When Indianapolis Mayor Greg Ballard opened the City-County Building to the possibility of private management for the first time in 50 years last summer, his staff hoped to land a big upfront payment, plus annual savings.
None of that came to fruition, so Ballard this year signed a 10-year lease extension with the Indianapolis-Marion County Building Authority, which has owned and operated the building at 200 E. Washington St. since it opened in 1962. The authority, a municipal corporation, agreed to shave $300,000 off the city’s $4.85 million in annual rent, according to the documents obtained by IBJ.
Four private-sector real estate teams responded to the “request for information” that the Office of Enterprise Development issued last June, and all proposed using a long-term management agreement to finance a multimillion-dollar payment to the city. But none of them could do that while also beating the building authority on annual expenses, said David Rosenberg, the city's director of enterprise development.
“We’re not going to make a bad deal that hurts finance or hurts fiscal responsibility to the taxpayer,” Rosenberg said.
The respondents were Ambrose Property Group LLC, partnering with Jones Lang LaSalle; Colliers International with Johnson Melloh; Cornerstone Companies with CBRE; and Brookhurst Development Corp. with Cassidy Turley. The responses were submitted last June and July. The city released the responses and new building authority contract this month in response to IBJ public records requests.
The various financing proposals would have provided anywhere from $5 million to $90 million in upfront cash, depending on how much the city was willing to pay in annual rent, length of the agreement and space-saving measures that would bring in additional tenants.
The minimum term would have been for 20 years, but two respondents recommended 30 years to lower financing costs. Though the city had anticipated those terms, Rosenberg said, “Locking city and county agencies in, we didn’t think was a good move at this point.”
The city’s never-mind decision left some in the real estate world speculating that the whole exercise was meant to squeeze a better deal out of the building authority, said Jeff Baize, CEO of Brookhurst Development, a national firm with its Midwest office in Indianapolis.
“We hope this isn’t the case as these endeavors are very costly to the firms that submit proposals,” Baize said.
Rosenberg said the RFI was not a negotiation tactic. “I don’t think that’s a fair criticism,” he said. “Going through this process is what we try to do when any contract ends.”
The building authority charges the city $7.29 per square foot for the 665,534 square feet of office space. Going rates for Class 'B' office space downtown are about $19 per square foot. The city's rent includes 24-7 access to a 621-space garage, all maintenance, utilities and janitorial service. The building authority also provides what it calls several “non-standard” services, such as asbestos work and round-the-clock maintenance for the on-site jail.
With the most recent city-building authority lease set to expire last Aug. 1, Ballard had the option to take title to the City-County Building. That would have given the city leeway to enter a new arrangement that might generate upfront cash for infrastructure needs. The city's RFI suggested a lease-leaseback, similar to a sale-leaseback.
At the time, building authority General Manager Ron Reinking doubted that anyone could get cash out of the deal and still lower ongoing costs. The building authority’s own proposal suggested that it finance a 30-year bond, providing $10 million for the city in exchange for an annual rent increase of 78 cents per square foot, or about $500,000.
“The private sector is able to do creative models in financing,” Rosenberg said. In the end, the city left title to the City-County Building in the hands of the authority and didn't opt for any refinancing.
The city tried to maintain maximum flexibility in the new agreement, which the building authority signed Feb. 5 and runs until Dec. 31, 2022, Rosenberg said. After Dec. 30, 2019, the city may seek the sale of the building to a third party, and the building authority would cooperate. Rosenberg said there’s no sale on the horizon, though.
The private-sector firms proposed hiring space-utilization experts to reconfigure offices and free up real estate that could be leased by outside tenants, or by public agencies that are currently paying market-rate rent in other places downtown.
The building authority agreed to spend as much as $100,000 on a space-utilization study, which may include a review of the vacant Old City Hall. Any leftover money is to be applied to energy and environmental certification efforts over the next five years.
The city and building authority also agreed to mutually explore additional revenue opportunities, including retail, use of the roof and “possible synergies” with other properties managed by the authority.
The authority manages 19 other public facilities, including the Marion County Jail, which sits adjacent to the Washington Street parking lot where the city has proposed building a new transit hub.
The building authority’s big concession was to cut $300,000 in expenses by June 30, the end of its current fiscal year. Reinking said he’s doing that by reducing janitorial services, installing lower-watt lighting throughout the building and cutting four positions from his staff, mostly through attrition.
“It’s really just belt-tightening,” he said.