McKinley Place Development

[David Anderson]

I have recently responded to a couple of phone calls from neighbors who had questions regarding the sale of McKinley school and the McKinley Place development dating back to 2014 and 2015. One of the questions was, “Why did the City give away the land for free?”

I was surprised at the question but responded that the land was actually sold for $500,000 to a developer to construct a project that added $15 million to the City’s property tax base and that the Board received all net proceeds from the sale in March of 2016. I couldn't remember the exact dollar amount at the time of the completely cordial phone call but records show that the Board received $172,608.

I was then told that there were comments here on the deck concerning McKinley and I was asked to respond. I don’t know which discussion thread(s) touched on the McKinley project so I thought I would just create this dedicated post.

The Board of Education partnered with the City to position the McKinley lot for development. Under this agreement, the Board was entitled to all “Net Proceeds.” The City was responsible for 66% of all demolition costs. The Board was responsible for 33% of all demolition costs. “Net Proceeds” was defined as sale price minus costs associated with closing, demolition work and carrying (documented heat, light, etc., costs since the building stopped being a school) incurred by the Board.

The City received a $100,000 grant to remove asbestos from the school which was applied to reduce the City’s demolition costs from $315,000 to $215,000.

Sale price - $500,000.
Costs - $4,813 purchase closing costs; $205 selling closing costs; $214,917 City demo costs; $107,458 Board demo costs.
Net proceeds = $172,608 sent from the City to the Board in March of 2016.

There is no form of tax abatement or tax increment financing. Home owners pay full taxable value starting the day of purchase.

Regarding return on investment, the total development (final phase in construction currently, I believe) is expected to add $15 million to the property tax base for decades to come on a site that had never been a tax generating entity for the City or Board.

At $15 million, the Board expects to receive $250,000-$300,000 annually, again, for decades to come. In addition, the City will also receive a portion of property tax and income tax for the new residents moving to Lakewood from other cities. (Even if the land had been given to the developer for free, conservatively, it would have taken two to three years after construction for the City and Board to be made whole. Keep in mind, though, that folks are living in the completed townhomes now and are currently paying property and other taxes.)

In my opinion as a property taxpayer, transforming an obsolete and mothballed building/site that was costing/wasting money (carrying costs) to an immediate $65,000 gain ($172,608 less $107,458) plus yearly revenue approaching $300,000 is the type of transaction that (1) holds the Board harmless and actually adds to Board revenues immediately and (2) leads to a sustainable City and school system for decades to come.

I will be glad to check in here to respond to any additional questions or comments.

Yours in service,

David W. Anderson
Member of Council – Ward 1
216-789-6463
david.anderson@lakewood.oh.net
http://www.onelakewood.com

[Brian Essi]

Mr. Anderson,

It is very good to hear from you.

Great post!

1. Do you know if there were or are any real estate taxes being assessed to the developer/property owner during construction phase prior to sale to homeowners?

2. Do you know and can you explain the City Tax Department's enforcement mechanism for ensuring that the Lakewood city income taxes on all wages paid for the labor on the construction are properly reported and collected on this project, the CCF specialty referral center aka FHC and similar projects?

Such income tax revenues (although short lived) would certainly add to the benefit side of the ledger for such projects.

All the Best

[Jim O'Bryan]

Councilman Anderson

The closest I can find to your comments are that the Board of Education gave it away, not City Hall.

I made a comment that at least the Warren Road BOW deal, recently announced was a least a better deal than McKinley.

Of course that depends on what Liberty ends up charging the BOE for rent, which will offset the $500,000.

.

[Bill Call]

Councilman Anderson

The closest I can find to your comments are that the Board of Education gave it away, not City Hall.

I made a comment that at least the Warren Road BOW deal, recently announced was a least a better deal than McKinley.

Of course that depends on what Liberty ends up charging the BOE for rent, which will offset the $500,000.

.

Was the land given away? I guess that depends on your definition of given away. The City paid to clear the land. After deducting the demolition expenses the School Board ends up with about $60,000 per acre. The land cost to the developer is about $3,300 per unit.

