As the state of Georgia faces $3.5 billion in spending cuts, officials hope the private sector can help trim costs from the state's vast collection of building leases.
The State Properties Commission is considering six firms to manage about 1,200 leases for everything from Georgia Piedmont Technical College classroom buildings to driver’s license renewal offices. The contract, which covers a total of 12 million square feet of leased real estate, will be awarded in the coming weeks.
The state needs commercial real estate brokers to manage lease negotiations because its in-house staff members aren’t up to speed on the latest pricing trends, said Joe Fucile, an attorney at Hartman Simons & Wood.
“There has been some criticism that they’re in spaces where they’re not getting the best rate,” said Fucile, who previously managed real estate for the state Board of Regents.
The six finalists include four large, global firms: Colliers International, JLL, Newmark Knight Frank and Savills Studley; and two much smaller locally owned companies, The Norton Agency in Gainesville and T. Dallas Smith & Co. in Atlanta.
The state’s portfolio contains properties for myriad uses, including aircraft hangars, state park maintenance sheds and parking lots. They range from the 44-story downtown office tower that houses the Department of Human Services’ headquarters to Georgia Bureau of Investigation broadcast antennas.
The contract was most recently held by London-based Savills and Washington-based Cresa. Cresa was asked but declined to submit a bid to renew its contract, said managing partner Tom Tindall.
The State Properties Commission was scheduled to interview the six firms in early April but has since postponed the meetings to an undetermined date. A commission spokeswoman declined to comment.
It’s a difficult contract to manage because of the state’s self-imposed restraints on real estate contracts and the specific needs of government clients. Those limitations have made it difficult for the state to save money on real estate, said Cloteen Jasmin, senior vice president at Cresa.
“There are plenty of leases that could have and should have been renegotiated,” she said.
Most state leases are restricted to one year, making it difficult to cut deals favorable to the state, Jasmin said. Landlords prefer multiyear leases because they avoid the hassle of yearly negotiations.
Georgia voters in 2012 allowed the state to sign multiyear leases, a process the commission said saved about $54 million in the most-recent fiscal year. But to date, the state has only entered multiyear leases on a fraction of the portfolio.
An additional challenge is that government agencies can’t make decisions as quickly as private-sector tenants and they often miss the boat on the best properties to lease, Tindall said.
“There are a lot of state properties that aren’t in the best condition,” he said.
The diversity of the state-owned real estate also complicates things.
“It’s offices to warehouse space to spaces where the Department of Labor has members of the public come in,” said Fucile, the attorney. “There’s a lot of funky stuff in their portfolio.”
The State Properties Commission does not manage real estate for the Board of Regents, the Department of Transportation or the Community Service Boards of the state Department of Behavioral Health and Developmental Disabilities.
Still, it would be a huge win if either of the two local bidders land it.
The Norton Agency, based in Gainesville, has extensive experience managing real estate portfolios for local government clients, including Gwinnett and Hall counties, said CEO Frank Norton. The firm has more than 325 employees and the ability to negotiate leases anywhere in the state, he said.
Smith founded his namesake firm in 2006 after working as an executive with construction firm H.J. Russell and real estate brokerage Cushman & Wakefield. Gov. Brian Kemp, who chairs the State Properties Commission, named Smith to the Board of Regents and the board of the state Department of Economic Development.
A spokeswoman for Smith’s company declined to comment on the firm’s bid.
Representatives for Colliers and JLL declined to comment. Newmark and Savills did not return calls seeking comment.
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