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Report regarding a resolution approving a lease agreement with Aurelio Roman, d.b.a. Angel Barber Shop, for the commercial space at 244 Grand Avenue, and a resolution approving a lease agreement with Aurelio Roman, d.b.a. Nails Elegant, for the commercial space at 246 Grand Avenue. (Katie Donner, Management Analyst I)
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RECOMMENDATION
Recommendation
Staff recommends that the City Council adopt two resolutions:
1. Approving a lease agreement with Aurelio Roman, d.b.a. Angel Barber Shop, for the commercial space at 244 Grand Avenue and
2. Approving a lease agreement with Aurelio Roman, d.b.a. Nails Elegant, for the commercial space at 246 Grand Avenue.
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BACKGROUND
In May 2024, the City purchased three Downtown properties located at 226-230 Grand Avenue, 232-238 Grand Avenue, and 240-246 Grand Avenue, known as the Giffra properties. As part of this purchase, the City inherited six commercial tenants on the ground floor of the buildings. Following the purchase, 244 Grand Avenue became available after a neighboring tenant vacated the space previously used for storage. Additionally, 246 Grand Avenue became available after the prior tenant ceased business operations. The spaces have remained vacant ever since and need substantial upgrades, including construction of an accessible restroom.
Although the City did not formally market the spaces, staff received multiple unsolicited inquiries from interested parties regarding available storefronts along Grand Avenue. Staff provided access to prospective tenants and informed them of availability and general lease conditions. Three viable proposals were ultimately received for consideration for the vacant commercial spaces at 244 and 246 Grand Avenue.
After evaluating proposals and consulting with the City Council in closed session, the City identified Aurelio Roman as a qualified tenant interested in activating 244 Grand Avenue with a barber shop and 246 Grand Avenue with a nail salon as part of a broader expansion of his existing local business operations in downtown South San Francisco.
244 Grand Avenue Lease Proposal and Terms
Aurelio Roman, d.b.a. Angel Barber Shop, is proposing to lease the commercial space located at 244 Grand Avenue, totaling 340 square feet, for use as a barber shop. The proposed lease term is six (6) years, with a monthly base rent of $816.00, or $2.40 per square foot, consistent with current market-rate retail lease rates along Grand Avenue as determined through CoStar analysis. The lease agreement includes an annual three percent (3%) increase in base rent over the term of the lease.
The tenant is requesting a tenant improvement (“TI”) credit of approximately $48,600.00 for 244 Grand Avenue. This amount represents a proportional allocation of the total $124,000.00 TI credit associated with the broader improvement needs across both 244 and 246 Grand Avenue. The TI credit will be provided as a rent credit following a three-month rent abatement period, which will commence upon submission of a building permit application. The remaining TI credit will be applied monthly against rent during the construction period until fully exhausted, estimated at approximately 56 months.
The tenant improvement credit and rate abatement schedule, including the annual 3% rent escalations over the lease term, is outlined in Exhibit B of the resolution.
Under the terms of the lease, the tenant will be responsible for payment of all utilities and services serving the premises, including electricity, gas, heating, ventilation and air conditioning, telephone, cable, and internet. Utilities will be separately metered or billed to the tenant. The City will reasonably cooperate with the tenant, as needed, to facilitate utility service connections. The tenant will also be responsible for routine maintenance and repairs within the leased premises, while the City will retain responsibility for structural components of the building.
246 Grand Avenue Lease Proposal and Terms
Aurelio Roman, d.b.a. Nails Elegant, is proposing to lease the commercial space located at 246 Grand Avenue, totaling 527 square feet, for use as a nail salon. The proposed lease term is six (6) years, with a monthly base rent of $1,264.80, or $2.40 per square foot, consistent with current market-rate retail lease rates along Grand Avenue as determined through CoStar analysis. The lease agreement includes an annual three percent (3%) increase in base rent over the term of the lease.
The tenant is requesting a tenant improvement (“TI”) credit of approximately $75,400.00 for 246 Grand Avenue. This amount represents a proportional allocation of the total $124,000.00 TI credit associated with the broader improvement needs across both 244 and 246 Grand Avenue. The TI credit will be provided as a rent credit following a three-month rent abatement period, which will commence upon submission of a building permit application. The remaining TI credit will be applied monthly against rent during the construction period until fully exhausted, estimated at approximately 57 months.
The tenant improvement credit and rate abatement schedule, including the annual 3% rent escalations over the lease term, is outlined in Exhibit B of the resolution.
Under the terms of the lease, the tenant will be responsible for payment of all utilities and services serving the premises, including electricity, gas, heating, ventilation and air conditioning, telephone, cable, and internet. Utilities will be separately metered or billed to the tenant. The City will reasonably cooperate with the tenant, as needed, to facilitate utility service connections. The tenant will also be responsible for routine maintenance and repairs within the leased premises, while the City will retain responsibility for structural components of the building.
DISCUSSION
Staff utilized CoStar, a commercial real estate database subscribed to by the City, to evaluate market rental rates along Grand Avenue. Based on this analysis, current retail lease rates are $2.40 per square foot, which is consistent with the proposed lease rate.
In addition to meeting market lease rates, Mr. Roman is a local business owner currently operating Nena Beauty Salon on Linden Avenue and has demonstrated a commitment to providing beauty and personal care services within the community. The proposed lease would allow for the expansion of a locally owned business and support activation of a currently vacant storefront.
Approval of this lease supports the City’s broader objective of activating vacant commercial property in the City and strengthening the mix of locally owned small businesses within the Giffra property acquisition area.
FISCAL IMPACT
The proposed lease will generate $31,271.21 in rental revenue over the six-year term: $12,290.67 for 244 Grand Avenue and $18,980.54 for 246 Grand Avenue, after accounting for the three-month rent abatement for both properties and the tenant improvement credit of approximately $124,000.00. While the tenant improvement credit reduces short-term rental revenue, the improvements will remain with the property and provide long-term value by enhancing the condition, functionality, and marketability of the commercial space.
RELATIONSHIP TO CITY COUNCIL PRIORITIES ACTION PLAN
These lease agreements meet the City’s Council’s Major Focus Area of Quality of Life, Key Strategy of supporting a sustainable retail environment.
CONCLUSION
Approving the resolutions authorizing the City Manager or their designee to enter into leases with Aurelio Roman, d.b.a. Angel Barber Shop, for 244 Grand Avenue and Aurelio Roman, d.b.a. Nails Elegant, for the commercial space at 246 Grand Avenue will support the activation of a currently vacant storefront and facilitate the expansion of a locally owned small business in downtown South San Francisco. The proposed lease terms are consistent with market-rate rents and include tenant improvements that will enhance the long-term value of the property.