In an earlier post we took at humorous look at the “good life” of a wheeling dealing Maplewood taxpayer looking at how to best utilize public assets such as land and buildings. In that post, Joe and Josephine Taxpayer hired a multi-disciplinary advisory team, and had just convened a proposal review over T-bones at Delmonico’s.
That exciting, al beit atypical scenario was one of three we discussed in an opinion column published in the Newsrecord on February 3, 2016. The three-scenario overview is available here.
The opinion column emphasized that developers, other investors, and potential sellers (that is, the current owners) each use different assumptions when they analyze a property. While aesthetics may be included, in practice the assumptions most often focus on functionality and revenue. Aesthetics is a relatively lesser concern in commercial investment decisions as it is often the least costly aspect of a project.
In the case of Maplewood Village, there is plenty of information available that can be used to put numbers to the “high calorie” options presented to Joe and Josephine Taxpayer when they evaluated their options over lobster and steak entrees. This page looks at the numbers behind those options using information available from JMF Properties, Township tax assessments, and market data. The sections below look at assessments, income potential, and market value (on sale).
Background on Assessments
First, it is important to understand that market value and tax assessments for most commercial structures are dominated by the activities (the “use”) the building is put to, and in particular, how much revenue that activity produces. Public records of property assessments is a convenient place to get an initial estimate of valuation for different commercial activities in the Village. This data is shown in the chart below.
In this graph, the current assessment of the Village Post Office is the lowest in town, which is not surprising, ad it is hard to imagine a less profitable venture than the United States Postal Service. Assessments for other establishments are shown, and it is clear from the chart that most are at least double that of a post office building, as it was used.
In the discussion below we’ve imagined the existing post office building to be utilized in a way that would result in tax assessments of $160 and $200 per square foot, representing conservative, and perhaps slightly optimistic examples respectively. The exact uses is not as important as what the chart shows: that most businesses in the Village are assessed at this level or higher.
Lease and Tax Income Possibilities
[An abbreviated discussion of this topic appears on the Rainbow page.]
Using these two figures, and square footage estimates of the existing building (4,000 square feet in basement, 11,000 square feet on first floor, and optionally, 8,000 square feet on a new second floor), a chart can be made that shows the approximate tax revenue of various uses that might be placed in the building.¹
The vertical axis shows the total revenue (whether from taxes or lease payments) collected over the time period.
The thick black line shows the revenue (taxes) collected from the Post House project, recently re-branded as “Clarus Maplewood” if built as JMF Properties proposes. This line is curved because of the gradual phasing-in of tax payments under the PILOT agreement.
The dotted green line (the lowest one) is the estimate provided by the Town in early 2015 when comparing the potential tax collectible at the site with the tax JMF Properties estimated would be collected.² This figure was, and still is, somewhat meaningless–it represents the taxes collected from the building if it were used as a Post Office, yet, through-out its life with that use, the Town collected far more in rent than it would in taxes (the lease payments are shown as the maroon dashed line towards the top). Despite this difference, the Town choose to use the vacant-building tax-assessment figure when presenting the Clarus Maplewood project as beneficial.
As explained,the maroon-ish dashed line represents the lease payments being received by the Town while the Post Office was still a tenant. More precisely, it represents the lease payments that would be collected by the Town if the Post Office lease had been extended throughout the period shown on the chart. This is the revenue that was (would) actually be collected, and as noted above, is far more than the taxes, and far more than what the JMF Property’s proposal will generate.
The other lines represent various scenarios in which the existing building is re-purposed, and either leased by the Town to others (as was done since 1958), or sold by the Town and subsequently taxed. Of particular interest is the “Kings ($182)” case which shows the estimate for taxes to be collected if Kings Supermarket were to re-locate into the existing structure, utilizing the existing loading dock and expanded parking capacity. Over the first ten years it is essentially the same as the Post House proposal, though still much less than if the Town retained ownership and offered a long-term lease.
Future Market Values
The discussion above addressed recurring revenue due to either taxes or lease payments. The option of retaining ownership, selling the structure, or demolishing is a separate question and can be asked of many of the cases shown in the chart.
For this purpose, four examples are considered:
- The Township retains ownership of the building and modernizes the front portion to be used as a postal service counter and professional offices. The front portion is approximately 6,000 square feet and includes at-grade access, loading dock access, and rest rooms. The remainder of the building (totaling approximately 9,000 square feet) is either shuttered for the short-term, or put to below-market/public uses.
- The Township retains ownership of the building and modernizes it in preparation for a supermarket to occupy the entire structure. A management firm is contracted to manage the construction and on-going building management. Other than the preparation work, this arrangement parallels the lease that the Postal Service operated under since 1958. It is assumed that the management company retains 15% of gross income as a fee.
- The Township sells the property, and a private investor executes example number two.
- The Township sells the property to JMF Properties and the Post House is constructed as proposed.
These four examples are presented graphically on our Estimating Income and Value page. A more detailed discussion regarding these choices can be found here.
Having Options Provides Choices
The main message intended by these examples, and the original Views and Visions article, is that the site has value under a variety purposes. This stems most directly from two very unique aspects that do not appear to have been given very much consideration:
- It is a rare case where public land re-use/modification in being considered in the center of a business district.
- It is a rare case where a highly-adaptable, large, modern commercial structure in excellent condition is already on the site, and available for use by the Township
The financial estimates make it clear that a variety of options were possible, with amble business case flexibility to make aesthetic changes as needed. It’s this reality that led to the tongue-in-cheek story told of a taxpayer wheeling and dealing over steaks at Delmonico’s.
The missed opportunity, however, to balance community needs, economic vitality of the Village, fiscal management was a rare one–and unfortunately not a matter to make light of. Clarus Maplewood fails on all these grounds and as yet leaves unmet the original goal of success at the site and for the Village overall.
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¹In the example shown below, an assumption is made that the new use at the site would be in operation starting 1/1/2018, and that the tax rate that year would be $3.73 dollars per $100 dollars of assessed value. This is based on the current rate, increased by 2% per year. The same 2% increase is assumed across the chart–that is, all figures increase at a rate of 2% per year (a common inflation assumption at present).
²Reported in Village Green, and on the Township website.
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Oh No 60 