Mayor Mark Begich revealed his latest private-public business partnership last week, when he announced plans for the Municipality of Anchorage to purchase Valley River Center Building A along with Andrew Eker, the president of the Alaska Club, from Hickel Investment Co. The purchase price of the 100,000-plus square foot building is $3 million and will be split evenly between the municipality and the Alaska Club.
For its $1.5 million the municipality will get 43,000 square feet at the south end of the building (the former Safeway location) and the Alaska Club will occupy the 40,000 square feet that was home to Rite Aid. The remaining 20,000 square feet will be jointly owned by a condo association formed by the municipality and the Alaska Club after the sale is final.
While news of the offer to purchase the long-vacant building is being well received, many members of the community want more details. They’re asking what are the hidden costs in this plan? How much will renovations cost? What about operating costs? And is there a land lease with Hickel Investments involved?
According to Mary Jane Michael, executive director for the Department of Economic and Community Development, the questions are valid, as it will cost the city more than the purchase price when the total cost is calculated.
“The big expense will be renovations and remodeling the space,” she said. “We’re projecting that it will cost an additional $2.1 million to completely retrofit the space to be suitable for municipal services.”
When combining that with the purchase price, Michael said buying the building made more economic sense than leasing or building another facility.
“It will cost $80 a square foot for the purchase and renovations,” she said. “When compared to what it costs to build something new, between $275 and $300 a square foot, this was a sound investment.”
Finally having a town center is a good idea to some, but Chugiak, Birchwood, Eagle River, Rural Road Service Area board president Gail Dial wants to know about the other costs for the municipal services planning to move into the new facility.
“We know the purchase price and renovation cost,” she said. “But what about the other expenses the municipal departments and service areas will have to pay?”
According to Department of Economic and Community Development Budget and Policy Analyst Jenny Allen, the largest expense will be the $240,000 annual land lease with Hickel Investments for the property.
“It works out to $20,000 a month,” she said. “And half of that will be paid for by the Alaska Club.”
Michael also said there will be approximately 6,000 square feet of shared space in the municipality’s portion of the building.
“Bathrooms, kitchen, foyer and community meeting room,” she said. “The operating cost for these spaces will be shared by each municipal department in the building. We estimate that it will cost each department $1.19 a square foot for its space and portion of the shared space. That is less than the $1.30 a square foot that was being considered in a previous round of negotiations to lease the building.”
Allen said the funds charged to each department for its space will cover the operating expenses, the land lease and debt service.
“It could cost even less if additional municipal offices move into the space,” said Allen. “With the extra space, there might be room for departments such as the building permit office to be added to the municipal services co-located in the space.”
Municipal services already slated to relocate into the building, include the Chugiak-Eagle River branch library, Eagle River-Chugiak Parks, Recreation and Community Development, Health and Human Services and an emergency operations center.
Allen added that the cost for the library space could drop with the addition of a new tenant.
“We’d like to find a coffee shop to be a potential partner with the library,” she said. “They’d lease a portion of the library space, thus lowering the cost for the library.”
Another factor not calculated into the purchase price is the cost of paying a lease for each department while renovation work is being done.
“In the interim, between the approval of the purchase by the Assembly and the time construction work is completed, we’ll be paying double,” Michael said. “What that will cost depends on how long it will take for work to be completed. We’re going to try to be efficient in getting the renovation work done to keep the cost down. But it will cost a little extra.”
Where will all the money come from?
According to Michael, there will be no state or federal funding needed for the purchase.
“We’re anticipating approximately $2 million to come from existing Eagle River-Chugiak parks and rec funds and private grants,” she said. “The remainder, $1.7 million, will be financed.”
The $1.1 million contribution from the local parks and recreation department has caught the attention of Assemblyman Bill Starr.
“If that is money from the parks and rec service area fund, I’m not sure it can be used to pay for the remodel,” Starr said. “I’ll have to look into where the money is coming from and be assured that it is not part of the mill rate property owners pay for local parks.”
Voters approved the Eagle River-Chugiak Park and Recreational Service Area in 2004, establishing that a mill rate shall not exceed 1.00 mill in any calendar year. With no more than .50 mill for parks and recreation services and no more than .50 mill for parks and recreation capital improvements.
Starr is not sure that remodeling the town center qualifies as a parks and recreation capital improvement, especially since only 6,000 square feet of the space is committed to the parks and recreation department.
In addition to carefully examining the parks and rec funds being committed to the project, Starr is also keeping a close eye on the bottom line of the deal, as chairman of the Assembly budget review committee.
Michael added that the purchase will require an additional increase of $257,000 to the municipal budget annually.
Assembly vice chairwoman Debbie Ossiander said she to wants to know more about the finances, but likes the idea.
“Mayor Begich is a savvy real estate investor,” she said. “He likes to strike when a good deal comes along, which is understandable. But we have a public process for a reason. Let’s make sure the moving parts of this deal really do come together.”
Allen said a draft ordinance is being prepared for the Assembly to review and a public hearing is likely Nov. 6. If all goes well, the deal could close by year’s end and renovations could begin early in 2008.