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Last September, the San Diego Unified School District signed a contract to sell a scratchy, weed-covered plot of land just off the 54 freeway in southeastern San Diego.
The district hopes to receive $3.1 million from the sale, which will help it close an estimated $92 million budget deficit next year. It’s one piece of a $50 million real estate purge that has become central to the district’s financial survival plan.
Four of the five school board members and district officials insist taxpayers are getting good deals from the sales, and the real estate market is dictating fair prices for the properties.
But a closer look at the sales reveals some less convenient truths: The school board’s haphazard approach to the drawn-out process of approving the deals has already killed two sales that would have netted more than $20 million combined. Local real estate experts said the board has jeopardized its ability to negotiate the best prices on those properties as they come back up for sale.
And, while the district attempts to resurrect those deals, its proposed sale of the plot in southeastern San Diego for $3.1 million is also raising eyebrows in local real estate circles.
The district’s valuation of the land states that it could potentially be rezoned to accommodate a large, multi-family development, a process that would add millions to the vacant lot’s price tag. District officials acknowledge that, given time, they could probably make far more money from the sale of the plot, known as Bay Terraces No. 11. But they say the district needs cash now and doesn’t have the time or expertise to go through what could be a lengthy process to rezone the land.
“We’re not real estate developers,” said District Chief of Staff Bernie Rhinerson. “We’ve never done something like that and we don’t have the staff or the resources to start doing rezones.”
‘Leaving Money on the Table’
The Bay Terraces property is currently zoned to allow for low-density housing similar to the detached homes that surround the plot.
But a March 2012 appraisal of the property suggests the restrictive zoning could be contested.
“Based upon conversations with the City Planner for the Skyline-Paradise Hills Community Plan, it appears likely that a change in zoning is possible that would allow a multi-family residential or mixed use development,” wrote the appraisers, local firm Anderson & Brabant Inc.
To ascertain the value of the plot, the appraisers compared it to six other nearby multi-family housing projects with per-square-foot values between $17.45 and $35.99.
Because the Bay Terraces site is both undeveloped and under-zoned, the appraisers decided the school district’s plot is worth less than half the average value of the comparable properties. They pegged the site’s value at $10 per square foot, for a total estimated value of about $3 million.
Last fall, the district collected bids on the property. In October, the board approved a purchase agreement with a local buyer for $3.1 million. The buyer has until Sunday to decide whether to go ahead with the deal.
Commercial real estate experts familiar with the deal said the district missed a significant opportunity by selling the land at its current zoning.
A sophisticated investor would have instead hired a consultant to rezone the land themselves before selling it, said Gunder Creager, a land broker with Colliers International in San Diego.
“You’re always going to get more money doing it that way,” Creager said.
Creager and his colleague, David Santistevan, acknowledged that rezoning property isn’t a simple process. All sorts of things can go wrong, from community opposition to unforeseen objections from city planners. But Santistevan said the district could also have crafted a deal to sell the property for a much higher price contingent on a successful rezoning.
“They’re leaving money on the table,” he said.
Tina Vieceli, the district’s top real estate official, acknowledged that the Bay Terraces deal isn’t ideal.
A former private sector real estate professional, Vieceli said the district was constricted by the school board’s requirement to raise cash as soon as possible to shore up its budget.
“If we had the staff and the time and we weren’t in such fiscally difficult times, it would behoove us to do (the zoning change),” Vieceli said.
Next year the district has to start paying a succession of raises to teachers and other staff as new money comes in from Proposition 30, a sales and income tax increase approved by voters in November. The district will also be eliminating unpaid furlough days, a move that comes at a substantial cost and contributes to the $92 million deficit San Diego Unified is facing next year.
Challenging the notion that the district so desperately needs to sell this particular land quickly, however, is the fact that the district projects it will end the current fiscal year with a budget surplus of close to $15 million.
