The University of Iowa’s pending sale of the former AIB College of Business property in Des Moines for a fraction of its assessed value is both proper and reasonable, according to a review by State Auditor Rob Sand.
Compelled by questions about why UI wants to sell for $7.5 million nearly 14 acres of land AIB donated in 2015 — assessed at more than $20 million — Sand reviewed bids and consulted with the Polk County Assessor’s Office to ensure “taxpayers received a fair process and a fair price.”
“It is my conclusion that the proper bidding process was followed, and the highest bidder was selected,” Sand reported in the findings from his special review. “While the bid was below the assessed value, it is also my conclusion that the cause of that difference is that the assessed value was inaccurately high, rather than all the bids being suspiciously low.”
In consulting with the assessor’s office, Sand came to several conclusions about why the property was overvalued — including that the assessor used a “cost basis” for valuating the property. That process assumes a new owner will continue using all portions of the property as they’re currently being used — which, in this case, is for the UI “Center for Higher Education,” offering four degree programs on the Des Moines campus.
“If no bidders are attracted who will continue the same use, a property’s value generally goes down in measure with the amount of money bidders expect to invest in order to transform the property to their expected use,” according to Sand.
In this case, UI wants to sell a pared down chunk of the AIB campus it received four years ago — valued at that time at more than $30 million — to a nearby apartment complex, the Village at Grays Lake LLC.
Additionally, because the nonprofit AIB owned the property for generations before donating it to another tax-exempt entity — the University of Iowa — no one pressed the assessment or questioned its accuracy, according to Sand.
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“There’s been no reason for the owner to protest the valuation, and no reason for the Polk County assessor to devote significant resources to a revaluation,” he reported.
Bryon Tack, director of the commercial division with the Polk County Assessor’s Office, told the auditor assessed values for large and unique properties — like the former AIB campus — can “widely diverge” from actual market value.
“Mr. Tack stated valuations of either unique or large properties are often difficult because there are fewer comparable properties recently sold to which they can be compared,” Sand reported. “Because this property is both unique and large, not just one or the other, that makes valuation doubly difficult.”
Analysts within the assessor’s office have discussed the sale’s disparity from the estimated value, and Sand said, “The individual responsible for assessing that particular property did not believe that, given all of the aforementioned issues, the highest bid was unreasonable.”
And the university did choose the highest bidder — which had been another question. Sand reported reviewing all the written bids received and concluding Iowa followed the proper bidding process and chose the bidder who offered the highest price.
“Multiple well-known developers bid on the project but were outbid,” Sand said.
Although a contract for the highest bidder doesn’t typically raise questions about a conflict of interest, Sand said, he looked into it.
“I did ask about any known relationships between the bidders and University of Iowa or Board of Regents officials and staff,” he reported. “It does not appear that the bidders have any relationship that might cause a conflict of interest.”
He reported Bill Wright, with realtor CBRE-Hubbell, wrote in late November that a reasonable value for the sale would be between $7.85 million and $9.7 million.
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“This is additional evidence that the assessed value was inaccurate, and that the price received was reasonable,” Sand said.
Although the university has signed a purchase agreement with the Village at Grays Lake, the sale is not final – pending a due diligence and contingency period. The Board of Regents on Wednesday approved the proposed sale without discussion.
The university is selling the property after losing money operating it since receiving the gift in 2015. Administrators initially hoped to transform it into a satellite UI campus, and absorb AIB students upon that college’s closure. But the Board of Regents shifted the use to one that included Iowa State University and University of Northern Iowa — although neither of those institutions ever conducted any activities on the site.
The University of Iowa began offering degree programs at its Iowa Center for Higher Education in 2016, but it’s reported losing $2.6 million since accepting the gift — including $1.6 million in the 2017 budget year, more than $455,000 in 2018, and about half a million in start-up costs, advertising expenses, and other expenditures.
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