Wednesday, June 3, 2015

Real Estate and Economic Analysis of Commercial Vista Corridor seems Thin

The Commercial-Vista Corridor Study has a new memo out on land use, real estate, and development, and its conclusions seem hampered by autoist assumptions. At the same time, it points to how difficult it will be to make changes that are not merely cosmetic.

At the center of it is the analysis of ratio of building value to land value.

The parcels in blue have the highest ratio of 2.0 or greater - that is the buildings are assessed with values at least two times the assessed value of the land by itself.

The parcels in red and orange, on the other hand, have buildings valued at half of the land's value - or less.

(St. Barbara's Cemetery is the largest red parcel, and it is odd that they didn't simply leave it "blank," since this ratio of building:land value is a wholly irrelevant metric for that parcel.)

So what about those parking lots?

Instead of building/land value, would property tax/acre be a better metric?

Mid-rise downtown development generates 10x
property tax/acre over suburban big box sprawl
(see here for discussion and image credit)
It happens that Joe Minicozzi, the author of that graphic and associated analysis, was in Eugene recently.
Joe argued during his talk that per acre, dense, highly valued downtowns generate much more public wealth than low-density subdivisions or massive malls by the highway. He pointed out how low-density development isn’t just a poor way to generate property tax revenue, it’s also extremely expensive to maintain. By comparison, dense downtowns cost considerably less to maintain in public services and infrastructure.

Cities can generate wealth not by raising taxes, but by better exploiting the economics of land use. Joe offered a simple analogy: When shopping for a new vehicle, we often evaluate its fuel economy. We look at miles-per-gallon, not miles-per-tank, because tanks come in all different sizes. Joe says we should look at buildings in exactly the same way. An illustrative comparison is the tax revenue per acre generated by a sprawling Walmart Supercenter versus that of even a modest multistory downtown mixed-use development: the downtown project returns a much higher level of tax revenue per unit area in return for the services it draws upon.
By itself property tax/acre still might not tell us enough in the analysis. But I'm pretty sure that the building/land ratio alone also results in a meagre analytical gruel. (It could also be hampered by errors or problems with our assessment system - but that's a whole 'nother ball of wax!)

The blue is mostly parking lot!
I'm just struggling to understand how any analysis that finds great value in surface parking lots can be that credible.

It seems to me that a relevant metric needs to account for the square footage of the building that's actually generating value, and then sets aside the parking lot - which is "free" parking and not generating a direct revenue stream - as ancillary and not a direct part of the economically productive unit of real estate. (Even though they might round to zero right now for this particular analysis, people arriving on foot, bus, and bike also participate in the economies of these businesses, and they aren't using the parking lots at all - so that's an important definitional way this metric is flawed, assumes that only people using cars are economically productive, and contributes to a circularity in argument when what we want to do is improve things for people on foot, bus, and bike.)

At least property tax/acre as a metric does in an indirect way account for the square footage of the building.

This is not the first time that real estate analysis from the Leland Group has seemed thin.

You might recall the study on the north campus of the State Hospital.

Streetcar-scaled and walkable retail
doesn't have to mean convenience stores
It employed strange definitions of "significant retail centers" and "nearby" and thought of mobility almost exclusively in auto-dependent ways.

This study on the Commercial-Vista corridor repeats some of the autoist assumptions and bias.
The area’s high traffic speeds and a lack of on-street parking mean that auto-oriented uses will continue to be the dominant character in the study area, especially for properties fronting along Commercial Street.
But this could change! And in fact part of the reason for the study should be to change this and point the way to higher value and more efficient development. But parking trumps everything:
As noted in the Task 2 Memo, parking requirements in the area will dictate the type of development that can occur within the study area. The City’s regulations will help encourage less parking, although the market will still demand enough parking to satisfy the pass-through customers. Off-street parking ratio requirements are at “suburban levels” of 4 per 1,000 square feet of development for retail and 2 to 3 per 1,000 square feet for personal and financial service uses. The code does allow for off-street parking to be located within 500 feet of the associated use in a non-residential zone, and allows for shared parking agreements. Parking requirements will limit certain development types, especially vertical mixed-use development. There simply is not enough space, especially on smaller constrained sites, to park both the retail and the housing above. Even if the City were to drop parking ratios or requirements, the market in this area would expect to have parking available comparable to other suburban properties, and developers would have a hard time leasing space without sufficient parking....

Most buildings in the study area were built to accommodate cars. Retrofitting to make the area more pedestrian friendly will be difficult for many properties. Traffic along Commercial Street is fast-moving and noisy, which will limit pedestrian activity, especially for businesses fronting along Commercial Street.
It seems like the project should be less eager to accept 20th century assumptions and conditions, and more interested in pointing the way to 21st century change.

A difficult site, with much turn-over;
currently the Blue Diamond.
Formerly the swampy pond and vacant restaurant pictured here.
 But then there is this:
Generally the study area is healthy, with a lot of economic activity currently taking place. Several properties are for sale or have recently sold. New construction is fully leased and healthy and parking is highly utilized during peak times.
When I walk and bike this corridor, "healthy" is not the first word that comes to mind! Pawn shops, liquor stores, fast food joints, strip malls, and parking lots are what I see. While it is true that a jumble of different kinds and intensities of uses - a uniform monoculture of gentrification is too often pernicious on the flip side of this argument - is important, it seems like a stretch to say that this corridor has the right balance just now. The analysis could have said more about the current balance.

