City attorneys feel heat on possible loss of lease

The renovated brick building at 731 S. Fourth St. has become the latest burr under the saddle of the city of Las Vegas and could cost taxpayers millions in lost investments and lessened productivity.

Currently the 40,000-square-foot structure houses the city's planning and development department. But the city doesn't own the former bank building. Instead, it has been renting the space from Dave Mason, a downtown real estate broker, for the past 2 1/2 years. It's even spent $1.5 million to remodel it -- money the city might not recover because of a problem with its lease agreement.

A couple of months ago an offer of $4.8 million was made to Mason by Arnold Kramer, who is organizing a real estate investment trust to purchase the building. The city, in its lease agreement, was allowed to meet the offer and buy the building instead of rent.

City attorneys declined the offer, however, pointing to a Coopers and Lybrand study that said the city shouldn't pay more than $4.3 million for the building. As a result, Kramer moved forward with the financing to purchase.

But then the city and Kramer hit a snag. Unlike most lease agreements, the one between the city and Mason doesn't require a new buyer to honor the city's 10-year lease.

So instead of the city being guaranteed its space in the building -- like most commercial lease arrangements -- there is the potential for the city to be kicked out.

Kramer made an offer to the city for a new lease -- 20 years at a lower rate than the $408,000 a year the city now pays. After the 20 years is up, the city can buy the building for $1.

Once again, the city declined. And Kramer, upset about the city's refusal, said he would evict the planning department and almost 200 employees if he bought the building.

City attorneys tried to block the sale to Kramer, and took him and his company, United Municipal Lease to court.

"I've never seen anything like this (contract)," said District Judge Mark Gibbons during the proceedings. He ruled against the city, and gave Kramer the right to buy the building.

Since then, the city has been waiting to hear if the sale goes through. According to Kramer's attorneys, the closing of the sale is being slowed by just a few minor details.

Sold or not, the building and its lease arrangement have been the impetus for a bout of finger-pointing and name-calling at City Hall. Council members, in last week's council meeting, told the city attorney's office that they want to be told about any offers in the future -- before the attorneys decide to turn them down.

"I think it was a fair offer," said Mayor Jan Laverty Jones, referring to Kramer's proposed 20-year lease.

But the council had previously told city attorneys to not bother bringing any offers to the council unless they were $4.3 million or below, officials at City Hall said.

The controversy surrounding the building dates back farther than Kramer's offer. When it was first being considered as a location for the planning department, another option was brought forward -- an empty Kmart building on Rancho Drive near U.S. 95.

That building had more than 75,000 square feet, including a warehouse, and 700 parking spaces. Its location next the highway would have been ideal for developers building in the northwest part of the city where most of the construction is happening. In addition, the city's public works department could move there and the city could use the facility to store equipment and vehicles -- a service that now takes up several different storage facilities that are rented throughout the city.

But in an effort to show the importance of downtown redevelopment, the city put its money where its mouth is and went with the 731 S. Fourth St. building.

The cost of renovating the Kmart building was comparable to the $1.5 million spent to remodel the Fourth Street building and the city could have owned the Rancho location including 11 acres for a little more than $4 million.

Jones stands by the council's decision.

"We're in the right building," she said. "We're still better in a lease arrangement. But we should sit down and make sure the city's getting the best lease arrangement possible."

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