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TO: Councilmember Marilyn Praisner

Chair, Management and Fiscal Policy Committee
Montgomery County Council

FROM: Jacob Sesker

ZHA, Inc.

RE: Old Peary H.S./MJBHA

DATE: November 6, 2006


The Administration recommended that the County Council approve a pro-

posed deed, thereby conveying the old Peary High School property to the Berman
Hebrew Academy. The Administration recommended that the County Council
approve the sale, even though the sale and repurchase would be more expensive
than continuing the Lease until the earliest point at which the County could termi-
nate the Lease.

County Council requested an objective review of the assumptions and

methodology used in the Administration’s calculations. The Council essentially
wanted to know whether the Administration’s assumptions were reasonable and in
accordance with industry standards, and whether the Administration took into
account the value of the lease and the underlying property.

Based upon the information available, the answer to the above questions
would be “No.” The Lease document was not interpreted consistently throughout
the Analysis, nor was the interpretation in the Analysis consistent with a reasonable
reading of the terms of that document. The comparisons made in the Analysis were
not apples-to-apples comparisons, and therefore were inaccurate representations of
the relative quantitative merits of the Lease and Proposed Deed. The Analysis
failed to convey the qualitative merits of the Lease and the Proposed Deed, and
furthermore failed to take into account the “value” of maintaining ownership and
control over the property during the coming decades.

TECH MEMO—Ms. Praisner November 6, 2006

In a fair and equitable sale, the value of the land would accurately reflect its
current market value. If the County, recognizing the scarcity of large available
sites for new school construction, would like to be able to re-purchase the property
at some later date for use as a public school, then it would only be fair to discount
the sale price. However, it would not be reasonable for the County to discount the
sale price without adequately protecting its ability to repurchase the premises at
some later date. As explained in this memorandum, it appears that the proposed
deed offers the Academy a low price and offers little or no protection to the
County’s interests. As such, the information available would indicate that this is not
a good business deal for the County.

A review of the Lease, the Proposed Deed, and the analysis prepared by the
Administration (hereafter, Analysis), as well as other supporting materials illus-
trated the following:

• The Analysis was not an “apples-to-apples” comparison.

• The Analysis was not consistent with the often confusing language of the
Lease and the Proposed Deed.
• Given that the County’s interests here are more than just financial and given
that the timeframes contemplated are fairly lengthy, a private-sector analysis
of this proposed transaction would be more qualitative than quantitative in
• Under the Proposed Deed, it may not be possible for the County to repur-
chase the school for use as a public school at less than fair market value.
• The Analysis performed by the Administration did not clearly convey to the
Council that the proposed transaction was a sale of a rare asset probably well
below market value with no guarantee that said asset would be available for
repurchase should the County need to re-use it as a public school.
• A sale under the proposed terms does not represent the best deal available
to the County.

Finally, it must be noted that any analysis of the Lease and Proposed Deed
necessarily involves interpretation of legal documents. However, nothing herein
stated should be construed as legal advice. The County Council is ably represented
by legal counsel and as appropriate should seek their interpretations of the Lease
and Proposed Deed.


The Lease was executed on April 15, 1996. The Lease provided for a two-
year renovation period following execution. The renovation period was not to be

TECH MEMO—Ms. Praisner November 6, 2006

counted as part of the 25-year term of the Lease. Therefore, the term of the lease
would expire on April 15, 2023.1

Assumptions Timeline
1998 to 2023: The 25-Year Lease Term
The Lease may only be terminated prior to 4/15/2023 for violation
constituting default under Article XVI.
Five-years notice may be given of intent to terminate the lease if the
premises are needed for use as a public school, so long as that
termination is effective after 4/15/2023.
2023 to 2038: Three Five-Year Extensions
MJBHA can exercise each five-year extension by providing 12-months
During this time, Lease may be terminated either (1) for violation
constituting default under Article XVI, or (2) with five-years notice if
the premises are needed for a public school.
After termination, County might be able to use for any purpose,
though such use may be subject to claims of bad faith, breach of
contract, etc.
2038: Expiration Of Lease & Extensions
Lease expires, County may use property for any use.

f: 60020/Peary Memo Numbers.xls/Timeline

The Lease also sets forth the conditions upon which the Academy may pur-
chase the Premises from the County during the term of the Lease and any applica-
ble extensions. The Lease also establishes a methodology for setting a baseline
price and adjusting that baseline for inflation.


