Districts Ponder Sale--or Lease--of Surplus Schools

Nine years ago, Torrance school officials sold the Parkway School complex in a fashionable neighborhood near the ocean for $2.65 million.

The new owner, a private school, sold the site last fall to a real estate investment firm for $10.6 million, or nearly four times what school officials received for it in 1981. A developer hopes to transform the site into a tract of luxury single-family homes.

Today, the old Parkway complex in the pricey Hollywood Riviera section has become a symbol for critics who say the Torrance Unified School District has been too hasty to sell the schools left vacant by a shrinking pool of students.

Faced with a 43% plunge in enrollment, the district has closed 15 schools in the last two decades. It chose to sell 10 of the empty schools and converted four to other school-related uses. One remains vacant while the district seeks to lease it.

By selling so many schools, critics claim, the district failed to realize the long-term benefits of skyrocketing real estate values in the 1980s.

“They have a short-term solution to a long-term problem,” said Robert F. Thompson, president of the Madrona Homeowners Assn. “They don’t have the insight to solve the long-term problem. They’re just putting out brush fires.”

But Torrance school officials counter that the sales financed much-needed repairs and expansion. Supt. Edward Richardson, who estimates the sales revenue at about $33 million, points to major renovations at Torrance and North high schools as examples of how the money was used.

The debate over how to handle vacant school properties has been repeated up and down the South Bay in recent years, as shifting demographic patterns have caused enrollment to drop in 10 of the area’s 14 school districts.

A combination of factors has put many districts in a financial bind. Rising housing costs have forced young families with children out of the South Bay market. As school enrollments drop, districts receive less attendance-based state aid. At the same time, Proposition 13, the tax-cutting state initiative passed by voters in 1978, limits the ability of school districts to raise taxes to compensate.

In the meantime, districts must pay maintenance costs on vacant schools or find a way to make those schools produce money.

In this climate, many districts have found themselves thrust into unfamiliar roles as salespeople, landlords and real estate entrepreneurs.

The same force that is stifling enrollment--the spiraling cost of land--has enhanced the value of school properties. A closed school site often contains plenty of open land, easy-to-demolish buildings, water and sewer services, and a large parking area.

In congested southern California, those characteristics often can draw development firms like a magnet.

“It’s very hard for developers to find good dirt today,” said Rush N. Hill, a real estate and development consultant based in Newport Beach. “The public owns more dirt than anybody else.”

The districts with vacant schools have been forced to confront a nettlesome real estate dilemma: whether to sell those schools or to try to retain the sites by leasing them.

Selling has certain advantages. The district receives a large sum of money quickly. The land goes back on the tax rolls. And the district no longer has to worry about maintaining the site, freeing administrators to operate schools instead of doubling as landlords.

But in an era of uncertain revenue levels, leasing has grown more attractive. Although revenue from the selling of schools must be used for capital improvements, district officials are allowed to use lease revenue for other expenses.

In addition, leasing allows school districts to develop income while retaining a major asset.

“It seems clear that people everywhere are much more inclined to say that real estate is an asset and should not be sold off without a great deal of consideration being given to keeping it as an asset,” said Bob Niccum, director of real estate for the Los Angeles Unified School District and a proponent of leasing vacant schools.

Most South Bay districts have emphasized leasing their unused properties, either to small, short-term tenants or to major developers who prefer long-term ground leases that permit new construction:

* In Redondo Beach, new housing for senior citizens is rising on the site of the former Andrews Elementary School. In an unusual partnership that has been praised by other school districts, a private developer is building apartments on land leased for 60 years from the school district.

* In Lawndale, school officials last month began talks with property consultants on how to develop the Jonas Salk School on a long-term lease, perhaps as condominiums or senior citizen housing.

* In the Palos Verdes district, children are learning ballet in a rented dance studio in a former elementary school.

* And in Manhattan Beach, a French pastry chef is cooking delicacies in the rented kitchen of a former school.

