Legislature(1997 - 1998)
04/18/1997 02:04 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 236
"An Act giving notice of and approving a lease-purchase
agreement by the Department of Administration for an office
building in Anchorage; relating to the financing of the
lease-purchase agreement; and providing for an effective
date."
DUGAN PETTY, DIRECTOR, DIVISION OF GENERAL SERVICES, DEPARTMENT OF
ADMINISTRATION testified in support of HB 236. He observed that
the State has entered into a purchase agreement with the Equitable
Life Insurance Association for the purchase of the Bank of America
Building in Anchorage. The agreement is subject to legislative
approval. He asserted that the purchase will save the State money.
The Department of Administration's cost benefit review demonstrates
that the purchase will save the State $44 million dollars, net
present value, over 25 years. The purchase would lock-in a rental
rate of $1.12 to $1.51 dollars throughout the 25 year period.
After 25 years, the State would only pay operating and maintenance
costs. He observed that the Department has been under pressure to
bring down rental costs. In FY 94, the Department was successful
in negotiating more than $19 million dollars in savings from 39
leases, including leases at the Frontier Building. He noted that
the main lease at the Frontier Building was reduced from $3.28
dollars a square foot to $2.15 dollars a square foot. This lease
was extended to the year 2000. He emphasized that the leasing
budget is still under downward pressure. He pointed out that the
Frontier Building lease is one of the biggest and most costly. It
occupies 135,000 square feet. The Department of Natural Resources
occupies 100,000 square feet in the Frontier Building. The current
lease cost in the Frontier Building is $2.169 dollars per square
foot. The State has approximately 40 lease agreements representing
770,000 square feet of office space in Anchorage. The average per
square foot cost for commercial property in Anchorage is $1.56
dollars. Without the Frontier Building the average lease would be
$1.38 per square foot.
Mr. Petty noted that negotiations for the purchase of the Frontier
Building failed. In December 1995, the Division sent a letter to
all the lessors requesting suggestions to reduce the State's
operating costs. As a result of this letter, Mr. Glenn Scott
contacted the State with a proposal for the State to buy the Bank
of America Building in Anchorage.
RICHARD THALER, ATTORNEY, WILLIAMS, KASTNER AND GIBBS, ANCHORAGE
observed that he represented the State in respect to the Frontier
Building and the Bank of America negotiations. He gave a brief
history of his work experience in commercial real estate law. He
reviewed the Frontier Building purchase negotiations. The State
offered to buy the building for $46 million dollars, subject to
appraisal. The offer was rejected and negotiations were terminated
by the Frontier Building representatives. The appraisal was
completed at $31 million dollars.
Mr. Thaler discussed the Bank of America Building purchase
negotiations. Negotiations began in September, 1996. The parties
reached agreement on a purchase price of $25.950 million dollars.
The purchase includes the building, underground parking garage and
more than two blocks of downtown land that has been improved as
paved and stripped surface parking lots. He asserted that the
purchase price is good. The purchase costs $103.06 hundred dollars
per square foot for the building. The two blocks of downtown land
were not included in the value. He emphasized that the building is
functionally new. After the financing is paid off the State can
look forward to a long period of occupancy for the cost of
operating the building.
Mr. Petty provided members with spreadsheets demonstrating cost
assumptions and savings to the State (copy on file). He noted that
Mr. Kincaid was hired to provide an independent assessment.
KEN KINCAID, KINCAID AND RIELY REAL ESTATE APPRAISERS & CONSULTANTS
spoke in support of HB 236. He noted his work history in the
Anchorage real estate market. Mr. Kincaid provided members with a
summary of observations regarding the purchase of the Bank of
America Building (copy on file). He concluded that the property is
high quality and has been well maintained. He estimated that the
building has a 40 to 50 year minimum remaining life. He stressed
that it is well positioned in downtown Anchorage with lots of
parking lots in the vicinity.
Mr. Kincaid reviewed the State's assumptions. He referred to a
graph on page 7 of the report. The graph depicts the cost of
continued leasing of the Frontier Building, deconsolidation from
the Frontier Building and the purchase of the Bank of America
Building. He pointed out that the Bank of America Building is the
cheapest alternative. The most expensive option is the continued
leasing of the Frontier Building. The second most expensive option
is the deconsolidation of rents from the Frontier Building.
