DRAFT

Cuyahoga County Real Estate Portfolio Strategic Management Consulting Services Phase III Deliverable: Strategy and Action Plan December 28, 2011

Outline

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Background and Project Context

Engagement was conducted over the span of 90 days Expert professionals from 6 different firms, resulting in a team of over 20 people – – – – – – Allegro Realty Advisors (ARA) – Commercial Real Estate Vocon Design (VD) – Architecture, Programming, Space Design G. Stephens Inc. (GSI) - Project, Construction Management Integrated Engineering Consultants (IEC) – Mechanical Engineering Graelic (G) – Parking Structure and Systems Grubb & Ellis (GE) – Commercial Real Estate RFP’s project scope addressed 60 properties Toured and assessed over 7 million square feet of real estate Interviewed over 50 people Leveraged County staff expertise Conducted work sessions with County working group(s) Engagement work was segregated into 3 Phases – – – Current State Assessment of Portfolio and Organization Future State Assessment of Portfolio and Organization Strategy and Action Plan for Portfolio and Organization 1

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Phase I - Current State Assessment

Utilization Assessment (ARA/VD) • • Conducted property tours, surveys and interviews to understand headcount and departmental programming for each location Identified utilization and vacancy Financial Assessment (ARA) • • Developed 10, 20 year financial models, based on multiple assumptions (lease costs, operating expenses, security, inflation), BOMA standards Identified estimated 10 and 20 year costs Mechanical Assessment (IEC) • • Toured and assessed HVAC systems in owned properties Identified deferred maintenance and critical issues Broker Opinion of Value (ARA/GE) • • Conducted market valuation analyses on each property and lease Estimated owned property values and leases under or over market Existing Condition Assessment (GSI) • • Toured and assessed general conditions within owned properties (finishes, flooring, lighting, restrooms, façade, roof, wear and tear) Identified deferred maintenance • • • Lease Abstract Assessment (ARA) • • Abstracted all leases and corresponding amendments, renewals Identified accurate square footages, rents, critical dates Parking Structure Assessment (G) • • Toured all parking structures and lots Identified issues related to deferred maintenance and any opportunities Employee Interviews/Surveys (ARA) • • Interviewed and surveyed County employees within real estate function Identified existing perceptions around people, process, technology and benchmarking 2

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Phase II - Future State Assessment

Programming Requirements (VD) – Leveraged interviews and surveys from Phase I, developing programming framework • – – – – – Followed up and refined future needs with directors and chiefs of staff to understand departmental organization structure and services Identified strategic planning and operational initiatives already under study by departments: Family Justice Center, Emergency Operations Center, re-programming the Mt. Pleasant Neighborhood Family Service Center, and others Developed detail regarding public access and interface requirements for individual departments as a criteria for future space requirements Identified opportunities for shared spaces in a consolidated facility: training and conference rooms, copy rooms, break spaces Proposed uniform space standards for workstations and offices, promoting flexible and efficient future workspace County Interviews (ARA) – Contacted over 20 counties, external validation – – Secured insight into their real estate, 4 threads (People, Process, Technology, Benchmarks) Specific concepts included: • • Strategic Direction Departmental Interaction • • • • Space Planning Construction Management Site Selection Financing and Capital Management • • • • • • • • Organizational Structure Administrative Processes Cost Management and Benchmarking Information Technology Excess Facility Management Transaction Management Facility Operations Property Management 3

Phase III - Strategy and Action Plan

• • Organization – – – – People Process Technology Benchmarks Portfolio – – – Invest Hold Divest 4

Phase III - Strategy and Action Plan Organization - PEOPLE

• • Develop a real estate committee comprised of the real estate function and other organizational/departmental heads – – Imparts strategy across organization and builds consensus Review and approve requested moves Leverage outside real estate expertise (brokerage, facilities management, project management, custodial) to augment in-house skills and capacity 5

Phase III - Strategy and Action Plan Organization - PROCESS

• • • • • • • Inventory all County properties over the course of the next year Consolidate all real estate decision making (hospitals, libraries, agencies, boards, parks) – Expertise, collocation opportunities, financial savings, strategy alignment Develop capital and deferred maintenance plan for owned properties – Mandatory annual $0.25 per square foot reserve across entire portfolio Improved Lease Administration – File management (rent commencement memos, abstracts with critical dates and key data, signed leases) Track all real estate costs through real estate function utilizing cost centers by building – Live P&L; allocate costs to respective departments Standardize furniture systems, finishes – Procurement leverage, move and reconfiguration efficiencies Formalize real estate need/project request process and forms 6

