Was it an oversight, or was the project based on a calculation that the Grand Traverse Academy would not be able to finance an acquisition in 2019?
Lease payments for the new building, still stuck in the initial stage of construction, were originally targeted to begin on February 1, 2017 or the first day of the month of actual occupancy, whichever occurs later. The Grand Traverse Academy board approved initial $30,000 monthly lease payments that jump by nearly 27% to $38,000 beginning February 1, 2018.
The 20 year lease, which ends June 20, 2036, includes a one-time purchase option: the Grand Traverse Academy can exercise the option and purchase the building from Mark Noss/MDN Development at $3.9 million.
However, the lease agreement, executed between the Academy and a property development entity incorporated on June 18, 2015 by Mark Noss (MDN Development, LLC), lacks a clause that provides for an automatic reduction in rent if enrollment numbers dip below a certain amount.
Click on the image below, and you'll see the cash flow projection for the fiscal year ending June 2019 shows a student enrollment of 1,550, a 32% increase over the year ending June 2016. (A comprehensive Grand Traverse Academy student population projected increase analysis is available at this link.)
The projected lease payments for the year, which reach nearly $500,000, continue past the expected February 1, 2019 Grand Traverse Academy acquisition date.
“This plan will help with the school’s cash flow until 2019, providing time to become financially healthy again.”
The above statement, included in the approved minutes from the Grand Traverse Academy board's February 2, 2016 special meeting and attributed to Mark Noss, is his apparent rationale, offered to justify an above-market, 20-year lease for one building that could cost taxpayers upwards of $8.5 million dollars in monthly lease payments over its term if the school is unable to purchase the building in 2019.
According to the Full Spectrum projections, the Academy will make $30,000 lease payments during the first year, rising to $38,000 in the second year. (The lease payments also rise along with every increase in the underlying mortgage interest rate, held by MDN Development/Mark Noss.)
Who let this one slip by...and why?