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Real Estate Agencies Lease

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					      Land Ho!
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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