Inquiry launched into State Office Building sale

State auditor general claims taxpayers being 'ripped off'

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Declaring that the taxpayer is being "ripped off," state Auditor General Jack Wagner yesterday launched his own investigation into the $4.6 million sale of the State Office Building, Downtown.

At a news conference, Mr. Wagner said his Office of Special Investigations would review the sale and the expense of moving more than 800 employees into leased space to determine the true cost of the transaction to taxpayers.

Mr. Wagner's announcement was greeted by applause from dozens of state employees who gathered in the lobby of the 16-story building overlooking Point State Park to hear his remarks.

He is challenging the decision by the state Department of General Services to sell the structure to River Vue Associates LP, an affiliate of developer Millcraft Industries, which also owns the former Lazarus-Macy's and G.C. Murphy stores Downtown.

The state will be moving employees to the Lazarus-Macy's building, now called Piatt Place, and two other locations Downtown -- 11 Stanwix St. and the Chamber of Commerce building -- as part of the transaction.

At Piatt Place alone, Millcraft will get at least $1.8 million a year from the state for housing workers.

In announcing the sale, General Services Secretary James P. Creedon said the commonwealth will save $14 million over 20 years by selling the State Office Building and leasing space elsewhere.

Calculated into that is a General Services estimate that the 52-year-old building needs $64.2 million in work, including a new roof, extensive HVAC upgrades, a new sprinkler system, and plumbing and electrical improvements.

But Mr. Wagner has blasted the transaction as a "fire sale" in a depressed real estate market. Yesterday, he disputed the state estimate on renovation expenses, distributing a 4-year-old report that projected the costs at $14.6 million.

"This is a bad deal. Every taxpayer will pay for it," he said.

Mr. Wagner was unsure what his next step would be even if his 60- to 90-day review confirms his suspicions. He acknowledged he has no authority to block the sale, but hopes public outrage will force state officials to reconsider.

Mr. Creedon welcomed the investigation, saying he's confident the "decision is clearly in the best interest of taxpayers."

He didn't know where the 4-year-old report Mr. Wagner circulated came from, but believes the latest $64.2 million estimate is accurate.

As for other expenses, the state, he said, projects the cost of moving workers and additional furnishings at about $7 million.

While the state will pay an average base rent of $11.16 a square foot in the three buildings it will be moving into this fall, the total lease cost, including operating, utility and build out expenses, amortized over 20 years, equals $25.60 a square foot, Mr. Creedon said. The rate is locked over the two decades, he said. Rates for Class A office space Downtown now range from $20 to $28 a square foot.

"I think we've got a great number," Mr. Creedon said.

Lucas Piatt, Millcraft executive vice president, said his firm will be paying all build out costs at Piatt Place. The state also will get six months of free rent and a credit that could reach as high as $1.6 million to buy furniture or other equipment, he said.

"The fact is they got recession lease rates," Mr. Piatt said.

Despite Mr. Wagner's complaints about a fire sale, Mr. Piatt said Millcraft is paying $100,000 more for the building than another developer, the Buncher Co., offered last year when the economy was still good. Buncher pulled out of the deal earlier this year.

Mr. Piatt and his father, Millcraft Chairman Jack Piatt, have contributed $221,000 to the campaigns of Gov. Ed Rendell since 2002. But Lucas Piatt and state officials insisted the contributions had nothing to do with the sale, saying it was the result of a competitive bidding process.

"There's never a quid pro quo, you scratch my back, we'll scratch yours," Lucas Piatt said. "To even assume we're a pay-to-play type company is asinine in my mind."

The State Office Building has an assessed value of $14.9 million but Mr. Creedon argued the market itself dictated the $4.6 million selling price through the state's competitive process.

Mark Belko can be reached at or 412-263-1262.


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