Just how much is vacant land worth in Lakewood? Are there any vacant lots in Lakewood available for $3,300?

This deal reminds me a little of the deal on the City's Columbia Road property. They were offered $10 million immediately but sold it to the Clinic for $8 million spread out over a number of years. One LHA Board member stated that they didn't want to get involved in a bidding war! At one time that building generated $500,000 in annual profit for Lakewood Hospital. How much was that business worth?

I mention the Hospital because I suspect that Councilman Anderson's post is not about McKinley School. I suspect the post is laying the ground work for the upcoming announcement that the 5 or 6 acres of Hospital property will be donated to Ed Fitzgerald's friends at Carnegie Management.

What a waste. We lose 1,500 high paying medical jobs, $86 million in cash and investments, $35 million in the City's beneficial interest in the Lakewood Hospital, millions in rent and millions in income tax AND tens of millions more in economic activity.

And for what?

[Bridget Conant]

And for what?


Well, Ed’s gotta get a source of income somewhere. His job history is pretty sketch.

[Tim Liston]

David here’s what I’d be interested in knowing….

I’m not an attorney and my understanding is sketchy, but I believe that Ohio school districts are required by Ohio law to first offer unneeded real property to operators of community schools. This seems reasonable to me, insofar as the property was originally earmarked for education, and the requirement sees to it that it remains so. What measures were taken to conform to this requirement? I didn’t read of any in your post. In fact your post says that “the Board of Education partnered with the City to position the McKinley lot for development” rather than for use in education.

Secondly, my further understanding is that if no community school offers to purchase the property, it must then be sold at auction, so that its disposition is reasonably fair and transparent. One exception to this requirement is if the property is sold to a municipality or similar public entity. Which in this case it was, to the City of Lakewood. But Lakewood turned right around and sold the property to a private developer. This seems to me like a deliberate circumvention of the intent of the State requirement. How is that not so?

I agree with Bill Call that the sale price of the cleared land, even at $500,000, is a fraction of its value. Was the property appraised before the sale price was established?

Thanks David for offering your clarifications. Those would be my questions. I hope my understanding of the disposition requirement mandated by the State are incorrect and that the BOE and City acted properly.

[Jim O'Bryan]

Tim

David should not be held accountable for finding out information about the schools deals.

I am sure McKinley was offered, and I believe the BOE building was put out for bid with no one coming forward.

I will check.

Jim

[mjkuhns]

and I believe the BOE building was put out for bid with no one coming forward.

Let us know. My understanding is that the school board solicited buyers, with a number of conditions, and that at least one group (not Liberty Development) approached the board about acquiring the building if some of the conditions would be scaled back.

Which, if correct, is not what I would personally choose to describe as "was put out for bid with no one coming forward."

[Christine Gordillo]

This article posted at the onset of the McKinley sale process on the district website outlines the steps that according to state law the Board of Education was required to meet, and did meet.

http://www.lakewoodcityschools.org/dist ... JgcJ5.dpbs

Christine Gordillo
Communications & PR Coordinator
Lakewood City Schools

[Tim Liston]

Thanks Christine. From the article you posted....

"The school, which has been shuttered since 2007, has an estimated market value of $1.1 million.... By law, the district must first offer the building at fair market value to community charter or boarding schools within the city of Lakewood and groups that may be looking to start a charter or boarding school within Lakewood. If there are no takers, then the building must be put up at auction."

I presume there were no community school operators interested at $1.1 million. Fair enough. But when was the auction?

[Christine Gordillo]

Mr. Liston, I cannot find the article on the website announcing the auction date but here is the approval by the Board to hold the auction in the minutes of the Board's May 6, 2013 meeting:

G. Resolution Authorizing the Sale of Real Property No Longer Needed for Any School
Purpose at Public Auction (Request Approval on One Reading)
Ms. Petrie Barcelona moved and Mrs. Shaughnessy seconded the motion to approve the resolution
on one reading.
Ms. Petrie Barcelona said the next step in the process of selling the Board-owned property known
as McKinley is to conduct a public auction at a time and place to be announced, after giving at
least 30 days’ notice to the public. This resolution authorizes the sale of this property no longer
needed as a school facility.

