Competition for DOR lease carries big build-out costs, quick prep mandate

The building owner who wins the upcoming competition to lease 175,000 square feet to the Mississippi Department of Revenue must be willing to spend tens of millions of dollars to ready the building.

And the owner must also be willing to move quickly to have the building ready for the DOR to move into by late spring 2014.

The requirements for owner build-out and tenant occupancy are included in a request for proposals that the Mississippi Department of Finance and Administration issued earlier this month on behalf of the DOR, which is looking to relocate from its metal warehouse headquarters in Raymond.

The leasing agent for top contender South Pointe, the former home of the WorldCom headquarters in Clinton, said the state’s requirements are typical for such large leases. “It’s not unusual” to see such mandates, said Breck Hines, South Pointe leasing agent and executive VP and principal at Duckworth Realty.

“We’ll certainly be making a proposal,” he said, though he declined to discuss specifics.

South Pointe and downtown Jackson’s Landmark Center received top recommendations a year ago in a site-selection study by international commercial real estate firm Cushman & Wakefield. Thus, the two properties are considered the leading candidates to become the new headquarters home of the Department of Revenue.

The RFP represents a change of heart by state leaders who last legislative session rejected a proposal to move the Revenue Department’s headquarters into the 353,898-square-foot Landmark Center at 175 East Capitol Street. The state was to buy the building for $14.1 million and refit it over a three-year period at a cost of about $30 million to accommodate the 400 or so employees of the DOR.

The RFP follows comments to the Mississippi Business Journal by Revenue Commissioner Ed Morgan last month that key leaders have pledged to make a selection in 2013 that would get the Revenue Department out of the warehouse it has occupied in Raymond for nearly two decades. The DOR’s lease on the Springridge Road building expires at the end of 2014.

The new RFP sets a 2 p.m. deadline on Dec. 4 for proposals and limits the eligible buildings to properties of at least 175,000 square feet in Hinds, Rankin and Madison counties. To qualify, the building must have 15,000 of ground-floor space to accommodate a print shop and an additional 15,000 square feet of ground floor space for a customer service area. The remaining floors must have at least 145,000 square feet.

The RFP would give extra “preference” points to a building with an additional 20,000 square feet of warehouse space on the ground floor as well as an additional 13,000 square feet for general office use. The remaining floors would need to provide at least 112,000 square feet.

For parking, the RFP mandates 550 spaces and at least one space or a pull-off area large enough for a tractor-trailer rig.

The lease would be triple net, with taxes, insurance and maintenance costs falling to the state, officials say.

The move-in date for the Department of Revenue would be July 1 2014, according to the RFP, though Charles “Rick” Snowden, deputy executive director of the Department of Finance and Administration, said the DOR wants to begin moving in several months ahead of the July 2014 date.

A short-list selection of prospective properties is to be issued on Dec. 18. The DFA hopes to have a lease deal signed by February.

The DFA could skip a short list and begin negotiations with a leasing agent right away, according to Snowden. “The short list is our option. If we have a proposal that is so strong, we can elect not to go to short list” and instead start negotiations with the strongest proposer, he said.

The DFA and the DOR will make the final selection. Cushman & Wakefield of Georgia Inc., as agent for the state, will take part in lease negotiations.

The state wants proposals that are “all-inclusive” and specify the building owner will cover any construction, design, tenant improvements and infrastructure improvements.

The rejection of the Landmark Center in the final hours of the 2012 Legislature disappointed Ben Allen, president of Downtown Jackson Partners, and other supporters of downtown. Allen alerted business and civic leaders to the RFP last Monday with an email blast that carried the subject line: “All Hands on Deck.” In a follow-up email, Allen said he is pleased the state is getting the word out on the RFP.

“Last time around, the DOR was going to move to Lakeland Drive, and no one even knew it until the last minute. We have several realty people, I am sure, submitting for places in and out of downtown Jackson,” said Allen, whose public-private agency works to promote and enhance downtown.

Both the Landmark Center and South Pointe will lose major tenants in the next few months. Leasing agents for each would like nothing more than to secure a long-term lease for a couple hundred thousand square feet from the DOR.

Downtown’s Landmark will lose AT&T by the end of the year to the 111 Capitol Building and Clinton’s South Pointe will lose ADP with the company’s relocation of operations to Augusta, Ga.

This time around, legislative leaders will be unable to erect last-minute barriers to moving the DOR out of Raymond. A lease does not need legislative approval, said the DFA’s Snowden, though he noted the effort and stepped-up timetable have the backing of Gov. Phil Bryant and other leaders.

“The leadership – the governor, Speaker and lieutenant governor — determined they wanted to do something a little more urgently before the [2013 legislative] session,” Snowden said in an interview Tuesday.

He acknowledged that the owner of the selected building faces significant costs in preparing the building to meet DOR operational specifications. Those costs, however, are expected to be reflected in the lease, which initially will be for 15 to 20 years with renewal options, he said.

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