Kyrene School District

This overview of the tract that Kyrene School District wants to find a long-term tenant for shows its proximity to I-10. Some members of the Ahwatukee Foothills Village Planning Committee think it would be a perfect location for a full-service hospital, but healthcare providers are not among the early parties interested in the property.

Will Ahwatukee get a full-service hospital at the same time Kyrene School District finds a new source of revenue to fund capital repairs and pay off debt?

The answers to both questions could play out this year if the district finds a taker for 28.6 acres of land at I-10 and Chandler Boulevard that it’s trying to lease.

The district recently secured the services of the Land Advisors Organization to find a commercial or industrial tenant that would agree to a long-term ground lease on the land.

“It’s an incredible piece of property and one of the few remaining like it in this subsection of the market,” said Randy Titzck, one of the team of brokers marketing the property, noting its adjacency to I-10 with nearby entrances and exits in both directions.

“The beauty of the site is it’s open to all different spectrums – office, medical, retail,” said Titzck. “For properties such as this, strategically located on I-10 and flanked by full interchanges north and south, these properties attract a multitude of interests not only in the current zoning designation but others as well.”

The Kyrene Governing Board has been pondering a sale or lease of the land for nearly two years and since it secured Land Advisors Organization late last year to market it, the district has received some proposals, according to district sources.

As yet, none involve a hospital.

For a while the board also had been looking at the possibility of selling the site of its district headquarters on the northwest corner of Kyrene and Warner roads.

It dropped consideration of doing anything with that site, mainly because it would require the district to find a location for its food service and printing operations, as well as additional bus storage.

Indeed former Kyrene board member Ross Robb, a land expert, told the board that the district headquarters site “is a much more complicated piece of property if for no other reason than you all need a place to meet and you need a place to fit school buses and you need a print shop and you need food and you need a place for those things to happen.”

The Kyrene board also decided to try and lease the I-10 site rather than sell it outright, figuring that a secured new source of annual revenue was preferable to a one-shot injection of money from a sale.

State law restricts the uses of money from a land sale or lease to paying off debt or funding capital projects and repairs.

An exception in the law states that if a district has determined its capital projects fund meets demands for new construction and improvements, “moneys derived from the lease or rental of real property may be deposited into the district’s general fund.”

But the law also says that money can’t be used for employee salaries or classroom supplies. Rather, it must “be used exclusively for nonrecurring costs related to operating school facilities, including but not limited to expenses for maintenance.”

Ahwatukee Foothills Village Planning Committee members last month briefly and informally discussed the site as they brainstormed the types of new development that they would like to see in Ahwatukee in the coming year.

Several members noted that the Kyrene site was ideally situated for a hospital that provided more services than the ER and urgent-care facilities currently in Ahwatukee.

A rash of new hospital construction and expansion has been occurring farther east, but it’s unclear if any healthcare organization would consider the Kyrene site.

Some governing board members privately have said they would like to see the land be put to a good community use, although its use ultimately will depend to a large extent on who makes the best offer and whether its use is permitted by the City of Phoenix.

“We’re trying to keep all our options open and one of our options is medical,” Titzck said. “There is a broad spectrum of uses we are reaching out to.”

Tempe Union High School District toward the end of last school year closed a deal for the sale of two large pieces of property it owns.

The district collected $23.04 million on the sale of a 62-acre parcel on the southwest corner of Frye Road and Desert Foothills Parkway in Ahwatukee to developer Desert Vista 100. The Blandford Homes subsidiary is building 197 homes on that land.

The Tempe Union Governing Board has yet to decide whether to use that money to pay off debt or invest in capital repairs. There is no deadline for the board to make that decision.

Tempe Union also owns a 49-acre parcel at Kyrene Road and the Loop 202 Santan Freeway in Chandler that the previous school board initially planned to sell. But then members delayed further action pending a broader discussion of whether it made sense to either lease it or enter into a partnership with a private entity.

When that parcel was discussed two years ago, a consultant told the board that if Tempe Union wanted to become a landlord or a business partner to a company that developed the Chandler parcel, it might provide a long-term revenue stream.

But both former Superintendent Kenneth Baca and board member Michelle Helm were cool to the idea of a public-private partnership.

“I’m thinking maybe that’s not what school districts do. This is not the job we hired you to do,” board Vice President Michelle Helm told Superintendent Kenneth Baca at one point.

Early in spring 2018, the issue was brought up again and the board tentatively scheduled a discussion about the Chandler land for June, but it was never held. The issue has yet to be brought up again.

Similarly in Kyrene, Robb told board members two years ago that “ground leases are a way to get revenue out of a piece of property long-term.”

Robb, the president of a real estate investment company with a long history in developing public-private land-related partnerships, also said, “You don’t get near as much money on an annual basis, but you get far more money in the aggregate over a long period of time. In the state of Arizona, you can do ground leases as a governing board for as long as 99 years.”

He also noted a lease deal would require the services of an expert lawyer to fashion an agreement most beneficial to the district, and said the board faced the least risk with a straight-out sale and that a ground lease was “slightly riskier.”

He also acknowledged that some board members hoped that the land might be used in a way that benefited the community – such as a hospital.

An alternative, he added, would be building into an agreement some community benefit for at least a portion of the land.

“That’s not to say that you wouldn’t tell a developer that as part of the 28 acres, ‘you need to have a two-acre open space for you supply the district or used by the community or whatever,’” Robb said.

“But you know, I think your motivation is likely to be less philanthropic,” he added, citing the state’s underfunding of public education. “So, I think you’d probably need the revenue more than you need the positive publicity, but I could be wrong.”

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