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New owners aim for big profit after buying IPS school on the cheap

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Indianapolis Public Schools sold the former Harriet Beecher Stowe Elementary School 64 for $20,000 in June after the school board designated it as surplus property.

The buyers, who own an adjacent machine shop, told the school district they planned to use the school on 2.2 acres near South Keystone Avenue and East Raymond Street as storage space, offices and a training facility for their employees.

Instead, new owners Ron Merrill and Bill Thomas have decided to offer the 47,000-square-foot former school for sale to potential "church, daycare and manufacturing" users. They began marketing the property about two months after they bought it from IPS.

Their asking price: $395,000.

If someone pays that much, Merrill and Thomas would earn a profit of $375,000, or a nearly 2,000-percent return, in a matter of months. Even if they only get half their offering price, the pair stands to collect a profit of almost $180,000.

"Yeah, it's tough to take," acknowledged Sandra Hubbard, the purchasing agent for IPS who coordinated the sale. "But once a property is sold, it is sold."

School 64 was one of three former schools the district deemed surplus this year. School 81 sold at an auction conducted by Christys of Indiana, for about $469,000. But the district had to host a second auction for schools 64 and 92 after bids came in below 90 percent of appraised values.

The Muskegon Bible Institute wound up buying School 92 for $100,000. And the owners of Euclid Machine Co. paid $20,000 for School 64, which sits at 2710 Bethel Ave. They also acquired a vacant lot next door for $100. The school board voted on June 16 to accept the offer.

Locally based appraiser Traynor & Associates Inc. had pegged the fair-market value of School 64 as $420,400.

The school district gets the best price it can for surplus properties and does not track future sales of its former buildings, Hubbard said. The sales do not include deed restrictions or any provisions for how the buyers can use the properties, in part to encourage higher bids.

She said it's up to the buyers whether and when they resell the buildings.

"I think offering for sale and selling are two different things, particularly in today's market," she noted.

Merrill and Thomas did not return phone messages left at their office on Friday afternoon and Tuesday morning.

The broker listing the property, Fritz A. Kauffman in the local office of Cassidy Turley, said he did not know much about the deal between IPS and the property owners he represents.

He said the owners figured they might eventually want to use the school for an expansion of their business, but for now their priority is either selling or leasing it to another user.

The deal sounds like fodder for a reality show on property flipping, which is not exactly comforting from a taxpayer perspective, said Julia Vaughn, policy director for Common Cause Indiana.

"You hate to see taxpayers or the district itself, which is so desperately in need of funds, to be getting rid of a piece of property for such a dirt-cheap price," Vaughn said. "Maybe it's the market, maybe it's something outside their control, but this deal certainly certainly looks like the buyer ended up with a much better deal. Hopefully this is an isolated case."

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  • Nicely said
    I enjoyed reading your post. Very few I find make any sense at all. You hit the nail on the head.
  • voters are to blame
    From my perspective, I see this as a problem with Indianapolis' governmental entities and voters, not a couple of guys finding a good opportunity to make a profit.
    The voters of Indy continue to elect people to office who appear to be incapable of managing public services. In this instance the voters elected a School Board who made the following decisions, 1) decided to close this school, 2) decided to tag this property as surplus, 3) decided to sell the property using a predetermined process (outside the control of the buyers), 4) decided to accept the price offered, 5) decided to try to deflect responsibility for their decisions in this article. This article points out that the responsibility falls initially on the School Board and then ultimately on the voters and their willingness to elect seemly marginal people to manage millions and billions in tax revenues and public assets. Quite possibly, if the voters of Indy were to vote for a better qualified group of people, who realize they've been entrusted with very important jobs, this may not have happened. Instead, it seems the voters are willing to accept whoever promises more largesse for their personal pockets.
    Quite possibly the voters should seek out people like the buyers of this property for public office. Just think if these guys were initially selling this property for the public, seems like there would be a windfall in revenues and a reduction in the burden placed on the private citizen by the government.
    Finally, if the socialists out there think these two guys took advantage of the system or low-balled the offer, why didn’t the socialists have a bid in on the place at the 90%+ level? Oh that’s right, socialists want the government to GIVE everything to them for free (they have a “right” to it). Stop your hating and realize the this sale 1) generated revenue for the school system, 2) removed maintenance and upkeep costs, 3) put the property on the tax rolls so schools, city, library, and other governmental black holes that can continue to growth their kingdoms, and 4) allows the government to suck more from these two guys when and IF they are able to sell it.
    • Statute Clarifications
      I think this story could use some clarification on the laws surrounding the sale of surplus school property. There are a number of folks coming away with an impression that IPS is at fault here, and there may be (as suggested by @Unused) some governing statute that really ties IPS's hands in the situation. Maybe a law that contained some unintended consequences?

