Gardner Courts BSU For Tax-Exempt Space

Meeting in Idaho Falls, members of the State Board of Education approved the proposal.

groveLooks like the Gardner Company has found a pot of gold in the form of government funding for downtown Boise projects.

Latest move to get public funding for a pair of proposed downtown buildings to be squeezed into the Grove Plaza on either side of the U.S. Bank Building at Capitol and Main involves fragmenting the Boise State University Campus by moving portions of the of the Computer Science Department off campus, leaving existing facilities vacant.

Do you think such a move will justify bike lanes or a trolley?

Gardner’s proposal calls for the University to co-locate portions of its Computer
Science Department, including faculty, staff, and instructional areas related to
upper division courses, in the new development to be located near technology
firms in the downtown area.

While it is an admirable sales pitch on the part of Gardner, it will make even more space TAX-EXEMPT, forcing property owners on the Bench and other areas outside downtown to fund police, fire and other services. Why? Because these GOVERNMENT-OWNED buildings, including the so-called transit center, a $38,000,000 Greater Boise Auditorium District ballroom and kitchen, and now a BSU structure which could cost at least $15,000,000, will never yield a dime in tax revenue.

BSU is attempting to get the State Board of Education to approve the deal–which has several lease options, but with the clear intent of making annual “lease” payments for at least 20 years with the clear intent of owning it at the end.

State institutions are beholding to the State Board and the Legislature. However, local government agencies — such as the Auditorium District — have to seek voter approval for multi-year debt. They can also seek “judicial confirmation” from the court which is a limited exception to the constitutional mandate for a vote.

Ironically, Boise city councilors will soon begin working on annexing sparsely populated farm land along Ten Mile Creek nearly to Kuna-Mora Road…so much for curbing urban sprawl.

Read the State Board June 18-19 Agenda proposal.

JUNE 19, 2014
Facility Lease with Acquisition Options
Idaho State Board of Education Governing Policies & Procedures, Section V.I.2
Gardner and Company (“Gardner”), a private developer, has approached Boise
State University (BSU) with a proposal that provides BSU with an opportunity to
own or lease space in its new downtown development at a reduced cost.
Urban universities such as University of Utah and Portland State University often
operate satellite campuses in downtown locations. BSU has been invited to
participate in several such developments proposed by both government and
private entities. This particular location would serve to create collaborative
partnerships with leading industries, allow local businesses and industry greater
access to our programs, and provide our students with the opportunity to interact
with local partners by working on projects of mutual interest.

Gardner recently completed construction of the Zion’s Bank building. It has now
acquired the US Bank building and proposes placing a mixed-use development
on the adjacent surface parking lot. The development, consisting of two
connected buildings, the Centre Building and the Clearwater Building, will be
called City Center Plaza. Gardner has secured lease commitments from
computer science industry partners and other public agencies. The goal is to
build a computer science/software industry focused development in addition to a
transportation and retail location.

Gardner’s proposal calls for the University to co-locate portions of its Computer
Science Department, including faculty, staff, and instructional areas related to
upper division courses, in the new development to be located near technology
firms in the downtown area.

Project Partners:
In 2013, Valley Regional Transit (VRT) issued a Request for Proposal for a
downtown regional transit center. Gardner, the sole respondent to the RFP,
proposed that the transit center be placed within its new development. VRT has
announced its commitment to be part of the project and final approval from the
Federal Transportation Administration is expected in June 2014. While Gardner
will develop the transit center, VRT will hold final ownership as part of a
condominium agreement for the project.
JUNE 19, 2014
The Greater Boise Auditorium District (GBAD) recently announced its intention to
partner with Gardner to develop additional auditorium and convention space at
this site. GBAD has retained its own planners and designers and in advance of a
final commitment to Gardner, GBAD will program and estimate the cost of the

Clearwater Analytics has signed a ten year lease with Gardner for five floors of
the development. Gardner will own the Clearwater suites as part of a
condominium agreement. In addition, Gardner has several lease commitments
from retail tenants to occupy the ground floor of the development.

