Education & Workforce Development and Government and Real Estate & Retail

Space crunch prompts Indiana to seek help with real estate leasing duties:

August 15, 2005

Between the Statehouse, the Indiana Government Center and the State Library building, the state of Indiana owns 1.1 million square feet of real estate in downtown Indianapolis.

Still, that's not enough room to house all state government's agencies and functions-which is why Indiana spends nearly $17 million each year to lease space elsewhere in Marion County.

Some agencies, including the departments of education and health, house nearly all their office workers in privately owned buildings near the Statehouse. Other departments need to have offices or other space in various locations around the city and state.

Most of the time, officials at the Indiana Department of Administration handle leasing details, since that agency oversees real estate for most state entities.

Other times, the department's director of leasing, Bea Tate, may be asked to find space. In the past, she has made the call on whether to bring in outside brokers to help, based on her perception of the complexity of the deal.

Now that's subject to change, along with most other aspects of the state's real estate dealings, said Deputy Commissioner of Administration Kevin Ober,

"Since the new administration began [in January], those decisions are reviewed on a case-by-case basis with senior management," Ober said. The process will be restructured under new contracts expected to be awarded this fall, he said.

The state has used professional real estate brokers to handle at lease some of its real estate functions on an as-needed basis since the early 1990s. In 1999, the IDOA for the first time awarded contracts for those services, selecting locally based NAI Olympia Partners and the local office of Los Angeles-based CB Richard Ellis as its providers.

Because IDOA has only two employees in its real estate division-a director of state leasing and a director of the state's owned land-using outside expertise is sometimes necessary, Ober said.

Checks with nearby states shows that the decision to use outside brokers for such services is by no means unanimous.

Ohio and Kentucky, for instance, handle leasing and owned property entirely with state employees.

"We've had a number of firms approach us to do certain things for us," said Jim Abbott, commissioner for facilities and support services in Kentucky's Finance and Administration Cabinet. "To date we've chosen not to [contract with them]. ... Right now we're doing all that and hopefully for fewer dollars in terms of cost to the taxpayers."

Michigan and Wisconsin, on the other hand, use outside firms for at least some of their real estate services.

Wisconsin recently started using an outside firm, Chicago-based Equis Corp., to handle some sales and lease transactions, as well as help the state develop a comprehensive real estate strategy. The state formerly used its own employees to handle real estate matters, but realized its staff was handling too many leases-about 600-to be efficient, said Robert Cramer, administrator for the division of state facilities in the Wisconsin Department of Administration.

Michigan estimates its contract with Dallas-based Staubach Co. has saved about $30 million over the past three years through space consolidations, lease cancellations and renegotiations, said Bridget Medina, public information officer in Michigan's Department of Management and Budget.

Both states use firms that represent only tenants, eliminating the possibility of divided loyalties among brokers. Both also are "no-cost" contracts, meaning the brokers are compensated by landlords when leases are signed, although the fees must be disclosed.

Indiana isn't looking to those two or any other state for guidance as it charts a new course for its real estate operations, Ober said. State officials did a "very low level" of research into how other states administer real estate, he said, but tried not to make any assumptions.

"We viewed this as an opportunity to have a lot of that information delivered to us through the request for services," he said, referring to companies that have worked with other state governments and may bid for Indiana's contract. "If other states have had success, people are going to tell us about it."
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