Phase III - Strategy and Action Plan Organization - TECHNOLOGY

• Evaluate portfolio management software – – – – – – – – – Track facility management work orders, time and costs Utilization CAD file management Lease administration/critical dates Lease management Capital planning Inventory tracking (phones, furniture, computers) Project management Utility management 7

Phase III - Strategy and Action Plan Organization - BENCHMARKS

• Critical to develop a Benchmark System – – – Measures continual improvement Drives year-over-year performance Assists by creating a decision making framework • Bang for our Buck – How do we define “Bang” • Concept of Triple Bottom Line – – – Impact to Cuyahoga County (Employees, Finances) Impact to Community (Economic Development, Jobs Created, Re-Investment) Impact to Environment (Carbon Foot Print, LEED Initiatives) 8

Phase III - Strategy and Action Plan Organization - BENCHMARKS

Impact to Cuyahoga County

(Employees, Finances)

Quantitative Performance:

•Cost per employee (by function) •Cost per square foot (by function) •Cost per citizen •SQFT per employee (by function) •SQFT per citizen (by function) •Subsidy maximization (so long as we aren’t spending to spend) •Utility costs

Qualitative Performance:

•Service delivery (dept. adjacencies, customer service, parking) •Proximity to other complimentary anchors •Employee retention/attraction •Image/visibility •Flexibility in lease structure •Public transportation •ADA •Telecom •Public Access/Media •Security

Impact to Community

(Economic Development, Jobs Created, Re-Investment)

Impact to Environment

(Carbon Foot Print, LEED Initiatives)

Economic Development Impact:

•Dollar spend / job created (local jobs) •Direct jobs (temporary and permanent) •Payroll direct •Taxes generated •Transportation

Transformational Impact:

•Redevelopment of vacant/blighted property •Spur additional private development •Create real estate demand where it did not previously exist •Impact on private sector real estate market and projects •Consolidated multi-governmental opportunity

Green Initiatives (LEED):

•Public transportation accessibility •Carbon foot print •Utility consumption •Building re-use •Material re-use •Energy performance •Water consumption •Alternative transportation •Site selection •Green Roof •Low emitting chemical and pollutants •Innovation in design •Energy star appliances 9

Phase III - Strategy and Action Plan Portfolio – Key Storylines & Assumptions

• Recommended action plan has 5 key storylines – – – – – Disposition of un-needed, un-strategic, unsupportive assets Focus on creating space at Justice Center and associated buildings Realigned, consolidated Health and Human Services footprint Consolidated Administration Complex Consolidated Storage Complex • Recommended action plan is based on assumptions – – – – Relied on static information that can change tomorrow Depended on historical financial data and market experience to make forward looking projections, 10, 20 years out (10-15 variables in each model, 60+ models) • • • Occupancy cost run rates Proceeds from sales Future rent rates Always work to make conservative assumptions, but things can change Disclosure of findings/recommendations could materially impact any projections 10

Phase III - Strategy and Action Plan Portfolio

• • • • Developed a qualitative framework for decision making – Based on team expertise, County feedback, data collected in Phases I and II Stayed away from using a scoring system or weighted average due to subjectivity issues and potential manipulation Framework was based on three key threads – – – Programming: how well programming requirements were met in current building Financial Impact: if estimated financial savings/gains could be realized by moving Portfolio Leverage/Special Use: could function be consolidated elsewhere Each property was qualitatively assessed based on these concepts and classified as Invest, Hold or Divest – – – Invest: Programmatically, financially, and/or strategically makes sense to keep Divest: Does not programmatically, financially and/or strategically make sense to keep Hold: In between Invest and Divest, uncertainty remains See Appendix I 11

Phase III - Strategy and Action Plan Portfolio

• • • Three examples of framework in action… Justice Center – – –

Invest

Currently meeting programming requirements, not much excess space, but the property supports the function that is housed there Invest Savings or gains could not be realized by moving Invest Property cannot be easily consolidated elsewhere within the portfolio Invest Admin Building – – –

