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Archive for Thursday, November 5, 2009

City, county asked to consider $2.9 million investment in former Oread Labs building

City and county mull deal to retain CritiTech

City and county commissioners will consider issuing $2.9 million worth of debt as part of an economic development deal designed to keep a promising bioscience company in Lawrence, and to provide the community more space to attract other biotech firms.

November 5, 2009, 12:23 p.m. Updated November 5, 2009, 7:08 p.m.

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City and county commissioners will consider issuing $2.9 million worth of debt as part of an economic development deal designed to keep a promising bioscience company in Lawrence, and to provide the community more space to attract other biotech firms.

City commissioners and county commissioners next week will consider a plan to purchase and renovate the former Oread Labs building at Bob Billings Parkway and Wakarusa Drive. The deal is part of an effort to keep CritiTech, a Lawrence-based pharmaceutical company, from leaving the community in search of additional laboratory space.

The deal is unusual in Lawrence economic development circles because of the amount of upfront money that governments are being asked to provide, but leaders said it deserves strong consideration.

“Economic development doesn’t just happen,” said County Administrator Craig Weinaug. “It is not something that happens by talking about it or making it a campaign promise. It takes a lot of action.”

City and county commissioners are going into the project with financial projections that the deal largely will pay for itself over a 25-year period.

Under the current proposal, the city and county would jointly own the building, and each would be responsible for 50 percent of the $2.9 million worth of debt needed for the project. But both parties believe that lease payments from CritiTech and other companies that will reside in the building will be sufficient to pay off the bonds.

The proposal calls for the Lawrence-Douglas County Bioscience Authority to be responsible for attracting new tenants and operating the building. The bioscience authority would collect the rents and make annual payments to the city and county to cover the bond costs.

The city and county would subsidize a portion of the project. The interest rate for the bonds is expected to be about 5.5 percent. The city would not pass the full interest costs along to the bioscience authority or the tenants. Instead, the city and county would each agree to make interest payments of about $20,000 per year, on average, over the 25-year course of the bonds.

The project’s financial projections, though, also spell out the risks. The projections estimate that the building would need to land at least one other tenant of about 2,500 square feet — in addition to CritiTech — to make the project break even financially.

“This is a difficult decision when times are tight, but these are the times you really have to say we’re open for business and embrace business,” said City Commissioner Mike Dever, who has been working on the deal as a member of the local bioscience authority. “This puts our money where our mouth is.”

CritiTech hopes

Keeping CritiTech’s operations and headquarters in the city is a major part of the plan, leaders said. CritiTech — which began in 2003 as a spin-off of Kansas University research — is working on products to reduce the side effects related to cancer drugs.

The company — led by longtime Lawrence investor Sam Campbell — is getting closer to delivering a significant cancer treatment improvement to the market. In 2008, the company began enrolling patients for a phase I clinical trial of Nanotax, a reformulation of a commonly used chemotherapy drug used to treat ovarian cancer. This summer, the company expanded the clinical trials.

Local bioscience leaders believe the company is far enough along in its development to have a good chance at success.

“CritiTech is the kind of company we want to model,” said LaVerne Epp, president of the Lawrence-Douglas County Bioscience Authority. “It started at KU, it has produced jobs here, and it has great potential. We want to keep it local. We want to create companies like CritiTech.”

Currently, the company employs 14 people. Campbell said it was difficult to project how many new employees the company may need in the next five years, but he expects the number to grow. He also said the company would pay above-average wages, but was not able to provide a specific target. He said many of the current employees are KU scientists who have invested in the company and are working for less-than-market wages for bioscience employees in hopes of future profits.

Economic development leaders confirmed that other communities have begun to offer packages to lure the company away from Lawrence. According to sources familiar with the situation, economic development leaders in Wichita recently made a significant offer to the company.

Campbell said the company needs more space as it moves into more advanced clinical trials that are some of the final steps before Nanotax can go to market.

“We intend to put a new pharmaceutical production unit in place that would give us 10 times our production capacity,” Campbell said.

Currently, CritiTech leases about 2,400 square feet in the building from the property’s current owners. The remainder of the 17,500-square-foot building is largely vacant after Deciphera Pharmaceuticals moved much of its operations out of the space and into a downtown Lawrence location.

But Campbell and others said the remaining space needs significant renovations to allow it to be used efficiently. The city and county are estimating that the building will need about $600,000 worth of heating, cooling and ventilation work.

