HomeReal Estate NewsCommercialMall owners leasing vacant space to charter schools

Mall owners leasing vacant space to charter schools

Mall owners have found a way to remedy the vacancies that department stores and other big-box tenants have left in their properties amid the COVID-19 pandemic—hosting public schools that need additional space, The Wall Street Journal reports. Landlords have focused on the 7,500 charter schools across the United States. Charter schools are public-funded institutions that typically have to find and finance their own buildings.

With land at a premium, especially in cities, charter schools and mall owners have found a way to help each other. Dozens of charter and other public schools have leased space in shopping centers, according to public records. For example Gem Prep: Pocatello charter school students in Chubbuck, Idaho are going to class at a former Sears department store in Pine Ridge Mall. Meanwhile, the Watsonville Prep School in Northern California is considering leasing space at a retail building in a defunct department store.

In Queens, NY a 400-middle school student charter school signed a 32-year lease for space at Justice Avenue Tower, The Wall Street Journal reports. The Central Queens Academy Charter School will join a mixed-use project that also comprises medical office space and more than 180 condominium units. The school will use 85,000 square feet of space on three floors, which will hold 900 students in kindergarten through eighth grade. The lease includes a 4,000 square foot gym in nearby lot that is expected to open in 2024.

“Before we found the school, we were planning to divide the space for doctors’ offices,” Steve Zhu, a vice president at real-estate brokerage Compass , who represented the landlord, United Development & Construction Group, in the deal told The Wall Street Journal.

Short-term deals make CRE owners hesitant to lease to schools

CRE owners weren’t always in favor of leasing space to education providers, however. Schools often need more entrances and require wider stairways than other tenants. Educational institutions also need space for a gymnasium and lots of natural light, which make renovations expensive.

Lease terms can also be shorter than landlords would like—local school boards review schools’ charters every three to five years. There’s always the chance that a school could lose its charter for poor performance. A school could also vacate the space to merge with another institution. Either way, the potential short-term nature makes it hard for landlords to determine school operators’ creditworthiness.

Schools seeking retail space have tried to give landlords peace of mind however. They note that charters are usually renewed. There’s also the fact that charter schools are probably more stable than a lot retailers in this current climate.

“They look like startups or a single-purpose entity, but you’re getting guaranteed government funding so long as they continue to perform,” Stephen Powers, a partner at real-estate investment adviser Transwestern Real Estate Services’ nonprofit practice told The Wall Street Journal.

Benefits of leasing retail space to charter schools

Landlords might consider leasing mall space to schools a risky proposition, but there are potential bonuses. Extra business is a good example—while the students are in class, parents could shop at the other stores or eat at the mall.

“We are getting more foot traffic,” said Don Zebe, a Pocatello-based commercial broker at real-estate brokerage Colliers International Group told The Wall Street Journal.

There’s always the potential for the schools to be subjected to questionable financial and leasing transactions, but those cases are more the exception than the rule.

“Any industry is going to have a bad actor or two,” Mark Medema, managing director for the Charter School Facility Center at the National Alliance for Public Charter Schools told The Wall Street Journal.

He also noted that working with honest developers and brokers who do their research could decrease the amount of people who’d try to take advantage of the school.

“Charter schools haven’t really formed relationships with the real-estate industry,” Medema said. “They don’t have a school-district real-estate office, and they’re all on their own.”
Although it’s not ideal, landlords will sign leases for public schools that need a short-term home. Students at Downtown Burlington High School in Vermont went to class at a former Macy’s in March because toxic chemicals were found at their school. The area under the retailer’s escalator made for a popular meeting spot for students and their supervisors.

“It’s become an amazing place where people can connect,” Lauren McBride, the school’s interim principal said.

Joe Dyton can be reached at joed@fifthgenmedia.com.

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