Real estate firm earns more than $3 million from Tennessee outsourcing contract

Real estate firm earns more than $3 million from Tennessee outsourcing contract

October 14th, 2015 by Andy Sher in Local Regional News

Terry Cowles speaks during a hearing of the Legislature's Fiscal Review Committee on Oct. 13 in Nashville, Tenn.

Photo by Erik Schelzig

NASHVILLE -- Real estate management giant Jones Lang LaSalle has so far made $3.35 million in commissions from striking private office leases on behalf of Tennessee government agencies since its state outsourcing contract began in May 2013, figures show.

Thirty months into the contract, the company has already made more money than it will on its separate 60-month contract to provide facilities and energy management for nearly three dozen state-owned office buildings.

The facilities management contract calls for the publicly traded firm to be paid $600,000 a year or $3 million over the course of the five-year agreement. Haslam administration officials say that's already saved taxpayers $12.9 million over two years.

Figures on JLL's leasing commissions were provided Tuesday by Department of General Services' officials following a Times Free Press request last week. So far, JLL has received $3,355,109.33 in commissions on 19 office leases the company negotiated for the state. The company receives 4 percent of the value of each lease, which state officials say is the industry standard.

While a list of the 19 leases and amounts was not available Tuesday, it would presumably includes two Chattanooga leases that Jones Lang LaSalle struck on behalf of the state in 2013. One was with Eastgate Town Center in Brainerd and the other with owners of the former Combustion Engineering offices at 1301 Riverfront Parkway.

John M. Hull, deputy commissioner of General Services, emphasized in an interview that "the state is not paying those fees directly. It's actually paid by the landlord."

But while Hull said the 4 percent fee is considered standard for such work, he acknowledged office owners are likely factoring at least part of the fee, if not all of it, into their rental charges to the state.

State employees formerly did the lease work themselves. Hull said state employees are still negotiating some smaller leases and have learned from JLL to do their jobs better.

The Times Free Press asked for the lease information as General Services and other Haslam administration officials last week defended the work JLL has done even as Republican Gov. Bill Haslam eyes privatizing new real estate and energy management.

That would include facilities management for state university and college campuses, state parks, prisons and armories.

But a controversy has risen since it became known top administration officials are discouraging workers on the project to avoid using emails on sensitive items after some information leaked out.

Terry Cowles, a former IBM executive in charge of Haslam's Customer Focused Government initiative and the office of Strategies for Efficiency in Real Estate Management (SERUM), told reporters it was necessary to "put that control in place" to ensure information was released in a more "deliberative" fashion.

"We want to provide you all and the public with as much information as we can," Cowles said. "But we have to have some opportunity to make sure in fact that what we're providing is the right information."

The issue developed after WTVF-TV in Nashville reported on records outlining a timetable on the new round of outsourcing that appeared to treat it as a done deal.

Haslam has maintained no decision has been made. Cowles said the timetable was a "very early draft" and now it "still kind of lingers around and creates questions at this particular point when it has no relationship to where we are at this point in the project whatsoever."

The Associated Press quoted Sen. Jeff Yarbro, D-Nashville, saying it was an effort to get around state open records laws.

"It looks like the whole administration is avoiding the law against keeping secret the formation of public policy decisions," Yarbro told AP.

Earlier, Cowles and other officials testified before the General Assembly's Fiscal Review Committee, where several lawmakers praised the administration's continued efforts to save taxpayer dollars. But some others were more skeptical.

Sen. Ken Yager, R-Kingston, noted that meetings of eight various "working groups" and "steering committees" involved in the project aren't open to the public.

"Maybe we should consider that," Yager later told reporters.

Cowles told reporters, "We're in a deliberative process. It is important to us to reach early conclusions that may need to be changed. We're reaching some preliminary decisions. You saw it yourself in some of the documents that were provided to you that quite frankly have no relationship at all to how we're proceeding at this particular stage."

Officials hope to know by January if there will be a recommendation to move forward.

Contact Andy Sher at asher@timesfreepress.com, 615-255-0550 or via twitter at AndySher1.