Legislature(1997 - 1998)
04/28/1997 08:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 178 ANCHORAGE OFFICE BUILDING
Testimony was heard via teleconference from DON
DWIGGINS, RICHARD THALER, MELBA PINNOW, SHANE OSOWSKI,
BOB PARKS, JIM SNYDER and BARRY JACKSON. DUGAN PETTY
testified from Juneau. SB 178 was HELD for further
consideration.
SB 178 ANCHORAGE OFFICE BUILDING
The following testimony was heard via teleconference.
Anchorage:
DON DWIGGINS, Architect, testified that he had been doing
all the tenant improvements for the Bank of America building
since 1991 and the Frontier building since 1988. He stated
that it was important not to miss hidden costs in the
purchase of the building. As a taxpayer, he was offended by
the concept of the state owning the most prestigious office
building in the state. He believed it would increase
property taxes downtown when the building was taken off the
city tax rolls.
The presence of Senator Donley was noted.
MR. DWIGGINS discussed extra costs, such of paying rent on
the remaining DNR lease on the Frontier building, the buy
out of leases of current tenants, displacement and
improvement costs, new phone systems and moving costs. He
also brought up issues regarding parking. He summarized
that it was an economic decision and that not all the
numbers have been considered or evaluated.
SENATOR PHILLIPS inquired about the Kincaid Riley report.
DUGAN PETTY, Director, Division of General Services,
Department of Administration, explained that the report from
the independent real estate consultant looked at assumptions
and projections to analyze costs. He addressed in detail
the issues brought up by Mr. Dwiggins, noting that the
report addressed many of them as well. Many of the costs
were estimated to be lower than Mr. Dwiggins estimates.
The presence of Senator Parnell was noted.
MR. DUGAN handed out a pie chart showing vacancy
comparisons. He continued his explanation of issues
addressed by Mr. Dwiggins. He summarized that this was the
most cost-effective way to house state offices in the
future. He believed the analysis was defensible in that it
was not overloaded or low-balled in either direction. He
pointed out that the discussions of lease/purchase of the
Frontier building didn't come close the purchase price
associated with the Bank of America building. He asked
Richard Thaler to respond to issues concerning moving
expenses.
Seattle:
RICHARD THALER, Attorney, testified that he represented the
state in this transaction. He reviewed the issue of lease
buy outs and relocation of tenants, noting that the state
would honor all existing leases. The intent was to operate
the building in the same manner as the present. He was
confident of the numbers in the report, adding that he had
looked at them very carefully.
Anchorage:
MELBA PINNOW, Manager, American Building Maintenance,
informed the committee that they held the janitorial
contract for both the Frontier and Bank of America buildings
since they opened. She expressed concerns about losing the
contract because the state would put the contract out to bid
and award to the lowest bidder. She knew what the building
required to keep it looking the way it does and thought that
another company that did not would come out as the low
bidder. She would have to cut back staff and it would
create economic impact. She agreed with Mr. Dwiggins about
increased property taxes because of the sale of the building
to the state. She also believed other vendors in both
buildings would be impacted.
MR. PETTY explained that the approach would be to manage the
property with a third party manager and the building ought
to be managed in much the same way as it currently is. The
projections of costs for janitorial would be the same and
they would look to the property manager to insure the
standards remained at the same level. The state would not
be contracting out for janitorial services, rather it would
be a responsibility of the property manager. Regarding the
property taxes, the private lease hold interests would still
be subject to property tax.
SHANE OSOWSKI, Attorney, testified that he was with a law
firm currently located in the building. As a tenant, he
stated concerns with relocation, the lower quality of
improvements, the image of the building and disruption of
businesses. He also spoke of problems with parking and
summarized that he opposed the bill.
MR. PETTY addressed the parking issue, noting there would be
646 spaces acquired with the building and an additional 86
spaces to be purchased were factored into the analysis. He
believed there would be sufficient space. He pointed out a
figure of $15 per square foot for tenant improvements,
noting that it was reasonable for state offices, but would
not provide for the same quality as what exists.
BOB PARKS, President, TRF Pacific, stated they were the
general partner that owns the Frontier building. He
formerly managed the Bank of America building. He had
comments on the executive summary by the Department of
Administration.
End SFC-97 #130, Side 1, Begin Side 2
MR. PARKS indicated he would also present a proposal for
lease-purchase of the Frontier building. He addressed the
parking issue first by comparing the two buildings available
parking spaces. He concluded that 283 additional spaces
would be needed at the Bank of America building to be
equivalent with the Frontier building. He next discussed
tenant improvement costs, suggesting that they should be
around $40 per square foot instead of $15. Regarding
occupancy costs, he believed purchase of the building would
further reduce the market rate for office space in Anchorage
which was already seriously depressed in terms of
replacement costs. He stated a buy-out was inefficient for
tax-exempt financing and suggested there was a wide
divergence between the state analysis and private sector
estimates of costs.
MR. PARKS informed the committee that in a proposal for a
purchase option for the Frontier building they would provide
a comparison. The proposal was currently at the lender for
review and he hoped to have an agreement for presentation by
Wednesday.
JIM SNYDER, President, Kennedy Associates, Seattle, stated
they had been involved as advisor. He was biased toward
striking a deal with the Frontier building because he
represented the entity that provided financing for it. He
was optimistic that they would be able to provide a proposal
soon and thought it would be a workable situation.
COCHAIR SHARP pointed out that the delay to Wednesday would
only leave thirteen days remaining in the session, and a
decision would be forthcoming by the legislature. He
encouraged getting the information to the committee as soon
as possible.
SENATOR PHILLIPS stated that the DOA had testified that they
approached the Frontier owners about purchasing the building
and the meeting only lasted three minutes, indicating lack
of interest. He asked if Mr. Parks cared to comment.
MR. PARKS believed they were dealing more with a political
issue and the meeting was very short. The parties agreed to
go through the appraisal process which they did. They
discussed how they might make it work but the DOA was afraid
to take it forward because of the appraisal. He was pleased
with the opportunity to come forward now with a competitive
offer. He believed the state belonged in the Frontier
building. There was further discussion about the
negotiations between MR. PARKS and SENATOR PHILLIPS.
COCHAIR SHARP asked if there were additional questions.
SENATOR ADAMS asked if he wanted a motion to move the bill.
COCHAIR SHARP indicated he wanted to hold the bill for new
data to show up for comparison. He indicated a deadline of
9:00 A.M. Wednesday to Mr. Parks for additional information.
MR. PETTY commented that they were pursuing a purchase
agreement in good faith and that there was no intent to use
the transaction to better their position or negotiate a
better deal concerning the Frontier building. His purpose
was to pursue the negotiated transaction concerning the Bank
of America building and close within sixty days of approval
by the legislature by way of the effective date of the bill.
SENATOR PARNELL asked about delaying action on the bill.
MR. PETTY responded that it would be unrealistic to ask the
seller to hold the offer in limbo for an additional session.
MR. THALER informed the committee that if the session
adjourned without approving the measure, the offer would
terminate automatically. SENATOR PARNELL further discussed
what other options may be available, such as the ARCO
building.
BARRY JACKSON, Contracting Manager, Division of General
Services; Department of Administration, testified that he
had met with John Schwam (ph.) of Schwam and Frampton
regarding the ARCO facility and it was his impression that
ARCO was not interested in selling as they did not receive a
response. They did respond concerning leasing. No other
proposals had been solicited and he didn't believe there
were additional markets available that compared with the
current proposal.
COCHAIR SHARP indicated that SB 178 was HELD for further
consideration.
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