In analyzing these transactions, three potential outcomes merit evaluation:

The lease is to end April 15, 2023, which is the day after the end of “Lease Year 2022.”
The calculations prepared by the Administration for the Council assumed that the lease
could not be terminated until 2028. This requires the conclusion that the 25-year lease is
actually a 30-year lease. Furthermore, that interpretation is not consistent with the
response memo (dated September 20, 2006), in which John Fisher, Associate County
Attorney, stated: “The County may terminate the lease upon five-years notice to the lessee,
but the termination would not become effective until after the initial 25-year lease term

TECH MEMO—Ms. Praisner November 6, 2006

1) Sale/Buyback: The County sells the property to the Academy, buying it

back at the earliest possible date under the Proposed Deed (March 1,

2) Lease Termination: Council rejects this and other proposed sales, contin-
ues the Lease, and then terminates the Lease at the earliest possible date
(April 15, 2023).

3) Lease Continuation: Council rejects this and other proposed sales, contin-
ues the Lease, and allows the Lease and all extensions to expire (not later
than April 15, 2038).

A more detailed explanation of each of those outcomes, as well as the rele-

vant language in the Lease, Proposed Deed, and supporting documentation is pro-
vided below.


The Academy’s non-assignable right to purchase the property from the

County is established in Article III of the Lease. Under Article III, the Academy
may purchase the property at any time during the original 25-year term and any
subsequent extension. That purchase would be subject to the approval of the
Council and the Executive and subject to “any restrictions, conditions or require-
ments which the County Executive and the County Council may elect to attach to
such a purchase.”

According to the Lease, the parties expected that the price would reflect the
value of the land at the time the Lease was executed, and would not include any
value for the improvements. The method in the Lease for establishing the purchase
price reflects that expectation; the purchase price is to be established by appraisals
of the land performed shortly after execution of the Lease as adjusted periodically
for inflation.2

Under the proposed “Deed and Reservation of Rights to Re-purchase,” cer-

tain restrictions will apply to the Academy’s use of the property after the purchase.

Adjustment for inflation may, over the long term, prove to be fair to all parties. Over the
short term, that method produces results that can be disproportionately beneficial to one
party. Such a method of adjustment fails to take into account various relevant economic
trends. For example, since the execution of this Lease land values have risen much more
quickly than overall inflation. Additionally, the portion of property values that is attributable
to the value of the underlying land is increasing. In light of such trends, adjusting the
baseline price for inflation is likely to significantly understate the value of the land.

TECH MEMO—Ms. Praisner November 6, 2006

• The Academy must continue to permit Community Use of the facilities, as set
forth in the deed.
• The Academy may not materially alter the dimensions or character of the
athletic fields without prior written approval.
• Beginning on March 1, 2026, the County shall have the right to send written
notice to the Academy of the County’s intention to repurchase the property
for use as a public school not earlier than five years after the date that such
notice is sent. This right by the County will continue for 99 years. The repur-
chase price would be the fair market value of the property if used as a pri-
vate school.

Furthermore, the deed purports to restrict the use of the property to use as a
private educational facility, and “incidental uses related and accessory to use for
private educational purposes.”3 However, this restriction on use is less than iron-
clad—in fact the restriction on use may be largely illusory.

