This story showed up late last week, but it was just too weird for me to quite know what to do with:
Raiders sell Vegas-area facility for 30 times what they paid for it 2 years ago
In a move that raised some eyebrows in Nevada, the Raiders sold their unfinished Henderson, Nev. headquarters and practice facility for $191 million and immediately leased it back, the Las Vegas Review-Journal reported Wednesday.
By flipping the 55.6 acres of land they purchased at a cut rate two years ago from the city of Henderson for about $6 million (about half the property’s value), the Raiders turned a profit of $185 million, more than 30 times what they originally paid for the land.
Okay, so there are only two reasons to flip a piece of land in only two years: Either you happened upon a chance to buy low and sell high, or there’s some other kind of fiscal shenanigans going on.
The Los Angeles Daily News story above (and the original Las Vegas Review-Journal article that first reported it) focuses on the 2900% profit and suggest that this is the former. But while Henderson no doubt gave Raiders owner Mark Davis a sweet deal, even the appraised value of the land was only around $12 million — it’s possible that was a low estimate as well, but the difference between $12 million and $191 million seems too much even for a government appraiser to miss.
The other possibility lurks in this language in the Review-Journal article:
Chicago-based Mesirow Financial purchased the under-construction football facility across from Henderson Executive Airport and leased it back to the NFL team for 29 years, with seven 10-year extension options, filings with the Clark County recorder’s office show.
The sale closed Friday. Public records obtained by the Review-Journal do not show the Raiders’ annual rent.
One common reason for lease-out, lease-in deals, or LILOs as they’re known, is to get out of a tax obligation: If the new owner of the land were a nonprofit or a church or school, say, the Raiders could use this to get out of paying property taxes on the site. That doesn’t appear to be the case, though, as Mesirow is a giant financial services firm, so not likely to be just a conduit for a tax dodge.
That unknown annual rent figure, on the other hand, is a major red flag. Let’s say the Raiders are paying, say, $10 million a year in lease payments. At that point, this is less a property sale than a mechanism for a long-term private loan at a 3% interest rate. That the practice facility ends up in the hands of Mesirow is all but irrelevant, as it almost certainly is, since a 30-year-old NFL practice facility isn’t likely to be worth much in the year 2050, if Las Vegas even has a water supply by then.
Now, we don’t know that Davis is paying out a high annual lease fee — we don’t know anything about how much he’s paying at all. (Though Mesirow must be getting a decent chunk of change, because owning an NFL practice facility otherwise doesn’t provide much in the way of either profits or glory.) But it’s one possible scenario, and one that the media really should be considering before jumping to conclusions on who got ripped off over what. If nothing else, call a LILO expert and ask them what they think might be going on. Sometimes the most that journalism can do is ask the right questions and reveal that there isn’t enough information available to provide all the answers, whether or not that makes for the snappiest headlines.
I forget which article, but I read something on the LVRJ site intimating that this is essentially a low interest loan disguised as a real estate deal.
Makes sense, right? Someone could loan the Raiders $191M using the practice facility as collateral, or they could do this deal instead.
Yeah, that’s what I was trying to intimate in the second-the-last paragraph above. I have no direct evidence that this is what’s happening, but it makes more sense than anything else.
Are there particular reasons why structuring a loan as a lease is better than as a loan with collateral?
So, a few things spring to mind…
1. These types of front loaded deals do tend to be set up as an alternative to a standard loan to a borrower who is or may become short on cash (part of which is noted in the article above).
2. The development SHOULD provide it’s own security… however an NFL practice facility is not exactly a multi use commercial property that could be leased to another customer should the Raiders default or bowl haircuts suddenly become prohibitively expensive etc. The lender would own the practice facility plus about 30 acres of undeveloped land. They may also own a personal guarantee/pledge of assets from the team owner that compensates them in the event the team leaves the facility or defaults on the lease etc.
