New Metro Police HQ Lease Totals $500M

LAS VEGAS-The Las Vegas Metropolitan Police Department’s new 370,000-sf headquarters lease would pay the building owner close to $500 million over the 30-year life of the initial contract, or approximately $3.73 per sf per month on average, according to data provided by Department. The company may also opt to acquire the building after three years for the appraised value of the development at that time plus the cost to defease the debt on the property, according to the Department. The property owner and developer is Mark Fine, who ran for Mayor of Las Vegas in 1999.

The lease is for a 14.5-acre custom-built three-building campus plus a parking garage near the northwest corner of Martin Luther King Boulevard and Alta Drive; it is expected to be ready for occupancy in 2011. The headquarters buildings would range from four- to five stories and the parking garage would hold 2100 vehicles. The cost to build the facility has not been released, but at $350 per sf it would cost approximately $130 million, not including the parking garage; at $450 per sf, the price tag would be approximately $166 million.

GlobeSt.com reported on the lease a couple of weeks ago when it was approved by the Department’s fiscal affairs committee but the story did not include lease details because the Department’s public information office said it could not provide them at that time. The Department’s legal counsel Liesl Freedman tells GlobeSt.com this week that the lease rate will start at between $2.75 per sf and $2.82 per sf (inclusive of the parking garage) and increase by 2% per annum until year seven, when the annual increases will be reset based on the average CPI for the preceding six years.The range in the starting lease rate is to account for potential cost overruns, Freedman says. The estimated total lease value and the average rent figures at the beginning of the story are based on the 2% annual bumps continuing through the life of the lease. This past September, the CPI was 4.9% higher than September 2007, and average annual increase for the past eight years is just under 3%.

Fine acquired the land for the development in 2006 for $27.69 million under the name Project Alta LLC. The purchase included 2.74 acres that were sold to Nevada Power Co. earlier this year. Fine also owns two other parcels in the same block that front Martin Luther King.

As the Metro Police Department is a mixture of the City of Las Vegas Police Department and Clark County Sheriff’s Department, the lease costs will be split between the two entities. For the Department, the lease arrangement means a low cash outlay up front, if eventually a huge premium for the facility, not unlike using a credit card. For the developer, it’s a huge return on investment if the department completes the lease and still a solid return if it opts to acquire the property in year three.