Late Land Deal Costs Fulton Schools $5M

Cost for Sandy Springs elementary school rises

By HEATHER VOGELL / www.ajc.com
Sunday, September 14, 2008

The Fulton County school board let land for a new school slip from its grasp, only to pay nearly twice as much for it two years later, school records show.

The misstep cost taxpayers $5 million. And the price keeps climbing.

In a hurried closing last year, the school board paid $10.8 million for 24 undeveloped acres at Ison and Roswell roads. Two years earlier, an indecisive school board had dropped an option to buy the land for little more than half that amount.

The purchase included paying nearly $1 million to a developer so he would walk away from a sales contract he’d secured as the board was making its offer.

School board President Julia Bernath said hindsight makes it clear the district missed its chance to buy the land for less.

But she defended the purchase, saying the board couldn’t agree on the need for the school when the site was identified. By the time the board changed its mind, she said, Ison Road appeared the best buy.

“Even though the price had escalated, it still was far less than anything else we’d been able to identify,” she said. “We are trying to be good stewards of taxpayer dollars.”

A series of questionable decisions plagued the board’s purchase:

• The district chose not to spend $10,000 to extend its option to buy the land. The additional time could have saved millions of dollars.

• The school board approved a purchase price without an appraisal to support it.

• The district paid $4.5 million more for the land than the seller had paid about six months earlier.

• The district took no steps to condemn the property — and ask a judge to determine its fair market value — even when facing the steep run-up in price.

The purchase illustrates the pitfalls public agencies confronted when vying with developers for large tracts in what was a hot real estate market.

Now, neighbors worried about school-related traffic are criticizing the purchase. Jim Ramseur, a real estate broker and neighbor who opposes the school, said taxpayers got a bad deal.

“The sheer fact that the school board paid 70 percent more for the same site that was purchased six months earlier, with no apparent justification, is appalling to all taxpayers,” Ramseur said. “Especially when they had control of the deal earlier for even less.”


Deal runs out

In 2004, Fulton school leaders knew Sandy Springs needed more classrooms. Unimproved land was hard to find, and the wooded Ison Road property stood out.

“We are anxious to put this under option as they received two more offers on Friday,” former school land agent James Haverstick wrote in a December 2004 e-mail.

The parcel was not ideal. A creek bisected it, and steep drop-offs would make extensive grading necessary. A gas pipeline about a half-mile away would require extra precautions. Architects said building costs would be “much higher than typical.”

The district already thought the asking price was high. “There was a little sticker shock in that,” Mike Russell, former associate superintendent for operations, said in an interview.

Yet with vacant land scarce, the district secured an option in December 2004 to buy the property for just under $5.8 million.

The new year ushered in turbulent times. In February, Superintendent Michael Vanairsdale stepped down amid an investigation into construction cost overruns and questionable accounting practices. The district froze construction spending.

With the Ison Road option running out, Haverstick recommended offering the owner $10,000 to extend the option three months.

Haverstick’s superior, former chief operations officer Robert Leon, e-mailed back a one-word response: “wait.”

Leon, who left the district to work as a civilian Army contractor in Germany, could not be reached for comment.

No other options

In the two years that followed, the district rejected all other potential sites for a new Sandy Springs elementary.

By the time Ison Road was back on the district’s radar, the landscape had changed. So had the price.

In October 2006, two development companies had bought the property. Summerall Development paid $5.8 million, then resold it the same day to Capital Design, which paid $6.2 million.

Capital Design planned to build a 48-home subdivision, said principal Donald Chapman.

By late March 2007, however, the board was finally ready to buy. The district approached the owners.

But Capital Design instead agreed to sell to developer Robert Donner’s company — a move that would cost the district nearly $1 million.

Donner had offered to close the deal in a month, a broker reported, while the district wanted two to three months. School officials scrambled, saying they could likely close more quickly. The broker offered to seek to terminate Donner’s contract.

Board attorney Bruce Dean warned officials they should negotiate the price with the current owner, not a potential future owner. “We need to see if we can avoid a ‘flip’ situation if possible because of past board experiences,” Dean wrote in an e-mail.

School officials knew rapid resales, or flips, can quickly escalate land values. Moving too slowly had cost them before.

In 2001, Fulton had paid $1.4 million — on top of the purchase price — to a developer that had secured deals to buy property before the district could purchase it for Alpharetta High School, records show.

Appraisals and offers

On April 10, the board authorized offering Capital Design its asking price of just under $10 million. The board typically would have a recent appraisal in hand before making the decision, but not this time.

A 2005 appraisal done for the district said the property was worth $6.2 million. But on April 20, the new appraisal came back at $4 million more — $10.2 million.

The new value was also $4 million more than what Capital Design had paid six months earlier.

Appraiser McColgan & Company explained the price increase as “changes in market conditions” and a zoning change allowing more dense housing.

But McColgan appraiser Mike Hunter said in a recent interview that the appraisal’s explanation for the price increase was incorrect. No rezoning had taken place since the previous sale.

Hunter said appraisers use standard explanations when reconciling a new value and a prior sale. The wrong explanation was used in the board’s appraisal, he said, but the value was correct.

The appraisal should have said Capital Design’s plan to build 48 homes had limited the land’s value, Hunter said. Its worth increased once Capital Design dropped that plan and other uses — such as more expensive homes — became possible.

“The report stands for itself,” Hunter said. “It’s supported.”

The school district never questioned the appraisal, he said.

With the price set, the district offered Donner, the developer, another $150,000 to $250,000 to step aside, e-mails show. But Donner declined, saying he would be giving up a larger profit from his planned subdivision.

The district raised the offer to $990,000. Donner accepted. The school board closed May 9.

In a recent interview, Donner said he was ready to move forward with a high-end subdivision, but the prospect of the district continuing to pursue the land helped convince him to sell the contract. “It was a business decision.”

Faced with the steep rise in price in a short time, the school board could have invoked its power to condemn property. A judge would have considered whether the price was fair for both the landowner and the district — and, by extension, taxpayers. While the district used eminent domain for another Sandy Springs site, it did not for Ison Road.

Bernath said the board is reluctant to use the power unless a seller balks.

“We had what appeared to be a willing seller,” she said.

The new school will relieve crowding at Sandy Springs schools, she said. A groundbreaking ceremony is set to take place this fall.

“We’re very excited about beginning construction,” she said.