Redondo Beach USD struggles to find new property revenue

In 2006 and 2007, the Redondo Beach Unified School District conducted hearings to declare two former school sites surplus. The properties, located at 200 North Pacific Coast Highway and 320 Knob Hill, were both in prime real estate locations.

According to appraisals conducted at the time, both were being leased far below market value. The City of Redondo Beach and the Chamber of Commerce leased 200 N. PCH for a little less than $54,000 annually, well below the $796,800 appraised lease value the district had obtained. The city leased 320 Knob Hill for $253,000 annually. That property’s appraised lease value was $1,168,000.

After the “7-11” committee process was completed – so-called because between seven and 11 community members serve on the committees, which are required by state law to declare school sites surplus – the school district tried to renegotiate with the city. Finally, in April 2008, the school board approved a request for proposals from potential developers.

Two years later, both properties remain on the market, and much has changed.

In November of 2008, local voters passed Measure DD, which changed the City Charter to require a citywide public vote on significant changes to zoning. Both surplus properties are zoned for public use and would require a vote, under DD, to be developed commercially or for any residential use other than affordable housing projects (which are exempted under DD).

Meanwhile, the local real estate market, tied closely with the national credit crisis, has dramatically declined. The recessionary economy has also plunged education into crisis. RBUSD’s $65 million budget has lost $9 million in annual state funding since 2008. The district this year issued pink slips to 16 teachers and is unlikely to offer contracts to eight other temporary teachers.

The district is in dire need of revenue. But interest in its two properties has been scarce.

Superintendent Steven Keller points squarely at Measure DD for the lack of interest in the properties. He said the unintended consequence of the “slow growth” initiative is that DD has cost the district millions of dollars.

“DD plays with kids’ lives,” Keller said. “On a moral level, that concerns me. The argument is that [developers] can just go to a vote of the community. The problem with that is the process. You can do something maybe in north Redondo, but in the south it is going cost tens of thousands if not hundreds of thousands of dollars to campaign to make anything go forward.”

Both of the districts surplus properties are in South Redondo. Keller said several developers interested in 200 N. PCH and 320 Knob Hill have been dissuaded by DD.

“I get calls every other week about the properties, and I have to explain about DD,” Keller said. “They say, ‘Thank you for speaking with me. Have a nice day.’ You get off the phone and you go, hey, that was a 14 teacher phone call. That is what it comes down to. It’s wrong.”

Appraisals obtained by RBUSD last year indicated the two properties have been devalued by DD. An appraisal of 200 N. PCH, conducted by Parkcenter Realty Advisers, applies a 40 percent “DD discount,” lowering the value of the property $5.1 million, from a starting point of $12.9 million. The appraiser also indicated the discount should be applied to the $14.6 million value previously ascribed to 320 Knob Hill, which would amount to a $5.8 million loss in value.

Jim Light, who heads “slow growth” group Building a Better Redondo and helped craft Measure DD, questioned any valuation that contemplated intense residential or commercial uses. He said such uses fly in the face of the community’s wishes and would never have been politically palatable, with or without DD.

“That was never a realistic valuation,” Light said. “It was based on an unrealistic expectation of what the community will accept at those sites.”

Light said that limiting the school district’s ability to do otherwise was a very much intended consequence of passing DD. The Knob Hill property, he noted, was actively discussed during the DD campaign.

“We want people who want to build what the community wants here and are coming in seeking community input,” Light said.

Councilman Bill Brand, who also helped craft DD, said the community simply does not support a change in zoning at the sites that would increase traffic and negatively impact surrounding residential neighborhoods.

“In general, I think DD is doing exactly what it was designed to do,” Brand said. “They are just not happy with the fact that residents having a direct say now in whether can rezone their property or not.”

“It’s ludicrous to say the residents in this community don’t support education, because they’ve approved $200 million in school bonds in the last ten years,” Brand added.

Brand recently held a series of meetings that led to the founding of the “Knob Hill Community Group,” which is comprised of about 20 residents who intend to help establish a vision for the former school site and find the district a new tenant. At the group’s first meeting, on June 22, the group agreed that they would prefer to keep the site’s current zoning. Two prospective tenants attended – a representative from the American Youth Soccer Organization, which is looking for new headquarters and has a $360,000 annual budget for it, and a representative from a group that hopes to found a Christian high school.

Kelly Martin, who has emerged as a leader of the Knob Hill group, told the school board the following night, “Our goal is to generate a vision for you…and perhaps figure out a way to generate money to support it,” Martin said.

