Texas Land Board bows down to Wal Mart in land lease scheme
Wal-Mart will lease back bulk-storage center it built near Baytown, putting $338 million into public school fund over 30 years.
September 01, 2005
By Mike Ward
Austin American Statesman
State officials on Wednesday announced the purchase of a $100 million Wal-Mart bulk-storage center near Baytown, the largest real estate investment yet in a strategy they called the future for Texas school funding.
"This is a historic deal for Texas schools," Land Commissioner Jerry Patterson said. "This is the equivalent of a moon landing for the School Land Board . . . the most significant, most secure investment with the best return in the history of the Land Office."
Over 30 years, he projected, the investment will earn $338 million for the Permanent School Fund, the multibillion-dollar fund that is used to finance public schools in Texas. It will also create 1,900 new jobs with an estimated payroll of $66 million.
General Land Office officials had first announced the deal in February 2004. Wednesday's numbers were larger.
Under the details made public Wednesday, the School Land Board — of which Patterson is chairman — bought a pair of gargantuan warehouses just completed by Wal-Mart Stores East LLP on a 474-acre site southeast of Baytown off Galveston and Trinity bays.
In all, the two warehouses include 4 million square feet of warehouse space, about 83 football fields in size.
Wal-Mart has leased the space back from the state. The company will make lease payments that, over the 30-year term of the agreement, will total more than $238 million.
After two years or through the end of the lease, Patterson said, Wal-Mart has the option of buying the warehouses back, for $100 million or the "current market price, whichever is greater."
"Our rate of return on this deal will be far better than we would get if we invested the money," Patterson said. "It's a true win, win, win situation . . . We consider this the flagship of our future efforts in the real estate area for the school fund."
For years, the school fund relied solely on oil and gas production on state lands for its income. Two years ago, faced with a shrinking petroleum economy, lawmakers gave the Land Office authority to get into real estate.
Since then, officials said several smaller deals have been closed involving investments in a sprawling ranch near College Station, which is leased to the prison system, and an industrial plant in Sherman, which is leased to a corporation much as in the Wal-Mart deal.
When the Arkansas-based retailer, the world's largest company, began searching for a new bulk-distribution site, Chambers County and state officials offered the site, just 14 miles from the Port of Houston, with rail and close highway access, Patterson said. He said Texas was able to win the facility over New Orleans and perhaps other locales with the purchase-lease option, attractive to Wal-Mart because it could provide them tax and other savings.
Patterson said that when the distribution center is in full operation, Wal-Mart will pay about $5.8 million annually in taxes to local governments, with about $4 million of that going to the local school district. It will save Wal-Mart about $2.8 million a year in property taxes, he said.
Wal-Mart spokesman John Bisiosaid Wal-Mart's regional distribution centers will be serviced from the site.
"We feel the deal benefits both sides," he said, noting that one benefit to Wal-Mart is that the company does not have to make a $100 million initial capital outlay for a new facility since the state is buying it.
Phil Wilson, deputy chief of staff for Gov. Rick Perry, whose office was involved in the securing the deal, said the deal highlights another option for economic development enticements in Texas.
"It's a nice investment, a nice return for the state and it create a whole bunch of jobs," Wilson said. "That's a good deal."
Patterson said the center will serve as a bulk-storage point for Wal-Mart's operations in the central United States, the point from which consumer goods will arrive from overseas for sorting and shipping to Wal-Mart distribution centers. That bulk transfer work is now done mostly at Wal-Mart's Long Beach, Calif., bulk center, he said.
"Historically, royalties from oil and gas helped the state pay for public education, but we can't rely on oil and gas forever," Patterson said. "Last year, we earned about $48 million from land transactions, an increase of almost 3,000 percent. I expect to earn even more in the future."