Is DeVry Property a Potential Burden or Cash Cow?
Decatur Metro | July 17, 2009As the mayor has noted on multiple occasions in the past, the city of Decatur long looked at annexation as one of the only ways of decreasing the property tax burden on residents. By bringing more commercial property inside the city limits, the city and commission hoped to bring down the 85% of city revenue currently shouldered by residential property owners.
However, annexation was never seriously considered by the city until this past year. And its subsequent failure, due in part to inaccurate estimates of student costs and a struggling economy has colored all future conversations on the topic.
With the recent announcement that DeVry University has requested to have it’s massive, old DeKalb Industrial campus annexed into the city, many of the old concerns about additional burdens on the city bubbled to the surface again. Specifically, concerning the cost of students and the over-crowding of schools.
But do all of the same concerns about student costs and over-crowding of schools still apply? The short answer from the city, who actively pursued DeVry to seek annexation, is “No.”
According to city planner Amanda Thompson, even if a developer wanted to shun the new mixed-use zoning laid upon the district and simply build a bunch of single-detached townhomes (the most family-friendly thing allowed by zoning), the city wouldn’t allow it.
DeVry has expressed in their application that they want to build a mixed use development and that is the intent laid out in this zoning district. The city’s development department would not accept a single use site plan for the property. Could the developer argue with us in court? Yes, but not successfully since DeVry’s application would be part of their conditional approval of the regulating site plan.
So, while not completely outlawed, it seems like the construction of a family-magnet single-family home community is near impossible. But what about families living in apartments and condos in the new mixed-use district?
Peggy Merriss’ statement to the CSD school board on Tuesday, reported by InDecatur, addresses this concern…
…there are about 3500 apartment units to the east, northeast, and north of the property, with 99 school age children. That’s about 3% children per total units. Up to 1300 units could legally be built on the DeVry property, but economics will drive it to closer to 550 units. Using the 3% rate, that’s about 20 school-age kids.
So, the city’s best guess is about 20 school-age kids. What do we get in return? Also from InDecatur’s coverage…
The property was last valued at $13.5M for tax purposes (and might sell for $18-21M – up to $1M/acre). When fully developed, the DeVry property could add $55M to the tax base, resulting in a $550K increase in tax revenue for the school system.
$55 million to take on 20 kids and provide public services? I can see the city’s attraction to the project.
But could DeVry or another developer go rogue and cause the city all kinds of trouble? Of course anything’s possible, but it’s very unlikely. Could they build all residential and no commercial, thereby foiling the city’s plans of increasing commercial land use? Yes, but that would require that they ignore the fact that the property is zoned mixed-use, which allows and encourages commercial. And when was the last time you heard of a developer building residential in leiu of commercial and forgoing the yearly revenue that comes along with commercial property?
Yes, we still have outstanding issues regarding large scale annexation of existing neighborhoods and commercial districts. If we ever go down that path again, I’ll be the first to ask for new data on how we can afford and accomidate any increase in students. But DeVry is different. It may be large, but it promises to add more commercial and families without kids to our city, decrease the tax burden.
Yes, it is still a bit of a gamble. But there’s always risk when you don’t physically own a piece of property. And in this specific case, the city has already stacked the cards in our favor thanks to this new mixed-use zoning designation. Add to that that the mayor has already asked CSD their opinion on the matter, and I think it’s safe to say that this is a pretty safe bet.
And the upside is pretty big. If and when the economy turns around a bit, this property could bring a huge influx of cash into the city, potentially lessening the urgency for more widescale annexation in the future.
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Excellent analysis, DM. I’d further add that the one concern you leave room for — that a developer might go rogue and fight to build a subdivision of school-overcrowding single family homes — is essentially a non-concern, so long as the property ultimately sells as currently intended.
No developer pays upwards of a million dollars an acre to build at a density of 6 or 8 units per. Any buyer will be interested in the maximum number of units that both the zoning and the market demand will allow.
Good point. I was trying to say “Of course anything’s possible, but it’s not likely.” I’ve essentially changed the sentence to that.
Scott, this is not my area, but I wouldn’t expect a developer to pay 1M per acre. The land is valued at 5.5M for the whole 22 acres (the 13.5 figure includes the building, which would be razed). That’s 250,000 per acre, and 1/3 acre lots in the city are going for what … 325? … bulldozed, or around 1M per acre just for the lots. But I know there are countless readers who understand this stuff better than me, and you’re one of them, so if that doesn’t make sense, help me understand it.
That’s a good summary of the City’s position, DM. And you’re right that the mayor asked the Board’s opinion, which they’ll express by a vote in a special session on Monday, July 27. It’s worth emphasizing that we now have an established procedural precedent on annexation issues, which is good.
I was one of the precious few present at the meeting inDecatur reports on. (That’s me, third from the left — one of two non-city employees in the photo.) A couple of Board members emphasized that their metric in determining impact is a bit different from the city’s and they clearly want to perform their own due diligence before voting.
The Board asked some good questions, and it is true that the MU ordinance has a maximum but no minimum commercial. I’m not sure why you say building all residential would be going rogue, since it would comply with the ordinance as it’s written. But in any case, the Commission could clarify the matter by putting it in writing when the application is accepted, and should probably clarify the ordinance at some point.