The school board that night lowered its asking price for the Knob Hill lease to $500,000. The board had previously lowered its minimum bid requirement to $700,000 and has already rejected two bids. Last September, an affordable housing developer offered the district $3 million upfront and $300,000 annually. Last month, another developer proposed a potential Whole Foods grocery store at the site and offered $405,000 annually.

Meanwhile, a worst-case scenario is emerging for the school district in which it could loose its current tenant at Knob Hill and not have a tenant ready to replace it. The City Council last week approved a budget that allocates $1.5 million for the city to move its Recreation and Community Services Department from the Knob Hill site over the course of the next year. Department head Mike Witzansky told the council that refurbishing the 50-year old building would cost $1 million. The city calculated it would be more cost-effective to move to its own property at Aviation Park.

City Manager Bill Workman also said that the existing lease arrangement was tenuous.

“We have tried twice in the last four years to get a long-term lease on the property with the school district and have been turned down,” Workman told the council. “Right now, we are on a month to month lease…and so we could be forced out in 30 days.”

School board president Drew Gamet said the district had sought to keep the city as a tenant and had offered a one year lease extension. The city has not yet approved the extension.

“We have never tried to force them out,” Gamet said. “There is absolutely zero truth in that.”

The district currently receives $300,000 in lease revenue at Knob Hill. The city subleases part of the property to Carden Dominion School for $150,000 annually.

John Parsons, a former councilman and planning commissioner who is also a longtime local Realtor, said that the district’s difficulties with its surplus property could be a sign of things to come for investment in general in the city. He said the development community is not likely to come to a city given the additional layers of risk and cost associated with a DD election.

“If it’s going to be a zoning change, you often have to get all the entitlements before lenders and most investors will speak to you,” Parsons said. “And then you spend up to a half million dollars on an [Environmental Impact Review]….that will take a year or two to get that done. And then you go through the approval process with the planning department, which is another 6 or 12 months, and then you go out to a vote. That is pretty scary for most developers. Why would they want to take a chance on a property like that?”

Parsons said a 40 percent DD discount might be an underestimation on a property like Knob Hill.

“A 40 percent discount is a probably a midrange discount on a property like that,” he said. “It might be even higher, because if you can’t get people to bid on it, you might not be able to lease it or sell it. Then what is its value?”

ReMax commercial investment adviser Jim Minton said that putting together investors was already a difficult task in the politically-charged atmosphere of Redondo Beach prior to the passage of DD. He said he had investors who wanted to build upscale senior housing who were willing to pay up to $1 million annually for the district’s 200 N. PCH property four years ago – and a similar amount at Knob Hill – but balked after encountering opposition.

“At every conceivable step we met nothing but obstructionists, and finally the people I was dealing with gave up,” Minton said.

Minton said DD worsens matters.

“Certainly it’s a nail in the coffin for anyone who wants to do a project, regardless of the merits one way or another, in the foreseeable future,” Minton said. “You are asking people to put up a substantial amount of money with no guarantee anything will go forward, let alone a reduced project. Just nothing….Some people, I guess, like things the way they are and don’t understand a community needs money.”

Councilman Steve Aspel said another unintended consequence of DD is that it takes local control away from neighborhoods. He said a project like a Whole Foods at Knob Hill could be approved because the developers could spend money campaigning elsewhere in the city and drown out that neighborhood’s concerns. The council, he said, would have no say in the matter.

“I have no doubt in my mind it would win, because everyone likes Whole Foods and the people who live within a quarter mile aren’t going to have the input they otherwise would,” Aspel said. “They can at least say they had a vote if that makes them feel good. Unfortunately, the City Council couldn’t stop the rezoning if we wanted to.”

Aspel also noted that the elections will be expensive. The city, he noted, has allocated $200,000 for a citywide election triggered by DD on harbor rezoning next March.

Brand said that DD is being unfairly blamed for larger economic woes.

“DD is being used as a scapegoat for what is a difficult investment climate anyway,” Brand said.

Brand said that there is already plenty of property available for developers in the city that doesn’t require rezoning.

“The thing being lost in all this is Redondo Beach already has zoning that allows more than 2,000 new homes and much more commercial development than has yet to be built,” Brand said. “If you want to upzone property above and beyond that – when we already have traffic gridlock in town – the public is going to have to vote on it. The residents are going to weigh in a meaningful way.” ER

Comments:

comments so far. Comments posted to EasyReaderNews.com may be reprinted in the Easy Reader print edition, which is published each Thursday.