City Hopes To Ease Tax Hit When State Buys 2 Buildings

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The city welcomed the state’s announcement Wednesday that it would buy two Hartford office buildings to consolidate its workforce, but it also is negotiating with the state to lessen the hit on property taxes.

Together, the buildings — Connecticut River Plaza on Columbus Boulevard downtown and 55 Farmington Ave. in Asylum Hill — contribute about $2 million in property taxes annually to city coffers because they are privately owned.

The state doesn’t have to pay local property taxes, but it compensates cities and towns with a payment in lieu of taxes, known as the PILOT program. Gov. Dannel P. Malloy has proposed eliminating the alternative payment to municipalities for state-owned property.

At a news conference Wednesday, Malloy acknowledged the loss of property taxes for the city, where the budget deficit is forecast to rise to $82 million in 2016.

“All this needs to work out in the best interest of the state and the best interest of the city, and that’s what we’ve pledged to do with the mayor,” Malloy said.

Mayor Pedro E. Segarra, a proponent of keeping the PILOT program, said the Hartford and the state have been talking about the issue. One proposal calls for the state’s compensating the city for the XL Center.

“We have other ways to make up for some of this revenue,” Segarra said. “What I want is a vibrant city with more people living in the downtown area and collaboration with the state on other projects around the city. I’m not going to isolate particular transactions without looking at the total picture.”

Certainly, downtown will benefit from workers being relocated to Connecticut River Plaza and, to a lesser extent, 55 Farmington Ave., farther away in Asylum Hill.

And some of the 3,300 workers expected to occupy the buildings — 55 Farmington Ave. in 2014 and Connecticut River Plaza in 2015 — already are in the downtown area. One of the nearly 20 locations expected to be consolidated is 55 Elm St. near Pulaski Circle, with offices of the state attorney general and others.

Some of the workers will come from state offices in East Hartford, Middletown, West Hartford and Rocky Hill.

View State Offices Scheduled To Move in a full screen map

The purchase of Connecticut River Plaza, with 575,000 square feet in two towers, will push down the vacancy rate downtown for prime, “Class A” buildings. Vacancy rates will fall because buildings that are occupied by their owners aren’t counted when the rates are calculated. Lower vacancy rates help firm up sagging rental rates, a sign of a strengthening commercial real estate market.

At the same time, space will open up at Constitution Plaza when the banking department and the office of culture and tourism are relocated.

Planning for the consolidation began 18 months ago when the state sought proposals from office building owners looking to sell properties. The state saw the opportunity to get out of expensive leases and avoid costly repairs to aging state-owned buildings. The state estimates the consolidation will save the $100 million over the next 20 years, or $200 million when adjusted for inflation.

The consolidation also means state workers will occupy less space. Together, the two buildings being purchased by the state encompass about 900,000 square feet. The space being consolidated totals more than a million square feet, but officials at the department of administrative services says the new space will work, with less space being allotted to each worker.

All but two of the buildings now targeted for consolidation are leased. But priority is being given to closing the state-owned office building at 25 Sigourney St. in Hartford. The 20-story building houses 1,400 workers, mostly in the departments of Revenue Services and Social Service, and represents the largest block of employees to be relocated.

The state  has poured millions of dollars into repairs at 25 Sigourney to repair water leaks and mold damage, with mixed results. Last year, the above-ground portion of building’s parking garage was closed because its crumbling structure raised safety concerns.

“We’re moving out of that building for a set of reasons not the least of which is the high cost of improving that building,” Malloy said.

Malloy said the first workers are expected to be in their new quarters by this time next year. State officials expect that the workers at 25 Sigourney will be relocated to 55 Farmington.

The state plans to complete renovations before moving workers in to avoid disruptions, Malloy said.

The estimated costs for moving expenses, buying furniture and configuring the buildings for offices are expected to total $68 million.

Other major sites to be consolidated include leased space 999 Asylum Ave. now occupied by the Workers’ Compensation Commission, Office of the Child Advocate, the Commission on Human Rights and Opportunities and the Office of the Claims Commissioner.

