Moorpark Schools Enter Real Estate Realm

Hoping to parlay an unused piece of land into a $2-million payoff, the Moorpark Unified School District has entered a novel partnership and expects to step soon into the dicey world of real estate development.

In a venture that may be unique among California schools, the Moorpark district and Braemar Homes of Agoura Hills plan to take a proposal to build 150 houses on 15 district-owned acres to the Moorpark City Council in the next month or so.

“Educators are thought to be conservative, superintendents are thought to be conservative, but I don’t think we can afford to be conservative any more,” Supt. Tom Duffy said. “We have to be entrepreneurial and go out and get money. We can’t wait for people to drive up in an armored car and drop money on our doorstep.”

Although highly unusual in the extent of school district involvement, the Moorpark project is but one example of how times have changed in the world of public school finance.

Chronically short of cash and struggling with growing enrollments, school districts across Ventura County and the state are cutting deals with developers to raise the money to build new campuses.

In this county alone, several school districts are eyeing profits from surplus real estate and considering public-private partnerships unheard of just a few years ago.

No longer are districts simply selling off excess land. Instead, they are following the lead of other government agencies by getting their property rezoned for construction, then selling it to developers at a premium price.

In fast-growing Moorpark, the 6,950-student district has taken this approach a step further. It has come to the bargaining table as an aggressive partner in pushing city officials to subdivide its surplus land to allow for maximum profit.

Indeed, under its contract with Braemar, the district will be paid in installments over the years as phases of the new community near City Hall are completed. As Braemar’s profits go up, so will the district’s, though details of the profit-sharing arrangement are still being negotiated, Duffy said.

“This is a fascinating proposal,” said Ann Evans, director of school facilities planning at the state Department of Education. “I’m not aware of any others like it. What Moorpark is doing is pushing the envelope--it’s a shared risk and return. There is a brave new world of asset management out there.”

In Simi Valley, for example, the school district submitted a plan last week to build houses, luxury apartments, a senior citizen village, shops and restaurants and perhaps even a new district headquarters on 36 acres across from City Hall.

Trustees hope to make $10 million to $15 million on that deal. In addition, they intend to sell two closed elementary schools and may want to build stores at the district’s current headquarters as land values soar with the opening of a Wal-Mart nearby.

Ventura Unified may also seek city approval to build houses on a surplus Oak View elementary campus and is considering conversion of the aged Washington School into a suite of offices or a private school. A newly formed district committee is meeting with developers to see what sort of deals can be struck for unused parcels all over the district.

“This is the first time in my 38 years of public education where a superintendent has to get involved with real estate--land swaps and development,” Ventura Supt. Joseph Spirito said. “My role has changed tremendously in just the last five years. It’s more business-oriented and getting a little more away from being an educator.”

It is a change welcomed by officials at the state Department of Education, since state bond money for new school construction is strictly limited and creative financing on the local level is encouraged.

“We love those partnerships at the local level, because it reduces the need for us to create solutions up here in Sacramento that we then push down on them,” said Richard Whitmore, the state chief deputy superintendent of schools.

However, there is some risk in real estate development by schools, he said. “Everybody has to go into it knowing what the down side may be,” Whitmore said.

Critics say school districts ought to steer clear of land-use decisions, because the districts, by pleading their cases on behalf of schoolchildren, could prompt city councils to make bad decisions.

They cite the Oxnard High School District as illustrative of a district that can lose its gamble on real estate. That district is still hoping to resell 27 acres of farmland it bought in 1993 when constructing the new Oxnard High School on 53 adjacent acres outside the city.

The district is saddled with a $175,000-a-year tab on the $2.1 million in bonds it sold to buy the surplus 27 acres. It had hoped to sell the land back to previous owners once it gained a zoning change from the county Board of Supervisors. But the supervisors balked at what they considered a move that would bust open a farming greenbelt for development.

In Simi Valley, the school district’s previous foray into real estate development soured in 1992, when the City Council rejected an ambitious plan to develop the district’s 36-acre holding near the Civic Center as a shopping center. The district finally severed all ties with its development partner by paying about $300,000 to settle the partner’s lawsuit.

“It’s an awesome responsibility, this role as developer,” Simi Valley Trustee Carla Kurachi said. “If you don’t get into the right agreement or don’t get with the right developer, you can have problems. We had to buy out the developer across from City Hall. There were lots of problems. They didn’t have a good relationship with the city and the plan they proposed wouldn’t fly.”

