Saturday, April 11, 2009

Falanga on the Med Mart deal

MMPI vice-president Mark Falanga also talked with me about several details in the company’s new deal with the county.

-Why MMPI was reluctant, at first, to assume responsibility for any construction cost overruns: “We always recognized that was important to the county. To get to the point where we could make that commitment, and understand our relationship with the county, the architects, and the engineers, took a little time and effort. …

“We’ve done a lot of architectural due diligence. We have a strong relationship with the architect and engineering firm. [We decided we] could mitigate those risks and build the building from the budget available.”

-What information will remain private under the deal’s “trade secrets” provision: “The leases we have with tenants in the buildings, license agreements with different trade show producers. We don’t want to reveal our private agreements we have with our customers. We think if we did, it would be a great disincentive for companies to relocate into Cleveland. No other center opens up its licensing deals to the public.”

-Why the deal is so complex, with control of the mart and center cycling between the county and MMPI in three leases, while streams of money cycle back and forth: “Much of the complexity [is because of] how the bonds will be raised. Some is driven by the fact that we are a real estate investment trust. Some is just the nature of a public-private parntership.”

-What the payments are for: “Most of the money the county pays us, we pay the county back, to pay down the loan for this project. The loan will be somewhere in the $300 million range. … The county pays us roughly $45 million a year. We then pay the county $36 million. That is paying down the principal and interest. The difference between those two is the money used to operate the building, to pay for expenses, staffing, management, day to day operations, and to attract tenants.”

-When the county will start making payments to MMPI: “Those payments start when construction commences -- in one year’s time, more or less.” That means the deal will last from about April 2010 through September 2027: 17 1/2 years. Total cost to the county (my calculations, not Falanga’s): about $815 million, plus a few unknowns.

Falanga argues: “The economic impact Cleveland stands to benefit, with all the activities here, far outstrips the money being transferred between our organizations or the money required to build this facility.”

-The county will reimburse MMPI for all “pre-development agreement expenses” above $1.5 million. That includes spending in the next year, Falanga says. So far it’s spent $1 million. It’ll have “quite a lot of pre-development costs: all of the sales marketing and planning to build a facility.”

-Taxes: The deal says the county will have to pay any taxes on the facility, but Falanga hopes there won’t be any, since the county will own the land. (Note: This is in dispute. As of today, the county's negotiator, Fred Nance, still says MMPI will own the facility until 2027.)

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