St. Paul Master Facility Plan. April 19, 2012

Transcription

1 St. Paul Master Facility Plan April 19, 2012

2 St. Paul Facility Process Current lease expires February 28, 2014 Beginning in 2010, a cross-functional team including external commercial real estate experts was created Team established criteria used for evaluation Visited with St. Paul employees multiple times Recommendation Relocate from current facility in St. Paul to REDACTED, MN. Reduce amount of space from 112,000 sq. feet to 60,000 sq. feet Implications Lease and Operating cost savings Capital project of $REDACTED Commitment to a 12-year lease 2

3 Recommendation for Relocation Cost $REDACTED in annual operating cost savings, $REDACTED over 12-year lease 12 year Net Present Value lower including relocation cost of $REDACTED Efficiency gains with newer equipment Lower overall square footage (112,000 vs. 60,000) Employee/Customer Experience Closer to airport and hotels for stakeholders Improved conference center space Improved working environment for employees Secure Operations Compliant with NERC Standard Critical Infrastructure Protection (CIP) Single tenant facility provides lower risk to security, operations, and employees Lower crime index at new facility location 3

4 Timeline Timeline of Major Events Preliminary findings shared with Audit and Finance Committee A&E Design Team approve design Aug/Sep 2012 Begin Construction September 1, 2013 Construction Completed Begin Hardware Installation and testing January 1, 2014 Occupants start to move in 1 st Qtr 2 nd Qtr 3 rd Qtr 4 th Qtr 1 st Qtr 2 nd Qtr 3 rd Qtr 4 th Qtr 1 st Qtr Team Site Recommendation to Management Seek approval from Board of Directors for funding in April MARCH 1, 2014 Commencement of new lease and Occupancy Board Matters Critical Milestones Other Key Milestones Project Completion *All dates shown are approximate. 4

5 Appendix 5

6 Background and Context Space Considerations Current building has 112,797 square feet MISO occupies 70,786 square feet 17,348 square feet is sublet; 24,663 square feet is for a parking garage and fuel tank space Space plan optimization indicated a need for 60,000 square feet 6

7 To: From: Board of Directors Jo Biggers and Clair Moeller Date: April 19, 2012 Re: Background St. Paul Facility Analysis & Findings The MISO lease for the St. Paul facility expires on February 28, Our current building lease includes 112,800 sq. ft. of space, of which we occupy 70,500 sq. ft. The remaining 42,300 sq. ft. includes space for the indoor parking garage, the backup generator and fuel tank, and office space for our sublease with REDACTED. A cross-divisional team was established to develop facility requirements based on technology infrastructure, facilities, and operational needs. Subsequently, a Request for Proposal was issued based on those requirements in May of 2011 for the purpose of determining whether to: (1) continue to lease at the current location, (2) enter into a lease for an already-existing building, (3) enter into a lease for a flex design building, or (4) purchase a new flex design building. Upon conclusion of the analysis, assessment of the various options, and subsequent discussions with the employees of St. Paul, it was recommended that relocating to a leased flex design building in REDACTED was the best business decision to propose. A summary of the findings are presented below: Relocation Findings Analysis indicates we should relocate from our current location in St. Paul to a leased flex design facility in REDACTED. The analysis focused on the following primary factors: The lease on the current St. Paul facility expires in February of Relocating to a leased, flex design facility in REDACTED will present MISO with an annual reduction in operating and lease costs of $REDACTED ($REDACTED over the 12-year lease period) compared to the quoted lease cost of our current land lord. Over a 12-year lease period, this option presents the lowest net present value of expenditures even after the construction and relocation costs of $REDACTED are considered. The community in which the existing facility is located does not provide many local amenities or assurances of safety (based on crime index analysis). By relocating to a newer facility in a community that is more conducive to a professional workforce setting, the stakeholder and employee experience will be enriched. Compliance with North American Electric Reliability Corporation (NERC) Critical Information Protection (CIP) standards would be enhanced by relocating to a single-tenant facility. The existing facility presents known business continuity risks, such as its close proximity to an active railway, which would be mitigated by relocating to a site with lower risks. 1

