When the Integral Group redeveloped Centennial Place, an aging public housing project in Atlanta, company leaders wanted to do more than just build new housing.
They wanted to do something about the dreadful elementary school in the neighborhood, which was one of the worst-performing elementary schools in the city.
So the Atlanta-based affordable housing developer reached out to the city's public school system and a nearby university, eventually brokering a deal in which Integral provided eight acres for a new school site, and Georgia Tech and the Atlanta public schools provided funding for the new school.
"The issue was dealing with a site that was in a depressed area of town," says Egbert Perry, Integral's CEO and chairman. "There was public housing, the school system was lousy, and the area was suffering from disinvestment. For the long-term viability and sustainability of the community, we needed to have a school as part of the community."
Perry isn't alone in his progressive approach. While it's hard to find statistics on the number of schools being built or refurbished in conjunction with new housing development, many people say the strategy is growing in popularity, particularly among affordable and mixed-income developers. Their motivations aren't hard to understand. Developers who build or contribute to the creation of a new school in their project are demonstrating their investment in the community as well as opening up their community to new groups of renters and buyers.
"In a mixed-income development, it matters that the school is a good one," says Martin Abravanel, a researcher in the Urban Institute's Metropolitan Housing and Communities Policy Center. "Some developers see redevelopment [of schools] as essential to attract middle income or market-rate people into a community." But developing schools takes work. The developer not only has to get the financing lined up but also has to get its partners and the school board on the same page.
Pat Clancy knows a bit about building and refurbishing schools located in affordable housing developments. As president and CEO of The Community Builders (a Boston-based affordable housing developer), he has built schools in Philadelphia and Boston. But he also knows where his knowledge ends. "I know housing," says Clancy, who urges developers interested in a school project to find good partners. "There are people who know education in the same way. It's a whole complex arena of its own that you need to understand."
Both The Community Builders and McCormack Baron Salazar, a St. Louis-based developer that rebuilds urban neighborhoods in central cities across the country, have found universities to be willing partners in such ventures. University education departments often have the instructional and administrative background–and the interest–to get such schools established and operating. "Georgia Tech brought people to come in and work with the schools to ensure that the science curriculum is state-of-the-art," says Susan Glassman, senior vice president at McCormack Baron, which also worked with Integral on the Centennial Place project in Atlanta.
Universities offer something else important to such projects: cold, hard cash. In another McCormack Baron project, Washington University Medical Center in St. Louis provided $5 million to rehab and expand Adams Elemen-tary, a nearby school. Why? Long-term benefits for the medical center. Faculty, staff, and students may live close to the hospital and want to send their young children to a neighborhood school. Given such connections, a university often sees such an investment in its best interest.
While universities are common partners for school projects, developers also work with other groups to make a school feasible. In addition to Washington University, McCormack Baron also enlisted the Danforth Foundation, the Barnes-Jewish Hospital Foundation, and even the St. Louis Symphony Orchestra to contribute to Adams Elem-entary. Some of these partners may bring money, but others could offer technology or even their expertise. (Members of the orchestra give music lessons to students at Adams.)
These partnerships emerge in different ways. A university may approach a developer, or a developer may contact a community organization. "It's continuous," Glassman says. "You may hear about an arts group or a music group, and you keep forming the connections and relationships to make sure the school continually has excellent resources."
School Board Strategies
Though generating funding and support for a school may seem like a large task, brace yourself: Getting the school board on your side may be even more difficult. Whether you want the board to approve a charter school or partially pay for a new public school, you need to know the political climate before you make your request. "In each case, you have to look at how good the schools are right now and how flexible the central administration of a school district is," Clancy advises.
If a board is wary, a developer's offering of land can help sell school board members on a project. "That gets them to understand that we have some skin in the game and that we're putting our money where our mouth is," Perry says.
Intellectual appeals can work as well. Perry got his Centennial Place school by reminding the Atlanta school board of the positive, long-term influence that the middle-class families moving into his mixed-income neighborhood would have on the school. Of course, attracting such parents would require an improved facility and programs. "Most of these schools [being replaced] have low performance," Perry says. "To the extent that we can convince the school board that the environment matters, they automatically have an opportunity for a better outcome if the student body composition doesn't come from a very, very, very low-income group."
Some developers, such as McCormack Baron, want even more than financial assistance and government approvals; they want their school to have some autonomy. Such requests have a better shot when a developer can offer something significant in return, such as the opportunity to be involved in a new community. "The reason that we got the attention of the school district was that there was an opportunity for a major investment," Glassman says. "If you wait too long and the housing is already in, they have no incentive."
Covering the Costs
Even if you have school officials' support, building a school still presents financing challenges. "It's clearly a question of how you cover all of the costs in terms of the financing gap," says Vince Bennett, a senior vice president with McCormack Baron. "How do you develop a school program that addresses not only what the board of education needs, but also some of the other areas we think are important, such as computer centers, health screening offices, and some recreational space? It requires leveraging resources to develop the program."
Lately, the tool of choice has been the new markets tax credit. (For more on this financing strategy, see "New Market Smarts," Multifamily Executive, January 2006, page 86.)
"Our core capacity is to create real estate and arrange complex financing," Clancy says. "If we can help to create a better physical environment for education and finance the plan through new markets tax credits, that's [something valuable] that we can bring to the table. It can help get a school district or an educational provider [or others in the neighborhood] interested."
State tax credits and other state, local, and federal programs may also be options. "If you're rehabbing an old building, you may be able to get a historic tax credit," Clancy says. "You can end up in a given situation where you take an older school building, and you do a rehab on it. It qualifies for historic credits, and if you [also] use new markets credits, you can potentially end up with 50 percent of the rehab costs covered."
In January, Taymil Brett, part of Taymil Partners in Newton, Mass., bought Willow Reed Apartments in East Haven, Conn., for $10.2 million, or $85,000 per unit, from Trolley Crossing in Rocky Hill, Conn. The five-acre site, located about a quarter-mile from Long Island Sound, public beaches, and town facilities, has 120 units. The apartment units consist of 24 one-bedroom/one-bath flat-style units, 24 two-bedroom/one-bath flat-style units, and 72 two-bedroom/one-bath townhouse-style units.
Essex Property Trust, based in Palo Alto, Calif., acquired two apartment com-munities located near Santa Barbara, Calif., for approximately $57.1 million. One property, CBC (Colonial/Balboa/ Cortez) Apartments, is a 148-unit apartment community built in 1962. The other, Chimney Sweep Apart-ments, is a 91-unit apartment community built in 1967.
Mentor Properties of Scottsdale, Ariz., bought Camelback Terraces, a gated, 184-unit apartment community in Phoenix, and plans to convert the apartment units into condominiums. Mentor bought the property for $20.2 million from CB Richard Ellis Investors in Los Angeles. The property, built in 1980, has a heated swimming pool with spa, a state-of-the-art fitness center, and a clubhouse with fireplace, full kitchen, and television. CB Richard Ellis negotiated the sale.
–Listings compiled by Les Shaver