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The Real [Estate] Story Division of Real Estate Services •Organization and Roles •Funding •Savings/Cost Avoidance •Current and Future Activities DRES Organization and Roles Executive Order 75 – Issued on June 22, 2004 Establish a unified and fully integrated real estate portfolio management system for the agencies and institutions of the Executive Department, based on the following enterprise-wide goals: Increase co-location and bargaining power Decrease total and per-person space allocations Reduce total costs Maintain agency security and operational needs Augment or maintain agency functional space and real property services DRES Organization and Roles 360,000 acres of land in over 1,000 locations 13,000 owned buildings, 117 millions square feet of space 1,400 leases, 16 million square feet at $145 million in annual rent 490 leases for 7 million square feet of leased office space Annual transaction volume of 400-500 (leases, purchases, sales, amendments, easements) DRES Organization and Roles Division of Real Estate Services Director Legal Specialist Admin Assistant Deputy Director Project Manager Transaction Manager Space Planner-TBH TM TM TM TM TM TM Lease Administration Policy & Training IREMS Manager Manager Staff Summary Lease Administrator Data Specialist FTE 17 TBH 1 Data Specialist Part Time .4 (Part Time .4FTE) DRES Organization and Roles DRES Services and Funding DRES Services and Funding (cont.) Transaction Services: • Publication of guidelines for the conduct of transactions • Gather information on the requirements including, location, type, size, condition, population, adjacency (to other facilities, roads and infrastructure), security, signage, duration of need, expansion or contraction needs, etc. • Identify likely properties that may meet the selection criteria by listing service search, communication to brokerage community, on site search by broker. • Prepare and issue RFP, distribution to likely property owners, the local brokerage community, and on-line posting. DRES Services and Funding (cont.) Transaction Services (Pg 2) • Gather and evaluate RFP responses against requirements, collect additional information as needed. • Identify with requesting agency the most suitable locations. • Conduct negotiations with the several most suitable locations to achieve best a terms. • Perform financial analysis to support the decision making. • Coordinate schematic design of space to support negotiation of construction costs DRES Services and Funding (cont.) Transaction Services (Pg 3) • Verify conformance with 205 USF per person standard, reported on the Governor’s Virginia Performs platform • Develop lease or purchase documentation and exhibits to formalize the transaction. • Secure formal approval of the transaction. • Monitor construction of improvements for conformance with approved plans. • Coordinate with the agency(ies) that occupy the facility and the property management for occupancy and operation of the facility. DRES Services and Funding (cont.) Property Administrative Services • Establish the lease/purchase record in the Integrated Real Estate Management System (IREMS) and enter the data on the executed lease/purchase • Set up the schedule of lease payments in IREMS • Create PDF files of the lease and related documents and attaching to the IREMS record • Obtain tenant improvement cost reconciliations and auditing against lease terms • Obtain Lease Commencement Letters • Initiate monthly payments of rent and operating expenses per the lease terms DRES Services and Funding (cont.) Property Administrative Services (Pg 2) • Review the landlord correspondence related adjustments to rent and operating expense for conformance to the lease • Maintain information on CPI Indexes • Confirm calculations and inclusions • Prepare notices for discrepancies and defaults • Initiate audits of landlord records • Serve as the escalation path for property maintenance, repair or operations issues • Confirm responsibilities for the work and cost recovery DRES Services and Funding (cont.) Property Administrative Services (Pg 3) Prepare notices for discrepancies and defaults Update IREMS for changes in ownership, notice addresses, etc. over lease term Forecast rent expense obligations for portfolio of leased property Track key dates and notice requirements for lease end, options, rent concessions, future improvements Perform end of year and end of term lease reconciliations Enter data for lease term auto-roll over, execution of options and new amendments Close lease records at end of term. DRES Services and Funding (cont.) JLARC approved funding for leases administered by DRES: – 3.25% for single leases – 5% for master leases (co-locations) – Began charging July 1, 2008 – Fees reviewed on an annual basis and subject to change DRES Services and Funding (cont.) Cost Savings and Cost Avoidance Cost Savings and Cost Avoidance Definitions Cost Savings: Current occupancy costs of an existing space were reduced under a new lease Cost Avoidance: Some form of increased cost in the future was avoided through portfolio management activities conducted by DRES Cost Savings and Cost Avoidance Cumulative Real Estate Savings by Category From June, 2005 through August, 2008 (in thousands) COST SAVINGS COST AVOIDANCE Reduced Space Reduced Space $6,926.5 $3,509.4 16.6% 8.4% COST AVOIDANCE COST SAVINGS Negotiated Improved Reduced Rental Rate Terms $11,410.4 $19,773.0 27.4% 47.5% Lease vs. Buy and Cost Avoidance – A Case Study 600 E. MAIN ST. (MAIN STREET CENTRE) • 424,761 SF, 23 story Class A office building constructed in 1987. • 4 Floor, 329 vehicle underground parking structure • 91.7% occupied, including 19% by Federal GSA and 28% by Department of Taxation. • Purchased for $48,819,676 or $114.93/SF • Purchase being funded pursuant to DGS’s $70 million Blanket Property Acquisition Fund passed during 2008 Special Session I. Lease vs. Buy and Cost Avoidance – A Case Study (cont.) 600 E. MAIN ST. (MAIN STREET CENTRE) THIS PURCHASE OPPORTUNITY WAS ONLY ABLE TO BE REALIZED DUE TO FORTUITOUS TIMING! • During the 2008 General Assembly Session, while consideration was being given to an $85.0 Million proposal to construct a 230,000 SF Tax Central Office, DRES identified Main Street Centre for sale. • Approval was obtained for a DGS Blanket Property Acquisition fund that was included in the Bond Bill passed during the 2008 Special Session I. • The cost avoidance to be achieved is approximately $33.0 million when compared to the cost of constructing a new Department of Taxation headquarters building and the resulting building is approximately 85% larger. Lease vs. Buy and Cost Avoidance – A Case Study (cont.) 600 E. MAIN ST. (MAIN STREET CENTRE) An additional $50.0 million of cost savings and avoidance should be realized over twenty-five years by relocating an additional 250,000 SF of agency space from leased buildings to Main Street Centre. Main Street Centre Hypothetical Cost of Owing versus Cost of Leasing 250,000 Square Feet of Space Requirements $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 Cumulative Cost (in thousands) $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Year Cost of Owning (bond financed) Cost of Owning (no bond financing) Cost of Leasing Cost Avoidance in Lease Negotiations – A Case Study City of Suffolk Health and Human Services Building The existing Suffolk Health Department facility is owned by the City Building was constructed in 1952 with an additional wing completed in 1977. The current building is 11,910 square feet and the trailers total 4,320 square feet for a combined total of 16,230 square feet. The current facility has insufficient space to conduct effective client services and to accommodate staff. Current annual cost is $40,134 ($2.47/SF full service) Cost Avoidance in Lease Negotiations – A Case Study (cont.) City of Suffolk Health and Human Services Building City constructing a 58,039 SF building that will house VDH’s Suffolk Health department to occupy 19,393 SF and shared space/common area allocation to VDH is 4,819 SF (41.7% of the building). 24,212 RSF Original Proposal Negotiated Cost Rent/sf $23.32 $17.04 Op. Expenses/sf $4.95 $4.95 Total $28.27/sf $21.99/sf $684,473 $532,422 Cost Avoidance $3.042 million over 20 year term Cost Avoidance in Lease Negotiations – A Case Study (cont.) Roanoke DMV Customer Care Center Originally DMV negotiated a deal with the Landlord at $35.40/SF With DRES involvement, 5 additional rounds of negotiations resulted in a deal at $27.40/SF Total cost avoidance during the initial term and option period of $2,802,253 Cost Savings and Cost Avoidance (cont.) Errors found through the Lease Administration Process DRES has begun lease administration for 430 leases from 29 agencies • A total of nearly $70,000 (from 12 agencies) in payment errors have been found and resolved to date • Approximately $36,300 in actual or potential overpayments to Landlords • Approximately $33,600 in actual or potential underpayments to Landlords Current and Future Activities Current and Future Activities Facility Strategic Plans Over a year ago DRES requested strategic plans from nine (9) agencies and received eight (8) DRES has requested plans from these and additional agencies this month. They will be due 1/16/09. Request for new or updated information annually with emphasis on: – Interior build out standards – List of facilities and desired approach for each – Annual updates of site population (butts in seats, current and projected) Current and Future Activities Appraisals • DRES has contracted with over 20 appraisers (some with geographic and/or appraisal type specialties) • Within the next year DRES will begin supporting agencies by ordering all appraisals • Will start with one or two agencies to pilot the process Current and Future Activities Integrated Real Estate Management System IREMS • Portfolio Management - Repository for Real Estate related data for Owned and Leased Properties • Lease Management - Source system for lease payments • Transaction Management – Allows all team members to track and contribute to transactions • Space Management – Will be used to track efficiency of space utilization • Accessible to all Commonwealth users (after training) Current and Future Activities - IREMS Training and User Groups IREMS Agency Training 52 people from 32 agencies have been trained; 47 of those trained have requested log-ins to use the system DRES staff is beginning to use the Transaction Module. Agency use is encouraged to help agencies track their transactions. More training will be held in January, 2009 Questions ?
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