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March 29, 2016

Thursday vote may determine future of Legislature's Anchorage offices

Alaska Dispatch News

Nathaniel Herz

Anchorage offices remains in limbo this week, with lawmakers set to meet Thursday to decide whether to move out of their building on Fourth Avenue, buy it or pursue some other option.

In the meantime, they're expected to make their full monthly payment for April under their $3.4 million annual lease, which last week was declared invalid and illegal by Anchorage Superior Court Judge Patrick McKay.

McKay ruled that the lease was not an extension of their previous one with the same landlord, though the Legislature called it that, and he said it should have been subject to competitive bidding, which it wasn't. The building underwent a complete renovation at the end of the original lease, including its absorption of a neighboring property.

Sen. Gary Stevens, R-Kodiak, said in an interview he hopes the committee he chairs, the joint House-Senate Legislative Council, can make a final decision Thursday about the fate of the Anchorage offices.

The building on Fourth Avenue is a luxurious, remodeled space with glass walls and elevator shafts and motion-sensing trash cans. Some lawmakers, including Stevens, have said it doesn't square with the austerity measures that the Legislature is imposing on other parts of state government to close a massive budget deficit.

At Thursday's meeting, the council's legislative leaders and lone Democratic minority member are expected to hear a pitch from one of their two landlords, Mark Pfeffer, in a private "executive session." Then the committee could return to open session and take a vote on whether to accept Pfeffer's offer and purchase the space or move to the state-owned Atwood Building on Seventh Avenue.

But lawmakers have already postponed such a decision several times, dragging out the search for a permanent Anchorage office space that began in 2002. And they could do so again, with the state's operating budget still in limbo.

"The chairman wants it done," said House Speaker Mike Chenault, R-Nikiski and a council member, in an interview. But, he added: "Every chairman for the last 15 years has wanted a fix, and as of yet it hasn't appeared."

Lawmakers moved into their remodeled offices early last year. When they did, annual payments for the space jumped to $4 million from $682,000.

Critics call the building the "Taj MaHawker" - a reference to its amenities and to Rep. Mike Hawker, R-Anchorage, who, as the council's previous chairman, negotiated the 10-year, no-bid lease extension.

Thursday's decision, if one is made, is expected to hinge on the final purchase price offered by Pfeffer and his partner, Bob Acree. Their initial asking price was $37 million - a figure the landlords said was less money than the landlords spent renovating the offices, which were expanded into an adjacent building that used to house the Anchor Pub.

The landlords say their price is bolstered by an appraisal commissioned by the Legislature in 2014 that established the total cost of the land, construction and building at $48.5 million.

Attorney Jim Gottstein, meanwhile, emailed all 60 legislators this week to say they shouldn't pay more than $20 million for the building - a figure that matches a separate appraisal commissioned by the Legislature last year.

That appraisal, by a Seattle-based employee of the real estate firm Kidder Mathews, is based on what it says is the value of the building without the Legislature's lease - a type of valuation that it says is appropriate considering market forces in Anchorage, which according to the appraisal "do not support new office construction."

"For the life of me, I can't see any reason to pay more than that," Gottstein wrote in his email, referring to the $20 million. "The Legislature should not pay more than market value for the building. It is as simple as that."

Stevens said the $20 million figure "isn't realistic" considering what the building's landlords owe their lenders. He's been trying to negotiate the landlords down to a figure that matches a new independent consultant's cost analysis comparing the purchase price to what lawmakers would pay if they moved to the Atwood Building.

The report says lawmakers should use bonds to buy the renovated building for either $29.2 million if they want their total costs to match what they'd pay for the Atwood Building over 20 years, or $35.6 million, the comparable per-square-foot cost. (Lawmakers say they'd need less space if they moved.)

Stevens said he asked Pfeffer, the managing landlord, for a purchase price somewhere between $29.2 million and $35.6 million.

"He came back with a higher figure," Stevens said.

Asked about the negotiation, Amy Slinker, a spokeswoman for the two landlords, responded with a prepared statement saying that they're willing to lower their price so that it's "at or below the cost of the Atwood Building."

If lawmakers do decide to relocate, they'll also need to decide when - and how much to pay in rent until then. Initially, the council was contemplating a move after next year's legislative session, but that choice would require another full year's payments under the invalid lease.

Gottstein, in his email to legislators, said they shouldn't make any payments at all under the existing lease.

Based on an independent appraisal, Gottstein said, the Legislature has already overpaid $2.5 million. That assertion is based on an affidavit in Gottstein's lawsuit from a retired appraiser, Larry Norene, who reviewed the invalidated lease and said the maximum obtainable market rent was $120,000 monthly - less than half the $280,000 that lawmakers are currently paying.

Stevens said any reduction in rent would have to be negotiated with the landlords.

"We don't want to hurt Mark - that's not the goal here," he said, referring to Pfeffer. "But on the other hand, we want to do what's best financially for the state of Alaska."

Asked about Gottstein's argument, and whether the landlords would allow lawmakers to remain in their existing offices indefinitely if they keep paying rent, Slinker, their spokeswoman, didn't answer directly.

"We are continuing good faith negotiations with the Legislature and are hopeful a deal that benefits all parties can be agreed upon soon," she wrote in an email.

A deal within the Legislature, however, has been elusive, with different factions supporting different paths forward.

Senate Republican leaders and minority Democrats have been more supportive of a move, while Hawker's colleagues in the House GOP leadership have been more skeptical.

Asked how he'd vote in Thursday's council meeting, Chenault, the House speaker, said he didn't know.

"Until I meet with the chairman of the council, I can't make a decision," he said. "I think there's a lot more information out there."

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