Probably the bigger issue to my mind is what kind of housing goes in. To update readers: There is no developer for this property. The seller is applying for annexation. So we don’t have a real plan from a developer, just a vision of what the property would look like from the seller and the City. A developer will have its own ideas, and the limits on what goes in are placed by the MU ordinance and economics (unless the Commission adds restrictions now).
So one concern of Board member Marc Wisniewski is that we would expect some sorts of housing to bring in more students than others. Townhouses probably more than low-rise condos, for example. And the MU ordinance allows for “detached townhouses” — undefined, but presumably small lot single-family detached, much like what’s right across Winn Way from DeVry — which we’d expect to have still more students.
So what are fair comps for estimating the number of students? There would have to be a range that corresponded to the range of allowable residential housing. And Pat and I are working with both the City and CSD to develop such a list. Wisniewski also questioned whether apartments outside the City reflected the attractiveness of the schools, so we’re looking at comps inside the city.
So it’s a bit premature to say it’s a “safe bet” for CSD, bearing in mind that they need to think not only about expenses vs. revenue, but where the students will go. I would not be at all surprised if the School Board found a way to get behind this — in fact, that’s what I expect — and that would surely make it more sellable if they did. But the meeting Tuesday did leave the Board with some outstanding questions.
Let me start out by saying that I don’t think that looking at a range of comps is a bad idea. I look forward to seeing it. Though I wonder why I should trust one statistics bearer over the other, when the city is apparently overly rosy and you seem overly wary. And at the end of the day I wonder whether we should be making decisions based on MOST LIKELY or WORST-CASE.
Also if it’s possible (and not a losing legal argument) I have little problem with the commission putting a minimum on the % of commercial built if it’s annexed.
Having said that, I’m not as concerned as you about what ultimately goes in, based on the very real economic reasons cited by Amanda and Scott and because Amanda flat out said that she would deny a single-use detached-townhome complex (do such things even exist?).
In response to Wisniewski and Pete below…I wonder where they’re finding examples that more expensive condos in better school districts have a higher % of families. In my mind it’s more likely that less-affluent families w/kids would live in condos or apartments – due to lack of options – than in more affluent areas. That worry seems to be based on assumptions that haven’t been proven…though I could argue that it’s already been disproven by the fact that the latest best-guess # of families with kids downtown is a paltry 1%.
What happens, DM, if a developer cannot be found to redevelop the DeVry campus in the next 4-5 years in the high density, mixed use project that everyone wants to see there? Can the city force the property to be unused forever? If so, the property value and marketablity would begin to decline, and those revenue projections would not come to fruition because the city is essentially preventing development.
No, that is not the way it would work. Most likely, the property would be rezoned again to some use that would be economically feasible whether it is strictly commercial or lower density residential. Without a developer in hand, no one can predict what is really going to happen with this property.
Believe it or not, Peggy and Amanda are not going to be here foreever. New people with different ideas will come along. The current city commission (and school board) is not going to look the same in 10 years.
Anything is possible once this property is annexed. That is why I say that Peggy going up there and saying that annexation would only bring 20 students into the system at most, disingenuous at best, deceiving at worst. Unless she is putting up the money as the developer (or the city is) she doesn’t know what is going to happen there.
How can the City’s estimate be both overly rosy and most likely? Actually, I haven’t given an opinion on what’s most likely nor do I have any statistics to offer yet, so mine can’t be overly wary. I don’t know what’s most likely. I do know that if someone wanted to buy 22 acres for $5.5M and sell 1/3 acre lots for 300+, they’d make a whole lot of money. I know commercial real estate is in the tank and residential in Decatur is doing, not great, but better than most. I know developers are looking for anything that might move right now, and I know that the MU ordinance allows for family-oriented housing. Do I say that’s most likely? No, but it seems plausible and not a huge stretch. If you want an example of what I’d guess is meant by detached townhouses, look across Winn Way at Sycamore Ridge. Or Village Walk. It needn’t be ALL that sort of thing to begin affecting the math. They were purposely included in the MU ordinance so they have to be considered.
As for the comps, I don’t know any more than anyone else what they’ll show once they’re in. They might show wins down the line for CSD for all I know. For what it’s worth, Pat and I consulted with Amanda on what would be suitable comps, so we’re not trying to slant the results — though I’m sure we’ll be discussing which ones are suitable and which ones aren’t after they’re in. But, hey … more data is a good thing.
I said “apparently overly rosy”, meaning I don’t necessarily buy the classification.
I didn’t think either Sycamore Ridge or Winn Way classify as townhomes. Guess we need clarification on what a detached townhouse is. And I guess you don’t buy that the city has the power to reject a single-use neighborhood like Amanda said above, based on the city’s conditional approval of a site plan.
As long as the zoning explictly forbids SFD (single family detached) housing or publicly subsidized rental housing, the tax dollars/child analysis will be wildly in favor of the Decatur and CSD.
