DEPARTMENT OF FINANCE & ADMINISTRATION

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Mississippi Department of Revenue - RFP Recommendation

Prepared for Governor Phil Bryant March 15, 2013


RFP Recommendation

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EXECUTIVE SUMMARY
Recommendation
The Mississippi Department of Finance and Administration recommends that the Mississippi Department of Revenue execute a 20 year lease with Duckworth Realty (South Pointe) with an initial annual cost to the State of $ 2,878,000 and a total cost to the State of $ 41,469,192 (Net Present Value, 20 years).

Process
On November 1, 2012 the DFA, acting through the Bureau of Building, Grounds and Real Property Management issued a Request For Proposal (RFP) to obtain new offices for the MDOR via a long term lease. The RFP defined the calculations and scoring by which the best value for the State would be determined. All proposals were evaluated by a team consisting of three DFA employees (Deputy Executive Director, BoB Director, RPM Director) and two MDOR employees (Executive Director, Director of the Board of Review). Six proposals were received, and three of these were selected for further review. After detailed architectural and engineering analyses were completed for each finalist building, each of the three finalists were asked to submit a Best And Final Offer (BAFO) in which they were to explain how the noted deficiencies would be addressed as well as make any final adjustments to the initial financial offerings. The evaluation committee submits this recommendation based on an analysis of the Best And Final Offers.

RFP Recommendation

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DETAILED RESULTS
Six proposals were received of which four were for existing buildings (1, 2, 3, 5), and two envisioned new buildings (4, 6). The top three scoring proposals were included in the short-list and invited to submit Best & Final Offers.

Preliminary Analysis
Proposer Net Present Financial NonValue (20 year Score Financial cost to the Score State) Total Score

1

Hertz Investment Group, LLC Diversified Technology, Inc. Duckworth Realty Mark Bounds, SHOR, CCIM CHCS Investments LLC Mississippi Revenue, LLC

$48,544,056 $53,476,273 $51,430,875 $57,991,550 $49,103,188 $67,458,657

35.00 31.77 33.04 29.30 34.60 25.19

60.00 61.93 59.85 58.81 47.00 55.98

95.00 93.70 92.89 88.11 81.60 81.17

2

3

4

5

6

Table 1 - First Phase Scoring Summary
All non-financial, performance based scoring was completed prior to opening the financial proposals. All proposals met at least minimum requirements, so the evaluation proceeded to the financial scoring. Table 2 - Scoring Criteria (page 4) illustrates all of the scoring criteria.


RFP Recommendation

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Scoring Criteria Net Present Value (20 Year Lease) Relocation Costs (Move, Furniture, Equipment) Connect to Fiber Optic Loop Maximu m Value Description
The Net Present value of 20 years of cash flow is calculated at a 4% discount rate. The lease rate, custodial costs, security costs and utility costs are included. The total costs of relocation and the costs for any furniture and equipment that MDOR would have to purchase to make the building usable. Two proposals included furniture. If any of the buildings are close enough to the fiber optic data loop to economically connect, the price for connection is included (furnished by MDITS). The connection fees (next item) are reduced substantially and provide an advantage to any building being so connected. Hertz was able to connect. None of the other buildings were close enough to the loop. The annual cost for connection to the internet are included (costs are furnished by MDITS). Should additional parking costs be included as part of a proposal, it would be input here. No proposals included additional parking costs.

Internet Connection Costs (NPV 20 Years) Parking Costs (NPV 20 Years) TOTAL COST TO STATE Footprint Size - 1st Floor Security (guards and number of other tenants) Parking Ease Of Access For Public Proximity To Services Image 35 15 10 10 15 10 5

The Total Cost To State score is calculated as follows: SCORE = 35 x (Minimum Cost To State/Cost To State, this proposal) Compares first floor area versus ideal. SCORE = 15 x (Proposed Area / 50,000) Subjectively compares security options with preference given to single-tenant buildings. Compares parking spaces versus ideal. SCORE = 10 x (Spaces Offered / 600) The relative ease of access for the public was evaluated. The relative proximity to services was evaluated. The relative level of professional appearances was evaluated.

Table 2 - Scoring Criteria

RFP Recommendation 4 !

ADDITIONAL ANALYSIS
As the RFP proposals were being evaluated, legislation was introduced to authorize DFA to purchase buildings in Clinton, Jackson and Pelahatchie. In anticipation of being asked to justify a leasing recommendation against the purchase options for the Landmark Building, two separate cases were evaluated which are described below. The calculations below assume that a purchased Landmark Building will be developed for MDOR occupancy only and defer development of the remaining 50% until a later date. A summary of the results is included in Table 3 - Lease versus Purchase.

