Tuesday, July 22, 2008

Mark Begich and Anchorage Sweetheart Deals

Gift of Parking Garage Explained

On the September 9, 2007 editorial page of the Anchorage Daily News, a staff reporter wrote “When the Begich administration leased a downtown parking site from influential developer Mark Pfeffer, the city overpaid -- by a lot.”

The Daily News concluded its editorial saying:
“Without subpoena power or wiretap authority, it's impossible to know if the mayor's defense is just a smokescreen. But whether it was favoritism or just an honestly overpriced contract, it turned out to be an embarrassingly bad deal for a mayor who prides himself on his business acumen.”

The editorial was in response to an appraisal I (Ray Metcalfe) wrote on the value of a 67 space parking lot located on the corner of 6th and G in downtown Anchorage. I had reviewed the lease executed between Augustine Development LLC (Owned by Jerry Neeser and Mark Pfeffer, partners with John Rubini in the construction of the new Convention Center two blocks away) and The Community Development Authority, formerly known as the Anchorage Parking Authority, who agreed to lease Mark Pfeffer’s property described as:

Lots 9B and lot 12 of block 53 of the Original Townsite of Anchorage, according to the official plat: Plat number 81-124 of the Anchorage Recording District, and I have made the following observations, value estimations and conclusions.
The Community Development Authority is a quasi-privately operated subsidiary of the Municipality of Anchorage (MOA). Possession of the leased property has been delivered over to the Anchorage Parking Authority — ostensibly for the purpose of operating a 67-space public parking lot.
The closest comparable property is a seventeen space parking area in the same block, adjacent, and immediately west of the subject property. It shares a property line with the subject property; and there are no obstructions to prevent drivers from driving between the two adjacent parking areas.
Augustine Development, LLC owns both the subject property and the 17 space comparable property next door, which is within the same ½ block as the subject property and was part of the property he acquired with the purchase of the Inlet Inn.
At the time Augustine Development, LLC, owned by Mark Pfeffer, purchased the Inlet Inn, February 2nd, 2007. At the time, Diamond Parking, a privately owned parking lot operator, was leasing the 17-spaces of paved parking area on the 6th Avenue side of the Inlet Inn, (approximately 5,700 square foot and part of the Inlet Inn’s property) paying approximately $47 per parking space per month, to the owners of the Inlet Inn. Diamond Parking then retailed the spaces, which it acquired at wholesale prices, to the general public, retailing it for a profit, averaging around $150 per month in gross retail revenues per space.

The Anchorage Parking Authority, owned by the Municipality of Anchorage, now also known as the Community Development Authority, initially leased the 67-space (24,511 square foot of property adjacent to the above referenced 17 spaces,) from Mark Pfeffer’s Augustine Development, paying Mark $29,000 per month, or $432 per space.
The City of Anchorage agreed to pay Mark Pfeffer’s Augustine Development over nine times as much as an adjacent private lessor agreed to pay to a private lessee in an arm’s length fair market transaction. There is no question that Mr. Pfeffer was aware of the wholesale and retail values attributable to the adjacent property because Pfeffer had purchased the Inlet Inn’s interest in the lease agreement between the Inlet Inn and Diamond Parking. Pfeffer had also been negotiating with Diamond parking prior to Mark Begich’s instruction to the Anchorage Parking Authority, to make what turned out to be a vastly superior offer. The Parking Authority needed look no further than across the street to see that Diamond Parking’s parking lot adjacent to Mr. Pfeffer was 80% vacant almost every day of the week.

Parking facility operators will generally offer private land owners a fixed monthly payment equaling approximately 1/3 of whatever they determine to be the projected likely gross income they could expect to derive from the property, or alternatively, for those land owners willing to share the risk of unexpected shortfalls in income, parking operators will generally offer a fluctuating ½ of whatever the actual parking space rents turn out to be.
According to figures the Parking Authority released after this investigation began, the spaces Begich arranged for the city to rent for $29,000 per month were running about 80% empty and bringing in about $10,000 per month. As demonstrated by the 17 spaces next door, which also run about 80% empty, the industry standard that a private company would have paid Pfeffer for the same deal would have been 1/3 of the anticipatable gross monthly income, or about $3,300 per month. The remaining $25,700 in payments Mark Begich arranged for Mark Pfeffer to receive from the Anchorage Parking Authority was nothing less than a money laundering shell game neither of them thought anyone would notice.
Before the original Begich/Pfeffer fleecing agreement was replaced by the much more clever agreement outlined below, it had funneled seven payments of $29,000 per month, or $203,000 of your city’s dollars into the pockets of Mark Pfeffer and Jerry Neeser.

