To: Houston City Council

From: Ronald C. Green

Date: March 29, 2010

Re: Sale of Lakewood Church Facility

With regard to the pending agenda item authorizing the sale of Lakewood Church, some
of you have asked for my disposition on the potential transaction. While the net proceeds
from the Lakewood sale may be less than many would like, the Controller's Office
believes it is a prudent course of action, at this time.

After the City entered into a 30-year lease agreement with Lakewood Church for
redevelopment of the Compaq Center nearly a decade ago, Lakewood prepaid a lump
sum of nearly $12 million in 2002, covering the first 30 years of rental payments.
Additionally, investments in capital improvements brought Lakewood’s total investment
in the property to more than $100 million. Lakewood has the option to extend the lease
by an additional 30 years at a rate of $753,333 per year and has met all conditions
precedent to exercise the same. The extension, however, would not begin until 2034,
meaning the City will realize no additional revenue from Lakewood for 24 years. In
practical terms, Lakewood’s lease continues for another 54 years.

Alternatively, there have been questions regarding Lakewood’s potential declination to

exercise its option to renew, at the expiration of the current lease term. If the lease is not
extended after expiration, and the City opts to sell Lakewood at that time, narrowly
defined parameters on the permitted use of the facility, as well as limited practical uses
for such a structure, which will have aged another 24 years, may further reduce its market
value.

Finally, due to the ongoing economic downturn, the City's fiscal health, while still
relatively strong, continues to decline. Decreased sales tax revenues have pushed the City
precariously close to its required minimum fund balance. Realization of the pending
Lakewood sale has already been factored into the FY’10 budget; therefore, termination of
the Lakewood sale will immediately require identification of an additional $7.5 million to
balance the budget. With widespread spending reductions across City departments
already anticipated, cutting deeper will be difficult. The Lakewood sale will provide
needed revenue to balance the current budget.

The Controller's Office is of the opinion that the negotiated price for the Lakewood sale
(coupled with current restrictions, covenants and market forces) represents the
approximate present value of potential future lease payments and residual land value.
While the net proceeds may not be ideal, we believe proceeding with the Lakewood sale
does not compromise the city in any manner and is not contrary to the City of Houston's
best interest.