Real Estate Quarterly: MAKING THE GRADE
by Daniel Miller | Los Angeles Business Journal Staff
1/28/2008 - It's bigger than Boston's $14.6 billion Big Dig and dwarfs the potential $5
billion westward expansion of the Metropolitan Transportation Authority's
subway down Wilshire Boulevard.
It's the
program - by some measures the most expensive municipal project in the
country's history. The district is constructing 132 schools, renovating
hundreds more and adding a total of 180,000 classroom seats.
Funded by four bond measures, the seven-year-old construction project is in
full tilt. And it's pumping money and business into the local economy at a
time when the area needs it, with construction not expected to wrap up until
2012.
"This was really a chance for
infrastructure need, which was quality education facilities," said Ron
Bagel, the facilities services division's director of real estate.
When the program is complete, the district will have grown from 878 schools
to 1,010, and hundreds of thousands of students will be out of bungalows and
returned to traditional two-semester schedules, no longer having to take
classes in the summer.
Most importantly, the district's worst and most overcrowded schools will
have first-class facilities, something educators believe is critical to the
district's long-term efforts to improve student performance.
But the plan is not without hiccups.
Some critics contend the district has moved too fast with its construction
program, creating giant warehouse schools in a headlong rush to complete
projects.
More threatening, a staggering rise in construction costs has forced LAUSD
to curtail the program from three years ago, when 160 new schools were
envisioned. It turns out $20 billion may not be enough when demand for steel
and other raw materials from emerging economies such as China has run
construction costs up 150 percent to $500 per foot.
In recent months, the district has "unfunded" 18 schools, cancelled
expansions at some existing sites and decided to downsize others across the
city. Just last week five more planned schools were downsized. One potential
saving grace: The district has seen an unexpected 7 percent decline in
enrollment since 2003 that might lessen some of the need.
"We are still concerned about funding," said Edwin Van Ginkel, senior
development manager of new construction for the district. "We don't know if
we've seen the peak in the marketplace. We don't know if we've stabilized."
Big benefits
Despite the growing pains, the landmark project likely couldn't come at a
better time: The average school in the district, the nation's largest behind
outdated but downright shabby.
"When those bathrooms are in bad shape and when there is no grass and the
lights don't work and it's cold, the message is: 'We don't care about you,'"
said Steve Soboroff, president of Playa Vista Capital Co., which is
developing the Playa Vista community where the district is building a K-8
school.
But while the primary goals of the building program are obviously academic,
the project could provide a boost to the flailing real estate economy, which
has been hit hard on the residential side amid signs the slowdown is moving
into the commercial sector.
The district is spending $12.6 billion on new construction and $7.7 billion
on renovating existing buildings. So far, 9 million square feet of new
school space has been delivered and when the project is completed, there
will be over 20 million square feet of new space.
"A lot of the building during the boom happened in the
this is building in
working out there and lost their jobs are now working on these projects,"
said Gary Painter, director of research at the
Estate.
Painter added that studies indicate that new or substantially rehabilitated
schools in distressed neighborhoods can change the character of those
places.
"Schools can certainly be part of the fabric of the community. The sites can
be used for other services. If you look at it with a 20-year time horizon it
makes sense," he said.
The plan has already had a notable impact on small businesses that take on
work with the school district. While larger companies like Turner
Construction Co. and architects like Johnson Fain Partners get big
contracts, the impact on small businesses may be more significant.
According to the district's facilities services division, 16,575 projects of
varying degrees in size and scope have been completed at existing schools,
with about 3,500 more projects planned. And since many of the renovations to
existing schools have required a variety of small repairs and upgrades, it
often makes sense to go to small businesses to get the job done.
Since the 2003-04 fiscal year, $1.46 billion in construction contracts have
been awarded to small businesses.
"These smaller projects are a way to encourage smaller contractors," said
Guy Mehula, chief facilities executive for the district.
Kevin Ramsey, owner of Compton-based Alameda Construction Services Inc.,
does concrete work for LAUSD and has worked on about 10 schools over three
years. For Ramsey, the average job has a $150,000 price tag.
"There are local businesses up to the task so they should be sought out,"
said Ramsey, who added that work with the district has constituted about 50
percent of his business.
Bill Yang of construction management firm Yang Management of Burbank said
that his company has worked on over 200 schools since 1997. He said that
work with the district constitutes 70 percent of his business.
Complex management
But getting all this work done has not been easy. Since the program is so
large, it requires intensive and extensive management. Everything from
purchasing land for development to awarding contracts requires a significant
amount of oversight.
"We are bound by constrictions within the public contracting code, which
make things a bit more difficult," said James O'Reilly, director of
construction for the facilities services division.
The code requires that the district give contracts to low bidders who meet
the project criteria. But since 2002, LAUSD has implemented a "best value
procurement" program when it takes complex and more expensive projects to
bid.
This program allows the district to choose contractors based on the "quality
of materials, small business enterprise participation and previous
successful school construction experience." The program is allowed for under
a longstanding part of the education code.