Should the Academy wish to change the use of the property, all that the
Academy must do is first offer to sell the property to the County for the fair market
value of the property at that time. If the County were to decide not to repurchase
the property for fair market value, then the Academy would be released from the
covenant and would be free to proceed with the change in use.4


The earliest possible date that termination can occur (absent conduct consti-
tuting default) is April 15, 2023. The County may elect to terminate the Lease by
providing the Academy five-years advance written notice—thus in order to termi-
nate the Lease at the earliest possible date, written notice must be provided by
April 15, 2018 (see Article II, §2). This right of termination is subject to a signifi-
cant limitation—it may only be exercised “in the event the leased premises are
needed by the County for public education purposes.”

Financial obligations will arise under Article VIII of the Lease should the
County elect to terminate. Under Article VIII, §4 et seq., the County must reim-
burse the Academy for a portion of approved Non-Elective and Qualified Elective
capital improvements completed by the Academy. Upon termination, reimburse-
ment for capital improvements is to be pro-rated for the remaining useful life of the
improvements. The cost of reimbursement under Article VIII is likely to be signifi-
cant; however, reimbursement will be less expensive than building a new school.

See paragraph “B” of the “Deed and Reservation of Rights to Repurchase.”
To illustrate, this could lead to the following absurd result: the County sells the property
today to the Academy for $1.6 million, the Academy offers it back tomorrow for $16 million
(hypothetical FMV), the County rejects the offer, the Academy is released from the
covenants in the deed and sells the property to a residential developer.

TECH MEMO—Ms. Praisner November 6, 2006

County staff has indicated that there are no other restrictions on the use of
this property, so presumably the County would be able to use the property for any
politically feasible purpose.5 However, the Lease indicates that the requirement for
this type of termination is that the facilities are needed for use as a public school.
Whether termination under this section would operate as a de facto limitation on
the County’s use of the property, and for how long, are legal questions.


The Lease automatically expires at the end of the 25-year term and any
extension, without notice or demand from the County (see Article II, §2). The latest
date upon which the Lease would expire is April 15, 2038. Expiration is thereafter
governed by Article XVII of the Lease.

Upon expiration the County has no obligation to reimburse the Academy for
Non-Elective and Qualified Elective capital improvements—those obligations only
arise if the County terminates the lease prior to the expiration of the Lease and any
exercised extensions. All buildings, alterations, additions or improvements on the
premises then become property of the County (see Article XVII). It seems that the
County could then use the Premises for any use whatsoever.


Each of the three outcomes described above can be evaluated on the basis of
various criteria. The following are among the criteria that might be used in an
analysis of these potential outcomes:

• Time: What is the earliest possible date the facility is available for re-use as
a public school?
• Financial Benefit: What revenue accrues to the County?
• Financial Cost: What is the cost to the County?
• Opportunity Cost: What opportunities are missed and at what cost?

The extent to which those or any other evaluation criteria should be consid-
ered depends upon the policy objective. If the County Council’s objective is to have
the flexibility to use the Premises for a public school when such a need arises in the
coming decades, then the calculation and weighting of the evaluation criteria must
reflect that objective.

Re-use by the County for a purpose other than public education may give rise to causes of
action for bad faith or claims on the contract—County Council might seek legal clarification
of the effect of any possible restrictions on the re-use of the property.

TECH MEMO—Ms. Praisner November 6, 2006


Under the sale/buyback scenario, it is unlikely that the County would be able
to use the property as a public school prior to March 1, 2031. Furthermore, it is
quite possible that the school will never be available for the County’s re-use as a
public educational facility.6

A current sale would result in a current influx of capital. Using the methodol-
ogy established in the Lease, the 2007 sale price would be between $1.6 million
and $1.7 million. Based upon the language of the Lease, it appears that the County
could ask for a higher price than that obtained through the methodology set forth in
the Lease.

Sale Price Under Lease

CPI for All Urban Appraisal
Consumers (Adjusted)
Dec-97 161.3 $1,335,000
Dec-05 196.8 $1,628,816

f:/60020/Peary Memo Numbers.xls/Sale Price Under Lease

The price in the table above assumes that the baseline price was established
in December of 1997, and that the sale is consummated in 2006. Should the sale
occur in 2007, that price would be slightly higher.

