JBJ: Adecco Group Moves North America HQ to Jax

[simms3]

Adecco was having to pay 1 million dollars per year for parking downtown.  That's on top of their lease on the north bank.  Craziness.

Not sure what their square footage was in the building before, but that's really not a lot.  That's paying for ~900-1,000 stalls downtown.  Assuming to be competitive they needed at least 3 stalls per 1,000 sf, they must have had 200-300,000 SF, which means they were probably paying $4-6M in rent, clearly about $5-7M all-in.

The sad part about all of this is two-pronged:

1) Downtown Jacksonville is about the cheapest downtown in America, both in terms of rent and in terms of parking.  So for downtown space, especially space with relatively quality when comparing to peers of ~1 million people, DT Jax is a BARGAIN.

2) The disparity in costs between DT Jax and the SS (i.e. suburbs) is A LOT LESS than most anywhere else.  For all intents and purposes, rents in newer/quality SS buildings could be even higher than in DT buildings, so adding parking costs to DT rents doesn't really get you that much over a comp in the burbs.


In other cities, downtowns truly are more expensive, and considerably more expensive than their suburban counterparts.  So I think there must be some other underlying reason for a hesitancy for companies to located downtown.  It could just be that Jax doesn't really have a lot of "downtown users", and so why force it with incentives?  It could be about employee/executive geography - in which case a MASSIVE turnaround needs to happen to make downtown competitive, and then it becomes more of an urban core issue than a downtown specific one.

I've never ONCE bought into anyone's parking argument.  Bunch of BS.

[Wacca Pilatka]

Naming rights can be bought, though.  Totally up to the landlord...Typically law firms never ever buy naming rights.  Imagine a tower named the Skadden, Arps, Slate, Meagher & Flom Tower.  Or the Rogers Towers Tower.

This seems oddly common in the DC area, though.  And I am pretty sure McGuire Woods has its name on a tower in downtown Richmond.

You could be right, but I have not personally seen a lot of names on buildings in DC, including law firms (even though big law firms are HQ'd throughout DC and Richmond).  Most of the buildings there go by address (i.e. 55 Massachusetts Ave, 55 Pennsylvania Ave, 55 K St).  At least that's what I saw from a distance doing some work there and jumping on acq calls and hearing DC teams discuss buildings/market.

I had to Google McGuire Woods' offices in Richmond to see what you're referring to - didn't read the article, but they are anchoring the city's newest building and have explicitly stated they will not put their name on top:

Anchor tenant doesn't want to fly its flag

...

The decision was made by McGuireWoods Chairman Richard Cullen, according to a source with knowledge of the situation.

Cullen has said "there are better ways to strengthen the firm's brand than putting it on the top of a building," according to the source...

http://www.richmondbizsense.com/2013/03/20/anchor-tenant-doesnt-want-to-fly-its-flag/

Cities that are big enough have prominent streets that provide fancy addresses that everyone wants to have.  It has more street cred, generally, to say you're in 555 Cal in SF or 1180 Peachtree in Atlanta than The X Building, etc.  There are exceptions - banks, corporate HQs, large owner-users that are generally corporate HQs, telecom buildings, etc.

I live in Virginia.  I am right.

What I didn't clarify adequately was that I was referring to suburban DC, not downtown.

Also, the first photo in the Richmond article shows that McGuire Woods' name currently appears on a tower in Richmond, as does Williams Mullen, another large firm in the area.

[simms3]

^^^Could be, though any prominent firm worth joining is going to have their corporate/main DC office downtown, or perhaps Rosslyn (not a lot of signage on those buildings)

I've never ONCE bought into anyone's parking argument.  Bunch of BS.

Parlaying off of this, I think what's happening is that private sector firms are guilt-tripped into coming up with an excuse as to why they aren't downtown.  I've never been in another city, personally, where every firm *had to have* a reason why they were leaving downtown or weren't downtown.  Some firms are, some firms aren't.

What I think is that city leadership and local media blindly playing into this have made firms located on the SS the "bad guys" when really A) they probably aren't meant for downtown anyway or B) if they are meant for downtown, the city hasn't done ITS part in making that happen (i.e. executives would prefer to live in SJC, employees would prefer to live around Gate, entertainment options are concentrated at the beach/SS).

The city has decided to place nearly ALL of its emphasis (development, incentives, infrastructure, etc) on the SS, and then deflects blame for companies and people not living/working in/around downtown, making everyone else the bad guy.  And the media plays into this, feeling the need to interview people on why they don't live downtown or why a company decides to leave downtown, and so parking has become the scapegoat reason!

