Chicago Firm to Profit from Its Recommendation on State Leasing

A Chicago-based real estate services firm that recommended Tennessee government unload six state-owned office buildings will benefit financially as the state moves to lease new space in the private market, reports Andy Sher.
According to state General Services Department documents, Jones Lang LaSalle is poised to take 4 percent off the top on deals with private companies for leased office space in Chattanooga, Nashville and Memphis.
Hired as a consultant to review and assess 33 state-owned buildings, Jones Lang LaSalle last year recommended closing five “old and obsolete” state buildings. The list included the 59-year-old State Office Building at 400 McCallie Ave. in Chattanooga and the nearby James R. Mapp Building, which is newer. Both buildings require expensive repairs; the firm said it would be cheaper to build new or move into leased space than renovate.
Then last month, the General Services Department quietly inked a five-year contract with Jones Lang LaSalle to manage and maintain all state property overseen by the department as well as leasing.
“We do not see a conflict of interest,” said Kelly K. Smith, General Services’ assistant commissioner for communications. “The services were publicly procured through an open bid process that was approved by the State Building Commission.”
The department employs 126 people for the duties that Jones Lang LaSalle will assume July 1. The employees will lose their state jobs but can apply for work with the firm, although there is no guarantee they will be hired.
Jones Lang LaSalle beat out CBRE United States for the contract, Smith said.
Smith also noted that Jones Long LaSalle recommended the state build and own new space in Chattanooga as opposed to leasing commercial space because it was cheaper.
“However, the state evaluated their proposal and decided to move forward with the leasing option,” Smith said.
The State Office Building (former Interstate Life Building) and the Mapp Building collectively required $15.8 million of capital investment to continue operations. Yet both would have been functionally obsolete and expensive to operate.
…Smith said General Services chose the leasing route for several reasons, including that it “offered greater flexibility to meet the needs of our clients/tenants.”
Jones Lang LaSalle estimated that over 20 years, the state would save $28.4 million on a new, smaller, more efficient building in Chattanooga. Leasing is expected to save $18.4 million over the same period, according to a February report by the firm.
…What employees think they’re seeing from Republican Gov. Bill Haslam’s administration and especially from Cates “is an execution of a certain political philosophy, which is privatization” of what many think of as public functions, McConnell said.
But he said he’s skeptical that privatization is always a big cost saver.
“The prime goal [for the private contractor] is to make a dollar, and every decision they have to make about what they’re going to do has to be filtered through that.”

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