PAG'S RENT 20% MORE THAN ESTIMATED

Cost of new Tucson office space for Pima Association of Governments rises by $1M

2013-03-19T00:00:00Z 2013-03-19T11:02:49Z Cost of new Tucson office space for Pima Association of Governments rises by $1MDarren DaRonco Arizona Daily Star Arizona Daily Star
March 19, 2013 12:00 am  • 

The cost for the Pima Association of Governments' new downtown office has ballooned by $1 million over initial estimates, records show.

That means taxpayer-funded PAG could be paying about 20 percent more in rent each year for office space in the One East Broadway building currently under construction.

Prior to the new expenses, PAG was set to pay $26.50 per square foot in rent for 26,434 square feet of office space.

The annual rent would have been about $700,500, which is $308,380 more than what the agency pays for its current offices in downtown's Transamerica Building.

Instead of PAG seeking a loan to cover the extra expenses, the building owners will roll the cost into the annual rent. The rent rate will be about $32.54 per square foot or about $860,000 a year.

The higher rate is "within market rates" for that location, documents released by PAG state. But average rent paid downtown is $18.58 per square foot, according to Tom Nieman of Picor Commercial Real Estate Services.

Surprise hike

The soaring cost for PAG is mostly attributed to the low tenant improvement allowance in the lease. When PAG agreed to the lease in the new building last spring, $50 per square foot was provided for such things as individual office designs, windows, walls and other interior improvements. PAG documents show a more realistic number should have been between $75 and $85.

PAG board member and County Supervisor Ramon Valadez said he doesn't know why the initial tenant amount was set so low or who agreed to it.

Valadez says the entire leasing process was obfuscated by the staff from the beginning.

"I believe we've been blindsided by our staff. … The original lease was put on the consent agenda with no background material. … It wasn't put on the agenda correctly. It wasn't advertised correctly. And no information was provided to the board," Valadez said.

"It should be a transparent, open process, but that wasn't the case. Clearly, it was somebody's intent to hide that."

The board was kept in the dark most of last year when Gary Hayes was still PAG executive director. Hayes resigned in December. Only recently have board members been hearing about the issues percolating over the office space, Valadez said.

Valadez asked for an agenda item at the next PAG meeting to find out what happened and what, if anything, can be done to reduce the costs.

"We are stuck in a difficult legal position," Valadez said. "And I'm looking for information on how that happened."

PAG's interim director, Cherie Campbell, said the low rate was decided on to give the agency more options when dealing with future expenses.

"Since the plans were not done at the time of the lease signing, setting the (tenant improvement) rate at $50 per square foot maintained the greatest flexibility for dealing with costs when the construction plans were complete," Campbell wrote in an email. "The lease retained PAG's ability to either buy down the lease rate by paying for any excess (tenant improvement) costs upfront" or stretch them out over a 10-year period by including them in the annual lease rate.

Last week PAG released thousands of pages of emails and documents concerning its offices at One East Broadway per a Star records request.

political fight likely

PAG, a taxpayer-funded umbrella organization that deals with planning issues for nine Tucson-area governments on issues like air quality and transportation, wanted office space along the modern streetcar line. In May, PAG signed a lease to be the anchor tenant in the building under construction on the northeast corner of North Stone Avenue and East Broadway.

The group has an annual budget of about $8 million, which comes from federal, state and local funding. The bulk of the funding comes from federal agencies for transportation planning. While there are nine members, they don't pay equally. Pima County and the city of Tucson pay about 90 percent of $676,500 of member dues. The city and county each paid $298,000 to the agency this year, which is a nonprofit.

PAG leaders still need to approve paying the higher expenses for the move to the new building, something Valadez says he is inclined to fight.

Other local leaders shared the frustration Valadez expressed over the bigger price tag, especially leaders from the city and county, who would likely pay the brunt of the new expenses.

"Someone over there better start holding bake sales," said County Supervisor Ray Carroll. "Because I'm not bailing anybody out of anything."

City Councilman Steve Kozachik said PAG has nobody to blame but itself for this mess. He said neither the taxpayers nor the developers should be on the hook just because PAG officials "set themselves up for failure."

"If they low-balled it and then added changes to build a Taj Mahal for a bunch of transit bureaucrats," Kozachik said, "that's PAG's fault, not the developer's or taxpayers'."

Kozachik also wasn't sympathetic to Valadez's claim that the staff surreptitiously slipped the lease past the board.

"When something shows up on the consent agenda and you don't have any information on it, it's your responsibility to pull the item and start asking questions," Kozachik said. "It's apparent that didn't happen here."

Contact reporter Darren DaRonco at 573-4243 or ddaronco@azstarnet.com. On Twitter @DarrenDaRonco.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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