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There are a number of project shipment methods that can be utilized by the state to construct capital properties: Design-Bid-Build (Section 6828), Design-Build (Section 6829), and Lease-Based Development Agreements. This section explains the procedure for pursuing a Lease-Based Development structure.

In basic, when a brand-new state-owned capital center is proposed, the state's preferred technique is to obtain residential or commercial property for the subject project. For this method, an acquisition stage is funded through the yearly spending plan process, and the appropriate department will engage with the Department of General Services (DGS) to look for suitable sites. Once a residential or commercial property is acquired, future phases for the project will be moneyed through the budget procedure, and the job will be created and constructed with DGS as the job supervisor, (or by the appropriate agency for non-DGS managed jobs), with oversight by the PWB. Government Code § 14669 authorizes the DGS to employ, lease, lease-purchase, or lease with the option to acquire any real or individual residential or commercial property for using any state agency, based on defined constraints.

However, in instances where the state is not able to identify and obtain an ideal site that supports a specific capital job, a lease-based advancement choice might be considered. This type of lease structure is typically referred to as a Build-to-Suit Lease. Under this lease structure, the state is not needed to make any payments, including interim financing, up until occupancy.

Generally, there are 2 types of Build-to-Suit lease choices the state might pursue:

Capitalized Lease Resulting in Ownership: Sometimes referred to as an "in-substance purchase" or "Lease-Purchase", a capitalized lease is one where the personal sector is accountable for getting, establishing, and building a center that is constructed to state-issued specs. The lease defines 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 specified above, however the lease provides the lessee the alternative to buy the rented asset at a specified worth at some time during or at the end of the lease period, often referred to as a "Lease with Option to Purchase".

Features of a Build-to-Suit Lease:

The state, in cooperation with the designer, completes CEQA. The state is responsible for finishing property due diligence activities. A lease-based is subject to the typical state style and construction oversight (e.g. Construction Inspections Management Branch of DGS, State Fire Marshal, etc). The state's sovereign status applies, and a lease-based task should not go through local zoning, permitting or inspection. Developer costs, and profits are folded into the lease payments. Repair, upkeep and general operating expense are generally folded into the lease till the lease expires. The terms of a capitalized lease need to make sure the facility remains in good repair work at the end of the lease term, through the lease requirement for a Computerized Maintenance Management System.

Requirements for a Funding Lease: As with lease-revenue bonds, the state's financial obligation commitments under the lease can not be structured in a way which would categorize them as constitutional financial obligation. The terms and conditions in the lease must be comparable to the lease terms discovered in a business context for comparable kinds of facilities. Features of a financing lease include:

Rental payments are paid just for those durations in which beneficial use and occupancy of the leased residential or commercial property is readily available to the lessee. If there is no annual appropriation for lease when the rented residential or commercial property is readily available for use and occupancy, the state will remain in default under the lease, and remedies might be offered versus the state. These remedies may include the supplier's or lessor's right to continue the lease around and sue the state for each installment of rent as it ends up being due. Acceleration of rental payments is not allowed. The responsibility to pay rental payments may be from any lawfully offered funds of the department. The lease term need to not extend beyond the expected helpful life of the leased residential or commercial property, and fair market rental value should be paid.

Steps in a Build-to-Suit Lease: After it has been figured out that a project site is not available for a defined task, and that a lease structure need to be pursued, the following actions need to take place:

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

Form 9 and 10: After a project has statutory authority to get in into a capitalized lease, the client agency works with DGS property personnel to produce a Facilities Design Program that details job and program specifications. The last 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 should be authorized by Finance.

Solicitation for private development entity: DGS posts a "land ad" on the Cal eProcure website to figure out the stock of readily available websites in the preferred project location owned by private designers. A "short list" of potential websites is created, and the customer company ranks them based upon desirability. DGS will issue an RFP to developers on the list. Once a firm is selected, DGS will work out a lease agreement that details the regards to the arrangement, consisting of a lease payment structure.

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

PWB approval of Lease: Although no capital expense is made when participating in a capitalized lease, a commitment to a capital acquisition is produced. Therefore, the last lease terms should be authorized by the PWB prior to execution. DGS needs to also present to PWB the property due diligence. All requisite actions under CEQA need to be completed within a reasonable time after PWB approval, as a "Condition Precedent" to the lease agreement. If CEQA is not accomplished, the state can end the lease.

Design Development: Once the last lease is approved, the development group will develop the job to the state's requirements, and will secure all needed regulatory reviews and approvals, including those from the Department of State Architect and the State Fire Marshal (SFM). In addition, the advancement team will deal with regional jurisdictions (City and County) to get any necessary approvals.

Facility Occupancy: Once the facility is constructed, the SFM concerns a Certificate of Occupancy, and the customer firm authorizes and "accepts" the building for its usage and occupancy. The customer company makes yearly payments based on the approved lease terms throughout of the lease. During the lease term, the designer is responsible for running and preserving the structure.

Exercising a Purchase Option: For leases with a purchase alternative, a capital expense appropriation enough to fund the purchase of the capital asset and to cover any extra administrative expenses will be needed. In addition, PWB's permission is necessary to work out the purchase choice. However, the present standard is for build-to-suit leases to immediately move to the state at the end of the lease.