The proposed deed, which is dated in 2005, cites a sale price of exactly
$1,500,000. The Administration’s Analysis (from 2006) cites a figure of
$1,650,000.7 It is not clear why the methodology established in the Lease was not
followed in either instance.8 In any event, it is worth noting a few things regarding
the method established in the Lease and the sale price that the method produced:

See Paragraph B of Proposed Deed. The proposed deed does not truly restrict the use of
the property. The Academy could, at any point in time, force the County to decide between
(a) paying the Academy fair market value for the property and (b) allowing the Academy to
use the property for other purposes and/or sell the property to a developer who would
develop other uses on the property.
The only explanatory reference to the $1.65 million number is a footnote in the figures
that the Executive staff provided to the Council, which reads in its entirety: “This is the
actual amount, as per the agreement between the County and Berman Hebrew Academy.”
A reasonable reading of the Lease indicates that the County may ask for a price that is a
higher price than that established under the methodology set forth in the Lease. Whether
the County could accept a price that is lower than the price established under the
methodology set forth in the Lease is a legal question. In any event, the $1.5 million figure
may have been below the value that would have been established using the methodology

TECH MEMO—Ms. Praisner November 6, 2006

• Since 1997, land values have increased much faster than inflation.
• The portion of property value attributable to the land itself has increased
rapidly in recent years.
• The proposed sale price is low for 19.5 acres of residential land in
Montgomery County.
• This price is well below the current replacement cost, i.e., Montgomery
County could not buy the land, parking and athletic fields for this amount of

Once the Academy has purchased the Premises, it gains control over the
County’s cost of repurchasing the Premises for use as a school. The cost to the
County of repurchasing the Premises for use as a school will be either (1) fair
market value of the property (all land and improvements) at a time chosen by the
Academy, or (2) fair market value of the property used as a private school (all land
and improvements) not earlier than March 1, 2031.

In the first case, the “sky is the limit.” In the second case, the value would
be limited by its use as a school. The value for use as a school will include the
value of the land and the value of the improvements.

The Analysis cites a present value cost of repurchasing the property in 2032
of nearly $3.8 million. However, the earliest possible date that the property would
be available for repurchase under the proposed deed is March 1, 2031. Applying
the methodology used in the Executive’s Analysis correctly, one arrives at a present
value cost of approximately $4.8 million, which is significantly higher than the $3.8
million figure cited by the Administration, and yet still probably quite low.9

established in the Lease, whereas the $1.65 million appears to be slightly above the price
established under the Lease.
This figure ($4.8 million) assumes a 5 percent discount rate, a 2007 value of $8.6 million,
and an inflation rate of 2.5 percent. The Administration used a 2 percent inflation rate
when calculating this figure, but used a 2.5 percent inflation rate when escalating the rent.
This was changed to allow for an “apples-to-apples” comparison. The Administration
established a repurchase price for 2032, even though the Proposed Deed establishes a right
to repurchase in 2031. Furthermore, the Administration depreciated the 2032 repurchase
price as though it were occurring in 2034.

TECH MEMO—Ms. Praisner November 6, 2006

Estimated Appraised Value of Land & Improvements Using

Framework of Executive's Methodology
Value as Present Value PV as School
Lease Year
School ($) Factor ($)
2007 8,600,000 1.00 8,600,000
2008 8,815,000 0.95 8,395,238
2009 9,035,375 0.91 8,195,351
2010 9,261,259 0.86 8,000,224
2011 9,492,791 0.82 7,809,743
2012 9,730,111 0.78 7,623,796
2013 9,973,363 0.75 7,442,277
2014 10,222,697 0.71 7,265,080
2015 10,478,265 0.68 7,092,102
2016 10,740,222 0.64 6,923,243
2017 11,008,727 0.61 6,758,403
2018 11,283,945 0.58 6,597,489
2019 11,566,044 0.56 6,440,406
2020 11,855,195 0.53 6,287,063
2021 12,151,575 0.51 6,137,371
2022 12,455,364 0.48 5,991,243
2023 12,766,748 0.46 5,848,595
2024 13,085,917 0.44 5,709,342
2025 13,413,065 0.42 5,573,406
2026 13,748,392 0.40 5,440,705
2027 14,092,101 0.38 5,311,165
2028 14,444,404 0.36 5,184,708
2029 14,805,514 0.34 5,061,263
2030 15,175,652 0.33 4,940,757
2031 15,555,043 0.31 4,823,120
f:60020/Peary Memo Numbers.xls/Repurchase Values_2.5%

