Mayor Joe Hogsett’s administration has decided not to redevelop the City-County Building, which was left nearly half empty last year when the courts moved to the new Community Justice Campus.
Instead, the city will work through 2024 to consolidate its most prominent real estate offices now scattered throughout downtown, including offices under the Department of Public Works and the Department of Business and Neighborhood Services.
Over the past few years, officials have been exploring whether the roughly 735,000-square-foot property could be converted into apartments or other uses. While it’s possible some parts of the building will be redeveloped at some point, city officials have committed to keeping Indianapolis Government in the 28-story building.
“This will put everyone under one roof,” City Controller Sarah Riordan said.
She added that city officials are still considering what to do with the west wing, where several courthouses are located.
“We’ll be open to a lot of different possibilities, but I think moving in the direction of having some other government services would be consistent with the use of the rest of the building. But we’re talking about a number of possibilities.”
When the court offices left the tower, about 175,000 square feet of space remained vacant. The city’s real estate consultants pegged the vacancy rate at 44%.
By the end of 2024, the building is expected to be more than 90% occupied.
The city estimates that the first phase of the consolidation plan, which includes moving 74,000 square feet of city offices from 1200 S. Madison Ave. By the end of this year, it will cost $2 million. This includes transportation expenses, building space, and furniture.
The city leases the Madison Avenue space, which houses offices for business and neighborhood services, the engineering team for DPW and Indy Parks, for $1.3 million annually.
The second phase of the consolidation plan will see Marion County Community Corrections move from about 29,000 square feet in the first jail — scheduled for demolition next year — to space on the sixth floor of the City-County Building, along with the Marion County Clerk.
The cost of this move has not been estimated.
The decision to consolidate into the City-County building was driven by cost, Riordan said.
Downtown rental rates for Class A office space are about $25 per square foot per year.
By comparison, city and county offices pay $10 to $11 per square foot annually to the Indianapolis-Marion County Building Authority, which owns and manages the city-county building.
For the building authority’s 2024-25 fiscal year, which begins next July, base rent for users is expected to be $10.12 per square foot, down about 50 cents from the current year.
“The location of this building is so great, so I think that’s also the motivation behind our decision to stay – that we’ll be saving money and reusing this asset in this location, which is really good,” Riordan said. “We probably couldn’t find something like this somewhere else.” Another one downtown.”
Andrew Urban is vice president of trading services for the Indianapolis office of Toronto-based brokerage firm Colliers International.
He said the city’s decision to re-centralize its non-judicial offices is a smart one.
“It makes a lot of sense to move out of the 1200 Madison building and rent there, allowing the city to save some money, and move into a building that might sit fairly vacant — perhaps for years. It’s a practical decision, but it also makes intuitive economic sense.”
‘More work to be done’
Urban said he was not surprised by the city’s decision to abandon redevelopment of the building.
The volatility of the real estate market, including rising construction costs and interest rates, would make reusing the structure nearly impossible for several years.
City officials estimated it would take between $75 million to $125 million to repurpose the building, regardless of use.
The city received ideas submitted as part of an information processing request in late 2021, and received responses from three Indianapolis-based companies: Chase Development, Flaherty & Collins, and TWG Development LLC.
All three proposals focused on housing, including apartments. But the implementation of each differed in terms of cost and configuration.
Chase Development has proposed converting the main tower into a residential tower and adding small structures with retail and more apartments and condominiums elsewhere on the 4.25-acre site. It did not include cost estimates.
The TWG project calls for converting the main tower into 350 apartments, more than half of which will be luxury units and the rest for low-income families.
The observation area on the 28th floor would have been converted into a café, and the Council Chambers would have been converted into a concert venue.
The west wing would have been a center for public education, as the proposal calls for moving the Indianapolis Public Schools and Herron Classical Schools offices to the building.
The East Wing would have been a “back office” space for departments without a public-facing role.
