As part of a deal with Saints owner Tom Benson, the state is paying substantially more to rent space in Benson Tower than it did under previous lease agreements in New Orleans, according to a state legislative audit released Monday.
The state, through the Office Facilities Corp., pays $25.12 per square foot to rent space in Benson Tower from Zelia LLC, a Benson-owned company. That’s about 42 percent more than the state paid under previous leases in New Orleans before its local offices were relocated in 2011.
State offices were moved to the 26-story Benson Tower as part of the state’s incentive package to keep the Saints in Louisiana.
Under its current lease agreement, the state pays 32 to 35 percent more than the list cost for office space in Benson Tower, according to the report. The New Orleans lease also is about 32 percent more expensive than the state pays to rent space elsewhere in Louisiana.
State agencies, meanwhile, are under contract to use 322,977 square feet in the former Dominion Tower, next to the Mercedes-Benz Superdome, according to the audit. But the state uses only 298,105 square feet at a cost of about $7.5 million a year. The remaining space, including the building’s entire ninth floor, is vacant. That’s about 8 percent of the total space the state rents.
The state pays nearly $625,000 a year to rent the unused space, the report says.
In response, the state Division of Administration said auditors failed to include factors that would show the state is saving money through the deal, that rent is not as high as it appears when adjusted to reflect certain factors and that the lease agreement helped to spur economic development.
“The state’s office lease at Benson Tower was a key component in the 15-year extension of the Saints lease, which will save the state an estimated $290 million over the term when compared to the old lease,” the Division of Administration said in a statement. “The restructured agreement with the Saints allowed the state to eliminate costly annual inducements payments to the team, eliminate the need to construct a new $85 million state office building to house certain state agencies and revitalize an area of downtown New Orleans that was once blighted after Katrina.”
The state agreed to relocate its various New Orleans and Jefferson Parish offices into Benson Tower in 2009 as part of an agreement to keep the Saints in New Orleans through 2025. Under the deal, the state agreed to spend up to $85 million to improve the Superdome, and Benson agreed to buy the vacant office tower adjacent to the Dome and lease office space in the building to the state. The lease, for 323,000 square feet of space on floors 4 and 6 through 21, took effect Feb. 1, 2011, and expires Dec. 31, 2025.
Critics of the deal complained four years ago, shortly after the agreement was signed, that it would result in a rent increase.
Public Service Commissioner Lambert Boissiere III, the Louisiana Board of Dentistry, the Louisiana State Board of Practical Nurse Examiners and the Division of Administrative Law all wrote to the Division of Administration in opposition of the move, citing their increased costs.
SMG Vice President Doug Thornton, whose company manages the Superdome, said the report is misleading because it doesn’t, among other things, consider the value of several hundred parking spots provided for state workers at the Superdome or the $12.5 million in tenant improvements that Zelia made to renovate the space for state agencies.
Without those factors, the price per square foot would decrease by $4.46, Thornton said.
Under that scenario, the state is really paying $20.66 per square foot to lease office space in Benson Tower, compared with the $17.66 it paid on average for space before relocating its offices.
“It’s easy to cherry-pick certain aspects of the rent and the deal if you’re looking to be critical,” Thornton said. “When you take all these factors into consideration, it really brings the number back down to something more comparable to what they were paying.”
The report includes two recommendations. First, it says, the state should lease unused space in the building to other public agencies, including regional authorities, local governments and public commissions, in order to reduce or eliminate the amount of unused square footage it pays for.
The state said it agrees with that recommendation and in fact has been working to implement it since signing the lease agreement for the building. The Division of Administration said it has successfully subleased space to several state agencies as well as to the Fleur de Lis Federal Credit Union.
An agreement with the U.S. Department of Justice, which was in talks to move offices onto the building’s still-vacant ninth floor, fell through, the DOA said in its response letter. Nearly 19,500 square feet of office space had been renovated to accommodate that agency.
The state “is in the process of developing a list of other future prospects outside of state government it plans to begin targeting,” said Mark Moses, director of the Facility Planning and Control Office in the Division of Administration. “FPC will continue to market the space to appropriate entities to reduce the financial burden on the state. However, because of the challenge in customizing the space for tenants, it may take additional time to find suitable sub-lease partners.”
The audit also urges the state to make sure that the lease costs it charges to the federal government are “reasonable” as defined under federal program guidelines and based on market rates for comparable space.