VERIZON BUILDING: Raytheon use scrapped; state offices moving there.

Late last week, the state confirmed details of a story I’ve been following since January, the use of the office building at 1 Verizon Drive in Riverdale purchased by the state in February for $26 million.

I received a document confirming the state had been pitching Raytheon, the defense contractor with a plant in East Camden, to locate a facility there. It was offering cheap rent on the building plus a low-cost $20 million loan (and likely other incentives) to lure an unspecified Raytheon operation.

Derrick Rose, spokesman for ADFA, would say only:

We cannot comment on a company by name as you’ve requested. With regard to the ongoing economic development project related to the Verizon building, the scope, nature and timing of that project has changed and that building is no longer being considered.

A spokesman for AEDC, Brandi Hinkle, said the state public records law exempts potential economic development projects, even, presumably, when they are no longer working.

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After a call to the governor’s office, I was referred to Amy Fecher, head of the new Department of Transportation and Shared Services. She talked with me along with Anne Laidlaw, head of the state Building Authority, now housed in Fecher’s agency. It oversees state building management.

They confirm the building will now be used, as Gov. Asa Hutchinson has indicated recently, to house state agencies. They said this was always a fallback plan if an economic development prospect didn’t take the building. The specific use was disclosed to me for the first time.

They said that the building will house virtually all of the elements of the new state Commerce Department, which will be led by former AEDC Director Mike Preston. It will be an umbrella department for a couple of dozen existing agencies.

Laidlaw said it was expected consolidating the agencies in one place will produce a cost savings over existing arrangements, though she said a specific report on that was still in progress. Fecher said the new building offered other “amenities,” including abundant parking and meeting space for other state agencies.

Among the agencies to be moving there are several currently leasing space from landlords other than the state of Arkansas — including the Insurance Department, bank commissioner, securities department and rehabilitation services.

Laidlaw said many of the agencies will begin moving before the end of this calendar year and the state hopes to complete the moves by the end of of the fiscal year June 30, 2020. “There are a lot of moving parts,” she said. She said private landlords were being given “plenty of notice” that they’d be losing state tenants.

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I raised a question people in the real estate industry have been raising: Why did the state purchase the building outright for an industrial prospect that has now fallen through, rather than taking out an option to purchase?

Said Laidlaw: “It was my understanding for the state to submit a valid proposal. there needed to be a building in state ownership.  We did not have the flexibility to take an option on the building.”

The Hutchinson administration isn’t unhappy with the outcome, spokesman J.R. Davis said. It was always a “Plan B” option to use it for state offices and it will contribute to the efficiency Hutchinson has promised to bring to state government with a reduction in the number of cabinet-level agencies. (Noted: The Arkansas Democrat-Gazette reported today on pay raises granted a number of state officials as a result of the “transformation.” Fifty-eight employees got raises of $10,000 or more.) Coincidentally, a newly outsourced contract to oversee lockups for delinquent youths is already under fire for abusive practices the D-G also reported today.

When the sale was announced, the building, originally an Alltel property that was purchased by Verizon, the building was said to have 285,699 of rentable space. Some of it is still occupied by Verizon operations which are eventually to move out. It has almost 1,300 parking spaces.

The purchase was completed in February, but it wasn’t until May that it was known the Raytheon deal wasn’t going to happen, Laidlaw indicated. No state official confirmed Raytheon was the target of “Project Lantern.” But a document provided anonymously to the Arkansas Times spells out some details of the proposal.

In a letter to Raytheon, ADFA outlined a proposal said to be offered by ADFA, AEDC and the Little Rock Regional Chamber of Commerce that included state purchase of the Verizon building. ADFA said it was confident it could acquire the building for a price that would produce a lease rate “significantly” below market, a total lease ranging from $16 to $17.50 a square foot, compared with $19 to $21 for Class A office space in Little Rock. ADFA also offered to make the first two years rent-free. This letter noted an increase from an earlier cost estimate because of improvements requested by Raytheon.

In addition to the favorable lease, the state offered a $20 million loan to Raytheon to offset costs “associated with a transition to Arkansas.” It would have been an interest-only 15-year loan with no payments required for the first two years. It would have carried an initial 2.5 percent interest rate.

The ADFA letter to Raytheon said it hoped the offer illustrated the state’s “excitement,”  calling it the “largest financial commitment made in ADFA’s history.”

The document doesn’t outline the nature of what type of operation Raytheon might have located in Little Rock. It is possible that hitches developed because of Raytheon’s possible merger with United Technologies, a deal that emerged in June and has drawn some resistance.

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Another small coincidence: More building news related to Arkansas Rehabilitation Services, among the agencies slated to move into the Verizon building. The Hot Springs Sentinel Record reports concerns  about the historic former Army Navy hospital building in Hot Springs. It’s been used by Rehabilitation Services as an occupational training facility, but it will close at the end of the year. Said the newspaper:

With no funding in place to heat, cool and secure the former Army and Navy General Hospital after the first of the year, city officials are bracing for the worst.

 

Arkansas Rehabilitation Services, the state agency overseeing the Arkansas Career Training Institute overlooking downtown Hot Springs from its perch at 105 Reserve St., told officials Monday there’s no money in its budget to keep the utilities on after the building reverts to the federal government at the end of the year.

PS: a correspondent in the real estate business notes that state ownership of the Verizon building takes it off property tax rolls, a six-figure loss to public schools

He also questions the efficiency angle, noting the state’s recent purchase of land north of the Capitol for a multi-agency building and vacancies created elsewhere, such as in the renovated former Dillard’s HQ on Capitol Avenue. That promised analysis from Laidlaw might help answer those questions.