Listen up, class; Professor Solender is going to lay out the basics of putting together a private or charter school deal.
One of the challenges with representing private and charter schools is assisting all parties to the transaction in understanding the process for obtaining a Specific Use Permit (SUP) from the city where the property is located. Most real estate professionals and owners have very little experience with changing the zoning on a property much less obtaining an SUP.
In the City of Dallas, private schools and open enrollment charter schools can use a variety of properties however, their use is permitted only after obtaining a SUP. Public schools may have different use issues and I am not going to cover them in this piece.
Most of our school clients prefer to buy existing buildings. Typical properties are former schools, large box retail buildings, warehouses, churches, and garden-style office buildings. All those properties typically require a SUP for school use.
SUPs (in other area cities they may be called Special Use Permits or Conditional Use Permits) are an additional use to the existing zoning not a new zoning. This is an important distinction and can be very confusing to someone unfamiliar with the process. We frequently encounter owners who are reluctant to agree to the SUP out of fear that if the transaction isn’t completed, they will be left with new zoning on the property that will hinder their ability to find another buyer. That is not the case.
If everyone understands the basics of the SUP process, expectations can be managed, confusion minimized, time effectively utilized, and costs contained all of which may increase the chance of a positive outcome.
What are the basics?
• The timeline for obtaining a SUP is generally four months, but it is frequently longer. Once everyone understands the process the reasons for the long approval process become obvious.
• The process is like requesting a zoning change. All the work and costs are borne by the potential purchaser. A formal application must be made and signed by the current owner of the property, a fee paid, site plans submitted, traffic study commissioned, preliminary review by the city planning staff, notification letters sent to nearby property owners, notice signs posted on the property, and neighborhood meetings held. If all those go well, the application is presented to the City Plan Commission at one of their regularly scheduled meetings.
• Assuming the Plan Commission approves the application, it is forwarded to the City Council for approval. Placement on the City Council agenda may be several weeks after the approval at the Plan Commission. However, even after Plan Commission approval, there are many factors that may delay the application such as additional City requirements, new requested studies and other mandatory meetings requested by the Plan Commission or the City Councilmember whose district the property is located in.
• No Guarantee. There is no guarantee the school will be successful in obtaining the SUP. We have had a number of times where our clients were not successful, and this is after spending many months and tens of thousands of dollars on the application.
• Contract Terms. Because of the uncertainty, a school should not purchase a property until it has been granted the SUP. The Purchase contract must address the time required for obtaining the SUP. Usually the additional time is granted after the conclusion of the inspection period and in many cases the school pays the owner nonrefundable money with the funds applied to the purchase price at closing.
• Early Review. Our clients usually have meetings very early on with City staff to get their opinion on potential issues and requirements for a particular property. If possible, meetings are also held with the district’s Plan Commission member and City Councilmember. If any of the meetings are very negative, our clients usually will not pursue the property.
• Preliminary Work. If the City staff is positive, the school can usually save time and money by doing preliminary work after the potential transaction business terms have been agreed upon and prior to final execution of the purchase contract. This may just be contracting with a zoning consultant (something I recommend), commissioning a new or updated survey, securing the services of an architect to do a site plan and plans for the renovation of the property, and other professionals. Most of these service providers can be canceled if the property does not go under contract.
• In Writing. The approval isn’t final until the school receives it in writing. After the application has been approved at the City Council meeting, we recommend waiting until our client receives the written SUP before closing on the property. While rare, we have seen instances where an additional requirement or modification was made without our client’s knowledge. In that instance, our client needed time to assess the impact on their use of the property.
A Recent War Story
Sometimes, there are circumstances that are just out of everyone’s control. We recently had a situation where our client had accomplished every task, met no opposition to its use of the property, received unanimous approval by the City Plan Commission, was on the City Council consent agenda, and two days before the Council meeting, the district’s Councilmember removed our client from the agenda without any warning or notice. The Council meeting was just before the July break, so our client couldn’t get back on the agenda until mid-August. That meant the closing on the property was delayed for two months costing our client and the owner combined over $40,000.
I’ve limited the scope of this article to private and charter schools. However, SUPs may also be required for uses such as child-care facilities, community service centers, hospitals and museums. The SUP process is very similar for them.
In most cities, the SUP is not permanent; it is granted only for five to 10 years. That means the school must go through the entire process again putting at risk the investment it has made in the property. It’s not a pleasant thought, but it makes sense that the school should be held accountable for the commitments it made to the neighborhood and the City during the initial SUP process.
Eliza Solender is president of Solender/Hall, Inc. and serves on the board of directors of Origin Bancorp and as the Lead Advisory Director for Lost Oak Winery.
This article was originally posted in DMagazine Commercial Real Estate | CRE Opinion