Deconsolidation would be more expensive initially. The initial
purchase cost would be $1 dollar a square foot. The purchase cost
would spike to $1.98 dollars a square foot and then quickly drop to
$1.12 dollars a square foot. He pointed out that there would be a
positive cash flow from private sector tenants in the building. As
these tenants are asked to leave or their leases expire the lease
cost would climb. As the debt amortization begins the lease cost
would drop.
Mr. Kincaid pointed out that models are predicated on current rents
with a 1.4 percent annual increase. This assumes that what owners
receive today, they would receive 25 years from now with a slight
increase for expenses. He emphasized that, at today's rent,
buildings do not justify their replacement. If there is any up-
tick in the market over the next 25 years rents would increase
above the model. He stressed that it would not be unreasonable to
see rent increases of 10 to 20 percent sometime in the next 25
years.
Mr. Kincaid summarized that most of the State's assumptions were
conservative. He noted that estimations of expenses were high. He
acknowledged that there could be some unanticipated increases in
costs. He added $10 dollars a square foot to look at what the
result would be of additional unanticipated costs. He concluded
that the assumptions in the purchase scenario are not as subject to
change as the leasing assumptions. He stressed that increases in
the market are less dramatic in a buy scenario than a lease
scenario. He observed that this is a good time to purchase. He
stressed that the purchase price is favorable with compared to
replacement price and other sales. He noted that space in the Arco
Building is becoming vacant. He stated that the Arco Building is
undergoing asbestos abatement and seismic upgrades. There will be
between 110,000 to 150,000 thousand square feet of space available
within the next 12 to 14 months. The First National Bank is also
vacating their tower in downtown Anchorage in the same time span.
He noted that the market impact of the purchase would be mitigated
by the additional space. He noted that there would be greater
impact if the State does not purchase the building.
Mr. Kincaid concluded that a purchase scenario is superior to a
leasing scenario for the long-term reduction of operating costs.
He observed that it is easier to project ownership costs. He
maintained that there is less risk.
Mr. Kincaid recounted comments by persons regarding the purchases.
He observed that comments were favorable and indicated that the
purchase would be a good deal.
Mr. Kincaid summarized that the State's assumptions were reasonable
and fairly conservative. He concluded that the purchase would
secure the long-term operating cost, secure a property that has a
long economic life, and provide the State with an area that can
provide choices for large tenants.
Mr. Petty reiterated that the purchase will save money for the
State.
Representative Mulder noted that the Bank of America Building is in
a newly created special assessment district. Mr. Kincaid thought
that the program is voluntary with an initial three year
commitment. He noted that the building is committed for a three
year period. The appraisal included these costs.
Representative Rokeberg noted that the appraisal valued the
downtown land at $22 dollars a square foot. Mr. Kincaid stated
that a land value of $22 dollars did not appear to be high.
Representative Rokeberg observed that the model includes full
relief from taxation to the municipality of Anchorage.
Representative Martin observed that the lease rate includes the
cost of taxes. In response to a question by Representative Martin,
Mr. Kincaid stated that it is his understanding that it is not
necessary to buy out people who are not interested in leaving the
building.
Mr. Dugan noted that leases could be bought out over time. He
demonstrated that leases could go to term. He noted that the State
occupies 55,000 thousand square feet. There is 40,000 - 50,000
thousand square feet vacant. Another 13,000 thousand square feet
would be available by the time the Department of Natural Resources
was ready to occupy.
Representative Rokeberg provided members with Amendment 1 (copy on
file). Amendment 1 clarifies that the State would be responsible
for the payment of the municipal real property taxes on the portion
occupied by private sector tenants.
Mr. Dugan provided members with a spreadsheet calculating private
tenant property tax (copy on file). He stated that it is not clear
that the exemption for municipal tax would be completely applicable
to the building. Under the amendment, the State would be subject
to paying on the lease hold interest held by private tenants. He
did not think that the entire building would be subject to the tax.
Representative Rokeberg referred to the certificates of
participation and how the title rests in relation to municipal
taxes.
Co-Chair Hanley noted that the State might not obtain the lower
interest rates if occupancy by public tenants is not sufficient.
Mr. Dugan maintained that the purchase makes sense under any tax
scenario. He added that it is possible to condominiumize the
building. He noted that a model was based on initial taxable
financing with a non-taxable financing after 90 percent occupancy
is achieved by the State.
Co-Chair Hanley noted that the Department of Administration shows
an approximate $3 million dollar savings in FY 98 over current
leasing costs. He discussed the Department's spreadsheet. He
noted that projects demonstrate a total cost of $90 million dollars
and projected savings of $91 million dollars, with a net present
value of $44 million dollars.
RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT DIVISION
discussed the proposed purchase of the Bank of America Building.
He summarized concerns regarding the purchase. He noted that
revisions in assumptions by the Department of Administration have
changed the estimation of savings from $8 - $10 million dollars to
$44 million dollars. He stated that the Division estimates that
the net present value savings would be $6 million dollars over the
life of the financing. The life of the financing is 19 years. The
Department of Administration assumptions are over 25 years. He
stated that the Department of Administration was overly optimistic
in the best case view. He maintained that the cost is likely
understated.
(Tape Change, HFC 97-106, Side 2)
Mr. Welker estimated that the process of moving tenants out and
moving state agencies in will be more drawn out than estimated by
the Department.
Mr. Welker reiterated that short-term savings would be between $6
to $10 million dollars. He stated that some of the initial moving
costs will be higher than estimated by the Department. He
expressed concern that other financing options were not reviewed.
He noted that once debt service is paid off, the only costs will be
maintenance and operation of the building. He added that with some
capital maintenance, operation and maintenance costs would only be
half of the projected lease costs. He emphasized that there are
significant savings in the future years. He noted that the
Department of Administration included equity build up in their
savings number. He noted that the building has a replacement value
of over $50 million dollars. The building would be a state asset
but would not have direct budgetary impact. He observed that the
purchase would provide stability and permanent centralized
services. He acknowledged that the municipal tax issue can be a
negative factor. He observed that the quality of the space could
be a factor in current tenants' decision to extend leases in the
building. He added that the State could be in a landlord role for
sometime in the future.
Mr. Welker discussed calculations by the Division of Legislative
Audit that differ from those by the Department of Administration.
He noted that $20 million dollars was back out by the Division of
Legislative Audit to account for the difference in calculations to
19 instead of 25 years. He observed that the there is a $20
million dollar difference for these six years because the purchase
would be beyond debt services. The Division of Legislative Audit
included a capital renewal cost of $7,343.3 million dollars for
items that would not be covered by normal maintenance and
operations. The Department of Administration included parking
revenue of $6,527.9 million dollars. The Department of
Administration's estimation for operation and maintenance costs
were $5,395.9 million dollars higher than the Division of
Legislative Audit's. The Division of Legislative Audit showed a
higher tenant income of $433.6 thousand dollars. In addition the
Department of Administration's estimations for expiring lease costs
were $1,348.3 million dollars lower. The Department of
Administration's estimated purchase cost is $90,872 million
dollars. The Division of Legislative Audit's total purchase cost
is estimated at $118,614.9 million dollars.
In response to a question by Representative Davies, Mr. Welker
noted that the Department of Administration's calculations were
revised to include $38 million dollars for equity buildup. He
reiterated that the longer the projection the greater the savings.
JOHN REISING, PARTNER, FRONTIER BUILDING testified against HB 236.
He stated that the Legislative's Auditor's net present value
estimation is appropriate. He maintained that Mr. Kincaid's graph
did not reflect the actual net present value. He urged that the
appropriate measuring stick be used for legislative decisions. He
maintained that uncertainty of risks and probable costs make the
purchase unreasonable. He asserted that the Department of
Administration's calculations do not include costs of moving the
tenants.
Mr. Reising observed that current tenants have not been contacted
by the Department of Administration. He stated that the
Department's calculations do not include the exercise of existing
lease options. He maintained that several tenants have delivered
notices that they will exercise their options. He noted that these
options will affect the availability of space. He maintained that
there is a possibility that space will not be available in the Bank
of America Building at the time when leases expire in the Frontier
Building.
Mr. Reising referred to municipal taxation. He maintained that
municipal tax payments are not taken into consideration of the
benefits of ownership. He noted that real estate tax payments
would be dropped by the amendment proposed by Representative
Rokeberg.
Mr. Reising referred to the Business Improvement District
agreement. He did not think that these expensive had been included
in the prior operating history. He stressed that the Committee
needs to address the municipal tax issue and incorporate the
decision in their model.
Mr. Reising discussed the difference between taxable and tax exempt
financing. He questioned the spread between the taxable rate and
the non-taxable rate. He noted that he was quoted a spread of one
and one-half percent for Seattle Northwest Securities, a municipal
bond dealer. He observed that the Department of Administration
includes $211,740 thousand dollars for the cost difference between
taxable and tax exempt financing. He disputed the accuracy of this
figure. He pointed out that there is an assumption that the
conversion will happen within two years.
