2 SC agencies moving to new headquarters built by politically connecte…

COLUMBIA — Despite having annual price tags more than 20 percent above the next highest bidders, a politically connected businessman landed $133 million in deals to house two state agencies at South Carolina’s State Farmers Market in rural Lexington County.

Bill Stern, a Columbia developer who chairs the State Ports Authority, won the contracts to build and lease two new buildings to the state departments of Education and Natural Resources, moving the agencies into offices constructed to their specifications but that are far from their current downtown and Statehouse grounds locations.

The deals were approved by South Carolina lawmakers alongside hundreds of other line items in the 2020-21 state budget, passed during a financial year flush with cash from federal COVID-19 stimulus dollars.

Committees of employees from both agencies made recommendations on preferred sites — DOE liked the Farmers Market while DNR preferred a building on Taylor Street but another tenant got to it first.

Ultimately, it was up to the Cabinet agency that serves as a clearinghouse for all state property under Gov. Henry McMaster’s purview to finalize the selection.

Stern is a major campaign donor to the governor, who has continued to appoint the developer to the state’s port authority. Stern, the developer, denied politics played into the building deal, saying he took offense to the suggestion.

“I can say with confidence, if the Legislature and the agencies didn’t want this, they wouldn’t be going out there,” he told The Post and Courier. “You’re not going to twist someone’s arm to do something like this.”

The governor said he was confident the Department of Administration handled the building move “professionally and by the book, which is consistent with the director’s and the agency’s reputation and proven track record.”

“Mr. Stern is a successful businessman and an active public servant who has developed property at the Farmer’s Market for over a decade,” McMaster said in a statement. 

Stern’s bids for the new offices were the only ones involving new construction, and he knew its price tag would likely surpass any other submissions that involved renovating existing buildings.

“I had no clue how it was going to go, how it was going to be received,” he said. “Timing was evidently right and it happened.”

But the businessman also argued the state should put its agencies in newer buildings rather than older spaces in need of maintenance and actually hopes the move will start a new trend in state government.

“If the state wanted to go into older facilities, I get it. That’s what they’ve been doing forever,” Stern said. “I was advocating they start looking at new facilities. And I hope that this is the beginning of something, if it turns out where everyone’s happy.”

“We don’t have to have these dilapidated buildings that, when we move in, they’re old from day one,” he added.

The agencies are expected to move in 2024, bringing the two agencies’ more than 1,000 employees to the market, rather than scattered about in multiple locations across the greater Columbia area.

They will join the state’s Department of Agriculture and a DNR licensing office already at the complex.

Stern will construct the buildings as directed by the agencies, which, in exchange, will pay millions in rent, property taxes, insurance and any maintenance costs.

The leases together will generate $133 million over 20 years, according to numbers provided by the state’s Administration Department.

And the deal could bring in more money to Stern with the option to extend another decade after that.

Money pits

The push to relocate state offices started when then-Gov. Nikki Haley called to consolidate government-owned property across the state in 2015. The Education Department’s administration building at the corner of Bull and Senate streets was near the top of her sales list.

Selling the Education building along with eight others identified in an initial assessment meant taxpayers could avoid spending an estimated $30 million on maintenance over five years. Hailey proposed profits then go into a fund to lease new space.

At the time, state Education Superintendent Molly Spearman said her agency welcomed the idea of moving, due to a lack of meeting space and parking.

Any time the agency holds a public event it must rent a banquet center to accommodate visitors, spokesman Ryan Brown said. As new programs were added, the agency rented space in three other buildings around Columbia to house its more than 1,000 employees.

The building, constructed in the Cold War era, comes with oddities including an underground bomb shelter and nuclear wash bay.

And as sweltering summer temperatures came this year, the air conditioning system couldn’t keep up, requiring additional equipment be brought in to cool the building.

For its part, DNR also has employees flung about the city in a series of buildings as the agency has grown. And the state Attorney General’s office, the agency’s current building mate, covets Natural Resources’ space to house its own expanding operation.

“We’ve been needing new office space for a very long time and so has the Attorney General’s office,” said Angie Cassella, DNR’s deputy director of administration.

The search

The latest search for the new state agency headquarters started in mid-2019 amid a booming real estate market, when open office space was scarce in the Capital City and talk of a pandemic, recession and inflation were months away.

