As Louisiana lawmakers cobble together fixes for the state’s numerous budget problems, one local real estate expert advises landlords to keep an eye on tenants that are offices of state government.
“As the state government is going through all these consolidations and budget fixes, their push is to consolidate state government employees into state-owned buildings downtown,” says Branon Pesnell of Beau Box Commercial Real Estate. “I think any landlord with state tenants needs to be aware of that. Those leases are at risk because of they have the ability to cancel them.”
Pesnell offered the advice at the 2016 Trends in Real Estate seminar, which took place Thursday at L’Auberge Casino and Hotel.
He did so after telling the room that the greater Baton Rouge area experienced a slight downturn in offices occupancies in 2014 and 2015. Pesnell attributed the decline largely to The Advocate vacating a building on The Rev. Jimmy Swaggart’s Bluebonnet campus and to the state Office of Group Benefits leaving approximately 60,000 square feet of space in the Bon Carre Business Center to move to a state-owned building.
“That’s a trend you’re going to need to keep your eye on,” he said. For years, former Louisiana Attorney General Buddy Caldwell had been paying for 19,000 square feet of space in a high rise that Saints owner Tom Benson owns on Poydras Street in New Orleans. The space had gone unused. With the state struggling regain its financial footing, the issue surfaced during a budget hearing that took place during a special session of the Louisiana Legislature in February. Attorney General Jeff Landry said he plans to move staff into the building this summer.
And earlier this year, Commissioner of Administration Jay Dardenne questioned why State Treasurer John Kennedy’s office was leasing space when the state has state-owned offices that are currently unoccupied available at a lower cost. Dardenne said the state treasurer’s office could save roughly $294,000 overall by moving into state-owned space.
Kennedy didn’t agree with Dardenne’s math but said he would make the move if doing so would save the Louisiana money, Daily Report previously reported.
Pesnell says state office leases will continue to be at risk during Louisiana’s budget crisis, given that the government can cancel them at anytime with little notice—particularly if office space is available in a state-owned building downtown.
“It’s very tough to get those provisions negotiated out of a state lease,” he said. “I’ve seen it done once or twice before, but for the most part the state will not budge on those provisions.”
—Alexandria Burris