In Atlanta metro and similar metros, families with children simply do not gravitate to market-rate attached housing. The overwhelming-our-schools boogeyman invented by NIMBYists just doesn’t hold up to scrutiny. So, let’s see if the NIMBYist shift the argument toward the what-are-we-doing-about-affordable-housing. But would anyone really hide their agenda in the guise of good intentions – certainly not in a land-use process.
Brad: The neighbors (at least those who came to the meeting on the DeVry campus) seem to be in favor, precisely because they trust the City to do a good job with this than DeKalb. So I haven’t seen any NIMBYism in this case, but it may emerge of course as things proceed. And the zoning does not explicitly forbid either SFD (in fact it explicitly allows for it in the form of “detached townhouses”) or publicly subsidized rental housing. I don’t know what we’ll find with respect to students in attached townhouses, presumably something in between.
I find it disingenuous that the city manager is comparing 3,500 apartment units outside of the city limits to the type of housing that might be built inside the city limits, as far as trying to predict the burden on our school system. Sounds like she is trying to sell a bill of gooods.
Do you think that the type of housing built on the Devry campus may be more like the apartments outside the city limits or something more high end that might attract more families with children? I don’t know but when we are spending over $14,000 per student, it doesn’t take much of misfire in the number of predicted students to go from a positve cash flow situation for the schools to a negative one.
What if the actual number is 10% instead of 3% because the type of housing built is just a little more attractive to households with children than the cheap apartments across the street? Even under the City’s rosy scenarios, full development of the property would only bring in an additional $550,000 in revenue to the school system. Just an addition of 40 additional students (at $14k per student) would make this a financial negative for the schools.
I hope that the school system does its due diligence here and doesn’t just give in because this is something that Czar Merriss and Emperor Floyd want to do. The financial incentives for the city are far greater to do this than it is for our school system.
Regardless of the outcome, my experiencve is the Decatur’s zoning stewardship will be far superior to that of Deklab. If Decatur wants to discriminate against children via zoning, do it like Cobb County does by limiting the number of bedrooms per unit. Modifying the MU zoning to tailor the use is completely legitimate. However, the children/unit of attached housing rarely exceeds 3% in wealthier commuities like Decatur. In less affluent areas, it can be higher, but find new apartments that are market rate with 10% children and I will eat it. Also, higher-end apartments have lower rates of children/unit. Quit fear-mongering.
No, actually, Brad, Mayor Floyd is elected by voters in the north side of the city and is “elected” Mayor by the votes of the city commission. I’ve never had the opportunity to vote for or against Bill Floyd and certainly have not had the opportunity to elect Peggy.
Hey, Pete, Mayor Floyd is elected by the voters and Ms Merriss is appointed by the elected City Commission. I hope you have been one of the 20% of voters who have voted in City elections.
Sorry, I meant to say in respone to Steve that I’ve never had the opportunity to elect Floyd “mayor” or city commissioner or whatever.
What does Decatur’s purportedly superior zoning stewardship have anything to do whether this annexation is good for the City of Decatur and its school system?
And unless Brad Steel Development Corp. is going to develop this, you don’t know what will be developed there.
Dekalb County’s land use controls, including zoning, are horrible for communities and great for developers. Those of Decatur are much more balanced and IMHO produce some of the best results in the metro area.
Currently, in the medium term and if zoning allows, the most marketable use of the site is similar to other nearby developments – a big surfaced-parked apartment complex. Traffic patterns won’t support retail and other types of lower density housing won’t produce the returns of a big apartment property.
If we’re going to speculate potential outcomes, they need to at least be plausible. Why are we even suggesting that some developer would buy land that’s priced/valued on the basis of its being entitled for 500+ units, then petition the city to change it to single family residential, thereby cutting its potential returns by up to 80 or more percent?
Add to that that a number of sources now say the U.S. has sufficient single family homes *already built* to meet market demand for such homes until 2030.
Read the trends. Between the Baby Boom (now retiring) and the Echo Boom (now young, single and lovin’ it), there will be unprecedented increases in demand for compact and walkable, transit-friendly, low maintenance urban living.
As many here know, I’m all for doing the forecasts. But the forecasts need to based in reality. I agree with Brad; to just throw out “possible scenarios” that have no basis in the business of real estate development or any relationship to where market trends are going is just fear mongering.
Establish plausible scenarios, agree on comparable factors, and do the math. I gots no problem with that.
I agree with Scott. If we’re going to speculate potential outcomes, they do need to at least appear as probable. I did read the trends, Scott, and I’m lovin’ it.
I have a habit of only agreeing with commentors and not creating my own topic of discussion. Decatur Metro, what do you think? Is DeVry Property a potential Burden or Cash Cow?
-Man on the Moon
The only thing that’s more overbuilt than SFD in Atlanta at the moment are condos and townhomes.
In addition I really don’t think the financing is there at the moment. 52 banks and counting have been taken over by the FDIC this year. Most of them were of the developer piggy bank variety.
So the money side of this will be problematic for the foreseeable future.
Any dev with cash right now could hammerlock the city for anything it wants, zoning variances, infrastructure improvements, you name it.
But I really think it’s going to be a long time before any project of this size get built in Atlanta without government money.