NovoMetro

Education in Oakland

After School Special

Posted by novometro on June 26, 2006

The plan to sell 9 acres of property owned by Oakland’s public schools has its roots in problems that are unique to the district. If Oakland Unified didn’t owe the state some $65 million, it’s unlikely that the valuable parcels near Lake Merritt would be for sale.

But commercial interest in the property reflects a trend in the real estate industry that reaches far beyond Oakland’s housing boom, the school district’s declining enrollment, and its troubled finances. Flush with cash from institutional investors – like employee retirement funds – developers are eyeing the estimated $1 trillion worth of real estate owned by the nation’s school districts and universities as a new source of potential profits.

An article in last summer’s High Return Quarterly, a trade journal published by Institutional Real Estate, Inc, put it this way: Why…is there comparatively little cooperation between federal, state and local governments and the private real estate sector, especially in the educational arena, which is at once cash-strapped and politically vital? Shouldn’t there be more opportunities to marry the public good with the profit motive?

That sort of matchmaking has been the central philosophy behind Urban America, LP, the New York City company that the California Department of Education and the Oakland Unified’s state-appointed administrator, Randolph Ward, have selected to buy and develop the school district’s land. It’s not a done deal. Not only has the school district offered to hold three community meetings in coming months, but city officials will certainly have something to say about Urban America’s plans for the property. “We are going to do a deal that works well for everybody,” says Richard McCoy, Urban America’s president and CEO.

If Urban America succeeds in purchasing the land and secures city approval for its plans, which include at least 1,000 housing units, it will mark the eight-year-old company’s second development in California, Mr. McCoy says. Two months ago, Urban America invested in the new Whole Foods being built near Lake Merritt.

But the Oakland deal will not likely be the company’s last California project. In February, Urban America opened an office in Los Angeles to pursue more deals in the state as well as to service investors based in California. For example, the Los Angeles County Employees Retirement Association, which has $3.1 billion in real estate investments, is listed as one of Urban America’s investors.

The money to buy the Oakland parcels will come from Urban America’s second fund, which closed this year. While Mr. McCoy, 51, declined to disclose the size of the fund, he did allow that the company has $500 million between its two funds. Mr. McCoy said the second fund is expected to provide returns of 15 percent, although another article in High Return Quarterly profiled three Urban America projects with returns that ranged from 35 percent to 94 percent.

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