Legislature(2011 - 2012)BELTZ 105 (TSBldg)

01/24/2012 01:30 PM Senate LABOR & COMMERCE


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Audio Topic
01:31:41 PM Start
01:34:29 PM Presentation: Oil and Gas Industry Employment on Alaska's North Slope by Jim Calvin, President, Mcdowell Group
02:26:39 PM SB156
02:41:41 PM HB146
02:45:28 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Jim Calvin, McDowell Group, Oil and TELECONFERENCED
Gas Industry Employment on Alaska's North Slope
*+ SB 156 ALASKA RAILROAD LAND LEASES TELECONFERENCED
Heard & Held
+ HB 146 LAND TRANSFER FROM STATE AND ALASKA RR TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled 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.                                                                                   

Document Name Date/Time Subjects
McDowell Group Oil Industry Labor Report FINAL.pdf SL&C 1/24/2012 1:30:00 PM
HB 110
McDowell Group North Slope OIl Jobs Study PPT.pptx SL&C 1/24/2012 1:30:00 PM
HB 110
McDowell Group North Slope OIl Jobs Study PPT.pdf SL&C 1/24/2012 1:30:00 PM
HB 110
McDowell Group Oil Industry Labor Report FINAL CORRECTED.pdf SL&C 1/24/2012 1:30:00 PM
HB 110
SB 156 Sponsor Statement.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB156-DCCED-ARRC-01-20-12.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB156-DNR-MLW-1-23-12.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB 156 95 Year Lease - ARRLA Support.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB 156 95 Year Lease - ASG Support.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB 156 95 Year Lease - City of Whittier.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB 156 95 Year Lease Board Support.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB 156 95YL Support Letter - Seward.pdf SL&C 1/24/2012 1:30:00 PM
SB 156
SB 156 Suppport Letter - Trapline.pdf SL&C 1/24/2012 1:30:00 PM
SB 156