What should a CMS campus lease for? How’s about $1 a year

It could be one of the greatest real estate bargains in Charlotte history: 33,347 square feet of space on seven acres for only $1 a year in rent.

That proposal for Tryon Hills Pre-K Center in north Charlotte is among others that Charlotte-Mecklenburg Schools is entertaining for nearly a dozen shuttered buildings that CMS wants to put back into use.

But with offers like $1 a year rolling in, school board members are disagreeing about whether to accept proposals that low.

Board member Kaye McGarry, for one, is not thrilled with some of the offers.

“I thought we (CMS) needed money,” she said. “It sure seemed like we did from January to June, but now all of a sudden we don’t?”

Tryon Hills is one of 10 CMS facilities closed as a result of a budget shortfall for the 2011-12 school year. CMS launched a bidding process in March for organizations interested in leasing the vacant buildings. There were more than 60 responses, said Mike Raible, executive director of planning and project management for CMS.

During a July 26 school board meeting, the nine-member board ranked 10 criteria for selecting potential tenants. Among factors considered: educational use, benefit to neighborhood and maximizing net revenues.

McGarry said she put maximizing net revenue near the top of her priority list. But when the school board members’ rankings were tallied, revenue came in near the bottom, despite CMS’ budget woes. As an illustration of those woes, CMS had expected to make cuts to middle school sports before Hendrick Automotive Group announced in August that it would provide $250,000 to fund middle school athletics in 2011-12.

Based on the board’s final priority list, CMS staff members chose the top 10 applicants interested in leasing the buildings. Raible and his staff are now negotiating individual leases.

Meanwhile, McGarry said she isn’t happy with some of the applicants and rent proposals that were selected.

“It’s not in the best interest of the taxpayers of Mecklenburg County,” she said. “The priorities are out of whack.”

The offer that stands out the most to McGarry is from Bethlehem Center of Charlotte, a nonprofit that works with low-income families. Bethlehem proposed the $1 a year for five years to lease Tryon Hills.

The school, built in 1954, is composed of four buildings and 18 classrooms. It’s in an area zoned for single-family residential, with other uses permitted, such as schools, child care centers and recreation centers, said Dennis LaCaria, CMS’ director of facilities planning and real estate.

“It’s not one of the best facilities in our portfolio, but everything is in good working order,” he said. “Whoever leases it will just have to take on typical preventive maintenance.”

William McDonald, the center’s executive director, said he’d like to move into Tryon Hills by September. He said that while the organization’s main office would remain on Baltimore Avenue, the center would consolidate at Tryon Hills some of its facilities that are spread throughout Charlotte. The center offers educational, mentoring and early childhood development programs. He anticipates serving about 250 children at the Tryon Hills site.

McDonald said Bethlehem and CMS had a partnership, through which Bethlehem had access to 18 classrooms and 14 teachers for free. But because of CMS’ budget cuts and school closings, McDonald said Bethlehem no longer has access to those classrooms and he also has to replace the 14 teachers without any kind of an increase to Bethlehem’s budget.

“The application for Tryon Hills will allow us to continue to serve the same number of children of Mecklenburg County, but it’s not much of a bargain with the increased expense of utilities and maintenance for the facility,” McDonald said.

Other top applicants selected by CMS include Student First Academy, which proposed paying $50 in rent per month for five years for Wilson Middle School, which has five buildings totaling 110,360 square feet. It’s not clear how much square footage Student First Academy would lease.

The International House of Charlotte proposed paying $1 per square foot for five years at Midwood High School on Central Avenue, which has two buildings with a total of 45,087 square feet. Of the 10 finalists, Lake Norman Christian School proposed paying the most in rent — $40,000 a year — for the 92,119-square-foot Davidson IB Middle School.

Andrew Jenkins, managing partner of Karnes Research Co. in Charlotte, said it’s difficult to determine a comparable commercial market rate to lease school buildings. With their large open spaces and individual classrooms, they’re not configured like the typical office or warehouse, he said.

But in Mecklenburg County, including central Charlotte where Tryon Hills is, he said warehouse space rents on average for $3.92 per square foot, and office/flex space, which allows for athletic and educational facilities, leases for around $11 a square foot.

Although McGarry is upset by some of the offers, school board member Timothy Morgan said the board had to take more than just revenue into consideration when picking applicants. Another factor was finding tenants and reuses that would positively impact the students and communities where CMS shut down schools, he said.

He also said that there were very few applicants who proposed paying comparable commercial rate rents during the bidding process.

“Most of these schools are in low-income areas. If there was a real need for significant commercial space, then the private sector would have provided it,” he said. “The fact is, in those areas that need doesn’t exist. So we wanted to locate organizations in schools that first and foremost will have positive impact on the community.”

Morgan also said CMS might need some of the vacant buildings in the future, so the school board wanted to make sure it had short-term leases in case it had to move tenants out.

“When you set those kinds of restraints on lease contracts, that also tends to limit the amount of revenue,” he said.

Raible said that when tenants are finally chosen, in addition to rent they will also have to pay for building maintenance, operations and security. Those costs also have to be factored in when negotiating leases, such as with Bethlehem Center, he said.

“For $1 a year, you get pre-K services to kids in the county. What is that worth?” he said. “If they pay more, that could limit some students’ access to their services because they would have to raise their prices.”

Eric Davis, school board chairman, said that, like McGarry, he also ranked maximizing net revenue near the top of his priority list. But during the July 26 meeting, CMS staff members indicated that if tenants were selected based solely on which ones proposed paying the most in rent, it would have yielded about $200,000 a year for all 10 buildings, he said.

“That’s not a lot of money,” he said, “and once the board saw that, it acted in its capacity to be both financially responsible and to take into consideration other factors that are important to the community and contribute to the children’s education. But until we get to a signed lease, we’re not at the finish line.”

Davis said that finalized rent contracts would be submitted to the school board for a final vote. He said the goal is to have as many tenants in place as possible by the start of the 2011-12 school year, which begins next week.

As the process winds down, McGarry thinks it could have been improved upon.

“If I hadn’t stressed the importance of maximizing net revenue, I feel like we’d be leasing some of these buildings for nothing,” she said. “Now we at least have a few applicants paying a reasonable rate. It just doesn’t make sense to me.”

Boykin can be reached at [email protected].