City of Alexandria, Virginia
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MEMORANDUM
DATE: JUNE 27, 2023
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
THROUGH: JAMES F. PARAJON, CITY MANAGER /s/
FROM: JEREMY MCPIKE, DIRECTOR, GENERAL SERVICES
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Public Hearing and Consideration of a Lease Agreement Between the City and Commonwealth of Virginia, Department of General Services (for the Virginia Department of Health), for 44,461 Square Feet of Rentable Space in 4850 Mark Center Drive.
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ISSUE: Consideration of a lease agreement between the City and Commonwealth of Virginia, Department of General Services (for the Virginia Department of Health (VDH)), for 44,461 square feet of rentable space in 4850 Mark Center Drive.
RECOMMENDATION: That City Council authorize the City Manager to execute a lease agreement consistent with the general terms of the attached Lease Agreement with the Commonwealth of Virginia.
BACKGROUND: On February 14, 2023, City Council authorized the City Manager to execute a lease agreement with the Commonwealth of Virginia for 44,461 square feet of rentable space at 4850 Mark Center Drive for a period of 10 years with one five-year renewal option. However, upon final review of the lease prior to execution, the Commonwealth determined that because the total rent for the entire lease term exceeds $5 million the Commonwealth could not execute the lease. Under the 10-year lease, the initial annual rent will be $1.8 million, or over $20 million over the entire 10-year term.
The state submitted language in the FY 2024 State Budget that will allow for the expenditure of the rent funds over $5 million but until the General Assembly and the Governor approve the budget, the lease cannot be executed. In February 2023, the state estimated that it would be another month or more before the Governor approves the budget. At that time because the Health Department had to relocate from their former space at 4480 King Street to the new building at 4850 Mark Center Drive, the Commonwealth agreed to a temporary lease for a term of six months that would serve as a bridge between March 2023 and when the 10-year lease could be executed by the Commonwealth. The temporary lease is set to expire September 1, 2023, and as of now the General Assembly and the Governor still have not approved the FY 2024 State Budget. However, staff understands the budget will be approved sometime this summer. Because approval of the state’s budget may occur during City Council’s recess, staff proposes that Council authorize the City Manager to execute the 10-year lease agreement once the Commonwealth has approved the FY 2024 budget.
Terms in the 10-year lease have been revised to add language addressing the temporary six-month lease, allowing VDH to terminate the lease if the City establishes its own health department under its newly granted authority, and other technical changes.
DISCUSSION: The temporary six-month lease with the Commonwealth expires September 1, 2023, and therefore the City still must agree to and execute the long-term 10-year lease with VDH upon approval of the FY 2024 State Budget. With the state budget expected to be approved this summer during Council recess, authorizing the City Manager to execute the 10-year lease upon approval of the state budget will allow the City to avoid any lapse in a lease agreement with VDH since they now occupy space at 4850 Mark Center Drive.
Rent under the 10-year lease will remain $1.8 million per year plus a portion of other operating costs including telecommunications, computer services, medical equipment supplies, and utilities based on a tenant pro-rate share.
Since this lease is to another public body, there is no legal requirement for a public hearing prior to Council making its decision to either authorize the City Manager to execute a lease agreement with the Commonwealth of Virginia or not.
FISCAL IMPACT: The Lease Agreement between the City and VDH has an initial term of 10 years with one five-year renewal option. Annual rent from VDH to the City in the first year of the lease will be $1.8 million and will escalate by three percent each year thereafter, plus a pro-rata share of the operating costs. Per the Agreement, the City will be responsible for 45% of the rent and the State will be responsible for 55% of the rent. The City will provide its 45% share of the rent as part of its annual contribution to the State. This will result in annual net revenue to the City of 55% of the rent, or approximately $994,000 from the State.
ATTACHMENT: Lease Agreement Between the City and the Commonwealth of Virginia
STAFF:
Yon Lambert, Deputy City Manager
Alfred Coleman, Deputy Director, General Services
Dominique de’ la Bay, Real Estate Specialist, General Services
Shawn B. Lassiter, Assistant City Attorney