[Christine Gordillo]

Mr. Liston, I cannot find the article on the website announcing the auction date but here is the approval by the Board to hold the auction in the minutes of the Board's May 6, 2013 meeting:

G. Resolution Authorizing the Sale of Real Property No Longer Needed for Any School
Purpose at Public Auction (Request Approval on One Reading)
Ms. Petrie Barcelona moved and Mrs. Shaughnessy seconded the motion to approve the resolution
on one reading.
Ms. Petrie Barcelona said the next step in the process of selling the Board-owned property known
as McKinley is to conduct a public auction at a time and place to be announced, after giving at
least 30 days’ notice to the public. This resolution authorizes the sale of this property no longer
needed as a school facility.

[David Anderson]

Hello, all. I read the replies. Let's get to it.

Brian – I understand that the Lakewood Tax Department tracks construction projects via building permits and identifies contractors and sub-contractors and follows up accordingly. Also, major construction firms work across the region and county and routinely comply with local/municipal tax specifics.

Brian – Via myplace.cuyahogacounty.com (one of my favorite sites), McKinley Place paid $13,254.65 in taxes for 2016 paid in 2017.
Tim – I believe Ms. Gordillo responded to your questions. I will add that the former school building/lot was on the market for years in compliance with Ohio Revised Code and that there was no circumvention of state requirements.

Tim – The market indicated that the building was a liability. Regarding an appraisal, it was determined that there were no “comparables” for a building/lot not zoned for commercial and that needed $500,000 (anticipated at the time) to abate the asbestos and remove the building to make the site development ready. As it turned out, $424,000 was spent. Also, remember that this project does not include tax abatement, tax increment financing or freezing the taxable value at pre-development levels. This is extremely rare in the region and County. Debating that the lot should have been sold for $200,000 more is fair. From my perspective, $200,000 more (short-term gain) might have come at the expense of maximizing the overall value of the project (long-term gain). Perhaps getting more for the land would have resulted in a project of lesser post construction value which would reduce the tax revenue to the Board of Education and City every year for decades. So, yeah, $200,000 would be great in the Board’s general fund. But, $30,000 more in annual property tax payments for decades would be considerably more. Maybe other cities would have had pressure to solve an immediate budget crisis. However, we have passed structurally balanced city budgets here in Lakewood for close to a decade while adjusting to local government fund cuts from Columbus and other tax reductions all while committing to incrementally increase our economic development fund and other fund balances over years to better react to just such an opportunity. The City was in the position of agreeing to be reimbursed for basic costs and that all proceeds should go to the Board. I know, I know. You’re likely reading this saying, “You’re killing me with the context, Dave.” Well, I’m all about context.

Bill – 850 Columbia was sold for $8.2 million not $8 million. Also, in a printed article you wrote back in 2016, you stated that 850 Columbia was appraised at $15 million. I provided you a copy of the June 2015 appraisal which valued it at $6.8 million. You also wrote in that same 2016 article something along the lines that another interested party would have paid a lot more. Now, you state that it could have been sold for $10 million. There was no second offer. An interested party that sent a letter in the 11th hour and was evasive in follow up phone conversations is not an offer.

Bill – I agree that 850 Columbia was a valuable LHA asset that contributed to LHA’s monthly bottom line. Keep in mind, though, that 850 Columbia was purchased years after the residents of Lakewood voted in 1985/6(?) to get out of the municipal hospital business.
Bill – You consistently report LHA’s assets without indicating liabilities which include a minimum of $90 million in upgrades and repairs needed to make the Hospital and garage safe and competitive. LHA did not have anywhere close to $90 million in pocket and could not have secured long-term financing (performance based bonds) due to operating losses. In addition, per the agreement/contract with the Clinic at the time, LHA could not make any upgrades/repairs in excess of $500,000 without the Clinic’s approval. Finally, it has also be widely dismissed that taxpayers had any claim to any portion of Lakewood Hospital Foundation’s $35 million. LHF routinely invests in health initiatives focused on Lakewood as well as initiatives not specific to Lakewood or Lakewood health care consumers.

