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State Inks $193M Lease for Highway Patrol HQ

SACRAMENTO, CA-The 20-year, 285,000-sf lease agreement to consolidate CHP's administration includes a $41-million tenant improvement allowance.

By Brian K. Miller | Updated on September 11, 2008

SACRAMENTO, CA-The state has inked a 20-year lease for a 285,000-sf, three-building low-rise campus here on behalf of the California Highway Patrol. Known as Continental Plaza, the buildings will be used to consolidate CHP’s administrative functions, which are now spread among several buildings in the Sacramento area. The law enforcement agency is slated to fill its new headquarters with 1,000 employees next September.

The state’s lease rate starts at $2.44 per sf per month, fully serviced with the exception of utilities, an information office with the state Department of General Services tells GlobeSt.com. The lease agreement includes a $41-million ($144 per-sf) tenant improvement allowance, annual rental rate bumps (approximately 1.5%) and a purchase option that may be exercised at the end of either year 10 or year 20. If exercised at year 10, the purchase price would be based on a 7% cap rate on the property’s NOI for year 11, according to DGS. If exercised at the end of the lease term, the purchase price would be based on a 7% cap rate on the NOI rent from year 19. If the state pays rent for 20 years, it would pay the property owner $193 million, according to DGS.

The property owner is Grove Investment Co. of Newport Beach, CA. Grubb & Ellis brokers Bill Newland, Clyde Rawlings and Toss Vallentine represented the building owner in the transaction. Cornish & Carey represented the state.

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