Under the leadership of Jerome Stocks, SANDAG just purchased
the privately owned South Bay Toll Road for $345 million, with loans against your Transnet sales tax
dollars. A lot of justification for the price paid was based on the cost to
build the road, which was a lot more than the profit potential of the road,
which is what the private market would use to figure out the value of the road. Hum, right?
So what was the market value? It sure would have been good for the
sale to have been put out for competition to find out for sure. An open bidding process? That happens, but is relatively rare under Jerome Stocks' leadership. It is easy to believe that we might
have gotten the toll road for a hundred million less!
The sellers, the old owners of the toll road, said the value was $287 million. That wasn’t just an off the cuff estimate. It was the value they
submitted in court documents, according to this April UT story. The PEOPLE SELLING the property said it was worth $58 million less than what the taxpayers purchased it for (On the other hand, the developer owned UT called the sale price a "fire sale" level, because the road cost so much more to build, of course).
If I build a bike from scratch in my garage at a production cost of
$12,000, does that mean the market value will be $12,000+? Probably not. If you say yes, I will start building your bike tomorrow. Otherwise it
would be lucky if I could get $300, as it will likely be a clunky bike. Our city leaders have a long history of overpaying for things and saying it is A-okay to do so.
According to Mayor Stocks, buying the road means they don’t have expand other nearby freeways
with TransNet dollars. A savings? Maybe not. According to two reporters, the private
for-profit toll road (partially supported with Federal funds), was set to be
turned over to the government at the end of its contract (a length similar to
the Transnet program). So, we bought something we were going to get anyways, and this benefit we purchased for $300 million would have been delivered for FREE later.
Buying the road means drivers will pay lower tolls. Not buying the
road probably meant the same thing. The tolls were too high to attract a lot of
traffic and it is likely that the next private owner would have lowered the
tolls to boost volume. No? Maybe the taxpayers could have come out ahead if
they subsidized the tolls on the Toll Road until the road was turned over to
the government rather than buying it outright.
Did SANDAG consider the County-wide long-term financial and transportation
outcomes under the different scenarios? Two reporters tell me they didn’t see it.
Gary Gallegos the executive officer at SANDAG wouldn’t respond to my public records request for that analysis (if it existed)
and Jerome Stocks wouldn’t show me where to find such comparisons (he said they existed and cut off communication when I asked where to find it).
Jerome has been a leader in overpaying for real estate, especially
when his friends are involved. It is not surprising that he has not fixed the
problems that allow for million dollar mistakes to be repeated. We’ve called
for a real estate transaction policy to be implemented, repeatedly.
The call for saving Encinitas millions of dollars that has been rejected:
Responsibility for errors or omissions belongs to Gary Gallegos and Jerome Stocks for their lack of openness.
And more recently, stocks rejected the recommendation of council minority to get an appraisal on The Pacific View property. That seems unwise, too.
ReplyDeleteThe value of a 30 year income stream is not an absolute number. It depends on revenue and ridership - both of which are projections at this point. To adjust the internal rate of return by just a few dozen basis points will significantly impact the bottom line value estimate. Therefore, the "value" is as subjective as anything else. What we do know is what it would cost to build out the 805 and that's a much bigger number than what was paid. Also, SBX had a huge litigation liability due to it being sued by Otay River Constructors - the road's design-builder. In the end, the road will eventually be free, it will have reduced tolls and the folks living along 805 will not have to deal with the construction impacts.
ReplyDeleteAnd by the way, the foreign "banksters" and Maquarie LTD of Australia were the ones who got the short end of the stick in this deal- to the tune of 50% of their equity invested. The federal government's loan remains 100% intact. Why not take the time to come up with a title that reflects the reality of the project, the bankruptcy and the SANDAG buyout? How about "Merry Christmas for Chula Vista commuters"
ReplyDeleteN.u.,
ReplyDeleteIf the road were worth that much, a private firm would have bid for it.
The tolls would have been priced to maximize revenues (i.e. cheap enough to get lots of cars) and it wouldn't have cost the taxpayers a dime.
Instead, Jerome bailed out the bankers with our money.
Just because Macquarie lost money building it doesn't mean the next suckers to buy it are getting a good deal.
Was this a bankruptcy sale? If the private company owning it can't afford to keep it why pay top dollar? Something is very fishy here and it ain't Charlie the Tuna
ReplyDeleteWith the taxes we pay why have a toll road at all?
ReplyDeleteHere is a wise purchase.
ReplyDeletehttp://www.signonsandiego.com/news/2011/dec/27/conservancy-purchases-land-coveted-years-hotel-dev/
The sellers said it was worth $287 millions. Jerome Stocks ordered $300 million in borrowed taxpayer dollars to pay for toll road (known as SBX to people familiar with the issue).
