NEWARK-Taking a cue from a long-used commercial real estate strategy, the city is planning to sell municipal buildings to help close an $83-million budget shortfall, the Star-Ledger reported Wednesday. Under a plan released Tuesday, the Essex County Improvement Authority will sell bonds to buy the properties, including police precincts, firehouses and office buildings, then lease them back to Newark. The city hopes to raise $50 million through the sale. Andy Zezas, SIOR partner and blogger points out that the state of New Jersey and a few other city governments have looked into this option as well, so the plan isn’t radical for its originality.

Sale-leasebacks, as a whole, are a short-term solution. Much like a cash advance from a credit card, it may end up costing more in the long-run, as essentially the cost of the property plus interest is paid back over the lease-term. Zezas notes, if the city of Newark is doing this strategically and perhaps getting out of the building at the end of the term, either through the building’s obsolescence or otherwise, then it might be a smart play. “But if this is merely creative structured finance,” he explains out. “Over a longer period of time, they will have jeopardized the financial future of Newark. And at some point, the risk is, the city could be worse off.”

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