State of Illinois privatizes real estate services

By David Blanchette

The State of Illinois is dipping a toe into the pond of privatizing its real estate management services, and if the initial foray works it could mean an $845 million, 10-year plunge involving 22 million square feet of property and 683 state-owned, leased and surplus facilities.

The Illinois Department of Central Management Services (CMS) has given notice on the state's procurement website of its intent to award a contract to Jones Lang LaSalle for facility management, brokerage, leasing and real estate advisory services. The five-year contract through September 2023, with an additional five-year renewal provision, could total $845,820,360.

The Jones Lang LaSalle agreement will soon be finalized and is intended to help the state save money and operate more efficiently, according to CMS spokesman Mike Deering.

“The state sought to engage, through a competitive bidding process, a qualified firm with expertise in managing a large portfolio of real estate in order to deliver additional value and efficiencies,” Deering said. “Jones Lang LaSalle is a commercial real estate leader and has committed to engaging several diverse subcontractors, such as RJB Properties, Inc., RADA Architects, Ltd. and SDI Presence LLC, to provide facility management, transaction and real estate advisory services across the state’s portfolio.”

“Under the contract, Jones Lang LaSalle and its partners would manage 12 properties located statewide, including office, warehouse, leased and surplus properties,” Deering said. “The state will evaluate Jones Lang LaSalle’s service quality and quantify cost-savings for these specific properties to determine whether expansion of the firm's services to other properties is in taxpayers’ best interest.”

Deering said the specific amount in the contract to initially manage the 12 properties is still being negotiated.

The 12 initial properties to be privately managed include: The Department of Human Services (DHS) warehouse on Industrial Drive, the Harris Building at 100 South Grand Avenue West, and the Sangamo Building, headquarters of the Environmental Protection Agency, at 1021 N. Grand Avenue East in Springfield; and the Jacksonville Developmental Center, 1201 S. Main Street in Jacksonville.

The others on the list are the DHS East St. Louis Family Community Resource Center; Marion Regional Office Building; Damen Silos, Chicago Central Warehouse and the DHS Northern offices in Chicago; the DHS Northern Family Community Resource Center in Skokie; the DHS Community and Economic Development Association building in Rolling Meadows; and the Rockford Regional Office Building.

“It is the state’s hope that through this partnership with Jones Lang LaSalle, taxpayers will achieve both service quality improvements and significant savings,” Deering said. “The overall value of the resulting contract is an estimate based on an anticipated expansion of services over time, including a five-year renewal option, for a total potential term of 10 years.”

Deering added that an important component of the contract is a 10 percent Business Enterprise Program goal to include diverse business partners owned by minorities, women and persons with disabilities.

Besides Jones Lang LaSalle, the two other firms that submitted bids were CBRE Inc., the world’s largest commercial real estate services and investment firm, and Globetrotters International. All three bidders have offices in Chicago.

The Jones Lang LaSalle website says the firm has been in business for more than 250 years and includes “experts in every property type and every facet of transaction, management and advisory services.” More than 70,000 Jones Lang LaSalle employees work in 80 countries, according to the website.

Jones Lang LaSalle officials declined an offer to be interviewed for this story.

The real estate management services contract follows several recent examinations by the Office of the Auditor General of the state's property management practices.

The Illinois House of Representatives directed the Auditor General to examine the state's space utilization program, and the Auditor General's resulting October 2013 report identified many deficiencies that were also issues in the 2004 audit report of the program. These deficiencies included failure to maintain a master property record, inadequate procedures to identify excess and surplus property and the untimely disposal of surplus property.

The 2013 audit report also credited CMS for making progress, noting that “since January 2009, lease costs have been reduced by $55 million through leases that have been consolidated, renegotiated, or rebid. The reduction in lease costs was attributed to many factors including the work of CMS, the oversight provided by the Procurement Policy Board, and the reduction in the state’s workforce,” the audit report said.

An audit for the period ending June 30, 2017 found that CMS had fully implemented five - and partially implemented four - of the nine recommendations in the 2013 audit, but noted that work still needed to be done to fully correct deficiencies.

The Auditor General was also asked by the House of Representatives to examine the state's five-year, $2.4 million lease for property at 2410 South Grand Avenue East in Springfield. The report issued by the Auditor General in May 2018 identified several problems that involved the requirements, bidding, review, selection, contract award and projected cost saving processes for the lease.

While the negotiations continue with Jones Lang LaSalle for the new real estate management services contract, the CMS website notes additional progress the state has made regarding state agency space needs and lease costs. The website indicates that since January 2009, CMS has consolidated 147 leases and rebid or renegotiated 279 leases, eliminating more than two million square feet of leased space statewide.

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