Monday, March 14, 2016
COMSTOCK CONSTRUCTION FILES NOTICE OF COMMENCEMENT MARCH 8: Grand Traverse Academy Construction Project Set To Begin; Floyd Schechter Redux?
"I guess it ended up to be a deal too good to be true," Steven Ingersoll said, referring in an April 23, 2001 Traverse City Record-Eagle article to the deal his Smart Schools Management, Inc. struck with a developer on behalf of the Grand Traverse Academy.
That developer, Nashville, Tennessee-based Floyd Schechter, agreed to build the charter school in exchange for rent that would come from the operating funds the school received from the state.
Under the original agreement, Schechter would lease the building to the Grand Traverse Academy for 18 percent of its annual per student funding.
And it worked...until it didn't.
The developer went bankrupt, and the project ended up costing the school an additional $2 million dollars.
Could history repeat itself at the Grand Traverse Academy?
Miss Fortune has exclusive details about the potentially lucrative development deal former Grand Traverse Academy board president Mark Noss (and now current management company head) nailed down during a special meeting with the charter school's board of directors on February 2, a taxpayer-fueled deal that could allow Noss to recover his costs in less than nine years.
Comstock Construction will soon break ground on a 12,000 square foot expansion at the Grand Traverse Academy, but it will cost the school nearly half the additional state aid it expects to receive from a projected student count increase of 100-125 just to lease that new building from Mark Noss and his property development company, MDN Development, LLC.
And that’s if the Traverse City charter school manages to meet its aggressive student-recruitment goals.
Here in Michigan, education management companies often lock charter schools into long-term, high-cost leases, well above market value, tying continued use of the school buildings to renewal of the management agreement.
Michigan does not require charter school leases to be at fair-market value, nor does it require them to be posted on school websites, making the information difficult for parents — and the public — to find.
In fact, if you’d only read the “approved minutes” of the Grand Traverse Academy board's February 2 special meeting, you might think the lease term runs three years, ending with an option for the Academy to purchase the building from Noss on February 1, 2019 for $3,900,000.
But you'd be wrong.
And if you thought a portion of the first year's $30,000 above-market monthly lease payment (escalating to $38,000 monthly by the second year) would be credited toward the final price, reducing the $3,900,000 purchase amount, wrong again.
The lease (shown at left) defines the length of the agreement “for a term beginning on the date lessor closes a loan from Traverse City State Bank in connection with a contemplated expansion on the premises and ending on June 30, 2036.”
I wasn't a math major, but simple subtraction reveals the term is 20 years, and not three as claimed by the February 2 board meeting minutes.
Here is the description, as excerpted from the approved meeting minutes:
“Lease Resolution – Mark Noss explained to the Board that the purpose of this meeting is to approve the new Lease which reflects the increase in the cost of the new building. After initial bids came in over budget, plans were reviewed and pared down, but items removed are all things that can be added at a later time, i.e. student lockers, cabinetry, roofing and flooring, projection screens, blinds, etc. The Lease term is for three years, after which time GTA will purchase the building from Full Spectrum. This plan will help with the school’s cash flow until 2019, providing time to become financially healthy again. Projected student count increase for 16-17 is 100-125, which will increase per student funding. Many PR plans are in motion to assure the increase. After discussion, motion was made by Werth, supported by Bourdkani to approve the revised Lease as presented. Unanimous”
Well, let's examine this closely.
According to the accompanying lease resolution (shown at left), the Academy explored and failed to secure various direct construction funding options, so Noss and his 'MDN Development, LLC' stepped in with an offer to underwrite the construction of the new building and lease it back to the school.
And although the resolution claims that “the lease parameters meet EMO and related party entity facility leasing guidelines recommended by the Michigan State Board of Education”, recommendations are not laws.
You see, charter schools want to have it both ways. They claim to be “public” when it comes to taking taxpayer dollars, but “private” when it comes to accountability.
The simple truth is there are no Michigan laws requiring charter school leases be at fair-market value.
On May 14, 2013, the Michigan State Board of Education (SBE) did issue a series charter school transparency recommendations, requesting legislation be created to address the potential for excessive lease agreements between education management companies and their charter school boards, which may result in unusually high profit margins for Education Management Organizations (EMOs) and their real-estate holding companies, at the expense of instruction.
And guess what happened?
The SBE was concerned about the potential for financial abuse caused by cozy relationships between an EMO, its commercial real-estate interests and a charter school. Specifically, the SBE was concerned about charter school lease agreements that far exceed standard market value rates.
So what about the related-party guidelines cited in the Grand Traverse Academy's February 2 resolution?
They don't exist either.
In my opinion, the SBE would have objected to the kind of deal the Grand Traverse Academy made with Mark Noss, his Full Spectrum Management, LLC and his development arm, MDN Development, LLC.
Yet the Grand Traverse Academy Board of Directors, all chosen and appointed (and re-appointed) by the charter school’s management company, apparently did little if any due diligence before forking over millions of taxpayer dollars to Mark Noss and his newly-formed business, MDN Development, LLC.
And, just to make things even cozier, on June 26, 2015, the Board inked an “exclusive easement agreement” with Noss that is “perpetual in nature” and, although the agreement refers to “good and valuable consideration” from Noss for the easement, it doesn’t explicitly define that consideration or state its terms.
Coming tomorrow, Miss Fortune follows the money in Part 2...