Hartford Business Journal

12 Hartford Business Journal • June 8, 2015 www.HartfordBusiness.com JCJ needs a new home, but CT may not be it By Gregory Seay gseay@HartfordBusiness.com A rchitect Peter N. Stevens, a third-gener- ation Hartford resident and president of one of Connecticut's most iconic design houses, should be a happy camper. Last week, Stevens and a handful of partners sold their five-level, approximate- ly 35,000-square-foot downtown Hartford building that has been home to JCJ Archi- tecture since 2005 to Connecticut's flagship state university for $3.9 million. While the deal spells extra space for UCo- nn's impending $115 million relocation of its West Hartford campus to downtown Hart- ford by 2017, it also means that JCJ and its 65 local employees must, for the second time in a decade, find new digs. They may not stay in Hartford or Connecticut, Stevens said. JCJ has until next February to vacate its leased space inside 38 Prospect St. JCJ will soon invite office-space bids from Hartford region landlords in hopes of choosing the best offer by the end of July, at the latest, Stevens said. However, he said, Connecticut's messy budget deliberations calling for higher taxes on residents and businesses, plus the state's reluctance to give preference to local bid- ders like JCJ on state projects, don't make it an absolute that JCJ will stay in Connecti- cut, much less Hartford. "We're looking around,'' Stevens said of the employee-owned firm that turns 80 next year. "This is a pivotal time for us as a company.'' When legislators broached the idea some weeks back about extending the state 6.35 percent sales tax to architectural ser- vices, "I would have told you we would be in Springfield,'' Stevens said. JCJ's leadership, he said, harbor the same concerns as many of Connecticut's employers big and small about the state's willingness to overburden their tax load at a time when the local and regional economy still lags the nation. Last week, the state legislature approved a two-year, $40.3 million budget that raises $2 billion in new tax revenues, including major tax hikes on businesses. The budget drew the ire of major Connecticut corporations, including General Electric, Aetna, and Trav- elers, which put out public statements con- demning the tax increases and made threats to relocate elsewhere. "We're not a GE,'' Stevens said. "We're not a Travelers. We're not an Aetna.'' Connecticut's resistance, he said, to ensuring that state contractors either lead or share in public works projects also threatens the future of JCJ — formerly Jeter, Cook & Jepson Architects — and other smaller firms in this state. The slug- gish private new-construction market, too, has made it tough for engineering firms, building contractors, and their suppliers. Though Hartford is JCJ's headquarters, Stevens says 85 percent of the work done here comes from outside the city, from its offices in Boston, New York City, Phoenix, and San Diego, Calif., where about 40 more of its employees are scattered. The firm is licensed in 32 other states. From its Boston and San Diego offices, JCJ was engaged to draw up new basketball practice facilities at UMass-Amherst and San Diego State University, Stevens said. "We compete for work to the benefit of the state of Connecticut,'' he said, noting that JCJ's community-service roots run deep and that its Hartford workers' $95,000 average salary supports the regional economy. Yet, when UConn a few years ago hired a Kansas City architect to pen its new men's and women's basketball practice facility, JCJ wasn't offered the opportunity to share in that assignment, he said. Both had previously collaborated on other UConn sports-related building proj- ects, but UConn did not insist that time, he said, that a Connecticut subcontractor be included. "When procurement policies are not as supportive,'' he said, "of Hartford and/ or Connecticut firms compared to other states, you have to scratch your head.'' UConn spokeswoman Stephanie Reitz said the design-contract for its practice facility was competitive and involved more than a dozen bidders. Reitz said bonus points were given to qualified proposals whose bidders had offices within 100 miles of the Storrs campus. "We have a good working relationship with JCJ, and we look forward to working collab- oratively with them on the transition of the space at 38 Prospect St.,'' she said via email. Stevens said that while JCJ's future loca- tion is cloudy, the firm's preference is to stay in Connecticut, if at all possible. "Our priority would be in Connecticut and in Hartford,'' he said. "But it has to work.'' n 38 Prospect St. has been JCJ Architecture's downtown address since 2005. H B J P H O T O | G R E G O R Y S E A Y lending in the state. Such in-state investments, however, are not entirely unique. Other state pension funds, including those in California, Colorado, and New York, have encouraged, or ramped up, investments within their own borders recently. "Interest in using pension fund assets to promote state-based economic development has been going on for decades," said Keith Brainard, research director for the National Association of Retirement Administrators, who noted that systems' fiduciary obligations are still to plan participants. State Treasurer Denise L. Nappier, who heads the $29.4 billion CRPTF — which serves 194,000 state and municipal employ- ees, teachers, police, firefighters, judges, and