The New York Times's Rent-to-Own Loan
A debt-strapped New York Times has managed to mortgage its shiny new headquarters for a quick cash infusion of $225 million. But at what cost? Some quick Excel work gives us an ugly answer:
Anywhere from 11 to 16 percent.
How we came up with that figure: The Times gets $225 million upfront from W.P. Carey, the real-estate company serving as its transaction "partner." (If by "partner" one means "loan shark.") Lease payments start out at $24 million a year and are set to rise over the deal's 15-year length. After 10 years, the Times can repurchase its 21 floors of the building (developer Forest City Ratner owns the rest) for $250 million. To turn those figures into an effective interest rate, we used Excel's internal rate of return function, and ran scenarios where lease payments stayed flat over 10 years and where they rose 10 percent annually. A reasonable scenario — 3 percent annual increases, roughly in line with inflation — yields a rate of 12.5 percent.
Compare that to the 11 percent cash interest the Times is paying Carlos Slim Helù, who already owns 6.9 percent of the newspaper publisher.
The sale-leaseback transaction may result in some tax savings which will lessen the overall cost of the deal. But still, it's a hefty rate. If it were a regular mortgage loan, we'd call it subprime. According to Bankrate, 15-year home loans are going for 4.94 percent. Even credit cards are charging an average variable rate of 10.84 percent. Translation: The New York Times is in worse financial shape than the average American consumer. That's sad indeed.