Comment of the Day: Why Don’t Schools Lease?

COMMENT OF THE DAY: WHY DON’T SCHOOLS LEASE? “HISD needs to get out of the real estate business and set themselves up as a 40 year build to suit lease with AA credit and 10 year options to the end of time, thus allowing private development to be holding the bag in year 41 if the neighborhood has turned and students have migrated elsewhere. Oh, they haven’t? Still top notch? Great, we renew, and will again in 10 years. Hell, the deal would/could even include mandatory capital infusion from the developer (or assigns, sells) upon exercise of option! Why am I not in charge? I welcome people to explain the downside of this idea, truly. I’ve been unable to see it, myself. Oh, and if the peanut gallery tries saying that there would be a developer on the planet who wouldn’t jump on a 40 year lease commitment build to suit with an HISD guaranty is just lying. If HISD defaults on the rent, first of all we should all be stocking up on shotgun shells and bottle water, but more over IF they default the developer has permanent debt, favorable loan terms, and can easily shop the market to backfill with any number of learning institutions who would be licking their chops to get that deal.” [HTX REZ, commenting on Third Ward Residents Protest HISD Proposal To Close Historic School]

15 Comment

  • Sounds good on paper and all, but when you really get down to it, school buildings are single use facilities like the Astrodome or a fast food restaurant. They are built so specific for one purpose that they really can’t be converted to much else. I suppose they could be converted to office space, but seeing as how most schools are in residential areas, I don’t see that working well either.

  • I’m not sure it would be necessarily cheaper in the long term. For a 40+ year investment it is cheaper to build than rent since the landlord has to have a profit. Plus the risk of the neighborhood going south would also be built into the cost by a savvy landlord. Plus can’t use rented property for assets on the balance sheets if you want to raise bond etc.

  • Brilliant idea.

    Oh, and MC,

    These arrangements with single use building happen all the time. All fast food, chain restaurants have these agreements. McDonald’s franchises have been slowly demoing their restaurants around the country and rebuilding with newer buildings.

    The beauty is that this type of agreement benefits both parties. Also, if the school moves out, a developer can demo the buildings which is no different than what HISD is doing right now.

  • The risk of a neighborhood going “north” is more likely in Houston these days. HISD has made some nice bank on sales of its properties over the past few years. Most recently, HISD was able to avert some very deep cuts by selling off some prime inner loop property and consolidating schools with declining numbers.

  • And, as I said on the original thread, the landlord would have to pay property taxes (to HISD, yes, but also to CoH and Harris County), which HISD doesn’t.

  • Spoonman, but the landlord will have to charge the HISD to cover those taxes. It’s a circle that actually costs HISD more money.

  • …or vice-versa whereby HISD leases out their non-performing properties to private developers who can develop whatever they want like the way Cooper Union in NYC leases the dirt under the Chrysler Tower.

  • This is a really interesting concept. But I have to echo MC’s concern. A school is not a pad-site restaurant. What happens when HISD ends their lease? There are only a few people who would be interested in picking up a lease on a 40 or 50 year old school. Another school is a possibility, but They’ll want significant upgrades. An incubator for tech start ups? Even more upgrades. Loft style apartments? Now you’re talking about totally gutting and re-configuring the whole building.
    On the other hand. Maybe you could design the school for this from the ground up. Make it like an office building, with a shell and core, and the classrooms are all considered tenant build out. It’d be an interesting design exercise to see if it’d work….

  • Well, the reopened Westchester High School in SBISD after all the high school age students went off to college, so stranger things have happened.

  • Spoonman nailed it. HISD likes property ownership because they don’t have to pay property taxes.

    The tax obligation of approximately 2.5% (or $2.50 out of $100), given let’s say a 5% discount rate in perpetuity is $50. So the real cost of $100 of Houston real estate is gonna be $150-ish. But not for HISD. HISD receives an automatic discount of one third on its real estate investments.

    I personally think that that is completely ridiculous and that all of the taxing entities should pay property taxes. Much of that would end up back in their own coffers, however it would force them onto a level playing field with private interests when doing site selection. It’d also give them a taste for what it’s like to deal with the belligerence of their own taxing authorities and the ineptitude of the Appraisal Review Boards.

    Ha! That’d be the day.

  • I agree, TheNiche, churches, schools, and governments ought to pay property taxes in the same way.

  • Before getting public entities to play taxes, we need to get private institutions (churches and universities) to pay their share. At the very least we should work out Payment in Lieu of Taxes (PILT) deals with them. These PILT arrangements could take the form of ongoing 380 agreements where universities like Rice, and St. Thomas take over maintenance and capital improvements on public streets and storm sewers around their campuses, in return for getting a pass on property taxes and other assessments.

