I am a commercial real estate agent who has represented many governmental agencies, and my kids attend Culver City schools.
I want to comment on School Board candidate Robert Zirgulis’s plan to sell and then lease back the Natatorium swimming pool building on the Middle School campus.
I feel he has it backwards as to what CCUSD should be doing with its real estate.
I believe the numbers outlined in his campaign flyers are not realistic.
A sale leaseback, as Zirgulis is proposing, is essentially a way to borrow money (a financing mechanism) not a sale in the typical sense.
It would obligate our schools to pay back much more than we receive from the sale. Such an arrangement can work for a public entity that needs up front cash and has an available long-term cash stream to make payments from.
But in CCUSD’s case, it is cash flow we are lacking (i.e. the money to pay teachers, staff, counselors on an ongoing basis).
CCUSD should be trying to generate revenue from its real estate in my opinion, not incurring debt.
If you are struggling to make ends meet as it is, is going deeper into debt and spending even more money a good idea? It may delay the day of reckoning for a little while. But it just makes the problem much worse in the long run.
Here are some problems with the numbers in Zirgulis' numbers.
Under the plan described in his campaign flyers, we would sell the Natatorium for say $10M.
We would pay off the $3M deficit (so we've covered for one or two years), we would use $1M to fix up the building (even though it'll cost much more) and we will use some of the money to pay for things like “astro turf” for the football field (which runs about $1M itself).
We would then presumably have $5M to pay the “nominal rent.” He actually used this term “nominal rent.”
If CCUSD gets $10M from an investor, that investor is going to want an amortized return of a few points — they don't buy just to depreciate, as Zirgulis implies.
Let’s say it's 4.5 percent on a 30- year amortized return. That's $608,000 per year.
Hardly nominal. We would run out of money from the sale in less than 9 years, but we would be obligated to make lease payments for 30 years.
Just a straight interest of 4.5 percent is $450,000 per year, and interest-only (or a 99-year lease) is not realistic in this case.
No matter how you change the numbers, CCUSD would run out of sales proceeds money long before the lease was up. Where would the money for these “nominal” lease payments come from once the money from the sale is gone?
Additionally, his plan calls for the Natatorium to be run as a combination swimming pool / multi-purpose facility.
This sounds great. But where would the money to operate the facility come from?
CCUSD would have to come up with another $150,000 to $200,000 per year to run a pool, which is why the Natatorium is currently closed (pools are very expensive to operate).
I feel we must explore various ideas to help with CCUSD’s budget shortfall.
I am among those who have been working with CCUSD to find ways to generate revenue and cut non-beneficial expenses (energy efficiency and solar to cut energy expenses, leasing out facilities to generate revenue), but I feel some basic research should be done up front before a plan is promoted as beneficial so as not to mislead anyone.
Free money always sounds good. But sometimes something that sounds too good to be true is just that.
Mr. Gray may be contacted at grayusa@sbcglobal.net