Project Description:
The two buildings will be approximately 370,000 gross square feet, of which the
University will occupy 53,549 gross square feet comprised of two complete
floors, the second and third floors of the Clearwater Building and a small portion
of the Centre Building. Additional information follows:
Clearwater Building (250,000 gross square feet):
Ground Level: Building lobby, elevators, and retail
Second and Third Levels: Boise State University
Fourth through Ninth Levels: Clearwater Analytics
Centre Building (120,000 gross square feet):
Subterranean Level: Transit center
Ground Level: Lobby and retail
Second through Fifth Levels: Auditorium and convention spaces and a small
space for University use

Gardner has offered to lease 53,549 gross square feet to BSU for $16 per square
foot/per year, triple net ($856,784 in the first year). This lease rate will escalate
annually by three percent, with a three percent discount if paid annually in
advance. The triple net status requires that in addition to the base rent, the
University will pay additional annual rent. The additional rent is detailed in the
attached lease and represents common area services provided to the complex
including landscaping, facility maintenance, trash services, and utilities as well as
taxes and insurance. These expenses are estimated to be between five and six
dollars per square foot, per year, approximately $294,000 in the first year.

The lease is a one-year lease with nineteen one-year renewal options. A landlord
contribution of $50 per square foot for tenant improvements ($2,677,450) is
included. The University holds the option to decline landlord funding of tenant
improvements. Should the University self-fund tenant improvements, the initial
lease rate extended to the University is reduced to $11.25 per square foot, triple
JUNE 19, 2014
net ($602,426 in the first year), with the same three percent annual escalations
and prepayment discount.
The proposed lease also provides the University with an initial purchase option of
$9.1 million, and subsequent annual purchase options which decline in cost
through the twentieth year of the lease, at which time the University will have a
one dollar purchase option.

At this time, the University requests only that the Board approve a facility lease.
The proposed lease provides that final decisions about the University’s
investment may be delayed for approximately two years without penalty. The
University will monitor the project’s construction and costs, observe market
conditions, and if warranted, return to the Board within two years for any
investment proposal requiring Board approval.
Because the University would prefer to hold an annual lease and declining
annual purchase options, the landlord’s lender requires some unique conditions
to secure financing:
1. Tenant improvements are generally considered sunk costs specific to
an individual tenant. Therefore, the lender will not lend to the landlord
for the cost of the University tenant improvements due to the annual
lease status, unless:
a. The University agrees to a minimum five year lease term; or
b. The University agrees to pay a lease termination fee equal to the
unamortized portion of the tenant improvement costs should the
University not lease for five complete years; or
c. The University agrees to self-fund the tenant improvements.
2. The landlord’s financing will likely include a loan pre-payment penalty.
Should the University exercise a purchase option, any applicable loan
pre-payment penalty will be added to the University’s purchase price.
The exact amount of the prepayment penalty is not yet known and is
subject to the final financing package at the conclusion of the
landlord’s construction loan. However, the landlord has agreed to allow
some lease years without prepayment penalty to the University:
lease years 0 (initial purchase option), 1, 2, 12 and 20 ($1 purchase
Should the University exercise any purchase option, the lease becomes null and
void, thus activating the University’s full ownership rights per the condominium
association bylaws. The association bylaws are not yet agreed upon; however,
the University’s obligation to pay rent under the lease is conditioned on its
approval of the association bylaws. The University is not required to pay rent
JUNE 19, 2014

under the lease until the bylaws have been approved by the University and
Over the next two years the University will work closely with the developer and
their lender as the project and financing progresses, monitor how the financing
structure will impact purchase option pricing, and monitor market conditions and
University priorities. The University will then return to the Board with updates,
analyses, and recommendations related to the funding of tenant improvements,
the lease versus purchase decision, and the timing of those decisions. Approval
of the proposed lease agreement allows the developer to secure construction
loan financing and proceed with construction of the project which is expected to
be completed in approximately two years.

