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Controversy surrounds purchase of land for new elementary school

September 22, 2012|By ARNOLD S. PLATOU | arnoldp@herald-mail.com
  • Site of a new school that will be built near Hagers Crossing Drive.
By Ric Dugan/Staff Photographer

For more than a year, some of Washington County’s top engineering, planning, purchasing and education specialists had been meeting quietly, trying to determine the best site for a new public school.

Late last year, shortly after they revealed their choice to the Washington County Board of Commissioners in a closed-door meeting, they discovered that the property the committee had in closed session urged the commissioners to buy, had been bought just weeks before by a privately owned development company.

On Friday, the development company sold that 16.5-acre property to the county government for nearly $1.6 million — three times what the firm had paid last November.

How did it happen that the developer purchased the very property that was the county’s top choice on a confidential list of almost two dozen potential sites?

And what justifies the county paying roughly $96,000 an acre while many of its citizens are struggling financially from a recession that so badly depressed the value of their homes that they couldn’t sell them, even for what they’d paid just a few years ago?

Opinions, from the commissioners to the person on the street, vary widely.

“If the county commissioners approve the contract to buy a piece of land for three times what it was paid for a year ago, each and every one of them should be booted out of office, and on their way out, they should send a letter of apology to every single taxpayer in Hagerstown and the state of Maryland,” said an anonymous caller, from the city’s Fountainhead area, on the newspaper’s Mail Call phone line last week.

Asked about that Thursday, the three commissioners who voted in favor of purchasing the land and the two commissioners who voted against it all spoke strongly in support of their actions.

“In all reality, as far as I’m concerned, as one of the three commissioners that voted for it, we’re saving the taxpayers between a million and-a-half and two million (dollars) in overall costs,” Commissioner John Barr said. He said the overall expense of using the next-best property would have cost that much more.

Commissioners President Terry Baker said his vote against the deal was a stand to protect the taxpayers. What the development firm paid for the land was close to its assessment value, and the county paid the firm three times that, Baker said.

“I represent my Washington County citizens and I promised the citizens that I would be fiscally responsible,” Baker said. “Three times the assessment value is not being fiscally responsible.”

This is the story of what happened behind the scenes that some say led to unbelievable coincidence, good fortune for a business and big savings for the taxpayers, and that others say is born of greed and loose spending of public dollars.


The site and a price

Last year, four organizations — a Washington County governmental committee, the Maryland State Department of Assessments, a bank and a business partnership — all acting independently, it seemed, agreed on one thing: The undeveloped 16.5-acre property in a residential community behind a shopping center in Hagerstown’s West End, was worth no more than $525,000.

The governmental committee was formed in the summer of 2010 after the Washington County Board of Education asked the commissioners for help finding land on which to build a West City elementary school. The School Board said the new school was needed to replace the decades-old Winter Street and Conococheague elementary schools.

Each of the committee’s 11 members was a key employee in engineering, planning and other departments of either the county government, the city government or the school system. They worked in confidence, using a detailed system the county recently had adopted to provide a thorough analysis of sites needed for public services, according to county Public Works Director Joe Kroboth.

Kroboth, who was the committee’s chairman, said schools officials listed their basic needs for the new school site. These included that it be at least 15 acres, be “relatively close” to housing developments, and be in a place where adequate infrastructure — such as utilities and streets — could be made available, he said.

Focusing on locations most practical for neighborhoods in which children now attend Winter Street and Conococheague, the committee identified 22 potential sites. Each was inspected, evaluated for a wide range of criteria from topography to shape to zoning and, after schools officials cut the sites to the five they thought best, a more intensive study began of each of them.

In their 77-page final report, the committee members unanimously recommended purchase of Site 19, the 16.5-acre field in the Hager’s Crossing housing development behind the Centre at Hagerstown shopping center on the city’s western fringe.

In all, the committee said, the total cost of providing the necessary infrastructure and of buying Site 19 would be about $2 million. That was nearly $1.2 million less expensive than the committee’s next-best location, Site 22.

How much did the committee think it would cost the county to buy Site 19?