The district maintains that big companies like Hensel Phelps Construction
Co. and PCL Constructors Inc. wouldn't work with the district without the
best value procurement program. "Five years ago people didn't want to work
for LAUSD because it had a reputation as a poor owner," O'Reilly said.
"We've worked really hard to change that."
Still, some of the real estate professionals that have worked with the
district believe that the district still presents a lot of red tape. "They
have levels of bureaucracy and checks and balances that they have to go
through, and it takes just a little bit longer because of the t's to cross
and i's to dot," said Bob Safai of Madison Partners, a commercial real
estate broker who handled the $22.5 million bankruptcy sale of the Granada
Hills Community Hospital development site to the district in 2004.
And every delay costs money. A lethal combination of heavy global demand for
materials and several natural disasters, including Hurricane Katrina, has
made construction considerably more costly.
These days, it costs around $500 per foot to build a school, and sometimes
more. Van Ginkel said projects that were put out to bid in 2002 and 2003
cost about $200 per square foot to build.
Ramsey said that costs for concrete, for example, are up from about $70 per
yard to $100 per yard - and those increases are being passed along to the
district.
While a 150 percent increase in construction costs is nothing to sniff at, a
decline in enrollment could lessen the blow. The district serves about
695,000 students, which is down from an all-time high of about 750,000 five
years ago.
Enrollment declines have been chalked up to a variety of factors, including
lower birth rates and the subprime boom, which allowed some lower-income
families that had been renters to pursue homeownership by moving out of
state or to areas like the Inland Empire.
But the birthrate decline is over, according to Van Ginkel, and anecdotal
information suggests that some of the families that left the area with
subprime loans in tow have now lost their homes in the ensuing meltdown and
are moving back.
Bigger questions
Still, there is a concern in some circles that the district has mismanaged
the program on a larger level. Detractors chiefly cite fund allocation and
the design of new schools as flaws in the massive program.
"They took a very limited definition of the task, which was build more seats
and get the kids off the buses," said David Abel, chairman of New Schools
Better Neighborhoods, a non-profit organization that advocates for schools
as community centers. "They missed out on things that could've been done
with that $20 billion - making schools the anchor in the inner-city
neighborhood."
Abel contends the large schools the district is building create "anonymity,"
so that there aren't "cultural connections and we don't get the results we
want." And because communities are starving for new classrooms, they often
are willing to accept flawed schools, though community groups have sued to
stop some of the new schools.
"(The district) waits until the very end and they present the solution and
you get to pick the color and you can't change a damn thing or you'll blow
another three years," Abel said. "Faced with those choices, you go with
them."
Meanwhile, some critics are seizing on the decline in enrollment to hold up
some construction. In
proposed $59 million elementary school. The opponents say enrollment
declines at nearby
For his part, Mehula said that detractors of the building program should
take another look at the size of the schools and the way they work within
communities, noting they are open beyond school hours.
"The buildings that we are building are smaller than the existing schools,"
he said. "All the secondary schools are breaking the schools into small
learning centers. We are able to get that personalized learning experience."
Soboroff, who was on a committee that oversaw spending on the first $2.4
billion bond measure in 1997, said he believes the district has come a long
way in its management of the program - and is delivering real results to
communities.
"It's like an Olympic dive - it's not just your dive, it's the degree of
difficulty. The degree of difficultly here is off the charts," Soboroff
said. "Based on the realities of everybody wants schools but nobody wants a
school across the street, the degree of difficulty is huge and the product
they are turning out is world class."
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BELMONT SCHOOL, AMBASSADOR SITE TEACH HARD LESSONS
by Howard Fine | Los Angeles Business Journal Staff
1/28/2008 - Few school projects have had as long, tortuous and costly a history as the
Belmont Learning Center and the Ambassador Hotel site, the two largest and
most expensive projects in the district's massive expansion program.
Despite grave overcrowding in surrounding neighborhoods, each project has
dragged on more than 15 years and each will cost the district - and by
extension taxpayers - more than $375 million when complete.
"These are two of the most overcrowded areas in the entire region and it's a
downright shame that the kids have missed out on quality classrooms for so
many years," said Guy Mehula, facilities chief for the district.
These projects also took a political toll. Mismanagement surrounding the
perception that district administrators were incompetent. And the protracted
legal battles over the Ambassador site strained relations with some civic
leaders and historic preservationists.
Now, though, the
is set to open in September, while the last legal barrier to the Ambassador
project just fell weeks ago and three schools there are slated to open in
2009 and 2010.
The
plan for a massive high school and a retail complex. However, nothing on
this scale had ever been attempted by the district and costs began to
skyrocket, passing $150 million and making it the nation's costliest school
project.
Crucially, district administrators failed to account for the building atop a
well-known abandoned oil field, where methane and hydrogen sulfide gas posed
a threat of seepage or explosion. In 1998, the state stepped in, halted
construction and began an investigation.
The resulting scandal fed into perceptions that district administrators were
incompetent, a sentiment tapped by then-Mayor Richard Riordan when he
recruited a slate of candidates who were elected to the school board. The
slate halted work on the project, leaving a half-built, $172 million campus.