Mr. Reising noted that parking is limited at the Bank of America
Building compared to what is available at the Frontier Building.
He noted that the State currently has 300 employees in the Bank of
America Building. There are 665 employees in the Frontier
Building. He asserted that there will be 85 additional employees
from other agencies in the Bank of America Building if the purchase
occurs. He concluded that there will be an employee count of
1,050. He maintained that there would be a 377 parking space
shortage for these employees at the Bank of America Building,
without an allowance for visitor parking. He alleged that it costs
between $45 and $65 dollars a month for additional parking. He
maintained that parking costs would increase the estimate by $200
thousand dollars a year. He observed that tenant parking would
reduce availability. He suggested that the State has a contractual
obligation to provide free parking to employees. He stressed that
if 100 visitor parking spaces were supplied there would be an
additional $57 thousand dollar expense.
Mr. Reising discussed tenant buy-out costs. He observed that the
Department of Administration has $4 million dollars or $20 dollars
a square foot for tenant buy-outs. He maintained that some tenant
improvement costs run as high as $125 dollars a square foot. He
questioned if tenants would accept a $20 dollar a square foot buy-
out. He noted that the tenant improvement costs average $42.45
dollars in the Frontier Building. He estimated tenant buy-outs
would cost $35 - $55 dollars a square foot. He asserted that
tenants have a strong preference for staying in the building as
long as they can. He estimated buy-out costs at $14.2 million
dollars.
Mr. Reising asserted that some costs were understated. He did not
think that the State would reach 90 percent occupancy before the
bonds expire. He maintained that the tenant improvement costs are
underestimated. He asserted that Mr. Kincaid did not do field work
to validate cost estimates. He asked what were the tenant
improvement costs for occupancy of the Department of Revenue in the
Bank of America Building. He suggested that the it cost the
Department of Revenue $40 dollars a square foot in tenant
improvement costs. He maintained that wiring costs $9.11 dollars
a square foot. He noted that the Department of Administration's
estimation for wiring is $1.82 a square foot. He observed that the
Department of Administration's estimates moving costs at $.88 cents
a square foot. He estimated that moving costs would be $3 dollars
a square foot.
Mr. Reising maintained that the Department of Administration's
numbers have been inconsistent. He concluded that it is too
expensive to buy the Bank of America Building. He questioned who
will pay for cost overruns. He maintained that people are afraid
to testify before the House Finance Committee for fear of future
retribution by the State.
Representative Martin stated that there is no reason for the
Committee or State to extract retribution. He noted that Mr.
Reising has a vested interest in the issue. He observed that lease
negotiations with Frontier Building were difficult. He asked if
Mr. Reising would work with the Division of Legislative Audit to
determine what the cost to the State would be to stay in the
Frontier Building.
Mr. Reising stated that he would welcome a long-term lease. He
noted that the State has not considered a long-term lease. He
stressed that money can be saved by a long-term lease.
Representative Rokeberg stated that he has been involved in the
project. He noted that he was involved in the development of the
Bank of America Building. He is a licensed real estate broker. He
is not participating or intends to participate in the market. He
maintained that he has no conflict of interest and will not take
advantage of the purchase.
Representative Rokeberg observed that the building was built to be
part of a family trust. He emphasized that it was built to last.
He noted that the shell and core cost of constructing the building
were $50 million dollars. He stated that tenant improvements in
the building cost over $5 million dollars. He asserted that the
building has been well maintained. He emphasized that the building
is in the best area in terms of seismic stability. He stated that
the proposal is an extraordinary opportunity for the State to
acquire an asset at an inexpensive price.
Representative Rokeberg expressed concern that the move in costs
need to addressed buy-out costs with existing tenants. He
recommended that the Committee meet in executive session when
specifics regarding buy-outs are discussed. He provided members
with a letter from Terry Banister, Legislative Counsel, dated
4/18/97 (copy on file). He stressed that the State receives title.
He emphasized that the amendment reflects the existing state
statute. He stressed that the State has a responsibility to the
municipality of Anchorage to pay municipal taxes. He noted that
the Special Business Improvement District downtown would cost
around $40 thousand dollars a year. He urged that the State
participate in this activity. He observed that an addition could
be built on top of the underground parking lot and three city lots
adjacent to the structure. The foundation work and structural
engineering for an addition has already been done. He emphasized
that the State would receive two downtown blocks without cost. He
noted that the appraisal only includes a $22 dollar per square foot
evaluation.
