‘Unknown’ demolition surprises add nearly $360,000 to Tech Park construction costs

Additional construction and abatement expenses associated with the demolition of two downtown buildings will add nearly $360,000 to the costs of the city’s new tech village that is expected to be up-and-running in early 2017, members of the Little Rock Technology Authority learned on Wednesday.

In his executive director’s presentation at the Little Rock Tech Park monthly public meeting, Brent Birch explained to the board members that costs for structural rework and upgrades, electrical improvements, wall and space modifications and other construction surprises make up the lion’s share of the additional expenses for the multi-phased, multi-million dollar taxpayer-financed project.

“Any construction project is going to have things that come along …, especially when you are renovating nearly 100-year old buildings – so we’ve run into a few hurdles,” Birch said. “But we worked really hard with the architect and engineers to get to the state where we are now and it is appropriate to discuss with the board some extra expenses that have come up and their impact on our timeline.”

In February, the Tech Park board unanimously approved a $17.1 million bank consortium-backed financing package to fund the project, and later OK’ed a resolution to approve the purchase price for three separate real estate deals that will make up the bulk of the land and office space for downtown project. Once in operation, the key pieces of the 40,000-square foot development to lure startups, entrepreneurs and maturing tech companies to the Little Rock area will be the three adjacent properties formerly owned by the 415 Main Group LLC, Five Main LLC and DMT Ventures LLC.

Since demolition began on the properties in the spring, Birch told the board that the construction management firm, East Harding Construction of Little Rock, has had to modify the original plan as “significant unknown” issues have come up. One major issue has been the costs and delays associated with the former Mays law firm office. In the past two meetings, Birch and construction managers have detailed those problems, including the recent shoring up of an aging, north-facing wall and the removal of an elevator penthouse.

“We found out a lot about that building once we got into it,” Birch said. “That is where a lot of that cost comes from.”

In response to Birch’s report on the new construction costs, board member C.J. Duvall said he was not surprised by the extra expenses associated with the former law offices at 415 Main Street. “Considering the list of structural unknowns … and the history of that property, this is not unwarranted,” he said.

Duvall also asked Birch and contractor Roy St. Clair if the construction managers and architects expected to run into any other significant construction expenses ahead of the project’s completion date in early 2017.

“I don’t think so. Pretty much everything is opened up now,” said St. Clair, director of contract administration for Little Rock-based Wittenberg Delony & Davidson Architects. “I don’t foresee any other significant unknowns coming up. There may be a small piece of brick or something that has to come out, but as for the big stuff … we have pretty much resolved everything. There is not much that we have not touched.”

Birch and Tech Park Director Dickson Flake also later explained that the authority will be able to cover most of the added expenses with a $857,000 contingency fund that was created before construction began earlier this year. Flake said that some of the costs will also be absorbed by savings from other construction expenses.

TECH PARK ALLOTS $94,000 FOR NEW COMMUNITY COFFEE BAR, CONSIDERS BIRCH PAY RAISE

The most expensive construction line item for the $358,729 in new expenses, however, is a plan for the addition of a $94,000 coffee bar for the downtown technology village and startup incubator. Birch said once the engineers and architects started demolition of the building, plans for the coffee bar had to be modified to meet the specifications needed for prospective tenants.

Birch said three “very qualified” prospects are interested in operating the coffee bar, once the project is completed. “The interest in this (coffee bar) space has been very positive,” he said.

Board member Jay Chesshir, President and CEO of the Little Rock Chamber of Commerce, applauded the first possibility of the first retail tenant in the downtown development. “This would be a nice amenity for the whole (downtown) community,” he said.

In other business, the seven-person board also met in secret for 40 minutes to evaluate Birch’s job performance. He is the Tech Park’s lone employee. They also learned the current status of the Tech Park’s finances, and discussed problems with the HVAC-unit at the authority’s current offices.

Several board members’ expressed reluctance at covering the costs associated with fixing the HVAC unit that now houses Little Rock’s Venture Center, and asked Birch to look into a possible rent rebate due to the current lack of response by the current landlord. In July, the Tech Park board unanimously vote to end the authority’s long-term lease at the downtown offices and apartment building at 107 E. Markham St., opting to pay a one-time $38,000 fee to get out of the current lease agreement by February 2017 in time to move into the new Tech Park village.

Chesshir, who is also President and CEO of the Little Rock Chamber of Commerce, said that the Markham Street offices have been very uncomfortable at times this summer, including at the 12-week FinTech Accelerator program that ended in late July.

“At some point, the owner has to abide the contract we signed, which was to have space that is in good working condition,” Chesshir said of the out-of-state landlord.

According to public records, a limited liability partnership fronted by Monarch Investment and Management Group of Franktown, Colo., owns six properties in the Little Rock area, including the Block 2 Lofts on Markham Street that house the Tech Park’s current offices. Talk Business & Politics could not immediately reach representatives for the real estate firm to respond to questions about the board’s concerns.

In a monthly financial report, the board also learned from Flake that the authority had met its required equity investment in the project and now has access to the $17.1 million, bank consortium-based loan to fund phase one of the downtown tech village. Under the terms of the loan, the financial consortium led by Conway-based Centennial Bank will provide necessary funding in two parts for the downtown project at fixed interest rates 4.19% and 2.95% over a period of six years. The $17.5 million loan will consist of two promissory notes, one taxable in the amount of $7.9 million and the other tax-exempt at $9.6 million.

“We are now drawing 100% from the loan proceeds,” he said.

The executive session was to review Birch’s job performance and compensation. Upon emerging from the meeting, the board took no action and explained that any issues would be revisited once Birch had a one-on-one meeting with Tech Park Chairman Kevin Zaffaroni.
The board held a prior executive session in November and voted unanimously to give Birch a 5% raise. Following a national search, he was hired by the authority in July 2014 at an annual salary of $100,000.