The Columbus City Council voted to approve the closing of a property for a new health care services building on Tuesday evening, but as Council prepared to make a decision, documents showed members may not have had all -or accurate – information.
The property approved for final closing is located at 5601 Veterans Parkway and will be home to the Department of Public Health and a handful of other services presently housed in the consolidated Health & Human Services building on Comer Avenue. The current lease agreement between the City of Columbus and the building landlord, Family Holdings Sub, LLC, expires on June 30, 2020, which has the City of Columbus facing accelerated construction and renovation costs to meet a deadline that is less than 5 months away.
The project came in more than $2.5 million over the initial projected price after city officials said the space would require more renovations than initially anticipated. The plan has not been free from criticism as critics from both council and the public have vocalized concerns, to include:
- the City’s plan to invest $5 million in a $2.5 million 45-year-old building as an option to save $57,336 per year on leasing space;
- the control for project costs, which have almost doubled since their proposal;
- the split of service locations between two buildings as not all of the services in the current HHS building will be moving to the Comer Avenue location;
- the City’s failure to maintain currently owned buildings and other infrastructure, which has led to unusable and unsafe conditions often not suitable for use.
Georgia law requires that each county provide accommodations for the county office of the state health department.
The 5601 Veterans Parkway site location is the former Virginia College satellite campus constructed in 1975. The structure is approximately 70,100 square feet on 7.2 acres and currently built out for administrative offices. The Council voted in November to buy the $3.2 million property for $2.5 million.
The current health services building, which has been home to the Department of Public Health, New Horizons, DFCS, and other entities, for 25 years, was constructed with the idea of a ‘One-Stop-Shop’ centralized campus for government services. At that time, the City invested $2.7 million to the Medical Center Hospital Authority to help with the facility and was owned by the Medical Center Hospital Authority/Columbus Regional Healthcare System until 2016. The City says it was not given the option to purchase the building in 2016, though at the time, the building sale was solicited nationally.
At the current rate of $4.97/square foot, the annual base rent is $323,815. At the proposed $6.00/square foot, the annual base rent is $390,924, however, the landlord’s proposed lease includes a prepayment discount of $5.85/square foot, leaving the final net base rent is $381,150.
Leasing Cost Increase Over the Last Two Decades
The base rent in the current HHS building has gone without an increase for the last 25 years and, citing a market study on data from 2013-2017, the landlord says the average price per square foot for similar commercial office space can range from $10-$20 per square foot.
Numbers obtained under the Georgia Open Records Act show that the City paid roughly stagnant rental amounts over the last two decades, though the tenants were informed when the building was purchased in 2016 that rent “would increase, but would still be significantly less than the market rates,” when the lease was up for renewal. The City, however, did not take action on finding a new location until late 2019, which has contributed to the increased cost for an accelerated timeline.
The City maintains that it will save an additional $60,000 in addition to the base rent by not having to pay property taxes due on the current location, however, the City’s purchase of the Veterans Parkway building will take the building off the tax digest, costing the city an approximate $60,000 in taxes paid each year.
Ownership Over Lease
The City said Tuesday night that the plans for owning the building will lead to lower costs in the long run after the bonds are paid off and the debt service is retired. Additionally, the City plans to generate rental income in excess of $7 million over 20 years as plans to charge $6.00 per square foot to tenants of the new building location were announced during Tuesday’s presentation. The City’s proposed rate is $0.15 more per square foot than the rate in the proposed rental agreement by the landlord.
When City employees presented comparisons to Council, numbers from the last 25 years – including the sunk $2.7 million investment and 25 years of rent – were factored into the total projected costs of owning versus leasing. Councilor Judy Thomas took City Manager Hugley and Pam Hodge to task over the incomparable comparisons, but Hugley only laughed. Hodge said she was tried to show Council what would be the lifetime cost of leasing compared to ownership, but Thomas said the last 25 years of rent should either be considered in both scenarios or in neither scenario to accurately estimate what it costs to house the health service providers.
