NEWARK-Taking a cue from a long-used commercial real estatestrategy, the city is planning to sell municipal buildings to helpclose an $83-million budget shortfall, the Star-Ledger reported Wednesday. Under a plan releasedTuesday, the Essex County Improvement Authority will sell bonds tobuy the properties, including police precincts, firehouses andoffice buildings, then lease them back to Newark. The city hopes toraise $50 million through the sale. Andy Zezas, SIOR partner andGlobeSt.com blogger points out that the state of New Jersey and afew other city governments have looked into this option as well, sothe plan isn’t radical for its originality.

Sale-leasebacks, as a whole, are a short-term solution. Muchlike a cash advance from a credit card, it may end up costing morein the long-run, as essentially the cost of the property plusinterest is paid back over the lease-term. Zezas notes, if the cityof Newark is doing this strategically and perhaps getting out ofthe building at the end of the term, either through the building’sobsolescence or otherwise, then it might be a smart play. “But ifthis is merely creative structured finance,” he explains out. “Overa longer period of time, they will have jeopardized the financialfuture of Newark. And at some point, the risk is, the city could beworse off.”

The question is if Newark has a financial future at all shouldthe plan not pass. Driving the sale-leaseback proposal is thecity’s looming budget crisis. If the sale-leaseback scenario or aviable alternative doesn’t come through, Newark may have to raisetaxes by 30%. And even with the approved proposal, the city maystill have to impose a 20% property tax increase and lay off 600employees.