When the deal first came up last year, it sounded great.
First, Tucson Unified School District would sell its out-of-date headquarters, 1010 E. 10th Street, for $18.3 million to a student-housing developer. Then, they would use that money to buy the old Tucson Electric Power building, 220 W. Sixth St., for $11.65 million.
It sounded like TUSD would make a $6.7 million profit and get a new administrative headquarters. Sweet deal!
TUSD, which has about 43,000 students, signed a purchase agreement in October, but the deal’s not turning out that sweet, so far. And the way the deal is turning makes the 2001 TUSD governing board look prescient for avoiding a similar deal back then.
Arizona Daily Star columnist Tim Steller
First, I misunderstood one part of the deal. Of course, the 80,000-square-foot complex on East Sixth Street, now owned by the University of Arizona, would need renovations beyond the purchase price.
TUSD’s initial estimate was $3,342,411 for necessary upgrades and other costs. So that would bring TUSD’s cost for the new building to $14,842,411. Still, that would leave a profit of almost $3.7 million.
But of course, that’s not how this has played out. Two things have gone wrong, so far at least, that have made the district’s administration look a bit incompetent in their handling of this.
The biggest one, which came out just last week and was reported by my colleague Jessica Votipka, is that TUSD vastly underestimated the cost of renovation. Due to an expanded scope of needed work, not inflation, the upgrades are now estimated to cost $7,261,103, an increase of $3.9 million.
TUSD’s chief financial officer, Ricky Hernandez, told the board at its Jan. 21 meeting that about half the needed upgrades are required to bring the building up to code and in compliance with the Americans with Disability Act.
The new estimate brings the total cost of the purchase, upgrade and move-in to about $18.8 million. You see what happens there, right? Rather than making money on the deal, TUSD would lose about $500,000.
Which brings up the other thing that has gone wrong. The first buyer, Up Campus Properties, a student-housing developer, backed out.
Then a new buyer came in. MDL Development agreed to buy 1010 E. Broadway for $17.5 million. That buyer pulled out, too.
So now, TUSD has agreed to buy 220 West Sixth Street for $11.65 million and put $100,000 into escrow to solemnify the deal, but it hasn’t got a buyer yet for the old headquarters. And the cost of renovation has more than doubled.
The cost to make repairs for the building Tucson Unified School District plans to make its new district headquarters at 220 W. Sixth St., near North Main Avenue, has ballooned to about $7 million.
A few things have gone out of order here. While TUSD has others interested in the 1010 property, and it should sell, they don’t know how much they’ll eventually make on it. They shouldn’t be making the decision about how much to spend on a new headquarters without knowing how much they’ll finally get for the old one.
And agreeing to the purchase without having a realistic idea of the cost of renovation also chafes. Granted, there are often increases after a purchase is agreed to.
But that doesn’t just call for meek submission — it calls for serious conversations with the sellers.
Board member Ravi Shah asked on Jan. 21 if TUSD had tried to renegotiate the sale price.
“Discussions have taken place with the University of Arizona,” TUSD Project Manager Damon Ballesteros said. “They’re saying, ‘We’re selling the building as is.’ “
Well, that’s one way to negotiate. It’s true the Arizona Board of Regents, which formally owns the property, got two appraisals as required before putting the property on the market. That doesn’t mean the appraisers had as good an idea of what the building needs as TUSD now does.
Any buyer would presumably have to upgrade to meet Tucson city codes and the Americans with Disability Act. An exception, one that commercial real-estate appraiser Ajay Madhvani pointed me to, would be buyers who want to tear the structures down and redevelop the whole property.
Such a buyer could be interested due to the impending completion of the Downtown Links road project and the proximity of the large property to I-10, he noted.
But TUSD ought to push UA and the Board of Regents harder.
Keeping 1010 E. 10th Street and upgrading it isn’t a good financial plan. It would cost around $10 million, Hernandez said, and that’s money the district doesn’t have. TUSD needs the money from selling 1010 in order to buy and upgrade a new site.
Another alternative TUSD hasn’t taken up at all is simply using its available space around the district to house administrative functions. Board member Sadie Shaw has proposed this and voted no on buying the new building, but no other board members have agreed with her.
“For sure there is ample space around our district to house the departments that will be going into the building,” Shaw told me Thursday.
That’s undoubtedly true, for a district with shrinking enrollment that has been selling off property. But I can see why it would be good to have an attractive, functional headquarters, even if this building is a little big.
In fact, this generation of TUSD administrators isn’t the first to ogle the old TEP building. Former Superintendent Stan Paz proposed acquiring the building in a trade involving Tucson Electric Power and the University back in 2001, when TUSD had about 62,000 students.
The discussions that began in January 2001 fell apart in May that year, though.
“We were several million dollars short on the deal,” Paz said at the time. “Right now I can’t see spending any of the district’s money to remodel the TEP building.”
Times have changed, but the issues remain the same.