Attachment 1 – Lease Agreement Page 7
The landlord anticipates substantial completion of construction and preparation of
the premises (excluding tenant improvements) not later than 24 months after the
execution of the lease. The term of the lease begins upon the “commencement
date” which is either the date the tenant takes possession (other than for
purposes of competing tenant improvements), or 120 days after landlord notifies
tenant that the premises are ready for tenant improvements, whichever occurs

Funding for lease payments will come from budget reallocations or operating
reserves. BSU has affirmed it does not anticipate seeking new appropriated
funding in the form of a state budget request or tuition or fee increase request.
The “going rate” for lease space in downtown Boise is one figure which blends all
buildings, so some new buildings leasing for $25 a square foot or more are
averaged with old buildings leasing at $10 per square foot. That being said, the
current office rate downtown is $18.20 per foot full service, which translates to
about $13.20-$14.20 Triple Net. Brand new construction leases for a premium
over the average blended rate. For example, at the new 8th and Main Tower, the
current market rate is $26.50 or $21 triple net. As such, the $16/SF NNN
negotiated by BSU is competitive for premium new construction.

Pursuant to Board policy V.B.10., only owner-occupied space is eligible for
occupancy costs funding from the state. However, since there is an option to
purchase, staff recommends notifying Legislative Services Office and Division of
Financial Management staff within 30 days of Board approval to enter into the
lease agreement.

BSU should be prepared to discuss plans for the use of space vacated on the
main campus as the result of this relocation.
JUNE 19, 2014

Comments & Discussion

Comments are closed for this post.

  1. “Fascism is better called Corporatism, as it is the merger of State and Corporate Power.” ~ Benito Mussolini

  2. Having attended BSU and other much better schools I can opine that most schools are mostly advertising and carefully selected Kool-Aid drinking professors.

    Much of what they do is get young people deep into debt for a worthless degree.

    Washout rate is humongous too because they tap the kids before they even leave high school and before they have the focus to spend education money wisely. Johnny is not a genius because B$U “allowed” him to take easy credits in 12th grade. That’s just smart marketing.

    I attended a comity meeting on the washout rate. An overpaid man in a suit basically said I don’t care so long as I got their money and it looks like we’re making an effort. Get em young while they still got money to spend.

  3. It’s sheer bureaucratic arrogance – and the presumption that the Federal Student Loan gravy train will continue to subsidize dumb behavior like this, while hoodwinking gullible students into ever expanding, expensive country club schools – that allow these dopes to expand and duplicate without limit. A “campus” is a campus for a reason, and spreading things out only increases costs for duplicative services and infrastructure. Having U of I , or ISU here in Boise is equally as ridiculous, by the way. Keep stuff on the campus for crying out loud. Gear up and get lean in preparation for the monetary train wreck that is coming our way. The State Board of Education needs to learn to say NO.

  4. Speaking of campuses spreading out and students going into debt. The College of Idaho has partnered with Idaho State University and will begin a Physicians Assistant studies program there this fall.

    With just about every school having a health care program and even extending them to the local High Schools (C.N.A. and E.M.T.) space for proper class clinicals is very limited.

    Just about every occupation out there has some short of predicated shortage. How else can they justify adding to the crippling student debt in this country.

  5. Intersting, puts those guys right in the heart of Boise’s tech triangle and that has got to be a huge expansion of space… Not sure how that total sq. footage decreases once built out. I’d imagine they’re looking to expand based on all the reports of growth in this field. Idaho desperately needs to expand its tech community to get off the bottom rungs of the average wage lists. I can see both sides here with preliminary information. Interested to hear more. Lots of pros/cons.

    Lots about student debt in these comments. Having zero debt myself, I’m scared for all these colelge kids but CS students are in a whole different league. These kids get paid $20/hr for their internships and laugh at unpaid internships. I swear I’ve heard a couple local tech guys speak about them have to duke it out to snatch these kids up their sophomore years. I’ve been jealous since.

  6. Interesting article. Separating a single department from the rest of the university seems like a strange idea at best. I don’t think I’ve ever heard of such a thing for an undergraduate department. Maybe Clearwater Analytics is taking over the BSU CS department?

