http://www.27east.com/story_detail.cfm?id=160648

To simplify it, Walentas gifts the space to DOE. DOE sells to another party, which then leases the space back to DOE. DOE uses proceeds from the sale to pay for the build-out. DOE pays annual(?) rent to the purchasing party.

You are correct about the over-leveraging of other properties. I also wouldn’t necessarily attribute financial stability to Walentas as they would need to secure financing to complete the project. Perhaps you are saying that they are not over-leveraged on their properties (that we seem to be aware of, at least).

The problem I still see with the sale-leaseback is that it is still contrary to the statement of “no money to build, rent, or buy a school” as in the end they’re still paying rent to someone.
This is where the political shenanigans come into play… how is it that suddenly paying this rent is affordable?
Based on what we know from the FOIL docs and lobbying (in all its forms) it is not unreasonable to conclude there is something fishy going on.

Respectfully, let me try to explain it.

Walentas gives the DOE the condo ownership interest in the 45,742 square foot middle school space. He builds the shell as agreed to in writing. Typically, shell includes walls, windows, doors, roof, floor, basic plumbing, electric and HVAC. The DOE determines what the market rental rate is for the space and how long a lease they’d like to sign. The term might be 50 years with options to renew. The market will determine how the DOE can maximize the return.

Once those key variables are determined, the DOE markets the sale-leaseback to the investment community. The investor pays the DOE a lump sum of cash in exchange for signing a long term lease with the obligation to make future lease payments.

It’s done all the time by the DOE. It gives the government the ability to raise much needed funds today to open new schools. It’s done everyday in corporate America. Corporations would rather deploy their capital in areas other than real estate.

As you point out, alternatively, the DOE could take the 99-year lease for a $1 and yes – they would have to come up with the cash or issue bonds to raise the money to build out the school.

I can hear the “shill” callers already but it’s important to make this point – Walentas’s financial stability is another advantage he has over the competition. So called alternative sites 20 Henry and 360 Furman are reportedly over leveraged to the point of foreclosure. Those may be examples of the “BS that the financial and real estate sectors have pulled”, as you have put it. More the reason to negotiate with Walentas – he knows what he’s doing.

Sincerely.

The money for the buildout would come from a sale-leaseback of the condo interest. As an alternative, the city could opt for the 99-year lease at $1 a year and fund the buildout themselves.

The $43 million in the proposed budget seems high. That’s $940 per square foot. I’m sure the SCA has cushion built in. Let’s engage the SCA and DOE with the help of our local councilman and get some answers – solve our problem – get the best deal we can.

Get the specifics in writing – including a detailed description of “shell”. This is the job of our city council.

Sincerely.

You say “no money to build, rent, or buy a school” while you know full well that what they’re offering is a shell which will require a similar amount of money to build out and furnish. Where is that money going to come from?

And you should know from past “deals” that when Walentas says “shell” they mean nothing extra… down to non-included closet doors in condos, so don’t count on their charity to go any further.

You are making these assertions about the opposition, but all the evidence of payola is on Walentas’ side.