The school board has not decided, Kurachi said, just how involved it will be this time in developing the Civic Center property. With its new plan, the district might simply try to secure city approvals and then sell parts of the project to different developers, or it could share in the risk and profits as a partner, she said.

“You want to maximize the revenues that can be generated, but there are ethical considerations as well,” Kurachi said. “You always need to keep in mind that we have a responsibility to our community and our neighborhoods. But sometimes, when your needs are great, it’s hard to try and balance it all.”

The Simi Valley district has struggled to balance its budget for years, and officials now say they need to raise $100 million just to upgrade 26 schools.

There is tremendous pressure on school districts to find new ways to pay for classrooms as enrollments climb, county Supt. Charles Weis said.

“We’re often told that we should operate our schools like a business, and I think some of our superintendents are trying to do just that,” Weis said. “The problem is that for the 15 years prior to 1996, we had a diminished buying power every single year, and schools had to cut costs to open the next school year.”

The last two years state funding hikes have finally exceeded the rate of inflation, Weis said. But districts must still struggle with building projects.

Under state law, home builders pay a maximum of $1.84 per square foot in fees to districts. But that doesn’t begin to cover the costs of land and construction for new schools, Weis said. New laws allow districts to extract further concessions from developers, but often they don’t cover all costs either, he said.

“So rather than just having their hand out to the public for more taxes,” Weis said, “they’re trying to leverage their assets to do the job. But there are cautions: We’re not supposed to be speculating with public funds. We saw the mistake of risky investing in Orange County.”

So as Duffy firms up the details of his district’s deal with Braemar, he says they have been careful to limit their risk.

Braemar has a good track record for constructing affordable housing in old downtown areas in Los Angeles County, Duffy said. And while it is true that the district’s share of profits depends on the project’s success, it has put no money up front.

“So what is the risk?” Duffy said. “The property right now is fallow. We haven’t invested money. The work that has been done has been paid for by Braemar. The real risk is in not moving forward to turn that property into cash, because right now it gives us nothing.”

Of course, the project could founder. Then the district’s land could be tied up in litigation. But given the existing economic climate, Duffy said the deal looks like a winner if the City Council will sign off on it.

But that is a big question.

The project does meet a city goal of providing affordable housing in the downtown redevelopment area, but it is also problematic, City Manager Steve Kueny said.

It has far too many houses, too few access roads, too little drainage for flood control and it is next to a railroad track, Kueny said.

The city’s General Plan allows a maximum of 80 to 120 dwellings on the 25-acre school district parcel of which the 15-acre, 150-unit Braemar project is part.

“You have a 12-acre site after you discount the slopes and drainage channel, so they’re seeking twice the prior maximum density on half the land,” Kueny said.

The project also has just one road into it, High Street, while the city generally requires two. The proximity of the railroad tracks would require construction of berms and sound walls. And drainage is considered inadequate by county flood control engineers.

Add to that troublesome mix a history of bad feeling between the city and the school district over the Braemar site itself. Bickering over the land led to a legal fight between the city, which tried to claim it at a discount price for a city park, and the district, which did not want to sell cheaply what it saw as a valuable asset.

The state Supreme Court finally sided with the school district.

But that residue of ill will may still color negotiations, said Avi Brosh, executive vice president of Braemar Homes.

“It’s my impression there is still some bad faith between the school district and the city, even though people like to say there isn’t,” Brosh said. “I’m not sure what’s going to be reality until the final gavel goes down on the final track map.”

Kueny said of the project: “I’d say it has a fair shot.”

Duffy comes to the deal with sterling credentials: He has helped secure $65 million from the state to build or refurbish nine schools since he joined the district as assistant superintendent for business in 1985.

The district has contributed to construction on only two projects--$900,000 to refurbish Chaparral Middle School and now $3 million for the $6-million Walnut Canyon Elementary planned for the land above the Braemar project.

While Moorpark was growing rapidly--its population quadrupled from 1980 to 1990--state construction funds flowed in. But with the slower growth of the 1990s, the district now must match state construction money dollar for dollar. And that has put it in a bind, especially since voters narrowly rejected an $18-million bond issue last month.

The district’s solution for the Walnut Canyon shortfall is the Braemar deal.

The partnership hopes to build 150 single-family homes and townhouses on two levels beneath the new elementary school. At $140,000 to $200,000 a house, the project could gross about $25 million, and by Duffy’s estimates, leave the district with $2 million or more in profit.

That would pay most of the district’s share for the new elementary.

“I’ll tell you, you’ve got to be creative to make this work,” Brosh said. “And this guy Duffy is creative.”