Shane Mallory has spent more than a decade overseeing the state’s vast real estate portfolio, but he didn’t receive his biggest assignment until about two years ago.
In an effort to cut costs and help revitalize the city of Hartford, Mallory was asked to lead an effort to consolidate nearly two dozen state leases and potentially buy signature Class A office buildings in downtown Hartford to house government agencies.
The directive came straight from Gov. Dannel P. Malloy’s office, in what would eventually be one of the largest real estate transactions Connecticut state government would pull off in decades, and possibly ever.
Gov. Malloy’s announcement of the state’s $120 million purchase of downtown Hartford office towers Connecticut River Plaza and 55 Farmington Ave. was the culmination of an exhaustive 18-month process that forced Mallory — the state’s chief dealmaker — to walk a tight rope managing a unique cross agency deal making team and a bureaucratic maze that at times seemed to have no end.
In fact, the ink on the final purchase agreement for Connecticut River Plaza was barely dry when Gov. Malloy announced the deals during a March 6 press conference. The attorney general had signed off on the deal that same morning.
“We’ve done this in 18 months, which, for our process, is amazing,” said Mallory. “We haven’t been in the business of buying buildings in the last 20 years so this is a huge accomplishment. Of course the real work starts when we officially own them and have to move in. We are not done by any stretch.”
In an interview with The Hartford Business Journal, Mallory painted a behind the scenes picture of how the state pulled off its recent acquisition of nearly 1 million square feet of prime downtown Hartford real estate.
It’s a move that has been in the works since 2011, as part of a directive from Gov. Malloy to reduce the state’s real estate costs by consolidating more costly leased space into state-owned buildings.
The move also aims to make state government a key economic engine for downtown Hartford by relocating to the Capital City 3,100 state employees.
Mallory, 52, has a deep history in the commercial real estate industry and has been the state’s chief realty strategist since 2002. Before that, he was in the private sector working real estate deals for Grubb & Ellis and Thomson West.
Mallory is a licensed real estate broker in New York and holds a Real Property Administrator designation from the Building Owners and Managers Institute. His current job, however, prohibits him from holding a real estate license in Connecticut.
During his career, Mallory has sold everything from a funeral home to an office space in Rockefeller Center, but his most unique challenge was overseeing the state’s recent acquisitions because of the stark contrasts between public and private sector deal making.
“When I worked in the private sector, I would walk into the CEO or CFO’s office and say I need $10 million to do a deal and he’d say okay,” Mallory said. “In government, you have dozens of people reviewing everything you do, which is good because it’s the public’s money and you need to do that.”
While 18 months to work out a deal may seem long to the private sector, in state government it is actually an expedited timeline, Mallory said. That’s because dozens of state officials needed to look over the acquisitions and four key stakeholders needed to sign off on them — the Attorney General’s Office, State Properties Review Board, Office of Policy and Management (OPM) and Department of Administrative Services (DAS).
Not to mention, state policy has many stringent safeguards in place to protect taxpayer money. Any property acquisition over 100,000 square feet, for example, must get appraisals from two different firms.
Contractual issues also crept up because of the state’s sovereign immunity powers, which safeguards government from lawsuits, something private firms typically don’t see in purchase and sales agreements.
Mallory said negotiations to buy the two office buildings were actually completed in September, but it took until March to hash out the final contractual language. The deals came together, Mallory said, because there were willing sellers in a buyer’s market; a commitment by the state to provide substantial financial backing; and an effective deal making team.
Interagency coordination proved one of the biggest challenges, which is why Mallory’s team of about a half dozen people included bureaucrats from all agencies and boards that needed to sign off on the acquisitions. The team included staffers from DAS, OPM, The Department of Construction Services, and the State Properties Review Board, who met at least every week for the past two years to work on the deals.
The cross agency team was the brainchild of DAS Commissioner Donald DeFronzo, the former state senator from New Britain. When he took his current job in 2011, DeFronzo said he noticed a lack of communication between his and other state agencies that he felt would serve as a major roadblock to getting these deals done effectively.
“The point was to get all the stakeholders on the same page so that they all had access to the same documents and were kept informed throughout the entire process,” DeFronzo said. “Everyone was looking at the same information at the same time, rather than sequentially. That saved us an awful lot of time.”
Of course state employees weren’t the only ones working on the deal. The state leaned heavily on the help of outside consultants, spending $1.4 million on about a dozen real estate, legal, environmental, architectural and construction firms.
Each firm had to be fully vetted and go through an RFP selection process, which took significant time, Mallory said. But without outside consultants the deals would have taken much longer and been more difficult to negotiate because of limited staffing availability within the state.
CBRE/New England was a major player, receiving just under $210,000 to be the state’s chief real estate consultant. CBRE sorted through the 24 buildings that responded to the state’s RFPs and eventually drew up six possible deal scenarios that fit the state’s criteria, which was to find office towers in Hartford that had a willing seller and a large chuck of space.
Mallory wouldn’t disclose the six different scenarios presented by CBRE. But the state eventually chose the option to buy the 556,000-square-foot Connecticut River Plaza office towers and 55 Farmington Ave., which CBRE/New England was marketing for the Hartford Financial Services Group.
The state is paying $34.5 million buy Connecticut River Plaza and investing another $48 million to renovate, furnish and eventually move state workers into the complex.
The 295,000-square-foot 55 Farmington Ave. property fetched an $18 million sales price and the state will invest an additional $19.5 million for renovations and move-in costs.
Mallory said both purchase prices were either at or below the four different appraisals conducted by CBRE, Cushman & Wakefield, and Hartford’s FRQ Property Advisors and Arnold J. Grant Associates.
The appraisals, along with Mallory’s own expertise, served as key determiners of the sales prices, which took about a month to negotiate.
Mallory said the state likely scored a discount on 55 Farmington Ave. The building was appraised at $20.1 million and $21.7 million, but those prices didn’t include the furniture that The Hartford threw into the deal, Mallory said. The Hartford is leaving behind about 1,200 workstations and several hundred fully furnished offices.
“We think we hit a home run there,” Mallory said. “It also worked out for The Hartford because they didn’t want to move the furniture.”
Of course there is still a lot of work to be done.
The closing on 55 Farmington Ave. is expected to occur at the end of March. After that, renovations will get underway, which will be overseen by the Capital Region Development Authority. In the meantime, DAS is in the process of finalizing the list of state agencies that will be targeted to move into the building. The departments of revenue and administrative services and the state’s IT department are known to be headed into 55 Farmington Ave., which will get its first occupants by this time next year, Mallory said.
The closing on Connecticut River Plaza will happen this summer and it will be a year after that before the first agencies move into the two office towers. Floor designs still need by drawn up and the building needs to be fully furnished, Mallory said.
