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State Mulls Buying More Downtown Offices

By GREG BORDONARO

March 25, 2013

The state just completed its largest real estate acquisition in decades, but its appetite for office space still may not be satisfied.

After committing $120 million to buy two signature Class A office buildings in downtown Hartford, state officials say the deal making may not be over.

After this project, we aren't necessarily done," said Shane Mallory, the administrator of leasing and property transfer for the state Department of Administrative Services. "We may want to buy a third building, but at this point we aren't sure."

Donald DeFronzo, commissioner of DAS, said the state continues to receive proposals from downtown Hartford landlords interested in selling their office buildings to the state. DAS is reviewing those bids as they come in, DeFronzo said, but the decision to potentially buy a third building will depend largely on how many state workers can be crammed into the recently acquired Connecticut River Plaza and 55 Farmington Ave. office towers.

The state is spending $120 million to purchase, renovate and move into both of those Class A properties, which contain almost a million square feet of office space.

The plan is to consolidate about 22 state leases and move 3,100 workers into both buildings by the end of 2014 as part of a long-term strategy to reduce the state's real estate costs. By consolidating leased space into state-owned property, government officials estimate taxpayers will save $102 million over the next 20 years.

Space planning consultants are currently assessing which and how many state agencies would best fit into both properties. Several agencies have already been targeted for relocation including the departments of revenue and administrative services, which are housed at 25 Sigourney St.

Mallory said the current buyer's market makes it an attractive time to potentially strike another deal. When the state issued requests for proposals for the purchase of office space in 2011, it received replies from 24 building owners, so there's no shortage of sellers.

"We are looking at those opportunities because the market right now is good for buyers, so it's a good time to do it," Mallory said.

It's not clear which buildings are still being offered up for sale and Mallory and DeFronzo wouldn't comment on possible targets.

Mallory said the state wants to continue to collapse as many leases as possible. The state has about 140 active leases right now, down from about 250 to 300 leases nearly 11 years ago.

It's a strategy that Mallory has been a proponent of for more than a decade but it really gained steam when Gov. Dannel P. Malloy took office in 2011.

That is because the Malloy Administration is providing the financial backing necessary to acquire properties to house state workers.

Although moving into state-owned space is seen as a long-term cost saver, it requires an upfront investment to make it happen. The State Bond Commission recently approved $90 million for the Connecticut River Plaza and 55 Farmington Ave. deals.

"It takes the philosophy that you have to invest some money now in order to save the money over the long haul," Mallory said. "There haven't always been people willing to take that long term view."

As state government becomes an increasingly bigger landlord in downtown Hartford, there are some concerns being raised about what it means for the properties the state is taking over.

State government has a spotty record as landlord. In recent memory, two prominent Hartford office buildings owned and operated by the state have fallen into disrepair. One state building at 60 Washington St. was actually demolished in 2001 because the cost to upgrade the neglected property wasn't economically viable. The other building — the former Xerox tower at 25 Sigourney St. — has already had its garage shuttered because of water leaks and mold, and the state plans to relocate employees working there to 55 Farmington Ave.

Mallory acknowledged that the state hasn't always made the proper investments to maintain its office space, especially when there have been state budget constraints.

But he said the state will hire a professional management firm to run Connecticut River Plaza and 55 Farmington Ave.

The state is also making a significant upfront investment to renovate both properties, and has set aside $5 million annually for the next few years to make any necessary repairs on the buildings, which are each more than 20 years old.

"We've committed to earmark money for the next several years to maintain them," Mallory said. "What's really happened in the past is that the money hasn't been there to maintain some buildings. It's not as if people didn't know they needed the work, but when there's people vying for dollars sometimes the last thing that gets funded is preventative maintenance for buildings."

Upfront renovations on 55 Farmington Ave. will include a new roof, cooling tower, elevator upgrades and garage repairs, Mallory said.

Meanwhile, Connecticut River Plaza recently received a $10 million facelift from its New York owners selling the property to the state. The renovations included new elevators and common areas. The building also got major energy improvements including a switch to natural gas and getting off the city's steam loop, which is estimated to create $900,000 in annual energy savings.

The state will be investing an additional $48 million to furnish and layout Connecticut River Plaza and also do upgrades on the garage.

The areas outside the office towers will also get new plantings, and there will be work done on the walkway that connects the building to Constitution Plaza, Mallory said.