Council to Vote on Funding Model to Buy Proposed College Park Academy Site

At tonight’s meeting, College Park City Council will vote on a preferred financing model to buy AlHuda property at Edgewood Road as the future home of the College Park Academy.

For the past several weeks, the College Park Academy (CPA) has been conducting feasibility studies to purchase the Al-Huda property with the goal of possible relocation from its current location in Hyattsville.

According to the College Park Academy expects (based on preliminary designs) that the total cost of the acquisition and renovations of the AI Huda School site will be $10 million. This includes the $5.75m asking price and about $4 million in rehabilitation and renovation. The original renovation estimates are higher, but probably can be reduced; the purchase price could be lower as well.

The school estimates that it is able to cover payments on a $10 million 30-year loan at 3% (approximately $500,000 in annual payments). The borrowing terms on $10 million would probably be for 20 years with an interest rate of about 4%. These terms bring the annual payment to $740,000.

There are several models the Academy is considering to determine who will own the AlHuda property, who will lend the required purchase amount and who will become the guarantor of the loan.

Model 1: City is purchaser, UMD (University of Maryland) is the lender The city purchases the AI Huda property with the University as the lender. The loan is, ideally, at the terms that the school has budgeted (30 years, 3%). The City then leases the property to the school, and the school’s lease payment covers the cost of the loan. In this scenario, the City acquires both the asset and the liability of the property.

Model 2: CPA is purchaser, uses a private lender, and the City and UMD are guarantors CPA purchases the school and borrows the $10 million for the acquisition and renovations privately. The City guarantees the loan payment for the number of years the lender requires (probably more than 5 years but less than 30 years) in order for the school to get the terms it needs to make this option feasible. UM provides a back-up guarantee in order to enable CPA to obtain better terms. If CPA uses a private lender, New Market Tax Credits may be worth exploring and would help to reduce the costs of the loan.

Model 3: CPA purchaser, UMD lender, city guarantor CPA purchases the school and makes the renovations, with the University as its lender ($10 million) and the City as the guarantor of the loan. The guarantee could be structured to give the city a certain amount of time to make good on its guarantee if the school were to shut down.

The City currently has long-term debt for the construction of the parking garage ($7.65 million). According to our City staff familiar with financial terms, borrowing $10 million for the CPA could affect negatively on City’s financial health.

The City staff has recommended that the City will take on less risk with option #3, and the Council will consider (without taking a position yet on the actual site of the Academy) endorsing that option, with the condition that if the Academy closes and is not able to pay, the City would take title to the property and the lender would defer debt service on the loan for a reasonable time period until the City has the opportunity to sell the property to another owner.

Additional steps, such as a Memorandum of Understanding between the Academy and the City, will be necessary if the City and the Academy decide to go this route.

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