Nugget Project update: a look at the Meridian report
Submitted by admin on Wed, 08/04/2010 - 2:54pm
Last week we reported that the governor's office sent a letter to Nugget Project consultant Mark Lewis taking issue with certain parts of the feasibility study for moving three state agencies into the Carson City Center/Nugget Project.
The one big item missing in that story was the Meridian Business Advisors feasibility study itself, which we now have a copy of.
And a bonus, we also have a copy of letter from Nugget President Steve Neighbors, trying to smooth over relations with the governor's office.
We invite everyone to take a look at the Meridian report, and share any insights you might have.
The big thing that stuck out for me was the reports' use of the current lease rates as a baseline for calculating the savings for these three state agencies to move to the new project.
The problem with this (as I wrote about here) is that the current glut of commercial space means there is a lot of flexibility in lease rates.
But the Nevada Commission on Economic Development just signed a new lease for space earlier this year for $1.05 per square foot. That figure probably reflects more of what the current market rate is compared to the older leases in place for the three agencies in question.
Any landlord who is facing a possible vacancy from any of these agencies moving will be very motivated to negotiate a lower rate to get them to stay.
So, let's do the math. Using the data I gathered back in May, if we calculate that all 310,237 square feet that these state agencies lease right now were to drop from the $1.38 average rate to, say, $1.10 per square foot, that would save the state $1,042,396 in just one year. Compare that to the Meridian report figure of $2,654,094 of projected savings over five years, starting in 2013. Even if you figure the $1.10 rate increases a little each year, it will still be cheaper for the state to renegotiate their old leases than to move.
Unless I'm missing something, there are some costs left out of the Meridian study, namely the cost of physically moving these agencies. As one of their landlords told me before, they went to great expense to set up a satellite dish for just one of these offices. Some of these other offices will have similar expenses to rip out their equipment and move it all to a new location. The costs of moving 310,237 square feet of offices is not going to be small.
The letter from the governor's office also points out another cost that was left out, namely the penalty their current landlords are going to seek to get out of their existing leases.
And we haven't even addressed one of the main concerns from the governor's office, that of the missing 75,000 square feet that the Meridian study says the Nevada Department of Health and Human Services can do without.
I have to conclude after looking at these numbers that they don't pan out. If the state's financial position were better, then perhaps a very good case could be made for making this move, to consolidate these agencies in a central location close to other state offices, and in better facilities.
But with a $3 billion hole in the state budget, there will be very few champions in the government willing to stand up and propose spending extra money for such niceties, while at the same time trying to figure out which state programs to cut in order to pay for it.
Perhaps this part of the Nugget Project can be revived at a later date. But for now, it looks dead. Now we just have to wait until later this month to see what this does to the other portions of the project.
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