Former Gov. Dannel P. Malloy directed the state to buy 450 Columbus Ave., above, a Hartford office property, and 55 Farmington Ave. Aimed at producing savings in state government, the deals concentrated more state employees in downtown Hartford, but also removed the buildings from city tax rolls. Hartford Business Journal
Former Gov. Dannel P. Malloy directed the state to buy 450 Columbus Ave., above, a Hartford office property, and 55 Farmington Ave. Aimed at producing savings in state government, the deals concentrated more state employees in downtown Hartford, but also removed the buildings from city tax rolls. Hartford Business Journal

Former Gov. Dannel P. Malloy became one of Hartford’s most active landlords during his eight years in office, having approved the purchase of two major downtown office buildings for a combined $52.5 million — 450 Columbus Blvd. (formerly known as Connecticut River Plaza) and 55 Farmington Ave. (formerly owned by The Hartford).

Those purchases, covering nearly 1 million gross square feet, were part of a long-term strategy by the Malloy administration to reduce the state’s real estate costs by consolidating more expensive leased space into facilities owned by Connecticut taxpayers. At the time, the state said the deals would save taxpayers $200 million over a decade.

However, they also set off a debate that continues to this day.

The obvious downside for Hartford is that the state’s purchases took the properties off the tax rolls.

This is the fifth story in a series examining various ways Hartford might reduce its high  property tax rates. Here are the first, second, third and fourth.

“The upshot is that you have thousands of additional feet on the street,” said Lyle Wray, executive director of the Capitol Region Council of Governments, noting that the moves consolidated about 3,300 state workers to downtown. “There are indirect benefits to that.”

The 450 Columbus purchase also took an empty 550,000-square-foot office building off the market, lowering downtown’s vacancy rate, which improved the value of surrounding properties.

Still, in the years since, the MetroHartford Alliance, realty brokers, and others have called for the state to sell those and other Hartford properties to private owners in “sale-leaseback” transactions in order to get them back on the property-tax rolls.

Overall, the state owns 7.7 million gross square feet of office and other space in Hartford and more than $820 million in assessed real estate value in the city, records show.

Lawmakers are uncertain about the idea.

House Majority Leader Matt Ritter (D-Hartford) said he is doubtful sale-leasebacks are a politically feasible approach for boosting Hartford’s grand list.

“They aren’t a great deal for the state, although it may be a great deal for the city,” Ritter said.

He said the issue did not rear its head during the recently concluded legislative session.

Josh Geballe, Commissioner, Department of Administrative Services

However, Josh Geballe, commissioner of the Department of Administrative Services, overseer of the state’s property inventory, said he will at least consider the idea.

“We are looking to analyze this in the coming months to determine if there are responsible alternate approaches to rebalance our portfolio of owned and leased office space that could potentially save taxpayers money,” Geballe said in a statement.

Mayor Luke Bronin said he’s approached the state about ways to decrease the amount of state-owned property in the city.

“I do think there are a number of buildings the state owns that could easily be sold into private hands with long-term leases,” Bronin said. “Putting people in the buildings was the right thing to do, but lease the buildings instead of buying the buildings.”

The Cities Project, a collaboration between CT MirrorConnecticut Public RadioHearst Connecticut MediaHartford CourantRepublican-American of Waterbury, Hartford Business Journal, and Purple States, will publish periodic articles exploring challenges and solutions related to revitalizing Connecticut’s cities. Send comments or suggestions to ehamilton@ctmirror.org.

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10 Comments

  1. When even the House Majority Leader from Hartford recognizes that this is a bad idea for the state, it’s a bad idea for the state.
    Any additional taxes paid for the buildings would have to be reimbursed by the state. Any profits achieved by the owner would be paid by the state. All maintenance services would be reimbursed by the state.
    The only advantage would be some $ millions received by the state for the sale, though the amount could be less than the state paid. Effectively, that’s a loan to the state at some rate of interest.
    Not the best idea.

  2. Question: How does this work?: “The 450 Columbus purchase also took an empty 550,000-square-foot office building off the market, lowering downtown’s vacancy rate, which improved the value of surrounding properties.”
    Does having a vacant building nearby lower the value of surrounding properties? Can owners charge more rent just because the vacancy rate is lowered?
    The statement might have been clarified.

    1. Hi Philidor, per this article in the Hartford Courant, office vacancy does have an impact on the overall market:

      https://www.courant.com/real-estate/property-line/hc-office-vacancy-rates-hartford-20180117-story.html

      “Office vacancy is a key barometer of the health of an area’s economy. An office market is considered robust if the vacancy rate is in the low teens. When the rate falls below 10 percent, the area is ripe for new construction.”

      In a robust market, prices tend to rise. So Hartford going from a 25% vacancy rate to a 17% vacancy rate would therefore have a direct impact on cost per square foot.

      1. Selling a vacant building to the state doesn’t mean that there has been increased private sector demand in Hartford. If the building had been torn down, the vacancy rate would also have been reduced, but there’d be no reason for other landlords to expect higher rents. That’s not a robust market.
        If there’s excess supply, reducing the excess by taking a building off the market doesn’t increase demand. Barring new demand, you’d have to tear down or otherwise remove from the market another building of the same size to make building worth considering technically. Though construction with no known demand is hardly a good bet.
        Seems the Courant made the same error.

      2. Philidor, while it does not increase private sector demand, it does decrease supply. That would inevitably have an impact on price — unless private sector demand is shrinking, in which case, the price would remain unchanged or perhaps decrease. However, it appears private sector demand is level at this time, and because government has taken over two major office towers, supply is lower and prices have risen.

      3. If private sector demand is level and fully met, why should a reduction in the supply of empty space have any impact on prices?
        Prices can rise when demand exceeds supply. So why should a fully met constant demand have any impact at all on prices?
        I can see one change. If the owner of currently empty space wants to get some return on that investment, it’s possible that the inducement to move would be a lower rent. So those owners whose properties are rented have an incentive to keep rents low, and maybe reduce them to stay competitive.
        A renter who can find a bidding war among owners would be happy. A renter whose costs go up would take alternatives more seriously. A reduction in available alternatives from 25% to 17% doesn’t make much difference.

      4. Simply put, in economics, price increases when supply decreases. In theory, if the market were completely static (i.e. everybody stays exactly where they are today), then prices would not have to change. However, even though the total occupancy percentage is flat at the moment, there is still a constant “churn” of new businesses coming in and old businesses going out. The businesses looking to move into office space in Hartford now have fewer options than before to choose from. Thus, building owners with available space can now charge more.

      5. A new business coming into Hartford has a choice of where to rent in a buyer’s market. The owner of the building losing a tenant has to compete with owners of other buildings with empty spaces, presumably often on the basis of price.
        I haven’t been able to find an average commercial lease rate after 2015, which did have a small increase in Hartford after the recession. More recent trends would give a better indication of the current situation.

  3. Buying buildings to have State agencies occupy State-owned, rather than leased, space was not just done under Malloy. It began under Rowland and continued under Rell. It probably is much more cost-effective to own rather than lease. And rather than bail out Hartford, perhaps the State should increase its PILOT payments to Hartford.

    My question is, now that the State has purchased 450 Columbus Boulevard and 55 Farmington Avenue, what has happened to the buildings vacated by the State? Has anybody asked that question? If those are now vacant, perhaps those should be sold to private owners to get them back on Hartford’s tax rolls.

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