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Lawmakers question REAC loan; bank’s funding of building’s purchase may conflict with law

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North Dakota legislative staff will investigate whether a $9.8 million loan agreement that UND signed to buy a struggling research facility can be voided.

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Sen. Ray Holmberg, R-Grand Forks, brought up the potential issue with the loan during a legislative hearing Thursday, where lawmakers continued to question higher education officials on last year’s purchase of the Research, Enterprise and Commercialization building on the UND campus.

 Holmberg said the language included in state law allowing for the purchase of the building seems to conflict with the UND’s request for bank loan proposals. In that request, UND wrote that the loan may be paid back using, among other things, “appropriations to UND.”

Holmberg said state law leaves out state appropriations as a source for purchasing the building.

“And the basic question is, does the fact that the RFP (request for proposals) appears to be in conflict with what the law was, does that make the contract void or does it make it voidable,” Holmberg said during Thursday’s Interim Government Finance Committee hearing.

UND received four loan proposals last year that would allow it to buy the REAC building from the UND Research Foundation. The university ultimately chose to borrow from Bremer Bank, which previously provided the Research Foundation a loan to help construct the building.

UND purchased REAC in September, and began making loan payments in October, according to Vice President for Finance and Operations Alice Brekke.

History

REAC opened in 2009 as a place for private companies to rent biological lab and office space. It was built using a mix of state Centers of Excellence funds, federal and local money, as well as a Bremer Bank loan.

The building has struggled to attract tenants, however, and is currently about half-full.

UND sought legislative approval to buy the struggling facility last year. The Legislature ultimately passed a law in May that allowed the State Board of Higher Education to conduct the sale in an effort, Holmberg has said, to keep negotiations at an arms-length distance from UND and its affiliated foundation.

The impetus for Thursday’s hearing, and a previous one in February, were questions over whether the SBHE was actually involved in the sale and if the process followed the intent of the law.

Interim Chancellor of the North Dakota University System Larry Skogen apologized last month and said the sale should have been conducted differently.

Moving ahead

Thursday’s hearing included a wide-ranging discussion, including how the state monitors Centers of Excellence grant awards, the relationship between foundations and universities across North Dakota, and whether UND and the SBHE could have negotiated a better deal for the REAC if the Research Foundation had gone into bankruptcy.

Meanwhile, Brekke said UND is being more active in marketing the REAC building to potential private partners. They have hired a staff member dedicated to that effort, a position that UND didn’t have previously.

Brekke said their goal is to “move this from an unsuccessful facility to one that thrives and really can demonstrate the value of what it was intended for.”

The next Government Finance Committee meeting hasn’t been scheduled.

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John Hageman
John Hageman covers local business and Grand Forks' legislative delegation. Get more business news at aroundtown.areavoices.com. 
(701) 780-1244
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