UND's purchase of campus research facility in 2013 draws legislative scrutiny

North Dakota legislators will review last year's sale of a UND facility.

The facility, the Research Enterprise and Commercialization (REAC) building, was sold by the UND Research Foundation, a nonprofit led by UND officials, to UND itself in September for $9.8 million.

But legislators now wonder if that sale went through the proper procedures. They point to a bill signed into law last year that allows the State Board of Higher Education to conduct the sale of the REAC building.

"The Legislature was very clear that UND should not be negotiating with UND on a building," said Sen. Ray Holmberg, R-Grand Forks. He said at this time, it doesn't appear the sale process followed the intent of the bill.

Holmberg, chairman of the Interim Legislative Management Committee, wrote a letter last week to Rep. Jeff Delzer, R-Underwood, directing his committee to review aspects of the sale.

Holmberg said legislators will examine the negotiation process and "if the taxpayers and the students through tuition were well-served by what occurred."

"I would say that from our perspective, we followed all of the proper protocols," said UND spokesman Peter Johnson.

"We believe that UND's ownership of the REAC facility will help support UND's mission of economic development for North Dakota, will provide practical, real-world experience for professors, graduate students and undergraduates, and will provide many opportunities for future growth and development," interim chancellor of the North Dakota University System Larry Skogen and UND President Robert Kelley said in a statement Tuesday.

Purpose

The REAC facility opened in 2009 as a "technology accelerator" for emerging companies on James Ray Drive, near the intersection of DeMers Avenue and North 42nd Street. The facility offers commercial and academic labs for lease, as well as offices and conference rooms.

"There are no laboratory facilities available for either life sciences or engineering in the local commercial real estate market. Having such a facility available makes it possible to develop high-tech businesses and diversify the state's economy," UND stated in a Jan. 17, 2013, memo included in a collection of documents provided to Holmberg by the North Dakota University System.

But as of November, about 17,100 of the 32,000 rentable square feet had been leased, according to that report. UND had provided more than $2 million for the facility, from its early stages through fiscal year 2013.

"The UND Research Foundation has had some difficulty in keeping the facility fully leased, which has hampered their ability to cash flow operations," according to a June 2011 legislative testimony from Justin Dever, manager of the Office of Innovation and Entrepreneurship at the North Dakota Department of Commerce.

After the State Board of Higher Education authorized UND in January 2013 to seek legislative approval to purchase REAC, UND officials made their case to lawmakers.

"The ability to own and manage this facility within UND will create operating efficiencies, reduce costs, insure ongoing stability in the operations of the facility, provide more seamless access and better enable partnerships," UND Vice President for Finance and Operations Alice Brekke told the state Senate Appropriations Committee in February.

Process

A February 2013 appraisal estimated that the market value of the REAC building stood at $8.6 million, with property within the building totaling $1.2 million.

"We had a market evaluation and we paid the market value for the facility," Johnson said.

In June, after a bill allowing the State Board of Higher Education to manage the building's sale was passed into law, Skogen signed off on the purchase terms and financial arrangements related to the sale. A statement from NDUS said the higher education board authorized Skogen to do so.

The report provided to Holmberg also mentions a "special committee for considering potential transactions related" to the sale of the REAC building. That committee is made up of non-UND officials, but it's unclear what role they played in conducting the building's sale.

A purchase and sale agreement dated Sept. 16 and signed by Kelley and Wilbur Wright, vice president of the Research Foundation, allows for the sale of the REAC building for $9.8 million. UND received a loan for the purchase just days before, according to its report.

Johnson said the loan would be paid back by rent from REAC tenants and supplemented by a "mix" of other funds.

The Research Foundation's debt for the building stood at $9.4 million before UND purchased it. Johnson said the foundation no longer has any outstanding debt.

Whatever action the Legislature takes on the REAC sale will depend on the recommendations of the Interim Government Finance Committee, of which Delzer is the chairman. Delzer didn't return a call seeking comment Tuesday.

Call Hageman at (701) 780-1244, (800) 477-6572 ext. 1244 or send email to jhageman@gfherald.com .