Those are an awful trio of words the nation’s nagging economic slump has left us with. They mark a concession that we are prepared to live with things that are less good than before, such as double-digit unemployment, underwater home values and — for downtown Jackson — historically high office vacancy rates.
Some commercial real estate professionals say they fear downtown Jackson’s new normal will be an office vacancy rate proportionate to that of Detroit.
If that were truly the case the same real estate pros would wear smiles instead of frowns. Unlike Jackson, Detroit’s empty office buildings are filling up at a steady clip. Vacancy there went from 23.5 percent at the start of 2012 to 20.8 percent at the end of last year, office market surveyor CoStar reports.
Jackson’s vacancies began at around 27.5 percent at the start of 2012 and are estimated to be above 35 percent today. Some put the vacancy figure closer to 40 percent and say it is heading for 50 percent based on pending lease renewals.
A good portion of that rise can be attributed to the full vacancy of the Landmark Center at Capital and Lamar streets. The lights went out for good in the 335,000 square-foot building after AT&T and other remaining tenants vacated in recent months.
A new normal of increasing office vacancies and encroaching blight does not reflect either a city or a state that is on the move in terms of economic growth or quality of life. It instead shows despair and acceptance of defeat as the “new normal” for both entities.
Let’s say it: How bad does it have to get before our decision makers acknowledge where things are headed?
At the close of the 2012 legislative session, lawmakers stood on the verge of reversing downtown Jackson’s downward spiral by relocating the Mississippi Department of Revenue and its several hundred employees into the Landmark Center.
Enter House Speaker Philip Gunn. He wanted to buy time to keep the tax collection agency in or near his hometown of Clinton. This week, he got his payoff when the state chose Clinton’s South Pointe Business Park over the Landmark Center as the new Department of Revenue headquarters.
In fairness, representatives of the former WorldCom headquarters sharpened their pencils and brought in a best-and-final offer for a 20-year lease approximately $10 million below that of the Landmark’s leasing reps. Specifically, South Pointe’s final offer came in at $41,469,192 and Landmark’s at $51,684,393.
The Landmark, on the other hand, would have been much more attractive as a purchase rather than lease. At Speaker Gunn’s insistence, the House refused to consider that, however.
An analysis by the Mississippi Department of Finance & Administration found that after tallying the $7.6 million asking price for the building, 20-year debt service, tenant improvements and operating expenses, the state could have owned the Landmark for $44.9 million. Further, the state would have had more than 125,000 square feet left over to either house other state offices or lease to the private sector.
The $44.9 million would have been substantially less if the state could have paid cash and avoided debt service, an outcome that is possible through a new estimate of $90 million in extra revenues.
The DFA analysis qualified its purchase estimate by projecting that the entire spectrum of repairs and equipment replacements the quarter-century-old building needs would have increased the state’s total cost to $56 million. But, again, that includes debt service. And with the renovation and equipment upgrades envisioned here, the state would have gotten a 40-year life out of the building, thus the $56 million should be more realistically seen as $28 million — making the purchase a vastly better deal than a 20-year lease that puts the state on the hook for another $41.6 million, at a minimum, to reach the same 40-year mark.
The numbers show the decision was indeed close. And when the call is this close, the call should go to Jackson. It’s the Capital City and it needs a renaissance.
Sometimes the simplest answer is the best answer – Jackson needs the infusion of office users the Department of Revenue would bring far more than does Clinton.