Kansas spends $12 million leasing office space. How will the Docking decision affect downtown Topeka?
Ten years ago, Mike Morse said you "could roll a bowling ball down Kansas Avenue after 5:30 p.m. and not hit anybody."
Things have changed.
Downtown Topeka's revival is not a secret — looking at a picture of its strip shows businesses, restaurants and residences where none existed previously.
But Morse, a real estate broker at Kansas Commercial, said one of the key building blocks in bringing back the area is less well known: the state of Kansas.
Before Docking State Office Building was vacated, workers would carry lunch pails to and from their cars, not wanting to spend time walking over to S. Kansas Avenue. As the state gravitated toward private leases throughout downtown, that opened up more possibilities for state employees to eat, shop and even live in the area.
"They've sustained a lot of businesses and they sustain our growth downtown on Kansas Avenue and changing who we are," Morse said.
Officials are weighing whether to, in effect, make the millions of dollars the state pays a year in Topeka leases a permanent fixture of state government.
The other option would be consolidating agency spaces and moving them back into a renovated Docking State Office Building, though that has been hotly debated in recent months, as many have favored a new space geared toward meeting space with minimal offices.
Experts argue a balance between renting and owning is a necessity for large entities, like state governments.
Many of the state's leases were signed during the days of former Kansas Gov. Sam Brownback and his successor, Gov. Jeff Colyer, and stretch well into the next decade, meaning they would be difficult for the state to get out of, even if it wanted to. That means the options to return agency space to Docking might be tricky.
Downtown Topeka business groups are encouraging a limited remodel of Docking, which would focus on a meeting space for state agencies and the legislature.
They argue the state should not inject even more office space into the area — but some legislators think the overhaul needs more room to accommodate state agencies.
"We've got a building that the state already owns," said Rep. William Sutton, R-Gardner, who chairs a budget subcommittee that handles state building expenditures. "And so we're going to cut eight floors off it and turn it into an event center — we need that office space. If we're going to spend the money to renovate, let's get something out of it that actually serves the people of Kansas."
State spends over $12 million annually on rent, records show
Currently, a little under 3,500 full-time state employees work in a leased space throughout the city, according to Department of Administration records. The state pays about $12 million in rent for its 50 active leases annually, with another $1.6 million in ancillary costs.
The heftiest agreements are for the Department of Children and Families' central office at 555 S. Kansas Ave., costing $1.3 million per year, as well as three separate agreements for Department of Revenue spaces, totaling $2.8 million in annual rent.
The state rents from more than a dozen different landlords, property records show, but uses many of the same ones again and again. In Jayhawk Towers downtown, 11 agencies are located; two blocks away at 800 S.W. Jackson, four agencies are housed.
The Board of Indigent Defense Services rents space at 825 S. Kansas Ave., a building owned by David Kensinger, a former chief of staff to Brownback. The lease was agreed to in 2018, the state's contract database shows, during the tenure of Brownback's successor, Gov. Jeff Colyer and six years after Kensinger returned to the private sector as a consultant.
All deals are put out to bid by the Department of Administration and are approved by a state panel that oversees building management. In the BIDS case, the contract was approved unanimously in November 2017 by the Joint Committee on State Building Construction.
Kensinger said in a phone interview the agency was getting a superior deal per square foot than his other tenants and the space was built with the needs of the agency in mind.
His firm bid unsuccessfully on several other state office contracts before securing the BIDS deal, pointing to how attractive it is to have the state as a tenant.
"The state can negotiate good rates because the state is not going out of business," Kensinger said.
Downtown leases can benefit state, business development
Having a state or local government as a tenant presents several advantages for a landlord or developer.
They often are more willing to sign longer leases, giving landlords more certainty about cash flow. And, as Kensinger alluded, the state of Kansas is more likely to pay its rent on time and is less likely to encounter major financial hardship than a private-sector tenant.
Rhiannon Friedman, president of Downtown Topeka Inc., noted there are examples of downtown developers taking the stability that came from having the state as a client and taking risks in rehabbing other buildings or starting new projects that ultimately brought more revenue to the area.
"I think that everybody downtown, when it comes to the small businesses, the restaurants, all of the local aspects that make downtown Topeka special, understand that having the state there as a major tenant is a huge benefit to us," Friedman said. "It feeds into those local businesses and helps keep them going as well."
Morse, the real estate broker, added that a more engaging downtown area also makes the state a more desirable place to work.
"Everybody wants a place that they can recruit talent to. And that's one of the major goals of downtown, is to create that environment," he said. "It's a huge benefit, and it hurts a lot and would slow us down a lot if that thing went the other way. And it won't help them either because now they're trying to recruit to someplace that doesn't have that energy."