Bill – I hope this does not evolve into a hospital debate thread but I took your bait.

Bill and all – Yes, I wanted to attempt to answer any questions regarding McKinley Place. However, after this discussion/exchange, a point I want to underscore is that in 2015 Lakewood was in the position to be proactive with the McKinley development opportunity in terms of time, partnership with the Board, talent and resources. Lakewood was not in the position to react in such a way in 2011 when I joined Council.

I’m typing quickly/posting this during my lunch break and will check in on this thread later in the weekend.

Take care, David Anderson

[Bill Call]

Bill – 850 Columbia was sold for $8.2 million not $8 million. Also, in a printed article you wrote back in 2016, you stated that 850 Columbia was appraised at $15 million. I provided you a copy of the June 2015 appraisal which valued it at $6.8 million. You also wrote in that same 2016 article something along the lines that another interested party would have paid a lot more. Now, you state that it could have been sold for $10 million. There was no second offer. An interested party that sent a letter in the 11th hour and was evasive in follow up phone conversations is not an offer.

Thanks for taking the time to post and respond.

I encourage others to take a look for themselves:

http://myplace.cuyahogacounty.us/MjEzMD ... Requested=

The Columbia road property was sold for $8. 2 million. I rounded down.

Of course some times I round up, sometimes I round down, some times I deliberately use a wrong number in the hopes that someone will post, "Bill Call, you are wrong Lakewood Hospital did not have $86 million in assets it only had $83 million in assets". And some times I just get it wrong.

What about the Columbia Road property? According to Cuyahoga County the full value in 2014 was $13.7 million. The taxable portion was $6.3 and the untaxed portion was $7.4 million for a total valuation of $13.7 million.

I did write that the appraised value of $15 million. My choice of words was sloppy. The appraised value of the building was $13.7 million. The value of a $500,000 annual profit is debatable. I valued a $500,000 annual profit at $1.3 million.

I do recall one member of the LHA board stating at a Council meeting that they didn't want to be involved in a bidding war. I found that odd. I mean, if you put your house up for sale wouldn't you WANT A BIDDING WAR?

I guess I've hijacked your post. If there is any interest in pursuing this I guess I can start another.

[Mark Kindt]

Mr. Anderson, I doubt that you will ever be able to convince me, Mr. Call, or Mr. Essi with regard to your figures related to the hospital.

What we do know (from public documents) is that Mayor Summers in concert with a small subcommittee of LHA and LHF insiders ignored (or abandoned or disregarded or shit-canned) an offer to invest $100,000,000 over a ten-year period in Lakewood Hospital from a major metropolitan hospital system. You've seen the documents. We all have. This was malfeasance in office, a breach of fiduciary duty and a misdemeanor conflict of interest in violation of Ohio law.

It appears that this was done so that the hospital real estate could be "liberated" and given for free (or $1) to a firm represented by Mr. Fitzgerald, who as mayor was instrumental in the advancement of Mr. Summers to that Office as his successor. The same Mr. Fitzgerald who, with the apparent assistance of the law director as his personal legal counsel, effectively deployed LHA funds to propagandize in a phony newspaper for the closure of the hospital all to his likely forthcoming financial benefit.

I submit to you that there is a level of conflict-ridden political cronyism and low-level criminality in the city administration that borders on the corrupt. Yes, I have finally used the word corrupt.

Reread the Ohio Ethics Commission opinions and convince me that the mayor's negotiations leading to the Letter of Intent were not misdemeanor violations of Ohio law. Reread the emails streams and try to convince me that the mayor and other city employees were not using the city's computers and email facilities for political purposes in violation of Ohio law. Reread the Finance Director's Affidavit in the Skindell case and try to convince me that the city did not file false statements in the Ohio courts--a case that rests on false statements made by the current president of council.

Finally, I would suggest that those council-members who followed and continue to follow the mayor down this path have, in effect, chosen to end their careers as public officials. Yourself included.

I would encourage you, like many of us did, to file complaints with local, state and federal enforcement officials about this documented conduct.

We need to continue to fight for municipal reform. Stand-up. Speak-out.