City, schools land swap deal collapses
by Mark McDermott
A property deal that would have involved a land swap between the city and the school district has fallen apart.
As a result, the district may lose out on lease revenue equal to the salaries of 12 teachers and the city must seek a new location for the police station it hopes to build.
Both sides attribute the collapse, in part, to the district’s properties being substantially devalued because of Measure DD’s passage two years ago, an argument dismissed by the slow growth initiative’s leader.
Redondo Beach Unified School District officials said this week that negotiations – which have taken place over the course of several years – have now ended.
District officials believed the outlines of a deal were in place that would have given RBUSD control of the Franklin Community Center and increased the city’s rent at 200 N. Pacific Coast Highway from $48,000 to $300,000 annually.
The city issued a formal offer last month, however, that included the land swap but only increased rent at 200 N. PCH to $90,000.
The school board in closed session last week rejected that offer.
Board president Todd Loewenstein expressed disappointment at the city’s counteroffer.
“Frustrated would be an understatement,” he said. “I really did think we were very close, in terms of negotiations. In my view, if nothing changes, it’s done.”
“Essentially, what it amounts to is we are finished negotiating,” said board member Carl Clark.
Assistant city manager David Biggs said the city is still hopeful a deal can be worked out.
“The city is still willing to do a transaction, based on fair market value of our respective holdings,” Biggs said. “We believe our offer reflected that.”
The two properties in question are part of an array of properties whose use by the city and school district were contingent on the two parties coming to an agreement. The city leases two former school sites that the district has declared surplus – 200 N. PCH and 320 Knob Hill. The former houses the police detective bureau (in addition to the Redondo Beach Chamber of Commerce, which pays $8,000 in rent annually). The latter houses the Knob Hill Community Center and the city’s Recreation and Community Services department. The 200 N. PCH expires in June of this year and the Knob Hill lease is month-to-month.
The city also has a 99-year lease on the former Franklin school site, which currently houses a community center, a preschool, and the Redondo Beach Playhouse. Under the proposed land swap, Franklin would have reverted to the district, which planned to move the South Bay Adult School there. The Adult School’s current location at the former Edison School on Inglewood Avenue, would have been leased commercially.
The district has endured millions of dollars in state educational funding cuts and hopes to increase lease revenue as a means to offset those loses. RBUSD just this week issued layoff notices to 16 teachers. The district hoped to generate an additional $550,000 to $600,000 in new lease revenue through its proposed deal with the city.
“That is 10 to 12 teachers right there,” Loewenstein said. “Looking at it from the city’s perspective, giving up Franklin – that property isn’t a great thing for them, and paying $300,000 for 200 N. PCH, a great piece of property kitty-corner from City Hall, which gives them flexibility for the future, for 99 years…That is a terrific deal for them.”
Loewenstein said the district would have had to spend at least a million dollars in upgrades at Franklin and Edison in order to do so, but he said that the proposed deal would have represented a “win-win” for the city and the school district. He said accepting the city’s offer would have been financially irresponsible.
“We are not willing for a couple years of very small increased revenue to make a bad decision for the long term health of the district,” he said. “It would be ruinous. Accepting a deal where we are making $30,000 extra a year, juggling around a lot of things and spending $1 million…It just doesn’t make sense.”
The city, meanwhile, hoped to retain use of 200 N. PCH both for its current use and possibly for future use as a new police station. The building’s location, near the main police station and City Hall, make it a natural fit, particularly if the city eventually pursues the building of large new public safety facility. Both its police and fire stations are nearly 50 years old and considered badly outdated.
Biggs acknowledged that “small group” negotiations had discussed a deal that would have paid the district $300,000 per year for the PCH property. But he said the City Council never approved such a deal, and that ultimately the city believed its offer would have enabled the district to maximize lease revenue through private development of Franklin or Edison.
“We are both working to serve the same group of citizens,” Biggs said. “So to me, as one public agency to another, our thought has always been they should look to maximize income from a third party user, rather than another public agency, because that is just a zero sum game….Especially during this time when we are both having to cut positions and our employees are taking wage and benefit cuts. And the reason we want 200 N. PCH is to increase public safety to the entire community.”
The crux of the disagreement was over just how much the property is worth. When negations began in 2005, the district, based on real estate appraisals, sought $796,800 in annual revenue from the PCH property. A more recent appraisal has downgraded the value of the property 40 percent. The drop resulted largely from the passage in 2008 of Measure DD, a “slow growth” initiative that requires a citywide vote on significant zoning changes in Redondo. According to the district’s appraisal – which also factors in the general downturn in the real estate market – 200 N. PCH’s current market value as a rental is $510,000 annually, including its adjacent 148-spot parking lot, or $320,000 without it.
Clark said that the district had historically rented to the city below market value but could no longer afford to do so.
“We have engaged, over the years, in sweetheart deals with the city, and that has been fine and dandy,” Clark said. “But we are at a point now where we need more than sweetheart deals. We need cash. And 50 cents on the dollar or less just doesn’t work anymore.”
The district’s appraisal, conducted by Parkcenter Realty Advisers, values Franklin at $4.3 million and 200 N. PCH at $6.3 million including the parking lot or $4 million without it.
Biggs said the city’s own valuation placed the two properties much closer in value and that the city’s offer represented fair market value. He also noted that the district’s continued use of the parking lot factored into the valuation. “Their assessment of what the parking would cost was, I think, underestimated,” Biggs said.
A draft agreement prepared by the district earlier this year would have ceded use of the parking lot upon the city’s construction of a new facility at 200 N. PCH, but would have allowed continued shared use of the lot until that point. The district also sought the right to build a new parking structure on part of current parking lot.
Councilman Steve Aspel said that 200 N. PCH’s property value has been damaged by Measure DD more than the appraisal shows. The appraisal shows DD’s impact as reducing the property’s value by $5.1 million.
“We didn’t support DD, but that devalued the property,” Aspel said. “I am sympathetic with the schools because I don’t want them to go broke and I still have a kid there, but just because somebody feels a property is worth a certain amount doesn’t mean it is worth that…If we paid them more than what we think the property is worth, then we are giving away public money, and you can’t do that. I truly wish it was worth what they think it is worth.”
Jim Light, the head of “slow growth” group Building a Better Redondo and a chief proponent of Measure DD, dismissed the notion that DD devalued the property.
“Any valuation that included high density residential uses was risky speculation at best and ignored the political climate,” Light said.
The unraveling of the potential 200 N. PCH deal could have many repercussions. Loewenstein said the district will consider refurbishing 200 N. PCH for classroom use. The city, meanwhile, had hoped to extend its lease at Knob Hill for at least a few more years as part of the deal, and now must consider finding new homes for both its detective bureau and its Recreation and Community Services department.
Biggs said the city had several “fallback” options, including moving the recreation department to Aviation Park, developing new facilities at the Franklin site, and possibly housing police detectives in trailers on the City Hall campus while working towards long-term plans of building a new police facility.
“It’s not the most desirable outcome,” Biggs said. “But we do have alternatives…We were trying to craft a win-win scenario that worked beyond the economics of revenue generation for the district. I think that is the hallmark of any successful negotiation – being able to have something that works for both sides – and we just have not been able to find that right formula yet.”
Loewenstein agreed with the goal but expressed little hope a successful formula could be found.
“We really wanted to be able to find a point where both parties would win – where they would have property to build a new police station and we would be able to bring in revenues to the district to help offset cutbacks we’ve had from the state,” Loewenstein said. “We’ve spent years on this now. It’s incredibly frustrating. I have personally spent a lot of time dealing with this. I kind of wash my hands of it.” ER