Unlike the county, the Transportation Corridor Agencies are not funded by taxes and rely almost entirely on fees on new development and tolls to build the roads, allowing them more flexibility in purchasing property.
"We saw a clear business opportunity that would not only meet our needs for the long term, but provide us with an asset that will continue to grow in value and can be applied to the bottom line when sold," Glaab said. Proceeds from such a sale would be used to retire debt or returned to the county and cities whose members sit on the toll road boards.
When the Orange County Transportation Authority sought a new building in 1991 to consolidate all of its operations and 450 administrative employees, it awarded a four-year contract to an independent real estate consultant to conduct a study. The authority paid from $700,000 to $800,000 to the consultant, which in turn hired a broker and paid the broker's commission.
"We felt we needed to have an independent assessment," said Kenan, the OCTA's finance director. "When you go to your board of directors, there is the credibility of an independent contractor taking a look at this and it carries that much more weight."
The tollway agencies, by contrast, relied on its own staff and its broker to develop an analysis of whether to lease, build or buy a building.
Chuck West, the county's director of real estate, said his office is required to conduct an appraisal by its staff or outside consultant before buying property. After choosing a site, the county would have to advertise the purchase in local newspapers and set a public hearing on the matter before the Board of Supervisors approved it, he said.
"We have a different set of rules we have to follow," West said. "We advertise and have a public hearing so people can have a say as to whether they think it's a good deal or a bad deal or ask questions."
The toll road boards unanimously approved the building purchase during an open meeting but were not required to hold a public hearing.
The property purchased in July is at 125 Pacifica, which is now half occupied with existing tenants. The leases on the remaining tenants expire from 1998 to 2000.
Included in the 600-page prospectus used to sell the $1.26 billion in bonds last year was a $5-million budget for a building and $2.352 million for land.
Although the agencies say they spent less than the budgeted amount, the $7.352-million figure was based on the cost of having a contractor build a building and did not take into account how much it would cost to purchase existing office space.
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After concluding that leasing or constructing a building would be more expensive than buying a building, tollway board members began looking late last year for a building within six miles of a point where fiber-optic lines could easily be connected between the new building and the toll roads. The lines are needed to run a complex, automated toll collection system.
A search subcommittee of the toll road agencies then authorized its broker to survey properties.
Two industrial properties--which would have had to be converted into office space--were selling for $75 to $80 a square foot. A third was available for $154 a square foot and a fourth is now listed at $135 a square foot. A fifth did not list a sales price.
A broader study of properties conducted by the Transportation Corridor Agencies provided a second list of comparable sales of office buildings in South County and around the John Wayne Airport area. Four properties were more expensive, but three were cheaper, including a 41,900-square-foot building in the Irvine Spectrum Office Plaza sold in December for $3.8 million, or $91 a square foot.
Although the new building is paid for and cost about $100 a square foot, the toll road staff is not expected to move out of its current building in Santa Ana until late 1999 or early 2000, when its lease on that property expires and 55 employees move into the new building. Tollway officials said they want to move its toll collection contractor, Lockheed Martin, into the new building as soon as possible.
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Citing the purchase as an example of their financial prudence, tollway officials said they couldn't be happier with the deal.
"In these economic times, the cities and the county are looking at being as frugal with their money as possible," said San Clemente Councilman Scott Diehl, a toll road board chairman and building search committee member. "This simply became a business deal."
In recent months, the toll road boards have come under scrutiny for what is perceived as excessive spending habits, including salary bonuses and perks to its top executives, who already are richly compensated. Last month, the toll road boards denied pay raises to its three top managers, saying the men had done satisfactory work but did not merit more money.
Irvine Mayor Mike Ward, who sits on both tollway boards, said it would be unfair to criticize the agencies for not buying a building sooner.
"I was smarter than my neighbors when I bought my house 16 years ago," Ward said. "You can say we should have bought three years ago, but the fact is, this was cheaper than leasing or building a building, and we bought this place as cheaply as we could."
