City happy, state isn't, over ATRS building plan.
A $30 million proposal to add 200,000 SF of office space to the old National Old Line Building and construct adjoining parking for up to 1,000 cars captured the development spotlight in Arkansas last week.
Little Rock city officials were ecstatic about the plans but state officials were less than enthused. One state official says the project may not even happen.
The scope of the proposal left Little Rock Mayor Jim Dailey all but speechless at the Sept. 23 announcement. "What can I say but wow," Dailey noted in his opening remarks on the steps of the seven-story building.
On paper, the expansion represents the largest new office construction project in downtown Little Rock in more than a decade. The announcement also marked the opening of Round 3 of the tussle between state government and the Arkansas Teacher Retirement System over vastly different visions of the structure, also known as the Aegon Building.
A strong contingency in state government would like to see the building demolished and the property come under state ownership. That stands in stark contrast to ATRS plans for an extensive renovation and expansion.
"It was certainly inconsistent with the general consensus of the legislative council at last Friday's meeting [Sept. 18]," says state Sen. Mike Beebe, D-Searcy.
The council reaffirmed the General Assembly's interest in buying the property a n d u r g e d ATRS to put its development plans on hold until the coming legislative session.
"We've tried not to get at odds with the legislature," says Bill Shirron, executive director of ATRS. "I explained to them we couldn't sit still for six months waiting for them to make a decision while the retirement system had money tied up and a tenant [Arkla Gas Co.] wanting to move in.
"I believe we have their blessing concerning the new building, and we are moving forward with it.
"If they appropriate the money to make us whole, I told them I would take [the purchase offer] to the board of trustees to consider," Shirron says. "I don't have a vote. It will be up to the trustees to decide."
He estimates it would take an offer of $4.5 million-$5 million for the pension fund to break even in a sale of the existing building to the state.
If the state doesn't buy the building, Shirron estimates ATRS will spend $6 million to modernize it and convert the project into first class office space.
In the opening round, the state attempted to dissuade ATRS from buying the project in the first place. State Building Services twice recommended the pension fund not purchase the National Old Line Building.
Bureaucrats and politicians maintain the seven-story structure is too costly to renovate and an aesthetic eyesore that detracts from the grandeur of the state Capitol across the street.
However, ATRS, pushed by its executive director Bill Shirron, persisted and bought the 143,800-SF office building and an adjoining 5 acres for $6.25 million a year ago.
The state tempered Shirron's bold move with a simple message: Don't count on any state agencies helping fill the rent rolls.
In the face of outward opposition from the state, ATRS and its real estate adviser, Flake & Kelley Management Inc., are trying to walk a diplomatic tightrope.
"We're trying to move forward without creating any controversy with the state," says Hank Kelley, chief executive officer of the firm. "We want to create nice, clean space at the footsteps of the Capitol."
Political niceties aside, Kelley has taken the state's threat of withholding tenant support to heart. Even the planned four-story, 200,000-SF expansion isn't predicated on state tenants signing leases.
"We welcome the state to this building, but we are not building this building with the singular desire to recruit every state agency that's available," Kelley says. "Based on the absorption that we've studied, there are companies that will come to the building and fill it up in a reasonable amount of time."
He isn't put off by an estimated inventory of downtown office space that ranges as high as 600,000 SF either. Kelley believes the high-profile project, coupled with its ample parking and good location, will tap into market demand for top-notch space.
Plans on the drawing board call for the construction of a massive two-level parking deck on adjoining property owned by ATRS that could house as many as 850 cars. Aground level parking deck under the proposed office expansion could contain up to 150 parking spots.
The building currently is 90 percent leased but 22,000-25,000 SF leased by Aegon U.S.A., a subsidiary of the building's former owner PFL Life Insurance Co. of Cedar Rapids, Iowa, is up in the air.
"I think it will be settled over the next 60 days," Kelley says. "They're evaluating proposals."
The ATRS announcement last week had a strong public relations tone with an undercurrent of building public support for the expansion. Speaking on behalf of the project were representatives of the Greater Little Rock Chamber of Commerce, the Downtown Partnership and City of Little Rock. Gene Levy, president of The Cromwell Firm, also made a presentation that sang the architectural praises of the building.
Noticeably absent from the lineup of dignitaries was Gov. Mike Huckabee. Marcus Devine, the governor's regulatory liaison, was coaxed to the microphone and in a brief comment expressed Huckabee's excitement about the future of Little Rock.
His words, which omitted any reference to the ATRS project, were hardly a stirring endorsement. In fact, the proposed development faces stiff opposition at the Capitol.
"It's my opinion that whole deal isn't going to happen over there," says Bob Laman, director of State Building Services. "It's not an ugly building, but it's in the wrong place and blocks the view of the Capitol."
The ATRS proposal did garner kind words from Martha Ann Norton, director of the Capitol Area Zoning Commission. "We applaud all who are a part of this project," she said at the Sept. 23 announcement.
Gaining her support is a step in the right direction for the ATRS cause, which is talking up the historical significance of the 46-year-old structure to counter the state's desire to it tear down. Levy portrays the building as the finest example of international-style architecture in Arkansas.
The new tactics follow ATRS losing Round 2 of its effort to redevelop the building earlier this year. The Capitol Area Advisory Committee unanimously rejected an ATRS request for a height variance to build a new elevator tower to replace the building's antiquated system.
The committee tacked on a request to the zoning commission to ask State Building Services to buy the building and raze it. Greeted with this blast, ATRS withdrew its request before the commission considered it on Jan. 28.
The commission is in the process of revising its design standards and master plan ordinance, which will dictate what ATRS can and can't do with its property.
Once any changes are adopted the new guidelines go to the legislative council's rules and regulations subcommittee. Given the council's less than enthusiastic stance toward the National Old Line Building, any changes that might aid the ATRS redevelopment seem destined for a bureaucratic death sentence.
To what extent state government can further flex its muscle to prevent the pension fund from redeveloping the National Old Line Building and bring the property under state control remains to be seen.
To highlight the redeeming qualities of the building, ATRS coupled the recent announcement of its expansion plans with news of a new tenant and a name change.
The building will be redubbed the Arkla Centre, in honor of a future tenant, Arkla Gas Co. The company signed a letter of intent to lease the fifth floor of the building for 10 years.
The Arkla division of NorAm will vacate its corporate offices and namesake building at 400 E. Capitol Ave. during the next three to four months and occupy 17,000 SF of renovated space in its new digs.
Mike Means, Arkla president, described the $12 per SF deal presented to him by Bill Shirron, executive director of ATRS, as one he simply couldn't refuse.
Arkla staff only occupy a third of the building developed in 1966 under the leadership of Witt Stephens. Thirteen of the 54 Arkla employees there will relocate to the leased office while the balance are scattered around various company offices in Little Rock and Shreveport.
On the backside of the lease deal, Arkla will be selling its 68,600-SF headquarters. And yes, Arkansas Teachers Retirement would like to add the 32-year-old development to its real estate portfolio.
"They have expressed an interest in it, but we will take the property to the market to ensure we get the best price we can," Means says.
The Arkla Building is carrying a sticker price of $4.5 million ($65.60 per SF). The property carries a potential low-end value of $2.9 million at the Arkansas Public Service Commission.
Arkla also owns a parking area covering a quarter block at the northwest corner of Commerce and Fourth streets.
Shirron says ATRS is in the process of analyzing the building's operating costs to help formulate a purchase offer for the project.
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|Title Annotation:||Little Rock, Arkansas; Arkansas Teacher Retirement System|
|Date:||Sep 28, 1998|
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