The state of Arkansas paid $26 million for a Little Rock office building in hopes of luring Raytheon Co. to fill it with white-collar workers. But that plan fell through.
Now seven months down the road, plans are still taking shape to move 977 state employees into the six-story building at 1 Verizon Drive in the Riverdale area.
The resulting ripple effect on the office market is expected to produce two rounds of private-sector vacancies as state tenants leave leased quarters. (See "Marked to Move" below.)
“The state is not currently seeking opportunities to vacate all private-leased office space,” said Alex Johnston, chief communications director at the state Department of Transformation & Shared Services. “The focus is to utilize existing state buildings and to find efficiencies that will save the state money.”
The purchase of Building 4 on the former Verizon/Alltel campus ranks as the biggest buy of private-sector office space by state government ever. Initially, the acquisition was portrayed publicly as a straightforward deal to buy office space for state agencies.
But it wasn’t.
The primary catalyst for the deal: recruiting Raytheon with the lure of a state-owned building sweetened with corporate rental and financing subsidies. The potential deal with the defense contractor was first reported by the Arkansas Times last month.
The wooing of Raytheon, which operates a missile assembly plant in East Camden, presents an awkward twist to the state’s ongoing multimillion-dollar tax disagreement with the company. (See “Tax Dispute” below.)
Under the shroud of industrial recruiting, state officials declined to name the company they were pursuing to fill the office building.
“It started as an economic development project, which didn’t materialize, and the backup plan was to relocate state agencies to the building,” said Alisha Curtis, chief communications and legislative director of the Arkansas Department of Commerce.
The state bought the building and associated property earlier this year through the Arkansas Development Finance Authority. ADFA is among a dozen offices now operating under the Department of Commerce banner that will be relocating to the new digs along the Arkansas River in the coming months.
While efforts to recruit economic development to the property were transpiring behind the scenes, state office space was cited as the official reason for ADFA buying it. ADFA cash accomplished the purchase, but the enabling resolution for the deal alludes to the agency’s intent to recoup the money through a bond issue.
“If there is a bond issue, it will likely occur by June 30,” Bryan Scoggins, president of ADFA, said last week.
The Dec. 13, 2018, resolution refers to possible bond funding with a $29 million maximum to cover the $26 million acquisition and up to $2 million for furnishings and equipment.
Whether the state wanted the property for a potential corporate recruit or its own office needs, Verizon wanted to sell the building, not grant options that would tie up the property.
“There was competition for the building, and Verizon was in sale mode,” said a local commercial realty executive familiar with the property. “They weren’t offering the property for option. They were offering it for sale.”
In addition to the 17.47-acre office development, the purchase included an 11.6-acre parking lot along Riverfront Drive and Cottondale Lane and a 9.28-acre parking lot/soccer field on the south side of Cedar Hill Road between Riverfront Drive and the Little Rock & Western Railway tracks.
‘A Big Challenge’
The office building, carried on the Pulaski County tax rolls at 303,355 SF, is the last of five sold by Verizon in the wake of its $28 billion acquisition of Alltel in 2008.
In its heyday, the Alltel corporate campus was the hub for the company’s 3,200 Arkansas employees, and the former Allied Telephone Co. ranked as the state’s 15th-largest employer.
The Raytheon recruitment by the state was an attempt to recapture some of those white-collar jobs that Verizon has steadily whittled down over the past 10 years.
Plan B calls for consolidating under one roof all of the arms of the newly formed Department of Commerce, led by Mike Preston, Arkansas Economic Development Commission executive director.
Preston said Commerce Department agencies eventually will occupy most of the building. He notes the exception of second-floor space for training and conference rooms, which will be available for use by agencies from other departments.
“It’s a big challenge moving all these multiple agencies, with considerations of IT equipment,” Preston said. “We’re still working on the details of that. We’re evaluating everyone’s leases and plan moves accordingly.
“Division of Workforce Services will probably be among the first ones moving in. That could start happening as early as next month.”
For now, Verizon is still occupying portions of the building before moving to west Little Rock quarters before year’s end. (See Silver Team Shows Versatility, Building Verizon a $2.5M Space.)