8 Based on the space requirements that were developed, the existing facility is larger than what is required; thus, presenting MISO with underutilized space. Funding Request Based on the findings from the analysis, MISO is requesting approval from the Board of Directors to relocate and enter into a $REDACTED, 12-year lease with capital funding for approximately $REDACTED to construct a flex design building in REDACTED. These capital dollars are already included in the 3-year plan previously presented to the Board of Directors as part of the Operating and Capital Budget. Site Selection Findings After a comprehensive review of the responses from the Request for Proposal, MISO has selected REDACTED as its developer to construct and lease the new flex design facility in REDACTED. MISO requested proposals from the following developers: REDACTED, REDACTED, and REDACTED. The developers presented properties that were located in either REDACTED or REDACTED. REDACTED presented a location called, REDACTED, which met the facility requirements established by MISO and presented the lowest net present value over a 12- year period of all the options considered. MISO performed its due diligence and conducted reference checks on REDACTED to ensure that they would be a quality service provider. As a point of reference, REDACTED was the developer for REDACTED headquarters facility, which included a control room. Assessment of Options and Findings Options Considered The RFP that was issued in May of 2011 allowed MISO to analyze 4 different options with regard to the St. Paul facility: (1) continue to lease at the current location, (2) enter into a lease for an already-existing building, (3) enter into a flex design lease for a new operation office building, or (4) purchase a new flex design building. The concluding analysis shows that the option to lease a flex design facility would present the best overall value to MISO. More detail about the options considered can be found in Appendix A Options Considered. Lease Expiration The lease for the existing facility in St. Paul expires in February of After analyzing the existing facility against the requirements developed by the cross-divisional team, it was determined that the facility does not meet some of the established requirements, such as business continuity risk mitigation and space optimization. The existing facility would also require several capital improvements to maintain the ongoing operation of the facility due to its age and antiquated infrastructure. Capital improvements of $REDACTED would include a new roof, generator control modifications, tech refresh of security and telecom equipment, and remodeling. Space Utilization Based on the developed requirements, it was determined that space requirements of 60,000 sq. ft. would fulfill all MISO facility, infrastructure, and operational needs. Additionally, the 60,000 sq. ft. anticipates growth at 3% for a 12-year term. The existing St. Paul facility is 112,800 sq. ft. that includes space for an indoor parking garage and office space for the sublease with 2

9 REDACTED. In a new flex design facility, space is not being included for an indoor parking garage or sublease. This right-sizing of square footage will allow MISO to better utilize its office space. Business Continuity Risks & NERC Standards There are a few business continuity risks that exist if we stay in the current facility. One of the known risks is the active railway that carries hazardous materials that is located within 50 yards of the existing facility. A single tenant facility enhances our compliance to the North American Electric Reliability Corporation (NERC) Critical Information Protection (CIP) requirements. A single tenant facility mitigates risks associated with a tenant sharing our space and potentially not requiring or sharing background check information on its employees, visitors, and contractors as an example. Employee/Stakeholder Experience By relocating, MISO will be able to create an enhanced experience for its stakeholders and employees. This enhanced experience would incorporate an improved conference room space for stakeholder meetings, increased local amenities, and a safer community. The existing St. Paul facility, in its current location, does not afford many local amenities (hotels, restaurants, entertainment, etc.) or assurances of safety as some of the other sites that are being considered. The new REDACTED facility will be located much closer to the Minneapolis-St. Paul International Airport than the existing St. Paul facility. The crime index of the area where the existing facility is located, specifically crimes against a person, is considerably higher than that of the other locations being considered. All of these factors will translate into an enhanced stakeholder and employee experience. More detail about the crime index analysis can be found in Appendix B Crime Index Analysis. Lower Cost The current annual operating cost for the existing St. Paul facility is $REDACTED (includes lease and operating expenses). By relocating to REDACTED, the first-year annual operating costs (including lease and operating expenses) will be approximately $REDACTED which is primarily driven by a smaller space requirement. After reviewing the analysis, relocating offers MISO the lowest net present value over a 12-year period even after the construction and relocations costs of $REDACTED are considered. Additionally, the capital dollars required to construct the new facility have already been included in the 3-year plan previously presented to the Board of Directors as part of the Operating and Capital Budget. Cost Analysis The Cost/Benefit graph below provides an illustration of the $REDACTED in savings to be realized over the 12-year period even with capital expenditure included in the renewal lease option. The chart demonstrates the substantially lower lease and operating costs prior to considering the relocation costs. By the end of 2018, the lower costs will pay for the relocation to the new REDACTED facility, allowing MISO to continue to save money for the years The chart below represents the annual net lease and operating expenses at the facility today, compared with the first year operating and lease expenses with the current landlord s bid and the 3

10 three developer s bids for their respective sites. For reference, MISO currently pays $REDACTED/yr. in lease cost and $REDACTED/yr. in operating costs for the St. Paul facility. By relocating, MISO will save $REDACTED in operating/lease costs per year. The following table illustrates the costs for construction, relocation, lease, and operating expenses for the various options considered. The REDACTED location in REDACTED has been used as the benchmark since it presented the lowest net present value over a 12-year period and is the recommended relocation site. The table below represents a projected forecast as to when the $REDACTED capital dollars will be spent over the next three years: Additional information regarding the Construction/Renovation costs can be found in Exhibit C Construction/Renovation Costs. The team also performed a comparison of construction costs between a new facility and the 720 City Center Drive facility in Carmel, Indiana. The construction costs of just the office building are $REDACTED for the new facility compared to $REDACTED for the 720 Carmel building. The 720 Carmel building did not require the stand-up of a control room and the business continuity infrastructure to support it. By having a control room in the new facility in St. Paul, the telecom, security, and business continuity infrastructure will be required, thus the difference in construction/relocation costs. More detail about the cost comparison analysis of the 720 building and the flex design building can be found in Appendix D Cost Comparison Analysis. Facility Assessment Criteria The team focused on the following factors to conduct a systematic scoring approach to evaluate the proposals: Financial Operational Technology/Infrastructure Business Continuity Facilities The three sites considered scored higher in all of the areas evaluated than the existing facility. Commute time for employees and travelers was also considered, but done separately from the proposal analysis. More information on this can be found in Appendix E Commute Time. 4

