02/10/2016 - Sale of Anchorage LIO building to state makes sense for all (Commentary)

Commentary by Mark Pfeffer

Alaska Dispatch News - Feb. 10, 2016

OPINION: Moving Anchorage legislative office to Atwood Building may be popular, but it's the wrong move for Alaska.

The Legislative Information Office (LIO) in downtown Anchorage has become an easy target for those eager to find a scapegoat for excessive government spending in tough economic times. These attacks ignore the significant history of the LIO in Anchorage, and overlook potentially devastating financial implications for our state should a satisfactory solution not be reached. While breaking the lease and moving the Legislature elsewhere may be a popular or “easy” decision, truly independent economic analysis demonstrates that this “easy solution” would inevitably be a woeful mistake.

As oil prices have rapidly plummeted, my partner and I have been actively working with the state to find a pathway to savings. We understand that we are in a different economic climate than when the Legislature opted to renovate the existing LIO. We have diligently explored numerous options and are willing to meet the legislative council’s request to purchase the facility at a cost below market value. With a purchase of the LIO building, the state can finance it at tax-exempt rates lower than our current financing structure.

The independent professional analysis by the Alaska Department of Revenue also shows purchasing the LIO provides savings compared to moving the legislative offices to the Atwood Building. We recognize the fiscal situation facing lawmakers and have worked with our bankers to allow lower rent payments until a purchase is completed, saving the state more than $230,000 a year.

An analysis prepared by Legislative Affairs Agency staff and reported in the media recently suggests substantial savings if the Legislature moves into the Atwood Building. That analysis is neither independent nor conducted by a real estate or finance professional. It does not include the cost of parking, ignores the significant value of owning the building and simply shifts the cost of financing the Atwood Building to a different line item in the state budget. The last time Legislative Affairs staff prepared an analysis on the cost of Atwood versus LIO, it was thoroughly dismissed by third party analysis.

Here is some history missing from the recent discussion. The LIO renovation was the result of 12 separate procurement efforts and 35 separate proposals since 2002. None of them was deemed acceptable. Then, in 2013, the state issued one last procurement attempt, its 13th, to find an adequate space for the LIO. When that failed, they asked us for proposals to renovate their existing space on Fourth Avenue.

As requested, we offered three distinct options: a) new carpet, paint and minor upgrades with the lease rate remaining at its then-current rate; b) new carpet, paint, minor upgrades and several technology improvements, resulting in a slight increase in the lease rate, or c) a full remodel -- modernization and expansion. The Legislative Council voted unanimously on multiple occasions and directed us to complete option C. We then delivered the project that the Legislature chose -- on time and within budget.

Several independent appraisals were completed on the LIO by financial institutions, including construction lenders Northrim Bank and Wells Fargo at $44 million, Alaska Housing Finance Corp. valuation for the state at $48.5 million and long-term financing lender EverBank of Redmond, Washington, at $44 million.

The proposal we have offered is to sell the LIO at the same cost that the Legislature certified was the true and accurate cost before we undertook the work to complete their requested improvements. We specifically refused to move forward unless they certified in writing that they agreed with the costs and that the procurement was legal. The certification, signed by Executive Director Pam Varni on Sept. 19, 2013, states: “The annual rental payment will be $281,638 per month or $3,379,656 annually, exceeding the 10 percent reduction in market rental value as required by AS 36.30.083. Our annual savings will be $528,342.”

The offered certified sale price of $37 million is what was actually spent -- it will mean no profit for us. But given the circumstances, we are willing to help. This offer is a price that is $11.5 million below the state's own independent appraisal.

The bottom line is that moving to the Atwood Building costs more per square foot than buying the LIO. My partner and I have met the December request of the Legislative Council to show competitive cost on a “usable square foot basis” and we look forward to discussing this with Legislative Council.

Last, in an effort to focus on a solution to the LIO, we have worked with our neighbor Jim Gottstein and the Alaska Building, Inc. for a voluntary dismissal of the claims of damage to his building and the claim that the lease extension violated the state procurement code. In order for the dismissal to be effective, we must complete the terms of the agreement no later than 5 p.m. this Friday. We have agreed with Mr. Gottstein to end the litigation so that all parties can move on and do what is best for Alaska.

All eyes are on what happens next. This LIO negotiation is being monitored well beyond the Last Frontier. National coverage of the potential negative impact of the state breaking the LIO lease appeared this week in the Wall Street Journal [2] and a few weeks back on CNBC [3]. It is time for the Legislature to make a decision. Sometimes, what may appear to be the least popular choice is actually the right one.

Mark Pfeffer is a longtime Alaska real estate developer. His focus over the past three decades and today is renovating and reviving numerous blighted properties in downtown Anchorage. His projects include Historic City Hall for Visit Anchorage, transforming the Hub Bar property for Fire Station No. 1, remodel of the Unocal/Chevron building for NANA Development Corp. and the recently opened Williwaw. He was one of the partners who completed the Dena’ina Civic and Convention Center and the Atwood Building parking facility.

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