Judge throws out Anchorage LIO lease

Anchorage Superior Court Judge Patrick McKay has ruled that the Alaska Legislature’s lease of a downtown Anchorage office building violated state contracting rules and should be thrown out.

In his decision issued Thursday afternoon, McKay wrote, “the court finds that this contract is not an agreement to extend a lease but rather a wholly new lease instrument altogether and should have been competitively bid.”

At the crux of the issue is a 10-year lease signed in 2015 for $3.4 million per year. The lease covers an approximately 60,000-square-foot building at the corner of 4th Avenue and H Street in downtown Anchorage. It holds office space for 24 Anchorage-based legislators and visiting lawmakers.

The Legislature had leased the building for almost two decades, and the 2015 agreement was deemed an extension to an existing lease, not a new lease, even though the Legislature paid about $7.5 million in “tenant improvement costs” to gut and upgrade the space and the new cost per year was five times the pre-renovation cost.

The resulting cost caused the building to be deemed the “Taj MaHawker” by critics who scorned Anchorage Republican Rep. Mike Hawker’s close relationship with developer Mark Pfeffer. Hawker negotiated the state’s lease with Pfeffer, who owns the building.

Jim Gottstein, owner of the adjacent Alaska Building, sued, alleging the lease was illegal and violated the state’s contracting rules.

Thursday’s decision by McKay upheld that allegation. In part, McKay wrote, “plain common sense — a principle which jurisprudence should not require to be checked at the courtroom door — mandates a finding that a contract to lease over 2.5 times more newly constructed space for just under five times the current rent with an introductory payment of $7.5 million for leasehold improvements is not a simple lease extension. … A court finding that this leasing scheme could be sole-sourced would eviscerate the competitive principles of the state procurement code.”

Anchorage lawmakers are now considering a move to the older, state-owned Atwood Building.

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