Our View: District, Duluth can work better together to encourage salesIn 2006, at the outset of the Long-Range Facilities Plan — and right before the recession decimated the real estate market — the Duluth school district looked to sell 12 properties as a way of helping pay for its districtwide school construction and reconstruction project. The changing market requires cooperation to help the district pay off as much debt as possible.
By: News Tribune editorial board, Duluth News Tribune
At the risk of reigniting a tinderbox, remember back when the Duluth school district first decided to close Central High School? Remember all the angst and venom and suspicion that the district must have some deep-pocket buyer all lined up, just itching to pounce on that prime piece of hilltop real estate?
Wouldn’t that have been nice?
Instead, the Central High School site remains for sale, vacant and abandoned, nearly a year after it was closed, one of seven properties the district had counted on selling, but hasn't been able to, to help pay down debt related to its $296 million Long-Range Facilities Plan.
Only four properties have been sold of 12 originally identified as needing to go, the $26.37 million their sales were expected to fetch a key part of affording the facilities plan. So far the district has realized, or is realizing, only about $3.95 million from sales of the properties. The difficulties have forced the district to readjust its books; it’s now budgeting only $16.36 million from the sales, about $10 million less than originally planned for.
Blame the economy for the troubles. The original estimates were done in 2006 — right before the recession hit and the real estate market tanked.
A real eye-opener for the district, and district taxpayers, came in November 2011 when a deal was reached to sell Lincoln Park Elementary School. The district originally hoped to get $610,000 for the sprawling, brick structure, which has a pool and is just across the street from Miller Creek and Lincoln Park. But the district sold the school and property for a single dollar to Sherman Associates of Minneapolis, which has said it would like to convert it into affordable housing and space for up to three nonprofits.
Additional $1 sales seem possible now for Morgan Park Middle School, which was hoped to go for $500,000, and Nettleton Elementary, its original $480,000 price replaced now with a dash on a spreadsheet the district provided the News Tribune Opinion page last week. That is, if any developer is willing to take on the financial risk of redeveloping, or attempting to redevelop, either school.
“It’s very difficult for developers right now to get money,” Kerry Leider, the district’s property and risk manager, said in an interview last week with the Opinion page. “Reality came home with Lincoln Park. … But just because we’re showing these numbers (and dashes), we are trying to get value for these buildings.”
The district needs to get value for the seven properties it’s still attempting to sell. The revenue is needed to help replenish the fund drawn from every year to service debt related to the facilities plan. With properties like Central and Rockridge not selling, that fund has taken a hit; at $6.8 million, it’s about half what it was a year ago, the News Tribune’s Jana Hollingsworth reported in December.
None of the district’s still-for-sale properties will sell if the district and the city of Duluth can’t work better together in the name of attracting buyers. The city sets zoning, land-use and other rules — based partly on the community’s wishes, as reflected at public hearings and in the city’s Comprehensive Plan — to determine how land can be reused once sold.
Sometimes those rules jibe with the plans of developers/ buyers, as seems to be the case at Woodland Middle School where developer Mark Lambert is poised to spend $3 million (never mind the original forecast was $6.7 million) to convert it into Bluestone Commons, a collection of apartment buildings, shops and restaurants.
But sometimes they don’t, as seems to be the case with Central High School and Rockridge, where restrictive reuse rules are scaring off potential buyers, according to the district.
“There are some real questions whether or not the sites can be redeveloped by interested parties due to the zoning that’s expected to follow the properties,” said Leider.
Rockridge, for example, is large enough to accommodate
12 assisted-living units, but city rules seem poised to allow only six units, meaning a lower return on investment for a developer, making the site less attractive. Similarly, the city’s wishes for Central High School have included more green space and recreational space than potential buyers would like. A proposed road through the middle of the property could further restrict how the property is used, making it even less desirable.
“We’re trying to close that gap a little bit to … allow for additional redevelopment on the (Central) site while still addressing the city’s desire for buffers and bike trails, etc.,” Leider said.
Encouragingly, the district and city are still talking about both sites — something they need to do, for the benefit of all community taxpayers.
“Our relationship with the city and with (Community Development Manager) Keith Hamre seems to be — better,” Leider said. “I think we’re close to getting to (the point where we’re working well together).”
“I think we’re being very cooperative,” Hamre said of the city. “We understand their issues. … We know they need to dispose of property. We want to maximize the potential for them, and we need to meet the community’s needs. I think we can find a win-win.”
A win is exactly what the district and the city need to find, and can find only by working effectively together.
Unless someone knows of a deep-pocket buyer, waiting in the wings, itching to pounce.
How is money from property sales used?
Revenue from the sales of Duluth school district property is used to pay down debt service related to the Long-Range Facilities Plan.
“This is an important distinction in that these revenues are not
required to pay contractors for actual construction,” Kerry Leider, property and risk manager for the Duluth school district, told the News Tribune Opinion page last week. “The revenue from the sale of property will be used to make part of the debt payments on amounts borrowed.”