Due to the quirks in the budget process, the district always ends the year with some unspent cash in the bank, money that district accountants roll over to help balance the next year’s books. Without the money the district is set to receive from the land sale this school year, that surplus would shrink by $3.1 million.
But why not just wait and sell the property next year instead, potentially at a far higher price? Either way, the money will go toward paying off next year’s deficit.
District officials don’t really have an answer. They talked vaguely about needing the savings from this year to balance next year’s budget, but couldn’t explain the apparent urgency for this particular sale.
And the school board has previously scuttled two other real estate deals, one of which dwarves the Bay Terraces deal.
‘There Was a Buzz’
Another failed land sale tells the opposite story — one where the district was set to make good money until it snatched defeat from the jaws of victory.
There’s been a lot of public discussion about San Diego Unified’s plan to sell the Mission Beach Center, a shambling cluster of buildings a block from the beach.
Trustee Scott Barnett, who’s been leading a one-man charge on the school board against selling off district assets, has reserved most venomous critiques for the Mission Beach Center sale. The site sits in Barnett’s coastal district, and he thinks his colleagues on the board are being reckless in selling such a prime piece of land.
“Mission Bay is an iconic property, one of the most valuable pieces of real estate in the world,” he said. “In addition, the Mission Beach and Pacific Beach community is strenuously opposed to what will be intense and disruptive development, which will exacerbate existing problems.”
But the rest of the current school board has, on the whole, supported selling the Mission Beach Center.
Last year, the district drew up a contract with a buyer, real estate firm Carmel Partners, for a purchase price of $16.5 million.
Santistevan said that price made jaws drop across the city’s real estate community. He said the $16.5 million bid far exceeded what he thought would be about a $10 million payday for the district.
“There was a buzz,” he said. “Everyone was calling me and saying, ‘How do Carmel Partners make that work?’”
But before the deal went through, then-schools Trustee Shelia Jackson threw a wrench in the process when she voted against selling the property last October. The sale needed a 4-1 vote to pass, and Jackson and Barnett’s votes shot down the district’s marquee real estate transaction.
“The one deal they had stupid money on was killed,” Santistevan said.
Carmel Partners Vice President of Development Mark Garrell said he and his colleagues were taken aback by the board’s sudden change in direction.
“Even if it was clear to the board that they could still change their minds, it certainly wasn’t clear to the rest of the development community,” Garrell said.
Schools board Trustee Richard Barrera and President John Lee Evans said they were surprised and frustrated by Jackson’s sudden reversal.
“I didn’t think it was the right time to reject a deal,” said Barrera. “To me the right time to do that is when it initially comes before the board, not after you’ve collected bids.”
Jackson’s term on the board ended last November. In January, the school board passed a resolution putting the property back up for sale.
Garrell said his company will be submitting a new bid for the plot. He wouldn’t say whether it will offer as much as it did in the original deal.
A Deadline Approaches — Maybe
San Diego Unified Deputy Superintendent of Business Phil Stover said his staff is putting together seven new property sales.
The board has indicated it expects to bring in $50 million from land sales this year, and Stover said his challenge is to get all the sales done by Dec. 31. That’s when a temporary change in state law that allows districts to sell property and use the money for day-to-day costs is set to expire.
Putting together so many sales so quickly, especially with the board’s patchy track record, is a daunting prospect, Stover said.
But San Diego Unified’s lobbyist in Sacramento, Martha Alvarez, said the Dec. 31 deadline might be moot. She said Gov. Jerry Brown’s proposed budget trailer bill would eliminate the deadline, allowing districts to sell land indefinitely.
The Bay Terraces sale has an even tighter deadline. The buyers have until March 31 to back out. That’s when a “due diligence period” expires.
District officials and board members say the seven sales they hope to approve in the next seven months will be the last time they resort to what Barnett calls “selling the furniture to pay the mortgage.”
Will Carless is an investigative reporter at Voice of San Diego currently focused on local education. You can reach him at will.carless@voiceofsandiego.org or 619.550.5670.
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