Divest

Currently does not meet programming requirements, not much excess space, but the property does not support the function that is housed there Divest Savings or gains could be realized by moving Divest Property can be easily consolidated elsewhere in portfolio Divest Marion Building – Hold – – – Currently meets programming requirements, excess vacant space Savings or gains could be realized by moving Divest Property cannot be easily consolidated elsewhere in portfolio Invest Invest See Appendix I 12

Phase III - Strategy and Action Plan Portfolio

INVEST

– – – – – – – – Justice Center, Jail I & II Huntington Garage Juvenile Justice Center Old Courthouse Croton Based Correctional Facility Animal Shelter Whiskey Island Soldiers and Sailors Monument – – – – Emergency Operations Center Family Justice Center Consolidated Admin Complex (85.77%) Consolidated Storage Complex (14.23%) 22 of 66 properties were categorized as an

INVEST

opportunity Total 10 Year Present Value Savings = $-35.0MM

– NFSCs • Lorain/West Shore • • Fulton/Old Brooklyn Mt. Pleasant Key Drivers of Negative Savings: Consolidated Admin Complex Consolidated Storage Complex – – – – • • Southgate Quincy Jane Edna Hunter Medical Examiner Building Board of Elections Building Virgil E. Brown Building Future Savings will come from: -Restructured NFSC Leases -CMSD Storage Opportunity 13

Phase III - Strategy and Action Plan Portfolio

HOLD

– – – – – – – – – – – – – – – – – Bridge Garage York Road Yard Metzenbaum Building, 3343 Community College Employment Connection 11811 Shaker Blvd.

21100 Southgate Blvd.

5361 Pearl Rd.

22 of 66 properties were categorized as a HOLD opportunity 6600 Lexington Ave 12100 Snow Rd.

5069 Great Northern Blvd.

Parking Leases around HHS facilities Solid Waste District, 4750 East 131 st County Airport Courthouse Square Marion Building Central Services, 1642 Lakeside Brookpark Garage Total 10 Year Present Value Savings = $0.0MM

Future Savings will come from: Consolidated Maintenance Yards Divestiture of Marion and Square Courthouse 14

Phase III - Strategy and Action Plan Portfolio

DIVEST

– Ameritrust Complex (23.06%) – – – – – – – – – – – – – – – – – – Old Juvenile Court Complex (7.59%) Administration Building (30.77%) Cuyahoga County Archives (2.59%) Miles Road Yard (0.32%) Whitlatch Building (2.07%) Auto Title Building (4.64%) Hamilton Garage (0.19%) Glenville NFSC (0.15%) Fitch Road Yard (0.43%) BOE Storage, 1858 East 40 (2.93%) Sterling Building,1255 Euclid (8.02%) Reserve Square, 1701 East 12 (5.72%) Storage, 2344 Canal (0.41%) Public Defender, 1849 Prospect (2.55%) Public Works Building (3.20%) VSC, 1835 Prospect Ave (2.30%) Storage, 3615 Superior Ave 323 Lakeside Avenue (0.95%) – – – 4115 Bridge (0.65%) West 4 th Street Storage (0.18%) PA, Branchton Storage (0.08%) 22 of 66 properties were categorized as a

DIVEST

opportunity Total 10 Year Present Value Savings = $91.0MM

Key Drivers of Positive Savings: Administration Complex Ameritrust Complex Sterling Building Old Juvenile Court Complex Reserve Square 15

Executive Summary & Next Steps

Executive Summary •Smaller, less expensive and more efficient real estate portfolio that helps the County to continue its mission

SQFT 10 Year PV 20 Year PV Realigned Portfolio

5,682,750 $423,031,871 $699,213,088

% Savings Compared to Status Quo PV $ Savings Compared to Status Quo

18.62% 13.27% $56,125,509 10.68% $83,623,688 •Cascading assumptions, 5%-10% margin of error Next Steps •Large portion of plan is dependent on the Consolidated Administrative Complex project (lease renewals, restructurings) •Need to begin in January to realize completed transformation by 2014 • Start renegotiating leases • Start site selection process See Appendix II 16

Appendix I: Building by Building Strategy

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Appendix II: 2012 – 2014 Implementation Timeline

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