Hard sell for school board

khui@newsobserver.comFebruary 7, 2012 

Wake County taxpayers have been paying more than $20,000 a month to maintain three vacant Raleigh office buildings that school officials have had limited success in trying to sell.

Today, the school board will be asked to vote on the sale of one of those buildings near Raleigh's Five Points area. But the offering price is half the property's assessed value and 25 percent less than what the school system hoped to get.

But in a stagnant real estate market, the question facing school system leaders is whether they can afford to be choosy by holding on to buildings, including the former headquarters building on Wake Forest Road, that are depreciating in value each day.

"In a perfect world, the other properties would have sold quickly," said school board chairman Kevin Hill. "I'm concerned inasmuch as it's costing Wake County and the taxpayers additional funds."

The sale of the three buildings was approved by the school board, county commissioners and the state Local Government Commission in 2010 as part of a long-term plan to deal with administrative space for the state's largest school system.

As part of the deal, the school system agreed to sell the three office buildings and expand the lease for a site it had been using in Cary. The deal would cost $66 million over 20 years to lease and operate the Cary facility. The school system agreed to use the proceeds of the sale of the buildings to help cover the long-term lease and operating cost of the expanded Cary headquarters.

In escrow

Commissioners, who worried that the buildings might be slow to sell, required the school system to set aside $13 million in an escrow fund until the sales were made.

"It's a good idea to move to a new location," commissioner Tony Gurley said in an interview last week. "The deal they got was cheaper than building on their own. But they've got to sell those buildings."

Don Haydon, the school system's chief facilities and operations officer, said school administrators are still well within the time frame they gave themselves to sell the buildings by June 2013. He said the system is paying $20,300 a month to maintain the three buildings. All three buildings were empty by late last summer as administrative employees were relocated to Cary in phases. About 800 school employees now work there.

"We've had quite a few expressions of interest," he said. "We think it's just going to be a matter of time before they'll be sold."

Failure to sell

Selling the three properties - smaller buildings on Noble Road and New Bern Road and the 99,600-square foot former main administration building on Old Wake Forest Road - hasn't been easy.

The system's failure to sell any of the three buildings is attributable to the general recession. The buildings have a total tax value of $18.3 million, but their market value was estimated at $12.3 million two years ago, officials said.

Even that estimate was optimistic given that the recession has greatly reduced the value of older office buildings. Many companies used the recession as an opportunity to move to nicer offices in better locations, which made it difficult for many older buildings to attract tenants.

There are now fewer potential buyers for such properties, whether they be landlords looking to rent the buildings or companies looking to occupy them.

The former headquarters on Wake Forest Road was built in 1968. The system is currently asking $9.8 million or $99 per square foot - for the building assessed at $12 million. But in recent years similarly aged buildings have often fetched considerably less on a per-square-foot basis.

Haydon told county commissioners 15 months ago that the school system was in negotiations with "a couple of interested parties, although nothing has been locked in yet."

"It's fair to say that the downturn in the economy since then and the slowing of the real estate market has reduced the number of prospective buyers," Haydon said in an interview last week.

At today's school board meeting, members will consider whether to sell a piece of surplus system property near Five Points for about $2.6 million, roughly half its tax valuation in 2008, before the real estate downturn. School officials had hoped to sell the building for $3.5 million.

"We'll sell them eventually," said school board member Chris Malone. "You have to have faith it will get done."

Staff writer David Bracken contributed to this report.

Hui: 919-829-4534

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