How building classrooms can help new condos get off the ground

Developers increasingly agree to build schools in new construction projects

Oct.October 01, 2012 07:00 AM

In densely populated New York City, crowded neighborhood schools and a shortage of development sites are two sides of the same coin. So it’s not surprising that an increasing number of private developers are incorporating schools into their projects. And in many cases, they receive direct financial benefits to do so — from tax breaks to permission to construct larger buildings. There are also intangible benefits for developers and for the city, like winning support for projects from community opponents.

In recent years, the city has been looking for funding to build more classrooms, especially in fast-growing residential neighborhoods like the Far West Side and Lower Manhattan, where schools are squeezed for space, explained CBRE Group powerbroker Darcy Stacom.

And for developers, agreeing to build schools often means an opportunity to develop projects on city-owned sites that would otherwise be unavailable. And using city-owned land, rather than buying the site themselves, makes the process of securing construction loans easier.

“In a day where financing is far more scarce than it used to be, it’s a very attractive vehicle,” said Stacom, who is working on deals for the Educational Construction Fund, a financing and development vehicle for the New York City Department of Education.

Read on for a behind-the-scenes look at projects where developers are incorporating schools into their designs.

250 East 57th Street

Beekman Hill International elementary school

Two new public schools in Midtown — the High School of Art and Design and Beekman Hill International elementary school — began accepting students this fall. The new schools are the product of a trade-off between developer World-Wide Holdings and the ECF.

In return for building the two new schools, World-Wide is constructing a 59-story residential tower on a city-owned site at 250 East 57th Street. In exchange, “the developer is allowed to build out the balance of the development rights on the site for non-school uses,” explained ECF executive director Jamie Smarr.

The city will use the rent it receives from World-Wide to pay back the loans it took out to build the new schools, Smarr explained.

David Lowenfeld, a partner at World-Wide, said the deal worked out well for both sides.

“Projects like this one let organizations extract the value of the unused development rights to work toward their main mission,” he said. “In our case, by leasing us the development rights, they are able to pay for the debt service on two new schools.”

Smarr said ECF plans to issue an RFP in the coming months with three additional development site opportunities.

New York by Gehry

8 Spruce Street

The Spruce Street School, otherwise known as PS 397, opened in 2009 in the first five floors of the Frank Gehry–designed rental tower at 8 Spruce Street. To build the tower, developer Forest City Ratner partnered with the city’s School Construction Authority, the construction arm of the Department of Education.

Talks to build the elementary school were initiated by State Assembly speaker Sheldon Silver in response to a need for more classroom space in Lower Manhattan. Under the terms of the deal, Forest City Ratner agreed to construct the shell of the school, while the build-out was paid for by $65 million from the SCA, according to Forest City spokesperson Laura Dolan.

In return for incorporating the school into the building, Forest City Ratner received $190 million in tax-exempt Liberty bonds to help finance the project.

Forest City also felt that the presence of the school might help draw renters to the building, especially since the Financial District has seen a baby boom of sorts in recent years, noted Dolan.

Cliff Finn, president of new development marketing at Citi Habitats, which is handling rentals at 8 Spruce, said that strategy has worked so far: A number of children in the building attend school downstairs.

“We have three-bedroom apartments,” he said, and “most of those get rented by people with children.”

There is one caveat, Finn said: The new school already has a waiting list, and children who live in the building are not guaranteed admission.

And adding a school to an apartment building doesn’t seem to translate directly into higher prices or rents for units in the project, said Jonathan Miller, CEO and president at appraisal firm Miller Samuel. “The density is such in New York City that I don’t think it’s any different than if the school were next door,” he said.

Windward School

The Related Companies last month announced that the Windward School will take a 60,000-square-foot space in the first five floors of its planned 250-unit rental tower at 205 East 92nd Street.

Based in White Plains, the private school works with students who have language-based learning difficulties. The new facility is expected to open in 2015 and could house up to 350 students.

Related did not get any incentives or tax breaks for incorporating the school into the project, but felt it was a valuable addition, according to Newmark Grubb Knight Frank vice chairman Mark Weiss, who brokered the deal.

“We are thrilled to partner with the Windward School to create a state-of-the-art educational facility on the Upper East Side and expand their critical work at a location convenient to New York families,” said Jeff Blau, CEO of Related Companies in a statement.