In East Hartford, 324 employees in information technology, contracts and purchasing will move from space at 101 East River Drive. A back-up data center there also is slated to move, but not to Connecticut River Plaza or 55 Farmington Ave.

The state began evaluating options for  buying buildings in July 2011. When proposals were sought, 19 buildings emerged as candidates, and a second round yielded five more buildings. The decision was made to negotiate with owners of buildings between 250,000 and 950,000 square feet.

The state expects to close on the $18 million purchase of 55 Farmington Ave. by the end of this month. The 12-story tower, built in 1990, is being sold by The Hartford Financial Services Group. A closing date for the $34.5 million acquisition of Connecticut River Plaza, owned by FBE Limited and Cammeby’s International, has not been set.

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7 thoughts on “City Hopes To Ease Tax Hit When State Buys 2 Buildings

  1. steve

    Can you spell CORRUPTION. Think about it. Someone buys Riverplaza for what $6 million. Supposedly puts $10 million in renos and then DANNY BOY has the state buy them for $32 million in less than a year. Hello George Jepsen. Oh I forgot you’re too busy sweeping all of Blummy’s CORRUPTION under the rug.

    1. mike

      it does seem expensive considering the last couple sales and such.
      6.7 Million sale
      10.0 Million rennovation
      2 million taxes + $?.? Million in maintenance lighting heat etc pwer year
      I figure these guys are maybe 22-25 million into this building before its all said and done.

      So they made a nice profit. But if you do recall, they did buy the thing at the worst time ever in a city with 25% vacancies and are now selling it at a time where leases are happening again and values have improved. So their likely getting fair market price.

    2. commercial broker

      In addition to the other comment, they also have to pay 20% capital gains tax, conveyence tax, brokerage fees, legal fees and the cost of running the building since they purchased it, such as security guards, cleaning, repairs, water bills, etc, etc, etc. It is a shame that people look at the “numbers” and exaggerate the profit when they dont know what it takes to run a building. These people did not get rich on this investment and the price if fair considering the amount of risk they took buying an empty buidling in the worst real estate market in decades.

  2. Donna

    I realize that everytime additional workforce being added to the downtown is good, but unless goods and services (in addition to restaurants & theatre) is provided, the city will not benefit. We’ll just hear more complaints about parking. For some reason, suburbanites love to boast about their healthy lifestyles but don’t want to practice them on their way to work; gas guzzlers and 3 ft distance between vehicle and office chair. We need a Target, Kohls, Bed Bath & Beyond. There are so many possible locations, and why isn’t there a B&N near the railroad station is a mystery to me.

    1. mike

      it would be nice to add some of those things, but office workers do not drive retail in cities, residents do.

      Look at downtown Minneapolis. that city is huge compared to hsartford, and they struggle to maintain good retail downtown.

      I think Hartford will attract more resturants and more bars, and more entertainment options every year for the forseeable future with the developments happening.
      But I see retail still being a little slow. There will still be some retail failures before more stick and prosper.

      Im thinking 2014-15 will be a good time for retail opening downtown, but no guarantees that anything sticks. The best options will be when 777 Main Street is full of residents and they complete their retail plans. If that and the pearl street buildings the city just sold work out well you will surely see some shopping options develop. Maybe nothing as big as a Target, but something.

      Downtown added a few good amenities and options during a recession, so things are looking up
      (added during recession) Movie theater, Bike Shop, Yoga Studio, some bank branches
      These have seemingly all been well recieved.
      especially Yoga!

  3. Woodsman

    Is this the cheapest and best location ? How about the MetLife (Bloomfield) or Hartford Insurance locations (Simsbury)?

    1. mike

      Likely the cheapest and also the most central.

      those other buildings just became available anyways, this process has been in the works for more than a year. in fact these 2 buildings were selected months and months ago. the time wasted and cost to rebid would just be wasteful. Those buildings will find tenants Im sure.
      Especially the simsbury office because there are like 500 acres there and its an opportunity for significant development in a very desirable town.
      even if torn down and turned into houses, its got great options.

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