LIO saga continues with vote to buy Midtown office space
Would the Legislature make for a good landlord?
Most of the Legislative Council seems to think so.
The council voted 12-1 on May 2 in favor of purchasing a Midtown Anchorage office building owned and occupied by Wells Fargo bank for $12.5 million and turning it into the Anchorage Legislative Information Office. According to documents from the meeting, which was mostly held in executive session, Wells Fargo would lease-back space on the ground floor of the four-story office building after the sale.
The bank currently runs a branch out of the first floor and occupies space on the third and fourth floors of the 1500 West Benson Blvd. address.
Legislative Council Chair Sen. Gary Stevens, R-Kodiak, now has 60 days from the vote to negotiate a deal with Wells Fargo, per the council motion to approve the purchase.
Barely a month prior, the council voted 13-1 to purchase the current Downtown Anchorage LIO for $32.5 million, a vote that seemingly signaled an end to the self-inflicted political melodrama that has been fueled by public outcry over the terms of the rental agreement approved in 2013 by then-Legislative Council chair and now outgoing Anchorage Republican Rep. Mike Hawker.
Minority caucus members in both chambers of the Legislature have also jumped on the criticism bandwagon, contending the $3.3 million per year lease rate for the Downtown LIO is exorbitant at a time when the state is cutting services from nearly every agency to mitigate a $4 billion budget deficit.
Ample criticism has also stemmed from the procurement process used to reach the deal that spurred construction of the Anchorage LIO. While a formal competitive-bid process was not used, Anchorage real estate developer and managing member of the building owner group Mark Pfeffer has repeatedly noted that the council requested proposals for LIO space numerous times over several years.
When office space compatible with the Legislature’s needs for size, location, public access and parking among other requirements was not offered, the six-story, $44.5 million building custom-made for legislators was erected.
Wells Fargo funded the part of the construction loan for the LIO built in 2014 along with Northrim. The construction loans were eventually consolidated into a single longterm note by EverBank based in Jacksonville, Fla.
If Wells Fargo would stay as a tenant in the Legislature’s building it could generate up to $225,000 per year in rent and moving Legislative Audit staff into the building when the agency’s lease expires in 2022 could save another $53,000 per year, according to council documents.
At the same time, buying the building for $12.5 million means the Legislature would eat its $7.5 million equity investment in the current LIO. Including the first year’s rent through May 31, the Legislature’s outlays for LIO space Downtown and at the Wells Fargo building would top $24 million.
Staff for Stevens circulated an informal memo to all 60 legislators dated April 7 that included a dozen “bullet points” as to why the council agreed to buy the current Anchorage LIO for $32.5 million.
Among the reasons for the deal are the points that it would meet the criteria of a December motion because it is financially comparable to the cost of moving to the nearby state-owned Atwood Building, which houses executive branch agencies.
The memo also states that, “Buying the building honors our commitment with the owners of the building,” and “It alleviates the concerns by the business community and investors about the state backing out of a lease and a possible downgrade of the state’s credit rating.”
When the council first considered moving from the LIO to the Atwood Stevens and other legislators said they believed they could do so without recourse because contracts with the state contain a “subject to appropriation” clause that essentially voids the contract if the Legislature does not fund it.
Administration Commissioner Sheldon Fisher told the council March 31 that much of the space legislators thought they could move into at the Atwood would not be available until January 2018.
The sudden about-face was spurred by Gov. Bill Walker threatening to veto a purchase of the Downtown Anchorage building, which was included in the Senate version of the capital budget as a $32.5 million line item appropriation.
The Legislative Council’s May 2 motion to move on the Wells Fargo property directly cited Walker’s veto stance on the $32.5 million LIO purchase.
The Associated Press reported April 14 that Walker said buying office space doesn’t jive with the state’s financial situation. He was less definitive during an April 27 press briefing, saying he had been talking with legislators about the LIO situation and that it was “too soon to respond” to a question regarding whether he would veto any proposed building purchase.
An Alaska Superior Court judge voided the Legislature’s 10-year lease on the building in late March, ruling the council violated state procurement code by not opening the project — deemed by the court to be new construction and not a remodel of the former smaller LIO on the site — to bids.
However, the state has been found liable for government contractors’ expenses in historical cases in which agencies breached procurement procedure and private firms executed work on the reliance that the state handled its business properly.
Pfeffer has indicated that the LIO building owner group, 716 West Fourth Avenue LLC, would sue the Legislature if it walks away from the building.
716 first proposed to sell the property for $37 million to recover its cost in the project, according to Pfeffer, but ultimately agreed to a $32.5 million price.
“We did what the Legislature asked us to do. Now we’re just asking them to honor their commitment,” Pfeffer said in an interview.
A December 2014 subordination and non-disturbance agreement needed for EverBank to approve long-term financing for the LIO and signed by Pfeffer, Hawker and Legislative Legal Services Director Doug Gardner states that the “tenant shall not consent to any termination or cancellation of the lease without lender’s prior written consent.”
Rep. Sam Kito, D-Juneau, who voted to approve the Downtown Anchorage LIO purchase and penned an op-ed in his hometown newspaper the Juneau Empire justifying the decision, was the only “no” vote on the Wells Fargo purchase motion.
Before the vote he stated concerns about taking action on one property while possibly being exposed to a lawsuit over the Legislature’s possible financial obligation on another.
The Anchorage Downtown Partnership, a non-profit focused on generally improving the economic and livability qualities of the city’s core, sent a letter to Stevens May 2 urging the council to keep the LIO where it is because moving elsewhere would not match the city’s land use plan to have local, state and federal offices in the Downtown business district.
The Midtown Wells Fargo location would put the state in conflict with local planning policies and subsequently violate state statute as well, “which directs the State of Alaska to ‘comply with local planning and zoning ordinances and other regulations in the same manner and to the same extent as other landowners,’” the letter states.
The LIO is the home office for 25 Anchorage legislators and is often the de-facto meeting place for hearings when the Legislature is not in session. It substituted as the capitol building last spring when the Republican-led Legislature ignored Walker’s demand that a special session to resolve budget issues be held in Juneau.
Instead, legislators “gaveled out” of the Juneau special session called by Walker and reconvened in Anchorage.