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Thread: Cities investing in property they own, please shed light

  1. #1
    Cyburbian Ringo's avatar
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    Cities investing in property they own, please shed light

    Could someone with more experience and insight please shed light on this idea of mine.

    What can/does stop cities from using its city owned buildings, houses, property as a source of investment?
    Is there a way for a city to put the minimum amount of money in to say a house it has acquired, the minimum amount to get it to pass all codes and be able to occupy, also do maintenance and make it livable. Then rent said house out to a community member, all profits will go to a "bucket" and anything after paying taxes and any other expenses will go back in to renovating the property after say 5 years or so. Reinvesting in the building, I guess sort of like a single site CID. Rerpeat this in areas that need investment, if no one is investing in the area atleas the City can become the catalyst with its property.
    Or.
    A city owns a neighborhood grocery/convenience store, the type to get daily goods etc. all profits go back in to the building or use the profits to improve the neighborhoods.

    Is this Pie in the Sky, is this possible, has this been done, give me some devils advocacy, what stops a city from using this program.

  2. #2
    Cyburbian WSU MUP Student's avatar
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    The most simple explanation is that the community generally does not want to be in the business of being a landlord. In most cases, the legal liabilities combined with the the required maintenance and improvements, not to mention marketing efforts are not worth the hassle in terms of time or money. In some areas there are also provisions that restrict the communities from operating for-profit enterprises, no matter what those profits go back into. From what I have seen around these parts, if the property somehow ends up being owned by a community, especially a residential property, they are in pretty bad shape and often require significant improvements just to get it back to code.

    A more likely scenario is that the community acquires a parcel of land (house, store, office building, etc.) through whatever method and then gets the property into the hands of a non-profit or community development agency that has the required specialized skillsets and resources to get it on the market for whatever use. If it is a more prominent piece of property (maybe a significant parcel downtown or a large lot somewhere desirable) the community might put the piece of property on the market and put out an RFP for developers and solicit bids that would allow the community to sell the property at market-value, or sometimes below market-value but with significant stipulations/influence on what gets developed there.
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  3. #3
    Quote Originally posted by Ringo View post
    Could someone with more experience and insight please shed light on this idea of mine.

    What can/does stop cities from using its city owned buildings, houses, property as a source of investment?
    Is there a way for a city to put the minimum amount of money in to say a house it has acquired, the minimum amount to get it to pass all codes and be able to occupy, also do maintenance and make it livable. Then rent said house out to a community member, all profits will go to a "bucket" and anything after paying taxes and any other expenses will go back in to renovating the property after say 5 years or so. Reinvesting in the building, I guess sort of like a single site CID. Rerpeat this in areas that need investment, if no one is investing in the area atleas the City can become the catalyst with its property.
    Or.
    A city owns a neighborhood grocery/convenience store, the type to get daily goods etc. all profits go back in to the building or use the profits to improve the neighborhoods.

    Is this Pie in the Sky, is this possible, has this been done, give me some devils advocacy, what stops a city from using this program.
    Side note... I seen a fairly large community dabbling into this type of thing. They had ambitious plans, but almost nothing happened due to the complexities of the permitting process and the the zoning codes. The city wasn't able to get sign offs on their own initiated work -- it got so bad that the city council had to pass an zoning amendment for the entire city, making it easier to build. I thought it was a good learning experience for everyone involved; it's good for a planner to experience things from the other side of the counter from time to time.

    Back on topic, this is usually the mission of redevelopment authorities. They may be public or quasi-public. They may even get a tax exemption as a public body. I've seen it more with commercial properties, where the redevelopment authority rents outs space and uses the revenue as investment into their operations. No so much for the single-family houses. For residential it's usually buying blighted land, with or without eminent domain authority, and then contracting with a developer to redevelop the property. For legal\liability reasons, it's usually an arm of the city, and not the city itself, carrying out these types of transactions. So not pie in the sky at all, depending on your location in the country.
    The content contrarian

  4. #4
    Cyburbian Masswich's avatar
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    Sort of. For housing, there are Housing Authorities (which many cities work closely with), Community Development Corporations (ditto) or non-profits. For commercial developments, CDC's have been known to take that role. Or Redevelopment Authorities.

    I was involved in a project that turned a surplus piece of City owned land into mixed-income housing (actually a couple of them.) But in all those cases, other than site prep, third parties did the actual development.

    Government is actually good at some things. In most cases, actual development and property management are not among those things.

  5. #5
    Cyburbian dvdneal's avatar
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    I just leave it that cities aren't there to compete with the private sector developing houses or being commercial landlords. We can help fill in a need, but we want the private sector to take the opportunity. I can see helping out like creating tax free space on buildings the city owns for specific uses or somehow artificially altering the market to allow for private sector possibilities.
    I don't pretend to understand Brannigan's Law. I merely enforce it.

  6. #6
    Cyburbian RandomPlanner's avatar
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    This is not to say that the City can't make a little money on dilapidated structures. The scenario could be: the City acquires the property (through tax lien, abandonment, or donation in some cases); the City stabilizes the property if need be; the City sells the property. In a great situation, the City makes a little money in the process and is able to use that money for a good cause -- like maybe a stabilization grant or revolving loan program. The Municipality is not prohibited from making money on property. It just is not generally done from a landlord point of view.
    How do I know you are who you think you are?

  7. #7
    Cyburbian Plus
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    Are you asking about a Land Bank ?

  8. #8
    Cyburbian
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    It's not in the public sector's mission to make money. It seems to me that they typically sell property below market rate in order to get something more desirable than money out of the deal - affordable housing, urban core development, sustainable infrastructure, roadway improvements, etc, etc. Or, at least it can be done that way. There's a local housing authority here that operates under a JPA (city/county), and they own lots of property, and manage it. Why? Because in CA that's sometimes the only way affordable housing stays, well, affordable.

    Back to the original point: I think the biggest reason why cities do not develop their own property has to do with funding and real estate risk. It takes lots of capital to develop sites and then there's always the risk that they won't be able to sell it and/or will lose out on their investment due to poor vacancy rates, etc. But if you're talking about retaining all their property, developing subdivisions, in-fill, commercial, etc. and then selling out to private citizens (aka skipping the developer middle-man) it must have to do with risk, money, and public policy. To do that would also require a much larger staff than many cities have. Lean six sigma, right???

  9. #9
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    In my experience in over 16 years in the development world on the private side, municipalities do a horrible job with redeveloping properties and acting as landlords. That just isn't the type of thinking employees from local governments do. That's not a criticism, its just played out in the overwhelming majority of my professional experiences. It's a mindset issue that's complicated by procurement realities.

    Being bounded by having to go through a cumbersome RFP process (that isn't advertised very well), consistently leads to poor tenant qualify...which consistently leads to vacancy and losing money.

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