CZ Manufacturing Inc., which is developing a firearms plant in the Little Rock Port Industrial Park, also is a short-term tenant in the building. The Czech firm is using the office space for human resources and training operations in advance of the expected start of plant operations next year.
State Offices Marked to Move to Department of Commerce Building
Arkansas Insurance Division
Current location: 1200 W. Third St.*
SF now occupied: 65,915 | Number of staff: 160
Arkansas Rehabilitation Services
Current location: 525 & 601 W. Capitol Ave.**
SF now occupied: 44,750 | Number of staff: 91
Arkansas Economic Development Commission
Current location: 900 W. Capitol Ave.#
SF now occupied: 28,754 | Number of staff: 72
State Bank Division
Current location: 400 Hardin Road**
SF now occupied: 16,650 | Number of staff: 64
Arkansas Development Finance Authority
Current location: 900 W. Capitol Ave.#
SF now occupied: 16,253 | Number of staff: 73
State Securities Division
Current location: 201 E. Markham St.**
SF now occupied: 13,468 | Number of staff: 38
Workforce Services Legal & Appeals Tribunal
Current location: 501 Woodlane St.#
SF now occupied: 11,265 | Number of staff: 33
Adult Education
Current location: 3 Capitol Mall#
SF now occupied: 5,018 | Number of staff: 21
Waterways Commission
Current location: 10600 Industrial Harbor Drive##
SF now occupied: 800 | Number of staff: 3
Division of Workforce Services
Current location: 2 Capitol Mall#
SF now occupied: † | Number of staff: 368
Services for the Blind
Current location: 700 Main St.#
SF now occupied: † | Number of staff: 35
Office of Skills Development
Current location: 3 Capitol Mall#
SF now occupied: † | Number of staff: 12
*Owned by Arkansas Teacher Retirement System, the state’s largest pension fund.
**Owned by private sector.
#Owned by the state.
##Owned by the city of Little Rock.
†Figure is unavailable. Agency occupies shared office with other state agencies.
Sources: Department of Transformation and Shared Services along with the Department of Commerce.
Centralizing all of the Department of Commerce agencies in the state’s six-story office building at 1 Verizon Drive will remove 140,783 SF from the private-sector market.
That represents about 7.7% of the state’s 1.8 million SF of office space currently leased in Little Rock. That total is expected to be further reduced.
The pending moves also will leave more than 100,000 SF of state-owned office space vacant and lead to more migration from private-sector properties.
Of that total, 45,000 SF will be in the former Dillard’s headquarters at 900 W. Capitol Ave. the state purchased for $18.5 million in 2010.
The exodus of the Arkansas Economic Development Commission and Arkansas Development Finance Authority will empty 37 percent of the 121,528-SF office building.
The biggest tenant loss will be incurred by the Arkansas Teacher Retirement System when the insurance department vacates 65,915 SF and empties the pension fund’s 1200 W. Third St. property.
Arkansas, Raytheon Engaged In Two-Court, $7.5 Million Income Tax Dispute
While the state of Arkansas was courting the corporate jobs it hoped Raytheon Co. would provide, the two parties were engaged in a tax disagreement now entering its 16th month in court.
The defense contractor, which reported $27 billion in revenue last year, is seeking to recover more than $3.6 million in state taxes for 2008-11, 2014 and 2016 paid on missile sales tied to its East Camden plant.
Raytheon also is contesting the state Department of Finance & Administration’s claim that it owes more than $3.9 million in income taxes, penalties and interest.
The company took a two-pronged legal approach by taking its dispute to federal and state court on May 30, 2018. The dual complaints were filed in U.S. District Court in El Dorado and Ouachita County Circuit Court in Camden.
A bench trial in federal court was scheduled for Aug. 5 as Raytheon was seeking class-action certification regarding its illegal-exaction claim. If approved, that would bring other businesses into play as potential plaintiffs.
However, in February, the federal case was put on hold in favor of resolving matters in state court.
The Circuit Court case is in discovery with no trial date set. A blank court docket between July 27, 2018, and April 15 indicates no public progress on the case for nearly nine months.
The dormant periods in both cases fall within the time frame of the secret corporate recruiting talks between state recruiters and Raytheon.
