DFA Recommendation Executive Summary

7/29/2019 DFA Recommendation Executive Summary

1/13

!

Mississippi Department of

Revenue - RFP

RecommendationPrepared for Governor Phil Bryant

March 15, 2013

RFP Recommendation !1

DEPARTMENT OF FINANCE &

ADMINISTRATION


2/13

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.



3/13

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

Best & Final Offers.

Table 1 - First Phase Scoring SummaryAll 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.

Preliminary Analysis

Proposer Net PresentValue (20 year

cost to theState)

FinancialScore

Non-Financial

Score

TotalScore

1 Hertz InvestmentGroup, LLC

$48,544,056 35.00 60.00 95.00

2 DiversifiedTechnology, Inc.

$53,476,273 31.77 61.93 93.70

3 DuckworthRealty

$51,430,875 33.04 59.85 92.89

4 Mark Bounds,SHOR, CCIM

$57,991,550 29.30 58.81 88.11

5 CHCS Investments

LLC$49,103,188 34.60 47.00 81.60

6 MississippiRevenue, LLC

$67,458,657 25.19 55.98 81.17



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Table 2 - Scoring Criteria

Scoring Criteria Maximu

m Value

Description

Net Present Value (20 Year

Lease)

The Net Present value of 20 years of cash flow iscalculated at a 4% discount rate. The lease rate, custodialcosts, security costs and utility costs are included.

Relocation Costs (Move,

Furniture, Equipment)

The total costs of relocation and the costs for any furnitureand equipment that MDOR would have to purchase tomake the building usable. Two proposals includedfurniture.

Connect to Fiber Optic Loop If any of the buildings are close enough to the fiber opticdata loop to economically connect, the price forconnection is included (furnished by MDITS). Theconnection 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 buildingswere close enough to the loop.

Internet Connection Costs

(NPV 20 Years)

The annual cost for connection to the internet are included(costs are furnished by MDITS).

Parking Costs (NPV 20

Years)

Should additional parking costs be included as part of aproposal, it would be input here. No proposals includedadditional parking costs.

TOTAL COST TO STATE 35 The Total Cost To State score is calculated as follows:SCORE = 35 x (Minimum Cost To State/Cost To State,this proposal)

Footprint Size - 1st Floor 15 Compares first floor area versus ideal.SCORE = 15 x (Proposed Area / 50,000)

Security (guards and

number of other tenants)

10 Subjectively compares security options with preferencegiven to single-tenant buildings.

Parking 10 Compares parking spaces versus ideal.SCORE = 10 x (Spaces Offered / 600)

Ease Of Access For Public 15 The relative ease of access for the public was evaluated.

Proximity To Services 10 The relative proximity to services was evaluated.

Image 5 The relative level of professional appearances wasevaluated.



5/13

ADDITIONAL ANALYSISAs 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 leasingrecommendation 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.

Table 3 - Lease Versus PurchaseWhile 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.

Best & Final Analysis

Proposer Total Cost To State

Duckworth Realty $41,469,192

Hertz Investment Group, LLC $51,684,393

Diversified Technology, Inc. $52,150,315

Purchase Landmark (MDOR Only) $45M - $56M *



6/13

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)



7/13

Attachment 1Final Scoring Sheets



8/13

Proposal

Submitted By:Duckworth Realty

Evaluation ItemMax.

PointsValue Score Formula


Lease)

$38,052,914



$2,356,233

Connect to Fiber Optic Loop $0


NPV 20 Years

$1,060,045

Parking Costs (NPV 20 Years) $0

1 TOTAL COST TO STATE 35 $41,469,192 35.00 (Min Value/Value This

Proposal) x (Max Points)

2 Footprint Size - 1st Floor 15 58,181 13.85 (SqFT This Proposal/SqFt

Ideal) * (Max Points)

3 Security (guards and number

of other tenants)

10 8.00

4 Parking 10 600 10.00 (Spaces This Proposal/

Preferred Spaces) * (Max

Points)5 Ease Of Access For Public 15 13.00

6 Proximity To Services 10 10.00

7 Image 5 5.00

100 94.85

$41,469,192



9/13

Proposal

Submitted B :Diversified Technology, Inc.

Evaluation ItemMax.

Points Value Score Formula


Lease

$44,887,988


Furniture, E ui ment

$4,163,733

Connect to Fiber Optic Loop


(NPV 20 Years)

$1,304,671

Parking /Security Costs (NPV

20 Years)

$1,793,923

1 TOTAL COST TO STATE 35 $52,150,315 27.80 (Min Value/Value This





of other tenants)

10 10.00



Points)

5 Ease Of Access For Public 15 13.006 Proximity To Services 10 9.00

7 Image 5 5.00

100 89.80

$41,428,492



10/13

Proposal

Submitted By:Hertz Investment Group, LLC

Evaluation ItemMax.

