary to
specify in the lease which CPI index will be used.
Also attached is a copy of a spreadsheet comparison of the existing, proposed, and
negotiated leases utilizing the "existing lease" Gross Area dimensions and the Net Usable Area
Dimensions for the main floor and the basement storage area. To summarize that data: The
negotiated rent ($23,870/Yr.) represents an actual increase of 15.98 percent over the 1994/1995
lease. Using the "existing lease" Gross Area calculations, the scheduled rent was $7.20/SF/Yr
and will be $8.35/SF/Yr. if my recommendation and BALSCO's offer is approved. The
BALSCO partners initially proposed a 32.48 percent increase with 6% annual increases. This
represents the "apples to apples" comparison. However, from the City's perspective, I assumed a
NET USABLE AREA in computing our negotiated rent, breaking out the basement and main
floor areas, calculating each area at the respective rents of $1.50/SF/Yr. and $8.50/SF/Yr. Thus,
the actual "effective" NET USABLE AREA rent is $7.07/SF/Yr., including the basement area in
the calculation, estimated to increase to approximately $7.65/SF/Yr. assuming a 4% annual CPI
increase.
Please request City Council approval to accept the BALSCO Partnership's offer
and to authorize your signature on a lease.
lu'10me)►7i ITTi1T
TO: BALSCO LEASE FILE - PECDD OFFICE LEASE
FROM: Lawrence Gallagher, PECDD, Director
DATE: May 17, 1995
SUBJECT: Meeting with Everit Sliter and Randy Ogle regarding lease and terms
Messrs Ogle and Sliter met with me in Mr. Ogle's office at 2:00 pm today to
discuss my April 27, 1995, Memorandum to Everit Sliter and the City's lease with the BALSCO
Partnership.
I presented the results of an informal market survey with Ed Gilliland, owner of
the Ford and Glacier Building(s) and with TD&H a tenant in the Meridian Office Building. I
stated that the rent BALSCO had proposed was not acceptable to the City when considering both
historical rent and market rent. I discussed the City's options regarding the possible purchase
of the Flathead Industries building across the street from BALSCO's building, a move to the
Meridian Office Building, remodeling of Central School or additions to City Hall and suggested
that we may be forced to consider other low rent alternatives.
After a lengthy discussion of the Kalispell office market and trends and vacant
space about to come on the market (Mac's Place) Glacier Building etc., I suggested that I could
recommend an annual rent of no more than $23,870 for a one year lease with two one year
options to renew at the same base rent with annual adjustments equal to the CPI for the NW
United States. I mentioned that I believed the CPI adjustment for the past few years was
approximately 3.5 percent annually, in any event not more than 4 % .
The $23,870 annual rent would be computed by multiplying the NET/SF AREA
of the main floor, 2,687 by $8.50/SF = (2,687 X $8.50 = $22,839.50), and, multiplying the
BASEMENT NET USABLE AREA, 687.24 by $1.50/SF = (687.24 X $1.50 = $1,030.86) for
a total annual rent of $23,870. The computation for the Net usable area is different than the
original lease because when faced with the high suggested rent, I asked our building official to
measure the building on a net usable basis and discovered that BALSCO had used the Gross
outside dimensions of the building and tax records when the original lease was drafted. I told
them the lease must be changed to reflect net usable rather than Gross outside wall dimensions.
I also pointed out that the rental comparables discussed above were based not only on Net usable
areas but excluded stairs, rest rooms and other common areas in the buildings. My computation
included all of the interior space of the building.
The rent I suggested would represent a 15.98 percent increase in annual rent for
the building rather than the 32.48 percent increase proposed by BALSCO: If one used the NET
USABLE AREA OF THE BUILDING INCLUDING THE BASEMENT of 3,374 square feet,
the RENT NET/SF would be $7.07/SF/Yr. or approximately $1.00/SF less than proposed by
BALSCO. Assuming Cost of Occupancy charges for gas, electric, water only, the city would
be paying approximately $8.21/SF/Yr. increasing approximately 4 percent annually rather than
the 6 % proposed by BALSCO.
The City has done substantial leasehold improvements to the property and
maintains the exterior and landscaping. I advised the partners we had no intention of remodeling
the restrooms for ADA requirements unless compelled to do so by the State.
Mr. Sliter suggested a two year lease rather than a one year lease with options.
My response was that it is more than likely we cannot find new accommodations before May
1, 1996, and therefore may be forced to exercise an options to renew; however, we would prefer
to allow the flexibility to move out if space became available in another building before May 1,
996.
Messrs Ogle and Sliter agreed to call the other BALSCO partners and have an
acceptance of my offer or a counter proposal delivered to me in draft form by 5:00 pm, May
19, 1995, so that I may advise the City Manager and City Council during the work session on
May 22, 1995.
