Norfolk Southern could sell its new headquarters in five years, company says in disclosureNorfolk Southern received financial incentives valued at up to $607 million from Invest Atlanta. The city's development arm provided up to $600 million in lease purchase bonds and will administer a $7 million grant provided by the state of Georgia. (Photo taken December 2020). Credit: Kelly Jordan
By David Pendered
Norfolk Southern could sell its new headquarters in Midtown five years after the lease begins in 2021, the company said in a recent financial disclosure. Atlanta’s development arm expects the company to stay in place 10 years as part of the $600 million package it provided the company.
These two dates may not contradict one another. In addition, Norfolk Southern’s sale of any interests in the building would not preclude the company from continuing to occupy space in the building.
The situation suggests that the incentive package may be more nuanced than generally understood during the frenzied announcement of a new job creator coming to town.
The notion that Norfolk Southern has a five-year window on the deal appears in a report filed with the federal Securities and Exchange Commission.
On Feb. 6, the company submitted its annual, comprehensive financial disclosure and the report, the 10-K, contains this language:
- “In March 2019, we entered into a non-cancellable lease for an office building with an estimated construction cost of $550 million.
- “The lease will commence upon completion of the construction (for which we are a construction agent) of the office building which is expected to be in 2021.
- “The initial term of the lease is five years with options to renew, purchase, or sell the office building at the end of the lease term.
- “Upon lease commencement, the ROU asset [right of use asset] and lease liability will be determined and recorded. The lease also contains a residual value guarantee of up to ninety percent of the total construction cost.”
For its part, Invest Atlanta – the city’s development arm – expects to hold title to the property for 10 years. That’s in the terms of bonds that helped pay for construction.
These are the terms outlined in Invest Atlanta’s description of lease purchase bonds:
- “Through the issuance of Lease Purchase Bonds, Invest Atlanta holds title to real and personal property for a ten year period.
- “Invest Atlanta enters into a Memorandum of Agreement with the Fulton County Board of Assessors to assess the property under a ramp up schedule starting at 50% in the first year and decreasing by 5% each year for the next 9 years until full taxes are paid in year 11.”
Terms do not provide provisions to claw back any incentives if Norfolk Southern fails to execute certain terms, an Invest Atlanta spokesman wrote in an email.
The salaries, high by metro Atlanta standards, that are to be paid in the building represent one criteria cited in Invest Atlanta’s documents as a justification for the use of lease purchase bond financing to aid in construction.
The company’s payroll at the new office tower is to exceed $300 million a year. This figure is based on figures in a report Invest Atlanta provided for a $7 million grant the state provided – wages of $105,331 for each of 2,875 jobs, to include a net of 850 new full-time jobs and the retention of 2,025 existing full-time jobs.
City taxpayers are not responsible for paying off the loan in the event of default. Although the city issued the bonds, the city is not backing the debt. This means lenders have no recourse to recover investments if the loan defaults, other than the value of the building, according to terms of the deal.
This deal resulted from a comprehensive press by city, regional and state leaders to bring to Atlanta the headquarters of one of the world’s larger railway companies. The payroll alone added to the frenzy to draw Norfolk Southern from the 20-story tower in built in 1989 in Downtown Norfolk, Va.
A report by Invest Atlanta noted the depth of the effort to outbid other locales to provide incentives sufficient to attract Norfolk Southern to Atlanta:
- “This was a competitive project. Invest Atlanta worked with the Georgia Department of Economic Development, Metro Atlanta Chamber and Georgia Power on this project to relocate its [Norfolk Southern’s] corporate headquarters to Atlanta, Georgia and to consolidate all its corporate staff and operations controllers.”