Bid to consolidate state offices into Central Business District passes first test

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Published: January 31,2014

Tags: Business, Mississippi, real estate, Secretary of State

A revived move to consolidate far flung state government office space into Jackson’s Central Business District won unanimous approval Monday afternoon from the Senate Public Property Committee.

The bill’s main selling point is the prospect of shaving around $5 million a year off the state’s current $16 million annual leasing costs, as well as the prospect for saving money from:

» Reduced travel time and supply costs;

» Reduction in duplication of personnel and services;

» Utilization of vacant space in state-owned office buildings;

» Possible favorable prices to acquire buildings in the Capitol Complex, a several-square-mile area that surrounds the Capitol.

The bulk of the savings would come from reducing the average square-feet of office space per state employee from a current 321 to the federal benchmark of about 221.

The initial target for relocation into the Central Business District are the 692 state employees who occupy 221,245 square foot of office space under 26 different leases in metro Jackson outside the several-mile Capitol Complex. The leases carry a weighted rental rate of $14.03 a square-foot, according to a leasing study presented to the committee Monday.

The idea is to move them into leased space in eight privately owned office buildings in the CBD, which in total has about 471,000 square feet of empty space, mostly in buildings rated class B and C.

The need for landlords to fill that space could get the state attractive lease rates, the leasing study predicts.

This likelihood is reflected in recent state lease deals in the CBD that included 26,021 feet of office space in Regions Plaza for the State Personnel Board at $12.19 a square-foot; 42,130 square feet in Region’s Plaza for the Department of Finance and Administration for $12.50 a square foot; and 32,000 square feet in Capitol Towers for the Secretary of State’s annex office for $11 a square foot.

The leasing study projects the moves could save the state about $990,000 a year.

Bill author David Blount, property committee chairman, gives this year’s version of the bill improved odds of passing now that the question of where the Department of Revenue should go has been settled — South Pointe Business Park in Clinton won the lease –—and downtown’s Jackson’s Landmark Center building will soon be owned and occupied by Mississippi University Medical Center.

Last year’s legislation passed the Senate with no dissent but never received a hearing from the House Public Property Committee, an apparent nod to House Speaker Philip Gunn’s opposition to moving the DOR out of Clinton.

“It got all wrapped up in a very by public debate last year over the Department of Revenue,” Blount, a commercial real estate professional, said at the outset of Monday’s hearing. “The larger issue of how to handle leasing and do it more effectively is very much with us.”

Blount’s legislation hands authority for negotiating state leases to the Department of Finance & Administration, a move the senator says puts the DFA “in the driver’s seat” and eliminates having each department negotiate its own leases. The bill further authorizes the retaining of commercial real estate professionals as tenant representatives in lease negotiations.

“The only way this can work is to give the DFA the authority they currently don’t have,” Blount said. “They don’t have the legal authority to do what needs to be done.”

As it did last, the Senate property panel heard a survey report presented by Millsaps College’s ELSE School of Management. The new report leaves out the Landmark Center in its space and leasing calculations, said Dr. Bill M. Brister, director of Millsaps’ Executive MBA program.

Also the same as last year, the survey found that Mississippi state government is leasing substantially more office space per employee than specified in federal benchmarks and benchmarks of other many states.

In fact, the average 321-square feet of leased space per state worker greatly exceeds Mississippi state government’s own guidelines, according to Brister.

Those guidelines state that office space requested by state agencies should not exceed an average if 170 square-feet per person. Space requested which exceeds this average requires written justification, the Mississippi State Agency Leasing Manual states.

Brister said the relocations would occur over a number of years, noting current leases in the survey average about 2.5 years remaining. One lease has 14 years remaining.

Brister’s report emphasized that the first priority in cost savings must be identifying state agencies now leasing property that can be moved into state-owned buildings, some of which have sizable vacancies.

The other priority, he said, must be to buy rather than lease when bargains are offered on buildings, such as occurred with the Landmark Center, which is going for around $7 million after having a 2012 price of $14.6 million.

Brister said a number of states are saving big dollars by reducing space allocations per worker. Most notably Florida and Illinois, which between them cut leasing expenses by about $50 million annually by moving employees into lease spaces that averaged around 200 square feet per worker.

The federal government is also cutting way back on space per employee, with a current prevailing standard work space average of a little more than 218 rentable square feet per person, Brister noted,

The study he led found that federal space allocation could drop to an average of 60 square-feet per worker in the next five years.

Blount, in an interview after the hearing, emphasized that state offices that serve specific counties or populations in a particular county are not among those that would be relocated under his bill.

The legislation is expected to reach the Senate floor in about a week, Blount said.

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