Throwing Money In Holes
First, a shout out to the Arkansas CCIM Chapter and Rex Nelson for a good program on economic development last month. The question and answer session had some good dialogue regarding hurdles to Little Rock’s economic development. Specifically, and not surprisingly, public safety was a hot topic of conversation. Little Rock City Director Lance Hines was at the meeting and was willing to answer some questions from the audience. Thanks to him for that. The next CCIM CRE lunch is October 12. If you are reading this column, you need to be attending these CRE lunches.
Pulaski County Assessor’s office has completed a county-wide update of property values. Assessed values for property taxes are based on the appraised values. I’ve not seen a summary of the total numbers of properties that saw increases in those values. However, there are enough increases that many commercial real estate professionals are busy right now with appeals to values that have increased more than expected. I know I’ve got some clients who wish someone would offer what county appraisal says it is worth. As an aside, and I don’t remember who told me this so I can’t credit them, years ago someone shared with me an idea for a simple solution to property tax assessments. The idea is to let every owner value their own property. The check-and-balance would be that every owner would have to be willing to accept their value for their property, on the spot ... the idea being, owners wouldn’t under-value their property for taxes if that’s all they’d get on the sale.
Last month we talked about the potential upside of the sale of Bowman Curve. There are a couple of properties recently sold that may fall in that same category. Summit House right next to Park Plaza recently traded hands. The recorded sale price is $10,750,000. A statement released in conjunction with the sale said, “This will be a large repositioning project that will get a lot of buzz in the marketplace.” The property is on the books at 203,440 square feet with 165 units. The units vary in size from studio to 3-bedroom, and vary in view and floor location, so let’s skip per-door guesses (~$65K if you must). Maybe though it is worth a minute to think about the price versus replacement cost though. The four-acres at Summit House was being carried by the county, at $12 per square foot. I’d argue that the rising Midtown market had outpaced that value. We’ll use it anyway though for this exercise and call the land value $2,000,000. That leaves $8,750,000 to be allocated to 203,440 square feet. The result is about $43 per square foot. I’m not a construction expert. But I will wager you that to build a comparable 14-story apartment-home building today would cost that, PLUS $200 per square foot, and more. If you look at the values that some of the better complexes have traded for, and some of the downtown condos, there appears to be plenty of room to spend some money to rehabilitate Summit House. I’d argue that the location is superior to most, and Midtown is a rising market.
On the other hand, Mara Lynn may not yet be rising. About 258 apartment units were traded last month for a recorded price of $11,000,000. Given that these apartments are multiple buildings of garden-style, walk-up apartments, I’m pretty comfortable looking at this one on a per-door basis. The per-door for this collection of properties comes in at around $42,600 each. Here I’d wager that spending a bunch of money on rehabilitation may be like throwing money in a wishing well. It might be fun. It might feel good. At the end of the day though, that money is down at the bottom of a hole.
Let’s talk a little about throwing money in holes. When Shackleford Crossings was developed about a decade ago, that development team threw a bunch of money into the land. And there was a bunch of money (millions of dollars in fact) thrown into clearing, site work, relocation of an existing business, construction of off-site improvements (thank you Boundary Street Ordinance and Planned Development process), and construction of a “high street”-style shopping center, mashed up with a mini power center and a couple of discount anchors. This poor thing was the Spruce Goose of Little Rock, over-built and under-powered. This column doesn’t provide enough space to review all the valiant, yet failed, efforts put into this center. Like some others, this property has yet to have the right owner. The bright side is that there are some popular hotels and restaurants (one with an unplanned drive-thru added a few days ago) that are doing well here. This project is on the market and it may, or may not, fall in between the two apartment projects above. There is certainly room for improvement of this center. To raise the occupancy of it will take considerable cash. The question, in my mind anyway, is, can it be bought at a low enough price to leave room for the capital expenditure needed to do what is necessary to lease shop space that has been empty for so very long?
And something that to my eye fits a pattern is the pending sale of Pavilion Centre. This is the 20-year old building next to, and taking its name from, Pavilion in the Park on Cantrell Road. No sale is yet recorded. However, after being asked about the blooming of survey flags around the property, a party associated with the owners confirmed to me that there is a sale working and no details were yet available. So keep an eye on that. There may or may not be changes planned for that property.
There are changes planned for some wooded properties in Chenal Valley. After zoning approvals for senior living centers, two projects are cleared to move forward. Crest at Chenal, LLC had purchased land near Walmart on Chenal Parkway at AR Hwy. 10 way back in February and had to wait until last month to have all the go-aheads needed for approving the use of the property. The cost for the 10 acres came in just a touch over $100,000 per acre at $1,030,000 (~$2.36 psf). In the meantime, Chenal Pines Retirement Community waited until AFTER getting all the necessary approvals before closing a sale of right around eight acres at the NW corner of Chamagnolle Drive and Rahling Road. The price for that land was recorded to be $3,099,311, or almost $390,000 per acre (~$8.88 psf). Given the number of people in the area that protested, especially against the Chenal Pines project, one might expect there to be several houses for sale around both sites. I mean, after the huge number of residents in opposition to the Walmart on Chenal Parkway, the area nearly became a ghost town with all the people moving away and other people unwilling to move to a neighborhood with convenient shopping. (Yeah, ... right.)
I’m out of room this month. One quick shout out to Mayor Jill Dabbs and the staff and volunteer leaders of the City of Bryant. I had occasion to see first-hand how seriously Bryant takes economic development. As I told them, if every community in Arkansas worked as hard as Bryant does to attract investment, way more of Arkansas would be near the top of good lists instead of being leaders on the bad lists. My observation is that they are good people doing good work for the good of their community over the good for themselves.
Tips and suggestions, well most of them anyway, are appreciated. Hope you found something interesting in the column this month. Check back again next month for the things that didn’t get included here this time and that pop up between now and then.