PointsValue Score Formula


Lease)

$46,119,243



$4,586,833

Connect to Fiber Optic Loop $750,000


NPV 20 Years

$228,317

Parking Costs (NPV 20 Years) $01 TOTAL COST TO STATE 35 $51,684,393 28.05 (Min Value/Value This





of other tenants)

10 8.00



Points)

5 Ease Of Access For Public 15 12.00

6 Proximity To Services 10 10.00

7 Image 5 5.00

100 88.05

$41,428,492



11/13

Attachment 2Lease vs Purchase Calculations



12/13

The above analysis includes TI for MDOR and minimal repairs and replacements

that will most likely be needed within five years.

NET PRESENT VALUE TO PURCHASE LANDMARK BUILDING

AND DEVELOP MDOR ONLY

Year PurchasePrice & TI

DebtService

CapitalReserve

Parking OperatingEx ense

ResidualValue

Cash Flow

0 $18,107,100 $0

1 $1,316,386 $345,355 $540,000 $1,080,000 $0 $3,281,741

2 $1,316,386 $352,262 $550,800 $1,101,600 $0 $3,321,048

3 $1,316,386 $359,307 $561,816 $1,123,632 $0 $3,361,142

4 $1,316,386 $366,493 $573,052 $1,146,105 $0 $3,402,037

5 $1,316,386 $373,823 $584,513 $1,169,027 $0 $3,443,750

6 $1,316,386 $381,300 $596,204 $1,192,407 $0 $3,486,297

7 $1,316,386 $388,926 $608,128 $1,216,255 $0 $3,529,695

8$1,316,386 $396,704 $620,290 $1,240,581 $0 $3,573,961

9 $1,316,386 $404,638 $632,696 $1,265,392 $0 $3,619,113

10 $1,316,386 $412,731 $645,350 $1,290,700 $0 $3,665,167

11 $1,316,386 $420,986 $658,257 $1,316,514 $0 $3,712,143

12 $1,316,386 $429,406 $671,422 $1,342,844 $0 $3,760,058

13 $1,316,386 $437,994 $684,851 $1,369,701 $0 $3,808,932

14 $1,316,386 $446,754 $698,548 $1,397,095 $0 $3,858,782

15 $1,316,386 $455,689 $712,519 $1,425,037 $0 $3,909,630

16 $1,316,386 $464,802 $726,769 $1,453,538 $0 $3,961,495

17 $1,316,386 $474,098 $741,304 $1,482,609 $0 $4,014,397

18 $1,316,386 $483,580 $756,130 $1,512,261 $0 $4,068,358

19 $1,316,386 $493,252 $771,253 $1,542,506 $0 $4,123,397

20 $1,316,386 $503,117 $786,678 $1,573,356 ($10,020,469) ($5,840,932)

NPV @ 4% $44,942,712



13/13

The above analysis includes TI for MDOR and full repairs and replacements that

will most likely be needed within five years.

NET PRESENT VALUE TO PURCHASE LANDMARK BUILDING

AND DEVELOP MDOR ONLY

Year PurchasePrice & TI

DebtService

CapitalReserve

Parking OperatingExpense

ResidualValue

Cash Flow

0 $33,400,000 $0

1 $2,428,180 $345,355 $540,000 $1,080,000 $0 $4,393,535

2 $2,428,180 $352,262 $550,800 $1,101,600 $0 $4,432,842

3 $2,428,180 $359,307 $561,816 $1,123,632 $0 $4,472,935

4 $2,428,180 $366,493 $573,052 $1,146,105 $0 $4,513,830

5 $2,428,180 $373,823 $584,513 $1,169,027 $0 $4,555,543

6 $2,428,180 $381,300 $596,204 $1,192,407 $0 $4,598,0917 $2,428,180 $388,926 $608,128 $1,216,255 $0 $4,641,489

8 $2,428,180 $396,704 $620,290 $1,240,581 $0 $4,685,755

9 $2,428,180 $404,638 $632,696 $1,265,392 $0 $4,730,907

10 $2,428,180 $412,731 $645,350 $1,290,700 $0 $4,776,961

11 $2,428,180 $420,986 $658,257 $1,316,514 $0 $4,823,937

12 $2,428,180 $429,406 $671,422 $1,342,844 $0 $4,871,852

13 $2,428,180 $437,994 $684,851 $1,369,701 $0 $4,920,725

14 $2,428,180 $446,754 $698,548 $1,397,095 $0 $4,970,57615 $2,428,180 $455,689 $712,519 $1,425,037 $0 $5,021,424

16 $2,428,180 $464,802 $726,769 $1,453,538 $0 $5,073,289

17 $2,428,180 $474,098 $741,304 $1,482,609 $0 $5,126,191

18 $2,428,180 $483,580 $756,130 $1,512,261 $0 $5,180,151

19 $2,428,180 $493,252 $771,253 $1,542,506 $0 $5,235,191

20 $2,428,180 $503,117 $786,678 $1,573,356 ($18,483,560) ($13,192,229

NPV @ 4% $56,189,908


DFA Recommendation Executive Summary

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