The city’s estimated price tag for buying and transforming Frost Bank’s old headquarters downtown into offices for employees has swelled to just over $140 million, an increase of 52 percent.
Officials now anticipate spending $88.1 million on renovations, up from the $41.5 million estimate stemming from a 2015 deal involving the city, the bank and local developer Weston Urban.
The total budget for moving 1,400 employees and 24 departments into the building at Houston and Flores streets now stands at $140.99 million, up from the $92.5 million estimated in 2015. The cost of acquiring the building also has risen, by nearly $2 million to $52.9 million.
The city attributes the higher cost to expanding the scope of the renovations over the last five years and unexpected problems with the building’s condition.
Officials said the project remains “cost-neutral” and will save the city $3.2 million over 30 years. An analysis of what it would cost to construct a new building showed it would be $220 million.
City Council members Thursday approved amending a 2018 agreement with a joint venture between Skanska’s U.S. subsidiary and local contractor F.A. Nunnelly Co. to increase the group’s contract from $59.5 million to $75.1 million.
Assistant City Manager Lori Houston told the council the $75.1 million would be the final price for the renovation work being done by the contractors.
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The added expenses include moving more departments into the building than originally planned, amenities such as a fitness center, security upgrades and reworking elements of the offices for social distancing and other safety measures connected to the coronavirus pandemic.
In addition, “several major” issues with the 45-year-old building were not included in a report done by an engineering firm, according to City Council documents.
“I think it would be naive of us to think we were ever gonna not be surprised along the way,” District 8 Councilman Manny Peláez said.
District 10 Councilman Clayton Perry asked for a reassurance that the cost was set and “that this is the end of the money train.” He had been the sole member to vote against approving the Skanska-Nunnelly contract originally, although he joined the rest of the council to unanimously approve the changes Thursday.
Houston reiterated that the contract is the final cost.
“We feel very confident that we are going to stay on schedule and within this budget,” she said.
In addition to the renovation work, moving costs, building conference space and purchasing furniture and broadcast equipment also raised the price tag. Those expenses are included in the $88.1 million renovation cost.
Council members Thursday OK’d a contract with UNICOM Government Inc. for $1.4 million for buying and installing the broadcast equipment.
The city is financing the project through debt issuance, property tax-supported notes and property sales, among other sources, Houston said.
It expects to generate revenue from leasing out seven of the building’s floors to other tenants and charging for parking. The top floor is expected to be leased as a restaurant, and there will be 3,000 square feet of retail space available on the ground floor, city spokeswoman Laura Mayes said.
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Municipal staff will occupy 10 floors at the building, known as “City Tower,” and will start moving into the new space in July. The 1,400 employees won’t all be in the building at the same time, as each department has its own plan for in-person and remote work, Houston said.
The city currently spends about $3.8 million on leasing space for departments across San Antonio, she said.
The city’s 30-year projection for the project shows revenue of $441.2 million and expenses of $438 million, an increase from the net savings of $1.2 million predicted in 2015.
One of the changes that contributed to the savings was deciding to lease another floor to outside tenants, Chief Financial Officer Ben Gorzell said.
Perry and District 9 Councilman John Courage questioned the increase in the estimated net savings.
Courage wondered what the vacancy rate for the leased floors would be “with so many businesses under the gun.”
“I’m skeptical. I don’t think we’re going to come out with a $3 million savings over the life of this,” Courage said. But considering that it would have cost an estimated $220 million to construct a new building, it was a “smart choice” to move forward with renovations.
“It may turn out to be a significant benefit to the city (in the) long run, but those numbers I think are very variable right now,” Courage added, referring to the 30-year projections. “I hope we’re as successful as you plan on us to be in this new building.”
The city acquired the building as part of a complex partnership involving Weston Urban and locally based Frost.
As part of the 2015 deal, the developer agreed to build Frost’s new headquarters nearby as well as 265 housing units. The city and Frost are selling several properties downtown to Weston Urban, including the Municipal Plaza building.
When council members approved the contract for the renovations in 2018, the projected cost already had risen by over $34 million because of the decision to move an additional department, added amenities, unforeseen problems with the building and rising construction costs.
Officials found asbestos between floors, dated circuitry and a lack of fire sprinklers in parts of the building, Mike Frisbie, former director of the city’s Transportation and Capital Improvements Department, told the San Antonio Express-News in 2018.