Best & Final Analysis
Proposer
Duckworth Realty Hertz Investment Group, LLC Diversified Technology, Inc. Purchase Landmark (MDOR Only) Table 3 - Lease Versus Purchase

Total Cost To State
$41,469,192 $51,684,393 $52,150,315 $45M - $56M *

While the selling price is indeed attractive ($ 7.6M), costs not included in the purchase price must be borne by the State (see list below) 1. Repair of deficiencies noted in the Architectural and Engineering inspections 2. Tenant improvements needed for occupancy 3. Parking for at least 600 employees 4. Operating expenses Therefore, executing a long-term lease with Duckworth Realty (South Pointe) has the lowest Net Present Value for the twenty years of the lease. Detailed scoring sheets and economic calculations are included as attachments 1 and 2. * $45M represents the estimate to provide Tenant Improvements (TI) only with very minimal repairs. $ 56M includes TI costs above as well as needed repairs and replacements to the building envelope, mechanical systems, and electrical systems. These estimates were furnished by the Architectural Consultant. 


RFP Recommendation

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Economic Calculations Assumptions
1. The period of analysis is twenty (20) years with a discount rate of 4%. 2. Parking is not included in the proposed sale price and is added as additional costs to the state @ $ 75/space/month. 3. The option "MDOR Only" assumes full Tenant Improvements for MDOR (approximately 50% of the available space) @ $ 40/SqFt. The remaining space will be partially developed @ $ 20/SqFt. 4. Full occupancy calculations for the Landmark Building have not been included due to the many unknowns at this time. • Schedule for moving agencies other than MDOR into the building • Cost of moving multiple tenants • Resolving parking issues for a fully occupied building • Resolving the disposition of unoccupied space in existing state-owned buildings • The actual selling price (Hertz currently has an option to purchase)

RFP Recommendation

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Attachment 1 Final Scoring Sheets

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Proposal Duckworth Realty Submitted By:
Evaluation Item Net Present Value (20 Year Lease) Relocation Costs (Move, Furniture, Equipment) Connect to Fiber Optic Loop Internet Connection Costs (NPV 20 Years) Parking Costs (NPV 20 Years) 1 TOTAL COST TO STATE 2 Footprint Size - 1st Floor Max. Points Value $38,052,914 $2,356,233 $0 $1,060,045 $0 $41,469,192 35.00 (Min Value/Value This Proposal) x (Max Points) 58,181 13.85 (SqFT This Proposal/SqFt Ideal) * (Max Points) 8.00 600 10.00 (Spaces This Proposal/ Preferred Spaces) * (Max Points) 13.00 10.00 5.00 94.85 $41,469,192 Score Formula

35 15 10 10

3 Security (guards and number of other tenants) 4 Parking

5 6 7

Ease Of Access For Public Proximity To Services Image

15 10 5 100

RFP Recommendation

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Proposal Diversified Technology, Inc. Submitted By:
Evaluation Item Net Present Value (20 Year Lease) Relocation Costs (Move, Furniture, Equipment) Connect to Fiber Optic Loop Internet Connection Costs (NPV 20 Years) Parking /Security Costs (NPV 20 Years) 1 TOTAL COST TO STATE 2 Footprint Size - 1st Floor Max. Points Value $44,887,988 $4,163,733 Score Formula

$1,304,671 $1,793,923 35 15 10 10 $52,150,315 27.80 (Min Value/Value This Proposal) x (Max Points) 105,090 15.00 (SqFT This Proposal/SqFt Ideal) * (Max Points) 10.00 600 10.00 (Spaces This Proposal/ Preferred Spaces) * (Max Points) 13.00 9.00 5.00 89.80 $41,428,492

3 Security (guards and number of other tenants) 4 Parking

5 6 7

Ease Of Access For Public Proximity To Services Image

15 10 5 100

RFP Recommendation

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Proposal Hertz Investment Group, LLC Submitted By:
Evaluation Item Net Present Value (20 Year Lease) Relocation Costs (Move, Furniture, Equipment) Connect to Fiber Optic Loop Internet Connection Costs (NPV 20 Years) Parking Costs (NPV 20 Years) 1 TOTAL COST TO STATE 2 Footprint Size - 1st Floor Max. Points Value $46,119,243 $4,586,833 $750,000 $228,317 $0 $51,684,393 28.05 (Min Value/Value This Proposal) x (Max Points) 81,350 15.00 (SqFT This Proposal/SqFt Ideal) * (Max Points) 8.00 600 10.00 (Spaces This Proposal/ Preferred Spaces) * (Max Points) 12.00 10.00 5.00 88.05 $41,428,492 Score Formula