The Manhattan Beach district, in fact, has decided not to sell any more school sites, said Barbara J. Dunsmoor, president of the Manhattan Beach City School District Board of Trustees. Her district has closed five schools since 1970, leasing three, selling one and converting one into offices.

“Land values are rather high here, and it’s probably more valuable to retain property and lease it than to sell it,” Dunsmoor said. “Once you’ve sold a piece of property, you then no longer take advantage of the increase in the value of that property.”

Some other school officials and real estate experts agree.

Wayne D. Wedin, an economic development consultant who counts a number of school districts among his clients, says he personally favors leasing for many school districts.

“I have a professional bias that I always recommend leasing if at all possible. If I lease property, I get a certain amount of rent on that property every year,” Wedin says.

“You never lose the land. You always have it.”

Adds Niccum of the Los Angeles district: “I’d be hard-pressed to recommend a sale unless it’s under the most dire circumstances.”

When a school district sells a site, it receives an infusion of money that Niccum likens to a jolt of coffee.

“When you get a one-time infusion, that looks like a lot of money,” he said. But, unlike rent revenue, the money doesn’t keep coming in. “And you just can’t keep selling off schools,” Niccum said.

Niccum’s 610,000-pupil school district has closed 22 schools, all but three of them in the San Fernando Valley area. One school was sold, three were leased, and others were converted to school uses such as offices and adult education centers.

In the Torrance district, officials believe that selling vacant properties has been an effective strategy.

As enrollment dropped from 33,773 in 1970 to 19,091 today, the district closed 15 schools, more than any other district in the area. Ten of the sites have been sold. Four other closed schools--one in each quadrant of the city--are being used as adult education centers and a curriculum center. Those buildings, Richardson points out, will be available if the student population begins growing again.

“Ours was a pretty well-planned, documented approach to getting the number of schools down so that we could afford to operate them,” Richardson said.

Much of the sales revenue was used for renovation and building projects, as well as capital equipment, he said. It paid to renovate Torrance and North high schools, build Hull Middle School and add gymnasiums at South and West high schools. Refurbishing North High School alone cost $8 million, he said. The remainder, about $15 million, is in the district building fund.

The sales allowed more money in the district’s general fund to be channeled into items such as books and salaries, he said.

“If we’d held on to those properties, we couldn’t have rented them all,” Richardson said.

The Torrance district currently earns roughly $450,000 annually by leasing space at some schools for Saturday classes and other uses, Richardson said.

“We’re doing everything we can to generate income to offset the limited money we get from the state,” he said.

Thompson, of the Madrona Homeowners Assn., thinks the district could have done more.

“The Torrance district has sold more schools than all the other South Bay districts combined,” Thompson maintains. “Other districts can lease their property. Torrance doesn’t seem to want to.”

But Torrance officials say they encountered barriers in trying to lease their property.

The district initially did lease several of its closed schools, including Parkway, Richardson said. But the rental income was as low as $40,000, and the district still had to pay for maintenance.

“We’re not a philanthropic organization. We have to maximize our earnings,” Richardson said.

The district this spring sought to lease the former Columbia School--its only remaining vacant school--but did not receive a single bid by its June 4 deadline. A local private school says it would like to lease the site, but the price may be more than it can afford.

Then, last month, two Torrance board members lobbied successfully to stave off the sale of Columbia, and the board voted to reopen its search for a long-term tenant.

While Torrance has had limited success in leasing its former schools, some neighboring districts have put together a patchwork of tenants.

The Palos Verdes Peninsula Unified School District has closed seven schools since 1970 as enrollment declined by 47%. None of them have been sold, but three have been leased for a variety of uses--a dance instruction program, a children’s theater, a church. The leases bring in a total annual income of $378,507, said Nancy Mahr, assistant to the superintendent. Two other buildings were converted to other school uses. Another was traded to the city of Rancho Palos Verdes, and one school remains empty.

Local residents favored retaining the sites, Mahr said.

“Everyone is worried that there could be a reversal, and we wouldn’t have the funds to build new schools if we’d sold them off,” she said.

