Tuesday, October 11, 2011

New HQ For Long Beach Port In Limbo After Board Drama

Concluding an at times tense public meeting on Monday, the governing board for the Port of Long Beach failed to approve the purchase of the World Trade Center (WTC) in downtown Long Beach, again throwing port staff's nearly 11-year search for a new headquarters building into limbo.

The five-member port commission split 2-2 on the proposed $130 million purchase of the 27-story Long Beach office tower. Commission President Susan Wise recused herself from the vote because she and her husband both rent office space in the WTC.

The port has been seeking to replace its circa-1959 headquarters building that has been determined to be seismically unfit. The WTC is one of several properties that port management have considered over the past year as a possible location to move the more than 450-member port staff.

The port had planned to internally fund and build a $220 million state-of-the-art "green" headquarters in the port, but the plan was shot down last year by Mayor Bob Foster as too expensive, despite no planned expenditures of taxpayer funds. Since the mayor's decision, the port has been looking to lease or purchase a nearby office building to house the port staff.

In preparation to purchase the WTC, the port entered into a 60-day due diligence agreement with WTC owners Legacy Partners LLC on Sept. 12.

Prior to taking public comment on Monday, the board met in closed session to hear details of a due diligence report on the WTC. The report, detailing the condition of the WTC, was conducted under a confidentiality agreement with the current WTC owners. The agreement, according to the port attorney, limited what the port board could reveal in public session about the behind-the-scenes discussion.

Once in public session, the four sitting board members almost immediately locked horns – debating whether the board would even vote on the purchase, or just take public comment and simply discuss the matter.

Commission Vice-President Thomas Fields, leading the discussion in Wise's place, initially indicated he thought that a vote on Monday was unlikely. Freshman commissioner Doug Drummond interjected his objection to what he called Fields' "unilateral" decision that no vote would be taken and indicated he thought a vote could follow public comment and discussion.

The port attorney, responding to Fields, said a vote could be taken following discussions but was not required.

Numerous individuals spoke during the more than hour-long public comment session, including some of the biggest names in development and real estate in Long Beach.

Former port commissioner and real estate investor Roy Hearrean addressed the board, offering his support for a newly built port headquarters and asking the board to reject the WTC purchase. During his commission tenure from 1991 to 2003, Hearrean participated in early planning stages for a new port headquarters.

"Building [a new port] building, costs less than buying the World Trade Center," Hearrean told the commission. "And a new building will generate five times the number of jobs than buying the World Trade Center."

Hearrean said the biggest concern with the WTC as a port headquarters was difficulty in adequately securing the subterranean parking at the WTC – which in addition to port staff would also have to serve non-port WTC tenants and hotel guests of the adjacent Hilton hotel. He said such a situation would be "easily penetrated."

"I would highly recommend that the port rethink this, and consider doing what staff has [suggested] – build what they want built. In the long run [a new building] will be more efficient, provide more security and provide a reduced cost over time," Hearran said. "I'm here to ask you to follow your dream – build your building."

Greg Hall, managing director of Legacy Partners, speaking in support of the WTC purchase told the commission that, "where as a build-to-suit would only cost money, and in theory have no payback, the acquisition of 1 World Trade – generating millions of dollars a year even after a factor to increase costs for your occupancy – has a distinct and attractive payback period probably in the 20-some-odd-year range."

Hall also pointed out that since the port currently owns the parking facility at the WTC, the port would have the flexibility to arrange the parking in any way it wished to ensure security.

Attorney Skip Keesel, owner of several downtown parcels, encouraged the port to reject the WTC purchase and instead build a new building on one of his properties. He said such a move would allow the port to build what they want and save the port money in the long run.

"Moving this port building downtown is an important thing," Keesel said. "It will create a tax base, it will create 2,700 jobs over time – hard hat jobs, I'm told, up to 1,700 – creating what everybody in this room wants."

Keesel pointed out that he has offered the port free rent in one of his existing downtown buildings, which the port staff could move into almost immediately. During this time, the port could build a new structure on one of Keesel's parcels, which he offered to the port at "fair market value."

"How can you beat that," Keesel asked the commission. The port board had previously considered a downtown Keesel building as a possible relocation site, but rejected it in favor of the WTC.

Recently retired port commissioner Mike Walter supported the building of a new port headquarters in downtown, telling the commission that the port staff have done an admirable job in creating a "shovel-ready" project.

Walter said that during his entire six-year term on the port commission he always maintained reservations about a possible purchase and relocation of the port headquarters to the WTC. He told the commission that his main concerns regarding a possible WTC relocation focused on security issues, the vast size of the WTC of which the port would only occupy 30 percent, and the overall cost.

Once back behind the rail, freshman Commissioner Rich Dines complimented the WTC and Legacy Partners, but said that he still had concerns that the port – if it purchased the WTC – would have to pay off a loan of the building to the tune of an additional $14 million above the $130 million proposed purchase price.

Reading from prepared comments, Dines said that by the time all occupancy and relocation costs were included, the total price for the building could rise to $170 million, well above what Legacy Partners paid for the building at the height of the market in 2007.

Dines supported building a new port building in downtown, though he offered no suggestion about what such a building might costs or how it compared to the WTC purchase price.

The current estimate for the new port building as designed by port staff – built on port property and not requiring the purchase of prime downtown property – is $220 million.

Drummond also rejected the idea of purchasing the WTC, concurring with Dines that the port should be "downtown, in a building built to today's standards."

On the opposite side of the issue, Commissioner Nick Sramek said that he supported the WTC purchase, calling it an "ideal" location for the port staff and the most "cost-effective" solution available. He said that it was revealed in closed session that it would cost the port $70 million to $80 million more over ten years to purchase another building or even build a new building in downtown.

"For [the additional] $70 million to $80 million...we would have to put out over the next ten years," Sramek said, "I can't see anything other than the WTC. There is just too much of a differential."

Fields also supported the purchase of the WTC, citing that he could see no justification for keeping port staff in the current building – one deemed unsafe – for an additional three to five year while a new building is constructed.

"Every figure we have seen, when you [project] it out for ten years," Fields said, "[it] comes out more reasonable to purchase the WTC. This is not even close."

Drummond said that given the board's split vote, "need we go back in our room and discuss it? Need we prolong the agony?"

Fields responded, "I would like to think that reasonable people, when the facts are put before them, can come to a reasonable understanding."

After Dines made it clear he would not change his vote, even after further closed-door discussions, Drummond openly stated that he was changing his vote and would agree to the WTC purchase. Drummond then called for a motion to purchase the WTC.

When Fields called the vote seconds later, however, and much to the surprise of both Fields and Sramek, Drummond and Dines voted against the WTC purchase, thus locking in a split 2-2 vote.

Fields called on the port attorney, asking if it was acceptable for Drummond to vote against his own motion.

The port's attorney said that putting forth a motion was merely presenting the board with a question, and each commissioner could vote any way they chose once the motion is forwarded.

Drummond concluded by saying that he believes "good people can have different opinions."

The split vote essentially leaves the WTC purchase in limbo.

If a different vote is not reached by Nov. 1 – the end of the 60-day agreement period with Legacy Partners – the agreement will terminate. The port board has two scheduled meetings before the Nov. 1 deadline.