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Committee continues DPH lease at 333 Valencia after substantive amendments to rent and TI numbers
Summary
The committee reviewed a proposed 15-year DPH lease for 333 Valencia with negotiated reductions in rent and other concessions but continued the item after staff read substantive redline amendments (adjusted annual base rent and tenant-improvement amounts) that require further review.
The Budget and Finance Committee reviewed a proposed 15-year lease for 333 Valencia Street that would relocate roughly 223 Department of Public Health staff from 30 Van Ness as part of the department's Civic Center relocation plan, but the committee continued the item after real-estate staff read substantive amendments into the record that increased the figures relative to the introduced resolution.
DPH Chief Financial Officer Greg Wagner and the city's real-estate director described the deal points: the parties negotiated a reduced base rent from a pre-negotiation $55 per square foot to $49.95 per square foot and secured six months'free rent and two landlord-paid elevators. The landlord agreed to a significant tenant-improvement package; after the building was remeasured, staff reported adjusted figures, including an annual base-rent total of $2,209,239 and a landlord tenant-improvement contribution updated to $2,653,740, with total tenant improvements listed at $6,500,000. The lease includes a purchase option for $56,000,000.
Real-estate staff read the redline changes into the record and the city attorney advised that the amendments increasing amounts are substantive, meaning the committee must continue the item. The Budget and Legislative Analyst reviewed an appraisal and concluded the $49.95/sq.ft. initial rent is at or below fair market value (including tenant improvements) and estimated the city's cost over the initial 15-year term at about $67,000,000; BLA recommended approval pending final numbers.
Committee members asked whether the space would accommodate post-COVID physical-distancing requirements and about the policy choice between leasing and outright purchase; real-estate staff said leasing with a purchase option is consistent with the city's usual practice and that telework policy decisions may affect long-term space needs.
Why it matters: the lease would rehouse DPH programs (maternal/child/adolescent health, primary care administration, public-health emergency preparedness and EMS/regulatory teams) and affects significant near-term capital and operating commitments; the redline increases triggered continuation for further review.
Next step: Committee continued the item as amended to the next Budget & Finance Committee meeting so staff can reconcile the remeasured numbers and provide the committee with final figures and documentation.
