MDN Development sweetheart deal signed by Grand Traverse Academy likely violated multiple bond covenants; was the June 26, 2015 easement agreement signed without independent board attorney review? Easement granted by board to Noss would have allowed him to construct his school expansion on Academy land — with absolutely no rent...ever!
Will Grand Traverse Academy board bail out Noss by reimbursing his private business expenses for the failed expansion scheme?
September 16, 2016
Grand Traverse Academy board meeting minutes
“But Werth said lawyers told school officials in August that having a private entity — Noss’ company — build on public land — GTA’s property — created property tax and tax-exempt status issues. “It’s not a viable ... healthy option for the school,” Werth said.”
November 19, 2016
Traverse City Record-Eagle
Wait...a legal opinion in August?
Then why wasn't it mentioned in the Grand Traverse Academy board's August 30, 2016 meeting minutes?
But if that's truly the case, why did these statements made by Mark Noss during the board's September 16, 2016 meeting go unchallenged?
Mark Noss, head of the Grand Traverse Academy's management company, Full Spectrum Management, LLC, formed MDN Development, LLC, his private, affiliated property development company, on June 18, 2015.
Noss, who has never revealed his MDN Development business partners or investors, wasted little time locking down an “Exclusive Easement Agreement” with the Grand Traverse Academy to construct a 29,000 square foot building on Academy-owned property and lease it back to the charter school — inking the easement agreement on June 26, 2015, just eight days after forming MDN Development.
Highlights of the easement, shown below, include granting Noss/MDN Development the right to “pledge and assign its rights hereunder without the consent of Grantor” — the Grand Traverse Academy. According to the terms of the easement, Noss was free to assign his rights to any party of his choice without the Academy board's approval.
The document was prepared for Noss by David Rowe at the Traverse City law firm Alward, Fisher, Rice, Rowe & Graf.
It is unknown whether or not the Grand Traverse Academy board had the easement agreement reviewed by an attorney before it was signed by its Secretary Lesley Werth.
AN $8.5 MILLION, 20-YEAR LEASE
Nearly eight months later, during a February 2, 2016 special board meeting, the Grand Traverse Academy board voted 4-0 to approve a “lease resolution” that acknowledged the Academy “explored and failed to secure various direct construction financing options” and has “received an offer to lease newly constructed facilities from MDN, LLC”.
Although the lease resolution noted the seven-page lease was “subject to final legal/accounting review”, it was signed during the meeting by board treasurer Samer Bourdkani.
It is unclear whether the board conducted even a preliminary legal review of the lease before it was signed.
Although it appears now to be moot, the 20-year term of the contract, and the financial obligation it would have imposed on the Academy, appeared excessive when considering that the use of the facility is to house a charter school whose budget is derived largely, if not entirely, from public funds.
In addition to the above-market monthly lease rate ($30,000 per month, then levitating like a séance table to $38,000 monthly by the contract's second year), the lease contained a Purchase Option clause, with a price tag that delivered quite a punch.
The “lessee (the Grand Traverse Academy) may exercise an option to purchase the building, fixtures and premises from the lessor on February 1, 2019 for a sum of Three Million Nine Hundred Thousand Dollars ($3,900,000).”
The approved lease contract also stated that the two parties “agree that the 2019 purchase price represents an arm’s length transaction which reasonably balances the purchase price with the loan and associated risk to the lessor.”
Like Steven Ingersoll's Bay City Academy Chemical Bank loan, the MDN Development loan would include two distinct phases: a twelve-month construction loan (interest only) that would convert to a post-construction mortgage with payments including principal and interest. And like Ingersoll's Bay City loan, rental income from the management company running the school would have funded the mortgage payments.
The Grand Traverse Academy would pay rent to either Full Spectrum Management, LLC or MDN Development, LLC (come on, it's really the same person), one of which would use the revenue to pay the loan.
Miss Fortune determined that Mark Noss, and his MDN Development partners, stood to make a seven-figure return on the construction, rental and February 1, 2019 sale of the now-scuttled Grand Traverse Academy expansion.
But if the school couldn't scrape together the money to pay the $3.9 million dollar asking price at that one-time, one-time only, February 1, 2019 date, it would have paid an estimated $8.5 million dollars in monthly payments over the lease's 20-year term.
You read that right...an estimated $8.5 million dollars!
A back-of-the-envelope calculation revealed Noss and his investors stood to make nearly $5.0 million dollars above the loan cost during the 20-year term of the lease.
No wonder there are tears tonight in Traverse City...and elsewhere.
Grand Traverse Academy board members voted last Friday to approve a non-binding letter of understanding with Tortoise Credit Strategies, which includes up to $4 million in revenue bonds to construct the building.
Maybe this new deal won't violate multiple covenants enumerated in the Grand Traverse Academy's Series 2007 bond issue, like the Noss deal clearly did.
And don't forget about cooked books!
Beginning in 2007 and continuing through 2014, the Grand Traverse Academy’s board of directors and Steven Ingersoll, the head of its management company, hid a deteriorating financial situation from the Traverse City, Michigan charter school’s municipal bond investors.
Board officials, most notably its president, (along with Ingersoll) resorted to fraud to hide the strain in the school’s finances caused by the approximately $5.0 million misappropriated by Ingersoll. Ingersoll cooked the books of the charter school to falsely depict positive balances when the charter school had actually accumulated balance deficits that drove it into a formal deficit elimination plan.
But that's a story for another day!
Here's my coverage on the failed attempt by Mark Noss/MDN Development to construct the Grand Traverse Academy's expansion:
September 16, 2016: “A Bad Deal Gets Worse?”
September 13, 2016: “Building On Leased Land, And You Get To Pay For It…And Pay For It…And Pay For It!”
September 6, 2016: “Shattered Promises: What If ‘Tomorrow’ Never Comes?”
August 27, 2016: “Why Has Full Spectrum Management’s Mark Noss Reportedly Taken A Scythe To Grand Traverse Academy Staff Salary & Benefits Packages?”
August 24, 2016: “Guess What Didn’t Happen This Summer?”
July 22, 2016: “Partnership? Our Lips Are Sealed.”
May 12, 2016: “Charmless Offensive: Grand Traverse Academy Spinmeisters & A Self-Serving Story.”
May 11, 2016: “Scrapped? Will Traverse City State Bank Cancel MDN Development Loan For Grand Traverse Academy Expansion?”
May 4, 2016: “Will Shocking Mark Noss/Steven Ingersoll Payoff Scandal Jeopardize Multi-Million Dollar Expansion: Who Killed The Golden Goose?”
April 27, 2016: “Cupcakes, Bulldozers, Budgets & Building Permits: Grand Traverse Academy Board’s Financial Wobble.”
April 13, 2016: “Post-It Quotes: Inconsistent Statements Continue To Plague Grand Traverse Academy Board, Management Company, Superintendent”
April 10, 2016: “Here’s The Lease”
March 17, 2016: “A Man With A Briefcase Will Steal More Than A Man With A Gun”
March 16, 2016: “Flip This School: The Stealth Deal Mark Noss Cut With The Grand Traverse Academy Board.”
March 16, 2016: “Grand Traverse Academy Expansion: Who ARE The Investors?”
March 14, 2016: “Comstock Construction Files Notice of Commencement March 8”