Expert says rent for Five Points property is 'in the ballpark'
By Skip Anderson, For the Williamson Herald
The proposal for FirstBank to lease from the city of Franklin the post office building at Five Points in its downtown is “definitely in the ballpark” of the fair market value, according to a Franklin-based real estate expert not associated with the deal.
“It is in the city’s interest to move forward with this proposal because it approaches market [value] and it will accomplish the city’s goals” of preserving the landmark structure in downtown historic Franklin, Tom Magli told the Williamson Herald.
Magli, associate broker with Magli Realty Company, is past president of the Williamson County Board of Realtors, current president of the Tennessee Real Estate Education Foundation, and director of the Tennessee Association of Realtors.
Franklin's Board of Mayor and Aldermen voted 6-2 Nov. 27 to give its non-binding approval to an agreement with FirstBank to lease the Post Office Building. FirstBank would lease all but the basement for 20 years with the option for two 10-year renewals. The city will retain use of the basement for storage. The Tennessee-based bank has committed to spend $3.5 million in up-front maintenance, building repairs, and bank-specific upgrades to the 88-year-old structure as part of the agreement. The rent for 8,027 square feet of the 15,740-square-foot building would be $24,000 annually, comparable for what it receives in rent from its current two tenants, a contractor for the U.S. Postal Service and the Heritage Foundation. Although each tenant would be offered the option to remain in the building, the Heritage Foundation indicated it would likely move.
“We would love to relocate,” Mary Pearce, executive director of the Heritage Foundation, said at the BOMA meeting Nov. 27. “And the bank would partner with us to relocate.”
Without the deal, city officials say, the building would face a capital investment in the neighborhood of $1 million to bring the building up to Class A office space standards. Avoidance of this cost, as well as recurring maintenance costs, help to make the proposal from FirstBank financially attractive to city officials.
“In 2008, the city spent over $32,000 with contractors on heating/cooling maintenance,” Eric Stuckey, city administrator, wrote in a Nov. 26, 2012, memo to the members of BOMA. “In 2009, the city spent over $30,000 on storm water pipes, asphalt repairs, and resurfacing of the parking area behind the building. … Maintenance in its current condition would continue to cost the city upwards of $27,000 per year.”
These costs, combined with rent payments, avoidance of utilities, insurance, supplies, and capital investment, create an “implied rent” of $23.43 per square foot each month, Stuckey said.
“The city wisely has invested in areas to preserve historic properties,” Stuckey said at the Nov. 27 BOMA meeting. “This is an opportunity to do the right thing in terms of the building and leverage a partnership to get it done right while still maintaining the post office usage.”
At least one critic says the city is renting a signature property for too little money.
“[The city's] cost analysis is based on current Class A office space costs for Cool Springs, not retail space costs for Main Street, which are substantially higher,” Greg Flittner, president of Franklin's Downtown Neighborhood Association, wrote in a document he distributed to BOMA members at its Nov. 27 meeting.
Flittner spoke out against the lease arrangement at two BOMA meetings in recent months, arguing that the $3.5 million the bank would pay for maintenance and improvement should not be included in calculations to determine the “implied rent.”
“Thirty years of rent at $24,000 is $720,000. If you take the building back in 30 years, all of the leasehold improvements will probably need to be done again,” Flittner wrote. “You have a corner of Franklin that is conservatively worth $2.5 million to $4 million being lost for 30 years for $720,000.”
Ward 4 Alderman Margaret Martin voted against the non-binding approval of the letter of intent.
“If I were a taxpayer, which I am, I would be screaming that a for-profit business is taking over this property for $24,000 a year,” Martin said immediately ahead of the vote.
In support of the measure, Ward 2 Alderman Dana McLendon said that the city put out a call for proposals for potential renters of the space, and only one bid came in.
“At the end of the day, one suitor came forth,” McLendon said. “So it's not productive to compare an actual proposal from an actual tenant to [a hypothetical tenant].”
According to agreement, the city has until late February to sign a lease with FirstBank, which must first be approved by BOMA.
Posted on: 1/7/2013