Upcoming meetings

The deal calls for the city and the county to buy the building — which goes by the name of West Lawrence Labs — from the Topeka-based investment partnership New Oread Group for $2.3 million.

The deal would come at the same time that a partnership that includes the city and county are building a new bioscience incubator facility on KU’s West Campus. But leaders said this new project would not compete with the incubator. Instead, the west Lawrence building is seen as a place that companies that outgrow the incubator could move into.

“We want those companies that graduate out of the incubator to be able to find a home in Lawrence,” Dever said.

City commissioners are scheduled to discuss the project at their 6:35 p.m. meeting on Tuesday at City Hall. County commissioners are scheduled to discuss the proposal at their meeting on Wednesday at the Douglas County Courthouse. Weinaug said the meeting begins at 6:30 p.m., but the discussion on the proposal will begin about 7:30 p.m.

Comments

Richard Heckler 5 years, 1 month ago

How about seeking private investors instead of tax dollars?

The answer is no.

This thing about the Pharmaceutical industry is that they are making tons and tons of money.

IF this new "cancer treatment" is such a hot new drug every private investor on the planet will want to be a part of the "big bucks".

The "bio science" buzz phrase is being used to manipulate the public.

This CritiTech company should be going to the bank and borrow the money.

I do not want MY tax dollars invested in risky business.

Perhaps the property owners would want to invest in their tenant.

Richard Heckler 5 years, 1 month ago

Then Lawrence Taxpaying Voters should weed out the city hall “Free Lunch” program:

http://www.democracynow.org/2008/1/18/free_lunch_how_the_wealthiest_americans

“Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill)” Johnstonweb

Pulitzer Prize-winning journalist David Cay Johnston joins us to talk about his new book, “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You with the Bill).” Johnston reveals how government subsidies and new regulations have quietly funneled money from the poor and the middle class to the rich and politically connected.

Go to the bank and ask for a business loan. It is not the business of the city to be a small business loan program.

Lawrence has streets and sidewalks that need tending. Spend OUR tax dollars on THE TAXPAYERS that provide OUR TAX DOLLARS to be spent ON THE TAXPAYERS.

Go to the bank OR go to the property owner.

Richard Heckler 5 years, 1 month ago

It's time to place issues of this nature on a ballot for voter approval. This is gambling with OUR/MY tax dollars.

It's time for a new law that protects tax dollars and tax payers from potential reckless and/or fiscally irresponsible spending of OUR tax dollar revenues.

The NEW LAW would provide voters the right to approve spending on the majority of all projects that in effect spend tax dollars and/or increase OUR tax bills.

The new right to protect OUR revenues from RECKLESS and/or irresponsible spending would impact USD 497 as well as our city,county and planning commissions.

Not only that this NEW RIGHT TO VOTE would reduce corruption within the local government bodies.

This is the only way taxpayers will ever be shown respect.

In fact new expenditures should ALWAYS be approved by the taxpayers.

Since when can any tax paying community afford to look the other way?

The sad part of this whole issue is elected officials choose to ignore the voting taxpayers when the matters such as this should be a ballot issue.

My speculation is the reason elected officials CHOOSE to ignore the taxpayers and provide an opportunity for taxpayers TO VOTE is because they know the taxpayers will vote down reckless spending.

cowboy 5 years, 1 month ago

A number of the directors are KTEC folks. Clinical trials are in Wichita according to their website. I would ask how many jobs are we looking at. Typical R&D operations have a small high paid staff. The actual production of the drug is most always done offshore nowadays and the real money is in the patents.

Richard Heckler 5 years, 1 month ago

Taxpayers do not need to bail out the property owner. If the business owners think Lawrence is a great place they will stay.

This is white collar panhandling.

Where is the collateral? How do taxpayers get the money back?

Put it to a vote. Let the taxpaying citizens decide. Speculation is much too risky.

clarkentsman 5 years, 1 month ago

merill how many tax dollars will be spent upfront and each year?

in123 5 years, 1 month ago

This is not about saving CritiTech. This about bailing out The New Oread Group from their poor investment. The building is basically empty and they are losing money. Who is the The New Oread Group? Follow the money and you will smell the stench. This deal stinks!

BigPrune 5 years, 1 month ago

I think we deserve to know more specifics. The building was purchased for $900,000 back in 2002 according to this article.

http://www2.ljworld.com/news/2002/jun/22/investors_buy_former/?more_like_this

just_another_bozo_on_this_bus 5 years, 1 month ago

"Who is the The New Oread Group? Follow the money"

I agree, in123-- What about it Chad? Got any answers?