Bids from prospective landlords collected before the pandemic were less than ideal.

Offers came from: a pair of older shopping malls; a complex formerly housing an insurance company that was 50,000 square feet shy of what the Education Department needed; a building on Taylor Street that snatched up by another renter; and a building that once housed the mining regulatory arm of the state’s environmental agency but would have needed a major overhaul.

The annual rates for the farmer’s market sites started at $1.5 million for DNR and $3.5 million for Education, each going up 3 percent annually over 20 years.

By comparison, the next highest bids called for $1.2 million and $2.7 million respectively, with a 3 percent and 2.5 percent annual increase over 10 years.

Funding requests were submitted in September 2020. But the final deals on Stern’s property weren’t struck until a year later, well after the COVID-19 outbreak had rocked the global economy and it made less sense to pay a premium on a new building.

Construction costs soared amid the supply chain crunch while office tower vacancies rose with companies giving up large suites as more employees worked from home.

That same solicitation for space would likely garner greater results after the COVID outbreak, commercial real estate experts said.

Process disrupted

According to the Department of Administration, which oversees these leases, both the Education and Natural Resource agencies had asked for new buildings at the Farmers Market site by the end of 2019.

The building on Taylor Street that had been a favorite of DNR employees would have been short on parking and was snatched up by another renter. So DNR sought enough money to cover the highest bid, planning to make one of the options work depending on how much lawmakers were willing to give, Cassella said.

“We put in the highest number because we didn’t know what we were going to get,” she said. “Certainly everybody would have liked a new building.”

Notes by Education Department officials from visits to several other spaces show traffic was among concerns at one existing building. The cost of adding square footage was a worry at another. A new structure, while more expensive, could be built to agency specifications.

The Administration Department was wary at first to recommend the new building for approval, a January 2020 email between the heads of the two agencies shows, with Administration Executive Director Marcia Adams calling the site “cost prohibitive,” though McMaster had included the funding request in his budget proposal just days earlier.

Then COVID-19 hit. Everything was put on pause. Budgets were frozen at previous levels. Lawmakers and state employees went home.

When agencies made funding requests in fall 2020, DNR raised the question of trying to get a new round of bids, Cassella said, but was told by the Administration Department there was not enough time.

Proposals were submitted and the governor again gave the moves his stamp of approval in January 2021. Lawmakers followed suit that June.

Yet as the final deal was being inked in October 2021, reports from commercial real estate firm Colliers read, “Columbia anticipates an increase in office availability.” Then vacancy rates rose to 15.5 percent, compared to 11 percent in 2019 when the lease offers were first solicited.

By comparison, materials prices for commercial construction have risen by 35 percent on average, according to the Carolinas Association of General Contractors.

Market site selected 

Though construction costs have risen substantially, Stern said he held his bids at 2019 levels when contacted by the Administration Department.

He said that’s because he wants to see the Education Department in a new showcase building fronting Interstate 26, “where the employees are proud to be there.” He holds similar hopes for DNR along U.S. 321.

“We’ve been getting by in the state of South Carolina,” he said. “Let’s do more for our people.”

This was not the first time Stern scored a state contract on the Farmer’s Market property, located near the intersection of Interstates 26 and 77.

In 2013, Stern sold 9.7 acres of market land to the state Department of Agriculture in a deal that drew the scrutiny of the Legislative Audit Council.

The Columbia developer had bought the property in 2010 as part of a larger, $1.57 million purchase of 26 acres. The previous owners, which tax records show were tenants in another of Stern’s buildings, hit financial straits in the wake of the Great Recession after partnering with the Agriculture Department to move the market from Williams-Brice Stadium to the Lexington County property.

The state later bought a portion of that property in 2013, along with three newly constructed buildings from Stern for $6 million, according to the audit. On a per acre basis, the state gave Stern more than 10 times what he had paid for the raw land, but the audit did not originally account for the buildings Stern had added or the leases associated with them.

According to county tax records, those buildings more than doubled the taxable value of the property, raising it from $1.2 million to $3 million.

Stern said he did not buy the property with a vision for what the remaining land might be used for, but only to assure “that the (farmer’s) market wouldn’t go under.”

Stern still owns some available property near the Farmers Market. He anticipates a fast-food restaurant next to new DNR building.