NEWS

State drives harder bargains on leases, saves about $19M

Michael Rose
Statesman Journal
Negotiations for 58 state office leases throughout Oregon have been frozen, including the Department of Energy building in Salem.

In Salem, the state's presence in the real estate market is huge. The state leases roughly 1.2 million square feet of privately-owned real estate, including office buildings and other space in the local area.

Last year, the state decided to take a new approach when negotiating office leases. Rather than automatically renewing leases, as it routinely did in the past, the state would negotiate new terms.

State officials would copy the tactics of the private sector, using clout and market conditions as bargaining chips. If the state could drive a harder bargain, so much the better for taxpayers.

What are the results a year later?

Patrick Allen, director of the Department of Consumer and Business Services who is part of the state's Enterprise Leadership Team, said the policy change has worked. He estimates that the state has so far achieved about $19.4 million in savings, spread over a five- to seven-year period.

The Enterprise Leadership Team —a government management team created by Michael Jordan, the state's chief operating officer—is leading the effort to change the state's approach to real estate leasing.

"Those are resources that agencies can stop using for space and use for achieving their mission," Allen said of reducing leasing cost.

In the spring of 2013, negotiations for 58 state office leases throughout Oregon were frozen as the state implemented its new policy. Nearly all of those leases have now been re-negotiated, Allen said

Curt Arthur, a real estate broker and managing director of Sperry Van Ness Commercial Advisors LLC in Salem, said the state's decision to take fuller advantage of its purchasing power and market conditions is a sound strategy.

"Credit should go to Michael Jordan at the Department of Administrative Services for saying wait a minute, we need to act more like the private sector," Arthur said.

About the only downside, as Arthur sees it, was the state's timing. The market for office space was considerably weaker a few years ago, giving tenants more power when negotiating with landlords.

"By the time, the process was put into effect, the market, by in large, had corrected itself," Arthur said.

mrose@StatesmanJournal .com (503) 399-6657 or follow on Twitter @mrose_sj

Update

Last year, the Statesman Journal reported that state was taking a new approach to negotiating office leases.

State-hired consultants with Leland Consulting Group and Cushman & Wakefield determined that Oregon could save tens of millions of taxpayer dollars on office leases with more effective bargaining tactics.

The state's consultants cited a "need to create more landlord competition." Many state leases have automatic renewal provisions.