But increasingly, experts say, school districts are turning to long-term leasing because it provides a steady stream of income.

Hill, the Newport Beach consultant, is now working with six school districts on land-use planning. All of them are pursuing projects involving long-term ground leases--as long as 99 years--with private developers. At the end of that leasing period, the property would revert to the district, although the leases could be renewed, Hill said.

These arrangements allow the districts to raise revenue on a long-term basis, Hill said.

“What we’re really trying to do is create capital endowment funds for the public entities,” he said.

The Redondo Beach City School District is launching long-term leasing projects at two school sites. The district, which closed seven schools as its enrollment dropped from 9,040 students in 1970 to 3,855 today, wanted to generate money that could be put in its general fund, Supt. Beverly J. Rohrer said.

Rohrer says the district opted for long-term leasing because “we wanted the assets to remain with the school district.”

But even long-term leasing has drawbacks. For example, experts say, lenders are sometimes reluctant to finance projects when developers do not own the land.

And when the lease runs out, future school boards may confront some tough decisions, especially if they need to remove residents so that the property can return to school use, said Niccum of the Los Angeles district.

“But the board members who have to wrestle with that,” Niccum said, “probably haven’t even been born yet.”

SURPLUS SCHOOLS IN THE SOUTH BAY District: CENTINELA VALLEY Schools now open: 3 Schools closed since 1970: 2 Fate of closed schools: 1 sold; 1 converted to district use 1970 enrollment: 6,500 1990 enrollment: 6,000 District: EL SEGUNDO UNIFIED Schools now open: 4 Schools closed since 1970: 2 Fate of closed schools: 2 leased 1970 enrollment: 3,367 1990 enrollment: 1,957 District: HAWTHORNE Schools now open: 9 Schools closed since 1970: 0 Fate of closed schools: 1970 enrollment: 5,347 1990 enrollment: 6,248 District: HERMOSA BEACH CITY Schools now open: 1 Schools closed since 1970: 4 Fate of closed schools: 2 partially sold, 2 leased 1970 enrollment: N.A. 1990 enrollment: 722 District: INGLEWOOD UNIFIED Schools now open: 17 Schools closed since 1970: 0 Fate of closed schools: 1970 enrollment: N.A. 1990 enrollment: 19,500 District: LAWNDALE Schools now open: 7 Schools closed since 1970: 4 Fate of closed schools: 4 leased 1970 enrollment: 6,897 1990 enrollment: 4,250 District: LENNOX Schools now open: 6 Schools closed since 1970: 0 Fate of closed schools: 1970 enrollment: 2,973 1990 enrollment: 5,473 District: MANHATTAN BEACH CITY Schools now open: 5 Schools closed since 1970: 5 Fate of closed schools: 3 leased; 1 sold; 1 converted to office use 1970 enrollment: 6,000 1990 enrollment: 2,200 District: PALOS VERDES PENINSULA UNIFIED Schools now open: 14 Schools closed since 1970: 7 Fate of closed schools: 3 leased; 1 traded to Rancho Palos Verdes;1 converted to district use; 1 converted to continuation high school; 1 empty 1970 enrollment: 16,844 1990 enrollment: 8,939 District: REDONDO BEACH CITY Schools now open: 10 Schools closed since 1970: 7 Fate of closed schools: 1 sold; 6 leased 1970 enrollment: 9,040 1990 enrollment: 3,855 District: SOUTH BAY UNION HIGH SCHOOL Schools now open: 3 Schools closed since 1970: 1 Fate of closed schools: part leased, part sold 1970 enrollment: 6,928 1990 enrollment: 3,272 District: TORRANCE UNIFIED Schools now open: 28 Schools closed since 1970: 15 Fate of closed schools: 10 sold; 4 converted to other uses; 1 empty 1970 enrollment: 33,773 1990 enrollment: 19,091 District: WISEBURN Schools now open: 3 Schools closed since 1970: 2 Fate of closed schools: 1 sold, 1 leased 1970 enrollment: 2,200 1990 enrollment: 1,285