by Max Marbut
Staff Writer
Own or lease?
That’s a question faced by businesses when it comes to anything from office space to copiers and computers to vehicles and even employees.
When it comes to real estate, it’s not uncommon for business owners to purchase buildings and then lease them to themselves for the tax and cash flow advantages.
The City leases office space for governmental tenants including the Supervisor of Elections, Tax Collector, the Fourth Judicial Circuit, Clerk of Courts, the Jacksonville Sheriff’s Office and several departments and divisions. Individual annual lease expenditures by the City range from $1 for several parks to $709,153.38 for the offices occupied by the Public Defender’s Office. It’s a total of more than $3.7 million a year in the budget for office space lease agreements with private property owners.
The City’s real estate transactions are under the purview of the Public Works Department and Director Joey Duncan said sometimes it makes more sense to lease office space than to put workers in space owned by the City.
“We maintain a lot of buildings, but in some cases it’s cheaper to lease space. It can cost a lot of money to maintain a building. If an entire air conditioning system needs to be replaced, that can be very expensive. When you lease, the property owner covers maintenance and in some cases other things like janitorial services,” he added.
Council Auditor Kirk Sherman said each lease is considered on its own merits and each situation carries its own circumstances. One advantage to leasing is being able to adapt to changing market and other conditions, which can be important when it comes to office space for the judiciary and the Tax Collector, for example.
“Leases allow flexibility and can be modified as market conditions change or the population shifts. It’s also easier to get in and get out of space when you’re leasing,” said Sherman.
The level of service included in a lease is also a factor. While terms of some of the City’s agreements are basic, what Sherman called “four walls and a floor,” some leases include services like utilities, cleaning and even light bulbs and air filters in some cases.
Sherman agreed with Duncan that in many situations the cost to maintain a building can make a lease the City’s most appropriate financial decision.
“When you start replacing air conditioning systems and plumbing and roofs it can get very costly. From the City’s standpoint, we look at leases on a case-by-case basis to make sure the City gets the best value,” said Sherman.
In one case, a lease for office space is providing more benefits than just a place for City employees to work. Next month the Environmental Compliance Department, Code Enforcement Division and General Employees Pension Fund will begin vacating space at the City-owned Ed Ball Building on Hogan Street and move into the newly-renovated Jake M. Godbold Building less than two blocks away.
It was renovated by the Police and Fire Pension Fund after taking ownership through conveyance via an ordinance enacted by Council in 2006. The City granted ownership in exchange for a $3 million reduction in its unfunded actuarial accrued liability of the fund. The City will lease all 60,000 square feet of space in the building for $18.60 per square foot with an option to repurchase it after a minimum four-year lease term.
“It’s a brand-new LEED (Leadership in Energy and Environmental Design) building and a win-win situation. It’s good for the City and good for the fund,” said Police and Fire Pension Fund Executive Director and Administrator John Keane. “We took money that would have otherwise been invested in bonds at what’s now a low rate and instead added to our real estate portfolio. The project also put 250 local craftsmen to work during the renovation.”
The Duval County Unified Courthouse Facility, even though years from completion, is having an effect on how the City negotiates leases. In anticipation of its opening, currently projected for June 2011, new leases between the City and property owners will have a common clause.
“We’re renewing leases for three years with the option to leave if City-owned space becomes available,” said Duncan.
Public Buildings Division top 25 real estate lease expenditures as of 5/12/09
356-2466