It’s a Mystery to Me

Click for Larger ImageAccording to this morning’s Herald, the activity on the old Rosemurgy building is a bit of a mystery. I certainly hope that some freelance demolition guys didn’t get their orders mixed up. Apparently someone bought that property, but so far, no plans have been announced. Jim Rosenberg was quoted in the paper as saying it wasn’t a City operation, so apparently something private will be built there. Let us hope that it will be in some way residential and not more retail or office space.

This is the kind of post that gets some people thinking I am anti-development, which is not actually the case. I am for smart development. And at the moment the logic of things around here escapes me.

Walking around downtown shows quite of bit of empty retail space.  From the mall the Landmark to Washington Square, it is not hard to find a place to sell something to folks. And it is not just downtown. Rib Mountain Drive is still being developed, with a new strip mall there. Work has already begun over on Stewart Avenue on retail and office space. And over in Weston, there are not one, but three new strip malls, two finished and one under construction. I guess folks think this is Iowa: “if you build it they will come.”

Now in general, when private folks spend their money on things, I don’t care very much one way or the other. In the case of this kind of development, I care a bit because it reflects on our area (both good and bad…new development is often desirable, but can be tacky and not very “touristy”). Also, it probably can’t be helped that new development takes a few (or a lot of!) tax dollars for infrastructure construction. But at this point I am not complaining one bit. But I am completely mystified.

People who develop real estate are generally some pretty sharp cookies when it comes to dollars and sense. After all it takes pretty big bucks to play the game. And probably they know something I don’t. But I have to wonder how they plan to make money from half empty malls and office buildings. It seems to me there must be some kind of loophole in some tax law somewhere that has bulldozers running around at the drop of a hat even though the existing storefronts are not full. A lalapalooza loophole, if the number of buildings is any indication.

Perhaps Dr. Rent or someone a lot smarter than me can fill us on why building is booming when our population here has grown only a tiny bit. But until then, it is a mystery to me.

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13 responses to “It’s a Mystery to Me

  1. I actually hope it is not residential in nature, the same way I had hoped the old Grand Ave K-Mart would stay commericial. The reason for that is simple money. City’s get most of the money from property taxes. In the case of the K-Mart on Grand, the raw value of the land (no building) with commericial zoning and use would be between $4 and $6 per square foot. By changing the use of the land to residential (even residential multifamily) the value of the land is now worth $2 per foot, $2.50 tops. So.. just by changing the use of the land, you change its value.. by lowering its value, it means that the city has to increase the tax levy to make up for that just to break even.

    When there were rumors that the county wanted the Rosemurgy land.. I was not happy. Residential would not be a good use for that parcel (same reason, lower the value and therefore be bad for ALL tax payers).. however, going into the county’s hands would take that fairly valuable piece of property completely off the tax roles and hurt all Wausau tax payers.

    As for tax payer dollars going into the infrastructure cost, most of the time, it is the developers tax payers dollars that are doing it. Athough TIF districts are designed to do this, we have worked with cities on incriment funding even when not in a TIF. Basically, the City looks at a project and says gee, this project will cost X dollars, and generate $Y dollars in taxes for us. We will “loan” the developer the money to pay for these city infrastructure improvements and they will repay the loan by the extra property taxes they are going to pay on the development.

    This response is already getting pretty long, but I do disagree with the statement that our population has not been increasing. You have to look at the entire metro area: Wausau, Schofield, Weston, Kronenwetter, Rothschild, Stettin, and even Mosinee. If you l0ok at the entire metro, population has increased, ALOT.

    Basically, the way real estate works is manufacturing is the end all – be all. Thats where the real good paying jobs are (although some tech jobs and health care jobs are giving the old standard a run for the money). Good paying manufacturing jobs attracts people with the big bucks that by those $200K+ houses. Once those people are here (or certain to come), they will need services, places to eat and places to shop. So now comes the Kohls and the Old Navys and the IHOP’s and the Applebees. These businesses need employees to.. but these employees tend to be the apartment dwellers. (Yes, I am generalizing.. but this is the 2 minute version of hours of real estate theory). Retail and service come and go, but if the big money jobs stay all is well. It is when manufacturing leaves the area that they system starts to go into decline.