  • Now home-schooled kids can “learn” – or type – on a computer; or their parents can elect to send them to one of the many new private schools that have seen opportunity in cultural decay, or to a charter school in a strip center, but once it was mostly left to the school district to provide education for all, meaning a lot of bricks and mortar. I’m not sure why there is now a feeling that the district was getting away with robbery for not writing checks to itself, the county, and the city. Am I missing something? Is the district in as flexible a position to realize the value of its property as a private entity? It seems to me that we wouldn’t even be entertaining such a notion if the schools were not perceived as failing. But as others have pointed out, this has little do with the schools themselves. The people lamenting the loss of this particular school are probably remembering a time when it was an amenity to the neighborhood – maybe its anchor – and not an embarrassment. They may not be very diplomatic but they’re not wrong in wishing for that again. A decent civic society with respectable institutions, exemplified by an attractive public building that lends stability to a neighborhood – this is not the goal of radicals, and should be the goal of conservatives if it weren’t for the current strain of anti-government hysteria, which, I’ve noticed, tends to zero in on odd or inconsequential targets, while remaining perfectly comfortable with the very large presence of government in all aspects of our lives.
    If a neighborhood school is not, or didn’t used to be, an asset and selling point, and commercial interests resent competition from the school district, why do developers so often set aside land for a school?

  • @ Luciaphile: I used to date a woman who sincerely felt that the elementary school that she went to for three years that fed into this middle school had scarred her for life. If there’s a memory of pride or something like that, it’d have to have been from many many generations ago. Or maybe founded in ignorance, which also would not be an especially endearing quality about this school…unless your name were Sheila Jackson Lee, I suppose, and ignorance was your life’s business model.

    It may also be instructive to note that HISD employees have had to be offered bonuses to sign on to work at this school. Hazard pay. Surely that figures into the financial calculations. HISD financial gurus probably are prohibited by law from recognizing that hazard pay will follow the student body wherever they are zoned.

    Another thing to consider is that this part of 3rd Ward shows up on the old maps as “Negro Settlement”. It is not and was never intended as a master planned community with public institutions as anchor points. The neighborhood, its institutions, and its homes were patched together with haphazard planning; and beyond it, the demography overrides any perception of the community as being anchored at all.

    To be perfectly clear, I have no idea whether keeping this school open is a good or a bad idea. I can see the argument from a variety of different angles. I can tell you that whether it is kept open or is closed for financial reasons, it is unlikely to impact the quality of the education offered to people that go there and that it may adversely impact other schools.

    If that sounds racist, I would defend my comment by saying that acknowledging the existence and confluence race-based subcultures, urban poverty, and the external perceptions do indeed conspire against this student body. Preserving an old brick facade will not change that for the better; it might even reinforce it by comparison with the sleek lines of steel, concrete, and glass.

  • The Niche: the school in question could be much worse than you describe and I wouldn’t be surprised. OTOH since education boosters are very lavish in their claims on its behalf, I look for exaggeration in the other direction as well. I admit my attention was mainly caught by the school’s seemingly operable windows. I pictured sitting by the open window on a warm day, with a little breeze coming in making us all drowsy. Maybe the teacher would let us put our heads on our desks while she read aloud.
    And since we live a couple blocks away, we walk home at lunch.
    (My own eighties-vintage middle school was sternly windowless, for A/C purposes I suppose. I still remember the humming of the flourescent tubes overhead. It had a Room 101 vibe which we all know is conducive to learning.)
    The shuttling of kids from one school to another because a “perception of failure” is self-reinforcing is by now a well-established practice. I can’t argue with it: if all that it’s meant to do is manipulate data, it’s a solution. A few kids will probably benefit, as you say, and all will feel better knowing no child is being thwarted by “soft bigotry/low expectations.”
    My expectations of what school can do are modest, but less cynical than yours in that I believe they can be met for almost everyone – especially if we would give up on making high school compulsory. I believe this for the simple reason that it used to be true.
    Of course there was a shared culture then, to which your subcultures were subordinate, if they weren’t actively trying to break into it.
    I concede that the virtue of a public building in a neighborhood – planned or not, no opinion – is a superstition of mine.
    In a sort of reverse, the school district in my city is trying to close several of its most successful neighborhood schools in order to monetize their real estate. The schools are worth less to the district than the $$, because kids can be bused wherever and money goes with educational success, you know.
    This is more than superstition; this is gospel, and so doesn’t need defending. Which is probably a good thing.