It also empties out at non-peak times.

Wilco's going in now, but would a "healthy" corridor
really take so long to generate a new use for former Safeway?
At the very least this is a counter-intuitive definition of health. The corridor's not blighted, but it doesn't seem very vibrant by any definition of "health" we should want to recognize. As long as we define and frame health in limited, car-dependent ways, it will remain difficult to create change. In this regard, the memo and its analysis fails the larger goal of the study and remains bounded by 20th century assumptions.

(Alas, the data is surely proprietary, but it would be more interesting to see how sales at this Roths and this Fred Meyer compare to the sales of their other stores. We need a deeper comparative approach before we blithely conclude the corridor is "healthy.")

Anyway, this is a conservative and insufficiently deep analysis, oriented towards keeping things the way they are with cosmetic change rather than a visionary and trenchant analysis, oriented towards the future.


Anonymous said...

It confirms what most know to be true. Salem isn't changing anytime soon. If you are in to stripmalls, you are in the right place.

Jeff Schumacher said...

The memo also suggests opening Fairview Avenue to eastbound traffic because "its closure places a burden on the businesses located on the southeast corner of the intersection of Fairview Avenue/Alice Avenue and Commercial Street and decreases their economic vitality."

This is a fascinating suggestion. Apparently, Salem drivers need two entrances into a strip mall for that mall's tenants to be fully successful (or at least un-burdened). Yet I believe all of the tenants in the strip mall on the SE corner (which includes Subway, Jamba Juice, SFNY, AT&T, AutoZone, and more) located there after Fairview was closed off to eastbound turns from Commercial. And the tenant population in that strip mall has enjoyed a low turnover, which would indicate they are doing just fine.

The fact is that opening up Fairview would have little to no measureable impact on the adjacent businesses, but it would have a significant impact on through-traffic in neighborhood along Fairview. It would also likely impact traffic on High Street, including the area next to McKinley Elementary School.

The idea that Fairview should be opened up to eastbound traffic to help certain businesses is offensive to any objective analysis. Also, the idea that the City would somehow institute "traffic calming measures" to help mitigate any effects seems like wishful thinking. Our neighborhood has been unable to get the City to make any traffic calming steps on Rural - why would Fairview be any different?

Anonymous said...

Good point about Fairview Ave. One wonders if the problem posed by the lack of a driveway on Fairview is the result of interviewing businesses and a look at comparative sales data - or if the "problem" is actually just that the received wisdom is that "of course a corner lot needs driveways on both streets," and is therefore another "autoist assumption."

Anonymous said...

Also, the post doesn't point out that the intro reveals they didn't walk or bike the area, and may have talked only with a broker, not with business owners/managers. Did they even get out of their cars and actually touch the ground?

"On April 9th, Leland Consulting Group conducted a driving tour of the study area and met with City staff, other consultant team members, and a local broker to become familiar with conditions on the ground."

Anonymous said...

Sorry. One more. It's even worse than this re: Fairview. There is actually a driveway off Fairview, open only to west-bound traffic on Fairview. (Missed this at first.) This means the only east-bound traffic that would be affected is that coming down from Alice. Alice goes just two or three blocks and terminates at Mountain View. The "burden on business," the amount of business lost to the closure on Fairview, would be entirely local, just a tiny amount of short-hop car traffic from the immediate neighborhood - trips that should be made by walking or biking instead! As Jeff says: "offensive to any objective analysis."

Anonymous said...

The property with the caption "The swamp pond and vacant restaurant site" is currently The Blue Diamond" which is an attractive bar and pool room.
The "swamp" is a beautiful pond with blooming water lilies and is surrounded by blooming irises.

Salem Breakfast on Bikes said...

Thank you! The caption has been edited.

Anonymous said...

"The parcels in blue have the highest ratio of 2.0 or greater - that is the buildings are assessed with values at least two times the assessed value of the land by itself."

It looks like they used GIS shapefiles of the tax lots to conduct the analysis (the light gray borders within the colored areas). Many of those parcels don't have any buildings on them at all (only parking lots).

Certainly looks like they were contracted to validate a pre-determined outcome favoring the status quo. Sad, but not surprising.

Anonymous said...

I don't think the I:L ratio "overvalues" parking lots. It just reflects the low value of land in Salem. A one story building that only covers 1/3 of a lot can generate a high I:L when the land is worth less. That is why in areas where land value is high (Portland, Seattle, NYC, etc.) there is a strong financial incentive to extract the highest return possible by developing a lot to is maximum potential (which means more building and less parking). Generally higher land values are in the city center and the value of land decreases farther out (bid/rent theory). That is why cities generally see higher intensity (more walkable) development near the core and less intensity (auto oriented) at the edges.

If they did just look at the tax files then they are looking at assessed value and not market value. The true value of the land is likely higher than is reflected in this analysis. This would explain some of their contradictory anecdotes a that there is a shortage of quality retail spaces in the area.