Looking around the increasingly impoverished neighborhood where I have lived for far too long, I decided to look into some of the recent closures, to see who owns the land and what it’s worth.
First up, the abandoned Starbucks. Closed years ago, fenced off, completely disused. The land value is about $1.9 million, the building is a teardown ($1,000 valuation). Not big enough for a grocery (something we could use here in our intown food desert).
Next, the closed LA Fitness across the highway…land valued at $9 million, the building also a teardown.
And these are not the only disused or vacant parcels along that stretch of road. But at those valuations, the sales price to buy and develop any of them would be prohibitive for anything the neighborhood needs. Trader Joes is unlikely to buy in, especially not with a new location in Greenwood to cover the north end. Whole Foods? PCC? Unlikely. This neighborhood can’t even support a Bartell Drug, with that location, purpose-built as an anchor for a mini-mall in 2007, now closed as well. With a $10M valuation, it might sit there awhile as well.
So what would happen if these properties were turned into ground rents/leases? What would happen to the valuation and the cost to acquire the rights to develop them? You could buy that LA Fitness parcel for $9M with an annual property tax liability of $94,000 (financing it at current rates of 6% and 10% down is $582,763.08/year) for a combined annual payout of almost $700,000/year before turning over a shovel of dirt, to say nothing of demo-ing the existing structure.
But what it you could rent/lease it for $270,000/year for 99 years with a modest 1% annual increase? Over the course of 99 years, it would remit $45,306,904.35 in land rent just on the land, not counting any tax on the building or sales and payroll taxes from whatever happens there. 99 years of property tax at the current valuation would sum $9,306,000, about 20% of what a ground rent would yield. And a ground rent would get the land into productive use faster since it has a lower upfront cost, no need to finance.
Is this perfect? No, but is what we have any good at all? Vacant/disused land all over the city, not just here, attracting grafitti (and the mayor hates graffiti a lot more than empty city blocks or idled land), making no money beyond property tax — no jobs, no sales tax, no services like electric or water, just deadweight.
I wonder what it would take to create some of economic empowerment zone in this stricken part of the city and reclaim these parcels. Anything left untouched for a year ought to be reclaimed under eminent domain…if you can’t find a productive for your land in this economy, you need to let someone else have a turn.