The University of Vermont Medical Center’s plan to relocate as many as 500 employees to a new Burlington downtown mall complex will likely cost $1 million more a year than what the hospital is currently paying for office space.
The details are still being finalized, but UVM Medical Center has agreed to pay $22 a square foot for approximately 80,000 to 110,000 square feet of office space in City Place Burlington, starting in 2019, documents show. All told, the rental cost of the new space, which is under construction, will be between $2.2 million and $3 million a year, including the cost of common area maintenance fees.
Downtown, the hospital will pay for parking. UVM Medical Center plans to lease 360 to 460 parking spots at a monthly cost of $113 each, or between $488,000 and $625,000 a year. Efforts will be made to encourage employees to use public transportation to reduce the amount of parking needed, according to hospital officials.
The 2016 agreement to move downtown came after intense pressure from Mayor Miro Weinberger, who has publicly supported the housing, office and retail complex. The premium cost for the office rental raised the eyebrows of the chair of the Green Mountain Care Board.
Currently, UVM Medical Center is paying about $2 million a year, including maintenance, for 100,000 square feet of office space for 400 employees at the former IDX building in South Burlington, according to information from hospital representatives. Parking is free, as it is in many locations outside downtown Burlington.
In South Burlington, the hospital is paying $12 per square foot, in the middle of the range for Class A prime office space, which runs $10-15 per square foot, according to a local real estate appraisal firm, Allen and Brooks. Rents on the Church Street Marketplace, next to the mall, run $25-35 per square foot.
The common area maintenance fee UVM Medical Center will pay at City Place Burlington is $5.35 per square foot, compared with $8.09 per square foot at the South Burlington site.
All told, the cost to rent 100,000 square feet at the old IDX building is about $2 million. Comparing apples to apples, if UVM Medical Center takes the same size space downtown, the cost would be $2.735 million, a yearly difference of $735,000 in rent and maintenance. The cost differential easily exceeds $1 million a year when parking costs are added. If the hospital rents only 80,000 square feet and takes the minimum number of parking places, the total annual cost downtown will be $2.68 million, approximately $680,000 more than the current annual IDX lease, but with one-fifth less space.
Ultimately, the additional costs associated with the UVM Medical Center office space will be significantly higher than keeping the offices in the suburbs, and the higher lease doesn’t including fit up expenses. Capital spending for the hospital’s new space at City Place, which must be approved by state regulators, will be $4.5 million for fit up costs, including furniture, wiring, lighting and equipment.
Expenses for the new space will be borne by patients. While UVM Medical Center budgets are approved by the Green Mountain Care Board, state regulators are not provided with detailed information about expenditures for operations. Only certain capital spending must be reviewed by the board. Kevin Mullin, chair of the board, expressed concern when he learned about the cost of the downtown deal.
The office space at the new complex, which at 14 stories will be the tallest building in the city, will have apartments in addition to retail space. The project, led by developer Don Sinex, includes a significant overhaul and expansion of the existing downtown mall, which is connected to the Church Street Marketplace. Under the current agreement, UVM Medical Center, which plans to rent between a third and one-half of the office space, will be the anchor tenant for City Place.
The hospital has an initial 12-year lease with options to renew with Sinex and company. Hospital officials said they are still determining exactly how much space they will use and which administrative departments will be housed downtown. The hospital says 400 to 500 employees (up from 350 to 400 the hospital initially projected) will be relocated there in 2019.
Mayor pressures hospital to move downtown
Dr. John Brumsted, the hospital’s CEO, defended the decision to locate employees at the new downtown complex. In an interview with VTDigger last month, he said the hospital was committed to keeping UVMMC employees downtown and that finding space for hundreds of workers to be together was difficult. The hospital had rented space at 1 Burlington Square, next to the mall, which the hospital vacated to make way for a renovation. Many of those jobs moved to the old IDX facility.
Mayor Weinberger, who pushed the hospital to stay downtown, said comparing square footage costs was only one measure. He said other benefits should be considered, including less car pollution and studies that show higher worker productivity in downtown locations. Weinberger stressed UVMMC’s decision was in line with decades of efforts by public policy makers and environmentalists to encourage businesses to locate in downtowns and avoid sprawl in the suburbs.
“This decision is highly defensible” after all the factors are weighed, Weinberger said.
Brumsted said leases were expiring at current locations and as part of a search for new office space, hospital administrators decided to locate employees at the new mall. He also said the medical center is also under pressure from the University of Vermont to vacate University Health Center on Prospect Street as soon as possible.
In a letter to Weinberger, Brumsted said the hospital’s commitment to Burlington has “never wavered” and said he supported the mayor’s vision for a “refreshed and revitalized” downtown core.
“We want to pay fair market value,” Brumsted said in an interview with VTDigger. “We can’t — we’ve been very clear– we can’t pay more than fair market value and we’ve also been very clear that we’re a not-for profit healthcare company, so it has to be consistent. When you look at the options in the Burlington area, if we’re really going to be in the city itself, which we think is the right thing to do, for that number of employees there aren’t a whole heck of a lot of spaces, or options. So as this came along, we’ve gravitated to this as an option.”
The hospital head conceded expenses at the new location will be higher in downtown Burlington.
“But again as a major employer it behooves all of us to have a very vital downtown Burlington and so we would see a great value in that as well,” Brumsted said. Employees, he said, enjoy being downtown and being able to bike to work or go out to restaurants for lunch.
