TO:	HONORABLE MAYOR AND CITY COUNCIL	FROM:	Jane Light Library Director
SUBJECT:	SEE BELOW	DATE:	May 27, 2003

Council District: City-Wide

SNI: N/A

SUBJECT: DELEGATION TO CITY MANAGER TO NEGOTIATE AND EXECUTE AGREEMENT WITH SJSU AND SPARTAN SHOPS FOR OPERATION OF LIBRARY CAFÉ

RECOMMENDATION

It is recommended that the City Council adopt a resolution authorizing the City Manager to negotiate and execute, with SJSU as co-landlord, a lease agreement with Spartan Shops for the operation of the Library Café at the new Martin Luther King Library, with a rental to be based upon a percentage of gross or net profits (if any).

BACKGROUND

Library and SJSU staff have been negotiating with the present operator of concession facilities at the University, Spartan Shops, to operate a Library Café in the new Martin Luther King Jr. Library. Negotiations have been proceeding but are not finalized, and currently we are expecting the Library Café to be open in August, when the new facility is opened. However, in order to assure that an agreement is reached for a timely opening, a delegation of authority to the City Manager is requested in order to finish some of the negotiations for the occupancy of the facility by Spartan Shops.

ANALYSIS

Café service in public libraries is a convenience to the library customers, and not a very profitable operation. SJSU and Library staff concur that it makes sense to have Spartan Shops, which is an affiliate of the University and presently conducts concession operations on the University campus, provide the service to the Joint Library in view of the support that can be given the Café from their on-campus facilities.

To insure that the Café was opened concurrently with the new Library, Library staff and SJSU staff through a memorandum of understanding authorized Spartan Shops to commence installation of tenant improvements in the new Library pending the negotiation of final terms in a new lease agreement. The fit and finish of the Café is to match that of the new Library, and therefore is anticipated to cost approximately $900,000 to one million dollars.

Spartan Shops needs to recover its expenditures on the tenant improvements, and also needs to cover its operating costs. Therefore, current discussions include different formulas for potential rentals, such as gross revenue or net profit calculations (if there is adequate documentation of revenue or net profit), as well as a term of up to 15 years. It is not anticipated that during the initial 5 to 8 years, there would be significant rentals paid to the Library for this operation. However, we wish to arrive at a rental formulation that does not penalize the concession operator in view of the expenditures for Tenant Improvements, while also preserving the ability of the Library to retain a portion of the revenue in the event that the operation generates more revenue than presently anticipated.

Therefore, we are requesting that the City Manager be delegated authority to negotiate and execute, with SJSU, a lease agreement with Spartan Shops, with the following parameters:

A lease term not exceeding 15 years;

With a calculation of rentals based upon either: (i) a percentage of gross revenues formula, or (ii) a net “profit” or revenues formula, with not less than 50% of such net revenues to be paid as rentals to the Library, with the calculation to include consideration of the capital costs of the tenant improvements and operating expenses; and

With adequate provisions requiring full disclosure of capital and operating costs for the City and SJSU to insure that agreed upon rentals can be fairly ascertained and allocated for the benefit of the Library.

PUBLIC OUTREACH

Not applicable.

COORDINATION

This report has been coordinated with the City Attorney’s Office.

CEQA

Not a project.

JANE LIGHT

Library Director, Library Department