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Background
In response to huge deficits such as a $218 million spending gap for the 2012-13 school year and declining enrollment the Philadelphia School District put in place a reorganization proposal. The proposal called for closing as many as 64 schools and eliminating hundreds of central office jobs in the next few years as well as more than half a billion dollars in budget cuts by 2017.
In Philadelphia, 12 surplus school district buildings were put up for sale in 2012, and the School Reform Commission (SRC), which runs the district, has approved sales of six of them. However, the district's sales portfolio got much larger. Six buildings designated for closure in 2012 have yet to be put up for sale, and in March 2013, the SRC voted the closures of nearly 24 at the end of the academic year 2012-2013. This represented 12 percent of the districts total.
Under the five year plan, 40 underutilized or under-performing schools would be closed next year. Six more schools would be closed each year after that until 2017, bringing the total number of closed schools to 64. Decentralization would also result in the staff at school headquarters to be reduced from 600 to 250. Operating expenses would be cut by $122 million and an additional $156 million would save in wages and benefits.
In general, the easiest buildings to re-purpose are those that have not been closed for long. It is important they still have their roofs and mechanical systems intact and are located in neighborhoods with healthy real estate markets. However, some of the buildings in Philadelphia are located in neighborhoods that have experienced depopulation and decline. Although there are exceptions, a handful of properties are located in high value areas, which ultimately will become re-purposed.
In Philadelphia, the median age of the buildings that were up for sale in 2012 was 91 years with a median size of 65,000 square feet. Officials in Washington say that some of the older buildings in their City are more conducive to renovation than those from the 1970s, which have open floor plans that do not translate easily to other uses. In Pittsburgh, an outside report noted that "excessive common space" such as wide hallways can be a problem, reducing leasable footage, and that expensive updates might be necessary to bring older buildings into compliance with the Americans with Disabilities Act.
In determining a property's marketability, though, location can be the most important factor. Some larger structures tucked into residential neighborhoods would be better candidates for commercial or institutional conversion if they were on busy roads or commercial corridors. On the other hand, the former West Philadelphia High School building, the largest for sale in Philadelphia in 2012, has been sold for market-rate housing due largely to its location near the University of Pennsylvania.
Given all of these factors, it is no surprise that some buildings sit empty for decades. In addition, the structures, which are costly to maintain, can deteriorate rapidly; the longer they sit vacant, the more expensive they can be to reactivate. Demolition by neglect can happen quickly if buildings are not properly closed and secured. The buildings can become eyesores, magnets for illicit activities, and symbols of neighborhood decline.
Exit Strategy Options
Some districts have favored leasing shuttered school buildings, others have preferred selling them, and still other districts think either option is fine as long as it produces an occupant. The School District of Philadelphia considers sales to be preferable; it is not set up to be a landlord. Sales produce cash, even if the amount is modest, and a reduction in the liability that comes with owning properties. If the new use is commercial, the school district gets revenue in the form of real estate taxes.
Many districts have found the questions of charter use the most difficult to handle. That is because the rise of charters along with the declining school-age population has helped create the glut of empty schools. Sometimes, surplus buildings are bought by existing charters that simply want more suitable and permanent space. In other cases, charters are relocating to expand. The results of such expansion can be more empty space in district-run schools, especially in districts where the school-age population is static or falling. For this reason, some districts have taken a second look at their policies on charter reuse. In Philadelphia, for instance, the School Reform Commission recently gave itself the power to cap charter expansions for five years, even though doing so might reduce the demand for closed school buildings.
The School District of Philadelphia has sold 10 schools since 2005; three for charter schools, four as housing developments, one combination shopping center and senior housing project, a small business incubator, and one use that is yet to be determined. It also sold a parking garage site, where the Community College of Philadelphia plans a mixed-use development.
The largest and most common reuse of many of these buildings, are adapting them to charter schools. Charters have purchased or leased 111 sites since 2005, accounting for more than 40 percent of the repurposing projects. One reason is obvious the buildings were meant to be schools and have classrooms, gyms, cafeterias and auditoriums. Other important factors are the growth of the charter sector, public policy in some cities that encouraged having charters use the surplus buildings, and the availability of financing to help charters buy or lease the structures.
Charter schools tend to start small and grow. Often a new charter opens wherever it can, in a church basement or commercial space, until it establishes itself and seeks bigger, permanent space in a more appropriate facility. The charter student population in the 12 comparison cities rose 69 percent.
Philadelphia's Authority for Industrial Development has been active in the charter bond market. Since 2001, the authority has issued $291 million in tax-exempt bonds for 19 charter schools. The largest was $24.7 million for Mariana Bracetti Academy's acquisition and renovation of Northeast Catholic High School. Other charters that have used tax-exempt financing in Philadelphia include the Green Woods, Independence and MaST charter schools.
Additional Challenges
In trying to find new uses for old buildings, some school districts like Philadelphia, are competing with an inventory of closed parochial schools. According to Deacon Thomas M. Croke, who runs the Office for Real Estate Services at the Archdiocese of Philadelphia, former Catholic schools can be easier to sell for two reasons. First, some of them are in better condition than their public school counterparts. Second, the archdiocese can make transactions swiftly; its buildings are private property, not subject to state laws or public review. As of December 2012, six buildings that used to house parochial schools were for sale in Philadelphia and 22 available to be leased. One of the archdiocese's current tenants is the School District of Philadelphia, which has been leasing the former St. Bernard's School in Northeast Philadelphia, initially to house the population of an elementary school that underwent renovation and now for a middle school whose building was deemed unsafe.
Conclusion
Prospective tenants and buyers of institutional properties will have a large selection to choose from and the inventory could be increased by any additional parochial schools that close. As stated earlier the pool of potential purchasers for these buildings for continued school use is shallow.
In spite of the increase in charter school enrollment, it will not be enough to absorb the public and parochial school buildings that will soon be on the market. The oversupply of school buildings and limited number of buyers in the Philadelphia market will most likely drive down the market values and put downward pressure on rental rates for these type properties. Properties in good locations may fare better due the possibilities for conversion to some type of adaptive reuse project; however, these building are expensive to renovate which will play a large part in the price developers will be willing to pay for these type properties.
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