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Alter worried about cost of city leases

Thursday, March 7, 2019 by Jo Clifton

Council Member Alison Alter is worried about how much money the city is spending on renting space for city offices as compared to purchasing or building those offices.

At Tuesday’s work session, Alter grilled Alex Gale, the city’s interim real estate officer, about a proposed 60-month lease agreement with CCI-Burleson I for up to $38.8 million. The lease, which is on Thursday’s agenda, has one five-year extension option.

Alter said, “It doesn’t seem to be the most effective financial approach. I understand that we have to move these folks out within a time frame that does not allow us to build space for them or perhaps purchase space for them that we would otherwise be in a position to do.”

The proposed lease at 6800 Burleson Road would temporarily provide nearly 217,000 square feet of office space for the Public Works Department, Communications & Technology Management, Fleet Services Department, the Watershed Protection Department, Austin Resource Recovery, and others, according to backup agenda material.

Gale said executing a single lease instead of several individual leases allows the city to negotiate a better deal and CBRE, the city’s real estate adviser, supported the proposed lease. He said co-locating the departments allowed the city to get amenities such as a gym.

He explained that not all of the departments will be using the space at the same time. Because the property includes multiple suites, and different departments have different schedules, the city will only be paying for the suites that are in use throughout the rental period.

According to Gale, CBRE is still analyzing data for the occupancy study it is conducting for the city, and its report is expected “within the next month or two. We expect to come back to Council with what those recommendations are and how we see us outlining our long-term strategy.”

He said his office has received requests from multiple departments for new or additional space. The cost of the Burleson Road space comes out to $27 per square foot plus $7.64 in operating expenses on average over the first year. The price will go up 1 percent per year. Total rent and operating expenses for the first year comes to $7,513,693, according to the backup material.

Council Member Kathie Tovo wanted to know whether the city had worked with the Austin Independent School District and Travis County to find out whether they have any suitable space. According to Gale, neither entity had a space large enough or in an appropriate location for the city’s needs.

Gale said the Office of Real Estate Services would work with the school district as it faces school closures.

Tovo said, “I appreciate the creativity of the real estate department in your ongoing work, but I think we need to think differently about this particular question because we always have a line in (the backup material) that says AISD was consulted. AISD doesn’t have class A office space … (But) we have to think more creatively about how some of their facilities could be used or could be adapted for use by the city. I just put that out there – that if we are interested in helping both these partnerships, we are going to have to think differently about the use of their space.”

Photo courtesy of the city of Austin.

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