District Does Grande Property the Right Way and It Will Pay Off

Last night at the Davis City Council meeting, the City Council heard from the school district for the first time about the 41-unit proposed development on DJUSD property that the district has been hoping to sell for some time in order to provide some additional facilities money through the California Education Code’s provisions for the sale of public surplus property.

The result of the meeting was a unanimous 5-0 by the council to move the process forward. At the conclusion of the item, a good sized number of the Grande Property neighbors stood up and cheered. It was the end of a long process, but the last year and a half of this process has marked a model for government agency inter-cooperation between the school district and the city and an equally impressive model for government agency-neighborhood cooperation.

It was only just over one year ago, in their November 18, 2007 Op-Ed in the Davis Enterprise, that former DJUSD Board Trustees Marty West and Joan Sallee accused the newer school board with fiscal mismanagement regarding the Grande Property. They wrote:

“When we left the school board in December 2005, the finances of the school district were in good shape. Any financial mismanagement that has occurred has been on the 2006 and 2007 school board’s watch. In early 2006, the board majority rescinded the $5.5 million contract we had signed to sell the Grande Avenue site, thus jeopardizing funding for building a student commons at the high school and modernizing Emerson Junior High School.”

The Vanguard has largely debunked that argument with a detailed recount of the Grande issue that was run on March 10, 2008 as the third installment in the Vanguard Investigation into Tahir Ahad and the dealings of the DJUSD Business Office under his leadership.

In 2005, there was no chance that the neighbors would have stood up and cheered. The early process was marred by neighborhood complaints and backdoor deals, the likes of which are still not fully known even after the Vanguard’s investigation.

The gist of the arrangement was a shady three way trade in which the district fearing the city to the invoke the Naylor Act and require sale to the city at below market, tried to swap the land with UC Davis property near the Fairfield school and then sell the land to a Bay Area based developer.

From the March 10, 2008 Vanguard:

The arrangement that Superintendent David Murphy and Tahir Ahad had employed by October of 2005 was a land swap that involved a UC Davis property that was the home of Fairfield Elementary School. This piece of property that the university had not wanted was offered to Davis Joint Unified for at least three years prior to this land exchange. The university had been willing to simply give DJUSD the Fairfield School property at no cost.

Instead, the school district would enter into an agreement with BP Equities in which BP Equities would pay the school district $4.5 million in exchange for helping the school district to acquire the 10-acre site west of Davis. In essence, Davis Joint Unified would trade BP Equities the Grande Property in exchange for $4.5 million and the Fairfield School.

Coincidentally, this $4.5 million happened to be the same monetary amount that the district lost out on matching funds from the state when they missed the Montgomery Elementary school deadline. Questions have arisen as to whether the speed, urgency, and also secrecy of this deal had something to do with that lost funding.

The land exchange generated a large amount of controversy in the community. Under pressure for the seemingly sub-market value sale price, the offer was raised on November 22, 2005 to $5.5 million and the deal was locked in.

In the meeting when the board rescinded the original sale, Board member Provenza expressed his concerns for the process:

“I have an ethical concern about going forward because I feel that the process from the beginning was flawed. And it’s not because of anything that Mr. [Brian] Purcell [from BP Equities] did, he was negotiating with Tahir Ahad in good faith, but our process I believe was flawed from the beginning.”

While that deal was approved by the previous board featuring Ms. West and Ms. Sallee, the newly elected board featuring Gina Daleiden, Sheila Allen, and Tim Taylor joined fellow board member Jim Provenza in rescinding the deal in early 2006, much to the chagrin of Joan Sallee and Marty West, who nearly two years later were raising the issue again last November.

It is interesting to note a letter from the Grande Neighborhood Association still posted on their site from September 2005:

“We also learned that Tahir [Ahad] and B.J. [Kline] were working under the impression that the neighborhood endorsed development of the Grande site for 48 homes (Alternative B that we discussed during the neighborhood meeting and potluck in June). We told him that was not the case – the neighborhood supported the concept of the other alternative, which had 33 homes, and was generally consistent with R-1-6 zoning (like that on the west side of the Grande site).”

Note the lack of communication between the two parties. Also note the fact that the district and neighborhood ended up splitting the difference in density right down the middle, with the neighborhood making it a point to give the district last night 41 units which the district wanted quite badly.

