Count Tim Carey among the real estate pros in town who are stunned that the state of Wisconsin has agreed to pay a Chicago firm a 4.3% commission for brokering the sale of the 10-story Department of Administration building at 101 E. Wilson St.
'That commission is two to three times higher than it should be,' says Carey, vice president of development for Sara Investment in Middleton.
The state plans to sell the DOA building and then lease it back for five to seven years while it decides whether to build or rent new space downtown. Among the short-term goals: reaping a handsome profit to plug into the state's 2005-07 budget before the books close on June 30.
Big money is at stake. If the state's plan pans out, the 190,000-square-foot DOA building would be sold by summer for at least $30 million. That sales price would produce a $1.2 million-plus commission ' or from $600,000 to $800,000 in excess of what Carey feels the state should rightfully pay a broker for its services.
'Give me a break,' Carey says. 'Sure, there are some challenges in selling the DOA building, but challenges are a reality of commercial real estate, whether it's a $1 million or a $150 million deal. That [4.3%] commission is excessive regardless of the challenges.'
Last year, when Carey was president of Greenway Properties, his company paid a brokerage fee of 'less than 1%,' he says, when it sold eight buildings in Greenway Center for $150 million to developer Terrence Wall.
Carey isn't alone in seeing a problem. Five other commercial real estate insiders told Isthmus the 4.3% fee was unusually high. Several said a sales commission of 1.5% or lower would be justified. Craig Stanley, a senior vice president with Siegel-Gallagher, was the only one willing to talk on the record.
Stanley uses words like 'egregious' and 'ridiculous' to describe the 4.3% fee that would be paid to the Equis Corp. for brokering the deal.
'It's a smart, strategic move for Equis to go after unsophisticated states that don't know how to benchmark transactional [sales] fees,' Stanley observes.
The Doyle administration, for its part, seems mightily motivated by closing a revenue gap in the current budget. The state has budgeted $36 million in income from property sales, but only $12 million or so has been realized so far, according to DOA spokesman Scott Larrivee.
Equis is a big-time diversified real estate company with offices in 24 U.S. locations and 13 foreign countries. After a competitive bidding process, the Doyle administration hired Equis in April 2004 to review the state's real estate holdings, make recommendations on better managing its property and space needs, and to identify high-value, nonessential property that could be sold.
That Equis officials subsequently donated nearly $45,000 to Doyle's re-election campaign became a red flag for campaign-finance reformers. Those Equis executives had never given money to a Wisconsin politician prior to inking a contract with the state.
No to worry, says Larrivee: 'Whatever Equis has done in the political realm is totally separate' from its government work.
Larrivee also defends the 4.3% fee, saying Equis is providing the state far more than simple brokerage services. 'They've done lease negotiations for us. And they've done a full review of the state's leasing practices at no cost. They've done a review of the state's space-management policies at no cost.' He adds that Equis will make nothing on the DOA deal if the building isn't sold at a good price.
In fact, though, Equis has already been paid for its consulting services. By Larrivee's count, the firm has received $572,000 for reviewing and analyzing the state's real estate portfolio, another $10,000 for analyzing the future use of the Hill Farms office building, plus a commission averaging 2% on the leases it helps the state negotiate with private landlords.
The DOA building sits on a development hotspot overlooking Lake Monona, a stone's throw from the Hilton, the Monona Terrace convention center and the trendy Marina Condominiums. Because of these attributes, the state hopes a private developer will pay top dollar to redevelop the 16-year-old DOA building into a new hotel, private offices or condominiums.
Equis' national reach, says Larrivee, will be a plus in selling the building in a tight real estate market. He adds that if a prospective sale doesn't put the state 'in the black,' the building won't be sold.
But critics say the state has done precious little to figure out where DOA would move in a few years if it does sell its headquarters. And given rising construction costs and higher land values downtown, what assurance is there that a new DOA office building wouldn't cost the taxpayers more money that than the current one?
'Selling the DOA building doesn't solve anything,' says one skeptic. 'It's a short-term fix for the budget, with a long-term cost.'
Furthermore, the skeptics see a flagrant conflict of interest in the transaction: Equis is recommending selling a state property that that will enrich its own coffers with that 4.3% commission. How unbiased can that recommendation be?
Here's where things get really interesting.
Early this week, Equis officials broke their silence and offered a radically different explanation of events. Most notably: The sale of the DOA building, they say, had never been an Equis recommendation at all, but was made by DOA itself under pressure from the governor's office.
Elliott Farber, an Equis senior vice president, says that while Equis had identified between 30 and 40 secondary state properties of high market value that could be sold 'including the WARF Building, the Hill Farms state office building, the Educational Communication Board building on the Beltline and land near the Mendota Mental Health Institute ' the DOA building was never on that list because it was considered a core state holding.
'But the governor was putting a lot of pressure on DOA to meet the budget target,' says Farber. Larrivee, in a subsequent interview, confirms that it was DOA's own judgment ' not Equis' recommendation ' that its headquarters be offered for sale.
As for the 4.3% commission, Farber says it was a product of the state coming hat in hand, asking Equis for considerably more work. 'The state came to us and said: 'We really need your help [in analyzing the ramifications of a possible sale], but we don't have the money to pay you.'' Hence the agreement for a higher commission.
Two prominent members of State Building Commission, Sens. Fred Risser of Madison and Ted Kanavas of Brookfield, are already complaining that the prospective DOA building sale seems rushed and poorly thought out. News that short-term budget calculations are possibly at the heart of the transaction could roil the waters even more.