ITEM 115-2009-R0502 Attachment ���� ����������������������������������������������� May 23-24, 2002


Proposal for Leasing Space in a Private Sector Facility in order to Solve a Critical Space Problem for the Veterinary Molecular Biology Department


Executive Summary

April 19, 2002




Montana State University has experienced considerable growth in our externally funded research programs. Over the past decade, grant and contract expenditures have increased approximately 400%. A well-funded, high-quality research program is a major factor in providing a quality education for both undergraduate and graduate students, especially in the sciences and engineering. However, we have reached the point where our current space on campus is inadequate if we are going to be able to continue to grow the MSU research enterprise. Building additional state-owned facilities on the campus is a very expensive solution and one that is nowhere near timely enough to solve our critical space shortage. In addition to the original cost of the building there is the issue of long-term O&M on the facility.


An alternative approach to solving critical space shortages is to lease space in a privately owned facility. Lone Eagle Investments LLC (CEO Richard C. Clotfelter) is building a new 38,958 square foot facility in Bozeman. They have proposed that MSU lease approximately 27,000 square feet in this facility. MSU views this as a great opportunity to address a critical space shortage. The specifics of who would occupy the space and the associated funding for the lease are described below.


Veterinary Molecular Biology (VMB) has the mission of conducting research on infectious diseases and providing instruction in animal biotechnology and for the pre-veterinary science program.� The focus of the research at VMB is on zoonotic diseases, which are diseases that can be transmitted between man, livestock and wildlife.� These diseases cause significant morbidity in all of these hosts, and many zoonotic diseases are among the Center for Disease Control�s �A� list of potential bio-terrorist agents, including anthrax, plague, tularemia, and Q fever.� There have been outbreaks of each of these diseases in Montana livestock or wildlife during the last several years.� VMB currently has a large research effort on brucellosis, a zoonotic disease of both economic and bio-terrorist concern.� The Department is expanding its infectious disease research effort to include more of the important zoonotic diseases.� VMB will capitalize on the recent infusion of federal research funds targeted to investigate diseases of bio-terrorist concern.


VMB research programs have grown over five-fold in grant and contract expenditures since 1996.� If the Department has its average success rate with pending grant applications, the Department�s grant and contract expenditures for FY03 should be nearly seven million dollars. The Department is confident of its future success because: 1) it is investigating a timely and increasingly important field; 2) it is carving out a unique and important scientific niche; and 3) it will take advantage of its location in Montana.


In order for VMB to continue to succeed, new facilities are needed to accommodate the current faculty growth of programs, recruit new faculty, and address new technologies.� Over the past several years, the Department has attempted to address space shortages with the construction of two 2000 sq. ft. modular laboratories.� Although this has helped alleviate the current shortfall, more space is needed and a third modular building was planned.� However, the cost of this third modular was estimated to be approximately $850,000 because of extensive site preparation costs.� At this cost, using the modular building option has become cost prohibitive.�


Proposed solution


To solve the space shortage for VMB and alleviate other space shortages on campus MSU would like to lease 27,000 square feet of space in the building being developed by Lone Eagle Investments.� The entire VMB Department will be relocated from the existing Marsh lab building.� VMB currently occupies approximately 23,000 sq. ft. of space (combination of 19,000 sq. ft. in Marsh Lab and a total of 4,000 sq. ft. in the two modulars). The Department will need an additional 3000 sq. ft. of space for two new faculty scheduled to join the Department during the next 12 months.� In addition, 1000 sq. ft. of space will be needed for VMB instructional programs. As a result of VMB vacating Marsh Lab numerous activities not directly involved with the instructional program can be moved from the central campus to Marsh Lab. Therefore the domino effect will enable us to solve some severe space shortages for other academic departments.��


Cost and Funding Source������


The proposed cost of the lease will be $17.93 per sq. ft. per year for a total of about $484,000 per year.� This amount includes having the developer fund �special tenant improvements� including all laboratory casework. Therefore we would move in to a facility that would be fully operational. According to the proposed terms of the lease MSU will also be responsible for utilities and janitorial services, estimated to be $60,000 per year. The $60,000 for utilities and janitorial services will be paid from funds collected from VMB faculty special grants and by Dean COA. The cost for leasing the 26,000 sq. ft of research space will be funded from Facilities and Administrative (F&A) costs recovered on research grants awarded to the VMB faculty.


