How Idaho made the deal to buy HP’s Boise campus

The state’s deal to buy Hewlett-Packard’s Boise campus was months in the making and would not have happened had not Idaho lost out to St. Luke’s Health System in an attempt to buy a different site.

Gov. Butch Otter and legislative leaders surprised the Treasure Valley on Thursday with news of a deal to buy HP’s 200-acre property at 11311 Chinden Blvd., including eight buildings, for $110 million.

Legislative leaders moved swiftly to put the Legislature on track to approve the deal before the expected end of this year’s legislative session on Friday. The day of the announcement, a House committee voted to print a resolution authorizing the purchase, plus an additional $16 million for property improvements.

The deal’s roots are traceable to a routine bureaucratic chore last summer. The Department of Administration, which manages state property and leases, was negotiating a lease extension for the Idaho Tax Commission — and its roughly 550 employees — in Washington Group Plaza, the former Morrison-Knudsen headquarters complex at the east edge of Downtown Boise.

The negotiation stopped when the state learned that the plaza’s owner, a Canadian commercial properties holding company, wanted to sell it. That caught the attention of Bob Geddes, the department’s director. He was interested in buying.

Idaho owns no offices in Boise outside of the Capitol Mall. Buying Washington Group Plaza, whose assessed value was $44 million, would mean the state could save money and work more efficiently by relocating agencies that now occupy 800,000 square feet of scattered Boise office space under leases costing $12.6 million per year.

It wasn’t the first time the state considered buying the plaza. Geddes said Idaho was interested in 2003, when he was a state senator. Then-Gov. Dirk Kempthorne wanted to make a bid, but Geddes said Legislature lacked the desire and the budget flexibility to submit a serious bid.

This time, Gov. Butch Otter saw another opportunity. He told Geddes to pursue the campus.

“Most agencies have a citizen-access need, and if we’re all under one roof, it’s more convenient for taxpayers,” Geddes told the Idaho Statesman. “If we own the land, we can manage and somewhat control the cost of operating there.”

But St. Luke’s had other plans. The health system, a tenant, wanted to expand its Downtown headquarters and secured a right of first refusal buy the plaza, Geddes said. St. Luke’s exercised that right in October.

In November, the state issued a request for proposals, offering to lease or buy office space ranging from 200,000 square feet — enough for the Tax Commission — and 600,000 square feet, enough to house several agencies.

The state received 46 proposals, including one from HP. (It also received one from the Idaho Statesman, which wants to sell its office at 1200 N. Curtis Road and relocate.)

“Some were small enough to put just a few people in,” Geddes said. “We also had virtually every large property in the valley contact us.”

HP built its campus beginning in 1980 and manufactured printing products there for years. Eventually it ended manufacturing and had more space than it needed. HP began renting out space to call centers and other businesses.

In 2015, the company split into HP Inc., which sells printers, ink and personal computers; and Hewlett-Packard Enterprise, which sells data storage, software and servers. Both companies employ people on the campus, though HP Inc. has the most.

HP submitted a bid for a vacant 1,500-square-foot building. State officials had toured it. Before issuing their request for proposals, they asked if it was for sale. HP said no.

Geddes and his staff reviewed the 46 proposals. They also considered whether to build. They priced land and construction costs. They concluded a campus would be more cost-effective in the long run, said Keith Reynolds, Geddes’ deputy director.

The state approached the company again, this time with an offer: We’ll buy your campus and lease back to you the space you need.

This time, HP was interested.

HP would not answer reporters’ questions about its thinking or intent. Instead, it issued a statement.

“HP plans to evaluate sale and leaseback deals for the company’s Boise site,” the statement said. “This decision will ensure HP is able to maximize the value of its real estate investments and create future growth at the Boise campus. We will not disclose the details of the purchase deal.”

Reynolds said he didn’t know why HP changed its mind.

“They certainly expressed their intent to retain their presence in Boise by doing a seven-year lease, and we’ve discussed extensions on that lease as well,” he said. “They don’t seem to be in any hurry to leave the Boise Valley.”

Officials first met with a Boise broker representing HP, then with a Denver broker who flew to Boise to negotiate. Two HP representatives flew to Boise for a final negotiating session, Geddes said.

Geddes and his staff worked with Otter’s office, legislative leaders and state Rep. Robert Anderst, R-Nampa, a commercial real estate agent. Anderst presented the resolution authorizing the purchase to the House Ways and Means Committee.

About 30 people knew about the HP plan before Thursday, Geddes said.

“Real estate is tricky that way,” Geddes said. “You advertise that you are interested in something, and, lo and behold, you find out somebody else is suddenly interested, too.”

Reynolds began drafting the HP resolution a month ago. Reynolds said agreeing to terms with HP in time for the Legislature to approve the resolution in its final days was nerve-racking.

“We’re biting our fingernails to make sure we had enough time to make this happen,” Geddes said. “HP expedited their schedule to make sure we were in time.”

The state’s deal with HP is nonbinding, except for giving the state an exclusive right to negotiate the purchase for 45 days. The state will perform due diligence — reviewing the property’s records and condition — before closing the sale, though it may not conduct a formal appraisal, Reynolds said.

Idaho plans to sell bonds to raise the $110 million. HP will lease back about half the 1.5 million square feet for an initial seven years.

“We’ll kick the tires to make sure the purchase makes sense,” Geddes said. “We’ll continue to negotiate terms, such as HP’s lease terms. We’ll also be authorized to transfer current leases HP has on its campus to our ownership, which allows us to take that revenue and apply it to paying bonds.”

Other than the Tax Commission, which the state wants to move this summer, state agencies won’t be ready to relocate in the next several months, Geddes said. Buying the HP campus allows the state to migrate agencies west gradually over years.

“With HP being willing to pay a lease, they will help us phase into ownership in a logical, sequential way,” he said.

Reynolds said buying a permanent home for the Tax Commission instead of moving it to the Washington Group Plaza 26 years ago would have saved taxpayers money. Buying the HP campus will save money in the long run for whatever agencies wind up housed there too.

“[A state-owned building] for the Tax Commission could have been paid many times over,” he said. “In a lot of ways, investing in a campus is a really conservative fiscal move for the state. If you look at the lease rates, we are much better off owning our own property.”

This story was originally published March 20, 2017 at 6:14 PM with the headline "How Idaho made the deal to buy HP’s Boise campus."