The tax-payer/owner of the Village Post Office site is a truly happy tax-payer. Maybe even a lucky taxpayer. How often have you met one of those?
Late in 2013, a month before the winter holidays, the Maplewood taxpayer received a windfall gift from the federal government when both the land and the structure came to be owned by Maplewood Township.
At that time the Township had the option to contract with a management company that would oversee the modernization and immediate rental of the building at prevailing rates–which are three times or more than what the Postal Service had been paying. Since that would have resulted in a doubling or more in the tax assessment, the Township could reasonably have weighted leasing the building as was done since 1958 against selling the improved structure and benefiting from the increase in taxes.¹
All that could have been set in motion with a single ordinance and no zoning changes–current Village zoning allows for a great many uses on the site.
But let’s drill down a bit further. For this exercise, imagine yourself in a booth towards the back of Delmonico’s, at lunch. Or the Tea Room. Preferably a round, plush booth. You have to agree to imagining yourself smoking a fat cigar.
How are you going to make a killing now that you own this building? What will you go after? Maximum taxes? Hugh profit on sale? Innovative uses that you could foster with cooperation of private investors? Professional uses that bring new foot traffic to the Village? Services for existing demographic groups–maybe homemakers, home businesses, seniors, and students? A new public space above the building from which residents can revel at views of all they treasure about their hometown? Features that attract business regionally? A 7-day, 7am to 10pm plan that expands and enriches activities and commerce throughout the Village?
Your lunch guests know the real estate, urban development, and emerging service economy well. They understand demographics, and they understand the business models of developers and investors. They are there to advise you.
The conversation starts with glib comments about caloric content. That’s actually a bit uncomfortable, and the group quickly moves to potential uses, potential income, and future market value. The advisers insist on talking about future market value first.
It turns out the embossed napkins actually work well as scrap paper. The awkward guy jots down some numbers. He’s quite excited, and wants to think big, so he sketches the building with one floor added and writes “23,000 square feet” next to it. He says that will rent for up to $30 per square foot (he notes some businesses in Maplewood pay far more today), but decides that an average of $25 is probably fair if there are a variety of tenants. Some quick math: $25 x 23,000 is $575,000 per year of gross rental income– he writes that across the expanse of the napkin.
Then he reaches over his french onion soup, grabs you by the shoulder, shakes the wine glass out of your hand and implores “You have to think about cap rate! Don’t forget cap rate! If you can get a good supermarket in part of this space, that building is worth nearly $9,000,000! Add a gourmet restaurant overlooking Memorial Park, and we are talking $11,000,000 or more!”¹
The service economy guy jumps in–“gourmet restaurant?? No! The $9 million is more than enough–make that a little less, and the Town would be able to build a third library branch on the second floor, using a small portion of the $15 million you are thinking about for the library expansion!”
The service economy guy, and the urban development lady are chill, and know how to come to the rescue of the numbers guy.
The service economy guy goes on: “Look, you’ve got enormous latitude here. No matter what you do, you’ve got a great asset, and you’re going to make more money on it than you have in 50 years. I’m going to show you innovative uses that are both profitable, and of value to residents throughout Maplewood”. The urban development lady has a smile across her face as though she’s been exonerated following a life sentence. “Finally, a project that need not be smothered by the Transit Village machine of the last decade! There are many new ideas we can bring to you, because you’ve got a community here that ‘gets it’, and an asset and a location that is outstanding!”
At that moment the desert cart arrives, pushed by a 20-something you saw grinding hand rails yesterday on her skateboard. “Dude, tell me you’re not going to cut down trees and demolish a building with embodied energy equal to a thousand barrels of oil! That sure is one way to take the wood out of Maplewood!”³
There’s a final toast, and desert is served.
And that’s how it’s done. Or should have been done.
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[This page first appeared as part of our ViewsAndVisions page.]
[There are more numbers, seasonally presented for St. Patrick’s day, on our Revenue Rainbow page, and a more detailed discussion at Community Value And Land Asset Management. Please check them both out because getting this stuff right is very important to Maplewood’s future and paying for the great services we enjoy.]
[To understand the experience of having a sense of place, read Cherish The Charm, including the re-prints of Newsrecord articles that appear there.]
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The real issue here is management of Township resources in a cohesive, transparent manner that engages the public and is responsive to community needs. The financial and community opportunities suggested by these slides, were, unfortunately, not evaluated:
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¹When the US Postal service last occupied the building it was assessed at $87 per square foot, for the first floor. Had the basement also been in use, that would have increased the building assessment by about 35%–the upstairs is 11,000 square feet, the basement 4,000 square feet. Moreover, assessments of other properties in town range from $150 to $300 dollars per square foot, with most falling in the range of $150 to $200. Similar uses in this building would lead to similar assessments–substantially higher than the $87 assessment as a Post Office.
²”Cap Rate” is short for “capitalization rate”. In simple terms, it indicates how quickly and investment will return its cost (what you paid for it) to you. A “cap rate” of 10% indicates a 10 year return-on-investment. A reasonable rule-of-thumb for the use described here, in this area, is about 6.5%. When you divide the annual income ($575,000) by .065, the result is $8.84 million.
³The number seems to be closer to 2000, if you can believe that. If you share our proclivity for numbers, message us on Facebook and we’ll send you some references.
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[Thanks for reading. The numerical examples on these pages are based on rules of thumb widely accepted by the commercial real estate market and have been reviewed by a licensed broker. Names have been removed to protect the writers.]