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IPS swap a flop?: Browning tells district to drop land-trade plan; site drew just 3 bids despite prime location

July 3, 2006

Indianapolis Public Schools is sitting on a 12-acre parcel of prime downtown land it probably could sell for big bucks. But its pursuit of a land swap instead has tempered interest in the site and raised questions about whether such a complicated deal is the way to go.

Just three developers responded to IPS' request for bids on its land east of Massachusetts and College avenues, despite the unsolicited inquiries that drove the school district to explore its options in the first place.

And one of the proposals doesn't even offer a swap.

Instead, Indianapolis-based Browning Investments Inc. pitched what it called a "uniquely different" approach-moving IPS into space in the IndyGo administration center on West Washington Street and selling the Mass Ave land outright.

The IndyGo space "can be purchased or leased and then renovated at a substantially lower cost than the cost to build a new facility," the Browning proposal asserts, and a straight sale likely would attract more bidders.

But there is a problem with that strategy: IndyGo doesn't currently intend to move, despite plans for a downtown transit hub.

"There's nothing in our plans that involve us moving at this point," said Michael Terry, director of business development for the bus company. "As we grow the system, then we would have to re-evaluate this facility."

Still, the idea of pursuing a straight sale rather than a swap is a solid one, said Browning Executive Vice President Dennis Dye.

"It provides a lot of value to IPS because it untangles the valuation question for the Mass Ave site from the calculation of what a new transit center would [cost]," he said. "You're not confusing the issues."

IPS sought the swap last fall when developers kept calling about the property, which houses the school district's bus maintenance and operations hub and media services department in a historic Coca-Cola bottling plant.

Officials conceded their operations aren't a good fit for Mass Ave, given its rebirth as a funky center for arts, restaurants and retail.

"We understood that what we do there probably isn't the highest and best use of the location," said IPS Chief of Facilities Management Steve Young.

But IPS can't disrupt the service center to make a move, and finding money for a replacement isn't a high priority-especially since the district is in the midst of a massive 10-year, $832 million push to renovate or rebuild its schools.

So it proposed a swap: If developers would provide a new facility, IPS would hand over the keys to the Mass Ave property.

Pitching properties

Browning wants to develop the site, even though it doesn't agree with the notion of a swap. Dye said the company hasn't fleshed out concrete plans for the property yet.

The other bidders also aren't saying much about their plans, but they did propose land swaps.

College Flats LLC-a partnership of local community development group Riley Area Development Corp., Indianapolis-based company Plateau Development Group, Carmel-based McCalley Properties LLC, and Sacramento-based Pannatoni Development Co.-offered IPS two locations.

The district's media services offices could move into a renovated 130,000-square-foot building on 29th Street just west of Harding Street, and the partnership would build a replacement bus hub on a 14-acre parcel just off of Massachusetts Avenue east of Sherman Avenue.

The completed building is worth an estimated $25 million, and College Flats also would give IPS $500,000.

The developers' preliminary concept for the Mass Ave land includes a mix of residential and retail and would preserve the Coca-Cola plant.

IPS' third bid came from Indianapolisbased Kite Realty Group Trust, which offered a 25-acre site between 30th and 34th streets and Shadeland and Arlington avenues. That building would be slightly more than 120,000 square feet, matching the size of IPS' current location.

Kite also would throw in a $400,000 payment and could have the new building ready by fall 2007, according to its proposal. Kite's proposal didn't give an estimate for the project's total value and company officials declined to comment for this article.

What's it worth?

So are the offers a fair trade for the prime Mass Ave location? It's hard to say.

None of the real estate professionals IBJ queried were willing to estimate the value of the IPS land, in part because the Coca-Cola plant's historic status complicates things. Some insiders said IPS' request is steep and the district needed to throw in other land or an incentive to make the deal sweeter.

But Plateau CEO Andy Noble, who is part of the College Flats bid, said the parcel's significance for downtown development exceeds even the former Market Square Arena site.

"It's the end of the Monon Trail, where the cultural trail is supposed to start," Noble said. "It will contribute greatly to the downtown engine."

The whole process-building an alternative site for IPS, moving its operations and then developing the property-could take years, said Don Williams, senior vice president in the local office of St. Louisbased Colliers Turley Martin Tucker. And with that much lag time, it's hard to say what the demand for retail space might be.

IPS' bid requirements meant many companies that might have pounced on a simpler land sale weren't interested. Several downtown developers opted not to enter the fray despite the appeal of the IPS site.

Chris Reid, a partner at Hearthview Residential LLC, said his company examined the location almost two years ago, but decided to pass given the complexity of the bid process and the projects Hearthview already has in the pipeline. Hearthview is slated to finish work on Meridian Arch Condominiums within six months.

"It's a good site and I think [IPS] is doing all the right things," Reid said. "But it's going to be a very complicated transaction."

Tad Miller, co-owner of Kosene & Kosene Residential Inc., agreed that it's prime property, but said companies have to put so much money into a proposal that the cost outweighs the risk of not getting selected.

"The land swap wasn't a big deal, but with the complication of public bidding, you get into a beauty contest," Miller said. "It's like buying a lottery ticket."

He cited the costs Kosene incurred to bid on several public projects without any payout. Miller said that risk, plus some big commitments downtown--such as finishing up its 70-unit Hudson condo project next to the Market Square Arena site-and in other cities swayed Kosene not to bid.

An internal IPS review committee following up on details about the proposals has delayed making a recommendation until at least mid-July. The committee will pass its pick on to the IPS board, which will make the final decision.
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