Three years later then-Superintendent
new layout: small clusters of schools surrounded by open space and a
scaled-back retail component. But within weeks of board approval, an active
earthquake fault was discovered passing through the site, forcing relocation
of some of the buildings. Construction finally resumed in 2003, but soaring
materials costs caused the budget to double to $200 million. Late last year,
the district dropped the retail component altogether in favor of a training
center. The project is on schedule for its September opening with the
cluster of schools housing 2,800 students.
From the
smaller schools and the importance of hiring building industry managers to
lead school construction.
The Ambassador project faced a more common construction nemesis: lawsuits.
In 1988, the hotel closed after falling on hard times, and a year later real
estate mogul Donald Trump bought the 23-acre site for $63 million. Trump
proposed a 125-story tower, which would have been the tallest building in
the U.S.
But the school district decided it wanted a school there to relieve
overcrowding, and in 1990 put a $48 million bid on the site. It asserted
eminent domain and won a 10-year court battle.
However, a plan to tear down the hotel and build three schools ruffled
preservationists who filed suit to prevent the demolition of the historic
hotel. In 2005, a settlement was reached: In exchange for permission to tear
down most of the hotel, the district set up a $5 million fund for the
preservation of other historic school buildings. It also pledged to
incorporate as many features of the hotel as possible into the schools.
An elementary school broke ground last May and is set for completion in
September 2009. Work began last month on the $320 million second phase, a
middle school and high school that are expected to be finished in 2010.
"Persistence was the key lesson," said Mehula, of the Ambassador experience.
DISTRICT PULLS HIGH-WIRE ACT WITH DOWNTOWN PERFORMING ARTS SCHOOL
by Richard Clough | Los Angeles Business Journal Staff
1/28/2008 - Along a bustling stretch of downtown's North Grand Avenue that is home to
the likes of the Walt Disney Concert Hall and Dorothy Chandler Pavilion, a
public high school is set to join the ranks of the area's highly-regarded
arts venues.
The
performing arts high school is expected to be completed later this year, and
its bold, futuristic design is already turning heads along
Jutting, angular buildings of glass and concrete and steel populate the
campus, while a large spiraling steel structure and a peculiar, conical
library highlight the daring design decisions.
"It's a very, very complex construction," said Rick Hijazi, the senior
project manager on the development. "It's a completely different design than
regular high schools we build."
But it has been a struggle of more than half a decade for the school
district and its supporters to bring the costly and sometimes controversial
project to life.
Planners did not always envision an arts school at that site. In fact, the
school district generated controversy in 2002 when it scrapped its plans to
build a traditional high school in favor of an arts campus. Critics
questioned the influence of billionaire philanthropist and noted arts
supporter Eli Broad.
Broad has backed the effort to revive the Grand Avenue area with a massive
redevelopment project and was a vocal proponent of the arts high school,
donating several million dollars to help pay for the school's construction
costs.
Roy Romer, then the district superintendent and an ally of Broad, was a
strong supporter of the project.
"We felt that we needed an arts high school in the center of the city and we
felt that we needed a leading arts institution," said Romer, now chairman of
Strong American Schools, a nonprofit organization supported financially by
the Eli and Edythe Broad Foundation.
Rising costs
The bloated price tag was another point of contention that divided the Los
Angeles Board of Education in 2006 and threatened to derail the project.
Construction was initially slated to cost $87 million - a figure that soon
jumped to $117 million. Then it ballooned to $172 million, heightening
concerns. And with more than $30 million already spent or committed to
related expenses, the school topped the $200 million mark.
Romer said at the time that with rising construction costs, developing a new
proposal would likely have wiped out any additional savings for the school
district. So despite misgivings, the board approved the project in June 2006
by a 5-1 vote.
Since then, the district has been supportive of the project and construction
has remained on schedule, said Gary Gidcumb, associate principal with
Ontario-based HMC Architects, which designed the school along with an
Austrian firm. The school is slated to open in October.
And as it takes shape, the school is winning support from many who see it up
close.
"It's a pretty nice project. It makes you wish you were back in school,"
said Daynard Tullis, a consultant with Los Angeles-based TBI & Associates
Inc., which is overseeing construction.
The school district plans to divide the school into four "small learning
communities" that will allow students to specialize in a specific area of
the arts: music, dance, visual art or performance. To that end, the school
will feature specialized classrooms, some with advanced acoustics for
musicians and others with mirrors and raised floors for dancers, for
example.
One challenge has been the logistics of constructing six complex structures
on such a small site. At just 10.3 acres, the site is only about a quarter
of the size of a typical high school campus, but it will have over 1,700
students. Beyond the sheer size, each building is highly specialized, with
features such as irregular windows, perforated metal accents and a system of
day lighting to keep energy costs down.
What's more, the campus will have a 950-seat theater that will be open to
the public, which planners like to point out is bigger than several venues
in the area.
"It is very tied to the arts community down there," Gidcumb said.
"Architecturally it is, I think, very much in keeping with the
master scheme."
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