July 2, 2014 —
I feel compelled to bring a major flaw in the thinking of the Sullivan West School Board (SWSB) to your attention and hopefully to the attention of your readers.
Regarding the Narrowsburg School purchase, people are being told that the SWSB is “required by law” to accept the highest offer. They then go on to evaluate the Buto offer and claim it is higher, but simple math shows otherwise. The Weiden offer is for the school building alone. The other 14 acres are not included in their offer. The Buto offer is $9,000 more than the Weiden offer, but it does include the separate 14 acres. So we are not comparing offers as between two identical parcels of real estate. Does the school board view the 14 acres as being worth only $9.000? If so, that is ridiculous. Any quick survey of vacant land in Narrowsburg would reveal that land in that area is approximately $7K to $10K per acre, meaning the secondary parcel is worth between $100K and $140K.
Readers should recall what happened with the secondary parcel when the school board sold the main building in Fremont on Route 97 (the former middle school). The ancillary acreage was 67 acres and sold for $205K. The land in Narrowsburg is in a better area and land values are higher there. Also, the land is potentially commercial property and should be appraised even higher there. Also, the land is potentially commercial property and should be appraised even higher on that basis alone.
Also, a purchase of 67 acres benefits from “bulk type wholesale pricing,” otherwise known as a quantity discount. The 14 acres, although sizeable, would not, in my opinion, be valued at the same price per acres as the $205 parcel. Once again, any reader can spend an hour on the Internet verifying this part of my letter. Example: A 5-acres parcel of non-commercial land in Narrowsburg can be had for as low as $30K ($6K per acre), but a 70-acre parcel can be had for $280K ($4K per acres). Land is just l8ike anything else sold in varying quantities: The more you buy the cheaper it gets on a per acre basis.
(Also in Fremont, after the said 67 acres was sold for $105K, I believe the man who bought it resold it quickly for a tidy profit and the actual sale price is not known.)
Therefore, the Weiden offer is the highest offer, because when viewed on all its terms, it leaves the SWSB still owning $100K worth of real estate, while at the same time only “shorting” the district by $9,000, the difference in the raw numbers as between the two contenders. If Weiden is permitted to develop the school into the wonderfully positive concept he envisions, the additional 14 acres will also increase in value dramatically.
Here is an illustration of my point: Imagine that you are buying a new car from me for $25,000. My competitor offers you “the same car” for $24,000. Howev3er, the car he is selling to you has no transmission and no tires. To remedy that, you would need to spend $5,000 for a motor and four tires. Is he truly selling you the same car for a lesser price? Of course not. The two cars are not the same, and the difference in the two prices is made irrelevant by the high price of the necessary repairs and additions.
Financing versus all cash
Even if Buto does get the contract, great care should be taken to ensure his down payment is not refunded as was done with Mr. Kang’s last offer. The newspaper states that if Buto walks away, his $76,000 (!) down payment is kept by the school board. That would only happen if precise language is inserted into the contract. So once again, the difference in the two offers might also be explored on this level. Are both buyers agreeable to all or at least part of their down payment being made non-refundable?
With regards, to financing, the article state that Buto’s is an all-cash offer and Weiden’s is not.
First of all, simply because someone shows you a bank statement with a million dollars in it doesn’t mean they are verifiably solvent or able to use that entire sum to close title. The money could be parked there by a friend or relative simply to convince a skeptical seller to choose one buyer over another. That money might already be secretly pledged or liened by the bank holding it. The money might also have to be used for some other outstanding loan, about which the SWCB is unformed. Has the source of the money been proven? Have there been any background checks done on the Butos? I believe no background check was ever done with Mr. Kang, and look at what happened in that transaction.
Whether or not Weiden will get his loan can be resolved quite easily. All that’s required is a two-hour meeting between Weiden and any good loan officer at any decent bank. Such a meeting will give everyone the answer they need as to whether Weiden’s mortgage application will be approved. Two hours! I am assuming that they certainly would be approved. People with those kinds of resources do not easily or lightly target a parcel without knowing upfront whether or not they are going to get a mortgage loan. People from that level of society almost always have a long standing relationship with a bank or two, eager and willing to make large loans. Many active real estate investors keep all their financial data on a hard drive in their bankers’ offices so that new loans can be quickly approved for new projects.
What about brokers’ fees? Isn’t there a large commission due if the Buto deal closes, as opposed to the Weiden deal? Once again, the difference of $9,000 is quickly swallowed up and erased by an unconsidered transaction cost.
In conclusion, I would urge everyone, especially our school board, to look at the big picture. This is always a good thing to do when selling or buying real estate. To quickly compare $751K to $742K in a vacuum, and say that the $751K is better, simply because it is higher (when in fact it is not) is a short sighted, myopic and naïve viewpoint at best.
[Daniel Cawley has been investing in Narrowsburg and surrounding towns since 2003, and has been a real estate lawyer since 1984. He resides in Commack, NY.]