HIGH COST OF LEARNING HOME PRICES PUSHING UP LAUSD LAND PURCHASES.

Byline: Helen Gao Staff Writer

A hot real estate market and the high cost of relocating people forced out of their homes have sharply driven up the cost of Los Angeles Unified's massive school construction program, the Daily News has learned.

Sources said the actual cost of buying land for at least 35 of 160 building projects on the drawing boards is running up to 50 percent higher than budgeted with the average so far at 11.6 percent, adding millions of dollars to the construction program's costs.

At a recent closed-door school board meeting, district staff sought approval to raise the maximum amount allowed for buying land for 24 projects. This request came after the board had already allowed increases for 11 site acquisitions.

District officials would not disclose how much costs have escalated, insisting they are in the midst of updating their numbers.

They said funds still left from the $2.4 billion Proposition BB passed in 1997 and being sought in the $3.3 billion bond issue on the Nov. 5 ballot will be sufficient, despite the increasing cost of land acquisition.

``It's too early for me to conclude things are going to increase by the millions,'' said Ron Bagel, acting director of real estate acquisitions. ``That's what we are looking at and trying to find out those numbers.

``There is no disagreement that land costs have gone up significantly from this year to last year. We pay fair market value to people.''

In the San Fernando Valley, the district has bought or is in the process of buying 118 of 128 acres needed to build 14 new schools. It had to pay $12.9 million earlier this year for the former Van Nuys Drive-In Theater, which was valued a few years ago at $9.9 million.

``We are a victim of market circumstances,'' said school board member David Tokofsky. ``The fact is that property values are spiraling up. ... This doesn't make it an ideal time for all of the district's land acquisitions to be occurring.''

Because of the size of the construction program and the scarcity of land, LAUSD has been forced to abandon its long-standing policy of avoiding dislocation of residents. That has led the district to move about 165 families in the San Fernando Valley with relocating costs running about $30,000 per family for apartment dwellers and even higher for homeowners.

Overall, the district's building program must relocate people in 228 homes and 988 apartment units.

Under state law, the district must ensure displaced residents are able to afford comparable living space as well as get fair market value of their property.

``We agree to pay them so much for their house based on appraisals,'' said Roderick Hamilton, a senior facilities executive at the district. ``But then the relocation law says, aside from what you pay them, if they need additional money to get into a comparable neighborhood, it becomes the responsibility of the procuring agency.''

Fueled by the lowest interest rates in 35 years, the median home price in the San Fernando Valley hit a record $325,000 in July. Real estate experts estimated the median price of homes in Los Angeles County has soared by about 20 percent in the last year, with the majority of the jump occurring in the first two quarters of this year. Many of the district's acquisitions, officials said, occurred this and last year.

``Land prices for homes in the areas (the school district is) looking at in North Hollywood and Van Nuys have probably gone up by 15 or 20 percent in the last couple of years,'' said Craig Stevens, a real estate expert.

According to the district, the site for a new elementary school at Rayen Street and Noble Avenue will displace 12 homes, while the site for another elementary school on Kester Avenue between Parthenia and Chase streets is occupied by five homes.

In addition, there are 18 homes on the Bellingham Avenue and Archwood Street site and two homes at Borden Avenue and Terra Bella Street, where the district plans to build two new primary centers.

Aside from homes, LAUSD is also faced with having to relocate a large number of apartment dwellers who live at Lankershim Boulevard and Tiara Street, as well as at Vineland Avenue and Cumpston Street, to make room for an elementary and high school.

Like single-family home prices, the value of multifamily zoned land has soared in the city, according to Stevens.

``Multifamily is very valuable now,'' he said. ``The city has down-zoned about 80 percent of the multi-family land in the last seven or eight years.''

The district is finding that in many apartment units, there are more families living in them than originally anticipated, meaning the district would have to pay higher relocation benefits.

``It's not uncommon for us to find a two-bedroom apartment with two or three families living in it,'' said school board member Caprice Young. ``When we move them, we need to move them into reasonable accommodations.''

According to one source, the cost of relocating a family of renters could run as high as $30,000 to $33,000, based on the assumption of two people per bedroom. So far the district has paid $5.2 million in relocation benefits to displaced families.

On the commercial real estate side, there are also factors that could drive up acquisition costs. When a business is displaced, the district must compensate for loss of ``good will,'' or intangible values lost by going to another location.

Real estate experts say that estimates for the value of ``good will'' vary widely from appraisal to appraisal. Businesses typically file good will claims after they have been relocated and base them on profit and loss statements. As a result the district would have a hard time estimating its potential liability.

A second factor that affects the acquisition of commercial land, Stevens said, is having to buy out existing leases, which could increase costs by several-fold.

School district officials said they have contingencies and inflation adjustments built into school projects and that there are sufficient funds budgeted to complete acquisition and construction.

``I think we are fairly comfortable with the bond and the money allocated in the bond for construction that we will be able to have in place the appropriate monies to complete the school projects,'' said Bagel.

Tokofsky, however, is concerned that the district could drive up construction costs itself by launching all 160 school building projects simultaneously throughout Los Angeles.

``Bringing all this construction on at one time is going to cause the prices to go up,'' he said. ``We will cause there to be such a shortage of contractors and construction companies.''

Nevertheless, with savings from lower debt financing charges in the current economy, school officials predict the district will be able to offset some of the increased land acquisition and construction costs.

Joseph Zeronian, the district's chief financial officer, said if voters approve the November bond, he expects the interest rate will be 4.8 percent, one fifth of a percent lower than what the district paid last spring for a half billion dollars worth of bond issue.

That translates into about $2 million in savings a year over a 25-year period.

``If there is a silver lining anywhere in this economy, it's for us,'' said Young. ``We deal with it on both sides. We have increased cost of acquisition at the same time we have decreased cost of debt.''

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