We’ve known for awhile that one way the city will try to bridge its revenue gap is by selling some properties. Among those in the For Sale pile is the building formerly known as the Summit, now occupied by Lakewood Church.
City Council [was] scheduled to vote on the proposed sale Wednesday, which would end a 30-year lease signed in 2001 by the megachurch’s leader and television pastor Joel Osteen. Lakewood, which has the largest congregation in the United States with more than 40,000 attending services each week, made a lump-sum $11.8 million prepayment for the lease to use the 606,000-square-foot building — former home to the Houston Rockets — which sits on seven acres in the Greenway Plaza area along the Southwest Freeway.
Bob Christy, the city’s director of real estate, said the complex lease arrangement, coupled with the fact that the city was scheduled to receive no income from the property for the next 23 years, makes the payment a good deal.
“With a property we can do nothing with, to me it just makes an awful lot of sense to take those present dollars today and be done with it,” Christy said. “It’s a very fair deal for the city and one that makes some sense given that this property is tied up and off the books for many, many years to come.”
Under the terms of the lease, Lakewood has an option in 2031 to extend the lease by an additional 30 years, paying $753,333 a year, beginning in 2034, for a total of more than $20 million. City documents say the sale price represents the present value of those future lease payments and the residual land value.
Christy said two independent appraisers hired by the city valued the property at $7.7 million, given the lease.
Not too surprisingly, Council tagged the item, putting it off for a week, and questioned the sale price.
[Mayor Annise] Parker said that if further vetting does not bring council around to the idea, she will have to make up the difference in additional cuts. In a memo earlier this month, she said this year’s shortfall is $11.9 million and put next year’s at a projected $100 million.
The mayor defended the proposed sale, noting that without it, the city would not receive any income from the property until 2034 because of how the lease deal was originally structured in 2001. She also said that a surrounding property owner and a noncompete clause with the Toyota Center would make any sale a challenge.
“This is a very heavily structured arrangement with Lakewood Church,” she said. “It was never an easy deal to get done, it’s not going to be an easy deal to modify, but we think we have an opportunity to put money into the city’s coffers today rather than waiting 23 more years.”
[…]
“I understand the business model,” said Councilman Stephen Costello. “This is a very large asset that we’re willing to discount severely for the sale. … There are a lot of details here that I think we clearly need to vet out.”
“That is a prime location,” said Councilwoman Jolanda Jones. “We are acting like we are in the weak position. I actually think we are in a strong position.”
Here’s a Chron story from 2001, written just before that Council approved the initial lease deal with Lakewood, in case you’re curious. I understand Council wanting to hear more about adjacent property values and what this parcel could fetch on the open market, but I don’t think that ultimately matters. Because of the lease, I agree with the Mayor that the comparison is not what the city might get if it could put the property up for bids, it’s the nothing it would get till 2034 under the terms of the lease and the prepayment that Lakewood made. Even if you could void Lakewood’s lease and not have to compensate them for the construction they’ve done, who knows when you’d be able to actually get a buyer. The point here is to cover a revenue shortfall for this fiscal year, which ends June 30. What are the odds you could find a buyer by then? All things considered, I say take the deal. It’s better than having to find more budget cuts.
What a shock, CM Jones doesn’t know what the heck she is talking about. Anyone here vote for her and now having second thoughts?
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