The Administration’s methodology does not accurately reflect the true cost of
the Premises. By using the estimated cost of replacement for systems and adding
the estimated appraised value of the land in 2031 one would arrive at a figure in
the $6.6-million to $7.9-million range. That range is more accurate, but still very
conservative. Given the possibility that land values might be considerably higher at
that time, it is possible that those numbers could be low by an order of magnitude.

A problem with establishing value in 2031 based upon the market value (as
established by appraisals) of the Premises in 1997 is that housing appraisals have
increased at a rate many times the rate of inflation in recent years.10 In fact, a
2006 study by the Federal Reserve opined that even if land appreciation returns to
the slower pace seen before the recent housing boom, prices might rise more

e.g., see Washington Post, January 5, 2006: “Housing Appraisals in Md. Rise 67%.”

TECH MEMO—Ms. Praisner November 6, 2006

quickly on average than they did before the boom.11 Thus, the rate-of-inflation
assumption may yield results that are less and less accurate as time progresses.

Beyond cost, additional factors must be considered in weighing the


• The County may forever lose the ability to use the property as a public
• There are few other sites in the County appropriate for a new public school.
• The County may be forced to allow the Premises to be used for something
other than a private school.
• The County may lose the opportunity to participate in the redevelopment of
this site, or to see to it that that redevelopment of the site achieves other
public purposes (e.g., affordable housing).
• If the Academy purchases the property at this low price, is released from the
covenant and promptly sells the property for a significant profit, there will
likely be a public perception that the County gave away a substantial
resource and opportunity.


The Lease may not be terminated (other than for default) prior to April 15,
2023. The Lease may only be terminated with five-years written notice, and only in
the event that the Premises are needed for use as a public school. Among the
three potential outcomes, this is the earliest date on which the County could use
the site for public education.

The net present value of rents received from April 15, 2007 until April 15,
2023 would be approximately $912,175.12

See The Wall Street Journal Online, June 22, 2006: “Land Prices Increasingly Drive
Housing Markets, Fed Study Says.”
Assuming 2.5 percent inflation and assuming that current rent payments are as
represented in the Administration’s Analysis. This figure is different from the
Administration’s figure. In the Administration’s Analysis, the rent seems to have included
the years 1998 to 2006 and 2023 to 2027, and seems to have been calculated in 1998

TECH MEMO—Ms. Praisner November 6, 2006

Lease Income Through April 15, 2023

PV of PV of
Annual Rent
Lease Year PV Factor Annual Rent Cumulative
($) Rent ($)
2007 67884 1 67884 67884
2008 69582 0.95 66269 134153
2009 71322 0.91 64691 198843
2010 73105 0.86 63150 261994
2011 74932 0.82 61647 323641
2012 76806 0.78 60179 383820
2013 78726 0.75 58746 442566
2014 80694 0.71 57348 499914
2015 82711 0.68 55982 555896
2016 84779 0.64 54649 610545
2017 86898 0.61 53348 663893
2018 89071 0.58 52078 715971
2019 91298 0.56 50838 766809
2020 93580 0.53 49628 816436
2021 95920 0.51 48446 864882
2022 98318 0.48 47292 912175
f:/60020/Peary Memo Numbers.xls/Lease Income table

Under this Lease, the established rents are very low. For example, assuming
that the facility is 210,000 square feet, the 2007 rent is approximately 32.3¢ per
square foot. As such, even when aggregated over 16 years, the total rent received
is nominal.13

In contrast to the relatively small rent payments, termination of the Lease

triggers significant financial obligations on the part of the County. If the County
terminates the Lease, the County must repay the Academy for the amortized value
of systems replacement.

