There are numerous task delivery techniques that can be used by the state to construct capital assets: Design-Bid-Build (Section 6828), Design-Build (Section 6829), and Lease-Based Development Agreements. This area explains the procedure for pursuing a Lease-Based Development structure.

In general, when a brand-new state-owned capital facility is proposed, the state’s preferred method is to obtain residential or commercial property for the subject project. For this approach, an acquisition stage is funded through the yearly budget procedure, and the suitable department will engage with the Department of General Services (DGS) to look for appropriate websites. Once a residential or commercial property is acquired, future stages for the job will be funded through the budget plan process, and the job will be created and built with DGS as the project supervisor, (or by the suitable firm for non-DGS handled jobs), with oversight by the PWB. Government Code § 14669 authorizes the DGS to employ, lease, lease-purchase, or lease with the choice to purchase any genuine or individual residential or commercial property for making use of any state firm, based on specified constraints.

However, in instances where the state is not able to recognize and obtain a suitable website that supports a particular capital task, a lease-based advancement option may be thought about. This type of lease structure is generally referred to as a Build-to-Suit Lease. Under this lease structure, the state is not required to make any payments, including interim funding, till tenancy.

Generally, there are two kinds of Build-to-Suit lease alternatives the state may pursue:

Capitalized Lease Resulting in Ownership: Sometimes described as an “in-substance purchase” or “Lease-Purchase”, a capitalized lease is one where the private sector is accountable for obtaining, developing, and building a facility that is developed to state-issued specs. The lease specifies that ownership of the center transfers to the state at the end of the lease term. Capitalized Lease with a Purchase Option: Similar to a capitalized lease as defined above, but the lease provides the lessee the option to buy the rented asset at a defined worth at some time throughout or at the end of the lease period, often described as a “Lease with Option to Purchase”.

Features of a Build-to-Suit Lease:

The state, in partnership with the designer, finishes CEQA. The state is accountable for finishing realty due diligence activities. A lease-based task is subject to the common state style and building oversight (e.g. Construction Inspections Management Branch of DGS, State Fire Marshal, and so on). The state’s sovereign status uses, and a lease-based project needs to not undergo regional zoning, allowing or assessment. Developer expenses, and profits are folded into the lease payments. Repair, upkeep and overall operating costs are usually folded into the lease till the lease expires. The regards to a capitalized lease must guarantee the center is in great repair work at the end of the lease term, through the lease requirement for a Computerized Maintenance Management System.

Requirements for a Financing Lease: As with lease-revenue bonds, the state’s financial obligation commitments under the lease can not be structured in a manner which would categorize them as constitutional financial obligation. The terms in the lease need to be comparable to the lease terms found in an industrial context for similar kinds of facilities. Features of a funding lease include:

Rental payments are paid just for those durations in which helpful use and tenancy of the rented residential or commercial property is readily available to the lessee. If there is no annual appropriation for rent when the leased residential or commercial property is readily available for usage and occupancy, the state will be in default under the lease, and solutions might be readily available versus the state. These treatments may consist of the vendor’s or lessor’s right to continue the lease in existence and take legal action against the state for each installment of lease as it ends up being due. Acceleration of rental payments is not allowed. The responsibility to pay rental payments may be from any lawfully readily available funds of the department. The lease term should not extend beyond the anticipated helpful life of the rented residential or commercial property, and fair market rental worth must be paid.

Steps in a Build-to-Suit Lease: After it has been determined that a task site is not available for a specified task, and that a lease structure should be pursued, the following steps should happen:

Statutory Authority: The department sends a Capital Outlay Budget Change Proposal asking for Trailer Bill Language to include statutory authority to pursue a capital task through the capitalized lease structure pursuant to Government Code § 14669. Also, a future appropriation will be essential to cover the expenses of state oversight of building and construction activities. For the year building is anticipated to be completed, the department sends a Budget plan Change Proposal for one-time moving costs and lease.

Form 9 and 10: After a task has statutory authority to participate in a capitalized lease, the client company works with DGS realty staff to create a Facilities Design Program that describes task and program specs. The final result of this activity is memorialized through a Kind 9 “Space Action Request” and Form 10 “Estimate of Occupancy Costs” submittal. Both Forms 9 and 10 need to be authorized by Finance.

Solicitation for private development entity: DGS posts a “land ad” on the Cal eProcure website to figure out the inventory of readily available websites in the preferred job location owned by private developers. A “list” of possible websites is produced, and the client firm ranks them based on desirability. DGS will provide an RFP to developers on the list. Once a firm is chosen, DGS will negotiate a lease contract that details the terms of the arrangement, including a lease payment structure.

Legislative Notification: DGS is to alert the legislature prior to entering into a build-to-suit lease, pursuant to GC 13332.10.

PWB approval of Lease: Although no capital expenditure is made when participating in a capitalized lease, a dedication to a capital acquisition is created. Therefore, the final lease terms need to be authorized by the PWB prior to execution. DGS must also present to PWB the property due diligence. All requisite actions under CEQA should be finished within a reasonable time after PWB approval, as a “Condition Precedent” to the lease arrangement. If CEQA is not achieved, the state can terminate the lease.

Design Development: Once the last lease is authorized, the advancement team will develop the job to the state’s requirements, and will secure all required regulative evaluations and approvals, consisting of those from the Department of State Architect and the State Fire Marshal (SFM). In addition, the development team will deal with local jurisdictions (City and County) to get any required approvals.

Facility Occupancy: Once the facility is built, the SFM concerns a Certificate of Occupancy, and the customer company approves and “accepts” the structure for its use and tenancy. The client agency makes annual payments based upon the authorized lease terms for the period of the lease. During the lease term, the designer is accountable for operating and preserving the building.

Exercising a Purchase Option: For leases with a purchase alternative, a capital investment appropriation adequate to fund the purchase of the capital property and to cover any additional administrative costs will be needed. In addition, PWB’s authorization is required to exercise the purchase option. However, the current requirement is for build-to-suit leases to immediately transfer to the state at the end of the lease.