Judge finds Anchorage LIO lease invalid

The Legislature’s $3.3 million per year lease for the Anchorage Legislative Information Office building was thrown out in a Thursday state Superior Court ruling.

Judge Patrick McKay ordered the lease be ruled invalid because he determined it to not be an extension of a prior lease with the Legislature’s landlord, 716 West Fourth Avenue LLC, a group managed by Anchorage real estate developer Mark Pfeffer.

McKay’s ruling means then-Legislative Council chair Rep. Mike Hawker, R-Anchorage, violated state procurement guidelines in 2013 when he did not seek a new lease through a competitive bid process, thus invalidating the lease.

716 West Fourth Avenue is the Downtown Anchorage address of the LIO building. The Legislature moved into the building after it was completed in late 2014.

Anchorage attorney and owner of the adjacent Alaska Building Jim Gottstein filed suit against 716, the project development group and the Legislative Affairs Agency March 31, 2015, contending the lease was not an extension of a former agreement because it was for renting a new building.

The Legislative Affairs Agency handles business matters for the Legislature.

Gottstein also argued the lease further violated state statute because the $281,000 per month rent for the 64,000 square-foot building with underground parking exceeds a requirement for state rents agreed to through a lease extension to be at least 10 percent below market rate.

The rental rate did not need examining, according to McKay’s order, because the lease was improperly secured.

The Legislature has paid rent for the building through May 31.

Attorneys for Legislative Affairs and 716 stressed to McKay in oral arguments Tuesday that the Legislative Council repeatedly sought proposals from other parties for suitable Anchorage office space through public requests for information starting in 2007. When no solution was found, Hawker was given authority to act as the contracting officer for the project and he agreed to rebuild on the existing LIO lot at the time.

The defendents also claimed that because the steel support structure and foundation of the former, smaller LIO building remained intact during construction, the 10-year lease was an extension of the previous rental agreement and not one for a new building.

McKay noted in his frankly worded order that the Legislature fronted $7.5 million of tenant improvement costs during project construction, a requirement he believes further pushes the lease beyond the realm of an extension.

“Plain common sense — a principle which jurisprudence should not require to be checked at the courtroom door — mandates a finding that a contract to lease over 2.5 times more newly constructed space for just under five times the current rent with an introductory payment of $7.5 million for leasehold improvements is not a simple lease extension,” McKay wrote. “A court finding that this leasing scheme could be sole-sourced would eviscerate the competitive principles of the state procurement code.”

716 spokeswoman Amy Slinker wrote in an email to the Journal that the building owner group is reviewing the court decision and analyzing its next steps forward.

What the ruling means for the Legislature’s future in the building that was custom-made for it remains to be seen.

The Legislative Council, now chaired by Kodiak Republican Sen. Gary Stevens has gotten heavy pressure from the public and many legislators to cut ties with the LIO because of the high lease rate. The council has been reviewing the cost feasibility of purchasing the building or of a potential move to the nearby Atwood Building, which houses state executive branch agencies at its meetings in recent months.

A March 14 analysis from San Francisco-based Navigant Consulting found the 20-year, inflation-adjusted cost of purchasing the LIO for $37 million to be nearly on par, on a cost per square-foot basis, with moving to the Atwood.


Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected].

03/24/2016 - 5:55pm