(Tape Change, HFC 97-107, Side 1)
Representative Rokeberg maintained that lease rates will go up. He
noted that the building reached 92 percent of occupancy in its
first two years at a rental rate of $1.25 to $1.30 dollars per
square foot. He stressed that rents will increase in the nature of
the business cycle. He maintained that the Department of
Administration's lease cost calculations are conservative.
Representative Rokeberg noted that if taxes were exempt for the
whole building Anchorage taxpayers would pay an additional $4
dollars for every $100 hundred dollars of taxable property.
Representative Rokeberg disputed assertions by Mr. Reising that the
Department of Revenue tenant improvements cost $40 dollars a square
foot.
Co-Chair Therriault referred to parking costs. Mr. Reising stated
that the lease at the Frontier Building includes parking.
Co-Chair Therriault questioned if the Frontier Building's debt
structure would allow a long-term lease reduction. Mr. Reising
stressed that their lenders are in a more accommodating frame of
mind then they were two years ago. He reiterated that a 25 year
lease would be in the interest of both parties. He stated that the
existing lenders applied pressure in regards to short-term
negotiations. He stressed that a $26 million dollar building is
not cheap when it costs $45 or $50 million dollars. He maintained
that the State could buy the Frontier Building. He stated that
there were no negotiations on a long-term lease.
Representative Mulder expressed concern that the State will be in
a difficult position if it does not purchase the Bank of America
Building and the Frontier Building lease ends. Mr. Reising argued
that there would be no difference in lease negotiations.
In response to a question by Representative Mulder, Mr. Reising
stated that the buildings are comparable in quality and size. The
two buildings are within 5,000 feet. The Frontier Building has two
and one-half times more parking. He noted that the economic
performance of the buildings have been comparable.
Co-Chair Therriault pointed out that the Bank of America Building
has undergone an economic write-off. He noted that the State's
offer of $46 million dollars was not sufficient to make the
purchase work. He did not know how a rate structure could be
derived with the blessing of the lending institutions.
Representative James did not agree with the inclusion of the
building equity in the calculations of savings. She expressed
concern with the State's participation in the investment business.
She expressed concern with the reduction of municipal tax income.
She noted that she supports savings to the General Fund. She asked
if the owners of the Frontier Building were willing to come forward
with a proposal.
Mr. Reising stressed that deconsolidation and remaining in the
Frontier Building have an equal effect. He stated that he did not
have a commitment from his lenders to pledge a rental rate of $1.25
dollars per square foot. He stressed that a long-term rental
agreement would result in lower than current rates.
Co-Chair Therriault noted that the Bank of America Building was
built to a high standard. He observed that there has not been much
of a write down for maintenance. Mr. Reising stressed that the
Frontier Building was also well built.
BOB PARKS, OWNER, FRONTIER BUILDING stated that the Frontier
Building owners would be willing to make a offer that should be as
good or better as what is on the table.
Representative Davies maintained that the space in the Frontier
Building is not comparable. He noted that parking at the Frontier
Building assumes that an additional building could be built. Mr.
Reising observed that the Bank of America Building did not have a
municipal ordinance requirement for parking at the time their
permit was issued.
Co-Chair Hanley observed that Mr. Reising raised several questions.
He noted that the purchase would have long-term benefits which
would come substantially after the debt is paid off. He posed
questions that the Department of Administration or the Division of
Legislative Audit need to address. He noted that questions
regarding parking amounts, buy-out costs, tax exempt financing,
equity build-up, financing, moving costs, discount rate, build-
outs, wiring costs and leasing assumptions need to be addressed.
He asked for scenarios for flat funding of leasing. Co-Chair
Therriault emphasized that there needs to be some discussion with
the lenders on what is possible.
Mr. Thaler clarified that the existing purchase agreement ends the
last legislative day if the agreement is not approved. The
agreement was subject to legislative and due diligence approval.
The results of the due diligence contingency has been approved.
Representative Davies asked that the Administration and Division of
Legislative Audit work together on assumptions.
Mr. Petty responded to questions raised during the meeting. He
emphasized that the Department of Administration has considerable
experience in moving agencies around and in performing tenant
improvements. He stated that some of the assumptions on tenant
improvement numbers have been validated. He observed that tenant
improvement is calculated at $17.25 per square foot. He did not
expect that the entire floor would have to be built out. He
maintained that $16 - $17 dollars a square foot is ample to house
state employees. He did not think the State should be doing $40
dollar a square foot improvements. He noted that the Department of
Health & Social Services tenant improvements were performed for
under $20 dollars a square foot. Mr. Kincaid added that the
concept is for less perimeter build-outs.
