Public/private cooperation helps downtown area
“Synergy” is a buzzword of the ’90s that too often proves to be more sizzle than steak.
But not in Oakland, Calif., where a synergy of sorts between the public and private sectors has created a unique financing arrangement for construction of a new building that will move 1,000 jobs into the downtown area and revitalize a key block of the Broadway corridor.
The Oakland Redevelopment Agency, University of California, and Oakland Developments, LLC, a private sector joint venture, are teaming up to construct a 12-story building for the University of California Office of the President (UCOP) financed through $41.5 million in bond sales.
The 397,000-square-foot facility will include 225,000 square feet in eight stories of office space atop five levels of parking (one of which is below ground). The complex will also accommodate 7,500 square feet of retail space.
The 1,000 employees who will be housed there currently work in another section of the city. They are expected to increase business at downtown stores and restaurants and also boost parking revenues. An annual impact of about $4.6 million, primarily generated by taxes and parking receipts from city-owned spaces within the complex, is anticipated.
The UCOP project was launched just in time to accommodate the needs of the university, which must secure office space by spring 1998 when its current lease expires.
Slated for completion in May 1998, the project is moving along smoothly because the private sector development team bears the burden of financial risk through project completion, says Rob Lankford, a managing partner in Oakland Developments, LLC.
The limited liability corporation consists of two San Diego-based firms, Hensel Phelps Construction, the general contractor, and Lankford & Associates, a commercial development/property management company.
The UCOP facility was designed by the San Francisco architectural firms of Kaplan McLaughlin Diaz and Gordon H. Chong & Associates.
While bearing the financial risk, the LLC also benefits from the public sector’s issuance of tax-exempt construction financing bonds, made possible because a government entity is the end user. The lower cost of these bonds kept the project cost about 5 percent lower than it would have been with traditional financing methods, Lankford says.
Nine months of effort by the public and private sector partners, their legal and finance consultants, brokerages and banks made the bond sale possible. In December 1996, the Association of Bay Area Governments Finance Authority for Nonprofit Corporations sold $41.5 million in variable rate demand construction funding bonds.
When the project is finished, the University of California will purchase the property for almost $32.2 million. The Oakland Redevelopment Agency will pay the developer $2.4 million to acquire ownership of two of the five floors of structured parking, including a portion of the building’s podium and will contribute an additional $3.4 million to the project.
With this project, the Oakland Redevelopment Agency hopes to move closer to its goal of eliminating blight through the stimulation of development in specifically designated areasof the central city.
“The UCOP was designed with a neighboring user – a future hotel or office structure – in mind,” Lankford says. “The redevelopment agency’s goal was always to attract a property tax-generating user for the balance of the block.”
Lankford says the project demonstrates that “special expertise and abilities enjoyed individually by the public and private sectors can be allied to provide the public user the best possible and most cost-effective projects with the absolute least risk.”