The Morning Report
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We have a running joke about Mayor Bob Filner’s press releases. Every one comes with exclamation points. Monday we got a doozy.
Exclamation points. All caps. Excitement pours from the page.
Most media, including us, ran with that $3 million savings figure and essentially multiplied it by the number of years in the lease. It’s not necessarily wrong. It is, indeed, a comparison of what the city was paying and what it will be paying.
But there’s more to the story, and dissecting that helps illustrate what the mayor achieved a little better.
So what, exactly, happened and how much did we save?
Let’s rewind and start with the basics. The city has 400 people working at this building, 600 B. St.:
File photo by Sam Hodgson
The city leases 139,000 square feet there, and it is paying $2.62 per square foot. The lease expires at the end of the month, and things were getting tense.
In his excited press release, Filner was announcing that he had gotten the city a new lease at a nearby building, 525 B. St. That’s this building, which is owned by Hines Co.:
Is it $3 million a year in savings? Well …
Let’s crunch the numbers.
The mayor put Jason Hughes, principal at Hughes Marino, in charge of this effort. There was some drama here.
(Full disclosure: Hughes is a sponsor for many local media outlets, including Voice of San Diego, and my wife recently took a job with his firm.)
This is Hughes.
Here’s how U-T San Diego described the deal Hughes and the mayor struck:
San Diego Mayor Bob Filner announced Monday that his volunteer lease negotiator has struck a deal that is expected to save the city up to $15.8 million over five years with a new lease for at least 77,000 square feet of office space.
The city will pay $1.25 per square foot, down from the current $2.62 for the public utilities and engineering departments.
Here’s where most of this comes from. The mayor released a comparison between the old lease and the new one:
The savings calculation comes from the difference between the city paying the new rate of $1.25 a square foot verses paying $2.62 a square foot, as it does in its current lease. Also, the new building space is more efficient and modern and can accommodate the workers in a smaller space.
That means even more savings.
But if we really want to evaluate how good a deal the mayor and his new pal struck, the savings should be calculated not based on what the city was paying but what it would have had to pay to stay in the same property.
After all, the commercial real estate market is down. There are millions of square feet of open office space downtown, so you can get a good deal if you are up for renewal.
It would be a scandal if the city didn’t get a lower rate were it to renew its lease.
Indeed, Hughes told me the last best and final offer the landlord at 600 B. St. offered was $1.85 per square foot. That figure would increase $0.07 per year. That’s much less than the $2.62 the city was paying.
Hughes and the mayor decided the new location was a better deal. After all, it was $1.25 per square foot and it increases $0.06 per year. And again, it’s even smaller. At 78,000 square feet or so, it’s a significant downsize.
I did a spreadsheet to check the savings of this deal compared with the offer to stay at the old place:
Looking at that comparison, the new deal at 525 B St. saves the city $1.4 million this year. That savings gets even better every year, increasing to $1.6 million by 2018.
That means a total savings of $9.1 million for the city over the life of the new lease compared with what it would have had to pay to stay in the old offices with a renewed lease.
The mayor was right to be proud. The city has saved a bundle. But the true value he and his team squeezed out was about half of that $3 million he cited in all caps and with two exclamation points.
It would have been a pretty supreme failure of the city not to get that other half. And we now have higher standards for the city: We expect it not to supremely fail.
Now what happens? City leaders have a funny way of considering money saved as new revenue they can spend.
If they do that this time, hopefully they use it on something good.
File photo by Sam Hodgson
That’s the thing about money spent on office leases and other necessary evils: It takes money away from what we need it spent on, like roads and parks.
So the question now is: How many other public agencies are getting $1.25 per square foot on their leases? If they’re paying more, why?
I’m Scott Lewis, the CEO of Voice of San Diego. Please contact me if you’d like at firstname.lastname@example.org or 619.325.0527 and follow me on Twitter (it’s a blast!):
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