The City, as the tenant, also pays a portion of the maintenance for the common area – referred to as CAM charges – which include janitorial services, onsite maintenance, three POST-certified security officers, and auxiliary maintenance like landscaping, parking lot maintenance, security camera placement, pest control.
These expenditures are split with other tenants of the 240,000 square foot building.
Critics of the purchase have vocalized concern over the age of the building at 5601 Veterans Parkway as it is almost 45 years old. They say maintenance costs will only increase as the building ages, much faster than the Comer Avenue building constructed 25 years ago. During the meeting, however, Councilor Glenn Davis said the current location would be more expensive to maintain than the Virginia College building due to the proposed site’s renovations in 2011. He also said tenants pay on building maintenance the landlord passes off.
Councilor Walker Garrett asked city employees and contractors about what was done during the due diligence period with regard to inspections, particularly on HVAC systems, the roof, and mold. Hodge said city staff have done in-depth inspections and contractors have been on-site as well. The roof on the Virginia College building was reportedly replaced in 2011 and contractors said the restrooms won’t have to be renovated due to the fact that they are already ADA compliant and in working condition. Mold inspections were not conducted, but contractors told City Council “I didn’t test it or anything specifically, but there was none noted and usually you can tell when you walk in a building by your first breath.”
Creative Funding Mechanisms
City documents show that city employees have prepared funding schemes for the projected renovation costs – which total $4.65 million – to include money saved on another project. The City previously budgeted several million dollars for debt service on bonds, but due to the refinancing of those bonds, the City will save an estimated $1.25 million. The City has earmarked the $1.25 million with another $900,000 from OLOST Infrastructure Reserves to go towards the $4.65 million in addition to $2.5 million in Columbus Building Authority (CBA) bonds.
The City has not provided an estimate for its portion of the closing costs on the property.
Efficiency & Convenience
In December 2019, an independent poll was conducted over a four day period in which visitors were asked at random whether or not ‘relocating the health department & WIC’ will be a hardship’. Of the 1,018 people surveyed, 1,016 said the move would create a hardship, meaning 0.2% of respondents did not see the move as a hardship. 40% of respondents used some mode of transportation other than a car, with 22% of those surveyed answering that a bus was used and another 12% answering ‘taxi.’
Additionally, 52% of respondents answered that they were visiting the building to access two or more services at the same time.
The City has suggested that a shuttle service would be provided at no additional cost, saying the costs would be absorbed by the city’s current transit system, but critics question the zero cost component.
AllOnGeorgia filed a number of Open Records Requests with the City of Columbus seeking email correspondence related to the discussion between city employees and elected officials ahead of Council approval and since. That portion of the request is still pending and has not yet been fulfilled.
- The City reported at a January 12th council meeting that Family Holdings Sub, LLC proposed a 10-year fixed base rental rate increase of $482,000 to $950,000.
But a proposed lease agreement sent to council members by the landlord in November 2019 shows an increase of $0.88 per square foot, amounting to approximately $57,336 per year after a 2.5% discount offered by the landlord on a fixed 10-year lease with an option for a second 10-year lease at the same $5.85/square foot rate.
- City employees told Council that the project cost to continue leasing was only certain if rent did not increase and that that would be unlikely, however, the proposed rental agreement shows a fixed rental rate of up to 20 years.
- Despite mentions of the certainty of rent increases, Hodge and Hugley told Council Tuesday night that no proposed lease agreement was officially submitted to the city manager’s office for consideration.
- The City has said that providing a shuttle service from bus stops to the new Veterans Parkway location would not come at any cost to the City and would be handled by METRA. METRA has its own independent budget and often utilizes restricted funds funneled down from the state and federal government.
After more than an hour of presentation and discussion, the Council voted 8-2 to approve the closing with Councilors Walker Garrett and Judy Thomas in opposition.