Mississippi_State_Agency_Lease_Cost_Analysis

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Agency Lease Cost Analysis
State of Mississippi
January 28, 2013
Faculty
Bill M. Brister, Ph.D.
Joe Donovan, MBA
Analysts
Russell Morrison, MBA
Annette Fortman Vise, MBA
Contents:
1. Lease Cost Comparisons Within Metro Area
2. Office Space Allocation and Efficiency
3. Revisit Purchase of Landmark Center
State Agency Offices
Eligible to Move
The State Capitol Building is
located in the center of the map.
1
Comparing the Costs of Leasing
Office Space in the Metro
Jackson Area
Summary of Property Leases in Tri-County Area
Category
Office
Storage/ Warehouse
Vacant land
Parking
Housing
Clinic
Library
Number of
Leases
59
27
13
6
2
1
1
109
Number of Office
County
Leases
Hinds
37
Madison
13
Rankin
9
59
Square Feet
851,812
141,445
15,740
11,225
2,930
1,023,152
Square Feet
652,312
144,043
55,457
851,812
Source: Department of Finance and Administration
Office Leases in Tri-County Area
Of the 59 Office Leases, 4 are leases between State agencies,
leaving 55 Office Leases between State agency and private sector.
Private Sector Office Leases in Tri-County Area
With DOR
Without DOR
Total Square Feet Leased
813,494
681,294
Total Rent Paid Annually
$10,034,981
$8,948,297
Rent per Square Foot
$12.34
$13.13
Source: Department of Finance and Administration
Agencies Located Outside of Capitol Complex
(Does not include satellite offices, e.g. WIC, Medicaid, etc.
Office Leases Able to Move*
Number of Leases
Total Sq. Ft. =
Total Annual Rent Paid =
Weighted Average Rent per
Sq. Ft. =
23
176,220
$2,524,569
$14.33
* Does not include DOR.
Source: Department of Finance and Administration
State Agency Leases Downtown
Institution/Agency Name
1 Department of Corrections
2 Department of Corrections
3
Distance
from State
Capitol
Total Square
Feet
Annual Rent
Annual Cost
Per Sq. Ft.
0.2
25,600.00
$404,480
$15.80
0.2
14,089.00
$183,157
$13.00
0.2
3,520.00
$42,240
$12.00
510 George Street, Suite 400
0.2
1,200.00
$15,000
$12.50
750 NORTH STATE STREET
0.4
171,717.00
$2,572,321
$14.98
700 NORTH STREET
0.4
24,747.00
$465,244
$18.80
600 E AMITE ST STE 100
0.5
4,459.00
$75,714
$16.98
Address of Property
723 NORTH PRESIDENT
STREET
510 George Street
Mississippi Office of Capital
510 GEORGE ST STE 300
Defense Counsel
State Board of Barber
Examiners
Department of Human
5
Services
Mississippi Secretary of
6
State
Mississippi State Board of
7
Dental Examiners
4
8
Department of Finance and 210 E. Capitol Street, Suites
Administration
1300 and 1400
0.6
42,130.00
$526,625
$12.50
9
Mississippi State Personnel
210 E. Capitol Street
Board
0.6
26,021.00
$317,196
$12.19
Total
313,483.00
Weighted Average Cost per Sq. Ft. =
$
$
4,601,976
14.68
Source: Department of Finance and Administration
Lease Cost of Select Vacant Buildings Downtown
Building
Address
Sqr. Ft.
Vacant SF
% Occupied Rent ($PSF)
1 Landmark Center*
175 East Capitol Street
345,335
345,335
0%
14.00
2 Capitol Towers**
125 South Congress Street
213,380
190,000
11%
13.50
3 Regions Plaza***
210 East Capitol Street
316,428
113,914
64%
12.50
4 Lamar Life Building**
317 East Capitol Street
83,393
75,054
10%
14.50
5 State Street Building**
633 N. State Street
64,786
64,786
0%
14.00
1,023,322
789,089
23%
Totals and Percentages
Weighted Average Cost per Sq. Ft.=
* Cushman and Wakefield, 2011
** Stated to ELSEWorks
***DFA Pays $12.50 and State Personnel Board pays $12.19.
$13.71
Finding:
The lease rates for the vacant office space presented
previously in Downtown Jackson are slightly lower
than lease rates currently being paid by State agencies
in the Metro Area, even with no agencies sharing
space.