Godot 5 years, 1 month ago

Sam Campbell owns the building, and Sam Campbell owns Crititech; the City and County must buy the building from Campbell for $2.5 mill, the one that he bought in 2002 for $900K, and then rent it back to him at below market rate, or else he will take his marbles and go play somewhere else?

This is the definition of business "capturing" government.

Unbelievable.

in123 5 years, 1 month ago

Now the pieces start to fit together. Sam Campbell is the President & CEO of CritiTech. He is the leader of The New Oread Group. He knows what is really happenning at CritiTech; we only get the corporate spin. Investment not doing well so he sell the building to the city and county for a nice profit ($1.4MM) and when CritiTech goes under he is not left with an empty building. He walks away with money in his pocket at the taxpayers' expense.

The headline should read "City and County Asked to Bailout The New Oread Group."

Keep following the money and it will stink even more.

Godot 5 years, 1 month ago

What is the property tax on that building? Just trying to figure out what my share of the loss of that revenue will be, in addition to paying the 5.5 per cent interest. Must be a really, really risky venture if they vill have to pay that kind of tax free interest to attract buyers.

But, who cares, they are the government. They can never run out of money.

Godot 5 years, 1 month ago

Why don't Weinaug and Corliss just get them some Obama money?

cowboy 5 years, 1 month ago

Sam Campbell , part of group , The New Oread Group , which bought the building for 900,000. Sam Campbell owner of Criti Tech , leasing space from The New Oread Group wanting tax money to purchase and improve his own building.

Two of the directors are KTEC managers all of whom tout their investment capital credentials in their director resumes.

Dever , the city proponent is a member of the bioscience Authority and a commissioner.

This seems rife with conflict of interest .

While I am all in on eco devo investment by the state , county , city , this seems greasy while the potential benefits are isolated to a few well placed professional jobs , 14 currently with no details of any future growth committed to.

This also illustrates the tenuous return on investment present in the bioscience " business" , a lot of capital , and few actual jobs.

I say pass on this one !

Jerry Collins 5 years, 1 month ago

If the commissioners do this they should all be replaced. Let them know that

cowboy 5 years, 1 month ago

Douglas County Appraisal at 1.027 million

in123 5 years, 1 month ago

The stench is getting stronger! You can see how Sam Campbell's group wins. The $600,000 needed for HVAC will also probably go to someone that is conflicted in this deal.

nobody1793 5 years, 1 month ago

The channel 6 clip shows footage of the three KU-owned buildings. The building in question is a different building behind that complex. Two separate street addresses. Get it right.

Godot 5 years, 1 month ago

Paying 3 times county valuation, at a time when real estate is selling for, at best 10 to 15 percent below valuation?

cowboy 5 years, 1 month ago

Listened to Dever on the radio today touting this thing , he is unable to spit the bait out at this point and should recuse himself from any committee meeting or votes on this matter.

George Lippencott 5 years, 1 month ago

Let me see if I have the gist of this. We are going to buy a facility a few blocks from here and lease it below costs to a corporation that is blackmailing us. If we are lucky and find another tenant we will break even in 20 years? I note that just down the street from this facility is a building that has been pretty much empty the whole time we have been in Lawrence. But I am sure we will find a second tenant for this new facility.

If I understand it, this is all about economic development here in Lawrence. Somebody has a notion we are going to get into the bio-tech world. Some how we are going to compete with the Triangle in North Carolina or the many start-ups along I 270 North west of DC. Of course we will win. Anybody see a plan for how this is going to happen? Do we have a strategy beyond the immediate? Is KU enough of a driver to really attract meaningful business of this nature or will we have to subsidize the entire lot?

There seems to be an assumption in all of this that the taxpayers hereabouts are going to benefit in some unstated manner. Just how do the taxpayers benefit from retaining jobs? Will are taxes go down if we do? Will are taxes go up any more than they will anyway if we don’t? Just who is really going to benefit? I really would like to know the driver for this initiative.

If I am not mistaken our fair city has branched into underwriting growth in the past. How have we done? Is the return positive for all of us or just for a few-or at all? Maybe the LJW could do some research with the power of the press to assess our past performance in the economic development arena before we move ahead blindly without plan because job growth is an undisputable purpose?

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