Nugget Project: A look at the lease numbers
Submitted by Kirk Caraway on Mon, 05/17/2010 - 10:01am
While the Carson City Board of Supervisors are on track to ante up $75,000 this week to move the Nugget Project to the next phase, I'm finding that the more I dig into the details, the more the numbers don't seem to add up.
Specifically, I'm looking into part of the project that calls for getting three state agencies to lease space in this proposed 177,000 square foot development in downtown Carson City. I use the word "proposed" in a very loose sense here, since it's likely to change once P3 Development begins the real process of feasibility planning for this project. In fact, as I am writing this, there's a new story out from Northern Nevada Business Weekly quoting the developer that the office portion would be 175,000 square feet, with an additional 50,000 square feet of retail space, to go along with the 60,000 square feet for the library/business incubator/digital media lab portion of the project.
I took a look at the property leases (attached below) that the three agencies — Gaming Control Board, Public Utilities Commission and the Department of Health and Human Services — are paying for their existing space. The first number that jumped out at me was 310,237. That's how many square feet those three agencies are leasing right now. As you can see, that's quite a bit more than the space being planned for this project.
The NNBW story repeats what the developers said earlier this month, that they think these state agencies can save money by consolidating services into one location. But I'm not sure how you shoehorn 310,237 square feet into 175,000.
GCB and PUC already have what you would consider "consolidated" office space, in that each agency has one location in Carson City. Those two leases account for 55,279 square feet. I'm not sure how much savings there are in moving these two, other than maybe some shared IT expenses.
The real potential for cost savings would be Health and Human Services. HHS is spread around 17 different locations in Carson City, accounting for 254,958 square feet. And while you might be able to reduce the footprint of this and the other two agencies, it's clear that you can't fit all of HHS into the Nugget Project space, unless they plan to add another story or two. So, you will only get a portion of the potential savings and benefits.
That brings us to another number: $1.38. That is the average monthly rent per square foot the state pays for the leases for these three agencies, a total of $428,689 a month, or about $5.1 million a year. These figures don't reflect any recent rent reductions that the state asked landlords for in an effort to bring down costs and get lease prices down to where the market rate for these properties now sits.
That brings us to another number: $1.05. That's the monthly square foot cost of the most recent state lease signed, for the Nevada Commission on Economic Development, that moved to Nye Lane from the Fireside Building in downtown Carson (the same building the city wants to acquire for its Business Resource Center, with ties to the Nugget Project, but that's another story). This number gives you an idea of how low the current landlords of these state agencies might go in order to keep them from moving.
The estimates I've heard from people in the commercial real estate business are that the Nugget Project rents would probably have to be somewhere north of $2 a square foot to make sense for the developer. This is a semi-wild guess from those looking at it from the outside, and who knows what the real number will be.
So the Nugget developers have their work cut out for them making these numbers work. It's possible, just like it's possible that next year's Super Bowl might pit the Oakland Raiders against the San Francisco 49ers. But I'm not sure I would want to bet on it.
Next up we will be taking a look at the hurdles this project will have to clear in terms of getting these state leases, and some unintended circumstances that might come up as a result.
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