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.