City amends Hudson Properties lease to house HSA, CTA and Library IT; committee forwards lease and continues appropriation

The Board of Supervisors Budget and Finance Committee on April 16 amended and forwarded a resolution authorizing a lease amendment with Hudson Properties for additional city space at 1455 Market Street and continued a companion appropriation ordinance to a subsequent committee meeting.

Director of Real Estate Andrico Penick described a two-phase transaction that would expand the city's leased footprint by about 225,883 rentable square feet and increase total city occupancy at 1455 Market to roughly 422,000 square feet, triggering a purchase option that runs through Dec. 31, 2027. Under the phase-two terms Penick said the rent rate will start at about $41.20 per square foot (reflecting a $40 base escalated to $41.20 effective May 1) and the tenant-improvement allowance provided by the landlord is $100 per square foot (about $22,500,000 for phase two). He said the landlord also provides a moving allowance of $15 per square foot (roughly $3,000,000) for total allowances of about $25,500,000.

Penick and Dan Kaplan of the Human Services Agency explained the city will incur an additional one-time tenant-improvement cost of about $15,500,000 beyond the landlord allowances to outfit a new service center and back-office space for about 730 full-time employees moving from several existing sites, including 170 Otis and 1235 Mission Street. Kaplan said the HSA request includes a companion ordinance to appropriate roughly $11,800,000 for the tenant-improvement and furniture, fixtures and equipment costs: $8,500,000 from higher-than-budgeted revenue allocations this fiscal year and $3,300,000 repurposed from previously planned capital project balances at 1235 Mission.

The Budget and Legislative Analyst, Nick Menard, noted the move will increase general-fund rental costs compared with remaining in 1235 Mission and said the lease and appropriation are approved by staff but offered policy options to reduce tenant-improvement costs, including redesigning executive office space and using used furniture. HSA representatives responded that most occupants will move from larger offices, that existing HSA furniture is aged and not a practical fit, and that the service center buildout has specific design and operational requirements.

After reading ministerial changes into the record to correct the building address and to remove inaccurate general-plan language, the committee voted 3–0 to forward the lease resolution (item 5) to the full Board of Supervisors for the April 29 board meeting with a positive recommendation and to continue the appropriation ordinance (item 6) to the committee's April 23 meeting for further consideration. Supervisors Joel Engadio, Cheyenne Chan and Vice Chair Matt Dorsey voted Aye.