3. The area around the facility has become quite high demand. This should have prevented the city from selling the land to the Raiders for half of it’s pre-boom assessed value. They should have been required to reassess based on the land value either “today” or at least at a date prescribed in the contract… not a number half of the value ascribed to bare land. That said, $191m is not a reasonable value for the vacant land, so if Davis has benefitted in this deal it is to the tune of maybe $15m or so… not $185m. There is simply no way the city could have made this deal themselves if they hadn’t done the deal with Davis first.
4. What does the language in the sale agreement stipulate the land be used for? There’s 55 acres there and the practice facility covers less than half (including parking and access ways… roughly 25 acres IIRC). This means there’s 30 acres of undeveloped land that Mesirow (or their lessee) may be able to develop or sell off to reduce their exposure.
Are their any caveats on the sale of the land to the Raiders (that either would or would not exist for a successor)?
Different area and business, but the Knights practice facility has seen fans flock to it just to watch the hockey team go through it’s motions. Maybe Mesirow is hoping the same things happen at the Raiders facility?
5. This type of a deal does speak for itself. It reminds us that Mark Davis is on the hook for a LOT of money here (his $750m gift from Nevada taxpayers notwithstanding) and it’s money he does not have. Henderson – knowingly or unknowingly – has just provided him with another $100m+ in seed money up front (indirectly).
It’s good to be the king, I guess.
So: The Raiders paid $6m for barren land next to a small airport. A few months later, Henderson, where I live btw, sold land nearby for about a million an acre. Now: After their HQ, practice facilities etc get developed, will that land will be worth $200m? Idk. What I DO know is Henderson failed to foresee any of this & should’ve included language in the deal that would reimburse the $6m or receive a percentage of any profit the Raiders make off of the sale of the land. Corruption or stupidity?
“Corruption or stupidity?”
If we didn’t know so before, the past 1100+ days have certainly taught us that those two things are not mutually exclusive.
Amen.
How much did the facility cost to build?
“Well north of $75 million.” But that doesn’t mean it’s worth $75 million, especially if the owner of the facility doesn’t own whatever revenue streams come with it. (Are there any revenues associated with an NFL practice facility?)
I just mean in terms of return on investment you have to factor in the total cost of the facility not just the cost of the land. So his return would not by 2900%
As far as revenues, I suppose a facility could be re-purposed if the team ceased to exist.
Right, but 2900% is what the linked story’s headline implied. (I guess I could have gone with “No, Mark Davis didn’t really turn a 2900% profit on Raiders’ practice facility,” but everyone knows by now that all headlines that are yes/no questions can be answered “no,” right?)
aqib: Maybe Mesirow is anticipating an XFL expansion franchise and subsequent bidding war for the practice facility…
You know what they say, a genius is someone who shoots at something no-one else can see and hits it…
Thought LA Wildcats were moving from Carson to San Diego, being rebranded “Thunderbolts” (something about that Houston logo looks kinda familiar …..).
https://en.m.wikipedia.org/wiki/Houston_Roughnecks
https://en.m.wikipedia.org/wiki/History_of_the_Houston_Oilers
Well, when all else fails trust in John!
Note to XFL. List of other possible expansion cities (no disrespect to the patrons who spent their hard earned $ to support the players, franchises of these financially unstable or unrealistic at best and predatory at worst, owners and leagues. Especially you, NFL. You are the gorilla in the tree).
* Birmingham, Alabama. Legion Field. Capacity; 71,595. Failed leagues: WFL, USFL, WLAF, CFL, XFL I and AAF.
* Memphis, Tennessee. Liberty Bowl. Capacity; 58,325. Failed leagues: WFL, USFL, CFL, NFL, XFL I and AAF.
* Orlando, Florida. Camping World Stadium. Capacity; 65,194. Failed leagues: WFL, USFL, WLAF, UFL, XFL I and AAF.
* San Antonio, Texas. AlamoDome. Capacity; 64,000. Failed leagues: WFL, USFL, WLAF, CFL and AAF.
How could I forget?
Oakland, California. Oakland Alameda County Coliseum. Capacity; 56,057. Failed leagues: USFL (Invaders), NFL.