Legislature(1999 - 2000)
04/29/1999 03:30 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 189-AHFC ACQUISITION OF BUILDING
JOHN BITTNEY, legislative liaison for the Alaska Housing Finance
Corporation (AHFC), gave the following presentation on HB 189. The
measure is one of two sections; it authorizes AHFC to purchase the
office building it currently occupies. AHFC was approached about
purchasing the building by the owner about one year ago. The
purchase will result in a significant savings to AHFC, so AHFC felt
compelled to forward the proposal to its Board of Directors. After
review, the Board of Directors passed a resolution supporting the
purchase and authorized him to present the proposal to the
Legislature.
MR. BITTNEY explained the contents of the fiscal note. The fiscal
note shows a budget reduction of $496,600 in its contractual
component, which reflects a savings in AHFC's lease cost. AHFC's
current lease expense for the year exceeds $1 million. That cost
would be eliminated, and the difference between that amount and the
reduction in the fiscal note would be the maintenance and operation
costs of the building. Two funding sources would be used: AHFC is
asking for a reduction in its federal and corporate receipts. AHFC
uses both of those sources to fund its current lease payments.
Because HUD's public housing functions are managed by AHFC, AHFC
can charge a portion of its lease costs to the federal dollars it
receives from HUD.
Number 180
CHAIRMAN WARD asked who is responsible for the minor and major
repairs and maintenance according to the current lease. MR.
BITTNEY replied AHFC has occupied the building for two years, and
has a ten year lease with two five year renewal options. He
deferred to Mike Buller for the details of the lease.
MIKE BULLER, Chief Administrative Officer of AHFC, answered the
repairs and maintenance are the responsibility of the building
owner.
CHAIRMAN WARD questioned how much has been spent on repairs and
maintenance of the building.
DAN REYNOLDS, Schwamm and Frampton, stated he has managed the
building for the past seven or eight years. He was unable to
provide the amount spent on repairs and maintenance over the past
24 month period, but stated no major expenses were incurred during
that time period. His budget for general day-to-day budget is
$1500 per month, and he typically spends that amount.
CHAIRMAN WARD asked if that $1500 per month expense should be
considered in the operating cost. MR. REYNOLDS said that is
correct.
CHAIRMAN WARD asked when the last roof repair took place. MR.
REYNOLDS answered in the summer of 1997, some roof repairs were
done. Those repairs included the resurfacing, replacing, and
resealing the perimeter flashing. Regarding major expenses, he
noted that an underground fuel tank for the back-up generator was
removed 18 months ago at a cost of about $20,000.
Number 228
CHAIRMAN WARD questioned how long the current owners have owned the
property, and how far back the maintenance history records are
available. MR. REYNOLDS explained the current owners funded the
Teamsters Local 959, who built the building in the mid 1980's. As
the result of a bankruptcy, the building reverted to the current
owners in 1989. MR. REYNOLDS added he has managed the building
since 1991 and could provide the maintenance record from that time.
CHAIRMAN WARD asked who the owners are. MR. REYNOLDS stated it is
a union trust named the Union Labor Life Insurance Company
(ULLICO), based in Washington, D.C., and that the building was
referred to as the "Teamster Building" for many years and is also
known as the "Jesse Carr Building."
CHAIRMAN WARD asked what the debt ratio would be and whether the
savings would include the $1500 per month in maintenance costs.
MIKE BULLER explained AHFC planned to issue debt for the purchase
of the building. AHFC projected a cost of $27,000 per year for
major repairs and maintenance through the remaining 18 years of the
lease, for the purpose of comparison to the lease purchase option.
The total sum budgeted for major repairs and maintenance is about
$600,000. MR. BULLER referred to two spreadsheets provided by Mr.
Bittney, and noted the total cost of leasing the building for the
next 18 years would amount to $19 million. Under the "buy"
scenario, the cost to purchase the building over the next 18 years
would amount to $10,076,000. That number includes all maintenance,
repairs, and operating expenses. The net savings to AHFC would be
approximately $9,887,000.
