Wake schools falling millions short on sale of former office buildings
07/01/2013 1:49 PM
07/08/2013 12:16 PM
Wake County school leaders figured they’d get $12.3 million from selling three Raleigh buildings – including the system’s former headquarters – when they argued in 2010 that they would have substantial savings by moving to leased space in Cary rather than renovating Raleigh facilities.
However, Wake stands to get $4 million less than projected from the sale of the buildings. The shortfall means the real-estate sales – still in process – will pump millions less than expected back into the school construction fund.
The slow sales at lower prices also mean the system’s projected savings from its 20-year, $66 million Cary lease are shrinking.
The system has been trying to sell the Raleigh buildings as real-estate values have plummeted. Only one property has been sold, and the offer for the former school system headquarters is millions less than envisioned.
“I was looking at the lease in Cary,” Commissioners Vice Chairman Phil Matthews said at a recent Board of Commissioners meeting. “Why we had to go over there, I’m not sure why, when we got a paid-for building up here on old Wake Forest Road.”
But school leaders say all the math shows that it was still the right decision to move to Cary.
“While I think it’s a little less, it will still be a savings,” school board member John Tedesco said. “It will make a significant difference for the county.”
Proponents of the lease deal say it will cost less money over time than renovating the decades-old building on Wake Forest Road, constructing a new building, or purchasing an existing building. But critics point to how the district will have no equity in the leased buildings as it did in the old headquarters.
In 2010, the school board agreed to sell three administrative buildings and expand the lease for a site it had been using in Cary.
The system agreed to use the proceeds from the sale to help cover the long-term lease and operating cost of the expanded Cary headquarters, near the Crossroads Shopping Center.
Based on the advice of Grubb & Ellis, a real-estate brokerage firm, the board chose the lease option over staying in its current administrative space, buying an existing building or constructing a new building.
Grubb & Ellis, which later received a commission from the lease, told Wake that a lease would be the cheapest option. Factoring in $12.3 million from selling the buildings, Grubb said Wake could save $27 million over 20 years compared to keeping its current space.
Wake moved into its new headquarters over the summer of 2011.
The Board of Commissioners agreed to the lease in 2010 but took $13 million out of the school construction fund to cover the projected revenue from the building sales. The proceeds are supposed to replace the money that’s been taken out.
Selling the buildings hasn’t been easy.
Earlier this year, Wake completed a deal to sell a building on Noble Road near Raleigh’s Five Points area. Wake is getting $2.17 million with $250,000 more tied up in escrow to deal with potential environmental issues. Wake had hoped to get $3.5 million.
Last week, school administrators presented a $5.1 million offer for the former headquarters on Wake Forest Road in Raleigh near the 440 Beltline. Grubb had projected Wake could get $7.9 million. Wake initially asked for $9.8 million.
“It’s unfortunate that, because of the economy, it’s dropped,” said Joe Desormeaux, assistant superintendent for facilities.
Wake recently did an appraisal of the 98,000-square-foot building, and determined its current value as $6.8 million. Betty Parker, director of real estate services, asked the board to consider the $5.1 million bid because it’s the highest one Wake has received.
Parker told the board that they’ve previously received “uncomfortably low” offers of $3 million to $4 million from bidders who said they’d have to spend a significant amount of money renovating the building.
Tedesco cited Wake’s paying $85,000 a year for utilities and maintenance of the empty building as one reason to sell now.
The board is expected to vote July 23 on accepting the offer.
Grubb & Ellis said in 2010 that the third property, on New Bern Avenue, would sell for $850,700.
Savings made up shortfall
Desormeaux downplayed the significance of the system’s not getting $12 million to replace the money taken from the building fund. He said savings on recent projects have meant that the system has built everything promised – and more – based on a $970 million school construction bond that voters approved in 2006.
“I’m not going to beat them up over it,” Commissioner Tony Gurley said. “It was a good idea for them to move. The fact that they weren’t able to get as much as they wanted is offset by the fact that they built more.”
Tedesco said the deal will result in savings that the school system can use to put more money back into the classroom.
“As long as we’re in the black on the deal, I think it’s the right choice,” he said.
But when the lease runs out and Wake finds itself without a building it owns, former school board Chairman Ron Margiotta said, people are going to wonder what the district was doing. Margiotta was the only board member in 2010 who opposed the deal.
“This is going to turn into the worst deal that the board has ever made,” he said.
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