VMB administers the Animal Option of the Biotechnology degree.� It would be highly desirable to have VMB�s instructional program housed in the same building as the research labs.� This will allow us to maintain the intense interactions of students with the VMB faculty, and the ability of the students to utilize VMB�s state of the art research equipment located in the research laboratories.� Recovered F&A funds can not be used to lease space for instructional purposes.� Thus the lease costs associated with the 1000 sq. ft. of the leased building dedicated to a student laboratory and lecture hall will be covered from instructional funds.


Construction Costs if MSU Built the Facility����


According to MSU Facilities Services, the average construction costs for Laboratory space in Montana is about $305 per sq. ft. and for office space (if separate from lab) is about $208 per sq. ft.� This price includes soft construction costs but does not include site costs.� It is expected that the net to gross will be in the range of 55-60%.� If the offices are intermixed with the labs as proposed for the leased facility, their cost is the same as that for the labs.� Site costs are estimated to be a minimum of $600,000.� Thus the total cost for new construction of 27,000 sq. ft. of assignable space, with offices and labs intermixed, would likely be in excess of $12,000,000. If MSU borrowed this amount of money on a 15 year repayment term, the annual debt service (based on current rates) is estimated to be approximately $1,140,000, or for the 15 year term a total of $17,100,000. As a comparison, the total cost of our proposed lease of 27,000 sq. ft. for 15 years would approach $7,500,000. In addition if MSU built the building and were to be responsible for O&M, the annual O&M cost alone would likely be in excess of $300,000.


Advantages of Leasing ����������


In addition to the huge cost savings approving the lease arrangement has numerous advantages over the state building a facility. These include:


����������� ����������� The time factor. We have a critical shortage now. If the lease option is approved then VMB could move into the building in June 2003.

����������� ����������� If the state built the building the absolute earliest that a facility could be available would be 2005, and the annual cost of debt service and O&M would be approaching 3 times the annual lease payment plus services costs for the leased facility.

����������� ����������� The lease option provides flexibility.


Assurance that VMB Can Afford the Lease Payment��


For FY03, VMB already has grants awarded that will generate more than $1,000,000 in F&A.� If VMB is awarded a large NIH grant (designated COBRE) that is currently pending, the Department will generate over $1,500,000 of F&A in FY 03.� If VMB moves into a new facility, allowing two new faculty hires in FY 03, and two additional� faculty hires in FY 06, it is conservatively projected that by FY 09, VMB will generate over 2 million dollars per year in F&A.� This growth will come from new research grants awarded to the new faculty and a major multi-investigator grant such as an NIH Program Project Grant.� However, even if VMB just maintains their current level of funding the F&A generated by the department is more than twice what is needed to make the lease payment. Under a highly unlikely scenario that VMB grant and contract expenditures would decrease by 50% there is still adequate F&A recovered to make the annual lease payment.


Conservative and realistic projections would lead to the conclusion that recovered F&A in the VMB Department will likely be at least four times the annual lease payment by no later than FY09. The rationale for this projection follows: In order for recovered F&A to pay the yearly cost of the lease, VMB must generate a minimum of $466,000 per year.� This is less then one-half the currently recovered annual F&A of the 8 member faculty.� Not being able to meet this minimum F&A generation with the 12 member faculty VMB will have within 3 years is highly unlikely.� Furthermore, the award of either the COBRE grant that is currently pending, or a Program Project Grant that is planned in 2-3 years, would alone generate more then sufficient F&A to cover the lease.


Importantly, it is also projected that by FY 05, VMB endowments could cover over one-half of the yearly lease cost.� If the endowment funds were used to cover the lease, VMB faculty could fall to nearly one-fifth of their current productivity and still cover the yearly least cost. The latter is a highly unlikely scenario.


Finally, if in the extremely unlikely scenario that VMB would no longer be grant active, then VMB would be required to vacate the building. Other biological scientists who are grant active would be relocated to this facility, and MSU recovered F&A would be used to cover the lease payment.