    You piqued my interest with the annexation talk. Is there any more information available on that?

    EDITOR NOTE–Check out the BOISE WEEKLY site. George Prentice did a pretty comprehensive story on it including a map. Council had it on the agenda for Tuesday. My issue is they simply create the very urban sprawl they claim to oppose.

  7. You have to hand it to the good people at Gardner, they know how to play the game. They walked the city of Nampa right up to the altar and then bolted for the door. They left Nampa with their proverbial sausages in their hands.

    These guys have more angles than a protractor when it comes to screwing taxpayers out of money.

  8. BG, besides the issue of valuable downtown land going off property tax rolls can you summarize? Or is that the only issue?

    Could it be possible that BSU gets new classroom space for less than it could build its own on campus? And it that’s true– wouldn’t that save taxpayer money on one ledger while increasing it on another?

    And again, BG, I don’t see any spreadsheet of detailed estimates of how much this would add to property taxes. This is the same thing you do when attacking urban renewal districts. I have yet to see even the most basic detailing of how much property taxes are artificially inflated due to existence of properties exempt or partially exempt from property taxes.

    Don’t get me wrong, I don’t like the idea of fragmented campuses but maybe that’s the coming reality of the 21st Century.

    EDITOR NOTE–Don’t think we have any arguments. I just thought folks needed to know it was Gardner’s idea, not BSU. They are brilliant in their sales approach, but taxes on a $70,000,000 structure would be more than $1 million a year in aggregate for schools, city, county, ACHD, etc. As a rule of thumb the overall tax rate in the city is about 1.7% of value.

  9. I agree with boisecynic, the idea of having to attend classes at traditional brick and mortar classrooms is a 19th century model for education. Looking back at my college experience we had lecture halls full of people and it all could have been done via SKYPE if they only had it back in the day.

    Colleges and students need to come to grips with the notion just any old degree will get you a good job. And, signing on the dotted line for student loans (often called tuition aid) has a day of reckoning.

    All this may be off subject but choosing both school and course of study is as important as attending college. Four or more years, costs and the job prospects need careful attention.

  10. It seems to me that Gardner has some pretty good used car sales men. If Boise residents are going to keep re electing g these guys they deserve what they get.

  11. Dave, you present this as a one-sided sale by Gardner. I don’t think that’s the case at all. If BSU had no interest in the deal, it would just say no thanks. The fact that the University is pursuing this, makes me think that your analysis of the situation is a little too slanted. Isn’t it possible that the tax revenue lost in the building is made up for by the avoidance of tax costs for university facilities?

    EDITOR NOTE–No slant on this at all. Details of WHEN the condo sale becomes tax exempt are yet to be determined. In the case of any state avoidance of “tax costs” the benefit–or liability–is borne by all state taxpayers. In the case at hand, only BOISE property owners are affected. There are no state property taxes. Also, BSU and the state have removed millions upon millions of dollars of property value from the tax rolls in Boise. Land Board owns brew pub, storage business, bank, parking ramp, which are ALL TAX EXEMPT in downtown. Meanwhile, BSU has removed private homes throughout the area of the campus, again depriving local government of revenue. Meanwhile we give them FREE fire service and their students consume police, fire, library, park, sewer service etc. No argument about BSU contributing to the economy, but they also eat up an equal amount of services while depleting local tax revenues.

    Think of BSU as a city unto itself with a population of more than 20,000. Then, think of the services consumed and who pays. The answer–with no slant–is “fees in lieu of taxes” paid to Boise.

  12. The further BSU expands the bigger the BSU “kingdom” becomes and the more “integrated” they get into more revenue streams.

    Much like the St Luke’s strategy….get bigger and bigger so you control more and get more. Pretty simple.

  13. Lex… Im confused… revenue streams? Please explain how?

  14. Any new update to this BG now that this has been approved and more details shared?

    EDITOR NOTE–Looks like more tax-exempt space in the commercial building. Wise move for Gardner to pay BSU $1,000,000 advance in the form of a scholarship fund.

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