DMV office closure leaves owners of shopping center holding the bag

Times were flush when Reno businessmen John and Pat Pinjuv and Las Vegas investor Amador Bengochea ventured into the retail market in Garnerville with construction of the 50,000-square-foot Waterloo Center at the south end of town.

Shell construction of three buildings was completed last year, and new tenants began moving in including the Department of Motor Vehicles, which signed a 10-year lease that guaranteed $2 million in revenues for Waterloo Center LLC.

But just six months after moving in, the DMV is closing its office in Gardnerville, as well as express offices in Reno and Sparks in cost-cutting measures mandated by the state legislature. The cuts are estimated to save $1 million by 2012, and the Gardnerville office alone was expected to cost $478,434 for two years of operations, says DMV Facilities Manager Jennifer Bauer.

DMV's departure from its new 5,000-square-foot location at Waterloo Center on June 24 comes as a knockout punch to the landlords.

John Pinjuv says development of the building that housed the DMV office was predicated on the state entity anchoring that building. In addition, Pinjuv says, Waterloo Center LLC invested $347,000 in tenant improvements specific to the DMV, such as chairs, counters and carpet, which were amortized over the terms of the lease. Construction of the 19,000-square-foot shell was roughly $2 million.

"Had they not committed, we probably would have not gone forward, at least at that time, with that building," Pinjuv says. "Our lender obviously doesn't want to loan on a completely spec building. When we had DMV signed up they said you have a good portion of the building leased, so go ahead and go forward."

Bauer says a clause in state contracts routinely allows for the termination of leases if the federal government or state Legislature restricts or impairs funding for the state agency. Bauer notes that the closure of the three offices was not a decision made by the DMV. Instead, it was mandated by the Legislature.

"The Legislature was try to figure out how to go about necessary budget reductions, so we were required to provide various scenarios for their determination," Bauer says. "We had to give costs associated with the operations of each office, and they made the final determination."

Pinjuv who as president of the Reno office of Grubb and Ellis knows a little about leasing says the bailout makes him leery of working with state entities in the future.

"Every landowner and property owner that is thinking about doing a lease with the state should know this," he says. "It is a lot of money for most people $350,000, plus a bailout on a $2 million contract could put a lot of people bankrupt immediately.

"If they were any other tenant, they would be sued for it. We would be in court collecting what the contract was for. It is kind of a double standard."

Pat Pinjuv, who joined in the development of the Gardnerville project, is president of Pinecrest Construction in Reno, and Bengochea is owner of Bentar Development Inc. in Las Vegas.

Leasing at Waterloo Center has been slow even with the DMV the center still was about 65 percent vacant. Some tenants, such as AT&T reseller JC&C Wireless and Bodenstein Insurance, signed leases at Waterloo Center in part to capitalize on foot traffic at the DMV office. JC&C Wireless took 1,258 square feet, while Bodenstein leased 1,498 square feet.

Kirk Bodenstein, owner of Bodenstein Insurance, has been operating out of the Stratton Center at 1532 Highway 395 for seven years. He says closure of the DMV office affects much of the business traffic at the south end of Gardnerville.

"While we have been developing our office we have noticed anywhere from five to 25 autos out there other than employees now all those people have to drive to Carson City," Bodenstein says.

Bodenstein signed a lease at the Waterloo shortly after DMV signed its 10-year lease. Bodenstein's move wasn't predicated on DMV being at the center, but he was hoping proximity would increase his clientele.

"We were figuring on some sort of foot traffic off the DMV to help support our insurance agency," he says. "We were making a move for more than one reason, but it certainly would have played into the decision process if DMV had not been there."

Closure of the Gardnerville office means Minden/Gardnerville residents will have to conduct business 16 miles away at the DMV office at 555 Wright Way in Carson City. Bauer says the DMV will locate a self-service kiosk somewhere in the Carson Valley. Kiosks can be used for registration renewals and driver history reports.

Pinjuv worries that closure of the Gardnerville DMV office may have a negative impact on marketing efforts at the Waterloo Center and also may cause consternation with the developers' lender.

"The lender has been very good about working with us, but the fact is there is a $2 million commitment that has walked out the door with no recourse," Pinjuv says. "We don't own 50 shopping centers where we can absorb those kinds of losses and not really care about it. When you have someone like DMV bail out on you, it is a big black eye."

The developers still are working under the terms of their original construction loan, and terms of that loan may be adjusted when it expires in October.

"It is absolutely a negative impact," Pinjuv says.