    There’s my 2 cents. My first blog topic: Why Stewart Avenue from the river to the freeway should be renamed to University Ave. (Yes, I am strongly in favor)

  2. I like the response, but I want to add a little to it. Commercial and manufacturing property does indeed command a higher value in general, but that can’t be applied across the board to determine comparative value of a specific property such as the old K-Mart site. (As a group, commercial and industrial properties also require comparatively less in the way of services in comparison to their value. From a municipal government standpoint, getting more and paying out less is a compelling combination.)

    The value of commercial buildings can be very much impacted by their use or lack of it. The owners can therefore make a legitimate case that the cashflow of a property doesn’t justify its assessment for property tax purposes and it is an argument that can be won. (The tax loss involved in razing the buildings on the 400 block downtown, for example, was not nearly as great as it would have been had those buildings been occupied by healthy, going concerns.)

    In the case of the K-Mart site, I would have liked to see a strong commercial development plan, too. The choice that was on that table, however, was for a $6 million housing development. The success of the owners in renting the apartments is testament enough to the development as a good business move. While the city might have refused rezoning or passed on any involvement whatsoever, I think that would have been a mistake. One of the outcomes could very well have been foreclosing on the opportunity for a housing option that has been welcomed by the market, while leaving us still looking at the bombed-out grayfield of a vacant K-Mart building (a company that was bankrupt as we were doing this deal.) Time IS money, too.

    Beyond any consideration of general ambiance, the site today produces significantly more property tax revenue now than it was producing as a vacant, deteriorating commercial property. Moreover, those types of troubled sites are inclined to hold down other property values because the market in the surrounding neighborhood will frequently reflect the negative impact that such properties represent in their environment. (We’re not likely to reach our development goals along the waterfront on the east side of the river south of Bridge Street until we deal with the Save-O-Supply building, for example.)

    I often hear from people about different developments things to the effect that “I would have rather had a (take your pick: Olive Garden, grocery store, etc.). Yes, and maybe you would have rather married (take your pick: Brad Pitt, Britney Spears, etc.) The point is that you didn’t necessarily have the option to make the other choice, so it is more a matter of deciding whether real people with real capital invest right now are proposing something that is reasonable and compatible.

    Zoning laws and development initiatives are powerful, but it is also important not to be intransigent as public officials because something doesn’t always meet what might have been our ideal. It’s a difficult balance and sometimes, I would agree that the correct approach is not to allow something that falls far short of ‘highest and best use’. (I was happy to oppose the county’s acquisition of the Rosemurgy site and I think that over the next couple of years, the wisdom of preventing that acquisition will be illustrated.)

    The problem is that it is not just government that can make that determination. The market is a big part of the equation. I would argue that it is the most important part. It is also important to recognize that while there are many stakeholders, there are frequently different weights that should be placed on those stakes to come up with the correct balance.

  3. Thank you both gentlemen. This makes today’s announcement even sweeter. 🙂

  4. I will also say to John, in somewhat of an agreement with Jim, that yes, from a tax base standpoint commercial property is desirable. In fact a study in Dane County showed that light industrial property is the most lucrative for a county. The property value is high, but the need for services is low. Residential properties are, from a tax standpoint, net “losers” in that residential areas have a higher need for services, but with lower property values. It turned out that farmers were either socked the hardest (or were the best deal for the county, take your pick) because of the relatively high property value and virtually NO need of services. But that cannot be the last word on what to build or do. Maybe it cannot even be the first word.

    My thinking saying that I hope that property is not going to be retail or office space is my take on supply and demand, not property values. I would think that most folks would agree that EMPTY offices and shops, while maybe new and nice looking, are of very little value. Again, maybe they won’t stay empty for long, but it just seems there is a LOT of empty to fill up even now.

    So, again, I am mystified how so much money can be put into such projects when there is seemingly more than enough space for the businesses that want it. I would like to think that “development” here in Wausau is more than a game of musical chairs.

    The other element in my thinking is that I prefer to see a city in balance. In this country we have moved to a model that is somewhat like John might be suggesting. A city completely full of commercial property, surrounded by suburbs of residences. Speaking from my own esthetic and environmental standpoint, I don’t care for such a model. I like a small city where everything is mixed together.

    My 2 cents anyway.

  5. Supply and demand has some impact… but that assumes that if demand increases, that supply can also be increased. When it comes to down-town commericially zoned space, that is not the case.

