UTC eager to acquire Tennessee office buildings in downtown Chattanooga

UTC eager to acquire Tennessee office buildings in downtown Chattanooga

January 30th, 2013 by Dave Flessner in Business Around the Region

Tennessee government has transferred ownership of the James R. Mapp State Office Building, pictured, and the adjacent Chattanooga State Office Building to the University of Tennessee at Chattanooga.

Photo by Staff File Photo /Times Free Press.

State offices ready to close

• Chattanooga State office building, 540 McCallie Ave., was built in 1954 and expanded in 1970 for the former Interstate Life & Accident Insurance Co. The state estimates repairing the seven-story, 172,0000-square-foot building would cost nearly $8.5 million.

• The James R. Mapp Building at 311 M.L. King Blvd., was built in 1992. Repairing that 75,445-square-foot building is projected to cost at least $3.5 million.

• Nearly 400 state employees work in the two offices for the departments of Human Services, Revenue, Environment and Conservation, Economic and Community Development and Labor and Workforce Development and will be relocated to other leased offices.

Gov. Bill Haslam has decided to vacate a pair of state office buildings in downtown Chattanooga, but another branch of state government may be ready to take over the properties.

University of Tennessee at Chattanooga officials have approached state officials in Nashville about the possibility of transferring the Chattanooga State Office Building and the James Mapp Building to UTC once the state transfers its employees and offices out of the structures.

"We are definitely interested in those state office properties given their close proximity to the university and our need for additional land for campus expansion," UTC Vice Chancellor Richard Brown said Tuesday. "It's a natural fit as we look to continue to grow UTC's enrollment and programs, and I'm hoping that we will receive some word back from the state shortly."

Tennessee's State Building Commission recommended last year and Haslam agreed this week to shut down Chattanooga's downtown state offices rather than spend the estimated $12 million it would take to repair the two structures. The state plans to rent office space from private landlords to accommodate nearly 400 employees who work for a variety of state agencies housed in the two buildings.

The two buildings contain nearly 250,000 square feet of office space and parking spaces for more than 100 vehicles.

Brown said UTC has not made any assessment about the use or upgrades of the properties if it is able to acquire the buildings and their adjacent parking facilities.

But UTC has been expanding its campus footprint, including recent acquisitions of the former Red Cross and J. Avery Bryan Funeral Home on McCallie Avenue, to help accommodate UTC's growth plans.

The university has grown this year to include about 11,800 students and has set an enrollment goal of 15,000 students -- and a stretch goal of 18,000 students -- to accommodate expected increases in college enrollment.

"This could be a real win for UTC and downtown," said Kim White, president of the River City Co., the downtown development agency. "These buildings would be great for UTC, located right between the campus and the university's dorms, and we could move more state employees and their offices in leased spaces in the heart of downtown. We can definitely accommodate these state offices elsewhere downtown, and we're urging the state to keep these agencies and their workers in the central city."

More than 20 percent of the office space available in downtown Chattanooga is vacant, including several buildings that are empty. David DeVaney, president of NAI Charter Real Estate Co., who tracks office leases in the market, said a survey last fall indicated that there was about 625,000 square feet of available office space downtown, not including the 180,000-square-foot Gold Building formerly occupied by BlueCross BlueShield of Tennessee.

The Gold Building is under study for a possible hotel, according to its owners, Ken and Byron Defoor.

"There certainly is space for these state agencies to relocate into and the state has determined that would be more cost effective," DeVaney said. "I would hope the state office buildings could become a part of UTC since the university could obviously use the extra building and parking space as it grows and other building owners could benefit from new state leases."

Russ Elliott, principal broker for Luken Holdings, said his company is anxious to lease some of its offices to state agencies. He said Luken isn't interested in acquiring the vacated state offices, given the estimated expense of upgrading the facilities.

"The market is definitely headed in a better direction than three years ago," he said. "Personally, I hope UTC is able to obtain these buildings since they are right at their front door and they need the space."