published Monday, November 18th, 2013

Probasco: State seeks better property management

By Ben Probasco

The James R. Mapp State Office Building (foreground) has been recommended for decommissioning.
The James R. Mapp State Office Building (foreground) has been recommended for decommissioning.
Photo by C. B. Schmelter /Chattanooga Times Free Press.

Tennessee's innovative Transforming Tennessee for Tomorrow program — known as T3 — may seem an out-of-the-box idea, but anyone familiar with Bill Haslam's tenure as Knoxville mayor recognizes it as a business-minded concept right out of our governor's management playbook.

T3 is the strategy developed by Gov. Haslam and the Department of General Services to reduce state expenses through more effective management of its office properties, reducing underutilized office space and updating office standards to achieve a more productive environment for state employees.

Following a comprehensive review of the state's real estate assets, the action plan involves outsourcing some of the state's real estate services, including facilities management, to professional experts.

As mayor of Knoxville, Haslam applied the same principles to turn around one of the city's iconic facilities, the Sunsphere. Built for the 1982 World's Fair, the Sunsphere was vacant for many years and a money-loser before Mayor Haslam leased the top four floors to the private sector for both office and entertainment uses. Rental income generated adequate funds for the city to reopen the SunSphere's observation deck.

T3 is the kind of business-minded management that then-Mayor Haslam said he would bring to state government.

With the state possessing such a massive real estate portfolio, there is a tremendous opportunity to achieve efficiency and savings through better management. Utilizing industry experts is the way private business manages its real estate and facilities.

Because Tennessee had historically not possessed a guiding strategy for real estate and facilities, the overall portfolio had become a mess. By failing to perform preventive maintenance on building systems and equipment for many years, the state was employing, by default, what the facility industry terms a "run to fail" model. Imagine not tending to a leaky roof in your home for 15 years, and it's easy to see how "run to fail" becomes a much more expensive approach over the long term.

Because employee workspaces had not been updated to modern standards, decisions were repeatedly made -- again, without a guiding plan -- to leave state spaces and relocate to newer leased properties.

Here is a startling fact: By the time Bill Haslam became governor, state office buildings in the overall portfolio had a vacancy rate of about 40 percent. To put that low performance level into context, my commercial development company today would not be able to get financing for a new office project that had such limited occupancy. A property simply cannot perform financially at that level -- it is an enormous money loser, regardless of whether the property is publicly or privately owned.

That's why T3 is such an important strategy for the state. Projected T3 savings is $130 million over the next decade. Additionally, the state is outsourcing more than 10 million square feet of office space to be managed by real estate experts, which will produce millions more in savings. For the first time, the state has an energy savings strategy that will save millions of dollars a year by reducing energy costs.

Recently, the State Building Commission approved a General Services recommendation to decommission three state office buildings that had become functionally obsolete. The three buildings, including the James R. Mapp building in Chattanooga, are victims of the "run to fail" model that neglected capital investment and maintenance. It would cost tens of millions of dollars on each building to rehab for optimal use by the state.

By closing those three buildings and moving employees to competitively bid leased properties, state employees will enjoy modern, efficient, collaborative and productive working environments.

I applaud Haslam for boldly tackling a generational public sector approach that has cost our great state tens of millions of dollars and replaced it with a practical business-centered model driven by free enterprise and the competitive marketplace. The end result frees up precious capital for such essential priorities as education and job creation. By my way of thinking, that is good government.

Ben Probasco is a partner in the Chattanooga-based development firm Kinsey Probasco Hays.

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