Austin, TX –
Calling it "the biggest investment in the history of the General Land Office," Land Commissioner Jerry Patterson today announced the GLO's $100 million real estate investment in a Wal-Mart port-of-entry distribution center in Chambers County.
Patterson said the investment "marks the direction we're taking under this administration to diversify our income stream." Noting that most of the GLO's income in the past 100 or so years has come from oil and gas royalties, Patterson said it is no secret that someday oil and gas "goes away" and the royalty income checks will "start tapering off." Thus, he said, oil and gas royalties are not a dependable source of revenue for the Permanent School Fund (PSF).
Legislation passed several sessions ago allowed the GLO to take royalty income and invest in real estate, said Patterson. Legislation from the 79th Session granted the GLO greater authority and flexibility relative to those investments.
The agreement, signed last week after some 20 months of negotiation, provides the "most significant, best return, most secure investment" in the history of the GLO, said Patterson.
The Commissioner said Wal-Mart officials were searching for a location for a port-of-entry distribution center - a bulk storage facility. Patterson called the facility "the mother of all distribution centers," noting it sits on 475 acres, cost $2 million and includes 92 acres under its roof - essentially the size of 92 football fields. He said this center will serve as the distribution center for smaller Wal-Mart distribution centers like the public sees off highways in cities throughout the state. One-third of all Wal-Mart imports will go through this facility, he said, and through the Port of Houston.
While the GLO is "not in the business of economic development," said the Commissioner, the agency will use this endeavor as "another tool in our tool box" that "achieves our objective of good return with good security" while also having a substantial economic impact and positive economic development results.
Patterson said Wal-Mart made the initial investment through the purchase of the land. Once the facility was built, it was purchased from Wal-Mart and will be leased back to the retail giant on a triple net bond lease for 30 years. He said the rate of return will be "far better than what we would get on a secure investment." The $100 million investment is expected to earn the GLO $338 million over 30 years. The PSF will earn an annual internal rate of return of 7.22 percent over the full term of the lease. The lease is secured with the nation's newest and largest warehouse port facility and Wal-Mart's AA credit worthiness.
The facility will mean 1,600 new jobs for the area, said the GLO official, and will also be a win-win situation regarding tax implications.
The property was previously on the tax rolls as ag-exempt real estate that generated approximately $6,000 per year in property taxes. It has since been removed from that property tax roll. However, that $6,000 loss in property tax is offset by the inventory tax, which is now on the tax roll instead. Patterson said the result will be $4.7 million in property taxes per year and $1.6 million per year in sales tax receipts on payroll dollars spent in Texas. "This is not a tax loss, it's a huge tax gain."
Patterson said the investment is a win for taxpayers, the local school district, the city of Baytown, Chambers and Harris counties and the surrounding areas.
This investment will be the "flagship" of future GLO efforts to invest in real estate that produces income for the PSF, said Patterson. "We know it is a good deal."