And in a case where a firm relocates downtown (i.e. Everbank), the firm is heralded as a savior and a good samaritan!  No - perhaps to an extent, but there were a shit ton of incentives in there and Everbank is actually a firm where executives live closer into the core (i.e. Rob Clements in Ortega) and executive offices are on Riverside.  The firm is not a savior - it took handouts and made what it felt was the best business decision at the time.  And it's a bank - a company within a much more downtown centric industry.

Fucking PR on downtown is so out of whack.  Stop handing out taxpayer dollars and then calling those companies that take them saviors and stop forcing other companies to produce silly artificial reasons they aren't downtown!  Instead, if you want firms downtown, then do something long term about!

Ahh

[fsquid]

dude has a point.

[simms3]

^^^Stephen, I already stated that, but let's look at a few things.

1) A multinational with $30Bn in revenue and 2,500 employees can be located anywhere (i.e. Jax or Manhattan), and depending on EBITDA constraints, board oversight, industry, needs, etc might be just as conscious about real estate in SF or NYC as Jax.

If controlling real estate costs is *that* big of a deal (which for a firm with $30 billy in rev and only 2,500 employees can't possibly be the level of big deal we're talking), then an Adecco will forgo the tangible/intangible benefits of being in Manhattan and will relocate to Jersey, or down to Jax.

So, yes firms often do weigh NYC/SF vs Jax and the comparison can be very real.  In Adecco's case we're talking $5-7mm in real estate costs in Jax vs $15-20mm in Manhattan (parking far less of a concern), so comparing costs it's a big difference, but as an overall component of revenue, not so much.

2) And what we're really talking about is Jax downtown to Jax suburbs.

http://www.cushmanwakefield.com/~/media/marketbeat/2014/07/Jacksonville_Americas_MarketBeat_Office_Q22014.pdf

Downtown Class A is $19.71 average.  Butler/Baymeadows is $18.15.  So if parking is equivalent to $3-5psf extra, perhaps we say downtown overall is 25-36% more expensive.  I doubt for new BTS class A on the SS the difference is that much.

So just looking at Jax, yes there is a huge value proposition.  But at Jax rents, this $30Bn revenue company is saving $1-2mm a year, or 0.003-0.006% of what they take in.

The difference between DT SF and DT Oakland or suburban Bay Area rents (excluding Menlo Park/Palo Alto) is MUCH greater, and the scale is much higher.  Yet even with average office rents in SF at $60 now and 40-45% lower in Oakland, there's not yet a flock of companies to Oakland to save money, because even then, unless you're a much smaller firm, you're not saving *that* much in the grand scheme of things and the talent pool/executive base is going to be closer to SF, along with synergies with other firms.

I'd say the pull to be near where executives and employees live is greater than rent or parking expenses.  Additionally, if your firm needs synergies, that's a pretty strong intangible benefit of being in a more expensive, confined downtown that isn't often outbid by the cost savings of being in an isolated campus setting in a suburban office park.

Point being, I just don't see parking costs being the primary reason Adecco is moving to the Butler/Baymeadows area.  I would guess their executives live much closer to that area, as does their employment base.  Less time commuting = more time working and happier/more productive employees.  Far greater benefits to the bottom line than saving $1-2mm in real estate costs.  Plus, what benefits does Adecco have for being downtown?  It's not a fantastically "cool" and exciting place to work like a big city downtown, and there aren't any synergies that I can think of.

[ronchamblin]

I wonder ... "if' Jax had a super duper transit system ... streetcars ... light rail, etc ... would that be an incentive to cause a choice for a large company like this to enter the core instead of an outlying area such as Baymeadows? 

In other words, to what degree is the lack of a full blown transit system slowing the revitalization of the downtown core? 

Said in another way ... I suspect that with each new segment of mass transit completed ... whether streetcars or light rail etc ... connecting the core to the outlying areas ...  we will see an increased rate of large and small operations moving into the core.   

[simms3]

Parking is never charged in psf.  Let's keep numbers simple.  $20psf rent at 100,000 SF, and you need 3:1,000 parking, so you need 300 spots.  At ~$90 a spot/mo on average, less for some and more for others that are executive reserved (not much more, not much less), that shakes out to $3.24psf in addition.

At $6psf, you're assuming the average parking spot in Jax is $180/mo, when I don't think there's even 1 spot in the entire city that high.  Or you're assuming a 6:1,000 parking ratio, which is WTF high (and certainly well above "market", which is 3-3.5:1,000).

Also, nobody forces anyone to buy parking.  Some building owners have subterranean or attached parking, and other building owners lease stalls from garage owners on behalf of their tenants.  Other tenants go directly to separate garage owners.  In a nutshell, a building owner wants to be able to say they have an available parking ratio of x per 1,000 SF, typically a threshold of 3:1,000 psf, which assumes an employee drives his own car and takes up 333 SF, which is about right in autocentric towns (I do work in OC now and 3 is the magic number ).