However, the cost of reimbursement is essentially the cost of the school, and
that cost will be less than the cost of buying land and building a new school. Thus,
if the County is terminating the Lease in order to use the Premises for a public
school, then the County is just buying the improvements (the County already owns
the land) that it needs in order to operate the school.

In order for any capital improvement made by the Academy to be eligible for
repayment by the County, that improvement must have qualified under the terms
set forth in the Lease and the Academy must have obtained prior approval from the
County. As such, it was assumed that all improvements took place in 2017, which

That fact reflects the condition of the school at the time that the Academy entered into
the Lease, and presumably also reflects the County’s stated desire to re-use the facility as a
school in the future.

TECH MEMO—Ms. Praisner November 6, 2006

will be nearly the end of the useful life of all improvements made in the Renovation
Period, and more than five years before the end of the Lease.14 The present value
cost of repayment for systems replacement is approximately $6 million.15

Reimbursement for Systems Replacement At 2.5%

Repayment PV of
Years Until for Present value amortized
Lease Year Replacement
Termination Replacement factor repayment
Cost ($)
($) ($)
2007 15 10,195,761 2,548,940 1.00 2,548,940
2008 14 10,450,655 3,135,197 0.95 2,843,716
2009 13 10,711,921 3,749,172 0.91 3,238,676
2010 12 10,979,719 4,391,888 0.86 3,613,217
2011 11 11,254,212 5,064,396 0.82 3,968,086
2012 10 11,535,568 5,767,784 0.78 4,519,210
2013 9 11,823,957 6,503,176 0.75 4,852,770
2014 8 12,119,556 7,271,734 0.71 5,167,885
2015 7 12,422,545 8,074,654 0.68 5,465,244
2016 6 12,733,108 8,913,176 0.64 5,745,513
2017 5 13,051,436 9,788,577 0.61 6,009,337
2018 4 13,377,722 10,702,178 0.58 6,257,342
2019 3 13,712,165 11,655,340 0.56 6,490,130
2020 2 14,054,969 12,649,472 0.53 6,708,285
2021 1 14,406,343 13,686,026 0.51 6,912,373
2022 0 14,766,502 14,766,502 0.48 7,102,940
f:/60020/Peary Memo Numbers.xls/repay for replace

Termination of the Lease may only occur if the Premises are needed for a
public school. Realistically, the need would have to be acute in order for this option
to be politically palatable. Though it is possible that other land uses will seem more
attractive than educational uses in 2023, political and legal considerations may pre-
clude any use other than education for some time following the termination of the


Of course, the County may choose to reject this and all other attempts by the
Academy to exercise the option to purchase the property. Assuming that the
Academy would exercise all three of the five-year options under the Lease the
latest date that the County could use the property as a school would be April 15,

This method is different from the unnecessarily complicated method used in the Analysis.
This figure assumes that the very high estimated replacement costs are accurate. The
Analysis by the Administration assumes that the current cost of replacement would be
nearly $47 per square foot (in contrast to the 32 cents per square foot that the Academy
pays in rent), and that those costs inflate at 5.69 percent for five years, and thereafter
inflated at 3 percent. For purposes of this table, a 2.5 percent inflation rate was assumed,
rather than the higher rates assumed by the Executive.

TECH MEMO—Ms. Praisner November 6, 2006

2038.16 It should be noted that under this scenario, the County could use the prop-
erty for anything, e.g., affordable housing or the development of a town center.

Assuming that inflation adjustments occur at an annual rate of 2.5 percent,

the net present value of the cumulative rent received until April 15, 2038 would be
approximately $1,500,355.

The income received must be weighed against any financial costs directly
related to the expiration of the Lease. There is no financial cost to the County asso-
ciated with allowing the Lease and all extensions to expire, i.e., the County has no
obligation under the Lease to reimburse the Academy for improvements.17 The
County would have the property “free and clear.”

