Donjek Project: Designing a Structure for Purchase and Operation of Reused School Buildings

We are very pleased to announce that Donjek is involved in a
process to convert recently-closed school buildings in Minneapolis to active reuse, using a range of
equity and debt sources including equity investments, debt financing and tax
credits. Partnering with the Minneapolis School
, Urban Design Lab and the Local
Initiatives Support Corporation (LISC)
, Donjek will be in the coming months
evaluating the prospects for establishing a real estate investment trust (REIT)
to acquire and operate two large former elementary schools totaling over
200,000 square feet of leasable space. Such a REIT could be a very effective investment instrument with which
to involve a range of potential investors in a new real estate investment model.

The reuse of school buildings is an increasingly relevant
issue for many communities nationwide, both small and large in population.  Minnesota’s school
districts each face a particular circumstance – for example, enrollment trends
are strong in Pequot
in the lakes region, stable in the small town of Rushford,
and falling dramatically in the Lac Qui Parle valley. On the other hand, the small district in Houston,
has nearly tripled in enrollment as a result of its innovative
web-based curriculum, which has secured the presence of its physical school.

The data communicate the story effectively. As shown in the graph included here (click on it to enlarge the image), the overall
public school enrollment trends for Minnesota statewide and for Midwestern states together have been stable in the last
decade. Minneapolis Schools, however,
have seen significant declines in enrollment, due in part to students leaving
to attend neighboring school districts, charter schools and other alternatives. The policy discussion aside, the Minneapolis Public Schools
have twelve buildings they are seeking to sell
in one form or another.  Note also the dramatic red line, which indicates the enrollment drop among Minnesota’s fifty smallest school districts, which had an average total enrollment of 80 students during the 2007-8 school year.

We look forward to keeping you posted as the process
progresses and we engage in mapping out ways to secure active reuse of these
buildings. If you would like to learn
more as an investor, a prospective tenant or a neighbor, feel free to contact me by

Donjek Project: Coordinating the Management of Vacant Property

Foreclosure Against the backdrop of continued reeling in the residential real estate market, New York-based Local Initiatives Support Corporation (LISC) hired Donjek this winter to develop a review of the barriers to a coordinated, large-scale response to endemic vacancy in neighborhoods. 

The emphasis of the inquiry has been on reducing the costs of vacancy in residential areas – which range from increased public safety expenses to property devaluation – by acquiring property prior to or at the time it becomes unoccupied.

At this point, fundamental challenges to a coordinated approach include:

• Policy makers, investors and housing advocates do not currently have an effective way to deal in batches of properties with unclear title, rather than on a case-by-case basis.

• We are unable to provide the kind of rapid response required to prevent vacant properties from further deteriorating, due to the scale of the challenge, lack of communication and centralized leadership. 

• The level of capital or liquidity required to deal with stress in multiple neighborhoods simultaneously is not in place.

The report focuses in particular on the land bank models exemplified by the Genesee County Land Bank (operating in and around Flint, Michigan), and the Atlanta Land Bank.  Click here to download the full Donjek report to LISC.

Photo:  Courtesy of Flickr.

Study Suggests “Generational Housing Bubble”

“The housing market has a new problem:  aging Americans” suggest the editors of the Economist magazine in a recent article.  A study released recently by researchers at the University of Southern California suggests that the approaching conversion of baby-boomers from net home buyers to net home sellers will effect a significant shift in the residential housing market.  According to the study, the trend will likely last until at least 2030 when the last boomers turn 65.

The premise of the paper is that an ongoing, robust supply of buyers aged 30-34 who are able to Cfn640 afford housing stock at current pricing is essential for a balanced market.  With sellers potentially outnumbering able buyers by a significant number by 2010, the study’s authors suggest this slack will cause the “generational housing bubble” to pop.  The result:  Downward correction in the price of houses in many states.  Younger buyers’ growing reticence about buying in a downward market may compound this trend, creating a painful cycle for sellers.  And, of course, the erosion of retirement savings locked in housing equity will create additional issues for boomers individually and all of us by proxy.   

Donjek was recently hired by the Local Initiatives Support Corporation (LISC) to examine promising models nationwide for cushioning neighborhoods from the impact of foreclosure-related vacancies.  In the preliminary phase of this project, I’ve encountered an excellent 2006 study of the impact of foreclosure on neighboring property values, and a more recent analysis of the same topic.  These kinds of analytic methods, and the kinds of programmatic responses that LISC seeks to develop, may have additional value – 30 years into the future.

Graphic:  Courtesy of Economist magazine.