Downtown officially out of the running for big Citizens office deal

[edjax]

They placed an Invitation to Bid on their website outlining the specifics such as square feet needed, parking spaces needed and,for a set period of time.  These companies responded that this would be the total cost for said request. They bid everything out such as hotel lodging for employees to use while on business trips,etc.

[simms3]

Well, I found the latest:

https://www.citizensfla.com/pcm/attachments/338/ITN%2014-0001_Addendum%202.pdf

I can't really see anything out of the ordinary with this RFP, except that they require 12' ceilings with little flexibility (Ceilings in these buildings are probably 9-10' with drop and 12-14' slab to slab).  There would obviously be some landlord work required to appropriately stack IT/server rooms, but pretty standard/minimal.

Still, let's talk numbers.  Citizens wants 226,400 USF, which depending on a building's load factor could be a lot less than "RSF".  Let's just throw this out there, in typical terms they want about 250,000 SF, and load factors would be minimal  since they are taking entire floorplates and perhaps some buildings have side cores.

There's 1 strike against JBJ reporting.

Citizens wants parking.  Ok, well in Jax that is basically at no cost.  With or without Citizens, LLs in Jax are already paying out of their own pocket for asphalt repair and resurfacing, parking lot lights, etc etc.  So nothing different or fancy about that request.  A DT LL would come out of pocket on supplying parking, but I've already looked at that before on this website.  Jax parking averages $90 a space DT, so assuming no public transit (as Citizens has done), and 1 space per employee, a DT LL is paying about $12MM over a 10 year term for parking.

So let's take that out of Everbank Center's bid, and assume that the remainder, $22MM, is for all other deal terms, with a large component of that to stack servers (i.e. LLW that seems to be able to be amortized into rent).  It becomes a mystery to me more and more why the Arlington/suburban properties are so much more expensive, almost to the point of equaling the entire sale price for Wells Fargo Tower, which is 4x the size with far greater complexities (granted as low as rent is at WF, the NOI after those tower opex must be quite lowww).

Here are some relevant quotes:

b. What is the rent today that Citizen pays per sf?
Answer: The rental rate varies at all four office buildings in Jacksonville. This is attributed to the
different lease types in Jacksonville. The base rental rate is:
Cypress Point (Net Net Lease) $14.80
Cypress Plaza (Triple Net Lease) $ 9.50
Corporate Center (Triple Net Lease) $12.25
C & I Nations Way (Modified Gross Lease) $14.75
c. What is the usable Square Feet that Citizen have today.
Answer: We currently lease 211,288 sf in Jacksonville; however, it should be noted that some of
our existing leases do not reflect the measurements in USF.

22. Amortization: Over what term are build-out expenses to be amortized?
Answer: Build-out expenses should be amortized over the initial term of the lease, which is
anticipated to be ten years.

So we've established term, no options, contraction/termination rights, ROFOs, or ROFRs.  Bidding becomes more and more fuzzy/challenging when presented in absolute $ amt, as it is by the JBJ.


It looks like Citizens requires the LL to pay for basic infrastructure installations as part of a turn-key delivery (which they hint can be amortized over term as part of rent...all part of the packages, but explained by JBJ in a very fuzzy and non-intelligent way).  This is very standard.  In fact, I can even tell you the costs to provided cable service monthly, at least in LA.  It's not much, and neither is the installation, really, and I suspect at least one of these buildings is already set up.

Will Citizens consider reducing the commission structure, which is currently expected to exceed two
million dollars and allow the savings be passed on to Citizens in direct rent savings?
Answer: Citizens is working utilizing a brokerage contract procured by the Department of
Managemen

This is certainly not out of the norm.  I think they are assuming a $17-18 effective FSG start rent and a 6%/3% structure, though I don't know which leasing commission structure is market for Jax office/Jax C&W.  Any LL would pay this as part of a lease deal.

The Lease requires a modified gross rental to include base rent, real estate taxes, property
insurance, common area maintenance and Landlord provided repairs and maintenance. It is
impractical to predict costs for the next ten years. Would Citizens consider a Base Year structure
whereby actual costs or savings are passed on to Citizens or should the landlord arbitrarily build in
those costs that may not be applicable for a number of years thus increasing Citizens' .

Wow.  This is not normal, at all.  A FSG start rent is based on the assumption that pass throughs are included, which is why Jax rents are scary low, since pass throughs are easily 50% of a market fixed rent.  The LL here is screwed at reassessment.  Also screwed if insurance premiums dramatically rise in a state like FL (imagine that).  Flood insurance could be an issue, as well.  So perhaps LLs are factoring in additional rises in pass throughs as part of their costs, presented as $ amounts.  This would be counterintuitive to "lowest bid wins", essentially.

