Lease-Leaseback Construction
From May 2006
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Under lease-leaseback, a school district purchases land and leases it to a private developer for a fee of $1 per year. The developer then finances construction of the school and subsequently leases the facility back to the school district over a period of time. The contractor must set an outright cap on the project’s cost and time-consuming change orders are normally not allowed. As a result, school districts get less hassle at a lower price.
“There is a lot of hostility that sometimes comes with traditional bid-build school-construction projects,” says Dick Cowan, vice president of Clark & Sullivan, a Sacramento contracting firm handling several lease-leaseback school-construction projects throughout the state. “Lease-leaseback is a collaborative process. Our clients love that we’re not marching to the school board every month with a dispute or a change order.”
Traditionally, school districts have functioned as real-estate developers, both purchasing the land and funding the project. Fluctuating materials prices are passed on to districts, while costly design changes are commonplace. In some cases, the final price tag amounts to millions more than the original bid estimate.
With school administrators searching for an alternative way to get the job done, the lease-leaseback option is suddenly in the spotlight. By using private delivery of financing and construction, lease-leaseback agreements can reduce bureaucracy and produce more functional and appealing facilities.
As another bonus, cash-strapped districts have also found lease-leaseback to be a refreshingly efficient way to stretch construction dollars. Because projects are initially paid for by a developer, districts can spread available funds over a variety of projects and ultimately build more for their money.
Sacramento’s Natomas Unified School District took advantage of the benefit when building Inderkum High School in the summer of 2004. The district needed to build a new high school, upgrade library and cafeteria facilities at elementary campuses, and give Natomas High School a new swimming pool. With crowded campuses bursting at the seams and pressure mounting in the community, Natomas needed to act quickly.
With lease-leaseback, Natomas didn’t have to wait for state funding before breaking ground on Inderkum High, saving themselves months of delay. The private funding also allowed the district to divert a portion of bond funds initially earmarked for Inderkum to pay for the needed upgrades at other campuses. Inderkum was completed a month and a half ahead of schedule and $2.5 million under budget, a seemingly miraculous feat for public-school construction projects.
Ken Harms, director of education facilities for Sacramento-based Turner Construction, which built Inderkum High, says lease-leaseback has dramatically risen in popularity over the last 12 months. “Success breeds success,” says Harms. “Nobody wants to be first out of the gate. But now that other districts have shown that it works, the word is spreading on lease-leaseback.”
Continued...
“There is a lot of hostility that sometimes comes with traditional bid-build school-construction projects,” says Dick Cowan, vice president of Clark & Sullivan, a Sacramento contracting firm handling several lease-leaseback school-construction projects throughout the state. “Lease-leaseback is a collaborative process. Our clients love that we’re not marching to the school board every month with a dispute or a change order.”
Traditionally, school districts have functioned as real-estate developers, both purchasing the land and funding the project. Fluctuating materials prices are passed on to districts, while costly design changes are commonplace. In some cases, the final price tag amounts to millions more than the original bid estimate.
With school administrators searching for an alternative way to get the job done, the lease-leaseback option is suddenly in the spotlight. By using private delivery of financing and construction, lease-leaseback agreements can reduce bureaucracy and produce more functional and appealing facilities.
As another bonus, cash-strapped districts have also found lease-leaseback to be a refreshingly efficient way to stretch construction dollars. Because projects are initially paid for by a developer, districts can spread available funds over a variety of projects and ultimately build more for their money.
Sacramento’s Natomas Unified School District took advantage of the benefit when building Inderkum High School in the summer of 2004. The district needed to build a new high school, upgrade library and cafeteria facilities at elementary campuses, and give Natomas High School a new swimming pool. With crowded campuses bursting at the seams and pressure mounting in the community, Natomas needed to act quickly.
With lease-leaseback, Natomas didn’t have to wait for state funding before breaking ground on Inderkum High, saving themselves months of delay. The private funding also allowed the district to divert a portion of bond funds initially earmarked for Inderkum to pay for the needed upgrades at other campuses. Inderkum was completed a month and a half ahead of schedule and $2.5 million under budget, a seemingly miraculous feat for public-school construction projects.
Ken Harms, director of education facilities for Sacramento-based Turner Construction, which built Inderkum High, says lease-leaseback has dramatically risen in popularity over the last 12 months. “Success breeds success,” says Harms. “Nobody wants to be first out of the gate. But now that other districts have shown that it works, the word is spreading on lease-leaseback.”
Continued...
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