THE 99 YEAR SCHEME: HOW THE LEASE STRUCTURE ENRICHES THE DEVELOPER AT OUR EXPENSE
The reason the downtown mega-project is structured as a 99 year lease is to allow the developer to get the land with no money down, flip the property within 5-7 years, and make a huge and quick profit at our expense.
The developer pockets hundreds of millions on the front end, while the taxpayers must pay for all of the government facilities up front ourselves and don't see any substantial revenue streams for decades. The developer walks away rich and we wait decades to see any money and shoulder all the risk. Projections over 99 years is guesswork and financial analysts say even 5 year projections are unreliable.
Mizner Park, also another 99 year lease, cost the taxpayers hundreds of millions of dollars and serves as a lesson as to why we should not lease our city-owned land.
A 99 year lease is not a true market transaction where a developer pays for the land up front. The developer gets the land with no money down, takes out a 60-70% construction loan, and flips the buildings once rents are stabilized within 5-7 years. The developer doesn't put money down on the land, takes virtually no risk, and the developer will pocket hundreds of millions within a short period of time. We the taxpayers don't get our money for decades and we take all the risk.
Terra--the developer seeking the 99 year lease in Boca--recently took out a $285 Million construction loan on the Mr. C Residences (above) in West Palm Beach. In a lease structure combined with a 60-70% construction loan, the developer can flip the buildings with virtually no money down at a quick and massive profit. They will leave Boca within a few years with hundreds of millions in their pockets while we pay for all our facilities up front ourselves and wait decades to see any substantial revenue. (Photo Credit: Palm Beach Post)
The developer in this deal is not our “partner” as the mayor and city council describe them. The Miami developer aims to come into our city, flip the buildings quickly and at a massive profit, and then return to Miami with a windfall. The private equity investors backing the deal want their money back--they won't wait 99 years. These investors get their money right away but the Boca taxpayers must wait decades for theirs.
The developer doesn’t pay for the land, has virtually no sunk costs and will likely take out a non-recourse construction loan. If the developer goes bankrupt they can easily walk away. It's very possible we could end up with another even bigger eye sore than the Mandarin Oriental.
In a lease structure the developer can walk away in a heartbeat if they go bankrupt, without virtually any sunk costs. We will be left with another even larger eye sore than the Mandarin Oriental.
CLICK ABOVE TO WATCH: Save Boca founder Jon Pearlman explains why this deal has been structured as a 99 year lease: to enable the developer to turn a quick and massive profit at our expense.