Since the time of that letter and the eventual board decision to go ahead with the sale, the district has completely changed its approach. They have met extensively with the Grande Neighborhood Association. They have worked out a deal with the district and the city to develop a 41-unit subdivision which reflects the basic density of the surrounding neighborhood.

Several neighbors came up and raised minor concerns with the plan but were thankful to the district for working with them on their concerns. The biggest concern was the safety issue of bikes pouring out onto Grande Avenue.

So the city council moved one of the lots, lot #9 it was called, which sat on the outside of the development. They agreed to turn that lot into a community gardens in order to allow bike traffic to flow there rather than through the more heavily traveled Mercedes Road which would flow into the new subdivision.

By working with the city, the district helped the neighbors to identify a longstanding safety issue. There are still some details that need to be worked out, but the neighbors are comfortable enough with the process and the commitment of both the city and DJUSD to addressing them, that the project has been moved forward and fast tracked.

One of the issues still be resolved is that the school district would like to prioritize affordable units for their own employees. That will have to take place by lottery and the district has agreed to indemnify the city should the issue of discrimination come up.

All of these issues should be addressed by January when this comes up for a second reading to the ordinance.

Many involved describe this as a win-win-win scenario for all involved. The school district has worked extensively with the neighbors to produce an acceptable development proposal. The district and city have worked close together rather than against each other as typified the early part of the process where the district tried to pull a shady deal out of fear that the city would invoke the Naylor Act.

Instead what we will see come forward is a fully entitled property that will hit the market. Even given the economic downturn and collapse of the housing market, there is nothing more rare in Davis than fully entitled property. As such, when the district puts it on the market, the selling price will well-exceed the $5.5 million that the district would have gotten had they gone through with the sale. Even at that time, there were credible offers, and the Vanguard has seen these in writing, from credible local developers for as much as $8 to $9 million. They sold it quickly to avoid public scrutiny.

From this standpoint alone and from the standpoint of working with the neighbors to gain approval, the district has contradicted the complaints of its two former board members.

But in all likelihood, the district will get far more than the $5.5 million. A prospective owner will quickly recognize that they do not have to build immediately, but rather they can buy the property and wait for the right market. The value is that they know this is Davis property and that the land is fully entitled and they only need to go ahead with the development agreement to make a huge profit.

It is a winning solution for all involved and shows the value of transparency and cooperation. This is the model now for how to do business whereas the previous process was the very model for how not to do business.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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21 Comments

  1. Rich Rifkin

    As such, when the district puts it on the market, the selling price will well-exceed the $5.5 million that the district would have gotten had they gone through with the sale. … But in all likelihood, the district will get far more than the $5.5 million.To my mind there is an interesting dilemma about selling Grande in this market. Say the district can get $6 million for that property, today. But say the national economy recovers in 2010 and the housing market picks up swiftly thereafter. So by 2012, before a single house has been sold on Grande, that property is worth $10 million. Then it looks like the district made a bad deal by selling low in a depressed economy.On the other hand, there is absolutely no guarantee that in 4 years land prices will be higher. They could even be lower. And the longer the district waits, the longer it will be without the money needed to improve various obsolete or worn out facilities.If I were on the board, I would put the property up for sale now and take the best price offered. But I would do so knowing it comes with the risk that waiting a few more years would have garnered a far better price.

  2. David M. Greenwald

    Rich: from what I understand land prices have not dropped the same way that housing prices have dropped. The school district should get a similar price for the land that they would have last year as long as the credit market allows for it. The amount of parcels that are fully entitled and ready to go without a lot of work in Davis are non-existent. The owners could then wait for the housing market to improve before developing the land.

  3. 10:18

    You might be right in terms of pure land values, but you are not comparing apples to apples here. You are comparing land that would have to go through all of the land use process, to fully approved and entitled property that when the owner purchases it, all they will basically have to do is build. When you reduce uncertainty and reduce costs and delays, you vastly increase your selling capacity.There is a lot going on here that has not been made public yet.

  4. Anonymous

    DJUSD should hold off on this development till housing/land prices go back up. We're in the midst of the worst recession since the Second World War. At least, so far, not since the Great Depression.Let the school district focus on teaching and students, and cut some of the administrative costs/salaries instead.