other public servants — said in an interview that there are two strategies at work. First, she and her team of advisers think Connecticut contains some smart plays. "We're saying that, based on our rigorous due diligence, we know that we can make pru- dent investments in Connecticut," Nappier said, adding that the new initiative is not a mandate; CRPTF will only invest in what it views as profit- able opportunities. Investments in area companies will pre- sumably benefit the state's economy as well, Nappier said. Though secondary to CRPTF's primary objective of earning investment returns, the financial health of the state is linked to the health of its pension system. That's because the state is required to con- tribute more than $1 billion a year to the pension fund over the next 15 years; a healthier economy, the thinking goes, will bring more tax receipts, putting government in the best possible position to make those payments, Nappier said. Though it has performed well over the last decade — posting returns at or above bench- mark rates — Connecticut's pension system could still use a boost. The state has the high- est personal income in the country, but also one of the largest unfunded pension liabilities per capita, according to the nonpartisan, nonprofit research group State Budget Solutions. The teachers' retirement fund — the larg- est in the CRPTF — had an unfunded liabil- ity of $2.43 billion as of June 2014, according to the state's actuarial consultant, while the state employees' retirement system's unfund- ed liability stood at $14.92 billion. The blame for the unfunded liabilities rests mainly on state government, which has struggled over the years to fully fund its promises to state employees in the face of budget deficits, a growing number of govern- ment retirees, and rising healthcare costs. Last year, the teacher's and state employ- ees' retirement funds each returned around 15.6 percent. Officials hope the Connecticut investments can ramp up as soon as possible. Terrence Purcell, CRPTF's principal invest- ment officer for alternative investments and private equity, said he expects to hear pitches soon from fund managers including Westport's Balance Point Capital Partners, New York's J.P. Morgan Private Equity Group, and West Hart- ford's Fairview Capital Partners. Purcell estimated there are more than 3,000 Connecticut companies with revenue between $5 million and $50 million, which CRPTF will be targeting. Expanding on CT Inc. program Since 1999, private equity fund managers hired by Connecticut's pension fund have committed $1.69 billion to Connecticut-based investments, according to figures provided by the Treasurer's office. Of that amount, the pension fund itself has kicked in $78 million alongside its partners' bets. The $1.69 billion figure doesn't include the value of stocks, bonds, real estate, and various other Connecticut investments the system may hold at any given time. The value of the overall Connecticut private equity investments, before tax and expense, has more than doubled over the past 15 years, the Treasurer said. Though officials view that as a positive sign for making more in-state deals, Nappier's office could not provide the exact performance of the Connecticut private equity bets. That's because, in many instances, details of under- lying investments made by its fund managers are proprietary and exempt from disclosure. And CRPTF has also not tracked underlying cashflows in those investments, instead opting to track managers' overall performance. But under the new initiative, the pension fund will track investments made in Con- necticut companies, Nappier said. Thought most details regarding CRPTF's pre- vious Connecticut investments are kept secret, officials were able to disclose some examples. Last year, New Canaan-based RFE Invest- ment Partners, a fund manager in which the retirement system has invested a total of $110 million, acquired Newington-based PCX Aerostructures for $62 million. The pension fund is also a limited partner in a buyout fund that acquired Amerifit Nutri- tion in Cromwell in 2005 for $42.5 million. Support from major stakeholder Nappier's initiative has the support of one of the CRPTF's biggest stakeholders — public employees, according to Peter Thor, director of policy of planning for AFSCME Council 4, which represents more than 16,000 active Connecticut government employees. Thor is a member of the state's Investment Advisory Committee, which reviews CRPTF's investment decisions. The $145 million initiative is relatively small compared to the system's overall port- folio, Thor said. He also thinks Nappier has proven her financial acumen, as evidenced by the system's investment returns during her 15-year tenure. "This is a small element in the portfolio to stimulate Connecticut business, which pro- duces Connecticut jobs," Thor said. n from page 1 Pension fund bets on CT CT Pension Fund's In-state Investment Program Investment Potential amount type committed Fund name Fund manager Middle-market lending $75 million Connecticut Balance Point Capital Growth Capital LLC Partners (Westport) Private equity $50 million Nutmeg Opportunities J.P. Morgan Private Fund II LLC Equity Group (New York) Venture capital $20 million Constitution Fairview Capital Partners Fund V LLC (West Hartford) S O U R C E : S T A T E T R E A S U R E R ' S O F F I C E

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