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Monday, July 03, 2006

Seattle Schools Look To Cash Out

The Seattle School District, about to close the doors of a handful of schools has realized that now may be a good time to get in on the real estate action, before it's too late.

Evelyn Tapsak drives past the old Magnolia Elementary nearly every day, and what she sees confounds her — a big brick school building on the crest of a hill with a view of Puget Sound, sitting vacant as it has for most of the time since the Seattle School District closed it in 1984.

"How can the district be in such debt and let that property just sit there and not do anything with it?" the longtime Magnolia resident asks. "It's amazing to me. It doesn't make sense."

District officials, facing a multimillion-dollar budget shortfall, are beginning to ask similar questions. As the School Board prepares to close schools — adding to the district's inventory of surplus buildings — officials are taking the opportunity to re-examine their real-estate holdings and look for ways to make more money in a booming market. Even selling property — something the district has rarely done — is on the table.
Community centers in Phinney Ridge and the University District are among a handful of short-term tenants that pay a discounted rent of 50 percent fair-market value because the district attaches value to the youth and family services they offer.

West Seattle parent Kris Aamot thinks the district should stop subsidizing the rents of those tenants and instead should maximize revenues from those properties to fix existing schools, such as elementary schools in his section of town where students are being taught in portable classrooms.
Not every property is tailor-made for a community use, however. The former Oak Lake Elementary on Aurora Avenue North, for example, became the Oak Tree shopping center after the district leased the land on a long-term basis to a developer.

"That was logical," Roe said. "Businesses on Aurora were growing up all around that school."

There may not be logic, however, in keeping Magnolia Elementary what it is now — an almost-always-empty building that the district pulls into service only for emergencies to temporarily house a school. The board could decide to lease the building, or even sell it.

In another part of Magnolia, the district sold the former Briarcliff Elementary in 2003 to a developer building a subdivision of tightly packed houses. Neighbors often complain about the housing, calling it a poor fit with its surroundings.
Gee, let me think... rent out property at 50% of (already relatively low) market rate, or sell it and pocket hojillions of dollars... tough choice. Seriously though, It seems that we've got yet another counter-example to the "they aren't making any more land" argument. Closed schools is just one possible way that more land for homes can come onto the market.

(Stuart Eskenazi, Seattle Times, 07.03.2006)


Anonymous said...

This seems a bit counter intuitive.
One would think that new homes would bring in new families with children.
The fact that schools are closing is an important indicator that families are priced out.

Perhaps the flippers need to go back to school. Perhaps Econ 101 for starters.
Me thinks they will soon be attending the school of hard knocks.

mike said...

While it is a good time to sell, it would be a shame not to put the land to better public use. A park, a museum, anything but another condo development or shopping mall. Given the density of the city, land already in public hands should be seen as a great opportunity to build civic projects, not cash in the assets of this city's forefathers so we can save a few tax dollars today.

On the other hand, if someone proposed to sell the land to help pay for the Alaskan Viaduct tunnel which would create civic waterfront park areas on the lid, that seems like a fair trade.

Anonymous said...

Public School administration is notoriously behind the curve with EVERYTHING they do.

The fact that school districts are just now realizing they ought to sell these properties is a good sign the RE peak has passed.

BTW, that U District Community Center was a wonderful resource for people living in the North U Dist. It'll be a shame to see it go.

Anonymous said...

Excellent article in todays Olympian about young people (20's) squeezing like heck to buy condos in Ballard, etc.

As renters they had disposable incomes to spend on travel, treats, dinners.

Now they stay home and pay the bank.

the story and link are on the July 3 Housing Bubble blog.

Can you get the article Tim for this blog? it's a good one.

Anonymous said...

Closing schools!
Are FB's already eating their children.
I didnt think that would happen for at least another year or two.

Anonymous said...

Sorry Tim, you've lost a reader. You had me hooked with your constant updates and fact-based opinions. You even went so far as to highlight the Seattle PI blog which you said your were "relatively impressed with the balanced view he is presenting".

You went on to say:
"I may not agree with all of the conclusions he comes to, but at least he is giving the subject a genuinely thoughtful analysis."

So, do the blog a favor and post the sources that conflict with your own especially a source you think is better than the "fingers-in-ears, "la la la, I can't hear you" approach"

The question (Is there a bubble in Seattle?) we've all been waiting for was finally answered. I know you posted today and would have expected to see mention of the article. I'm pretty sure most of us were waiting to see what their conclusion was going to be.

Here are a couple of quotes:

"In all four cases, fundamental economic value has underpinned large increases in prices"

"So, even though prices have been increasing, sometimes at breathtaking rates, in Seattle there have been solid economic reasons for them to have done so. That doesn't necessarily mean that prices will continue to rise at their recent rates (an issue I will address in the final chapter to come), but it also means that a bubble-deflating crash to fundamentals isn't impending."

Here's the icing:
"For these reasons, I'll put on my asbestos flame-retardent underwear and make a categorical statement: there is no bubble in Seattle real estate (at least, not yet). "

To be balanced, he also wrote this:
"Nor should the fact that there is no bubble lure you into thinking that the outlook for Seattle real estate is rosy and bright. We have some significant challenges to face. Regular old bull markets end too, and Seattle has a history of cyclical real estate values."

You guys really had me thinking this blog was a dose of reality, but I've come to the conclusion that you swung to far to the other side. I don't know what's going to happen to Seattle's RE market. I can, without a doubt, say we won't see the same kind of growth we did in the last few years, but I just don't agree with you guys that Seattle is headed for a serious price decline/correction. I will say that my finances are in order to weather a storm (no ARM here), but I just don't see the doomsday event you guys are predicting. Thanks for keeping the content fresh. Always nice to see a blogger actually blogging more than once a week.

meshugy said...


Tim wants to hold off on discussion on the Seattle RE Blog, so I won't comment on that.

but I just don't see the doomsday event you guys are predicting.

I don't think Tim has been predicting a doomsday event. Those sort of dire predictions have come mostly from commentors. I think Tim has done a good job keeping a balanced outlook on what is going on.

I'm with you on the doomsday scenario. Under the current economic trends, it's not going to happen. The market will slow down to 3-6% yearly appreciation and that's the closet thing we'll see to a "crash."

meshugy said...

Here's a historical perspective on housing booms:

Global Housing Boom May Cool Slowly, Avoiding a Crippling Bust

Historically, just 17 percent of local housing booms in the U.S. go bust, according to data compiled by the Federal Deposit Insurance Corp., a government agency that regulates banks. And that typically occurs only when local regions are under severe economic stress, such as Texas in the mid-1980s after oil prices plunged.

``Busts have been pretty rare,'' says Richard Brown, chief economist at the FDIC in Washington. ``The most common way for a boom to end is through an extended period of stagnation.''

Anonymous said...

Who needs schools? All we need is to establish real estate trust funds for all the kiddies to borrow against once they're 18.