  5. black bart

    It will be interesting to see if you are right about them getting more money this time around. The real estate market has turned in a way that nobody imagined. Will the buyers be able to obtain financing to sit and wait? Maybe someone with lots of cash will want to take a chance. We will see how this plays out.Then of course there is also the time value of the money will the lag time be offset by higher prices?Veramos

  6. Former Participant

    Regardless of how much the district gets, there are two things that are a vast improvement over the last time around.1. community and neighborhood buy-in2. the process was done legally, in the open, and above the board

  7. appraiser

    Rich had it right the first time.When home prices rise, it is because land prices rose. When home prices fall, it is because land prices have fallen. Davis home prices have fallen for the last three years. Therefore Davis land prices have fallen for the last three years. If home prices rise in the next five years, land prices will rise in the next five years.If you look at an appraisal, you will see it has two components–land and improvements. The price of improvements in Davis has held steady. All of the fall has been in the price of land.

  8. Sue Greenwald

    If you look at Robert Shiller’s graph of inflation-adjusted housing prices between 1890 and 2005, you will see that prices, fluctuated cyclically, but always within a circumscribed range until the year 2000, when they shot up much higher in inflation-adjusted terms than ever in history. I think they shot up over three times higher than previous peaks — I’ll look at it again later today. I explained this many times to the council in 1996, arguing that we were basing our long-range budget forecast on the unrealistic property tax revenue assumptions, based on a unprecedented real estate bubble. At one point, I even brought copies of the graph in, passed it out to staff and council, and put it on the overhead during a budget workshop meeting. I could imagine prices staying somewhat higher than the historical average due to the fact that families historically had one wage earner and now have two, but looking at the historical average and where we are now, I don’t expect them to ever recover in inflation-adjusted terms to anywhere near where they were, at least until everyone who has lived through this disaster is long gone and the lessons forgotten. I expect We will have better banking regulations for at least another 50 years.

  9. Deflationary Jane

    from the CB Ellis article:’The pressure to unload land has become too great as homebuilders sold at deep discounts, at about 25 to 30 cents on the dollar, CB senior vice president Randy Grimsman said.’Granted, we’re not talking residental designated land but the downward spiral is similar. The other component of consideration is how tight money has become for any aspect of land purchase and development. I’d be more concerned out financing then price speculation.

  10. David M. Greenwald

    A few things in response to the last comment:They do not have to sell the project now, they can hold onto it until they get a price they want, once its entitled, it stays that way until they are ready to sell and build.Second, the proceeds do not go to the general fund and thus cannot be used for salaries, so they will need to do that anyway.

  11. Anonymous

    The BOE should sell it. Even if they waited 10 years and got double the money for the land it would not be worth. DJUSD has several decrepid facilities and I would rather have them sell excess land and try and use private donors to fix them like what the Davis schools foundation did than ask for ANOTHER Property tax!!!!!Also I heard that Davis has held up the best in the sacramento region for home prices.I dont think comparing natomas deperciation and Davis depercaition is a good argument.SELL, SELL, SELL

  12. David M. Greenwald

    …SELL, SELL, SELL …Seriously, what’s the rush? Why not do it right? They spent the time to entitle this and go through the process to do it the correct way, why would they then throw that work out the window by rushing through a sub-market sale?

  13. Anonymous

    DPDOnce it’s entiteld it gains significant advantage. Also as I wrote, the schoold district has decerpid facilities and should fix them. I would rather have them sell now and NOT TAX ME MORE than wait for a better price 3-5 years from now.Its the old Opportunity costs argument. Also think of all those kids that will be forced to use those facilities.

  14. Sue Greenwald

    David: You wrote …The amount of parcels that are fully entitled and ready to go without a lot of work in Davis are non-existent…. In fact, we have 166 parcels entitled and ready to go, not counting Grande. For example, the Verona site alone, which was entitled a few months ago, contains over eighty housing lots. In terms of school district construction money, Obama’ massive fiscal stimulation plans have signaled out school modernization for federal funding. If I were the school administration, I would be working 24/7 at getting Emerson and High School modernization plans in place and shovel ready, in order to to be prepared for this likely opportunity.

  15. mike harrington

    Three cheers to DPD for extensively covering this subjecty for several years. Without his dogged reporting, I think that much of the real story would have been buried. I subscribe to the Davis Enterprise and like many of its features, but for the most part the paper lacks the investigative reporting that DPD does so well.

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