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Mountain View Whisman’s school board voted unanimously this week to buy the land beneath the district’s subsidized staff housing project for $53.5 million, finalizing a deal that has been under negotiation for six months.
At a Thursday, June 10, meeting, board members approved an agreement to purchase the 1.8-acre parcel of land on which the district has built 144 units of employee housing.
Buying the land will relieve the district of a $1.9 million annual ground lease to rent the land, which was set to increase 2-4% annually based on inflation. The $53.5 million purchase price comes in addition to $88 million in bond proceeds that the district has already spent to build the apartments themselves.
To cover the purchase price, the district plans to use $29 million in existing funds that the board earmarked for this purpose in March, as well as borrowing money through a financing tool available to schools known as certificates of participation.
The annual debt service is expected to cost less than the ground lease, giving the district more flexibility in how much rent to charge employees, Chief Business Officer Rebecca Westover said. The district plans to pay off the debt with rental proceeds from the property.
In recent months, Mountain View Whisman has been grappling with the financial structure of its employee housing project, which opened in February. Until this point, the district has owned the building itself, but has been renting the land from a real estate developer that is building an adjacent market-rate development.
Paying off the annual ground lease had been one of the biggest challenges facing the project, Superintendent Jeff Baier told the board members on Thursday.
“It’s a major cost driver, and reducing or eliminating that ongoing expense is key to making this project financially sustainable for the long term,” Baier said. “Not taking action now allows a known problem to persist.”
Finding enough tenants to fill the building at the current rental rates has proved to be a challenge. The City Council recently approved increasing the income limits for the project in an attempt to allow more employees to qualify.
District staff and board members suggested on Thursday that buying the land could allow the district to lower rents, although Baier told the Voice that the specific amounts aren’t yet known. A one-bedroom apartment currently costs either $1,450 or $2,900 a month, depending on how much a tenant earns.
Deciding to purchase the land
The school district anticipates that it will initially cost roughly $1 million annually to pay off the certificates of participation used to finance the land acquisition, Baier told the Voice. That’s substantially lower than the $1.9 million annual ground lease.
In total, paying off the certificates of participation is expected to cost roughly $45-50 million over 30 years, depending on the interest rate, Baier said. In contrast, the ground lease was expected to cost $270-380 million over a 55-year term.
At $53.5 million for a 1.8 acre site, the district is going to be paying roughly $30 million an acre. That’s substantially higher than the roughly $13.2 million per acre that the Los Altos School District paid in 2019 for a school site in Mountain View.
Mountain View Whisman’s employee apartments are also fulfilling the developer’s obligations to provide affordable units as part of its market-rate project next door.
Baier attributed the high cost of the land to the fact that the district had already entered into a ground lease with the developer, which it essentially had to buy out.
At Thursday’s meeting, board member Charles DiFazio said that while the price might not be perfect, he felt it was a good deal that eliminates the escalating ground lease expenses.
“It’s going to better enable us to keep this affordable and make more people able to access this incredible opportunity,” DiFazio said.
Four residents of the employee housing came to Thursday’s meeting, each praising the district for the project and talking about the benefits that having an affordable home has brought to their lives.
In contrast, there were also community members who opposed the land purchase and raised concerns about the district’s decision making. Aytek Celik stressed the way that the project’s costs have ballooned over time.
“I am troubled and concerned by the possibility of buying the staff housing project,” Celik said. “Please stop throwing good money after bad.”
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They may go down as probably the worst negotiators in the history of Mountain View.
But I’m not sure what other option they had. $1.9mm a year is a lot of money. Blame goes back to the original deal with whomever was on that board. Chris, Bill, who else signed that thing?
In retrospect, the initial proposal to build housing on district own land (Cooper Park) would have been considerably simpler and cheaper.
So Mountain View has its share of responsibility in derailling that initial proposal.
Also, the City seems to have provided the developer with a pretty sweet deal as its obligation to provide affordable units seems to have been paid by the School district (both for the building AND now for the land).
Did Ayinde Rudolph pay back his sweetheart home loan
This could pay off since the property tax on the 1.8 acres should go away now that it is owned by a school district. But it was an outrageous amount to pay for restricted land like that.