The Charleston School of Law is poised to make millions of dollars selling a downtown parking lot the city of Charleston purchased 13 years ago as a potential home for the school.
The city bought the corner lot at Meeting and Woolfe streets in 2005 for $1,170,500 and immediately sold it to the for-profit school for $875,000. The terms were generous: an interest-only loan at a below-market interest rate, with little money down and the balance not due for a decade.
"We felt the value of the school, and the development potential, justified doing that," then-Mayor Joe Riley said in 2004, when the deal was making its way through City Council.
The property, just over an acre, is now listed for sale at $12.5 million, with a contract pending.
If sold at the asking price, the school's share could be nearly $9 million — a stunning profit on a land deal financed by city taxpayers. The school paid only $10,000 to acquire the property, plus loan interest and property taxes since 2005.
The city could see its still-outstanding $865,000 loan to the law school repaid, plus potentially $2 million more. Mayor John Tecklenburg said the proceeds will be dedicated to the city's affordable housing program.
“When they sell the property, we’ll have a nice little windfall," he said. “I think it will be a nice bump for the affordable housing initiative."
The original deal with the city said the school would have to give the property back if it didn't develop the land, which would have allowed the city to get the full benefit of a sale. But that didn't happen.
Instead, during the recession, the deadline to build on the site or give it back to the city was extended to July 2017, and right before the deadline, in June 2017, a new agreement was struck.
The city agreed to let the school keep 75 percent of the proceeds from selling the land, after sale-related expenses. The city would get 25 percent, which would include the unpaid principal of the loan.
“There were conditions where it could have reverted to the city, but they were still in a position to prevent a reversion when they came to us in good faith to negotiate," Tecklenburg said.
The mayor has a background in commercial real estate. In fact, when the land deal was being negotiated in 2004, Charleston School of Law was represented by Tecklenburg, who would become mayor a dozen years later.
School president and part-owner Ed Bell said the property at Meeting and Woolfe streets isn't large enough to develop for a law school building, but that the money from selling it will be used to find a different site on the peninsula.
“We have to have a place that we own, in order to control our costs," he said. “I have personally assured the mayor that we will stay on the peninsula."
Bell said he recognizes that the original intent of the city's land deal was to keep Charleston School of Law on the peninsula.
Before the city bought the land it was owned by the Army Corps of Engineers, which used it for storage and parking. In 2005, the explosion of redevelopment that's rolled up the Charleston peninsula hadn't yet reached Woolfe Street, but today the property abuts a new hotel and two luxury apartment buildings.
Zoning rules would allow for a building up to eight stories tall on the property.
The agreement reached last year between the city and the school was written "to assist the Charleston School of Law's efforts to remain in the city of Charleston" by accommodating a sale of the property, the memorandum of understanding says.
"With the sale of the property they’ll be able to secure a permanent home for themselves," Tecklenburg said. "I think it’s good for the city."
Charleston School of Law is a for-profit school with plans to become a nonprofit. Several years ago, a potential sale of the institution to for-profit InfiLaw, which was not completed, shocked supporters including then-Mayor Riley.
In a December 2013 letter to the state’s Commission on Higher Education, Riley said the city never would have sold the land at Meeting and Woolfe streets to the law school at below-market rate if it knew the school would be sold to InfiLaw.
Bell said Charleston School of Law has used the property exclusively for its own use, as the city agreement required.
“The notion that we had to build on it was not exactly what the reverter clause said," Bell said. “At the same time, we recognize that the city meant to have us build a building there."
Susan Herdina, one of the city's lawyers, said Friday that the 2017 agreement meant that the city wouldn't enforce the reverter clause.
"Instead, we are saying that if there’s a sale or exchange of the property, these are the terms that will apply," Herdina said.
“The context here is important," she said. "What (the two mayors) were trying to do was spur the development of the Charleston School of Law.”
Tecklenburg said the law school could have submitted a plan to develop the property, and paid off the $865,000 loan balance, in order to eliminate the reverter clause. In that case, he said, the city would have received only the loan repayment, but with the negotiated deal, the city will get 25 percent of the purchase price or $1,865,000, whichever is higher.
"The city wanted to support a law school," he said, "and we still want to."