JEA corporate headquarters developer Ryan Companies US Inc. told utility officials in April it’s considering selling JEA’s new Downtown high-rise soon after the city-owned electric and water utility moves in.
An internal JEA memorandum dated April 15 states the utility did not execute the right of first offer clause in its lease agreement when Ryan told JEA about the possible sale.
The lease requires Ryan give JEA the option to purchase the building before the Minneapolis-based developer and landlord sells to another buyer.
If Ryan sells the nine-story, Class A office tower, which is scheduled to break ground at 325 W. Adams St. in July, JEA would have a new landlord.
The possible sale comes as JEA negotiates a lease agreement amendment with Ryan that could shrink the building’s design and reduce the cost of the project.
The utility hopes to reduce the cost of the headquarters from $78 million to $66.77 million, That’s an $11.23 million, 15.5% savings.
The smaller headquarters would lower JEA’s 15-year, $160.5 million lease.
The proposed redesign would reduce both the square footage of the building and connected parking garage by 12%, according to documents included in the April 28 board material.
JEA’s board of directors will be briefed on the smaller scale project and the possible sale during a special meeting May 5.
Next JEA HQ on the market
Kathy Jalivay, Ryan national public relations manager, confirmed by email April 30 that the company is exploring options to sell the building after construction is complete, but she said no decisions have been made.
Ryan intended to retain ownership of the tower and parking garage and act as landlord, according to its lease agreement with JEA executed July 9.
Jalivay said Ryan provided JEA notice in early April of the potential sale.
“Ryan watches the capital markets as we manage our portfolios. There are various reasons to contemplate selling assets including optimizing value, managing our equity investment and maintaining a long-term relationship with our tenants,” Jalivay wrote.
In the April 15 memo, former JEA interim Managing Director and CEO Melissa Dykes informed the JEA board that utility leadership had received Ryan’s notice.
“JEA has a continuing right of first offer (ROFO) to consider a purchase of the property if (the) landlord desires to sell the property, and did not exercise this ROFO in connection with a recent notice by Ryan Companies for a potential sale after initial occupancy,” Dykes wrote.
The JEA board selected Ryan to develop the headquarters April 2, 2019. City Council approved the sale of 1.5 acres to Ryan for $2.6 million June 25. The company is required to begin construction by Dec. 31.
Ryan now expects to close on the city-owned property June 8, board documents state. City Assistant Director of Public Affairs James Croft said in March that the outside closing date would be April 30.
Dykes’s memo states Ryan secured an extension on the property closing date. The deadline was pushed back so the latest JEA board, confirmed by Council on April 14, could take part in the discussion on the headquarters, according to the memo.
The board will have to review the May 5 presentation without Dykes.
The former interim chief executive is on a 30-day administrative leave after the board voted April 28 to fire her without cause. The board will consider May 5 bringing back former JEA CEO Paul McElroy as interim chief executive.
Smaller headquarters
JEA management wants the revised square footage and lease amendment approved by May 26 and executed by May 30, according to a schedule in board documents.
The Downtown Development Review Board gave final approval Dec.12 to the current design for a 196,900-square-foot building, which includes 7,170 square feet of retail space on the ground floor of the parking garage.
Dykes’s memo said the retail space is 9,000 to 10,000 square feet that will be available for JEA to lease to third parties. That space will not be included in the rentable square footage of the Ryan Companies lease, Dykes wrote.
Ryan has worked on the JEA headquarters with national real estate services firm CBRE and Atlanta-based design firm ASD|SKY.
“JEA asked Ryan and CBRE to examine value engineering and programming options to consider whether the elements of the project including size, design, functions and program assumptions should be adjusted to reduce overall project cost,” Dykes wrote.
A spreadsheet included in the board material shows reducing the headquarters to 173,975 square feet would drop the overall building cost by an estimated $3.99 million.
The utility also proposed reducing parking spaces in the garage from 841 to 742. That would cut another $1.64 million.
JEA wants to cut another $5.6 million from the project’s value engineering, tenant improvement and building amenities budget.
In total, JEA estimates the nearly $11.3 million in gross cuts could decrease its lease cost by $18.3 million.
Ryan representatives confirmed in the email that the developer/landlord is in negotiations with JEA to meet the utility’s programming goals, which could result in a lower lease cost.
“We are engaged in a collaborative design process with JEA,” said Doug Dieck, president of Ryan Companies Southeast Region.
“We understand that listening intently and adapting to their recommendations will bring us closer to the collective goal of beginning work to bring the new corporate offices to their employees, customers and the city of Jacksonville,” he said.
The JEA board could cut further. The spreadsheet shows a “high target” option where JEA cuts $18.4 million from the project approved by DDRB, making the headquarters a $59.64 million development, 26.7% less than the original plan.
This scenario would reduce the proposed headquarters by 53,324 square feet to 143,576 and cut parking to 651 spots.
Dykes wrote Ryan “continues to express a strong interest” in performing the tenant improvement construction and is negotiating details with JEA.
If the board awards Ryan the tenant improvement work, it would be included in the renegotiated lease, the memo states.
Dykes’s memo states Ryan plans to begin site work in July after the board confirms project changes May 29.
Construction on JEA’s next headquarters is scheduled to be complete in April 2022.
More Ryan development
Although Ryan could sell the JEA headquarters soon after completion, the firm said it is looking at other real estate deals in Jacksonville in the near future, but Jalivay didn’t cite specific projects.
