Real Estate Services & Strategies
Summary of key terms of office ground lease (with UC leaseback)
The Ground Lease will include the following terms:
- Term: The term of the ground lease will be 30 years with no option to renew.
- Rent: Ground rent will be nominal during 100% UC occupancy. During partial or complete third party occupancy of the office building, the university will seek a ground rent payment based on fair market value of the highest and best use of the property, as developed, adjusted for advanced entitlement status as well as the terms and conditions of the ground lease, including use restrictions and limits on rent levels in excess of those normally found in similar projects.
- Facility Rent Levels: The initial facility rent level (as set in the facility lease) will be the subject of negotiation with the developer, taking into account the nominal ground rent. In subsequent years, the rent will increase at a fixed rate.
- Condition of Site: The site will be leased "as is" and subject to all applicable local, state and federal government regulations.
- Costs of Development and Operations: The developer shall be responsible, at its own expense, for all design and soft costs, permitting costs, on- and off-site improvements, project improvements, operating costs, minor and major repairs and maintenance, government fees, assessments and taxes, management costs, etc.
- Financing: For purposes of securing project financing, the developer may pledge the rights and privileges granted in the ground lease. The university, however, will not pledge its underlying fee simple interest in the land as security for the development's financing. Initial financing may not exceed the cost of development of the project. The term of any financing secured by the project improvements may not extend beyond the term of the ground lease. The university shall have sole and absolute discretion to approve all financing and refinancing.
- Transfer & Assignment: The interest of the developer shall not be assigned or subleased until construction of the office building has been satisfactorily completed. Thereafter, the university shall have the right to approve any sale, assignment or sublease of lessee's interest in the project, subject to negotiated minimum requirements of the transferee.
- Occupancy: In the event the university chooses not to occupy the entire office building, the developer may offer the balance of the facility to the general public.
- Property Management: Property to be maintained in first class condition and otherwise in good, clean, attractive, sanitary and safe order, condition, habitability and repair.
- Property or Possessory Interest Taxes: The developer's interest in the project may be subject to property or possessory interest taxes by the local county. The developer shall diligently pursue any appropriate tax exemptions based on the use of the project. Benefits of any such exemption must flow to the university.
- Capital Reserve: The developer shall deposit a portion of revenues into a capital reserve account for major maintenance and repair and/or for demolition of the office building at the end of the ground lease term; amount to be negotiated. Consent of the university will be required before the withdrawal of funds from the account. Upon termination of the lease, remaining balance in the capital reserve shall revert to the university.
- End of Term: At the end of the lease term, the university may assume ownership of all improvements on the site, or alternatively require the developer to demolish the improvements and restore the site to its original condition.
- Financial Covenants: The developer will be subject to financial covenants including a maximum amount of debt allowed on the project.
- Future Campus Development: In connection with this project, the university will not condition or limit in any way its ability to independently determine the need for, plan for, develop, construct, purchase, renovate, operate or manage any office buildings, in any location or at any time, for the campus community.
- Indemnification & Hold Harmless: The developer will defend, indemnify, and hold harmless the regents, its officers, employees, and agents from and against any and all liability, claims, liens, judgments, expenses, and costs which result from, or in any way arise out of, or in connection with developer's ownership or operation of the project improvements.
- Insurance: The developer must maintain builder's risk insurance during construction of the office building and thereafter maintain both casualty and liability insurance at levels acceptable to the university.
- Equal Opportunity: During the term the developer shall not discriminate against any person employed or seeking employment in the project because of race, color, marital status, religion, sex, sexual orientation, handicap, or national origin.
- Right of First Refusal: The university shall have a right of First Refusal and a Right of First Offer to purchase the project if the developer receives a bona fide offer to purchase and/or wishes to sell during the term of the ground lease.
- Other Terms: The ground lease shall contain such other conditions as are customary in transactions of this type.