Build or lease? New study may help guide state’s decisions

December 4, 2011

Politics, Real Estate

A facilities study that could guide the State of Mississippi’s policies for accommodating its office and other operational needs is expected to be completed before the Christmas holidays.

International commercial real estate firm Cushman & Wakefield is wrapping up work on the second part of a study whose initial phase led to a recommendation to move the Mississippi Department of Revenue into downtown’s Landmark Center, 175 E. Capital St. The new phases address whether the state should seek to lease, buy existing buildings or build new ones when new agencies are created or existing ones expand.

Gov. Haley Barbour asked for the second part of the study after directing the state Department of Finance & Administration to explore options for headquartering the 500-plus employee Revenue Department. The agency has been working out of a leased warehouse in Raymond for more than a decade.

Kevin Upchurch, executive director of the

Department of Finance, said Cushman & Wakefield’s guidance will help the state whittle its decisions down to raw numbers.

“We have to consider certain dynamics but for the most part it’s a game of numbers,” he said.

Kym Wiggins, spokeswoman for the department, said the final evaluation will incorporate all ‘Total Lifecycle Costs,’ including:

>> Land and building acquisition/development costs;

>> Operating expenses;

>> Rent, as applicable (on a gross or net basis);

>> Assumed inflation rate;

>> Assumed market rent growth rate;

>> Tenant improvement costs;

>> Interest expense (opportunity cost) incurred on any out-of-pocket capital items;

>> Estimated residual (resale) value relating to ownership positions;

>> Transaction costs;

>> Taxes, as applicable;

>> Parking costs.

Upchurch said that while numbers will carry the most weight, state facilities’ planners will weigh intangibles such as helping to erase the lingering 25-plus percent vacancy rate for downtown Jackson office space and the City of Jackson’s need to get more properties onto its tax rolls. “We think these things need to be considered,” though within limits, he added.

“I’m a believer in that for a state to thrive its capital city must thrive.”

The state gave a boost to downtown occupancy last spring with the signing of a lease for 50,000 square feet in what was then a half-empty Regions Plaza. State officials moved the Mississippi State Personnel Board and the Mississippi Department of Finance and Administration’s Management and Reporting System into empty space on the second, third, fifth, eighth, 13th and 14th floors. The building’s vacancy woes began nearly four years ago with the departure of such major tenants as the Butler Snow law firm, HORNE CPAs and a large piece of Regions Bank’s operation.

The Landmark Center has 353,898 square-feet to offer the Department of Revenue. The department’s presence could draw new businesses downtown that work with it, say supporters of the move.

And it could give the city tax revenue to help offset the multitudes of state-owned buildings downtown that are untaxed. Gov. Barbour cited this in recommending legislators go with the Landmark option. “Leasing the Landmark Center will be an economic boost to Jackson by keeping the building on the city’s tax rolls, as well as supporting growth in downtown business activities,” Barbour wrote in a letter to legislators.

Barbour said the Landmark lease option represents a savings of up to $16 million from the costs of building a new building. Further, moving hundreds of workers into the CBD and filling up vacant office space provides a “positive impact on downtown Jackson.”

The final decision on the department’s new home is up to legislators and Gov.-elect Phil Bryant. If they give the go-ahead, the Landmark Center could be built-out to house the Revenue Department within three years, officials say.

Upchurch said he is uncertain how Bryant and the new Legislature will use the Cushman & Wakefield report.

Barbour may present the report to lawmakers before leaving office in January. “He might write a letter with it to legislators letting them know what has been recommended to us as best practices,” Upchurch said.

Legislators last session authorized up to $3 million to be spent on the search for a new Department of Revenue home. That money was never spent, according to Upchurch, who said payment for the two phases of the Cushman & Wakefield study came from money in his department’s budget and the budget of the governor’s office.

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