TWG expected the proposal to cost $120 million.
Flaherty and Collins’ plan called for the tower to include 242 luxury apartments, with the lower floors and suites retained as office space, either for the city or other users. This project was supposed to cost $50 million, according to the company’s proposal.
Jim Crossen, vice president of development and principal at Flaherty & Collins, said it’s reasonable for the city to cancel — at least for now — plans to renovate the building because converting offices into living space is too expensive.
“Doing any adaptive reuse is very expensive,” he said, adding that such projects can often cost 20% more than new construction. “The hottest topic in real estate right now is converting offices into multifamily. It’s a great idea, but very expensive to implement.”
Doug Morris McCoy, director of real estate at Al and Shary Oak at Indiana University, agrees.
“I don’t think the timing is right” to redevelop the building, he said, noting the costs associated with such a project. “We’re on the verge of a recession, or maybe even a recession, depending on who you ask. We have very high interest rates, we have high inflation, so I think we have a lot of work to do before we can really determine what all of these alternatives are.”
The city’s plan to retain its office space comes as it prepares to move forward with efforts to renovate the old City Hall at the northwest corner of Alabama and Ohio streets.
The $140 million project from TWG Development LLC promises to bring a 32-story apartment and hotel tower to the Alabama Street area immediately north of Old City Hall, incorporating the existing building into the project, largely through public art gallery, retail and event spaces. .
That project is expected to receive $15 million in developer-backed tax increment financing bonds from the city.
It also comes as the city continues to search for partners to redevelop the Helipad and Jail I sites in downtown Indianapolis. The city has not issued formal bids for either, but a request for proposals for the prison site is expected next year.
High costs
The 61-year-old City-County Building faces expensive infrastructure upgrades, regardless of how it is used, experts said.
A 2019 report from Indianapolis-based American Structurepoint, which assessed the building’s condition, found that key areas such as the underground parking structure and some electrical systems were nearing the end of their useful lives — amounting to $13.4 million in repairs and upgrades.
Converting the building into apartments will only complicate matters because doing so would require a different fire protection system and a new elevator system.
The east and west wings should also be separated. Addressing all of this would raise the cost of updating the infrastructure to $29.8 million.
Another assessment, from Chicago-based Environmental Systems Design, estimated it would take at least $35.6 million to retrofit the building if it were to be reused.
The lease rates offered to city entities are “very competitive,” especially when compared to their counterparts, said Abe Hohman, president and owner of Indianapolis-based Site Strategies Advisory LLC, who spent nearly three decades on the board of the Indianapolis-Marion County Building Authority. Downtown towers. She said many of those returning to the tower have now sought to secure space in the building for years.
Although the building will need some improvements to accommodate the new tenants, it makes financial sense for the city to stay put rather than move, she said.
“There may be a need to look at some renovations and try to put the building in place for the next 20 years or so,” Hohman said. “But I also think that with the changes that are happening in workforce participation and location…it provides a good core of people in the downtown market, which I think is appropriate.”
Riordan said HVAC system upgrades are underway, as is converting the building’s lighting system to LEDs.
The city is also continuing to renovate parts of the building as spaces are created for new tenants and existing department offices are remodeled. The city is also working to improve the parking garage, with plans to wrap up this work by October 2024.
Specific costs for these projects were not immediately available.
Urban said the city’s decision to stay put for now does not mean the building will never be redeveloped. Alternatively, it could be a temporary measure that helps the city reduce costs until a new headquarters for city business is identified.
“I think it’s probably a short- to medium-term option for the city, and I don’t think we should necessarily assume that this move takes a broader vision off the table, for a more efficient, more streamlined (space).” Adding the building’s age and some design deficiencies complicates the city’s space needs, he said.
“There are a lot of exciting projects that the city will have opportunities to do, but obviously it will take time for those projects to materialize and to build any kind of space for them. … So maybe this is more of a stepping stone than a permanent home for the city.”