A $2.9 million proposal for the city and county to purchase a west Lawrence laboratory building won a key recommendation Monday, but not before concerns were raised by a city-appointed financial analyst.
The city’s Public Incentives Review Committee agreed on a 7-1 vote to recommend that the City Commission approve a proposal for the city and the county to purchase the former Oread Labs building near Bob Billings Parkway and Wakarusa Drive in an effort to keep a promising biotechnology company in Lawrence.
“I think this whole bioscience effort that we’re talking about here is exciting, and really overdue, frankly,” said Scott Morgan, a Lawrence school board member and a member of the incentives review committee.
But the proposal raised financial concerns by some members. Brenda McFadden, a Lawrence accountant who serves on the committee in the slot reserved for a financial analyst, said she was worried about the potential losses taxpayers would have to absorb if the city and county’s financial projections prove incorrect.
“I just can’t get past the numbers,” said McFadden. “I understand there is a broader value to the community to do this, but I want to make sure everyone understands the risks. It is the taxpayers who have to make up the difference if there is a problem.”
The project envisions leasing about 3,200 square feet of space to Lawrence-based CritiTech, a drug development company that is seeking space to accommodate its growth and has been approached by Wichita developers who would like the company to locate there. The remainder of the nearly 18,000-square-foot building would be available to be leased by other bioscience companies.
The city and county have created cash flow projections for the project based on assumptions that the building will be 89 percent leased for much of a 25-year period. The projections envision the building housing five tenants. Under that scenario, the project essentially would generate about $990,000 more in revenue over a 25-year period than would be required to pay for the debt on the building.
But McFadden said if the city’s projections are off and the building houses only four tenants during the 25-year time period, the project would be about $980,000 short of paying its debt. If the project has only three tenants during the 25-year period, the shortfall would be about $3.3 million.
Splitting costs
Under the proposed agreement, the city and county would be equally responsible for making up the difference. City Manager David Corliss, though, told the committee that the governments would have several options, including selling the building to recover some or all of the shortfall or using the building for other governmental purposes.
“I don’t think there is any doubt that there is downside risk here,” said Mayor Rob Chestnut, who chairs the incentives review committee. “What I have tried to do is figure out whether this is a good calculated risk. I think it is.”
Chestnut said he was optimistic about the project because of the amount of bioscience research funding that was available nationally, and that CritiTech is already in the stage of human trials with at least one drug product it hopes to put on the market.
McFadden ended up voting to recommend the proposal, but said she continued to have concerns.
Appraisal issues
Former City Commissioner Boog Highberger — a recent appointment to the committee — voted against the proposal because he wanted the committee to request that an independent appraisal be done on the laboratory building.
Highberger said that would be a requirement if the deal were being privately financed. Several members of the audience earlier had questioned the proposed purchase price of the building, which is $2.3 million plus another $600,000 in improvements.
But other committee members balked at the idea of an independent appraisal. Chestnut said he was comfortable with information that the $2.9 million proposal was much less than what it would cost to build a similar laboratory building.
The committee was presented with information that the $2.9 million proposal represented a purchase and renovation price of $166 per square foot. A bioscience incubator that currently is being constructed on KU’s West Campus is being built at a cost of $270 per square foot.
Other members of the committee included City Commissioner Mike Amyx, County Commissioner Mike Gaughan and Lawrence resident Cindy Yulich. Brad Burnside, vice chairman of the Economic Development Board, also was allowed to participate and vote in the meeting. The board includes a spot for the chair of the Economic Development Board — currently Mike McGrew — but he was unable to attend the meeting. The group allowed Burnside to participate as his proxy, although it was unclear whether the city’s code allowed for such proxies.
Comments
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just_another_bozo_on_this_bus (anonymous) says…
Looks like Boog is the only person on this commission with at least half a brain and/or a sense of ethics. If this building is worth $2.3 million as it sits, why is it only valued at $1.4 million? Chestnut saying he is "comfortable" paying nearly $1 million more than current valuation makes this look even more like a committee and a couple of commissions giving a windfall profit to some of their golfing buds.
At the very least, it should be determined when the county's evaluation of $1.4 million became too low, and the amount of back property taxes due deducted from the purchase price.
just_another_bozo_on_this_bus (anonymous) says…
That's not what I said, Thing, but thanks for contributing to the discussion (sarcasm.)
mae (anonymous) says…
so...
we make less than $40k a year IF we can get more tenants.
Chestnut must be completely in the dark about anything to believe the people of lawrence are equals to KU when it comes to building bioscience. Be real, get an appraisal.
What a goat
idiot_wind (anonymous) says…
Ah, my comic relief. I visit the blog and view all the enlightened and thoughtful comments on this project. Let's see: calling someone a goat, commenting on a toupe, stating that committee members don't belong, saying a member only has half a brain, etc.
Now why weren't all you people at the meeting last night to make your comments face to face? You know, mano a mano. And you could have a chance to explain your views on how to create jobs in Lawrence. I would love to hear them and so would the LJW. But, I think I know the reason. You can't get away from your video games to attend community meetings. Maybe the city can schedule meetings around them so you can participate. Do I hear a motion? (That's what they say at meetings when they want to vote). Oops. I got to get back to my job. Have fun all you bloggers.
just_another_bozo_on_this_bus (anonymous) says…
Idiot Wind--
If you can get over your long-winded smugness, I'm still waiting for an answer to this question--
If this building is worth $2.3 million as it sits, why is it only valued at $1.4 million?
And would agree that at the very least, it should be determined when the county's evaluation of $1.4 million became too low, and the amount of back property taxes due deducted from the purchase price?
idiot_wind (anonymous) says…
hey just,
The issue is that this is a special facility. it's not a strip mall in which a county appraiser or regular real estate appraiser can use simple comparisons. There is no way this building is only worth $1.4 million. To construct a similar facility would easily cost in the range of $5 million. Go ask the building people at KU. Go ask a contractor that builds these kinds of labs. Even if you depreciate the $5 million significantly, the building is going to be worth between $2.5 - $3.0. Make this part of a bigger system in which KU technology can be commercialized as well as attract outside companies and the value goes up. This building is a part of a bigger system.
just_another_bozo_on_this_bus (anonymous) says…
"There is no way this building is only worth $1.4 million."
Then why is it appraised that way? If it's really worth $2.3 million, then they haven't been paying the correct amount of property taxes. Why have they been given a free pass on those unpaid taxes? I don't recall any application for an abatement.
planetaryjim (anonymous) says…
So, wait, they have one (count them one) tenant for 3,200 square feet of space. These bozos want to build 18,000 square feet of space, in the middle of one of the worst down turns in commercial real estate in the history of the world.
Excuse me, but 3,200 square feet at $270 per square foot (the price of the KU facility) is $864,000. Why not build that? Or, maybe, 3,700 sq. feet in case CritiTech wants to expand later. That's only $1M. And why isn't CritiTech building their own?