Legislature(2011 - 2012)BELTZ 105 (TSBldg)
01/24/2012 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Oil and Gas Industry Employment on Alaska's North Slope by Jim Calvin, President, Mcdowell Group | |
| SB156 | |
| HB146 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 156 | TELECONFERENCED | |
| + | HB 146 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 156-ALASKA RAILROAD LAND LEASES
2:26:39 PM
CHAIR EGAN announced SB 156 to be up for consideration.
2:26:54 PM
DANA OWEN, staff to Senate Labor and Commerce Committee, sponsor
of SB 156, said they were approached by the Alaska Railroad to
amend the statutes to allow them to be able to lease land for
more than the current statutory limit of 55 years. He said it is
common in the development industry to lease land for 95 years,
and that is how long they want. They believe this will result in
higher quality development that retains its value for a longer
period of time; this benefit will flow through to the State of
Alaska and the leaseholders. SB 156 has letters of support from
both the Railroad and potential leaseholders; they have received
no letters or phone calls in opposition to the bill.
2:28:14 PM
TIM SULLIVAN, Manager, External Affairs, Alaska Railroad
Corporation (ARRC), said he was happy to answer questions.
2:29:05 PM
JIM KUBITZ, Director, Project Planning, Alaska Railroad
Corporation (ARRC), also said he would be happy to answer
questions.
SENATOR MENARD said she is proud of this corporation and asked
what would be considered a sizeable investment that wouldn't fit
into 55 year lease.
MR. KUBITZ replied with a hypothetical: some Anchorage
developers could be interested in doing a multi-phased project
if they could control some of the land for a longer period of
time. If you add a couple of projects together you could get up
$20-25 million pretty quickly, and the Railroad would be
interested in doing that. A standard ARRC leased is 35 years and
with a few 55 year leases. The board has instructed them that to
get up to the 95 year lease a project would have to be
substantial.
SENATOR MENARD asked if leases are typically for 100 years
globally.
MR. KUBITZ said he hadn't researched that, but Hong Kong was
leased for 99 years to Great Britain a long time ago. It's not
uncommon for a developer to go in on a long term lease and want
to flip the property to another developer who would need
certainty that in fact the investment is worth that. Sometimes
properties get flipped a couple of times through the life of the
project, and investors all want certainty. They have been
specifically told that 55 years isn't enough and the longer the
better.
SENATOR MENARD said she can understand if they are trying to
flip the leases.
SENATOR PASKVAN asked what additional considerations have been
addressed by the ARRC based upon commercial reasonableness in
the future, say two or three decades from now.
MR. KUBITZ replied that they are all professionals and would
look at whether, for instance, a building was built 20 years ago
and someone is buying it from a current tenant, but they won't
buy it unless they can get at least one and a half times the
term of their loan out of it. So, they may come back and say
they would like a 35 year lease. They would analyze it and see
if it makes sense. The issue would then go to their real estate
committee on their board of directors, and the committee would
make a recommendation to the board. It's on a case by case
basis.
He explained that new construction is different; in that case
you have a bank that is very anxious to have their collateral
protected when they are lending money. The bank would tell the
ARRC how long the lease term should be. The real estate
committee under the chairmanship of Jon Cook talks about this a
lot. Since this is a big extension of their existing lease, they
would come up with some definite parameters, which would have to
be adjusted and inflation-proofed, as to when they would ever
allow a 95 year lease.
2:34:53 PM
SENATOR MENARD asked how the IRS depreciates construction costs
with a long lease.
MR. KUBITZ replied that when people do a development, they put a
whole case together and he didn't know the tax ramifications.
SENATOR MENARD said she was certain that the IRS has solid rules
on this that would make a longer time more advantageous to the
bottom line.
SENATOR PASKVAN asked if an improvement upon property under a
commercial lease is subject to taxation by local governments.
MR. KUBITZ answered yes.
2:37:29 PM
JON COOK, member, ARRC Board of Directors, said he has also
served on the real estate committee. During the day he works for
the largest developers in Fairbanks, and this issue is "pretty
near and dear" to him. He said it arose out of various contacts
with their leaseholders and other outside professionals and
developers over the course of the past year. They have had two
open houses with tenants in Anchorage and Fairbanks, meetings
with ARRC leaseholders Association and meetings with the
Leaseholder Advisory Group, and this topic has come up. They
have all recommended increasing the lease term to 95 years for
all the reasons outlined.
He explained that what brought this to the forefront is the
tightening of credit markets and underwriting standards since
2008, and that the Railroad wants to make sure its existing and
future tenants have access to the lowest cost of capital.
Frankly, 55 year leases won't obtain favorable financing on very
large projects whether they are existing facilities or new.
These 95 year leases requiring substantial amounts of capital,
at least north of $10 million at a minimum, would be looked at
on a case by case basis. They want to do this to help existing
leaseholders who want to know that they can sell or transfer
property to family members, to increase the highest and best
value of their land and to bring more money into the Railroad
and its shareholder, which is the state. It's the way of the
future and the way things work in other areas.
CHAIR EGAN found no further comments or questions and closed
public testimony saying SB 156 would be held.