Property Matters – State Offices – part 2

Noel Garcia, UDeCOTT chairman. Photo courtesy Trinidad Guardian

On 5 January 2016 the Business page of the Trinidad Express newspaper carried an article titled ‘Millions to be saved from rent‘ in which the UDeCOTT Chairman, Noel Garcia, advised on the progress in completing the State-owned offices in Port of Spain. That was also the topic of last week’s Property Matters column, so this week I will be trying to reconcile the two sets of information and make some further points.

The program for completion of these offices, as announced on 18 July 2014 by then Minister of Housing and Urban Development, Dr Roodal Moonilal, was to have had them all occupied by the end of 2015, with some substantial completions due at a far earlier date. Garcia stated that the last of these buildings would be ready for occupation in June and also that ‘all works with respect to the project were on schedule‘. Obviously there was significant slippage in the projected completion of this huge series of offices, originally described by Moonilal as ‘an unprecedented feat in the Caribbean‘.

NEW STATE OFFICES IN POS

BUILDING/LOCATION	SIZE (sq.  ft.)	Scheduled Completions Dr Roodal Moonilal (2014)	2016 PROGRAM Noel Garcia (2016)
Customs & Excise HQ, Richmond St.	189,000	October 18th 2014	April 2015
Board of Inland Revenue, Richmond St.	374,000	August 28th 2015	June 2016
Ministry of Legal Affairs, Richmond St.	332,000	August 31st 2015	February 2016
Immigration Division, Richmond St (Formerly Ministry of Social Development)	160,000	March 20th 2015	Completed
Ministry of Education, St Vincent St.	274,000	No date given	March 2016

Sidebar: NIB HQ at Queen’s Park East

The previous column excluded the NIB’s Headquarters which started in December 2014, with completion said to be due in 20 months, which would be in August 2016. That is said to be a mixed-use development which includes an unknown quantity of offices and some retail elements. Please note that NIB is not a State-owned Enterprise or Agency.

The new twin towers at the International Waterfront Centre are now in use, but it is still unclear whether those offices are fully occupied.

Out-turn costs

This mammoth project actually started 11 years ago, so the delay has been considerable. Even more considerable has been the costs of the entire exercise, both the direct and indirect ones.

The society has been made to pay an immense amount of money in relation to the Government Campus Plaza, as the entire project was called.

It is very important, in my view, that there be a detailed and public accounting of how these vast sums of Public Money have been spent. That is called the out-turn cost and must include these items –

• Professional fees paid to Architects, Engineers, Project Managers, Interior Designers and Surveyors;
• Monies paid under the terms of original Building Contracts to include original contract sums and further amounts paid due to variations, fluctuations or renegotiations;
• Monies paid under the terms of ‘fitting-out’ Contracts to include original contract sums and further amounts paid due to variations, fluctuations or renegotiations;
• Payments to Utility Companies

A further item beyond out-turn costs, which almost never forms part of these discussions, is the value of the land occupied by the buildings, which was already the subject of manipulation in relation to this ambitious UDECOTT program. I am referring to the fact that the 2006 audited accounts for UDECOTT disclosed a value of $224M for the site of the International Waterfront Project, yet that land value was omitted from the ‘feasibility test’ for that project. That is according to the sworn testimony of then UDECOTT Executive Chairman, Calder Hart, at the Uff Enquiry.

Collateral Costs

‘Time is Money‘ is an age-old saying intended to convey the silent therefore often-unnoticed costs of delay in business.

In the first place, private interests were disturbed by the State’s massive intervention in ‘crowding-out’ private landlords by means of this huge office-building exercise. There is no doubt in my mind that the occupation of these State-owned offices in POS will have a severely detrimental effect on those property owners who have traditionally rented offices to the State. That debate could be seen as largely academic, since the buildings have now all been built. It is still very important for us to understand the true costs and consequences of proceeding in this way.

That leads us directly to the second cost of the delays on the part of the State in occupying these offices, which is the huge amounts of rent paid to private landlords in the years since this ambitious complex was completed, but not ready for occupation. Of course, the very phrase ‘completed, but not ready for occupation‘ is a pregnant one, but there is meaning in the paradox.

According to then Minister of Finance & the Economy, Larry Howai, on 5 May 2014 –  “Cabinet has approved a sum of approximately $1.5 billion to complete the Government Campus buildings in downtown Port-of-Spain,”. The cost of outfitting these offices was then declared to be $1.5Bn and that program was commenced about four years into the Peoples Partnership’s five-year term in office. One can never be certain what was the cause of this delay, but it seems reasonable to conclude that the PP’s priorities lay elsewhere, at least in terms of their physical development program.

In the previous column, I suggested that $8 per square foot was a modest estimate of the average rental cost of the private offices occupied by the State in the period under examination. If we assume that 1.3M square feet of private offices was occupied by the State that equates to an annual rental bill of $125M. Given that the last of these buildings was ‘completed, but not ready for occupation’ in 2010, it means that one can estimate that an additional $625M was paid to private landlords in the five years before the fitting-out was completed.

Those are modest estimates and we can only know the truth of this issue when the actual rents are published, as part of our essential interest in understanding the business of our Republic. I know for certain that there were substantial rentals in excess of the $8psf average stated, so that is an essential set of facts we need to have published.

Sidebar: Newly-vacated State property

This series of shifts in State occupation has now released certain properties for alternative uses –

• Ministries of Agriculture, Land & Fisheries – This is a prime property at the northern end of the ‘Magnificent Seven’ stretch of Queen’s Park West/Maraval Road. It is said to be carded for a hotel project so that proposal must be carefully scrutinised.
• Ministry of Education – This is a substantial prime property on Alexandra Street, between St. Clair Avenue and Hayes Street.
• Government Printery – This property is on Tragarete Road at the corner of Victoria Avenue and became unoccupied when the Government Printery was relocated to Frederick Settlement in Caroni in March 2014.

The redevelopment of these newly-vacant State-owned properties will be challenging in commercial terms, due in significant part to the creation of these brand-new first class offices and the impact of those on the wider market.

The vacated offices

Now that these long-delayed offices are nearing completion, we also need to insist on the prompt termination of leases/tenancy agreements with private landlords.

At this point, we simply cannot afford another ‘One Alexandra Place’ situation in which this large privately-owned office building at the corner of Tragarete Road and Alexandra Street was rented by the State for five years but never occupied. The monthly rent for that property was disclosed to be of the order of $60o,000, which means that over $35M of Public Money was wasted there. That episode needs to be properly explained so that we can avoid a recurrence.

Are we still paying rent for any empty spaces?