7.0. EDSR 07-09-2001 Item # 7
• cty of
Elk -..�
River
TO: Economic Development Authority
FROM: Marc Nevinski, Assistant Director of Economic Development
DATE: July 9, 2001
SUBJECT: Consider Renegotiation of Incubator Lease
Issue MEMORANDUM
One of the recent concerns with the Business Incubator has been the high vacancy rate
of the facility. Economic factors as well as the building's physical characteristics (i.e.
limited power and no urban services) have contributed to the high vacancy rate. To
address this problem, staff has explored the option of reducing lease space with the
building owner, Larry Hickman, and is requesting EDA direction.
Background
Currently, the EDA is leasing 13,186 sf of space from Mr. Hickman which is then
subleased to emerging companies who enter the incubator program. Included in this
space are six suites ranging in size from 1400 to 2300 sf, plus commons area. At no
time in the history of the program have all of the six suites been fully subleased.
Currently only two suites are subleased, one to Vertical Publishing and the other to
SolarAttic at market rate.
In light of these vacancies, staff meet with Mr. Hickman to discuss the concept of
leasing only 4000 -8000 sf (two-four suites and commons area) and retaining an option
to lease the remaining space on an "as-needed" basis, saving the EDA between $30,000
and $16,000 over the remaining term of the current lease (Please see Attachment A).
In turn, Mr. Hickman would have the option to lease the vacant space to other firms
at market rate if the EDA had no prospective companies for its incubator program.
The advantage of such an arrangement would allow the EDA to preserve the CDBG
funds that support the incubator program. Currently, enough dollars exist to fund the
incubator through approximately 2006. Amending the lease could significantly extend
the fund dollars and the incubator program . The disadvantage to such an arrangement
however, is that the EDA risks the possibility of not having space available for a
• prospective company.
Mr. Hickman is amenable to this concept provided that the pro-rated leasehold
improvement schedule, agreed to in the current (second) lease renewal, is honored by
• the EDA. (Please see Attachment B) That lease was renewed in 2000 for the period of
April 15, 2001-April 14, 2003. Under the terms of the lease, the EDA is paying $1.85
sf or $2033 per month.
Recommendation
Staff is requesting that EDA consider the pros and cons of reducing lease space at the
incubator. Should the decision be made to reduce lease space, it is requested that the
EDA direct staff to negotiate with Mr. Hickman a lease amendment for approval at
the August meeting that includes a lease rate of$1.85 sf for 4000 - 8000 sf.
Attachments
• Attachment A- Comparison of Current and Renegotiated Lease Terms
• Attachment B - Leasehold Improvements Repayment Schedule
• Attachment C - Incubator Floor Plan
•
•
•
Comparison of Current and Proposed Renegotiated Lease
April 15,2001 -April 14,2003
Current Renegotiated
Current Lease Lease
13,186 sf @ 4000 8000
$1.85/sf $1.85/SF $1.85/sf
August-01 $ 2,033 $ 616.67 $ 1,233.33
September-01 $ 2,033 $ 616.67 $ 1,233.33
October-01 $ 2,033 $ 616.67 $ 1,233.33
November-01 $ 2,033 $ 616.67 $ 1,233.33
December-01 $ 2,033 $ 616.67 $ 1,233.33
January-02 $ 2,033 $ 616.67 $ 1,233.33
February-02 $ 2,033 $ 616.67 $ 1,233.33
March-02 $ 2,033 $ 616.67 $ 1,233.33
April-02 $ 2,033 $ 616.67 $ 1,233.33
May-02 $ 2,033 $ 616.67 $ 1,233.33
June-02 $ 2,033 $ 616.67 $ 1,233.33
July-02 $ 2,033 $ 616.67 $ 1,233.33
August-02 $ 2,033 $ 616.67 $ 1,233.33
September-02 $ 2,033 $ 616.67 $ 1,233.33
elp
October-02 $ 2,033 $ 616.671,233.33
November-02 $ 2,033 $ 616.671,233.33
December-02 $ 2,033 $ 616.671,233.33
January-03 $ 2,033 $ 616.671,233.33
February-03 $ 2,033 $ 616.67 $ 1,233.33
March-03 $ 2,033 $ 616.67 $ 1,233.33
April-03 $ 2,033 $ 616.671,233.33
Expenses $ 42,693.00 $ 12,950.01 $ 25,899.93
EDA Savings $ 29,742.99 $ 16,793.07
ATTACHMENT A
Prepared by Mark Nevinski 7/5/01 Page 1
ATTACHMENT B
• Repayment Schedule
Total cost of leasehold improvements: $81,253
#of months Hickman repayment #of months Hickman repayment
EDA leases to EDA: EDA leases to EDA:
from Hickman: from Hickman:
AV 17 1 $80,286 42 $40,627
2 $79,318 43 $39,659
3 $78,351 44 $38,692
4 $77,384 45 $37,725
5 $76,417 46 $36,757
6 $75,449 47 $35,790
7 $74,482 48
$34,823
8 $73,515 Ai4Vei 49 $33,855 ROJEAc T
9 $72,547 50 $32,888
10 $71,580 51 $31,921
11 $70,613 52 $30,954
12 $69,645 53 $29,986
WI.‘411q 13 $68,678 54 $29,019
14 $67,711 55 $28,052
15 $66,744 56
$27,084
16 $65,776 57
•
$26,117
17 $64,809 58 $25,150
18 $63,842 59 $24,182
19 $62,874 60 $23,215
20 $61,907 MR0Z 61
$22,248
21 $60,940 62 $21,281
22 $59,972 63 $20,313
23 $59,005 64
$19,346
24 $58,038 65 $18,379
A.pfegq 25 $57,071 Or iZoirtiat.Tram 66 $17,411
26 $56,103 B7
$16,444
27 $55,136 68 $15,477
28 $54,169 69 $14,509
29 $53,201 70 $13,542
30 $52,234 71 $12,575
31 $51,267 72 $11,608
32 $50,299 /jpR'03 73 $10,640 V217.010044-7J?gtt
33 $49,332 74 $9,673
34 $48,365 75 $8,706
35 $47,398 76 $7,738 I
36 $46,430 77 $6,771
A-PR'CM 37 $45,463 78 $5,804
38 $44,496 79 $4,836
39 $43,528 80 $3,869
40 $42,561 81 $2,902
41 $41,594 82 $1,935
83 $967
III 84 $0
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JOHN C. I��EICHT AND ASSOCIATES FUpNl11, & 11'IINGS PAUL MEYER P 7 r aa"specfiwUPon a repot.as -arms'"0v 01/31/97 PRELIMINARY
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Jut 01/31/97 Reg. No.