Mr. Petty stressed that it would be inappropriate for the
Department of Administration to contact tenants about buy-outs. He
observed that there is an offer that has not been consummated. He
acknowledged that tenants have contacted the Department. He agreed
that tenants have exercised their options. He stressed that he
does not want to disadvantage the State by presenting information
regarding buy-outs.
Mr. Petty agreed that tax payments need to be taken into account.
He stated that the Department will take into consideration the
continuation scenario.
Mr. Petty observed that the Department would honor the Business
Improvement District. He stated that their operating cost scenario
is $200 thousand dollars higher than operating cost estimates by
the Legislative Audit Division. He noted that insurance costs are
expected to be much lower then their assumptions. He added that
the management fee is also high. He expected that the management
fee would be lower. He stressed that there would be sufficient
funding to pay the Business Improvement District cost.
FORREST BROWNE, DEPARTMENT OF REVENUE discussed the difference
between taxable and tax exempt financing. He observed that the
taxable assumption is 8.217 percent. He thought that the State
could do better. The tax exempt estimation is 5.38 percent. The
assumption includes a spread of 2.5 percent. He stressed that
there would be a cash flow if tenants do not move out to pay the
higher debt service. He pointed out that the State only has to
make a good faith projection that 92 percent state occupancy will
be reached before the end of the bond issuance. At that time, the
State would save two and one-half percent a year. He noted that
the calculations assume that there would be 100 percent financing.
He noted that savings would be much higher with a cash purchase.
In response to a question by Co-Chair Therriault, Mr. Browne noted
that if sufficient buy-outs were not realized that there could be
two financing. Two financing would show a savings between the
taxable and tax exempt rates.
Mr. Petty acknowledged that the parking in the Frontier Building is
covered and that there are more spaces available. He maintained
that substantial parking is available at the Bank of America
Building. He noted that the State has 159 spaces in the Bank of
America Building for the Department of Revenue. The State leases
467 spaces for the portion of the Frontier Building that would be
moved. He noted that there are 646 spaces available at the Bank of
America Building. He emphasized that employment contracts do not
guarantee free parking. The State is under no obligation to
provide a parking space for every employee. He stated that parking
is available.
Mr. Jackson discussed buy-outs. He stated that there are tenants
that are willing to leave. He observed that the Department of
Natural Resources needs approximately 97,000 square feet. He
observed that the State has $3.5 million dollars to purchase 87,000
square feet of buy-out at 40 dollars a square foot. He stressed
that the State has flexibility to move a portion of the Department
of Natural Resources into another space. He stated that he
expected a share of the buy-outs would come from other landlords in
the area who want to attract tenants.
(Tape Change, HFC 97-107, Side 2)
Mr. Petty noted that the no buy-out scenario is the most lucrative.
He stated that in a no buy-out scenario the State would continue to
lease office space in the Frontier Building. He stated that this
was factored into the continuation costs.
Mr. Thaler emphasized that it is impossible to predict buy-outs.
He pointed out that the first element in any buy-out is alternative
space. He stressed that there will be good alternative space in
Anchorage. He clarified that the asbestos in the Arco building is
being abated. He stressed that the Arco Building is located across
the parking lot from the Bank of America Building. Rental space
will be available in the Arco Building for $1.75 dollars a square
foot with a $15 dollar per square foot tenant improvement. He
added that the First National Bank space will also be vacated. He
estimated that tenant improvements are well below $125 dollars a
square foot. He estimated that 20,000 to 30,000 square feet would
need to be bought. He pointed out that if 87,000 feet were bought
and all the agencies in the Frontier Building were moved to the
Bank of America Building the State would be eligible for tax exempt
financing. He noted that some of the leases have expired and some
tenants are badly under-utilizing their space. He concluded that
if tenants do not leave, tax exempt financing could be taken out on
the portion occupied by state agencies through the condominium
mechanism. He acknowledged that the cost of a double bond issue
would be greater than a single bond issue.
Mr. Kincaid reiterated that there would be a variety of choices for
tenants.
Mr. Petty clarified that Arco Towers will be available for
occupancy in October. He estimated that the Department could move
into the Bank of America Building at $1 dollar a square foot.
In response to a question by Representative Martin, Mr. Petty
stated that the effective date would be satisfactory. Mr. Jackson
noted that the purchase agreement requires the State to close in 60
days after legislative approval.
HB 236 was held in Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 4:50 p.m.
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