State officials paid $23.3 million for a Hartford parking garage despite an appraisal suggesting the garage was worth less than one-tenth that amount.
Prior to purchasing the Morgan Street Garage from the Hartford Parking Authority, the state hired two firms to appraise the property. Italia & Lemp estimated the property’s value at $7.7 million. Cushman & Wakefield gave it a $9 million value.
The state already owned 23.1 percent of the garage, which, at the purchase price suggests a $30.3 million value. In other words, Cushman & Wakefield’s $9 million estimate for the whole property suggests a purchase price of $6.9 million for the 76.9 percent of the garage the state doesn’t already own.
The state is not purchasing the land underneath the garage. Instead, it will pay $3.2 million over four years for a 99-year lease of the property.
Sen. John Kissel, R-Enfield, who has been an outspoken opponent of the garage purchase, said he hadn’t heard of a 99-year lease “since the British leased Hong Kong.”
In addition to borrowing the cost of the garage and the lease payments to the city, the state is bonding $3.5 million for renovations to the garage and $200,000 in closing costs, for a total cost of about $30 million.
The purchase had to go through multiple layers of approval, including the bond commission, the Department of Administrative Services, the Office of Policy and Management, the State Properties Review Board and the Attorney General, according to an OPM spokesman.
“There seems to be $30 million worth of responsibility to go around,” Kissel said.
Italia & Lemp estimated the site is worth about $5.8 million while the garage itself is worth $2.2 million, or less than 10 percent of what the state paid for it. That value is for the whole garage, not taking into account the share already owned by the state. Cushman & Wakefield did not separate the site and garage values in its appraisal.
“The numbers don’t make any sense,” said Sen. Tony Guglielmo, R- Stafford. “This is a sweetheart deal.”
Guglielmo questioned why the state would pay full price for the garage because it already owns part of it. “You wouldn’t pay for it again,” he said.
Both appraisals considered the value of the garage based on a future scenario when it was near capacity after a five-year transition period, not based on its current 50 percent occupancy. When the garage had a large monthly parking contract with United Healthcare, it was filled to 95 percent of capacity.
United Healthcare accounted for at least $1 million in revenue for the garage, the difference between it more than covering its costs in 2010 and losing money for Hartford since then. Compared to an agreement like United Healthcare’s for about $1.5 million, the purchase would pay off for the state after about 20 years, not including interest costs.
OPM Secretary Ben Barnes previously told the CT Mirror the appraisals reflected the vacancy rate of the garage. He also told the Mirror the garage would cost less than half the cost of building a new one. Italia & Lemp estimated a new garage would cost $44.7 million.
Using one method to arrive at its cost estimate, Italia & Lemp started with the replacement costs and deducted 25 percent of physical deterioration and 70 percent for “external obsolescence,” to account for the high development costs relative to the amount of income the property could generate.
The state now owns the garage, but a collateralized debt obligation delayed the sale temporarily. According to draft minutes of the Capital Region Development Authority’s July 18 meeting, a CDO based on “a license agreement granted by the city” on 70 parking spaces made the purchase into a “very complex transaction.”
The city currently doesn’t collect taxes on the garage, which gives it an advantage over a private owner. The state could give itself that advantage, too, or a partial advantage by making payments in lieu of taxes that amount to less than the actual property-tax burden.