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'Plywood Palace' to get renovation as part of new lease

State picks up share of cost of rehabbing Labor Dept. building

Posted: June 21, 2012 - 12:07am

The owner of the Department of Labor & Workforce Development building in Juneau known as the “Plywood Palace” is planning major repairs as part of its winning offer for a new multi-year state lease.

And the state will pick up a big chuck of those costs as part of the lease.

Under recently announced lease agreements, which are expected to be finalized next week, 78 Labor Department employees will move to new quarters in the former Gottschalk’s space in the Mendenhall Mall.

The remaining 260 employees will remain in the Plywood Palace, which will undergo renovations over the next several months. That will include replacing and upgraded heating, ventilation and air conditioning or HVAC systems, said Patrick Holmes, representative of property owner Juneau I, LLC.

“We’re installing new digital controls, and replacing duct work,” he said. “There’ll be all new lighting, paint, carpets, all new restrooms, lobby, landscaping, redoing the parking lot, pretty much all through the building,” Holmes said.

The state also wants employees to have more light, Holmes said.

“They have a natural light requirement, and we are installing more windows to meet that,” he said.

The owners take very seriously health concerns voiced by some employees in the building, but have been unable to determine what might be causing problems, he said.

Both company and state experts have done air quality monitoring, but have not found indications of mold in the air, Holmes said.

“In every case the outside mold levels are considerably higher than inside levels, but certainly we do take employee concerns very seriously,” he said.

The new lease agreement to which they’ve agreed includes testing by an industrial hygiene expert to make sure the building complies with standards, he said.

“The state is certainly protected,” Holmes said.

State Chief Procurement Officer Vern Jones said mold found previously has been dealt with, but the new renovations are more extensive.

“What they’ll be doing is taking out parts of the sheetrock, if there’s mold they’ll be abating it,” he said. “They told us they were going to do that to the entire building.”

The state is expected to sign a five-year lease, with two optional five-year renewals. The lease amount will be $2.13 a square foot base rate per month, with an additional cost to the state of $1.36 per square foot for tenant improvements during the first five-year period.

That amounts to nearly $4 million extra to Juneau I for improvements over the term of initial lease term. The total cost for the first five-year term will be about $10 million, according to data provided by Jones.

Tenants paying for improvements are standard parts of lease agreements, Jones and Holmes said, and the Mendenhall Mall will be getting similar payments for converting the old department store into offices.

Jones said the state likely could have received a lower per-square-foot price with a longer lease term, but wanted to keep its options open in case it wants to build its own building.

That’s been the hope of the Juneau legislative delegation, but the state got as far as narrowing down options to a downtown and a Mendenhall Valley site before reversing course and choosing to continue to rent.

The state doesn’t yet know what it will need or want in Juneau in the future, said Becky Hultberg, commissioner of the Department of Administration. Her department provides office space for multiple state agencies.

An analysis of space needs is now underway, but won’t be fully complete until after the Library, Archives and Museum Building is completed. That project will make some additional space available, and a longer-term decision will be made then, she said.

“That could include a new building, but it might not,” Hultberg said.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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