City of Alexandria, Virginia
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MEMORANDUM
DATE: NOVEMBER 20, 2024
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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Consideration of an Amendment to the Lease Agreement Between the City and WG Tavern Square Venture, LLC for office space at the Tavern Square Office Building Complex located at 421 King Street and 123 N. Pitt Street.
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ISSUE: Consideration of an Amendment to the Lease Agreement between the City and WG Tavern Square Venture, LLC for office space at the Tavern Square Office Building Complex located at 421 King Street and 123 N. Pitt Street to accommodate the relocation of City offices from City Hall during the planned City Hall Renovation Project.
RECOMMENDATION: That City Council authorize the City Manager to execute the proposed Sixth Amendment to the lease agreement with WG Tavern Square Venture, LLC.
BACKGROUND: After many years of service, City Hall requires major updates to repair aging components, improve operating systems, optimize space utilization, improve building circulation and wayfinding, and enhance security. Therefore, the City has initiated an extensive project to design and renovate City Hall which will provide a revitalized safe, and sustainable environment to better service City staff, Alexandria residents, and visitors well into the future.
During the City Hall renovation project, the entire building, its offices, staff and operations will be required to vacate the building, as a result the City will need to secure alternative temporary office space, or swing space in nearby office buildings, including the Tavern Square Office Building Complex to accommodate the relocation of staff and offices from City Hall.
In June 2016, the City entered into a 10-year agreement to lease 56,223 square feet in the Tavern Square Office Building Complex across the street from City Hall to consolidate lease space for nine City departments from multiple floors to one floor in the complex resulting in a reduction of 6,000 square feet of leased space. The lease was amended in 2022 to extend the lease for an additional seven (7) years at a lower lease rate with twelve (12) months of rent abatement resulting in savings of over $2.7 million over the first five (5) years of the lease term compared to the previous lease.
DISCUSSION: To accommodate office relocations during the City Hall renovation project, staff has identified a total of 10,176 square feet across the second and fifth floors of the Tavern Square Office Building Complex including 6,322 square feet at 123 N. Pitt Street and 3,854 square feet at 421 King Street.
The 3,854 square feet at 421 King Street shall provide the City with full occupancy of the second floor of the building. The lease for 3,854 square feet across the second floor at 421 King Street shall commence July 1, 2025 (FY 2026) for a period of eight years with an expiration of August 31, 2033, which is conterminous with the existing Tavern Square lease. The lease for the 6,322 square feet across the fifth floor at 123 N. Pitt Street shall commence May 1, 2025, for a period of three years expiring in April 2028 to align with the estimated completion of the City Hall renovation project and the relocation of offices back to the renovated City Hall.
The lease rate for both spaces will be $32.24 per square foot, which is consistent with the rate currently incurred by the City for its other leased space at Tavern Square. At $32.24 per square foot, the additional 10,176 square feet will result in an additional cost of $328,074 per year with an escalation of three percent (3%) per year. Per negotiated terms, fifty percent (50%) of the base rent for the additional space across the second floor at 421 King Street will be abated for the initial eight months of the term and fifty percent (50%) of the base rent for the additional space across the fifth floor at 123 N. Pitt Street will be abated for the initial three months of the term to align with the estimated relocation of operations from City Hall.
Based on the commencement dates for the two leased spaces (July 1, 2025, for 421 King Street and May 1, 2025, for 123 N. Pitt Street), negotiated rent abatement, real estate taxes and operating expenses, the FY 2025 fiscal impact for the additional space will be $33,318; the FY 2026 fiscal impact will be $436,899; and the FY 2027 fiscal impact will be $496,616, including a three percent (3%) rent increase annually.
FISCAL IMPACT: The lease rate for the additional 10,176 square feet of leased office space in the Tavern Square office building complex at 421 King Street and 123 N. Pitt Street will be $32.24 per square foot, or $27,340 per month. Based on the commencement dates for each of the two leased spaces, negotiated rent abatement, real estate taxes and operating expenses, the fiscal impact for FY 2025 will be $33,318; $436,899 for FY 2026; and $496,616 for FY 2027 including the three percent (3%) annual increase.
ATTACHMENT:
1. Expansion Proposal from Cambridge Property Group LLC on Behalf of WG Alexandria Tavern Square LLC 421 King Street
2. Expansion Proposal from Cambridge Property Group LLC on Behalf of WG Alexandria Tavern Square LLC 123 N. Pitt Street
STAFF:
Julian Gonsalves, Assistant City Manager
Alfred Coleman, Deputy Director, General Services
Daniela Licata, Real Estate Specialist, General Services
Bryan MacAvoy, Assistant City Attorney