35 15 10 10

3 Security (guards and number of other tenants) 4 Parking

5 6 7

Ease Of Access For Public Proximity To Services Image

15 10 5 100

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Attachment 2 Lease vs Purchase Calculations

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NET PRESENT VALUE TO PURCHASE LANDMARK BUILDING AND DEVELOP MDOR ONLY
Year Purchase Price & TI $18,107,100 Debt Service $0 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 $1,316,386 Capital Reserve $345,355 $352,262 $359,307 $366,493 $373,823 $381,300 $388,926 $396,704 $404,638 $412,731 $420,986 $429,406 $437,994 $446,754 $455,689 $464,802 $474,098 $483,580 $493,252 $503,117 Parking Operating Expense Residual Value Cash Flow

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

$540,000 $550,800 $561,816 $573,052 $584,513 $596,204 $608,128 $620,290 $632,696 $645,350 $658,257 $671,422 $684,851 $698,548 $712,519 $726,769 $741,304 $756,130 $771,253 $786,678

$1,080,000 $0 $3,281,741 $1,101,600 $0 $3,321,048 $1,123,632 $0 $3,361,142 $1,146,105 $0 $3,402,037 $1,169,027 $0 $3,443,750 $1,192,407 $0 $3,486,297 $1,216,255 $0 $3,529,695 $1,240,581 $0 $3,573,961 $1,265,392 $0 $3,619,113 $1,290,700 $0 $3,665,167 $1,316,514 $0 $3,712,143 $1,342,844 $0 $3,760,058 $1,369,701 $0 $3,808,932 $1,397,095 $0 $3,858,782 $1,425,037 $0 $3,909,630 $1,453,538 $0 $3,961,495 $1,482,609 $0 $4,014,397 $1,512,261 $0 $4,068,358 $1,542,506 $0 $4,123,397 $1,573,356 ($10,020,469) ($5,840,932) NPV @ 4% $44,942,712

The above analysis includes TI for MDOR and minimal repairs and replacements that will most likely be needed within five years.


RFP Recommendation

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NET PRESENT VALUE TO PURCHASE LANDMARK BUILDING AND DEVELOP MDOR ONLY
Year Purchase Price & TI $33,400,000 Debt Service $0 $2,428,180 $345,355 $2,428,180 $352,262 $2,428,180 $359,307 $2,428,180 $366,493 $2,428,180 $373,823 $2,428,180 $381,300 $2,428,180 $388,926 $2,428,180 $396,704 $2,428,180 $404,638 $2,428,180 $412,731 $2,428,180 $420,986 $2,428,180 $429,406 $2,428,180 $437,994 $2,428,180 $446,754 $2,428,180 $455,689 $2,428,180 $464,802 $2,428,180 $474,098 $2,428,180 $483,580 $2,428,180 $493,252 $2,428,180 $503,117 $540,000 $1,080,000 $550,800 $1,101,600 $561,816 $1,123,632 $573,052 $1,146,105 $584,513 $1,169,027 $596,204 $1,192,407 $608,128 $1,216,255 $620,290 $1,240,581 $632,696 $1,265,392 $645,350 $1,290,700 $658,257 $1,316,514 $671,422 $1,342,844 $684,851 $1,369,701 $698,548 $1,397,095 $712,519 $1,425,037 $726,769 $1,453,538 $741,304 $1,482,609 $756,130 $1,512,261 $771,253 $1,542,506 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $4,393,535 $4,432,842 $4,472,935 $4,513,830 $4,555,543 $4,598,091 $4,641,489 $4,685,755 $4,730,907 $4,776,961 $4,823,937 $4,871,852 $4,920,725 $4,970,576 $5,021,424 $5,073,289 $5,126,191 $5,180,151 $5,235,191 Capital Reserve Parking Operating Expense Residual Value Cash Flow

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

$786,678 $1,573,356 ($18,483,560) ($13,192,229) NPV @ 4% $56,189,908

The above analysis includes TI for MDOR and full repairs and replacements that will most likely be needed within five years.

RFP Recommendation

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