ReplyDeleteNickname unavailable,
Tell me where the following thinking is wrong…
The value of a 30 year income stream is not an absolute number.
Absolutely. I have fully recognized that. Good investors recognize there will be a probability distribution for income and the former owners said the expected value (which was certainly made in consideration of that distribution) was well below what SANDAG paid.
Why? Why pay more? What reason do we have to believe they would have said no to $287 million, or even $200 million. (They went bankrupt!)
If SANDAG’s cost was a fire sale cost, why didn’t these for-profit private investors instead sold it for more to another group? Couldn’t find anyone to buy it at that fire sale price? Probably shouldn’t claim it’s a lower than market value price then.
It depends on revenue and ridership - both of which are projections at this point.
If I were on SANDAG I would have asked for a test run at the lower pricing level to see what happens to revenue and road usage. I like empirical data when it can be obtained. For a $300 million dollar deal, it could have been obtained.
To adjust the internal rate of return by just a few dozen basis points will significantly impact the bottom line value estimate.
Therefore, the "value" is as subjective as anything else.
It shouldn’t be arbitrary. It should be justified with solid data and reasoned analysis.
SANDAG paid more than anyone else wanted to pay for the road, no? The sellers thought they could only get $58million less than what SANDAG paid. Why did SANDAG pay more than it needed to pay to obtain the road?
What we do know is what it would cost to build out the 805 and that's a much bigger number than what was paid.
ReplyDeleteThat isn’t contradictory? Isn’t that a “subjective” estimate of the cost? What will the costs be in 20 years?
Most important to this whole swap out justification for the price paid (and successful private companies do not operate that way) is the fact that the 805 project might not have been built with TransNet money ANYWAYS. TransNet II was a BILLION dollars in the hole on day one. SANDAG refused to prioritize all of the non-early action items.
BECAUSE of all the same justifications for the purchase, we might have depriortized the 805 expansion or eliminated altogether from TransNet. Why? Because of what Jerome Stocks has asserted. The takeover of the toll road by SANDAG means that we don’t have to expand the 805… BUT wasn’t SANDAG going to take over the toll road eventually anyways?
That is why I asked Jerome Stocks for the long-term program-wide (NOT project-wide) scenario comparison for the purchase versus no purchase options. He could not provide that to me. If you operate a county-wide multi-decade multi-billion dollar transportation program that analysis should be the first thing considered. No?
Also, SBX had a huge litigation liability due to it being sued by Otay River Constructors - the road's design-builder.
Don’t know about that. Does that mean we should have paid MORE than $287 million dollars. Was there press coverage of this? That seems like that should have reduced the market value.
In the end, the road will eventually be free, it will have reduced tolls and the folks living along 805 will not have to deal with the construction impacts.
Even if SANDAD didn’t buy it, in the end it would eventually be free and folks along the 805 would have received the relief. That a ways out. If SANDAG had paid $287 instead of $345 million the tolls on the road would be free much sooner and thus this benefit could be received sooner, no?
How about "Merry Christmas for Chula Vista commuters"
We heard that before, when the for-profit SBX was built with government support. I hope this does result in improved quality of life for many people. Does this mean it will make driving from south bay more attractive? How do the transit and walking advocates feel about that?
In my rush I rounded the purchase price to $300 million. It was $345 million.
ReplyDeleteYes, something does smell fishy. It truly feels as though Jerome Stocks continues to misuse his authority. From my perspective, he continues to violate the public trust.
ReplyDeleteIn my opinion, the Brown Act exclusion for real estate transactions is not serving the public trust. Because real estate is excluded from open government law, officials do not have to have transparency when it comes to "real properties." An open bidding process allows for "fair market value." Anything else is catering to special interests.
With respect to the Mossy property, now the Public Works Yard, there was a lot of "payback" on that one, I'm sure. The voters were NOT made aware of the enormous cost of building the library where it now stands, with its huge retaining wall, in a location INACCESSIBLE to seniors who might take the bus (the hill is so steep, it's very challenging to ride one's bike to the library, or to walk there from the bus stop, for most). Yet the present location was "sold" to the voters as being accessible to public transportation.
Had the library been built on land already owned by the City, near the golf course, then we would NOT have needed to pay well over $11 million for a new public works yard, which was originally sold, by Dalager and his Council cohorts as "turnkey" at first $8 million, then $9 million, INCLUDING ALL STRUCTURES!
Moreover, there never was an independent appraisal of the Mossy Property, nor the Hall Property, as far as we know. Insiders get enormous kick backs, and the tax payers and San Dieguito Water District ratepayers get the shaft. If real estate decisions were made publicly, with input from certified appraisers, then so much deception and graft could be avoided.
I feel the State Law needs to be changed. Most or all of the discussion regarding real estate should be public. If this were the case, Jerome's latest boondoggle and taxpayer loss could have been avoided. Thanks for the excellent article, LB.