The “estimated acquisition cost” of the 16.5 acres was $31,000 an acre for a total cost of $496,000, the committee said in its report to the commissioners in December 2011.


Changing hands

A few months before the committee secretly delivered its report to the commissioners, two men visited Hagerstown City Hall.

Local developer David Lyles and attorney Jason Divelbiss — both now tied to the company that bought the 16.5-acre property before its school site importance became public knowledge — had gone to City Hall with one purpose in mind.

They wanted to find out whether an approval the city had granted on the property some years ago was still in force, Divelbiss said in an interview with The Herald-Mail on Friday.

The inquiry drew city Planning Director Kathy Maher’s attention back to 2006 and the property that had been left vacant while hundreds of homes were built and sold in the Hager’s Crossing development around it.

In September 2006, Maher said, the city had given a development company called The Rachuba Group final site plan approval for 240 homes to be built on the 16.5-acre tract.

Three years later, the recession having driven home sales and prices down sharply nationwide, the property was still undeveloped.

So, in September 2009, the city granted Rachuba approval of a new site plan for the land, Maher said. This time, she said, just 155 homes and of a different design, were to be built on the property.

By then, the recession was officially over, but its effects were still being felt.

In May 2010, after foreclosing on a $2.47 million mortgage secured by Rachuba Town and Country LLC, a bank bid $1.2 million at a foreclosure auction here and bought back the 16.5-acre property when no one else offered a higher price.

A year later, in May 2011, with the land still undeveloped, a company called Chesapeake Holdings HC LLC put yet another value on the property. According to state assessment records, Chesapeake bought the tract from Rachuba for $495,600.

And then, the records show, a company called Hagers Crossing Multifamily LLC bought the 16.5 acres for $525,000 from Chesapeake on Nov. 16, 2011 — nearly four weeks after the school site evaluation committee had told the county to buy that ground for the school.


A price increase

Hagerstown developer Lyles and former local accountant Doug Moul, his partner in Hagers Crossing Multifamily LLC, had no idea before they bought the 16.5-acre field that it had any value other than for housing, said Divelbiss, who is the company’s attorney.

“I’ve heard that advance info story and I can tell you, that’s not the case,” Divelbiss said of comments he has heard in the community since news broke of the county’s interest in the same land.

Buying the property that the county wanted was a wild coincidence, Divelbiss said.

Divelbiss said the tip about the property’s availability came in a call to Lyles “from one of the banks or one of the sellers” working with Chesapeake, Divelbiss said.

He said he thinks Chesapeake is a bank holding company formed by several lenders, one of whom had loaned money to Rachuba. When Lyles got the call this past fall, the message was that Chesapeake wanted to cut its portfolio of properties on which it had lost money because of foreclosures, Divelbiss said.

Lyles was told the 16.5 acres “had been on the market for quite awhile. We need to get this off of our books by the end of 2011,” Divelbiss said.

“Needless to say, (the lenders) were very motivated. So, David (Lyles) was on the list of folks and there were a good number of folks on that list,” Divelbiss said.

Lyles and Moul signed a contract last fall to buy the property for $525,000 — on condition that at least one of Hagerstown’s site plan approvals was still in effect, the attorney said.

And so it was that a year ago this month, city Planning Director Maher met with Lyles and Divelbiss “to determine whether the first site plan (from 2006) was still able to be used,” she said.

City officials decided the 2006 approval was still valid, she said. Area schools still had enough capacity for students from all those new homes, as required for approval under the city’s Adequate Public Facilities Ordinance (APFO), Maher said.

So, the only other hurdle remaining for use of the 240-home site plan, she said, was for Lyles to ask the city to increase the amount of sewage treatment capacity reserved for the project, from the smaller number of homes approved in 2009, to the 240 he wanted now. That was approved without any additional fees, she said.

“Having the APFO approval and the sewer allocation can be valuable to a property owner,” she said. “So that’s why that property has a value to a residential developer.”

Divelbiss said he and Lyles noticed one more thing they needed. They saw that the 2006 site plan didn’t have any signatures from the engineering and other governmental agencies that normally need to sign off on a plan before it is approved, he said.