The 92nd Street site was a park and playground before Related bought it from the city, and the plan to develop it has drawn opposition from neighbors. Last year, neighbors and local politicians held a rally asking the city to reacquire the land in order to “save the park,” the New York Post reported.

The New York Proton Center, a nonprofit corporation backed by local hospitals, was previously in talks to lease the space, according to published reports. But the deal fell apart, leaving Related with no anchor tenant for the project.

Weiss said his firm had been approached recently by at least eight developers seeking guidance on how to make the sites of their projects appealing to schools. He noted that schools are especially attractive for projects on side streets rather than the high-traffic avenues popular with major retailers.

Schools “are a very under-served market,” he said. “New York City urgently needs more schools and classroom space.”

75 Morton Street

75 Morton Street

Aiming to ease neighbors’ concerns about a plan to build luxury housing on the former site of St. Vincent’s Hospital, this year the city orchestrated a deal to turn 75 Morton Street in Greenwich Village into a new public school.

During negotiations between the city and Rudin Management, which plans to turn eight former hospital buildings into luxury housing, local residents lobbied politicians for a new school. Ultimately, the Bloomberg administration agreed to buy a state office building at 75 Morton Street, a few blocks from the hospital, and convert it into a school.

While Rudin Management will not have a role in the construction of the school, sources said the city’s decision to build it was designed to quell opposition to the project and to the closure of St. Vincent’s.

What’s in it for the city? Rudin agreed to donate $1 million in arts financing over 10 years to three other local schools, and $1 million to a legal fund to help preserve rent-stabilized housing in the Village. The firm also agreed to cut the number of apartments in the project to 350 from 450 and reduce the number of underground parking spaces to 95 from 152.

Dock Street

At the proposed 17-story Dock Street condo project in Dumbo, plans call for a new 300-seat middle school at the base of the building.

A spokesperson for the developer, Two Trees Management Company, said Two Trees will pick up the bill for the core and shell of the 45,000-square-foot middle school, while the SCA will pay for the interior build-out.

Two Trees said it is not receiving specific tax or financial benefits in exchange for building the school, but declined to comment further about the project.

Sources said at least part of the motivation, however, may be mollifying neighbors who have voiced fierce opposition to the project.

“A school in a design is appealing to the public,” noted Department of Education spokesperson Marge Feinberg.

The promise of the school hasn’t quelled all opposition to the 17-floor project, which residents and other preservationists say will block their views. In fact, opponents have charged that Two Trees’ offer to build the school was a political move meant to sidestep the city’s public review process.

“The developer came back to the community with new drawings under the guise that they redesigned the building,” said Gus Sheha of the Dumbo Neighborhood Association, one of the fiercest opponents of the project. In fact, he said, the structure itself was largely the same, but with the addition of a school.

In Sheha’s opinion, the school is “a red herring for politicians who accept gobs of money from private developers while ignoring residents’ wishes.”

Riverside Center School

The Upper West Side will soon get a new Pre-K through eighth-grade school at 61st and West End Avenue in one of several new residential buildings planned as part of Extell’s massive Riverside Center project. The school, called PS 342/Riverside Center School, will contain more than 20 classrooms for 488 students. It will be housed on the first four floors of the planned apartment building, known as Riverside Parcel 2, which is reportedly slated to begin construction next month.

The Riverside Center project will eventually include five residential buildings, with an estimated 2,500 apartments.

The project’s developer, Extell, agreed to build the school after contentious negotiations with the city and community members, who expressed concern that Riverside Center would cause overcrowding in local schools.

“Clearly, this was the most important piece of infrastructure that had to come with new development,” Community Board 7’s Helen Rosenthal told the West Side Spirit. “We had learned our lesson that with many apartments going up, of course there’s a need for a public school.”

The community board originally requested a 150,000-square-foot school, but Extell reportedly balked at the cost. Eventually, however, Extell agreed to construct the “core and shell of the building”— walls, ceilings, electrical and HVAC systems — for a 100,000-square-foot school. The SCA will pay for the interior construction of the building.

Extell did not respond to requests for comment.

The company is reportedly now looking to sell Riverside Parcel 2 and another site so it can concentrate on other sections of the Riverside Center project. But the city’s land-use approvals for the project require a school to be located in one of the first two Riverside Center buildings, so a school must be built no matter who owns the land.


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