Details on James Building Purchase

Penn State announced on Friday that it would be purchasing the James Building, home to the Collegian, for $4.4 million. We covered it here. The wording of the press release was confusing though. It said:

Though Penn State has the option to purchase the property in 2015, owner Charles Rider II and the University agreed to exercise the option now, allowing Penn State to avoid rent payments of more than $470,000 over the next six years, according to Gary C. Schultz, senior vice president for finance and business/treasurer of the University.

We weren’t sure what that meant, and originally thought it meant that the University would not have to pay $470,000 in rent over the next six years because it had bought the building. Contingent on that understanding, the purchase of the James Building did not make much sense. Apparently we weren’t the only ones to think so, as the author of Penn State Staff Blues also expressed misgivings about it.

We followed up with the Collegian and the University itself for clarification.

The rent for the building is approximately $350,000 per year. The sale was prompted by the mechanics of the lease. Geoff Rushton, a member of the University’s Department of Public Information, clarified the situation for us.

The figure included in the report is net present value. The net present value of paying rent quarterly over the next six years and then $4.4 million at the end of the lease is $4,870,000 as opposed to paying $4,400,000 now to acquire the building and eliminate the rent payments. The difference in net present value is $470,000. That is acquiring the building now reflects a net present value savings of $470,000.

The Collegian said that its lease agreement with the University will not change as a result of this sale.

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