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W A T E R E N E R G Y L I F E RIVERSIDE PUBLIC UTILITIES Board Memorandum PUBLIC UTILITIES BOARD OF PUBLIC UTILITIES DATE: December 7, 2012 ITEM NO: 9 SUBJECT: LEASE AGREEMENT WITH 2010-1 CRE CA Retail,LLC, FOR PROPERTY LOCATED AT 1408-1520 SOUTH E STREET IN SAN BERNARDINO ISSUE: That the Board of Public Utilities consider approval of a Lease Agreementwith 2010-1 CRE CA Retail, LLC, ("Colony")for use of property currently identified as the Empire Gateway Shopping Center located at 1408- 1520 South E Street, San Bernardino, California 92408, bearing Assessor Parcel Number 0141-312-02 ("Property"). RECOMMENDATIONS: That the Board of Public Utilities recommend that the City Council: 1. Approve the Lease Agreement with 2010-1 CRE CA Retail, LLC,; 2. Authorize the City Manager, or his designee, to execute the Lease Agreement; and 3. Authorize the City Manager, or his designee,to terminate the existing Lease Agreement with 2010-1 CRE CA Retail, LLC„ successor to UDO Investors X, LLC. BACKGROUND: In March 1985, the City of Riverside entered into a 50-year ground lease on the 5.13 acre Property with Sanvista Development,who constructed certain structures for lease to various homeownership related retail businesses. Since then, the ground lease has had several assignment and assumptions, with the last assignment being to UDO Investors X, LLC ("UDO") in March 1999. UDO maintained the lease and the property in a satisfactory manner until early 2010 when they defaulted on both the City's ground lease payments with the City and their bank mortgage. The bank foreclosed on their loan and subsequently, the property improvements reverted back to the investor, Colony. The subject ground lease with Colony is for a 55-year term, for the continued use of the Property for commercial, office and retail purposes. Annual rent is set at$'129,000 ("Base Renf), with fixed 3% annual increases. Six months prior to the five-year anniversary of the lease,City retains the option to conduct a Fair Market Study for the purpose of adjusting the Base Rent to be commensurate with the then Fair Market Rent. City reserves all existing rights to any or all existing water and the right to develop water wells and related improvements on or under the parking area of the Property. FISCAL IMPACT: The base rent is$129,000 with 3% annual increases.