DECISION MAKING FOR SALES OF
URBANIZED NATURAL RESOURCE LANDS
by
LISA SUSAN VERNER
Bachelor of Arts
University of Redlands
(1974)
Master of Urban Planning
California State University, San Jose
(1979)
SUBMITTED TO THE DEPARTMENT OF ARCHITECTURE
IN PARTIAL FULFILMENT OF
THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT
at the
INSTITUTE OF TECHNOLOGY
MASSACHUSETTS
1987
July,
) Lisa Susan Verner 1987
The author hereby grants to MIT permission to reproduce and to
distribute copies of this thesis document in whole or in part.
Signature of Author
Certified by
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. - - - - - - Lisa Susan Verner
Department of Architecture
July 31, 1987
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- -..-Gloria Schuck
Lecturer
Management
of
School
Sloan
Thesis Supervisor
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Michael Wheeler
Chairman
Development
Estate
Real
in
Program
Degree
Interdepartmental
Accepted by. .
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it's-.
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DECISION MAKING FOR SALES OF
URBANIZED NATURAL RESOURCE LANDS
by
LISA SUSAN VERNER
Submitted to the Department of Architecture
on July 31, 1987 in partial fulfillment of the requirements
for the Degree of Master of Science in Real Estate Development
ABSTRACT
This
thesis
examines
the
decision
making
process
It hypothesizes
sale of
urban real
estate.
concerning the
that a structured decision process captures the value of urban
real estate.
It
utilizes examples from the Washington State
For
DNR, urban
lands are
Department of
Natural Resources.
those in transition from principal forest or agricultural uses
urban environment such as
of an
to uses
more characteristic
residential, commercial, and industrial applications.
income
has a
history
of
concern
for
The Department
administers.
The past
benefit the
trusts it
production to
timber production and sales has shifted in recent
reliance on
years to include an appreciation of income producing potential
While the Department does not see itself
on non-timber lands.
land developer, it does realize that urbanized lands are
as a
to be developed and sold than as
as properties
more valuable
timber producing resources.
By structuring the decision process, property evaluations
continuity.
have
and
comprehensive
will
be
and decisions
reviewed to determine usage of any of
studies are
Three case
The thesis will
the decision process.
steps in
three basic
as
commonly
guidelines, such
other general
examine whether
accepted financial tools, were part of the decision process.
process allows it to be
the decision
Standardization of
It ensures that all
property.
property to
transferred from
must
also
The
process
are considered.
important factors
to
take
makers
to
allow
decision
enough
remain flexible
still
but
as
they
arise,
new
opportunities
advantage of
package and sell an
how to
in determining
provide guidance
urban property.
DNR
towards
could
help
making
guidelines
Decision
The thesis proposes a model
consistently successful outcomes.
process that will help agencies such as DNR decide how to best
market them and deal with prospective buyers.
prepare lands,
structured decision making approach to
using a
It recommends
recommends strategic alternatives for
It also
capture value.
to
be
used
can
which
contracts
the construction of sale
capture additional portions of a property's value.
Gloria Schuck
Thesis Supervisor:
Lecturer, Sloan School of Management
Title:
2
ACKNOWLEDGEMENTS
I would like to acknowledge and thank the
their contributions to this thesis:
following people for
1.
Don Vogt, Manager, Project Development of the Real Estate
Division, and Rod Hilden, Manager of the Real Estate Division,
for giving me the opportunity to undertake this examination of
DNR's sales
of urban land and for their pioneering efforts to
gain public benefit through land development;
2.
Gloria Schuck, for her guidance and commitment of time in
the shaping and production of this thesis and for her generous
support over the long distances involved;
3.
The Center
for Real Estate Development, collectively and
individually, for
giving me the opportunity to spend one year
of my
life in a most enjoyable, enlightening and challenging
program;
4.
Heather
McCartney,
for
her
friendship,
support throughout this whole year; and
wisdom,
and
5.
Shinko Mondori,
for discovering
the
CRED
program and
encouraging me
to expand my
horizons
and
for
his
loving
support of my efforts.
3
TABLE OF CONTENTS
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14
POLICY DEVELOPMENT.
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I.
INTRODUCTION. .
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II.
DECISION MAKING FRAMEWORK .
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III. HISTORY
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URBAN LANDS
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CONCLUSION......
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BUCKLIN RIDGE.
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PROPERTY VALUATION. .
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43
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46
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SITE IMPROVEMENTS
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PUBLIC OFFERINGS.
C.
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HISTORY
B.
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LEGAL AUTHORITY
CASE STUDIES.
A.
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CONCLUSION. .
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REDMOND HEIGHTS. .
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27
HISTORY
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48
OPTIONS
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PROPERTY VALUATION. .
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PUBLIC OFFERINGS.
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CONCLUSION. .
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CANTERBURY COURT
HISTORY
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OPTIONS
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PROPERTY VALUATION.
PUBLIC OFFERINGS.
4
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CONCLUSION.
V.
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70
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73
DESCRIPTION OF DNR.
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74
FINANCIAL ANALYSIS.
