The NC Department of Justice has “serious concerns” about a land lease contract that Saint Augustine’s University is prepared to sign with the real estate development firm 50 Plus 1 Sports, according to a letter the DOJ sent to the university on Monday.
“We are concerned about SAU’s ability to continue to operate and fulfill its mission if this proposed lease agreement is finalized without substantive improvements,” wrote Kunal Choksi, senior deputy attorney general and director of the DOJ’s consumer protection division.
Since SAU is a nonprofit and the contract encompasses all or a majority of its property, the state DOJ is legally obligated to review and approve it before any money can change hands between 50 Plus 1 and SAU. Although the review is not yet complete, Choksi’s letter suggests that the agency is unlikely to approve the contract in its current form.
SAU, which sits on about 105 acres of land near downtown Raleigh, has said it is prepared to lease its entire property to 50 Plus 1 for a 99-year term in exchange for a $70 million lease payment. 50 Plus 1, in turn, has said it plans to build a mixed-use development on part of the property and lease the rest back to the university.
According to Choksi’s letter, the initial lease payment specified in the contract is “between $20 million and $70 million dollars,” a sum which, in the DOJ’s assessment, is “too low to justify” the lease of SAU’s entire property, which is appraised at over $198 million.
“That large of a gap raises red flags about the defensibility of the deal,” Choksi wrote.
“Absent further information or justification…the deal should be renegotiated to, among other things, reflect the true value of the property being transferred.”
In the past, 50 Plus 1 has justified the $70 million lease fee by offering the university a 35 percent share in the net revenue from the development it plans to build on the property. Monti Valrie, a managing partner at 50 Plus 1, told INDY in December he estimates SAU could make $1 billion from this deal through the revenue sharing agreement. But in the letter, Choksi said the university has not provided any evidence or justification for that estimate.
Also missing from the materials the DOJ requested from the university was evidence that it had completed due diligence on 50 Plus 1 and its financials, according to Choksi’s letter.
“SAU, … despite repeated requests, has not provided any such diligence to this office including any documentation of financing [50 Plus 1] has secured to meet its payment obligations, details about similar deals [50 Plus 1] has developed, including deals with other universities, or the company’s audited financial statements,” Choksi wrote.
The DOJ also has questions about whether this deal aligns with SAU’s charitable mission as a nonprofit university. According to the letter, following through on the land lease with 50 Plus 1 could put the school at risk of losing its nonprofit status.
“There is precedent for the IRS revoking, and courts upholding the revocation, of a 501(c)(3) nonprofit’s tax-exempt status on grounds and circumstances analogous to the proposed transaction,” Choksi wrote.
The DOJ also has unanswered questions about how much of the university’s property 50 Plus 1 plans to develop.
“We have requested information on how this transaction will preserve and revive SAU’s educational mission and finances,” Choksi wrote, “including site plans showing which property [50 Plus 1] intends to develop and which it will preserve for educational purposes.”
Prior to receiving this letter, SAU had been aggressively lobbying the DOJ to green-light its partnership with 50 Plus 1 so that it could collect the initial lease fee ahead of a February hearing with its accreditor, the Southern Association of Colleges and Schools Commission on Colleges (SACSCOC). After a year of declining enrollment, layoffs, and accumulating debt, SAU is under immense pressure to show SACSCOC it can recover financially, lest it lose accreditation.
In his letter, Choksi acknowledged the university’s imminent deadline with SACSCOC and offered to work with the school to get an extension from its accreditor.
“We have a duty to ensure that nonprofit assets within North Carolina are protected, and that extends to helping our HBCUs thrive and give their students the education that will help them succeed,” Choksi wrote. “We, like you, want to ensure that SAU can continue to operate in the short term and succeed in the long term.”
Read the letter below:Letter-from-Kunal-Choksi-to-Saint-Augustines-University
Chloe Courtney Bohl is a corps member for Report for America. Reach her at chloe@indyweek.com. Comment on this story at backtalk@indyweek.com.