Leasing ends up costing millions

The unusual sale and lease-back arrangement will end up costing Gwinnett taxpayers about $34 million more than if the school district had simply held onto the building and paid for the renovation with cash on hand, an Atlanta Journal-Constitution investigation has found.

Gwinnett schools Superintendent J. Alvin Wilbanks defended the additional money spent on the headquarters, saying that it was the price of freeing up money to build more schools.

“As with any financing transaction, there is always a ‘cost of borrowing,’ ” Wilbanks said in an email. “This ‘cost of borrowing’ against the [headquarters] is reflected in the form” of the monthly rent and the cost to buy back the Suwanee property.

Wilbanks did not address the fact that it would have been cheaper for the district to pay for the project with sales tax revenue, which it had on hand.

Jeff Weiler, the school district’s former chief financial officer who was closely involved in the deal, said the sale and lease-back was a means of building a headquarters without drawing criticism for spending taxpayer money on the costly project at a time when more schools were needed.

A real estate firm from New York fronted most of the money in the deal, but one of the local investors is a familiar name: Keith Mason, who was chief of staff for then-Gov. Zell Miller in the 1990s and the son of Gwinnett real estate investor Wayne Mason.

The headquarters deal is the latest Gwinnett County schools land transaction scrutinized by the AJC. Over the past five months, the newspaper has published a series of stories investigating land purchases in which the school district appeared to overpay for property by millions of dollars.

The AJC’s reporting prompted the school district to launch its own investigation into the transactions. District Attorney Danny Porter has said that he is considering convening a special grand jury to review the transactions.

Key provisions of sale

The headquarters deal started when the school district bought the property in November 2004 for $12.5 million — nearly double what the former owners had paid one year earlier. The district then sold the land to the private investors for $17 million.

According to public documents and interviews, the deal included these provisions:

● The district would lease back the property, paying the investors about $300,000 in monthly rent. By the time the district buys the land back in 2013, as it plans to do, the rent will total $26 million.

● In the meantime, the investors paid to transform the former manufacturing plant into the school system’s central office. The renovations cost $26.9 million, but the district will reimburse the investors for all their expenses, plus the cost of the land, and then some.

● The district plans to buy the property back for $52 million.

Gwinnett’s overall price tag for the project totals $73.5 million.

If the school district had kept the land and done the renovation itself, the project would have cost $39.4 million — the cost of the property and renovation of the building.

Renovated by late 2006, the district headquarters, named the Instructional Support Center, is impressive. The two-building campus has a spacious reception area, high ceilings and a custom-built school board meeting room that can hold more than 600 people.

Weiler, the former CFO who left Gwinnett in August 2006, said the purpose of the lease-back was to provide a political smokescreen. School officials wanted a district headquarters, he said, but didn’t want to attract controversy by spending taxpayer money on it. Under the deal, the investors fronted the cost of the renovation and taxpayers merely paid the monthly rent.

“They did it this other way so they didn’t have to use capital money,” Weiler said in an interview. “That way, we didn’t have to say we used capital money that would have — should have — gone to [building] schools.”

Asked to respond to Weiler’s allegation, Wilbanks said it was not true but did not elaborate.

‘A great deal for us’

The sale/lease-back of the headquarters is one of the reasons Weiler left the district, he said. He now works as the CFO of the Clarke County School District in Las Vegas.

“I chose to move on because there was too much of that stuff that I just wasn’t comfortable with,” Weiler said. “And it was stuff that I would have had a hard time — if I was there now — trying to justify.”

After Weiler departed, he alleged that Gwinnett had dished out millions of dollars of no-bid technology contracts. Wilbanks said that Weiler was a disgruntled former employee who had an improper relationship with a female subordinate.

Wilbanks, however, acknowledges that he gave Weiler a good recommendation for his Las Vegas position and told a Nevada newspaper that he did not question Weiler’s financial acumen.

Wilbanks stands by the headquarters project, saying the district got a good deal in pulling off a project that was “desperately” needed at that time.

“This turned out to be a great deal for us, at a great price,” Wilbanks said. “There hasn’t been a better deal than this building. You can look at it from every way you want to look, this is a good news story.”

The AJC spoke with Wilbanks twice about the sale/lease-back of the ISC and also posed questions to him by e-mail.

In the first interview, he said the deal was necessary because the district needed more cash to build more schools. “We were obviously needing to build at least three more elementary schools,” he said.

However, the three schools that Wilbanks said were built, in part or in full, with money freed up through the headquarters sale/lease-back were not high enough priorities for the district to include them in the $667 million sales tax program, known as SPLOST II, that was going on during that time. Nor were they high enough priorities to include them in an additional $300 million construction program, also around the same time.

Asked why the district didn’t earmark any of that $967 million on those schools, Wilbanks said: “All of it together still wasn’t enough. We still had building needs that we couldn’t meet.”

Other reasons for the sale

In a second interview, Wilbanks offered two additional reasons the sale/lease-back was necessary.

First, one of the buildings that previously housed school officials needed to be converted back to student use, which meant those officials needed another place to work, Wilbanks said. He also said school officials were situated around the county in different buildings, some of which he contends were overcrowded.

“We had people scattered in four or five different locations,” Wilbanks said. “We needed to take the major location where most of the people were and turn that back over for student use for alternative schools.”

The “major location” is a former middle school on Hi-Hope Road in Lawrenceville. When school officials vacated the building, the district moved half of its alternative student population there, a program called Gwinnett InterVention Center, or GIVE.

But, just a year before the district bought land for the future headquarters, in 2003, it opened up a former high school in Norcross for a second GIVE location, offering more room for alternative education students

Jennifer Falk, a Gwinnett school district watchdog who has followed the GIVE program closely, said she found Wilbanks’ comments about needing to move the GIVE students “disingenuous.”

“I have a list the length of my arm about the concerns found at the schools, and I can tell you that space was the least of their compelling problems,” Falk said.

The AJC asked the school district for documents supporting Wilbanks’ statements that the school district administrative facilities were crowded and that the alternative students had to be moved into one of those buildings.

The district turned over nothing, saying that the newspaper’s requests required “subjective analysis” and, therefore, could not be fulfilled.

The investors

The investment group that profited off the deal comprises three investors, according to those involved in the deal.

The primary investor, with a roughly 90 percent stake in the deal, is a subsidiary of NorthStar Realty Finance Corp., a real estate firm based in New York City.

There are two local investors.

One is Atlanta attorney Keith Mason, whose father, Wayne, was one of the owners of the land when it was sold to the district in 2004.

The other investor is Jamie Wilson, who has been the school district’s bond underwriter for several bond transactions. Wilson works for investment banking firm Merchant Capital. In addition to putting personal money in the deal, Wilson also arranged and coordinated the sale/lease-back transaction, representing the investors.

Keith Mason said Wilson invited him to invest in the deal.

“Jamie was the one heading up the project and I’ve known him for 20 years,” Mason said. “And he knew my involvement in real estate and familiarity with Gwinnett County, and asked me participate.”

Wilson said that the district came to him with the idea of the sale/lease-back and that he could not answer questions about the district’s motives for the arrangement.

As chief financial officer at the time, Weiler was closely involved in the sale/lease-back. When it was rolled out to the public, he said, no media outlets scrutinized it closely — a lucky break in hindsight, had he been called upon to answer questions about it.

“Put it this way: I wouldn’t have wanted to been up trying to explain all this,” he said. “I don’t know that I could have easily, with a straight face, explained it. I certainly wouldn’t want to do that here [in Nevada].”