Austin ISD Sees Opportunity for Big Money in Leasing Land

Austin ISD is already using the ground lease model with the former Allan Elementary, now known as the Anita Ferrales Coy Facility. It is on 18 acres in East Austin (art by Zeke Barbaro [images via Austin ISD Board of Trustees Meeting Documents / Getty Images])

Not many people are aware of it, but the Austin Independent School District owns a lot of property in this town. According to AISD Superintendent Matias Segura, the district is one of Austin’s top five property holders. Now, with the district facing a budget crisis, Segura and other school leaders want to use those holdings to make money. But that doesn’t mean selling them off.

“As you know, once you sell property in the city of Austin, it’s unlikely you’ll ever, ever get it back,” Segura told the Chronicle. “So 'sell’ is not the word I like to use. I use the word 'monetize.’ Generally speaking, our goal is to retain the holding but monetize it and generate value from it.”

There are several ways the district can monetize its properties, Segura said. One is through the use of ground leases.

In a ground lease, an owner rents a property to a tenant, who is allowed to develop the site at their own expense and for their own profit during the term of the lease. Lease terms are often quite long, as much as 99 years, but when the lease ends the tenant returns the land and improvements back to the property owner.

AISD is already using the ground lease model with the former Allan Elementary. The old school, now known as the Anita Ferrales Coy Facility, sits on 18 gorgeous and very valuable acres in East Austin. It hasn’t served as a school since 2012, when it was repurposed as offices for some of the district’s nonprofit partners and the home of the Alternative Learning Center.

Late last year, AISD approved a ground lease for the property with the NRP Group, a leader in public-private housing partnerships that has created thousands of mixed-income and market-rate units across the state. The agreement allows NRP Group to construct, operate, and maintain a large housing development on the site of the former school.

“The idea there is to develop several hundred units – approaching 500 units – of multifamily housing and have them be at a range of market prices,” Segura said. “It’s a blended development, so it could be from 40 percent median family income up to 120 percent. Because we own the land, we can use that to protect affordability and also require the developer to create unit mixes that attract families.”

One of the most interesting aspects of the ground lease model, Segura told us, is the opportunity for AISD to promote affordable housing in the city. That, in turn, would help strengthen public schools because the district’s teachers and staff could rent the affordable homes.

“These projects can help stabilize communities and provide homes for teachers and other workers,” Segura said, “And right now, we know that a quarter of our workforce can’t afford to live in Austin. If we can offer a solution that allows them to be able to live here, that’s value to us, right? We strongly believe that if we deliver the right project in that community, it’ll help anchor families that are otherwise being priced out and it could also drive families back into Austin, which would support AISD’s overall enrollment.”

We asked the superintendent how much money the project could generate for the district. He gave a nuanced answer. “It really depends on how you structure the agreement,” Segura said. He said for ground leases they could get paid up front or over time. At Anita Coy, they could get a one-time payment worth roughly 90% of the property’s value. “But for us, a capital injection like that might not be as beneficial as establishing a long-term revenue stream,” Segura said. “If we did that at Anita Coy, it could generate hundreds of thousands of dollars a year. It could be over a million per year.”

The district is currently preparing to approve another ground lease on the property that once housed Rosedale Elementary, near 49th and Burnet. Segura said the project will come before the board of trustees for approval on June 20. Though the district may not receive money from these projects for another two or three years, they have the potential to keep local teachers teaching at a time when Texas Republicans have blocked funding increases for public education. And the projects are exciting because the approach behind them is new. Segura said AISD is the first large school district in Texas to use ground leases to generate school revenue.

“We’ve got to use everything we’ve got and we’ve got to be creative and that’s what we’re doing,” Segura said. “Real estate is a resource that we have and the more creative we get, I think, the more value we’ll be able to identify.”