Meeting_Body
FINANCE, BUDGET, AND AUDIT COMMITTEE
OCTOBER 18, 2023
Subject
SUBJECT: LEASE AMENDMENTS WITH PINNACLE TOWERS, LLC FOR THREE MICROWAVE RADIO STATION LOCATIONS
Action
ACTION: APPROVE RECOMMENDATIONS
Heading
RECOMMENDATIONS
Title
AUTHORIZE the Chief Executive Officer (CEO), or designee, to execute ten (10)-year lease amendments commencing retroactive to January 1, 2023 with Pinnacle Towers, LLC, (“Lessor”) for microwave radio stations located at:
• 7625 Black Star Canyon Road in Riverside at a rate of approximately $10,865.88 per month with 3.5% escalations annually for a total of $1,482,344.53 over the term.
• Building 12, Mt. Lukens Road in Tujunga at a rate of approximately $11,431.59 per month with 3.5% escalations annually for a total of $1,559,519.80 over the term.
• 34 Sunset Ridge in Los Angeles at a rate of approximately $11,431.59 per month with 3.5% escalations annually for a total of $1,654,955.13 over the term.
Issue
ISSUE
Metro leases radio towers on three properties located at 7625 Black Star Canyon Road in Riverside, Building 12, Mt. Lukens Road in Tujunga, and 34 Sunset Ridge in Los Angeles (the “Towers”) for continuity of bus communications and system security throughout Metro’s transportation systems. The leases expired on December 31, 2022, and have been in a month-to-month holdover since January 1, 2023. Metro continues to need the Towers through December 31, 2032. The leases require Board approval as both the 10-year term and the value of each lease exceed the delegated authority of the Chief Executive Officer which is no more than five years or $500,000.
Background
BACKGROUND
The Towers house radio communications equipment for the Metro Bus Advanced Transportation Management System (ATMS). The Metro Bus ATMS is the system used to transport voice and data communications traffic between Metro’s fleet of buses and the Bus Operations Center which is required for the delivery of safe and efficient bus transportation services throughout Los Angeles County. The three leases have been in a month-to-month holdover since January 1, 2023 because of the Lessor’s delay in providing Metro with amendment documents. The Lessor agreed to maintain the existing rate and not to charge Metro any increased rent during the interim period.
Discussion
DISCUSSION
Findings
The Landlord has agreed to extend the terms of the three leases for an additional ten (10) years. The Landlord has presented a First Amendment to Lease for Location 305, and a Second Amendment to Lease for each of Locations 308 and 399 (collectively the “Amendments”). Metro Real Estate has negotiated all three Amendments to a discount on the rental rate and a discounted rate of annual increases below their current rates resulting in total savings for the three Lease Amendments of $746,814 over the term10-year terms.
Considerations
Without the Towers, Metro would have to lease several other towers to maintain the same coverage which would require relocation costs. These Towers have proven record of 20 years of reliability supporting Metro communications. At the expiration of the term, Metro will evaluate these locations again and determine if further lease renewals are needed and negotiate new terms accordingly.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
This Board Action will help ensure continued safe and reliable bus transportation throughout the system.
Financial_Impact
FINANCIAL IMPACT
The rental rates for the Leases do not increase in the Amendments and will not increase over the first two years of the new terms. The ten-year terms (with three and one half (3½ %) percent year-over-year escalation) will result in the payment schedule outlined in the section below.
Metro Real Estate has determined that the rental rates and increases are in line with the fair market for towers at these locations.
Impact to Budget
Funds for these Amendments are budgeted annually in the Real Estate Non-Departmental Cost Center (0651) under Bus Operations (306006) for fiscal year 2024. Future lease obligations will be included in annual budget preparation by Real Estate staff.
The ten-year budget impact will be as follows:
|
Fiscal Year |
Period |
Location 305 (7625 Black Star Cyn Rd.) |
Location 308 (Mt. Lukens Rd.) |
Location 399 (34 Sunset Ridge) |
Total |
|
2023 |
1/1/2023-12/31/2023 |
$130,390.56 |
$137,179.08 |
$138,641.76 |
$406,211.40 |
|
2024 |
1/1/2024-12/31/2024 |
$130,390.56 |
$137,179.08 |
$138,641.76 |
$406,211.40 |
|
2025 |
1/1/2025-12/31/2025 |
$134,954.23 |
$141,980.35 |
$143,494.22 |
$420,428.80 |
|
2026 |
1/1/2026-12/31/2026 |
$139,677.63 |
$146,949.66 |
$148,516.52 |
$435,143.81 |
|
2027 |
1/1/2027-12/31/2027 |
$144,566.34 |
$152,092.90 |
$153,714.60 |
$450,373.84 |
|
2028 |
1/1/2028-12/31/2028 |
$149,626.17 |
$157,416.15 |
$159,094.61 |
$466,136.92 |
|
2029 |
1/1/2029-12/31/2029 |
$154,863.08 |
$162,925.71 |
$164,662.92 |
$482,451.72 |
|
2030 |
1/1/2030-12/31/2030 |
$160,283.29 |
$168,628.11 |
$170,426.12 |
$499,337.53 |
|
2031 |
1/1/2031-12/31/2031 |
$165,893.21 |
$174,530.10 |
$176,391.04 |
$516,814.34 |
|
2032 |
1/1/2032-12/31/2032 |
$171,699.47 |
$180,638.65 |
$182,564.72 |
$534,902.84 |
|
TOTAL |
$4,618,012.60 |
Equity_Platform
EQUITY PLATFORM
The proposed actions would support Metro bus operations and customer experience which is beneficial to all Metro riders and employees.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
The recommendation supports strategic plan goal #2: “Deliver outstanding trip experiences for all users of the transportation system.”
Alternatives_Considered
ALTERNATIVES CONSIDERED
If the board chooses not to extend these leases, the alternative is to lease several other towers to maintain the same coverage these towers provide. This will increase operating costs substantially and is not recommended.
Next_Steps
NEXT STEPS
If the Board approves, Metro will execute the Amendments with Pinnacle Towers, LLC, thereby securing the microwave radio station locations through December 31, 2032.
Attachments
ATTACHMENTS
Attachment A - Lease Locations
Attachment B - Deal Points
Prepared_by
Prepared by: John Beck, Manager, Countywide Planning & Development, (213) 922-4435
Craig Justesen, Interim Executive Officer, Countywide Planning & Development, (213) 928-7051
Holly Rockwell, SEO - Real Estate and Transit Oriented Communities (213) 922-5585
Ray Sosa, Deputy Chief Planning Officer, (213) 547-4274
Reviewed_By
Reviewed by: Conan Cheung, Chief Operations Officer, (213) 418-3034
James de la Loza, Chief Planning Officer, (213) 922-2920