    If a property is zoned manufacturing, but a new use that comes along that needs commercial zoning, that will almost always get approved. However, 10 years later when the commericial use has moved on and now someone who wants the space needs manufacturing zoning again, that is a much harder hurdle to climb.

    There is only so much retail/commericial zoned property in the downtown. And yes some of it is vacant now, but when real estate developers are looking long term, our long term is 15-30 years.. what happens in the next 5 years is of little consequence. For a building to sit vacant for 5 years until that perfect 25 year tenant comes is an acceptable (and budgeted for) business risk.

    Buy cheap, build now.. and wait in the long run is better than waiting for demand to get there, becuase then the cost to buy and build becomes more expensive, and the time it takes to do a development.. most new tenants want something in a few months, and if the space isn’t near ready to go.. you loose them.

    The problem comes into the supply of space. If the zoning or use of the space is change from commerical to residential, it would be (in 10-15-20 years) nearly impossible to change the zoning back. So, the supply has now forever been lessened, making the long term prospects for downtown commericial/retail less possible. Our planners need to look at Wausau 20 years from now.. not 5. (And what has been going on on the east side shows this long term focus, in my opinion).

    Something that makes people like me happy, Jim happy, and Bill happy are mixed use planned developments, where there is retail and office space and residential all as part of the same development, that is what we see downtown with the retail stores on the main level and upper apartments. Its how things were done way back when and is making a great come back.

    I just don’t want to see more commericially zoned land near downtown to be lost forever.. they aren’t making any more of it.

  6. I am so glad you added this, John. I was going to add to my comment that, having worked with you and listened to your Dr. Rent show many, many times, that you are certainly in favor of a very liveable city and not the kind of inner/outer city as I implied in my comment.

    The “new urbanism” that you allude to in this comment, mixed use planned development, is in fact a goal that I think we can all agree on. We want a thriving downtown with walkable streets with ample recreation. Wausau already has much of this, which is why we have chosen to live here.

    We may not alway agree as to the methods to achieve this goal, for example, I might like to see more public development downtown rather than private, but frankly it is usually a mixture of methods that lead to stable results.

    The “New Urbanism” that you suggest is a wonderful thing and a city the size of Wausau is perfect for that kind of development.

  7. I would agree that we are all singing out of the same hymnal. A great web resource for people interested in understanding the concepts of new urbanism:

    http://www.cnu.org/

    Former Milwaukee Mayor John Norquist heads the Congress of the New Urbanism.

    Particularly in the downtown area of Wausau, we have made some progress in the area of mixed use, as Dr. Rent points out. Commercial property is a somewhat limited commodity, but we still have a great deal of opportunity for redevelopment. Some of that is likely to involve taking property out of residential use and into commercial uses. We have already done a limited amount of that along the Bridge Street corridor and other activities in that area are likely going forward.

  8. OK, I will add one more comment. 🙂 John said that he didn’t want to see any more commercial property lost downtown as there is no more of it being made. Which is true in a way. But we should also keep in mind that nothing is forever. Property that was once residential is now commercial, commercial property is sold the the city or county, and the city or county sells property for both residential or commercial development.

    So even with a scarce resource like real estate, experimentation is possible and the tide of development can flow and ebb.

  9. Apparently the McD manager in the mall is telling people the new store on the Rosemurgy lot will be open in July.

  10. Frankly, I don’t see moving MickeyD’s from inside to outside as “development.”

    Also, the traffic flow there with the post office and the mall is already terrible, hopefully some thought will be given to that in the course of construction.

    Thanks for the tip, Lisa!

  11. STARBUCKS I SAY, or RED LOBSTER

    or

    OLIVE GARDEN

    or

    BORDERS BOOKS

    HMMM

    A TREND?

  12. wausau has three starbucks so far.. so think we are doing well there. We just don’t have the per capita income for the Olive-Lobster folks..

    That’s an awefully big parcel just for one fast food place and the per square foot cost of the land just doesn’t make sense to me.. thats alot of burgers.

  13. No, I was just mocking the endless refrain of some folks. I think it becomes some interesting ideas of office space. It is a great location.

    What about the Wausau Community Foundation building a new building?

    Or, a…ahh I do not know.

    MacWorld is tomorrow.

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