Rising costs put Lottery on hunt for new So. Shore space

State Lottery officials resolved Tuesday to press ahead with an expedited search for a new South Shore regional office and distribution center after terms of an agreement to keep some Lottery operations at its soon-to-be former Braintree headquarters changed.

Last October, the Lottery, which is in the midst of a planned relocation of its headquarters from Braintree to Dorchester, accepted proposals from Jumbo Capital Management LLC to lease some of the space at its current 60 Colombian St., Braintree, location to be used as its South Shore regional office, client services, distribution center, a data center, warehouse space and ancillary offices once the headquarters moves to Dorchester.

Last month, Jumbo sent the Lottery and the Division of Capital Asset Management (DCAMM) a revised rent schedule “reflecting substantial additional costs related to the landlord’s improvements for the proposed premises,” according to a Lottery memo. Treasurer Deborah Goldberg said the updated rent schedule called for the Lottery to pay “significantly more money than what they had won their bid on.”

“That put us in a situation where the commission unanimously made a determination, as did DCAMM, that we would go back to them and say, ‘are you willing to live by your bid?’ and we gave them a timeframe and they came back in the timeframe and said, ‘no, this is what it is,’” Goldberg said. “So that gave us, as the Lottery and as the state, no other recourse but to consider what the alternatives would be.”

Last week, Jumbo confirmed in a letter to DCAMM that “it is unable to honor its original proposed rent schedule.”

According to documents provided by the Lottery, Jumbo proposed raising the average rental rate for the Lottery from $18.10 and $21.85 per square foot (the Lottery’s request for proposals was split into two “projects” with different square footage) to an average rate of $28.80 for both projects. Lottery Executive Director Michael Sweeney said the changes would have increased the total cost to the Lottery by more than 50 percent.

In a letter to DCAMM, Jumbo partner Jay Hirsh said his company spent “endless hours, manpower and money” working with engineers, architects and contractors to accommodate the Lottery’s needs. “After that time, we came to the realization that our initial budget would not satisfy the needs of the Lottery’s plans. The increase in budget was largely due to the cost of moving the data center to a different location,” Hirsh wrote. “We hired professionals who vetted the plans to ensure that our findings were correct. We have been fully transparent with the Lottery regarding these findings.”

In a rent schedule Hirsh attached to his letter, Jumbo said that the new rent schedule accounts for $5.82 million in improvements Jumbo would make to accommodate the Lottery. The company said it is still waiting to get final costs from the Lottery for data center equipment and that the Lottery will be responsible for any additional cost above Jumbo’s estimate.

The Lottery Commission has voted unanimously to end negotiations with Jumbo related to using the Braintree space as its South Shore regional office and more, but to keep a line of communication open in case the Lottery wishes to negotiate an extension for its current lease there, which is due to expire in January.

“Literally every day is of the essence for the commonwealth in partnership with the Lottery to try to figure out some proposed solution for the numerous moving parts that are critical to day-to-day operations of what is, in essence, a $5 billion a year business on behalf of the commonwealth,” Sweeney said.

Comptroller Thomas Shack, who sits on the Lottery Commission, said the commission’s decision makes sense for the state and taxpayers. “As the independent and apolitical comptroller of Massachusetts, I think it’s in the best interest of the people of Massachusetts, who we represent, and also the employees of the Lottery, and it’s in the best fiduciary interest of the commonwealth of Massachusetts,” he said.

The commission’s vote also authorized the Lottery to “take necessary action to procure the lease(s) of property to be used for the South Shore Regional Office, client services, a distribution center, 24/7 data center, warehouse space and ancillary administrative offices.”

“What we will immediately do is begin meetings with DCAMM to determine exactly what those steps are going to be,” Sweeney said, adding that a request for proposals will “certainly” be part of the process.

The Lottery Commission voted unanimously in March to authorize a lease for a new Lottery headquarters in Dorchester. The Lottery is expected to occupy more than 32,000 square feet at 150 Mount Vernon St., near the University of Massachusetts Boston.

Rent for the new headquarters will be “significantly higher than the old lease,” Sweeney said in March, costing the Lottery roughly $1.4 million for the first several years. The 10-year lease with Corcoran Jennison is expected to cost a total of $15.2 million.

Rep. Keiko Orrall, a Lakeville Republican who is running against Goldberg to be treasurer, attended Tuesday’s Lottery Commission meeting because she said she has concerns about the Lottery’s planned move and Goldberg’s handling of it.

“There is a cost to the taxpayers, that is my main concern. This money is not going to go back to the cities and towns, it is being spent on an unnecessary move,” Orrall said. “I’m very concerned as a legislator for the taxpayers, as a candidate for treasurer, absolutely, I am absolutely paying attention to this agency because I believe it has not been managed well.”

Asked if she would work to stop the Lottery’s move to Dorchester if she is elected treasurer in November, Orrall said, “There are so many aspects that have not been considered with this decision as far as parking, as far as morale of the employees, the impact to the taxpayers, the overall impact. Those are all decisions that I think they should be talking about right now or that they should at least be aware of.”

She later added, “I don’t know what the solution is moving forward because of the mess that has been created unnecessarily.”

Orrall attended Tuesday morning’s meeting in hopes of speaking directly to the Lottery Commission during its meeting but did not get the opportunity. The commission voted to enter an executive session to discuss its lease negotiations with Jumbo and Orrall had to leave for another appointment before the commission returned after about an hour in closed session.