Profiteering 101

School site purchase gives controversial windfall to two wealthy developers

Field of schemes: Lora Stewart and Rebecca Porter say the Elk Grove school district is squandering millions on developers.

Field of schemes: Lora Stewart and Rebecca Porter say the Elk Grove school district is squandering millions on developers.

Photo by Larry Dalton

Like rich and powerful people in any town, developer Angelo Tsakopoulos makes headlines in the local papers with his charitable giving. His name is prominently displayed at the downtown public library and in the Crocker Art Museum. And he received quite a bit of praise for his offer to donate a significant chunk of land for a private university in Placer County, even if some local skeptical residents see it as a development ploy.

Despite the developer’s carefully cultivated reputation of generosity, Tsakopoulos and his partners are all business when it comes to selling land to the Elk Grove School District.

Citizens in Elk Grove are suing Tsakopoulos, his partner Frank Stathos and the Elk Grove Unified School District over what they claim is a multimillion-dollar giveaway of public school funds to powerful developers.

Late last year, partners Stathos and Tsakopoulos parlayed the district’s desperate need for new schools into a quick $3 million profit. At issue is a piece of property that the two men bought and then sold to the district at twice what they paid for it, only a few months later.

It’s not unusual for the district to buy property from either man—both have significant holdings in the Elk Grove area. But the timing of the deal has members of the citizens group Citizens for Responsible Planning (CRP) accusing the district of being in cahoots with the developers to bilk taxpayers.

“The purchase of this school site clouds the integrity of the Elk Grove Unified School District and brings into question the commitment of the district to use public funds in a manner that supports the education of our children,” said Lora Stewart, president of CRP.

The school district announced in February 2000 that it was seeking to purchase a piece of property in the southeast Elk Grove area vicinity for a new “mega-school” site that would include both a high school and a middle school campus.

At that time, Constantine Baranoff, assistant superintendent of facilities and planning, contacted several area realtors and property owners, including Frank Stathos, who had sold property to the district before.

Meanwhile, there was a piece of land large enough for the new school at the corner of Bond and Bradshaw Roads that had been on the market for several years. That property was owned by a man named Don Bishop, who was represented by realtor Steve Crosbie. Baranoff said he never contacted either Bishop or Crosbie.

But Stathos did contact Bishop and the men entered into a purchase agreement in late February. According to Stathos, they agreed on $4.2 million for 107 acres, slightly less than the $4.8 million Bishop had been asking earlier.

Stathos then contacted the school district and let Baranoff know he had property that would fit the bill, according to Baranoff. The district would ultimately purchase the land six months later from Stathos and Tsakopoulos for $6.7 million—a profit of nearly $3 million, although nothing was done to improve the property.

That just didn’t look right to Lora Stewart. “Something was going on. It was very suspicious,” she explained.

The district had every opportunity to buy the property from Bishop, but CRP’s attorney Glen Van Dyke said it looks like the district was interested in giving a sweetheart deal to Stathos, in the process frittering away millions in precious school construction funds.

“Why didn’t they pick up the phone and call [the realtor]? The property had a huge sign on it for years. You couldn’t miss it. Why did they wait until Stathos bought it?” asked Van Dyke.

Because of the development boom in Elk Grove, the school district has been growing by about 2,500 students every year. The population is now at about 50,000 students and is expected to balloon to 80,000 by 2010 .The district expects to build 33 new schools in that time to house the student tidal wave.

“The children are here because of the dynamics of all the approved development in Elk Grove. It’s my job to get those schools for those kids,” said Baranoff.

That often means purchasing land from Tsakopoulos, whose projects are largely responsible for opening up much of the south county to development, which led to the building boom, which in turn led to the need for more and more schools.

Baranoff said the district did nothing wrong. He said the price paid was not out of line with the district’s purchases, especially given the superheated real estate market in Elk Grove.

“I have no means of controlling who owns the property,” he explained.

After Stathos got hold of the property, two appraisals were done. One indicated that the property was worth $4.35 million, another that it was worth $6.9 million. Both appraisals relied on what was considered the “highest and best use” of the property. In each case the appraisers noted that if the developers wanted to hold onto the land and convince the Elk Grove City Council to rezone, that they stood to make a hefty profit developing the parcels into low density residential housing.

The two appraisals compared the proposed school site to different properties in the area, accounting for some of the disparity in values. Also, the appraiser who gave the lower figure noted that the property had not yet been approved for any kind of development.

With such a large discrepancy between the appraisals, why couldn’t the district get a better price?

Baranoff said that he started with a low offer, but ultimately had to negotiate upward. But Stathos said there was no negotiating. He said the district offered him exactly what he got: $6,728,400.

Stathos also insisted that he didn’t buy the property because he knew the district was interested in buying it. Baranoff “may have mentioned” that they were looking in that area in February, said Stathos. He said he encouraged the district to explore the possibility of buying the property, but that he also had other offers.

“I have always been interested in developing that site. My intent was to develop the site into residential and commercial property. I didn’t buy the site because I knew I was going to sell it to the school,” he added.

When the school finally approached him with an offer in September of last year, Stathos decided he thought the site would be good for a school. “And they made me an offer that promised a quick turnaround and a good profit. I took it,” he added.

He characterized the lawsuit as being nothing more than NIMBYISM. “The real reason is just that they don’t want a school built in their backyard,” said Stathos. “The only thing the school district is guilty of is trying to build schools for kids.”

Tsakopoulos was brought in after the school made its offer, said Stathos, because it wasn’t certain that the district would be able to complete the purchase, and to help cover some of Stathos’ financial liabilities if the sale didn’t go through.

But to resident David Shell, the timing of the deal suggests that Stathos never had any intention to build housing there, and that the purchase was simply a way to make a quick $3 million dollars at the expense of the school district and taxpayers. Still, Shell and other CRP members are less concerned with the developer opportunism than they are with the district’s willingness to go along.

“We know that they sought out these people to buy the property from,” said Shell. “The bottom line is that they are serving the developers. They have quit being public servants.”

Shell and others believe that fair market value of the property should have been what Bishop was originally willing to sell it for, not what the new owners could make building luxury homes.

“As parents, we’re constantly having to raise money for the schools. And the district turns around and pisses away all of this money on Stathos and Tsakopoulos,” lamented resident Rebecca Porter.

Van Dyke said the suit is “ready to go,” and could be heard this summer. The suit alleging misappropriation of funds is just one part of a long list of grievances that the group has against this and other proposed school sites.

CRP has already won one lawsuit against the district, when a Sacramento County Superior Court judge found that the district had not conducted an adequate environmental review of the location, and that the public had been denied enough time to review the project’s Draft Environmental Impact Report.

Residents have been critical of the location because the property straddles a fire station, and has little pedestrian access along Bradshaw Road. The district is now conducting another environmental review. But CRP hopes to get the district to scrap its plans for the site altogether, either through public pressure or through the next lawsuit.

CRP is also suing over the purchase of another proposed “mega-school” site on Calvine Road. The district paid $13.65 million for that site, which has been held by the Tsakopoulos family for decades.