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Archive for Sunday, October 3, 1999

STATE FUELS DEVELOPMENT BOOM IN DOWNTOWN TOPEKA

October 3, 1999

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— Friday's purchase of the Security Benefit Group building brings total state investment in downtown Topeka to nearly $100 million.

They may not realize it, but taxpayers from all over Kansas are underwriting a downtown building boom in Topeka.

With a price tag approaching $100 million, new buildings are going up as the state works to consolidate its offices and Topeka leaders push for redevelopment of a dreary downtown.

But while state government is driving the real estate boom, officials say it involves little of the state's own money and that money the state is spending would have been spent anyway for leasing office space in other parts of town.

That has allowed the use of creative financing to pay for the development without putting the issue before the Legislature, which was considered unlikely to get behind what will be a large legacy of Gov. Bill Graves.

The latest deal was sealed Friday when the Kansas Development Finance Authority authorized issuing $18.5 million in bonds for the state to buy the Security Benefit Group building north of the Capitol building.

The 267,000-square-foot building will be used to consolidate offices of the Kansas Department of Transportation, which now are spread through three office buildings in Topeka.

Security Benefit Group, meanwhile, is getting help from the city in finding a new corporate headquarters site, possibly within a redevelopment district on the south side of downtown.

Getting a handle on it

"When (Graves) came into office, state government was in over 90 locations throughout Shawnee County," said Secretary of Administration Dan Stanley. "Agencies were fragmented, with bits and pieces all over town. If you came to Topeka to do business with the state, there was no such thing as one-stop shopping."

Stanley said two factors drove the decision early in the Graves administration to consolidate state offices into the downtown business district: convenience and efficiency.

For years, Stanley said, the state had no plan for its office real estate. Whenever an agency needed additional space, it went into the marketplace and took the best space available at the time, at whatever price the market commanded.

The result was a system of agencies spread over locations that are as scattered and varied as the rental rates the state was paying.

For example, Stanley said, the Department of Social and Rehabilitation Services is scattered among six different buildings -- four for state administrative offices and two for the Topeka-area offices.

The Kansas Department of Health and Environment is split among four sites.

Stanley conceded that political considerations often have played a role in deciding where the state would lease office space and how much rent it would pay.

"There is no question that there has been a history of political patronage to building owners," Stanley said. "If you look at the timing of some of the leases, one could easily draw that conclusion."

Throwing its weight

One of the theories behind the consolidation effort, Stanley said, is that because of its "purchasing power," the state does not have to subject itself to the whims of the market because the state, in essence, is the market.

Like the proverbial 400-pound gorilla, state government is the biggest player in Topeka's office real estate market. If the state pooled its resources, it could direct the market to play by the state's rules.

In 1996 the Department of Administration sent out a request for proposals (RFP) asking developers to bring forth plans to provide the state with office space it needed.

The state had money to spend and was willing to sign long-term leases in exchange for quality office space at the right price.

The promise of 15-year leases enabled developers to get bank financing to build new space or renovate existing space. It also could eliminate the tradition of agencies moving from building to building with each change of administration.

"The logic is simply that with the state's buying power and the state's need for space, that in itself can finance much-needed improvements," Stanley said. "Before, we weren't using our purchasing power to negotiate long-term leases."

Risks along the way

The process has not been without its share of political controversy.

One of the first major projects approved was a new "signature" office building now under construction on an entire city block southeast of the Capitol building.

The project was offered by Johnson County developer Dennis Eskie and financed with bonds from a public building commission that the city of Topeka set up for the purpose.

Proceeds of the bonds were used to buy land from property owners on the block. Those included many of Topeka's wealthiest and most prominent developers, some of whom received more than three times the county's appraised value for the land.

Shortly after those land deals were reported by local newspapers, another developer withdrew a proposal to take over the nearby Watertower redevelopment district, saying the high cost of land acquisition would make the project unfeasible.

Despite the local political controversy, Stanley said the consolidation effort would have long-term payoffs.

"In some cases, we've been able to reduce rents," Stanley said. "That certainly has been a consideration. It's got to be cost-effective."

-- Peter Hancock's phone message number is 832-7144. His e-mail address is phancock@ljworld.com.

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