The Port of Long Beach has taken the first public steps to purchase the World Trade Center high-rise office building in downtown Long Beach.
The port governing board on Monday approved entering into a 60-day due diligence agreement with the current owner of the 13.5-acre property, Legacy Partners.
The due diligence period would allow the port to inspect the building in detail, examine building documentation and audit leasing documents of current tenants.
The due diligence agreement follows an August 1 non-binding Letter of Intent executed by the port with Legacy that calls for the port to purchase the 27-story WTC building for $130 million. The port put up a $2 million deposit that would be refunded if the port backs out of the deal at anytime within the 60-day period.
For nearly a decade, port management slowly moved forward with plans to build a $300 million state-of-the-art environmentally friendly showcase administration campus on port property adjacent to the current administration building.
While the port planned to use no tax revenue or city funds for the new building, Long Beach Mayor Bob Foster last year vetoed funding for the new port building, questioning the wisdom of the semi-autonomous port authority constructing a new headquarters while his City Hall administration has struggled with city budgets racked by deficits and dwindling revenue streams.
Since the mayor's veto of the new port building, port officials have been looking at various locations throughout Long Beach that could be leased or purchased to serve as a replacement for the current six-story headquarters. Reports over the years have indicated that the current port building would not fare well in a major earthquake as it was built to late-1950s building codes and has not received seismic retrofits.
In addition, the port staff has grown by more than 100 positions in the past five years, severely pushing the capacity limits of the existing building and at times requiring temporary offices to be utilized.
The current seven-story port headquarters building, located in the port on a 10-acre parcel at the southern end of the Queensway Bridge, was completed in 1959 at a cost of just over $3 million.
The 27-story WTC, located just blocks north of the port, was opened in 1989. It is one of the premier office towers in the downtown Long Beach skyline and was heavily sponsored by port funds during construction. It was sold to current owner Legacy Partners in 2007 for $149 million.
The five-member port governing board approved the 60-day due diligence agreement by a 4-0 vote, with commission president Susan Wise recusing herself from the vote because she has an office in the WTC.
While the vote was unanimous, the two newest members of the commission, Doug Drummond and Rich Dines, both expressed reservations about the deal.
Dines, who holds a residential realtors license, said that he had a lot of concerns regarding the purchase of the building.
"Is this actually a good deal for the port? Is it a real value?" he asked.
In addition to his concerns about the outright purchase of the WTC, Dines said unequivocally that he would oppose any scenario calling for the short- or long-term lease of the WTC property by the port. Dines said that having the lease option available gives too much leverage to the seller in negotiations.
"I'm not necessarily opposed to the purchase of the building; I'm opposed to the seller having that leverage against us. It's very easy for them to believe that if we back out of this deal we would be forced to lease from them. That is not the case. There are other options," Dines said.
Referencing what he described as high rent rates at the WTC and an occupancy rate that has dropped since the start of the recession to about 70 percent, Dines said that during the due diligence period port staff need to focus a great deal of scrutiny on the tenants in the building and where each stands with their current leases.
He also said that while the WTC appears "on the outside" to be a very well maintained building, the port needs to do a very detailed inspection of the property during the due diligence period.
"There is one reason, and one reason only, that I would consider going into this agreement and it is the 430 people that work here [in the current port building] every day," Dines said.
"This building is outdated, it has seen better days, and we have outgrown it. We need to move."
However, he added that he is unconvinced that the WTC deal is the best deal available for the port.
Commissioner Drummond, who like Dines joined the port board three weeks ago and has not been involved in the majority of the negotiations regarding the WTC deal, said that he also had reservations about the deal and would not support a lease option of any kind.
Commissioner Thomas Fields pointed out that there are only four Class-A office buildings in downtown Long Beach and only the WTC had the available space to accommodate the entire port staff. He also said that purchasing the building at this time, while property values are deflated, would be a bargain for the port.
Commissioner Nick Sramek said he was excited about the potential purchase. He pointed out that the port has been trying to find a new home since the early 2000s and that the port spent the last year looking at "every property in the city...whether it was for lease or for purchase: anything that was large enough to move our employees into."
Sramek said that many properties were considered, even some far afield and inland from the port, but in the end both Mayor Foster and the port board wanted the port headquarters to be located in downtown. Sramek also pointed out that in addition to the current port building being outdated, "it is seismically-challenged. We need to find a home for the employees that is safe and where everyone can be in the same facility."
He said that after looking as so many options throughout the city, "the WTC was by far the most cost-effective."
Port staff estimate that the total cost to move their headquarters, including the purchase of the WTC property, would be $162 million.
Tuesday, August 30, 2011
