May 4, 2024
by Michael R. Wickline | Arkansas Democrat-Gazette
After several months of work, the Arkansas Public Employees Retirement System’s search for a building to purchase for its offices, rather than continue to rent space in the Union Plaza building in downtown Little Rock, has been whittled down to two options.
The two options are a building that a company — owned by veteran lobbyists Ted and Julie Mullenix — has proposed to construct on its property just north of the state Capitol in Little Rock, and the Cadence Bank building in the Riverdale area in Little Rock.
The system’s Investment Finance Subcommittee, chaired by system trustee Daryl Bassett, recently asked system Executive Director Amy Fecher to develop a detailed comparison of the purchase of the building that a company owned by the Mullenixes proposes to construct at 1700 W. Third St., and the purchase of the Cadence Bank building at 2800 Cantrell Road, plus the cost of improvements in that building.
The company is called TJM Third and Bishop Properties LLC. Bailey Construction and WER Architects would work on the proposed building project based on the proposal presented to the system.
The Arkansas Public Employees Retirement System’s Investment Finance Subcommittee also voted to eliminate the Arkansas Teacher Retirement System-owned property at 1200 W. Third St. that formerly housed the Arkansas Insurance Department, and the McGriff Building at 1500 Riverfront as building options for the Arkansas Public Employees Retirement System to purchase.
Fecher said Friday, in a written statement, “APERS is working with Anne Laidlaw, Director of the Division of Building Authority, on the comparison” requested by the system’s Investment Finance Subcommittee.
“We will be comparing the capital outlay costs of the Cadence Building to the option of purchasing a new building north of the capitol once it is built,” she said.
“We were asked to complete the comparison within 30 days or less of the subcommittee meeting” that was held April 25, she said. The next scheduled meeting for the system’s board of trustees is May 15.
The 75,000-square-foot Cadence Bank building’s purchase price is $15.6 million plus the cost of repairs, Fecher told the subcommittee during its April 25 meeting.
Julie Mullenix told the subcommittee the current plan for the proposed building at 1700 W. Third St. is for a two-floor, 40,000-square-foot building that would be an extension of the state Capitol complex.
The price tag for the system to purchase building would be $18.5 million, she said. If the system leased the building with a 3% “annual escalator,” it would cost the system $29.4 million over 15 years, she said.
The project timeline, including design and construction, is estimated to be 20 months. If the project is approved before May 30, 2024, the building is scheduled for completion with lease commencement Feb. 1, 2026, according to the proposal presented to the subcommittee.
The proposed term would be a property lease of building and grounds for 15 years, according to the proposal. A ground lease of $1.2 million a year would run during the construction period with an option to purchase at completion under this proposal. The lease for building and grounds, starting Feb. 1, 2026, would start at $1.5 million a year. The total amount of the ground lease payments made during the construction period would be credited to the purchase price of the building.
The system’s Investment Finance Subcommittee members on April 25 asked for an estimated cost of a proposed three-floor building.
Fecher said Friday that “we have not received a cost to build three floors.”
The Arkansas Public Employees Retirement System is state government’s second-largest retirement system with more than $10 billion in investments and more than 75,000 working and retired members.
The Arkansas Teacher Retirement System is state government’s largest retirement system with more than $20 billion in investments and more than 100,000 working and retired system members. The teacher retirement system’s office is located at 1400 W. Third St. in Little Rock.
During the public employees retirement system’s Investment Finance Subcommittee meeting April 25, Bassett said the system “can’t be grown up renting.
“We need to own [office space] at some point,” he said.
Bassett, who also is secretary of the state Department of Labor and Licensing, said “we are going to do our due diligence” and be prepared to answer questions from state lawmakers and system members if the trustees authorize the purchase of a building in which to locate the system’s offices.
Bureau of Legislative Research Chief Legal Counsel Jill Thayer wrote in an email dated April 25 to Fecher that “I was asked” to request information about whether Fecher has had any discussions or contact with a lobbyist about a new building for the system, the system buying land from a lobbyist or selling the system a building, and whether Fecher had any discussions with the board of trustees about working with a lobbyist to acquire a new building.
In an email dated April 25 to Thayer, Fecher explained that Ted and Julie Mullenix, acting in their capacity as landowners, requested a meeting with her after the trustees in February asked Fecher to analyze three properties in Little Rock for the potential purchase as an office building. These three properties included the former state Department of Insurance building at 1200 W. Third St., the McGriff Building at 1500 Riverfront and the Cadence building at 2800 Cantrell Road.
“At the meeting, the option to purchase a building north of the Capitol that would be built by the landowners was presented,” Fecher wrote. “The Executive Director informed the landowners that the location of the offices would be a decision of the Board of Trustees.”
She pointed out in her email to Thayer that the system’s board of trustees has been considering the relocation of the system offices as fiduciaries for the system and directed her in November to begin a search to explore the possibility of the system owning its own office space.
Senate President Pro Tempore Bart Hester, R-Cave Springs, said Friday he’s worried about creating 40,000 more square feet of empty office space in downtown Little Rock, and about “government driving the market” for new buildings.
He acknowledged he’s only one vote in the Legislature and he doesn’t have the details of the proposals that the trustees for the Arkansas Public Employees Retirement System are considering.
During the system’s Investment Finance Subcommittee meeting April 25, system trustee Jim Hudson said, “I think that we do need to own the building we are in” because that would be a prudent step for the system, which has paid rent for office space since about 2009.
He said “real estate is a significant component” of Gov. Sarah Huckabee Sanders’ Arkansas Forward initiative to improve state government’s efficiency and effectiveness, and he wants to make sure the public employees retirement system’s building search is aligned with that initiative.
The state Department of Transformation and Shared Services has hired McKinsey & Co. as a consultant for up to $5.5 million to help the state’s 15 executive branch agencies improve efficiency and services.
Hudson, who also serves as secretary for the state Department of Finance and Administration, said there is a desire to place as many state agencies as possible in Central Arkansas in a more dense footprint around the state Capitol complex.
The public employees retirement system currently leases 41,283 square feet in the Union Plaza building in downtown Little Rock with an annual rent cost of $766,625, Fecher said Friday. The system also pays more than $40,000 a year in parking costs at the building, according to system records.
The system’s current building lease expires at the end of June, she said.
“We have been presented with an option of a two-year lease extension,” Fecher said.
Before the Arkansas Public Employees Retirement System Investment Finance Subcommittee voted April 25 to eliminate the Arkansas Teacher Retirement System-owned property at 1200 W. Third St. that formerly housed the Arkansas Department of Insurance as an option to purchase, Fecher said the purchase price for the 59,000-square-foot building would be $2 million.
She said the building needs more than $8 million in repairs, so it would cost the public employees retirement system about $10.5 million.
Before the public employees retirement system Investment Finance Subcommittee voted to eliminate the McGriff Building at 1500 Riverfront as an option, Fecher said the purchase price for the 52,000-square-foot building is $7.2 million. Laidlaw said the system also would have to spend more money than initially projected on capital outlay improving the McGriff building.
Read full article HERE.