      It's also fair to reiterate that offering a property at a price is a lot different than selling it at a price, especially in this market. What concerns me is the Traynor appraisal.
    • Purchasing Agent??
      Who has a purchasing agent sell something? That was the first mistake. Agree they should have engaged a broker to get the best price. Incompetence again!
    • So....
      These procedures have been in place for some time. IPS is no different than banks, developers, or anyone that is trying to unload real estate in this downturn. I've seen residential lots that were worth $150K sell for $36K.

      Nothing nefarious here. Just smart businessmen making a great decision!
    • Surplus doesn't mean giveaway
      Come on, IPS. When you labeled the property as surplus (presumably defined by state statute) you may have misinterpreted that to mean that it has no value. Perhaps not to you, but to somebody, else, maybe. Why didn't you solicit brokers to evaluate the market and perhaps seek buyers the same way your buyers did? I'm sure that Mr. Kaufman would have been as happy to list (and sell!) it for you as he was for his savvy clients. I expect to see the Legislature address this in short order and put some protections around foolish or naive sales of surplus school property going forward.
    • So, it's against the law
      So, it's against the law to turn a profit? Isn't that what capitalism is all about?
    • Unused
      HEA1002 requires school corporations who own unused facilities to either lease or sell them to charter schools and to also maintain those buildings. IPS sold the building to avoid the maintenance costs.
    • Something is rotten
      Something stinks and we all see that. I know IBJ can smell it too. I'm sure Cory is following up on this story; he is good at his job. Stay tuned people.
    • School 64
      Who cares what the new owners use the building for? If you want to be mad at anybody, be mad at IPS for selling it at a ridiculous price. Of course, if the seller knew the buyer and did him a favor, well that's illegal, I think.
    • To Good To Be True
      Good point Joe P. What really is ashame, is the trust in this case. The owners went to the school board and said they were going to use the property for expansion. I hope people that are doing business with this company read it and think twice about doing future business with them. You know just because you can do something, doesn't mean you should.
    • misread
      I misread, it says bids came below 90% of appraised value, so those bids might have been much higher than $40K, depending what was the appraised value...anyway, it would be good to know what was the best bid on that auction to see if there was some intentional wrongdoing...
    • To Good To Be True
      Ron Merrill and Bill Thomas owners of Euclid Machine Co.client- http://www.rolls-royce.com/sustainability/knowledge/Supplier_diversity.jsp
      This was not just a couple of guys buying up some property, they knew what they were doing? Come on IBJ
    • pipe dream
      The key sentence is "I think offering for sale and selling are two different things, particularly in today's market". IPS tried selling it at an auction, and the bids came in below 90% of appraised value (which seems to be $420K). So, the best bid came in below $42K...selling it for $395K is a pipe dream.
    • To Good To Be True
      Dear IBJ,
      This line right here is what made me take a second look."Yeah, it's tough to take," acknowledged Sandra Hubbard, the purchasing agent for IPS who coordinated the sale. "But once a property is sold, it is sold."
      It would be worth looking into who knows who and relations. This is not just a good deal, sounds planned.
      Graduate Student, Bachelor of Accounting Degree Harrison College School of Business.
      Karen Hodge
      • Shrewd business
        Congrats to Ron! From an old softball buddy.
      • It's Both!!!
        It is due to both prevailing market condition and out of IPS' control.
      • Can't blame forthe buyers
        If IPS is stupid enogh not to put a reserve on School 64, then too bad, so sad. Can't blame the buyers (speculators) for taking a chance. Just blame stupid IPS.

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