REPORT TO THE CITY COUNCIL FROM: BRIAN BARR, Director General Services Department PAUL AMICO, PE, Director Department of Public Utilities SUBJECT ..Title Actions pertaining to a Lease Agreement between the City of Fresno and Anoush Chamlian, Trustee of the Vahan H. Chamlian and Anoush Chamlian Trust for the lease of office space located at 621 Santa Fe Avenue (Council District 3) 1. Adopt a finding of Categorical Exemption per staff determination, pursuant to Section 15301/Class 1 (Existing Facilities) of the California Environmental Quality Act (CEQA) Guidelines 2. Approve a Lease Agreement between the City of Fresno and Anoush Chamlian, Trustee of the Vahan H. Chamlian and Anoush Chamlian Trust for three years plus two optional one-year extensions in the amount of $305,505 annually, with annual increases of 3%, plus the proportionate CAM (Common Area Maintenance) charges estimated at $102,492 annually ..Body RECOMMENDATION Staff recommends Council adopt a finding of Categorical Exemption per staff determination, pursuant to Section 15301/Class 1 (Existing Facilities) of the California Environmental Quality Act (CEQA) Guidelines, and approve a Lease Agreement between the City of Fresno and Anoush Chamlian, Trustee of the Vahan H. Chamlian and Anoush Chamlian Trust for three years plus two optional one-year extensions in the amount of $305,505 annually, with annual increases of 3%, plus the proportionate CAM (Common Area Maintenance) charges estimated at $102,492 annually, for the lease of office space located at 621 Santa Fe Avenue. EXECUTIVE SUMMARY The Department of Public Utilities (DPU) Administration offices were previously located at the former Fresno Bee property at 1626 E Street until June 2025 when a catastrophic Heating, Ventilation, and Air Conditioning (HVAC) failure occurred making the building untenantable. DPU staff temporarily relocated to several different City facilities until such time another suitable site could be identified. General Services Department (GSD) and DPU reviewed lease opportunities in the downtown area and identified a portion of the former Healthcomp office space located at 621 Santa Fe Avenue as suitable office space. GSD and DPU have negotiated a lease for 16,425 square feet of office space with an effective term of September 1, 2026, through August 31, 2029, plus two optional one-year extensions. The proposed negotiated lease rate is $1.55 per square foot ($25,458.75 per month) for rent which shall increase by 3% annually. In addition to the monthly rent due, the City shall also pay $0.52 per square foot of CAMs estimated at $102,492 annually. The City's share of CAMs is proportionate to the square footage of the leased office space to the total rentable square footage of the building. BACKGROUND In 2021, DPU acquired the former Fresno Bee property located at 1626 E Street to consolidate Water and Solid Waste operations into a common location. The property was acquired with the understanding that it will need significant rehabilitation or complete demolishment to facilitate the consolidation of Water and Solid Waste. DPU moved Utilities Administration and Utilities Planning and Engineering into the building from City Hall and the Municipal Services Center shortly thereafter and consultants were hired to conduct a master plan of the property. On June 23, 2025, the building's central air conditioning system failed catastrophically and could not be restored. The existing climate-control infrastructure installed in the early 1990s was designed to serve the building's full office footprint. The equipment is well beyond its service life and cannot be reconfigured to condition only the current occupied areas. Because of the HVAC failure, DPU temporarily relocated staff to other City facilities. DPU obtained estimates for options to replace the air conditioning system with a combination chiller/cooling tower unit that could be provided through either a short-term rental arrangement or permanent installation. Ultimately, the options were determined to be cost prohibitive in the building's current condition and configuration. Moving forward, the plan is to demolish the existing building to make a clear site available for DPU's future use or to sell it for future redevelopment. As a result of the unexpected relocation of staff in June 2025, DPU is seeking new office space in the downtown area for the Utilities Administration and Utilities Planning and Engineering. DPU reviewed two options and determined a portion of the former Healthcomp office space located at 621 Santa Fe Avenue as suitable office space with 16,425 square feet of vacant office space and includes up to 70 spaces for parking. The effective term of the proposed lease is September 1, 2026, through August 31, 2029, plus two optional one-year extensions. The proposed negotiated lease rate is $1.55 per square foot ($25,458.75 per month) for rent which shall increase by 3% annually. In addition to the monthly rent due, the City shall also pay $0.52 per square foot of CAMs estimated at $102,492 annually. The City's share of CAMs is proportionate to the square footage of the leased office space to the total rentable square footage of the building. CAM is defined as operating expenses incurred by the Landlord in maintaining, repairing, and operating the common areas of the property. This can include maintenance, landscaping, repairs, taxes, and similar. The City's proportionate share of CAM is based upon the square feet leased proportioned to the total rentable square feet of the building. Therefore, the City is responsible for 36% of the annual CAM charges during the term. CAM charges are estimated by the Landlord each year based upon prior year actual CAM expenses. These can increase or decrease each year. A non-appropriation clause is included in the lease agreement should the City desire to cancel the lease. The lease agreement has been reviewed and approved by the City Attorney's Office as to form. ENVIRONMENTAL FINDINGS Staff has performed an environmental assessment for the Project and have determined it is consistent with Categorical Exemption pursuant to Class 1, set forth in the California Environmental Quality Act (CEQA) Guidelines Section 15301 (Existing Facilities), which exempts the leasing of existing public or private structures, facilities, involving negligible or no expansion of existing or former use. Furthermore, none of the exceptions to Categorical Exemptions set forth in CEQA Guidelines, Section 15300.2, apply to this project. LOCAL PREFERENCE Local preference was not considered because this action does not include a bid or award of a City construction or services contract. FISCAL IMPACT The lease payments, the City's share of the buildings operating costs, and all other indirect costs associated with the subject lease space will be paid for through the operating fund of the Department of Public Utilities. Attachments: Categorical Exemption Lease Agreement Levine Act Disclosure