NASHVILLE - A Chicago-based real estate services firm that recommended Tennessee government unload six state-owned office buildings, including two in Chattanooga, will benefit financially as the state moves to lease new space in the private market.
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.
The makeup of the state's workforce is "always subject to change, and it is hard to predict the state's office needs for the next 20 years," Smith said.
Moreover, constructing a new office building "would require a large capital investment and legislative approval and it was decided the capital is better spent on other initiatives at this time," Smith added.
In a statement, General Services Commissioner Steve Cates said outsourcing management, leasing and maintenance makes sense for the state.
"We're having an expert handle the facilities management for us," he said.
The state expects to save $50 million over the five-year contract. Moreover, Tennessee will avoid another $25 million in one-time costs, plus $3 million annually by not having to buy and maintain necessary technology and equipment, as well as set up a call center.
"It's at significant cost savings and cost avoidance to Tennessee taxpayers," Cates said.
But state workers are skeptical, said Robert O'Connell, executive director of the Tennessee State Employees Association.
"People are nervous, of course," McConnell said. "People don't want to be totally out of a job, and they're being basically told they can have the same jobs. But there's no guarantee."
Some are only a few years or less from qualifying for full state retirement benefits, he noted. Those hired may earn more in salaries but less in retirement and other benefits, O'Connell added.
"As far as I know, state employees were doing a good job managing," he said.
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."
Contact staff writer Andy Sher at email@example.com or 615-255-0550.