In an understatement worthy of the Guinness Book of Records, Carma Reed, the former head of the City’s parking agency acknowledged to the Anchorage Daily News that the City was losing money on its $29,000 lease payments. She also said they planned to renegotiate the agreement.
Keep in mind that the City’s act of leasing spaces from Mark Pfeffer doesn’t add one single parking spot to available parking in Anchorage. Mark Pfeffer is perfectly capable of running his own parking lot and collecting the $10,000 it makes each month if Diamond Parking failed to make a management offer that pleased him. Either way, it would not add or subtract one more parking space for the parking public to choose from.
However, the Parking Authority did renegotiate. They increased the number of spaces the City was leasing from Pfeffer to 87 spaces. And they reduced the rent per space to $166 per space per month, equaling three times what private industry had previously been paying next door. The net effect was to reduce the payment to Pfeffer from $29,000 to $14,500, thereby continuing to pay Pfeffer about $10,000 per month more than a private company like Diamond Parking would have been willing to pay.

That’s not quite the way Begich described it when he announced his decision to get tough on negotiations, but that was the net effect.

They also failed to highlight one more major addition to the new deal. The new deal gave Mark Pfeffer what, in real estate technical terms is called a leasehold interest. It conveys valuable leasehold interests in Anchorage’s parking facilities, worth tens of millions of dollars, to Mark Pfeffer and his partners over the next 22 years. Mark Pfeffer is effectively being given a City parking garage so he doesn’t have to spend his own money to build the parking he will need to make his building he is building across the street economically viable.
Mark Pfeffer is being given the right to lease 570 parking spaces in the parking garages of the City of Anchorage.
Rather than making parking available to individuals and letting those individuals choose which developer to lease office space from, Begich has chosen to hand over control of Anchorage’s public parking to one developer. A developer he hopes will remember his generosity for the rest of his political career.

The Privately owned Dimond Parking Company leases parking permits in downtown Anchorage, to the public for $150 per month. The publicly owned Anchorage Parking Authority subsidizes the commercial rate by renting spaces to the public at about half the going commercial rate. In this case, the subsidy promised to Neeser and Pfeffer is about $75 per space per month. Begich’s contract with Neeser and Pfeffer allows Neeser and Pfeffer to re-rent their 570 spaces, at the commercial rate, to future tenants in the building they are building on the other side of the street, directly across Sixth Avenue from the parking garage above the bus depot. The net value of Mark Begich's gift to his friends Neeser and Pfeffer calculates to about $40,000 per month over the next 22 years, or a little over ten million dollars in ill-gotten profits cleverly lifted from the pockets of Anchorage taxpayers over time.

The above described actions are what some politicians call “Salting the System.” Ted Stevens has been doing it for forty years. Ted has imbedded an army of beholding foot soldiers throughout the business community and inside of the bureaucracy that regulates it. It was fear of that army that caused so many people to run for cover when I asked for help in exposing the bribery schemes of Veco and Ted’s son, Ben Stevens.

As for the favors Mark Begich is doing for Mark Pfeffer, future developers may not be so lucky. The individuals they hope to make their tenants will be faced with leasing from Pfeffer or doing without parking. Developers competing with Pfeffer will be faced with testing the waters of the bribability of future Mayors or going out of business and Alaska’s political arena will continue to be dominated by those willing to reap huge rewards at risk of jail time for decades to come.
Unlike the 80% empty parking lot the City took off of Mr. Pfeffer’s hands, the parking garage across the street above the downtown bus depot is about 80 % full from 8:00 AM to 5:00 PM five days a week.
At $1 per hour for nine hours per day each space can bring in $9 every business day of the month. Twenty business days times $9 per day equals $180 per month. Subtract 20% to adjust for the fact that on average, each space is occupied only 80% of the time between 8 and 5, and each space has the potential to generate an average of $144 per month. Subtract $75 per space for the base lease that Mark Begich has decided to give Mr. Pfeffer, and, Mark Pfeffer prospectively may soon be collecting $69 per month times 570 spaces, or $39,330 per month. Prior to this agreement, Pfeffer’s booty would have gone straight into the city’s treasury. It is now destined for the pockets of a person Mark Begich hopes to draw from for the duration of his political career.

And just in case you missed it, the City is leasing spaces from Mr. Pfeffer on one side of the street for $166 per month, while agreeing to lease to Mr. Pfeffer on the other side of the street for $75 per month. Meanwhile, to cover the losses, Mark Begich authorized the parking authority to raise the charge for parking meters and double the size of your fines for parking overtime. Mayor Begich attempted to explain away this entire ruse by saying the City needed more parking. However as noted above, this scheme doesn’t add one space to the available parking spaces in Anchorage.
No doubt excuses will be made and the shell game will continue. There is a big difference between the city meeting its obligation to make sure parking is available to the general public and giving parking garages to developers. It makes little difference whether unscrupulous developers extract their ill-gotten booty through jacking up the City’s parking rents, or through stiff-arming competing developers who have no parking, while Pfeffer charges higher rents because he does.

Ted Stevens is now considered vulnerable primarily because of similar corrupt little shell games that I exposed. His shell games are under investigation the U.S. Justice Department and my bet is several of the participants are going to jail before it is over. The only thing that will change if Alaska simply replaces old corrupt politicians with younger ones is who gets the graft.

Last year, the U.S. Justice Department charged Pete Kott with four felonies. One of the charges he was convicted of was violating the federal statute requiring public officials to provide “Honest Services,” and another was conspiracy. Kott was convicted of both and I can’t think of a single reason why the same principles would not apply to the above.
Ray Metcalfe

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