Hospital officials also said they would have faced intense criticism if they had not gone downtown.
The hospital is expected to rent two floors in the office complex. Brumsted said he hopes to partner with and locate an early childhood learning facility on site. There was discussion of opening a clinical unit as well but there are no current plans, hospital officials said.
The hospital’s decision to locate downtown came at the urging — some say insistence — of Weinberger, who said the hospital was “on the verge” of moving hundreds of downtown jobs out of the city. Brumsted had made clear he needed space by early 2019. Delays in the Sinex project, including a lawsuit, threatened the timeline for construction to be completed. That lawsuit has now been settled and demolition of the old mall is underway.
While both Weinberger and Brumsted have characterized their conversations as respectful and both understood the “mutual importance” to keep the jobs downtown, the mayor acknowledged the talks were sometimes intense.
“Certainly, as it became clear that losing the jobs was a real possibility, I made it very clear that I thought that would be a problematic outcome and I made it very clear that a very high priority in our relationship with the hospital was them finding a way to stay committed to downtown Burlington,” Weinberger said. “So (the talks) were certainly respectful, but that was my job to make it clear how significant this interest was.”
The mayor acknowledged “one meeting that I would say where I was concerned and thought we were on the verge of losing these jobs for good, and I was very passionate in that meeting.”
Weinberger said he emphasized the downtown would suffer if the hospital didn’t keep workers in the city core, whose restaurants he said are already suffering. Sources said the mayor lost his cool at the meeting and reminded hospital officials about the sweet deal they had for city services, though Weinberger said that argument was “not a major part of the conversation,” largely because the city’s hands are tied for another decade plus.
The nonprofit hospital is exempt from property taxes and makes payments for services such as police and fire under a 30-year agreement signed in 1999. Under that deal, the hospital paid $325,000 the first year with the amount increasing 2 percent a year. Last year, the hospital paid the city $446,156. The hospital also gave the city $250,000 for bike path improvements. If the medical center’s property had been taxed, it would have owed a total of $10.5 million last year, with the city’s share being $3.2 million.
In an interview, the mayor said he emphasized the hospital expended “public resources” and should consider other public priorities, including revitalizing downtowns, when making decisions involving those funds.
During the talks between Weinberger and Brumsted, the hospital was seeking regulatory approval for a $187 million expansion at the hospital, which has since been approved.
Weinberger said he never threatened to hold up that project — which he has consistently supported — but said he made clear to Brumsted that hospital projects outside Burlington would continue to be supported or opposed by the city “on a case by case basis.” (The mayor noted the city has historically opposed projects considered a threat to downtown Burlington, including a proposed Pyramid Mall in Williston in the late 1970’s.)
Brumsted and Weinberger held talks over an 18-month period. The mayor said his efforts were not “particularly unusual” to push the hospital to locate at the Sinex complex; he said he had not faced before the possible loss of hundreds of downtown jobs. Of the 350 to 400 employees who were originally slated to be at Burlington City Place, Brumsted said 200 would be coming from locations outside of the city; the others will come from other Burlington sites.
In the spring of 2016, almost 400 medical center employees were moved from Burlington to the former IDX building on Shelburne Rd. City manager Kevin Dorn said a significant number of those jobs were expected to remain permanently. Dorn said UVMMC jobs should not be seen as a source of competition between communities, but as an asset to the region and the state, wherever they are located.
The hospital’s commitment was critical to the progress of the $250 million downtown mall project, according to Sinex, Brumsted and Weinberger. When a tentative agreement was struck with the hospital in 2015, Sinex called it “a milestone” for the project. The hospital will be taking from a third to almost half of the office space planned. Brumsted said the hospital’s commitment would give Sinex an anchor and “the stability needed to continue to move forward with this significant project.” Weinberger called the hospital “clearly … an important tenant.”
While Brumsted said finding space downtown was difficult, particularly for a large number of employees in one location, according to real estate expert Dan Allen, there is a glut of office space in Chittenden County and a higher than usual vacancy rate is continuing to put downward pressure on square footage costs.
“Over the last five years, we have seen increasing negative pressure on both rental rates as well as sale prices, a condition which is reflective of an oversupplied market,” Allen said.
The Chittenden County office vacancy rate stands at 10.6 percent as of December 2017, which equates to roughly 911,000 square feet of available office space. The historical average level of vacancy in the Chittenden County office market has been 8.6 percent (2000-2017), which equates to approximately 737,000 square feet, Allen said.
When the chair of the Green Mountain Care Board, Kevin Mullin, learned about the UVM Medical Center downtown deal from VTDigger, he questioned the expense.
“My concern will be whether it’s the most cost effective place to be and whether it makes the most sense,” Mullin said.
“I understand the mayor of Burlington’s argument and from the standpoint as a legislator, I understand it,” the former Rutland County state senator said, “but as the chair of the Green Mountain Care Board, my concerns are keeping costs down as much as possible. On the same token, I don’t know if it’s out of line.”
The regulatory body chair added: “I’m used to Rutland prices. You could get something for a lot less than that, but Burlington isn’t Rutland. It’s a totally different animal.” Mullin said the state was renting office space in Montpelier for a surprising $22 per square foot.
Mullin wondered if it would have been more cost effective for UVMMC to build a facility next to the hospital instead of renting downtown.
Fellow Green Mountain Care Board member Tom Pelham reserved judgment. He said UVMMC is expected to seek approval in 2019 for a Certificate of Need for the estimated $4.5 million fit-up of the downtown site.