Finally, Mr. Ogle agreed to review the lease document to correct the changes I
pointed out in my April 27, 1995 Memorandum to Sliter.
I
MAY 1 9 19�-3r
OGLE & WORM ATTORNEYS AT LAW
17 Second Street East, Suite 211
P.O. Box 899
Kalispell, Montana 59903-0899
406-752-7550 Fax 406-257-0411
May 18, 1995
Larry Gallagher
Kalispell Community
Development Department
248 Third Avenue East
Kalispell, Montana 59901
Re: 248 3rd Avenue East Lease
Dear Larry:
R1XDALL S. OGLE
DARRELL S. WORM
SCOT]' C. WURSTER
The Balsco partnership hereby accepts the offer of the City of
Kalispell to lease the above -referenced building upon payment of
'rent in the sum of $23,870.00 for the period from May 1, 1995,
through April 30, 1996. We are also agreeable with the City's
proposal that rent would increase in accordance with changes in the
Consumer Price Index for the following year, if the City continues
to lease the building for an additional year.
In light of the fact that the next budget for the City of Kalispell
will not be set until August 1, 1995, it appears highly unlikely
that any other space would be ready for occupancy by the City of
Kalispell by May 1, 1996, so we would propose a two year lease now
to avoid the necessity to deal with the issue again next year.
The remainder of the terms of the Lease would be identical to the
existing Lease with the City of Kalispell.
Please advise if the above is acceptable to the City of Kalispell,
and I will forward a proposed Lease Agreement.
We have enjoyed our relationship with the City of Kalispell to
date, and look forward to continuing the positive relationship we
have established in the future.
Thank you.
Sincerely,
OGLE & ORM
Randall Og
RSO:sms
pc: Everit Sliter
Dana Christensen
Jim Stephens
.17-May-95
BALSCO LEASE ANALYSIS - 248 THIRD AVENUE EAST
Planning, Economic & Community Development Department
Office Space: Primary term - commencing May 1, 1991
TERM/YR RENT/MO RENTIYR. GROSS/S RENT NET/SF RENT % CHAN
AREA* GROSS/S AREA* NET/SF (NET/SF)
1991 /1992
$1,570.83
$18,850
2,859
$6.59
2,687
$7.02
1992/1993
$1,570.83
$18,850
2,859
$6.59
2,687
$7.02
0.00%
1993/1994
$1,665.00
$19,980
2,859
$6.99
2,687
$7.44
5.99%
1994/1995
$1,715.09
$20,581
2,859
$7.20
2,687
$7.66
3.01 %
TOTAL
$78,261
PROPOSED LEASE:
1995/1996
$2,272.16
$27,266
2,859
$9.54
2,687
$10.15
32.48%
1996/1997
$2,390.75
$28,689
2,859
$10.04
2,687
$10.68
5.22%
1997/1998**
$2,534.20
$30,410
2,859
$10.64
2,687
$11.32
6.00%
COMPUTATION INCL. BASEMENT NET USABLE AREA - 687.24/SF
1995/1996 $2,272.16 $27,266 3,546 $7.69 3,374 $8.08 5.50%
1996/1997 $2,390.75 $28,689 3,546 $8.09 3,374 $8.50 5.22%
1997/1998** $2,534.20N 3,546 $8.58 3,374 $9.01 6.00%
* The Area computations are for the main floor only
** Proposed lease option to renew
COST OF OCCUPANCY: GAS, ELECTRIC, WATER... INSURANCE NOT INCLUDED.
GAS/ELEC
WATER
1991 /1992
$2,451.00
$346
2,859
$0.98
2,687
$1.04
1992/1993
$2,867.94
$738
2,859
$1.26
2,687
$1.34
28.92%
1993/1994
$2,719.00
$702
2,859
$1.20
2,687
$1.27
-5.13%
1994/1995***
$2,166.00
$1,086
2,859
$1.14
2,687
$1.21
-4.94%
*** CHARGES ONLY THRU 3/31 /95
SUGGESTED
LEASE (OFFER) DISCUSSED ON MAY 17, 1995, MEETING
COMPUTATION INCL. BASEMENT NET USABLE AREA-
687.24/SF
1995/1996
$1,989.20
$23,870
3,546
$6.73
3,374
$7.07
1996/1997
$2,068.76
$24,825
3,546
$7.00
3,374
$7.36
4.00%
1997/1998**
$2,151.52
•Nr.
3,546
$7.28
3,374
$7.65
4.00%
COMPUTATION USING EXISTING LEASE AREA COMPUTATIONS TO SEE % INCREASE
1995/1996 $1,989.20 $23,870 2,859 $8.35 2,687 $8.88#v
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