Stephen, just because a company says...it's now just a thing companies are saying.  You can't dispute my math - this is my business.  lol

When someone in Jax says parking isn't available, or the ratio isn't 3:1,000, then what they're saying is that employees have to walk more than 2 blocks to get to and from parking and they won't do so happily or readily in Jax, so the parking is not available for that particular tenant/building because adjacent lots/garages are all reserved for others.

I agree, parking is palenty available downtown (never seen so much parking!), and compared to basically anywhere else it is dirt cheap, well compared to other downtowns.

If parking expense were a PROBLEM, well then it would be the first in the country and an easy SOLUTION - city uses taxpayer $$ to subsidize tenants.  Boom - then all these downtown users would magically stay and be super happy downtown now wouldn't they!  They all WANT to be downtown, but that damn parking expense, ergh.

lol tsk

[simms3]

Downtown class A is going slightly higher than that.

I used what C&W says is the avg class A asking rate for both DT and the main SS submarket.  I believe them over you, no offense.

However, I know that there are peak rates that go higher in both.  Smaller view space in Wells Fargo or BofA will rent for a whopping....take a breath...~$22psf.  Lol.  Adecco is not taking a partial floor 30+ floors up.  They are taking a chunk that's hundreds of thousands of SF and negotiating a deal, saving a few bucks.

On the SS, peak rates are actually higher than in downtown.  A BTS (build to suit) will simply be higher than anything downtown.  I bet you can get up to $25psf on the SS for customized new/newish space.  Adecco *might* be paying this higher rate on the SS, which is what I SAID DEFEATS THE WHOLE PARKING ARGUMENT TO BEGIN WITH AS THE DELTA IN RENT FOR THIS SPACE IS HIGHER THAN THE INCREASE FOR PARKING DOWNTOWN.

[simms3]

The other thing that's *not* being talked about here is the buildings themselves:

buildings downtown are old.  Landlords have not seen rents in place in at least 10-20 years to really justify necessary overhauls of systems, lobby upgrades, etc.  These buildings are all stuffy and outdated, and to justify ownership of class A tower space in the SE, you really need to be pushing average rents of $27+ (granted ownership basis in Jax is incredibly low at this point - after generations of owners, we're down to owners underwriting to a no-growth $20psf rent, lol).  Meanwhile, low-rise buildings in the burbs are more efficient for landlords and don't need as high of rents, and they are for many hitting solid rents, I would think, to justify keeping those buildings up to date.

I would bet the actual building stock on the SS is far superior to what is offered downtown.  There are newer buildings on the SS, and older buildings that have been substantially refreshed.  Rents for all intents and purposes are the same as downtown, and locations are much more convenient for both employees and executives.  I think parking is not even that big a part of the equation here.

The first time I went into BofA as a kid I was super impressed.  I used to go into the Wells Fargo Tower as a kid and be super impressed.  Now?  These buildings are pretty ratty.  They look the same if not worse, lol.  The elevators in Bank of America look like they haven't been updated at all since 1990 - at least they are fast, though (still blown away by lack of security in that building tho).

Additionally, what room do downtown landlords even have at this point to give out TI dollars?  Probably not much.  So the lobby sucks.  The elevators are vintage.  The mechanicals are inefficient from the 70s-90s and haven't been updated, so my After-Hours rates are going to suck.  On top of that, the space itself sucks and the LL has no room to give us the money needed to make it ours?  So we'd have to come out of pocket on the buildout much moreso DT than in the SS, where landlords are less frequently squeezed as hard?

No brainer!  Upfront TI's DT vs SS is probably a larger financial impact than parking.  Parking is what $30-50psf amortized over 10 years?  TI could be that or much higher right upfront.  If DT LLs can only offer $20 packages to buildout a space that will ultimately require $40-50psf to refresh, that's a $20-30psf *upfront* cost differential, which on 200-300,000 SF equates to $4-9 million.  Perhaps a SS landlord needs to high $20-21psf in rents to be happy, and a happy LL can supply higher TI's.  Not only that, buildout costs in a newer, more efficient SS buildout might top out 10-20% less than downtown, and the LL can meet higher up, such that the tenant comes out of pocket WAY LESS than downtown.

I mean these buildings are stuffy and OLD.  If I were a tenant, in addition to geographies, I'd be looking at *that* more than parking expense.  If downtown were centric, vibrant/cool, offered synergies, made employees and executives happy for working there, and the buildings themselves were nice, then I'd pay whatever parking rates there were to ensure happy, productive employees to be downtown!  This is not the case.


Bottom line, both financially and logically/subjectively, there are SOOO many factors that are probably way more important than parking that nobody is talking about.  It doesn't take a rocket scientist to piece it together.