Travis County Commissioners Court

June 26, 2012 - Item 31
Agenda

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>> Thirty-one is to receive briefing and take appropriate action regarding lease issues at 700 lavaca with Austin suites and we have an Austin suites representative here.

>> Thank you for the opportunity to come back before you again.
Just briefly -- I don't remember if you remember last time I was here, just briefly to get us up to date, how we got here.

>> We all remember that well.

>> All right.

>> Since our last -- since I last met with you, there were -- there was a proposal that instead of taking over the 15th floor, to take over the ninth floor -- oar is it or is ittenth floor which we art dealing with.
Part of the tenth floor that is available -- it is -- it needed a considerable amount of work.
It was almost gutted a big part of it.
And so we are trying to get different people out there to find out the most inexpensive way to remodel the floor and get it ready for our use or for any public use and the numbers we are getting are really high, about an area of $250,000.
During the time that we kept going back and forth with these plans, another part of the floor that was not available at the time became available and john and roger brought it to our attention, that there is another part of the floor that is available that isn't -- that wouldn't need as much work, would it work for us.
And so that's been some of the delay, is that after so long of working with that one part of the store, switching our attention to another part and we have actually worked fast on that and to give you a little bit of idea on the floor, the floors are built out pretty good and executive suite typically needs smaller offices than regular law office or regular floor does and so we usually have to cut up a lot of the offices and, in fact, these floors, you know, our -- our goal, really, is to make this transition to the lowest cost to Travis County and then in return, because -- just like this lease.
This lease says our contract says that we take the floor at market rate.
Well, what is market rate?
We take, for example, the 14th floor, that when we built out, we signed lease completely at market rate.
It had bit-out of 30 -- a build out of 30 a square foot which turned out to be 670,000 and then we had the rate $17 a square foot so the $670,000 is factored into the $17 a square foot and certainly, if I were to come out and say I don't want $30, I want $50 a square foot, then that monthly rate because we are paying it out per month, would have had to have been renegotiated.
On the other hand, if I would have said, listen, I like the floor about the way it is, even though that couldn't happen because it was needed to be gutted, too, I like it the way it is, then the square foot that we are talking about would have been either reduced or maybe a more free rent, so to give you the same reference, in the same building for the same business, which would have been almost at the same time but now a couple of years has gone by, we had a 30-dollar square foot, which is about $670,000, of $17 a square foot for if floor and we got four months free rent.
That was the three basic components of the lease that we signed now.
So now we are moving on to find out hopefully to get a substitute for the 15th floor and we are okay making the substitution.
The lease said you get it at market rate.
How do you determine market rate.
In market rate, say it were open market, those are the factors to look into, how much the remodeling going to cost, how much is the rent -- free rent, which is pretty customary in today's market.
And I am also in the rental business so I am pretty familiar with it.
I represent floors and have been do -- I rent floors and have been doing it twelve years now.
The good news is, looking at this floor, what part for almost any business, would need a lot of offices built?
Because it is a huge open area?
Because the floor, the way it is, we decided to revamp our floor model and instead of having all of the offices like we've had since all the years I owned Austin suites we decided to keep open area and go cubicles and we will pay for the cost of cubicles but the point is this will save Travis County a great deal of money because unlike the 14th floor, we aren't building all full of office.
We are keeping outside office.
We were talking about demolishing inside offices and keeping those and putting cubicles in and so one part of the floor, other than carpet and paint -- carpet where it is needed and paint, we are taking it as is.
The other -- like I said, the other floor we are thinking about taking, that is $280,000 in remodeling costs.
If you use the $30 a square foot market rate that we got on the 14th floor and applied it to these floors, it would be $260,000, and so we were talking about $260,000 versus pretty much taking it as is.
The other floor, because there is two sections total sec, that we are talking about, the other floor, we are doing very little changes to it.
There are two officers that are pretty big.
We will put a wall down the middle of them and put in new switches.
I think there is three, that we are dividing in half and then there is another area along the line, that blank walls moving them in and, again, so minimal expenses to get these floors ready, compared to if we were, you know -- say we want this $30 a square foot and so the cost on remodeling, we are almost taking the floors as is, so determine the market rate.
We know Austin suites -- it was always the plan to keep the same market rate that we have now in the 14th floor, about $17 a square foot that just moved up to 17.50 a square foot.
And so if we are saving a lot of money, we are looking at prerent, that's what the proposal is.
The proposal for the first section we have that we can almost take immediately -- it will take about 30 days to paint it and put some carpet, is for four months free rent.
That is the same free rent we got on the 14th floor, with 600,000 in remodeling.
So four months and with an executive suite, it takes us some time to either move people or get some people in there.
Now, what was always envisioned or what was envisioned before, because that is a lot of offices to take all at one time, is that we would take a section now and in a year take another section, because it worked out good.
The floor before that ended up being too expensive to remodel, the floor before was ready and then in a year later, the part of the other floor taken out was raised and so it works gut good.
Gives us a year to lease a little bit of offices and get ready before we take on whole new offices.
So what we proposed is what we have now, the four months and then the second that has become available in January and it is the first rents be due in may.
And so I think that when you look at the square -- the $250,000, the square foot allowance we are not taking and minimal repairs that we are doing, so it's a win win for both of us, and then the same square footage, four months on the first one and the next one start in January and in may.
So that gives us only about four months of breathing time before we take on the new offices, and the whole idea here is to resolve all disputes between Travis County, which honestly from the beginning has been my goal, to do what's best for Austin suites and resolve all of the disputes for Travis County.
I think we have come on a plan for the signage that Austin suites is good with and I think this will resolve the dispute with regard to the 15th floor that was not made available.
Ly we will use another floor.
It is not on the top of the building which is always a good thing but we will -- going from where we are, I hope it works for the county and I hope once and for all we can get this resolved.

>> We will know if a few minutes.

>> Any questions.

>> Any questions or comments?
Thank you very much.

>> I think the proposal is not only reasonable but I think it is so low if it were out in the open market, I think the deals that going, because the office -- we aric maaing them fit so nicely is actually a very low deal for the county.

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