Number 298
CHAIRMAN WARD asked how the projected maintenance costs were
calculated. MR. BULLER indicated those numbers came from a
complete appraisal of the property done by Kincaid and Riely for
the current owner. The $27,000 maintenance cost per year was
adjusted for three percent inflation for each year thereafter.
CHAIRMAN WARD asked Mr. Buller to supply a copy of the appraisal to
the committee.
CHAIRMAN WARD questioned how much AHFC would borrow to purchase the
building. MR. BULLER replied AHFC would initially purchase the
building with cash but would bond for 100 percent of the purchase
amount at a future date and reimburse itself. The cost of bonding
has been included in the spreadsheets.
Number 332
CHAIRMAN WARD asked for clarification of the building's ownership
history. MR. BULLER stated ULLICO originally financed the
construction of the building by the Teamsters in the mid 1980's.
When the Teamsters filed for bankruptcy in the late 1980's,
ownership reverted to ULLICO which has owned it since. The
Teamsters vacated the building two years ago, and through an RFP
process, AHFC moved in. AHFC did not have the option of purchasing
the building at that time.
CHAIRMAN WARD questioned whether any problems remain with the
underground storage tank. MR. REYNOLDS said that DEC signed off on
that project, and the documentation has been supplied to AHFC.
SENATOR WILKEN asked who initiated the contact about purchasing the
building. MR. BULLER said the owners decided to sell the building
and contacted AHFC to give it the first shot.
Number 350
SENATOR WILKEN asked why the purchase price is $150,000 more than
the appraisal price. MR. BULLER replied the initial appraisal was
completed March 1, 1998; a revised appraisal was completed in
October, 1998, and simply through inflation, the price increased.
The current purchase price is the appraisal price of $6.65 million.
AHFC hired the Appraisal Company of Alaska which confirmed that
appraisal amount.
SENATOR WILKEN questioned whether the committee was provided with
a copy of the confirmation of the appraisal. MR. BULLER said it
was.
MR. REYNOLDS added a full MAI appraisal was done, in which several
approaches are reviewed, such as an income approach. By comparing
the analyses, a value is determined.
CHAIRMAN WARD asked about the life expectancy of the roof. MR.
REYNOLDS replied the life expectancy of the building is considered
to be 35 to 42 years. He was unaware of the life expectancy of the
roof, but offered to provide Chairman Ward with that information at
a later date.
Number 390
CHAIRMAN WILKEN asked if the first appraisal was completed in March
of 1998, an update was completed in October of 1998, and a review
and confirmation was completed on December 18, 1998. MR. BULLER
said that was correct.
SENATOR ELTON questioned whether the prospective BP-ARCO merger
will affect the appraisal price of commercial real estate in
Anchorage in the near future.
MR. REYNOLDS said the potential merger would not occur for nine
months to one year. If new office space comes on to the market at
that time, it will not be located in the same vicinity as AHFC's
location, therefore it is AHFC's opinion that it will not affect
values in a negative way. Anchorage currently has an occupancy
rate of 93 to 95 percent for commercial office space.
MR. BULLER offered to ask the Appraisal Company of Alaska to
provide an opinion on that question. CHAIRMAN WARD asked Mr.
Buller to do so, and to forward the information to committee
members, especially Senators Wilken, Green, and Phillips, who are
members of the Senate Finance Committee. MR. BULLER stated he
would also provide the maintenance costs.
Number 432
SENATOR PHILLIPS asked if a building inspection will be done before
the purchase negotiations begin. MR. BULLER indicated a complete
inspection has been done, and that he would forward a copy of it to
committee members as well.
MR. REYNOLDS informed committee members the due diligence that was
performed by AHFC included review by a structural, electrical and
mechanical engineer, and an architect. He assumed reviewed the
building for compliance with their respective building codes.
CHAIRMAN WARD questioned whether a commercial code must be approved
before the purchase transaction is completed. MR. REYNOLDS said
not that he was aware of.
SENATOR ELTON moved CSHB 189(FIN) and attached fiscal notes to the
next committee of referral. There being no objection, the motion
carried.
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