It sounds good to me, any gotchas in this?
It seems odd to sell the land then lease it back. Does Reading pay for the new building using the money from selling the land?
this post was submitted on 28 Feb 2024
7 points (88.9% liked)
Te Upoko o te Ika a Māui / Wellington
401 readers
1 users here now
Kia ora and welcome to !wellington, a place to share and discuss anything about Te Upoko o te Ika a Māui / Wellington in general.
Rules:
- Don’t be a dick
- If you need help using Lemmy.nz, go to !support
- NZ regional and special interest communities
Banner image by Rob Suisted
founded 1 year ago
MODERATORS
It's surprisingly common in the world of commercial real estate to free up capital in this way, although it's usually done with an existing building, rather than a plot of land.
My understanding is they will lease the land and build on it, also reasonably common.
Yeah, it's not the first time I've heard of it, but I guess I'm just trying to understand the reasoning. You've mentioned "freeing up capital", which I guess is a way of saying they own the land but can't afford to pay for the new building, and can't get a loan as it's too risky for the bank. So they sell the land and lease it back, then spend the proceeds on the building. They are in the same position as if they had taken out a loan, but the council has taken on the risk of the venture as they are the one needing to pay back the loan if Readings go broke.
Correct, although they will hopefully be able to lease the land to someone else, so they're only on the hook for the time between tenants
Yeah I'm not quite sure why it's being done this way - which makes me suspicious. On the surface it seems to me like this is in effect an interest-free loan of $32M with the condition that Reading fix up the site and make it into something viable once more.
I guess the gotcha is that it would be an upfront cost for the WCC which is already having to make big cuts. You could also argue about the optics of having to pay Reading to actually do something with the site, and not just leave it derelict as they have done for the last several years.
But if this pans out, and helps reverse the decline of Courtney Place, then sounds like an okay plan.
It's certainly not unheard of, especially in the world of commercial property, to free up capital by selling a building and leasing it back.
It's also not interest free, if WCC's claim of being cost neutral is accurate, merely a lower interest loan than they would otherwise get.
I don't find it suspicious at all.
Not really an interest free loan. It says the lease will cover the WCC borrowing, so it's like WCC took out a loan on their behalf.
My guess is that Reading can't borrow themselves, so this is more like WCC guaranteeing the loan so that something will happen.