An attorney for the bank that financed the Anchorage Legislative Information Office building made it clear in a May 10 letter that the Legislature will not walk away from the building without once again going to court over the matter.
Jacksonville, Fla.-based EverBank wrote through its local legal counsel Robert Hume of Landye Bennett Blumstein LLP that it will sue the state for violating the subordination, non-disturbance and attornment agreement signed by an internal attorney for the Legislature, Rep. Mike Hawker and the bank in December 2014, just after the LIO construction project was completed.
Mark Pfeffer, managing partner of the building owner group 716 West Fourth Avenue LLC, also signed the agreement, or SNDA. Hawker chaired the Legislative Council at the time.
The bank contends the SNDA is its contract with the Legislative Affairs Agency that binds the agency to its obligations associated with the building regardless of extenuating circumstances.
EverBank made its $28.6 million loan to 716 based on the assurance that the Legislative Affairs Agency would honor the 10-year lease it signed to rent the Downtown Anchorage office space. It would not have made the loan if the agency had not entered into the SNDA, according to the letter.
The Legislative Affairs Agency handles business and legal matters for the Legislature.
With a year-plus of the lease paid, EverBank estimates it would seek $27.5 million from the state.
“In addition, if EverBank is required to institute an action to recover damages from the state, under the SNDA EverBank is entitled to recover its litigation costs,” the letter states.
On May 2, the Legislative Council voted to negotiate a purchase of Wells Fargo’s Midtown Anchorage office building for up to $12.5 million on the grounds that Gov. Bill Walker said he would veto a $32.5 million purchase of the Anchorage LIO that was included in the state capital budget.
The amended capital budget released May 11 included $12.5 million for the Wells Fargo building and removed the funding for the LIO.
Walker said it is inappropriate for the Legislature to spend millions of dollars on an office building while the state is cutting services to reconcile its $4 billion budget deficit.
“EverBank demands that the (Legislative Affairs Agency) reaffirm and establish that the tenant lease is in full force and effect, valid and binding on the state, and cease any and all efforts to invalidate the tenant lease, vacate the property, or secure alternate lease premises,” Hume wrote.
“This is a serious matter,” Hume concluded. “Please give it immediate attention.”
The Anchorage Assembly also weighed in on the matter May 10, passing a resolution urging the Legislature not to relocate its Anchorage offices outside of downtown because the move would conflict with the city’s land use plan, and by extension, could potentially violate state law requiring agencies to abide by local planning and zoning ordinances.
Legislators first took action to move out of the LIO in December after bowing to public scrutiny over the $3.3 million per year lease to occupy the offices that were custom-built for the Legislature. At that time, the Legislative Council passed a motion to move to the nearby state-owned Atwood Building unless a cost-competitive solution to stay could be found.
After several months of wrangling, the cost-competitive solution appeared to be the purchase of the building — approved at a March 31 council meeting — which would also satisfy EverBank’s needs by allowing 716 to repay its debt.
As is common practice for large construction projects, EverBank’s loan refinanced the short-term construction loan 716 secured for the $44.5 million project from Wells Fargo and Northrim Bank.
716 spokeswoman Amy Slinker referenced a previous letter from the Alaska Bankers Association in a formal statement. The letter generally said leaving the LIO and breaking the lease would put the State of Alaska’s trustworthiness in jeopardy in the eyes of the financial industry.
“EverBank describes this as a ‘serious matter.’ If the state breached an agreement with a substantial financial institution, it would be hard to quarrel with EverBank’s characterization given the consequences that would follow. We trust that the state will review this matter with the high level of care and caution it warrants,” Slinker wrote.
“A review of the EverBank letter makes it clear that the comments by the Alaska Bankers Association would no longer be hypothetical. A breach by the state likely would trigger a reassessment by lenders of the state’s credit risk and an increase in interest rates for state projects. The long-term cost to the state could dwarf the financial issues associated with the LIO.”
EverBank’s May 10 letter cites a section of the SNDA that states the Legislature has no “defense against rental due or to become due under the terms of the lease.”
The bank also argues that even though the lease between the Legislature and 716 was ruled invalid in state Superior Court in March because the council violated state procurement code in obtaining the lease, the SNDA still obligates the state to make EverBank whole.
“If the tenant lease is invalid, as ruled in the McKay order, then each of the express representations made by the LAA to EverBank described above are and were false,” Hume wrote.
716 and Legislative Affairs filed motions requesting Judge Patrick McKay reconsider his ruling. If he does not and the lease is once again deemed invalid, then the SNDA was signed under false pretense and the Legislature is exposed to EverBank, according to the letter.
Pfeffer has also said 716 would sue the Legislature if it walks away from the building.
In its motion for reconsideration filed May 6, the Legislative Affairs Agency argues that if the lease is deemed invalid, the court would also need to consider whether the Legislature is entitled to get back some or all of the $7.5 million in tenant improvements it agreed to pay as part of the deal the Legislative Council negotiated with 716 in 2013.
Elwood Brehmer can be reached at email@example.com.