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BSED

Preliminary approval was given for an agreement with GE regarding the termination of its lease with Big Sky Economic Development (BSED) by BSEDs joint boards at a special meeting. The lump sum of the settlement totals $3.8 million, which allows BSED to cover the debt service for 37 months, continue maintenance and insurance, as well as provide potential for incentives for a future tenant or purchaser of the building at 3333 Hesper Road.

GE has been very accommodating in the process of working out an agreement that will put the community in a strong position as we look to attract new prospects, BSED Director Steve Arveschoug told members of the sister organizations, Big Sky Economic Development and Big Sky Economic Corporation, as they reviewed the proposed terms. 

BSED recruited GE Capital to Billings in 2008 and part of the incentive package included custom building a facility for the company to lease. GEs lease on the building expires in January 2021. In 2015, GE announced that it is divesting itself of all GE Capital business, which included the Center of Excellence in Billings. A portion of its assets was sold to Wells Fargo and another portion to the Bank of Montreal, retaining some 100 jobs in Billings. The transaction also resulted in the Bank of Montreal establishing an office in Billings.  About 60 employees remain working for GE as it gradually winds down its Billings operation with the expectation of being finished by the end of 2017. The remaining 60 employees will be released at various times throughout the year and will receive GE severance benefits, which will total some $3.4 million, including education opportunities.

Terms of the lease buyout agreement that BSED has negotiated with GE were put forth in a letter to the joint boards as an offer from GE, which Arveschoug said he believed was important to act upon as soon as possible. Board members expressed general satisfaction with the agreement and agreed that it was important to finalize it as soon as possible in order to move forward in the process of acquiring a new tenant as soon as possible.

Arveschoug said that they are in communication with a prospect that is exploring the possibility of using the building and even perhaps hiring some of GEs former employees, however, conversations are very tentative. Arveschoug said that in moving forward in deciding what to do with the facility it is important that BSED keeps in mind their mission of encouraging economic development that generates jobs, as well as their responsibility to taxpayers to protect the asset.

We still have a lender agreement to work through, said Arveschoug, but in general the lenders have indicated satisfaction with GEs offer. Lenders include Stockman Bank and the Montana Board of Investments. The lenders just want to make sure that they are not taking on any more risk as a consequence of the agreement, said Arveschoug.

The agreement is based upon the anticipation of going into effect January 2018 and covers a number of factors involving debt, maintenance and transition costs. 

GE is responsible for 37 months of lease payments from 2018 to 2021. 
Since financing from the Montana State Board of Investments (MBOI) provided a lower interest rate on the condition of creating jobs, since the jobs have gone away, MBOI is adjusting the interest rate which will increase the amount of total debt against the property. 

The adjusted debt service over 37 months totals $2,849,698. The cost of maintenance for 37 months of operation and maintenance is estimated at $763,500. Three years of vacant building insurance is $143,106.
GE will provide up to $600,000 to retrofit the building for a future tenant, which will be paid on a reimbursement basis.
Technically, BSED owes three $50,000 incentive payments to GE, which the company has agreed to forego which will allow BSED to use the $150,000 for legal expenses and re-marketing costs.

BSED asked for an additional $3,637,731 based upon lost payroll to the community which they could use for business recruitment purposes. GE rejected that request pointing out that they are providing generous severance packages to employees. GE is leaving everything in the building except computers, including furniture, fixtures and kitchen equipment and a building generator. It will essentially be a turn key facility for the next tenant, explained Arveschoug.

The total lump sum buy out of $3,847,304 will be paid up front. The settlement covers all costs associated in continuing to own the building for the next 37 months and if a tenant is found prior to that, the difference is a windfall to BSED that can be used for future economic development incentives. If we sold the building quickly, said Arveschoug, we would be a winner.

Total remaining debt as of January 2018 is $5,676,303 and remaining debt at the end of 37 months would be $4,003,617.
A market analysis of the buildings value made a year ago was estimated at between $9 million and $12 million.

Board members noted that whether they find a tenant to buy or to lease the building, it will still serve the mission of fostering economic development in the community. It was also noted that with the possibility of a new large business facility being built ñ Big Sky One ñ the market could become more competitive in vying for prospective tenants, so it would be better to act as quickly as possible to find a tenant or multiple tenants if that should prove more feasible.

BSED has engaged a national site selector to review the property and provide a plan for marketing the facility at a national level.