Council to Discuss Rent Hikes for City’s Commercial Holdings

• Municipal Officials May Indirectly Impact Market Forces Throughout the Community

BY BILL KOENEKER

An agenda item on next week’s Malibu City Council meeting opens a window on the world of the city’s finances now that it is a landlord in the Civic Center area, now sometimes called “the Rodeo Drive of Malibu.”
The municipal staff wants to talk to the council members about a lease agreement with a tenant at the commercial property located at Webb Way and Pacific Coast Highway.
The annual rent currently being collected from the property leased by Coldwell Banker is $337,000. The city took over the existing lease agreement when it purchased the Chili Cook-off property in 2006, according to a staff report.
The city uses the rent collected from the three commercial properties located at the edges of Legacy Park, the former Cook-off site, to meet the debt service for the certificates of participation issued to purchase the 19 vacant acres and commercial buildings.
The real estate firm is currently paying $5.83 per square foot. The building consists of 4848 square feet, and there are about 22 marked parking spaces.
That’s contrasted with Malibu Coast Animal Hospital for which the city will get $7.37 per square foot in 2009. That property includes a 2711-square-foot building with about 14 parking spaces.
Next year, the city will collect $925,000 a year in base rent, plus an additional amount in what is called participation rent for the 30,331-square-foot Malibu Lumber shopping center, plus gain in the $10 million in improvements.
The staff is asking the council if it wants to extend the lease at the current rate, plus an increase equal to the consumer price index? Extend the lease agreement with a 10 percent base rent increase plus CPI? Establish a base rent amount at the same rate as the animal hospital? Seek a new tenant? Or re-develop the site with the same square footage, and issue a long-term lease to a new tenant?
The staff recommends extending the term of the current lease for a one-year term with the option of an additional year with an increase the first year of ten percent and CPI increases. In 2009, the rent would be $6.40 per square foot, or $371,000 annually.
City officials found out that rent amounts vary in the Civic Center. Banks are paying from a range of $6.30 to $9.17 per square foot, with an average amount of $7.80. The average amount for office space is about $6.80, with a range of rates from $5.20 to $9.35. Rent amounts for commercial retail space have ranged recently to as high as $22 per square foot, with an average of about $12. The city’s shopping center at the old Malibu lumber yard site is reportedly charging $15, and possibly higher.
As the city becomes a major player in the commercial rental market in the Civic Center, it may force rents upward in its zeal to realize a revenue stream for itself, and pave the way for other commercial landlords to do the same.
While council members lament what is happening in the retail sector, the city may have unwittingly become the mightiest force in shaping that market in an upward trend.