Selling a school dirt-cheap? Maybe, maybe not
Part 2 of a 4-part series
Author’s note: This article is the first in a four-part series about the sale of the former school at 15 N. State St. written in a question-and-answer format. The series attempts to respond to some questions recently raised about the deal. The articles will also be published on The Journal’s web site as they appear in print.
The first article provides a basic overview of the deal, identifies individuals involved, the buyer’s motivation and the school’s rationale for selling.
The second article addresses the net financial impact for the district, the property’s value, the buyer’s plans, and how the buyer hopes to accomplish them.
The third article focuses on questions about the building’s auditorium and on potential title and land ownership issues.
The fourth article addresses the process that led up to the deal and looks at what comes next.
Q: Did the district sell the 15 N. State St. school property dirt-cheap? Or worse: is it in essence paying someone to take it off their hands?
A: It depends on the perspective.
The district spends around $85,000 a year on the building in operating and insurance costs. Under the deal with Cenate, the district will get $25,000 in sale proceeds. So, between these two factors, the sale “gains” the district around $195,000 over two years.
In turn, the district will pay Cenate $5,000 a month in rent over the same period of time, or $120,000 in all.
The net impact, then, over two years, is a $75,000 gain for the district.
After two years, the district will have no responsibility to the building (apart from the $1 a year auditorium lease, with accompanying obligations customary for tenants).
If the district keeps the building, it needs to invest $4.7 million (in 2007 prices, the latest estimate) to address pending maintenance issues. To do more than maintenance and upgrade the building to current school standards would cost approximately $10 million (in 2007 prices).
However, if at least a portion of the property goes on the tax rolls, it may end up being valued at much more that thee numbers mentioned, and its value would increase after updates.
Q: How much is the property worth?
A: The building’s estimated market value is $1.54 million,, according to information on record at the Brown County Assessor’s Office supplied by the district insurance provider. The land’s estimated value is $95,300.
“Someone would need to figure out where they get their market values from, and what year that was last really assessed,” said Superintendent Jeff Bertrang.
The document indicates, for example, that the district heats all of the square footage; that is not the case.
The school is not on the tax rolls.
The district insurance policy on the building carries full replacement value based on square footage, according to Bertrang.
Q: What will the buyer do with the property?
A: Cenate has been working with an architect and foresees converting the 1915 portion into market-rate residential apartments. It is forming another community limited liability corporation, unofficially called 5N (based on the address of the campus) and will deed to it the 1935 auditorium section. This group will spin off Cenate. The 1955 addition will be available for a yet-to-be determined use, potentially a low-impact commercial use or perhaps other housing. Cenate feels these potential uses would ensure that the structures and campus continue to dovetail with current appearance and uses in the neighborhood, according to Cenate spokesman Reed Glawe.
Q: Why is Cenate a for-profit company?
A: Because of its limited liability corporation (LLC) (for-profit) status, Cenate can apply for historic designation of the campus and, as a result, be eligible for tax credits.
The district is not eligible to apply for tax credits. Only a for-profit organization is.
Tax credits are a tool that can be used for restoration and conservation of historic buildings, making such projects affordable for end users, says Glawe. Without such monetary inputs, no entity would be able to cash-flow a venture of any kind, Cenate believes.
In other projects, some of them in New Ulm, the tax credits have shaved off about 40 percent of project costs.
Rough projections put the anticipated apartment project cost at $8 million.
A successful effort to obtain historic designation and tax credits would provide equity that should be of interest to an ultimate developer, hopes Cenate.
Obtaining tax credits and other funding would also enable updating and repairs of the auditorium, a structure to be used by schools, community at large, NUACT and others.