There are other benefits for the state as well, said Stanley Longhofer, a professor at Wichita State University and director of the school's Center for Real Estate.
Depending on how much renovating or constructing a new building might cost, leasing could wind up being cheaper, as renters wouldn't be on the hook for utilities, maintenance and other costs.
Leasing has another benefit, Longhofer said, as it grants more maneuverability if the state elects to downsize in the future, as it could shed space without the sunk cost that comes with owning a large property.
"Those are all going to play a role in what is the best choice for you," Longhofer said. "That fundamentally isn't different by being a state as opposed to being a private company that's looking at some sort of an office space that they're using."
Lawmakers weigh what to do about Docking State Office Building
But for the city of Topeka, Longhofer notes there are risks that come with having your fate tied to a major employer, whether they are public or private. Such links can be a big boon — but also create vulnerabilities when changes occur.
"Anytime you have a very dominant user in a community, then that is a double-edged sword," Longhofer said.
One big change could be looming on the horizon: the push to replace or renovate Docking.
Lawmakers seemingly took a big step toward settling the fate of the 14-story behemoth last month, when the Joint Committee on State Building Construction recommended renovating or rebuilding a three-story facility, which would mostly be comprised of meeting space to be used by state agencies or the Legislature.
In doing so, they rebuffed a proposal from the Department of Administration for a shorter Docking building that combined office and meeting space, as well as a separate option to simply rehab the current structure in its entirety.
"Growing our office space is an unnecessary addition to the state portfolio at this time," Sen. J.R. Claeys, R-Salina, the committee member who championed the proposal, said at the time. "The future is not more office space, it is less."
The move passed on a party-line vote, with Democrats pushing for one of the other plans. But the overwhelming Republican support made it seem like their proposal would be easily approved by the State Finance Council, a panel of top lawmakers who have final say over the Docking remodel.
But other Republicans are starting to raise concerns. House Appropriations Chair Troy Waymaster, R-Bunker Hill, said the plan approved in the state budget called for a full renovation of the Docking building.
He was baffled to discover the course change initiated by his colleagues and slammed the proposal in a committee hearing earlier this month. As a member of the State Finance Council, Waymaster will have a vote on the final proposal when the matter is debated, potentially later this month.
"I need more information," Waymaster said in an interview. "But as it was presented to us on Friday, I would say yes, I would vote against it. Because I have no idea what they plan as far as an events center."
Experts warn of danger in breaking downtown leases
Stakeholders in downtown Topeka have pushed policymakers to pursue an option that does not harm the area's economy, something they believe a full remodel of Docking would not achieve, as it could upset existing leases and more broadly flood the market with office space.
Longhofer, the Wichita State professor, said taking into account the needs of the local community makes sense as a large employer, given they have "an outsized impact in the local market, and you shouldn't be unaware of that."
"It's a factor that needs to be considered because you want to be a good neighbor," he said.
And writ large, Rep. Sutton said he is confident in the current Department of Administration and its ability to manage the state's facility needs.
"I don't think we always have the best deal," Sutton said. "But I don't think that we're on a broad scale getting ripped off."
The state spends $13-per-square-foot on average across its Topeka leases. And most of them compare favorably with the in-house rate the state sets for renting from itself, Morse said.
He added this means taxpayers are getting a good deal — and with long-term leases locked in, it means rates will remain low even as inflation and other pressures cause rent to rise elsewhere.
Breaking existing leases to move into a renovated Docking would be disastrous, he noted. Tenants, lending agencies and other stakeholders would quickly take notice if the state earned a reputation for breaking its word, and it would make it noticeably harder to sign future deals.
"What's that going to do to every lease we got?" Morse said. "Because I won't trust them again, I'll never advise you or anybody else to trust them again. Would you? Would your banker?"
But the market could change going forward, though experts caution that it is unclear how the COVID-19 pandemic will affect commercial real estate in cities like Topeka.
Friedman, of Downtown Topeka, said moves to convert commercial space to residential or mixed-use development would help downtown Topeka grow further but added there ultimately would remain a market for those working in-person.
"We also have some security in the fact that there will still remain a balance of folks that still work in the office," Friedman said. "I don't believe that everyone will end up working remotely."
Sutton agreed — but said it was something policymakers would be closely tracking as they revisit the state's space needs.
"It is something that I've tried to pay attention to because I agree that is a variable," he said. "The problem right now, in my mind, is that I can't find the variable. I don't know what that's going to look like. ... How many people does that actually equate to? I don't know the answer yet."
Andrew Bahl is a senior statehouse reporter for the Topeka Capital-Journal. He can be reached at firstname.lastname@example.org or by phone at 443-979-6100.