Anchorage LIO owners submit proposal to Legislative Council

A proposal to resolve the political hot potato that has become the Anchorage Legislative Information Office lease has been submitted to Legislative Council chair Sen. Gary Stevens.

The building’s owner group, 716 West Fourth Ave LLC, released a statement Feb. 2 saying it would not release the details of the proposal out of respect for the Legislative Council process, but noted that the group had met the timeline laid out by the council in mid-December and also likely resolved a lawsuit over the terms of the lease.

“Our discussions with Sen. Stevens over the past 45 days have pushed us to dig deep for short-term interim savings,” 716 spokeswoman Amy Slinker wrote in an email. “That then set the stage for a long-term solution to save millions of dollars and help avoid any negative financial implications for the state. In addition, the conversations with Sen. Stevens appear likely to result in dismissal of the lawsuit by Alaska Building Inc.”

The leaseholder company name is the Downtown Anchorage address of the LIO.

The current 10-year lease has the Legislature making rent payments totaling $3.3 million per year for the built-to-suit, six-story office building with underground parking and 45,000 square feet of usable space. It is paid through May 31, 2016.

Anchorage Democrats, the public and legislators from elsewhere in the state have disparaged the LIO lease terms as far too expensive at a time when the state is facing annual budget deficits approaching $4 billion.

Anchorage attorney Jim Gottstein, owner of the adjacent Alaska Building, filed suit against 716 West Fourth Avenue and the Legislative Affairs Agency, which manages business for the council, last March alleging the LIO lease is illegal because it is neither an extension of an existing lease, nor 10 percent below market value, as statute requires for a long-term lease extension.

On Dec. 19, the Legislative Council — at a meeting in the Anchorage LIO —unanimously recommended the full Legislature vote not to fund the lease unless a solution that is cost-competitive with moving to the Atwood Building could be resolved within 45 days, or by Feb. 5.

Multiple news outlets were denied a copy of the proposal when requests were made to Stevens’ office.

A move to the nearby state-owned Atwood Building, home primarily to executive branch agencies, would first require a $3.5 million remodel and then $664,000 per year to operate the 30,000 square-foot space, according to a cost analysis presented at the Dec. 19 council meeting.

Purchasing the LIO in some fashion — 716 West Fourth Avenue managing member and project developer Mark Pfeffer has said the group would sell for $37 million plus closing costs — would require the initial payment and covering of operations costs estimated at $525,000 per year for its 45,000 square feet of space.

However, the state would immediately begin building equity in the property, Pfeffer has noted.

The building houses off-season offices for 25 Anchorage legislators and is the de-facto home to much of the general Legislature’s out-of-session activity.

The Legislative Council, then led by Rep. Mike Hawker, R-Anchorage, who has announced he will not seek reelection this year, decided to rebuild on the old LIO building site in 2013 after numerous attempts to find existing suitable space that meets the unique needs of a public government body in Anchorage failed.

The Legislature contributed $7.5 million towards the construction cost, so Pfeffer and his company ultimately funded $37 million, about $28 million of which is long-term debt and $9 million is Pfeffer’s cash equity position in the property, he has said.

Appraisals of the six-story building plus its underground parking facility have been as high as $48.5 million by the Alaska Housing Finance Corp., while numerous estimates by lenders involved in the construction and long-term loans appraised its value at $44 million. The customized office space cost $44.5 million to build in 2014, according to Pfeffer.

His group first drafted and submitted terms for the state to purchase the building for $37 million plus fees this past Oct. 9; a proposal requested by the Legislative Affairs Agency.

The original terms agreed to by Legislative Affairs attorneys in an Oct. 22 letter to Pfeffer set a Jan. 31 deadline to act on the sale terms, according to correspondence between attorneys for both sides.

The Legislature could terminate the lease seemingly without legal ramification because of a clause in nearly all government contracts stating fulfillment of the agreement is “subject to appropriation,” in this case, by the Legislature.

If the Legislature doesn’t fund it, for any reason, the lease or contract falls apart.

Pfeffer has indicated an intention to sue if the Legislature walks away from its obligation.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
02/03/2016 - 2:49pm

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