2
Office Space Allocation and
Efficiency
Federal Benchmark for Office Space Allocation
The current benchmark for office workspace of
the U.S. General Services Administration (GSA) is
218 Rentable Square Feet per person, which
includes all individual and shared space such as
workstations, circulation, storage, and conference
rooms. How one allots space among the
different uses is up to the organization, working
with their staff, management, and designers. The
218 rentable square feet per person was
determined by benchmarking public and private
sector office space users.
Rentable Square Feet (RSF) per Person Comparisons
• Virginia
Implemented a standard average 222 RSF per
person
• Texas
Currently averages 225 RSF per person down from
236 RSF since 2000
• Mississippi
Currently averages 323 RSF per person,
approximately 46% more than VA and 44% more than TX
Savings From Reducing Space Utilization Rates
• A reduction in the space per person from the current
323 square feet in Mississippi to the Federal
benchmark of 218 square feet represents a 33%
reduction in leased office space.
• The State currently spends $15.5 million per year
(statewide) on leased office space. Reducing this
amount by 33% through more efficient use of space
would save over $5 million per year.
Findings:
The State of Mississippi current leases significantly
more office space per person than is recommended by
the U.S. General Services Administration and has been
achieved by other states such as Texas and Virginia.
The State can realize significant savings by reducing
the rentable square feet per person in State agency
leases.
Recommendations to Achieve Reduction in
Rentable Square Feet (RSF) per Employee
• Then State should set goals and targets for reduction
in RSF per employee.
• Centralize authority within DFA to oversee the
leasing process and reduce the RSF per employee.
• Enable and encourage sharing spaces like conference
rooms and hearing rooms through consolidating
State agencies within the Capitol Complex.
3
Revisit the Purchase of the
Landmark Center
The Landmark Center
345,335 SF of office space
September 16, 2011, Purchase Price = $14.1 million.
“After careful consideration of the proposals
received, we recommend the Landmark Center as
the best [alternative] for the new DOR offices…”
–State of Mississippi Department of Revenue, Site
Selection Study, Cushman and Wakefield, September
16, 2011.
Photo by Ted Carter
NOW…ABOUT A YEAR LATER
Purchase Price = $7.6 million.
Conclusion: Holding the assumptions in the Cushman and Wakefield study
constant except for the price, a purchase of the Landmark Center is an even
better deal today than it was a year ago, when it was deemed the best
alternative for housing DOR.
Purchase Landmark Center vs. Continued Leasing for
State Agencies
Assumptions:
• Purchase Price for Landmark Center = $7.6 million
• All other assumptions from Cushman and Wakefield report hold, including:
Cost of Tenant Improvements = $40 per SF.
Operating Expenses = $6.00 per SF.
Recurring Capital Improvements = $1.00 per SF.
Parking Expense = $1.14 per SF.
• Current lease rates paid by State agencies in metro area (average of $14.33 per
SF) escalate by 2% annually.
• The DOR requires 209,000 SF. Other state agencies in the metro area but outside
of the Capitol Complex currently lease 176,200 SF. This totals 385,200 SF, which
is more than enough to fill up the Landmark Center.
Savings from Purchase of Landmark Center vs.
Continued Leasing for State Agencies
Total Cash Flows
(Spending) by State
over 20 Year Period
Net Present Value
Lease 345,335 SF of Office
Space in Metro Area at
Current Rates
$120,239,192
$79,631,954
Purchase Landmark Center
and Fill with State Agencies
$90,247,834
$60,312,470
Savings over 20 Year Period
$29,991,358
$19,319,484
Additionally, the State will own the Landmark Center free and clear after 20
years with the Purchase Option. Not so with the Lease Option.
Finding:
Purchasing the Landmark Center and filling it with
State agencies (which now lease office space in the
metro area) provides the State an opportunity to
achieve significant savings in the annual cost of office
space.
Summary of Findings
• The average lease rate for the vacant office space examined in
downtown Jackson is slightly lower than the average lease rate
currently being paid by State agencies outside of downtown
Jackson, but within the metro area.
• Significant savings can be realized through more efficient use of
office space by State agencies.
• Purchasing the Landmark Center and filling it with State agencies
(which now lease office space in the metro area) affords the State
significant cost savings.
Sources
Cushman and Wakefield Study, 2011.
General Services Administration; Office of Governmentwide Policy; Office of
Real Property Management; Performance Measurement Division.
“Workspace Utilization and Allocation Benchmark” July 2011.
Hood, Mason. Department of General Services for the Commonwealth of
Virginia; Division of Real Estate Services, January 2013.
Mississippi Department of Finance and Administration, 2012.
Texas Facilities Commission Master Plan, 2011.
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