Lease continuation would allow the County to maintain a civic use on the
Premises until the existing Lease and all extensions expire, while also preserving
the County’s ownership of this land until a time when it can be developed to its
highest and best use and put back on the County’s tax roll. On the other hand,
Lease continuation would not allow the County to use the facility to meet a need for
a public school facility, unless and until the Academy chose to end its tenancy.
Thus, it is possible that the County would be unable to meet the need for a new
school in 2026.


To engage in a point-by-point evaluation of the methods and assumptions

included in the Administration’s Analysis would be to miss the larger issues relevant
to the Council with respect to this proposed sale.

The Proposed Deed raises questions as to whether that price (less than
$85,000 per acre) is a reasonable price in today’s economy and whether the terms
of the Proposed Deed accurately reflect the County’s desire to re-use the Premises
for a public school if a need for a public school arises. If the County would like to
have the flexibility to re-use the property as a public school in the future, this Pro-
posed Deed does not provide that protection. If the price in the Proposed Deed is
this low in consideration of the purported use restriction and the potential for later
re-use by the County, perhaps the price should be adjusted upward.

It is possible that the Academy would choose not to exercise their options, making the
property available in April of 2023, 2028 or 2033. The 2038 date is the latest date on
which the Lease will expire, though the County cannot assume that it will expire prior to
that point, because the expiration is entirely dependent upon the actions of the Academy.
It is, of course, possible that the County might agree to share costs of replacement with
the Academy during the later years of the Lease, in order to encourage the Academy to
continue to operate the school in a condition of good repair through April 15, 2038.

TECH MEMO—Ms. Praisner November 6, 2006

Second, the transaction that has been proposed is to sell 19.5 acres with a
school and athletic fields in a County that is growing rapidly and which has experi-
enced skyrocketing land values in recent years. The cost of replacing that much
land at some unknown point in the future is likely to be very high and replacement
of the land may be impossible after two more decades of growth.

In short, no matter how much weight is given to the financial aspects of

these possible transactions, the differences between them can be summed up in
entirely qualitative terms.

In the Sale/Buyback scenario:

• The County will be selling the land for well below its value.
• The County may forever lose the opportunity to repurchase the
Premises for use as a school.
• The County may be given the opportunity to buy the land and
improvements back from the Academy at Fair Market Value at a time
not of the County’s choosing.
• The County may be able to buy the land and improvements at fair
market value as a school in 2031.
• There is a great deal of uncertainty as to both the price and timing of
any future repurchase by the County.

In the Lease Termination scenario:

• The County will be spending a significant amount of money to

terminate the Lease, but will be buying a school for much less than
the cost of a new school.
• The County will be able to buy a school without having to buy the
land on the open market at an uncertain price.
• The County will retain control over a large, contiguous parcel of
• The timing of the Lease termination is more certain and/or within
the control of the County.

In the Lease Continuation scenario:

• Even if the County does reimburse the Academy for improvements,

the County will still be buying a school for less than the cost of a
new school.
• The County will be able to buy a school without having to buy the
land on the open market at an uncertain price.

TECH MEMO—Ms. Praisner November 6, 2006

• The County will retain control over a large, contiguous parcel of

land, and will be able to re-develop that parcel in the future in a
way that achieves multiple County objectives.

A sale of the school would be fair if the land value used to determine the sale
price accurately reflected its current value, and if the sale price reflected the value
to the County of maintaining control over the property. If the deed actually pro-
vided the County with adequate protection of its interests, it might be fair for the
County to discount the sale price to reflect any restrictions on use or alienation.
However, here the sale price has been discounted and adequate protection of the
County’s interests has not been written into the proposed deed. The County is
being asked to sell this property below its market value, and may need to buy it
back at market value at some undetermined point in the future.

Given these qualitative concerns, the sale and repurchase option does not
compare favorably to other alternatives under the Lease. Unless more favorable
terms are offered, the County’s various objectives will more likely be met by main-
taining ownership and control over the site.

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