Wednesday, March 31, 2010

Two thoughts on the Summit

One from local businessman (and Southampton resident) Robert Glaser in an opinion piece for the West University Examiner:

(Another option for Compaq Center, Robert Glaser, West University Examiner, 03/30/2010)
The city has an asset that has a current present value of about $35 million (Information taken from a published article referring to the Harris County Appraisal District’s appraisal of the property — this value can even be argued as being low).

Because the city is offering to sell the property, and because it was originally obtained as a “gift” to the city from an earlier developer, there is no debt associated with this property — the land and improvements are owned “free and clear” by the city.

Based on these facts, plus the fact that the city is in a unique position to access municipal credit markets, it makes sense that the city of Houston can go to these markets to create and sell an instrument that allows the city to “cash out” a portion of the equity of this asset.

Assuming that the property does not appreciate at all from today until the end of the first lease period in 2031 (an almost unimaginable assumption), we can calculate a present value based on that future value ($35 million) and discount it by the market rate of a municipal zero coupon bond that would mature in 21 years. (I will use a conservative estimate for this type of issue — say 5 percent). The present value of that issue would be more than $12.56 million — that’s more than $5 million more than than the offer being discussed as a sales price.

And one from the CCTT:

(Let's make a deal: City should get out of the church landlord business, ChronBlog Caucasian Think-Tank, ChronBlog, 03/31/2010)
As Houston City Council considers a proposal by Mayor Annise Parker to sell the former Summit-Compaq Center to lessee Lakewood Church, there are a number of compelling arguments for making the $7.5 million deal.

The prime reason for unloading the seven-acre site of the former Greenway Plaza basketball arena on the Southwest Freeway is the city's stretched finances, which include an $11.9 million shortfall in the current budget and a projected gap nearly 10 times that in the coming year. Without the sale, the city will be forced to cut already stretched services. It would receive nothing from Lakewood, which paid more than $11.8 million up-front on the current 30-year lease through 2034. After that the tenant, which has spent more than $90 million to renovate the building as a church and social center, has an option to lease the property for another three decades. Having put that kind of money into reshaping the facility, it's likely to exercise the option.

City director of real estate Bob Christy calls the proposal a fair deal “given that this property is tied up and off the books for many, many years to come.” Mayor Parker argues that the sale will “put money in the city's coffers today rather than waiting 23 more years.”
That neither of these ideas are very appealing underscores the terrible bit of deal-making that was the original lease, written by then-Mayor Lee P. Brown.

If anything this is an object lesson that elections matter, and quite often you pay for them years after the bad politicians have exited the political stage.

FWIW: Sold! To the shuckster in the $2,000 suit for $7.5 Million.


  1. So the City should BORROW $12 million for 21 years? How much interest would we owe in 2031? (It has to be north of $21 million.) And since Lakewood has invested $100 million in refurbishing the building, and no doubt more in the next 21 years, what do we do in 2031 when Lakewood exercises its option for another 25 years? Where do we get the $40+ million to pay off the debt plus interest? I'm a little dubious that this is a better idea.

  2. Wait, who are you arguing with? Glaser?
    Who said his idea was a good idea? (Other than Glaser of course.)

  3. Yes, the Glaser person, who wrote that first "thought" you posted. And I wasn't really arguing because I am just so utterly unable to even comprehend what he is talking about. Like the HCAD appraisal of $35mm -- I have no idea when that is from or how it is relevant since the City doesn't pay taxes on its own property (and neither does a church) so I can't imagine that HCAD has done an appraisal since before the land was given to the City umpty-years ago.


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