State Spends $12M On Leases As Space Sits Empty

Officials Considering Moving Offices Out Of Downtown To Save Money

The state of Indiana spends more than $12 million a year on property leases while valuable office space sits empty at the downtown government center, records show.

Call 6 Investigator Kara Kenney found that records from the Indiana Department of Administration show the State Department of Health pays $2,333,317 a year to rent 2 N. Meridian, a building in one of the most desirable areas of downtown, just steps from Monument Circle.

Contact Call 6 Investigator Kara Kenney

"It is expensive," said Steve Harless, real estate director for the Indiana Department of Administration, the state agency that handles real estate and leasing for most of state government. "It was a lease signed in 2004 before the current administration. The current administration inherited it, and it's a 10-year lease."

The state also pays $464,467 to rent an off-site parking garage at 101 N. New Jersey St. for those state health department workers.

The Call 6 Investigators found other leases some might call pricey, such as $975,000 to rent 151 W. Ohio St. for the Indiana Department of Education.

The state also pays $782,000 to rent a building and parking garage for the Department of Child Services in the 100 block of East Washington Street downtown.

In all, the state pays more than $12 million a year to rent buildings in Marion County, not including leases executed by various agencies that don't go through IDOA for leases, including the Port Authority of Indiana, the courts and the Indiana National Guard.

But the Call 6 Investigators found 8,000 square feet of vacant space on the eighth floor of Government Center North.

The area was once occupied by the Indiana Department of Transportation, but it has been sitting empty for about a year.

"It's a process," Harless said. "You have to identify the space and clear out the space, and then you have to back fill it, and it's a matter of juggling."

Jon Owens, a commercial real estate broker with Cassidy Turley, said many landlords are leery of signing leases with the state because the state requires a "cancellation for convenience" clause, which allows the state to end a lease with 60 days of notice.

"(Convenience) is such a broad term, one that's difficult to measure," Owens said. "It's out there as a risk, and it's one some building owners are not willing to take."

Harless explained the clause was put in place in 2008 to protect taxpayers from unforeseen policy changes or budget cuts.

State government has shrunk significantly since Gov. Mitch Daniels took office.

In 2005, the state had 34,947 employees. In 2012, the state has 27,898 employees, not including elected officials and quasi-agencies.

Harless said managing office space is a juggling act, complicated by the changing workforce and new laws passed by the state Legislature.

"The Legislature may come in and form different policies and programs that will add different agencies or different departments, and we have to be able to react quickly to that," Harless said.

IDOA pointed out that the state pays $4.7 million less for rent than it did in 2008, which is a 30 percent reduction in Marion County leases.

Harless also pointed out the state has reduced the amount of space leased in Marion County by 320,000 square feet, which is the equivalent of 11 stories of the City-County Building.

"It means instead of agencies spending money on office space, they're able to dedicate their money to specific goals and programs," Harless said.

State officials said they're always looking for ways to be more efficient, and that means offices could be moving away from downtown and into the suburbs, where the rent is cheaper and there's plenty of free parking.

"It's important to have the executive staff close to downtown, but not necessarily the whole agency," Harless said. "There's certainly technology and other things available, and we need to explore other options, looking into cheaper, suburban areas."

As for the 8,000 square feet of currently vacant space, Harless pointed out that it's only 0.5 percent of the space in the entire government center campus.

IDOA is working to fill the empty space.

The $2.3 million lease for the Indiana State Department of Health at 2 N. Meridian is up in less than two years.

"We're beginning the process of some serious negotiations," Harless said. "Certainly I think taxpayers, the last thing they want it to see money spent on office space that can be spent in better ways." Owens, who has represented landlords in deals with government, said it is often advantageous to lease rather than buy.

"Demand is down, vacancies are up, and landlords are hungrier, more motivated to cut a deal, if you will," Owens said. "When you own, you've got day-to-day expenses, management expenses to maintain the property, utilities, and those ongoing expenses can be anywhere from $7 to $10 a square foot."

State officials also have to factor in the cost of moving, which costs money as well as lost work hours.

More Information:

 

  • Summary Of State Leases In Marion County
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  • Sample State Lease
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  • Summary Of State Leases In Marion County 2008-2011
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