JBJ, a million strikes against them for presenting "bids" in dollar amounts.  That means nothing here, when it comes to "good" vs "bad" as related to pass throughs above.



Found the original

https://www.citizensfla.com/pcm/attachments/338/301%20-%20Jacksonville%20Office%20Space%20%20ITN%2014-0001.pdf

Contraction rights, not too serious though (pretty standard for a 10 year lease term of this size):

Downsize Option: The Lessee shall have the right to downsize, without penalty, up to
15% of the total leased space upon giving six (6) months advance written notice to the
Lessor. The reduction shall be promptly evidenced through a Lease amendment.
The downsize option is limited to a one (1) time downsize of up to 15% of the initially
leased premises area which may be exercised anytime after the first five (5) years of the
initial lease term. Citizens would be responsible for the demising costs under this
provision. The downsize option is subject to the reimbursement addendum in the same
manner as the Option to Terminate provision. Citizens is obligated to reimburse Lessor
for prorated unamortized tenant improvements associated any space reduction /
downsize option exercised. Commissions are not covered as part of the reimbursement
addendum.
Citizens and the Landlord will work together to determine the location of the reduced
space if this option is exercised.

And here is the pricing worksheet:

Pricing: The following formula will be used to evaluate Price. The lowest proposed
Vendor price (Original Base Term) over the potential term of the contract will be awarded
30 points and henceforth be known as Lowest Total Cost (LTC). The remaining Vendor
proposals will be scored using the following methodology: LTC divided by the Proposed
Cost (PC) multiplied by the maximum points of 30 will equal the points awarded.

Formula: LTC/PC x 30 = Pricing Score

TAB
NO. Phase 1A - Evaluation of Written Proposals Maximum
Points
1 Responsive Requirements and Submission of All
Required Forms and Documents Pass / Fail
2 Price 30
3 Proposed Building / Location (Maximum Points: 35)
Attachment C 10
Building Details 5
Control of Property 3
Interior / Space Planning 10
Schedule 5
Access / Security and Camera Systems 2
4 Information Technology Requirements (Maximum Points: 25)
Attachment H 9
Use of RCDD professional 6
Site Infrastructure for IT 4
Interior Wiring 6
5 Financial Documents Pass/Fail
6 LEED – Energy Star 2
7 Business / Corporate Qualifications 8
Total Points: 100 Points

Again, I reiterate, JBJ reporting is FUCKING terrible.  When you first read the report, four dollar amounts are given as bids for a "deal" with Citizens.  There is no description as to what that means.  Is it for a lease?  Is it to sell them a building and this is a public process due to GSE FL statute?  Is low good, or high good?  Who knows?

Then, there is no background on these numbers and what they may be made of - no comparison to average rental rates or sale prices in the area.  Simply a statement that 2 are around $30MM and 2 are around $60MM.

After review of the ITNs, it's clear that these bids are costs to Citizens, and are comprised of a given rental rate + any amortized deal costs over the term (should LL elect to try to pass upfront costs on as part of rent), and apparently by law include no pass throughs (that would have been an interesting detail to point out in JBJ article), upfront costs, etc etc.

There is also simply no real curiosity on the part of JBJ to suppose why Everbank Tower's bid is half that of a class B Arlington building's.

And then, going back to straight up numbers, how does one arrive at $60MM???  WTF...are these bids even apples to apples?

C&W's commission is obviously on the 10 years excluding contraction rights.  Are 2 LLs including option period costs and increasing commission to account for those options when they don't need to?

Basically, I stand by my statement that this is the worst piece of real estate journalism I have ever read.  If a lease deal MUST be presented in full $ amount, which in some cases in Manhattan it is, then it must be laid out carefully and explicitly, i.e.:

Four landlords have presented to Citizens as bids what it would cost Citizens to lease space in their respective buildings.  Each landlord was competing for a 226,400 usable square foot commitment to house over 1,000 employees, including up to 148 relocations from around the state, over a ten year term.  Citizens provided guidance on what was required in a public ITN [link], and some of those requirements included parking, build out costs, and the state statute that forbode Citizens, a tax exempt government corporation, from paying for operating costs for the building over their rent.  The four bidded costs to Citizens include:

1
2
3
4

It is unclear why Everbank Tower's bid came in lowest and roughly half that of two of its suburban class B counterparts, but the reasoning could include...

Cushman & Wakefield has been designated by the Department of Management Services to represent the tenant, which is Citizens Insurance."[/b]

Is it that difficult???!!!???

[thelakelander]

Citizens rejects all bids in Jacksonville move

full article: http://www.bizjournals.com/jacksonville/news/2014/07/02/citizens-rejects-all-bids-in-jacksonville-move.html