|
Reviewing the figures shows entrepreneur's leases seem sweet
Elliot Baron
Guest Columnist
Reading Ed Swift's
pumped-up justification of his offer to rent the Plantains property from
the city of Key West for $1,000 per month gave me new respect for the
man -- as a writer of fiction.
First of all, I want
to say that I thought the cartoon in question was very funny, because it
lampooned a public figure as well as the general perception that he was
out to get yet another sweetheart lease on public land.
It is a perception
that is substantiated by an analysis of the numerous leases he already
holds and his insatiable appetite to acquire more.
Ed's irrational lease
justification begins with a mortgage figure that's even more cooked than
last week's black beans. He writes, we assume with a straight face, that
the mortgage on a $1.25 million building is $13,000 a month. This is
only true if he finances 100 percent of the cost at an interest rate of
slightly over 11 percent.
Ed needs to find a new
banker. Commercial loans are presently going in the range of 6 1/2
percent. That $13,000 monthly payment immediately drops by more than 25
percent, to $9,319, using today's actual interest rate.
But Ed's argument
doesn't end there -- it continues to wend its way on a magical mystery
tour into the foggy world of misrepresentation. As a landlord himself,
Ed knows better than to include taxes in the rent. All commercial leases
in town are "triple net." That means that in addition to rent, the
tenant is responsible for all taxes -- property and sales taxes --
insurance and maintenance.
One of the tremendous
perks of a $1,000-a-month rent is that the tenant would only have to pay
$75 a month in state sales tax. Compare that to several comparably sized
restaurants at the bight that pay up to $20,000 a month in rent and
$1,500 a month in sales tax. That's a real cash savings over 20 years of
$342,000 on sales tax alone.
It's
a little bit hypocritical to accuse The Citizen of misrepresenting the
facts and then set the record straight with a bunch of hooey, but since
Ed challenges us to review the numbers, let's do that. Let's take the
real mortgage figure, based on the inflated loan, which covers 100
percent of construction costs, and add the $1,000 per month rent to the
city.
We come up with a
rental payment of $10,319 for a restaurant of 5,000 square feet and
eight affordable apartments that can rent for as high as $1,200 per
month.
Projected revenue for
the project would be a little under $10,000 per month for the apartments
and about $12,500 per month for the restaurant, assuming a conservative
lease price of $25 per square foot annually and no percentage of sales.
Do the math. Even with
the taxes factored in, the property spins off a positive cash flow of
over 45 percent of gross on an investment that is totally financed. Let
me call you Sweetheart.
But Ed claims he has
been further maligned. Specifically, [he says] that his other leases are
top performers, and that options are against the law. The last claim is
truly ironic, because while options do appear to violate the city
charter, that doesn't stop him from continuing to benefit from them.
In fact, in July of
this year, a 25-year option commenced on a significant parcel of prime
public property that he leases near Mallory Square, at rent that is
substantially below comparables. In fact, in an area where rents are
more typically $40 to $60 per square foot, the Shipwreck Historeum pays
only about $8 per square foot based on its low revenue performance
If that wasn't bad
enough, Swift has been substantively late on his franchise and lease
payments to the city for the entire past year. On two occasions, his
payments fell behind as far as five months. He almost caught up a couple
of times, only to fall behind again. In April, he paid the city over
$400,000, all of it past due, without a single dollar in penalties or
interest. He fell further behind in May ... Yet in spite of being
seriously in default of his lease, he was allowed to commence a 25-year
option.
The city might not be
writing any new options, but they might as well be. Their lease
ordinance only permits the current tenant to negotiate with the city for
a new lease, rather than open the door to alternative proposals that
could provide greater benefit to the city. The end result is no
different from Ed's 50-year, no-bid lease.
I hope this has shed
some additional light on the Plantains proposal as well as some of the
other leases that Mr. Swift claims have stood up to public scrutiny.
|
