School Headquarters Purchase Investigated

A federal grand jury is investigating the Los Angeles Unified School District’s much-debated $74.5-million purchase of a downtown high-rise that is now its administrative headquarters, according to a district document.

In a memo sent Thursday to the board of education, the school system’s inspector general, Don Mullinax, wrote that his office was cooperating with the federal investigation at the request of the U.S. attorney’s office in Los Angeles. Reached by telephone, Mullinax said he could not comment on the matter.

The 29-story structure, located at 333 S. Beaudry Ave., just west of the Harbor Freeway, had a history of disputes over alleged construction defects before the district purchased the building from Bank of America in 2001. With an additional $73 million spent on improvements and repairs for roofing problems and poor ventilation, the district has spent about $147 million on the new headquarters, a sum that the teachers union and other critics allege has been a waste.

Last year, the Los Angeles County district attorney’s major fraud division launched an investigation into whether the district overpaid for the Beaudry building to bail out its past investors, which included the financial services company pre- viously owned by billionaire Eli Broad, who has been a force in school district politics. That county investigation is continuing but is expected to be resolved “in the not-too-distant future,” said Sandi Gibbons, a spokeswoman for the district attorney’s office.

The school district financed its purchase through certificates of participation and, as part of the acquisition, paid $15 million to investors who held subordinated bonds tied to the building, similar to second mortgages issued by banks.

One of those secondary investors was Sun America, the company previously owned by Broad. Before the purchase, one real estate expert advised the district that it did not have to pay all of the investors who held the subordinated bonds, advice that district officials rejected.

The U.S. attorney’s office declined to comment on the federal investigation or to say which aspects in the purchase of the 24-year-old building the grand jury is probing.

Los Angeles schools Supt. Roy Romer said he was surprised by the federal investigation. “I don’t know of anything that was illegal or inappropriate,” he said of the purchase.

District officials, while pledging cooperation with the investigation, have denied that they made any special deal for Broad or anyone else.

They said that, without the payments to all of the bondholders, the deal could have collapsed or been waylaid or canceled by lawsuits. Any delay in the purchase, officials said, would have required the district to pay more for other office space while it was turning its old offices downtown into a school site.

But others have criticized the choice of the triangular concrete and glass structure, citing problems with the building’s construction and location, just west of the central part of downtown and away from major mass transit corridors.

A previous tenant, Security Pacific Bank, had sued the builder over alleged construction defects; that suit was resolved in an undisclosed out-of-court settlement.

In the fall of 2001, Mullinax raised concerns about the building’s structural condition, particularly the strength of its floors. In an internal report, he raised concerns that the floors were uneven and too weak to support file cabinets or other heavy equipment.

Board of education President Jose Huizar, who abstained from the original vote on the purchase of the building, said he was still convinced that, “from a financial and location criteria, this wasn’t the best possibility” for a district headquarters.

He said he expects that members of the school board and district staff will “fully cooperate” with the grand jury. “I’m looking forward to the outcome,” he said.

School board member David Tokofsky, who cast the sole vote against the purchase financing in October 2001, said he still had doubts about that deal and a new $40-million plan to build additional parking space for the headquarters. The property value has gone up, he conceded, but so has all property in downtown Los Angeles.

“The question is, did we pay the right price, and was all of the information transparent and presented [to the board] in a truly clear way?” Tokofsky said.

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Times staff writer David Rosenzweig contributed to this report.