Asked about that, city development review planner and zoning administrator Steve Bockmiller said he thinks all the agencies approved the plan but might not have signed it because “for some reason, I’m guessing, (the project) ground to a halt.” So, the absence of the signatures now shouldn’t have posed any problem, he said.

Nonetheless, Divelbiss said getting the signatures as well as the city’s assurance the 2006 site plan was still in effect, increased the value of the 16.5 acres enormously. He said Hagers Crossing Multifamily LLC paid Chesapeake the $525,000 agreed upon earlier and bought the property.

That’s why the price jumped to $2.4 million when Hagers Crossing Multifamily put the property on the market, the attorney said.

“We knew we had a property that we could do 240 apartment units on. There was the increase in value,” he said.

In a letter emailed to the newspaper this week, Divelbiss further explained the rapid increase in value.

“When a property is purchased in its raw state with no entitlements to build, as this property was, and then obtains the necessary entitlements, as this property did, it’s (sic) market value routinely increases and often dramatically; that is the very purpose and intent of real estate development,” he wrote.

Neither Lyles nor Moul wrote any of the letter but, Divelbiss said, he did give them copies and they told him it was good.


Projection ‘missed significantly’

Why did the county’s site evaluation committee tell the commissioners they could buy the 16.5 acres for about $496,000?

County real property administrator Joe Kuhna, the committee member who figured the acquisition cost estimate for each site, said he did not add in the potential development value that the city’s site plan approvals likely gave the 16.5 acres.

“You got to understand that during that (economic) time, just because you have a proposal to build 206 homes, doesn’t mean that I can build them and sell them,” Kuhna said. “So, the only thing we could do was, say that property transferred for $496,000” from Rachuba to Chesapeake, and use that as the estimate acquisition cost, Kuhna said.

In estimating value, he said, it’s best to know the recent selling prices of comparable properties — which was difficult to do during the recession when so few properties were selling.

For much the same reason, the assessment value listed by the state Department of Assessments for the 16.5 acres is $495,600, said Adam Lewis, supervisor of assessments in the county. But had the assessor known of the city’s site plan approvals, “it would probably have helped to increase” the assessment on the 16.5 acres, he said.

The county’s own appraiser declined to appraise the property because of the lack of comparable sales, Kroboth said.

With his committee’s estimate of the acquisition cost, Kroboth said he hadn’t been sure whether Kuhna had included the potential development value. Given the nearly $1.6 million the county has now paid for the property, “that particular projection was missed significantly,” Kroboth said.


Two views

Commissioners President Baker said he hadn’t realized, until a reporter told him, that the committee’s estimated acquisition cost for the 16.5 acres didn’t include the potential development value added by the site plan approvals.

“When they brought all of the sites with all of the major cost indications on it, they had an acquisition cost. So I took that at face value. The paper said $496 (thousand), so that’s what I thought we could purchase the property for, somewhere in that range,” Baker said.

Knowing now that the acquisition estimate doesn’t include the approved development plan, makes him wonder “now, is it fair to the other sites” that had more expensive purchase estimates, Baker said.

He said he also wonders whether the county could have purchased 15 acres of another site which the committee estimated would cost $750,000 and then buy the extra acreage that property has “and sell it for the $100,000 an acre the county is now paying” for the 16.5-acre tract. That way, the profit could be used to lessen the school site development cost, “saving money for the taxpayer,” Baker said.

But Commissioner Jeff Cline, who voted last week with Baker against the purchase, said it didn’t matter to him that the estimate didn’t include extra development value. Given the economy’s slowness, “it would take a decade to sell those” 240 housing units, Cline said.

Commissioner Ruth Anne Callaham, who voted in favor of the purchase, said she hopes that with or without the extra development value, all 22 properties were “weighted in the same way.”

Commissioner William McKinley, who also voted for the purchase, said he thinks the nearly $1.5 million price, plus the extra fees and a broker’s commission paid by the county “was appropriate.”

McKinley said it’s not automatically wrong that the company selling the land, made a profit.

“I don’t believe the amount of money they made is important, as long as the price we got is appropriate,” he said. “If the $1.5 million was an appropriate amount of money, and we believe it is, then I believe what they made on it, is irrelevant.”

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