Legislature divided over Department of Revenue destination
by Ted Carter
Published: February 15,2013
The day before a bill to put the DOR headquarters in downtown Jackson’s Landmark Center via a purchase passed the Senate on a 48-2 vote, House Speaker Philip Gunn successfully pushed a bill through the House on a 71-43 vote that would put the headquarters in Clinton’s South Pointe Business Center, the former home of WorldCom.
The separate actions could force lawmakers to choose between a compromise on the two bills or ceding the decision to state officials who are weighing Requests for Proposals for a new DOR home. The Landmark and South Pointe are among three finalists for a selection expected to be made in early March.
Gunn’s bill calls for a lease or purchase and contains no maximums or minimums that the state would pay. Gunn is insisting that the 500 or so employees of the DOR should move no farther than Clinton when the lease expires June 30, 2014 on the metal warehouse the agency occupies in nearby Raymond.
Gunn killed an effort last year to move the agency from Raymond into the now-vacant Landmark by preventing a House vote on a unanimously passed Senate bill.
Sen. David Blount, a Jackson Democrat, authored last year’s bill and the one that cleared the Senate Friday is identical to the 2012 version.
A companion bill from Blount calling for consolidation of more than 25 state offices spread around the metro area into the Capitol Complex passed the Senate earlier this week and is headed to the House for a vote.
Blount said his bill to purchase the Landmark is key to making the office consolidation plan work because nearly 150,000 square-feet of office space would still be vacant in the Landmark after the Department of Revenue moved in.
Blount’s bill now goes to the House Public Property Committee. In the meantime, Gunn’s bill is headed to the Senate Property Committee.
Since the bills call for vastly different actions on the same issue, some sort of reconciliation may have to be done, Blount said in an interview Thursday afternoon. “The two chairmen will have to sit down and talk about it,” said Blount, who as chair of the Senate property panel will be negotiating his own bill with Rep. Tommy Weathersby, a Republican from Florence who helped to get Gunn’s bill through the House.
It’s conceivable as well that the bills could die in the respective committees.
In that instance, a default could come into play. That would be an RFP process that is underway. In that process, the Landmark Center, South Pointe and the Ergon Properties’ Diversified Technologies complex in Ridgeland are vying to become the new DOR headquarters through a lease arrangement.
The RFP process has been underway since November. The three properties emerged from a selection process that started with a handful of buildings in the metro area.
Kevin Upchurch, director of the Department of Finance and Administration, said the back-and-forth going on in the Legislature has no bearing on the RFP process. The only way the RFP selection would become moot is if the Legislature passes a bill designating the new home for the DOR and the governor signs it, Upchurch said.
In the meantime, the DFA is doing test fits, which “in layman terms is reviewing what it would take to pick up the Department of Revenue and drop it in each of the three facilities,” Upchurch said in an email.
The test fits will show the financial impact of retrofitting the facilities to meet the operational and space needs of the Department of Revenue, he said.
“When this is completed, we will move on to taking Best and Final Offers from each of the three proposers.
“This will conclude the information gathering part of the process and the final grading will then be done and the winner selected.”
The test fits should be done by the end of next week and final offers must be received no more than five days later, according to Upchurch.
A final decision on the new HQ is up to a five- member selection committee consisting of representatives from DFA and DOR. The final determination will based on scoring criteria agreed to at the start of this process, Upchurch said.
A lease deal has been seen as one way to avoid legislative meddling into the HQ decision, since a lease does not require lawmakers’ approval.
Blount said, however, he thinks going the lease route is a money-loser for the state, since the price of the Landmark Center has dropped from $14.1 million to $7.6 million in the past 12 months, a reflection of downtown Jackson’s increasingly weak office market.
Having the RFP become the default option “would be unfortunate because I am convinced purchasing the building is the best option for the state and would allow the consolidation of the state offices,” said Blount, a commercial real estate professional.
Breck Hines, executive VP and principal of Duckworth Realty in Jackson, handles leasing for South Pointe Business Center. He said he thinks the state is going to win on the money side regardless of which of the three properties wins the RFP selection.
All three have motivated landlords, he said.
“You put the three buildings up against each other and say, ‘What kind of deal are you going to make for us?’ You’re going to get a heck of a deal.”
Not surprisingly, Hines thinks South Pointe is the most well suited of the contenders for the HQ designation. “The cost to prepare the building for occupancy is going to be much less” than it would be for the other two, he said in an interview Thursday.
He said the complex could accommodate the DOR’s needs for a 33,000 square-foot printing facility and requisite high ceiling without doing new construction. If South Pointe emerges the winner of the RFP, the space needed for the DOR can be built-out and ready for move-in by spring 2014, he said.
“That’s what we do for a living,” Hines said. “It’s really not that quick of a turn.”
A Cushman & Wakefield analysis completed in late 2011 ranked the Landmark Center over South Pointe and other properties in the metro area. Cushman & Wakefield, an international commercial real estate firm, concluded the Landmark represented a better fiscal and operational option for the state.
The study noted tenant improvements for either the Landmark or South Pointe would run about $8.4 million. However, it put the cost of a full-service lease at the Landmark at $12.90 a square foot and South Pointe at $18.75 a square foot.
South Pointe would have an annual lease escalation cap of 1.5 percent and the Landmark a cap of 1.75 percent, according to Cushman & Wakefield.
Hines has charged the Cushman & Wakefield study was flawed and did not accurately assess his firm’s lease offer.
Today – more than a year after its completion – the study’s value is nearly nil, Hines contended. “It does not apply to this year,” he said. “Circumstances and needs have changed.”
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