11 Project Schedule Board approval is being sought at this time as physical construction on the flex design facility will need to begin in the 3 rd quarter of MISO will take possession in the 3 rd quarter of 2013 and begin to migrate the control room and build the office infrastructure. Occupancy is expected to begin on March 1, The project schedule includes the following major milestones: REDACTED Summary Management s recommendation is to relocate from our current location in St. Paul to a flex design facility in REDACTED. Selection of the site in REDACTED by REDACTED will result in the construction and occupancy of a new facility for our operations in REDACTED. Approval is being sought at the April 2012 Board of Directors meeting. 5

12 Summary of options considered: APPENDIX A OPTIONS CONSIDERED Option (1): Continue to lease at the current location This option would allow MISO to stay in its current 112,800 sq. ft. facility upon executing a renewal. With this option, MISO would need to invest capital dollars in a new roof, remodel for carpet and paint, install a fire alarm detection system, and renovate existing conference room space. Option (2): Enter into a lease for an already-existing building Our Commercial Broker, REDACTED, identified several existing buildings for MISO to visit and assess. At the conclusion of these visits, the MISO team concluded that none of the existing buildings met the requirements established. More importantly, none of the existing buildings met the square footage requirements. All buildings were too large and would require MISO to be in a multi-tenant occupied building. Option (3): Enter into a flex design lease for a new operation office building This option affords MISO the opportunity to secure office space that fulfills the space requirements for Control Room, Conference Center, and general office space. A flex design building provides for a more efficient use of space to help lower our annual operating costs. In addition, it affords MISO the opportunity to locate its site operations in a community more conducive for the safety of its employees, provides redundant utility power feeds, and future infrastructure should MISO expand its operations. With this option, we have identified three developers that can build a flex designed building to meet the needs of MISO. Option (4): Purchase a new flex design building Upon consultation with our Commercial Broker, REDACTED, it was determined that purchasing a new flex design building was cost prohibitive and limited MISO s flexibility in terms of future needs of the business (i.e., relocation, expansion, reduction, etc ). A large amount of capital would be tied up in real estate; we would still incur the operating cost and a mortgage payment, and have a risk of the value of the property going down over time. Thus, this option was removed from further consideration and the team focused on the other options. 6

13 APPENDIX B CRIME INDEX ANALYSIS Crime index As shown in the table below, the crime index and violent crime rate is significantly higher in St. Paul where our current building is located in comparison to the flex designed buildings located in REDACTED or REDACTED. We also believe there is a security risk to our property and employees with an Apartment complex and roadhouse bar/restaurant located next to our property. Within the past year, we have witnessed and reported individuals trying to climb the perimeter fence and individuals engaging in drug deals on the parking lot outside the gate. Also, there was a gang related murder recently just a few blocks away from our facility. In consideration of these factors alone, we believe that an enhanced customer experience for employees, stakeholders, and other visitors will be realized by relocating our office building to a safer community and a community that is more conducive as a professional workforce setting. Crimes Against Person Comparison APPENDIX C CONSTRUCTION/RENOVATION COSTS The table presented below represents the costs of renovating the existing St. Paul facility, in the event that MISO does not relocate to REDACTED. 7

14 APPENDIX D COST COMPARISON ANALYSIS The team performed a comparison of construction costs between a new facility and the 720 City Center Drive facility in Carmel, Indiana which was constructed in When comparing the 720 location, the team used the total cost of the facility and adjusted the costs to be comparable as it relates to square feet and number of employees and compared it against a 60,000 sq. ft. new facility. The construction costs of just the office building are $REDACTED for the flex design building compared to $REDACTED for the 720 Carmel facility. The additional costs to be incurred to relocate include a control room and business continuity infrastructure such as security equipment and telecommunication requirements. These items were not needed in the 720 Carmel facility as it was connected to the 701 facility. The waterfall below illustrates the relocation cost associated with moving to a new location in the Twin Cities metropolitan area as compared to the 720 Carmel location: 8

15 Employee/stakeholder commutes APPENDIX E COMMUTE TIME Employee and traveler commute miles were evaluated. The information collected illustrates the following: Insignificant difference in commute distance in miles for employee to the respective sites. Travel distance in miles from airport to respective sites differs only to the site in REDACTED Based on our employee and airport commute findings, we have assembled a group to gather data to convert commute distance in miles to actual commute distance in time for a better representation of what an employee or traveler can expect when commuting to the respective site. This data will be made available once it has been obtained from the group. Below is a graph illustrating the commute distance in miles: 9