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.