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76
PORTFOLIO MANAGEMENT.
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80
REAL ESTATE MARKETING
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85
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88
REAL ESTATE AND FINANCIAL LITERATURE.
CONCLUSION.
VI.
ANALYSIS AND CONCLUSIONS.
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COMPARING CASE STUDIES WITH EACH OTHER.
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89
89
COMPARING CASE STUDIES WITH DECISION PROCESS 91
CONCLUSION. . . . . . . . . . . . . . . . .
VII. RECOMMENDATIONS
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STRUCTURING THE DECISION.
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PARTICIPATING IN THE UPSIDE
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94
95
95
98
CONCLUSION. . . . . . . . . . . . . . . . . 100
VIII.SELECTED BIBLIOGRAPHY . . . . . . . . . . . . . . . . 102
5
LIST OF EXHIBITS
EXHIBIT 1 -
BUCKLIN RIDGE TIMELINE
EXHIBIT 2 -
REDMOND HEIGHTS TIMELINE
EXHIBIT 3 -
CANTERBURY COURT TIMELINE.
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44
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60
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72
LIST OF MAPS
MAP 1 -
PUGET SOUND REGION: CASE STUDY LOCATIONS
MAP 2 -
BUCKLIN RIDGE:
MAP 3 -
REDMOND HEIGHTS:
MAP 4 -
CANTERBURY COURT:
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25
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28
VICINITY MAP.
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47
VICINITY MAP
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63
VICINITY MAP.
6
I.
INTRODUCTION
This thesis examines the sale of urban real estate by the
Department of Natural Resources
Washington State
just sold but is marketed to a specific group of
estate is not
and
preparations
maximize the
buyers will
for those
the sale
structuring of
astute
Therefore,
buyers.
potential
Real
(DNR).
seller's profit.
The Department
of Natural
Resources has
the
fiduciary
responsibility to produce income for
the state's public school
trusts by
managing the state trust
system and
lands.
several other
It oversees almost three million acres of uplands and
two million acres of aquatic lands.
Forestry is
employees know
the heart
and soul
and understand the farming of trees.
the income for schools is generated
however, have
Some lands,
become
selling this
its
Usually,
through timber harvesting.
urban
due
This presents
increases and location shifts.
opportunity of
Department;
of the
land for
to
population
the DNR with the
urban development
and
realizing a greater gain.
The lands
proximity
to
in question
urban
are
development.
valuable
because
While
these
currently not profitable from a forest management
of
lands
their
are
perspective,
they can produce considerable revenue if sold for residential,
commercial,
industrial,
or other urban uses.
7
In other words,
value
surpassed their
land has
as urban
their value
as
a
timber producing resource.
in
impacted
or
years, the
last several
portfolio
of
Department has
While these lands are
of urban lands.
a portfolio
small percentage of the total DNR holdings,
special attention and expertise.
to the
a
its expertise in forestry has not prepared it
recognized that
to manage
as
areas
urbanized
by
In the
properties.
only a
view its real estate holdings that are
begun to
DNR has
forming a
challenge by
they demand
The Department has responded
Real Estate
Division to deal
with these and other non-forestry issues.
The Real Estate Division reviews urban lands and those in
determine what can be done to create or capture
transition to
the higher
urban value.
exchanges and purchases.
creates and
manages a
the Department
One way
to sell
It
sold.
retained or
should be
It determines whether the properties
In essence,
also
property
evaluates
the Real Estate Division
portfolio of investment properties for
from the existing, urbanizing parcels.
to capture the increased value of these lands
the property.
is
A professional, consistent approach to
the sale of property will help the seller achieve the greatest
A
potential profit.
identify the
comprehensive
process
is
needed
to
steps that must be taken for each property to be
sold.
This thesis
surveys real estate and financial literature
to identify tools that may be useful
structuring a
sale.
in valuing a property and
presents three case studies as
It also
8
and the
decision process
survey
have
tools described
Conclusions
used.
been
whether
to determine
then examined
studies are
The case
are analyzed and compared.
case studies
The
resource land.
sale of urbanized natural
to the
DNR's approach
examples of
a
literature
in the
drawn
are
and
recommendations are made.
A
matrix
which
or checklist
can
be
at
reviewed
the
beginning of a project will help develop a systematic decision
applicable to
should be
It
making process.
both large and
be transferable
should also
to
privately
small sites.
It
owned lands.
This is particularly needed in Washington where
tracts of
forested land are surrounded by urban areas.
strategic alternatives
considered because
always respond
government agencies
to market
private development
structuring of a
for the
such as
Also,
sale must be
DNR can
not
opportunities as fast or as well as
They need to rely additional
companies.
mechanisms to capture value.
The decisions
to the
on what to sell and how to present parcels
The next chapter will discuss a
market are important.
framework for making these decisions.
9
II.
DECISION MAKING FRAMEWORK
The hypothesis
decision
making
continuity.
of
of this
will
process
The variables
organized into a framework.
can be identified and listed.
comes first?
becomes
that
structuring
the
consistency
ensure
and
to be considered and the sequence
to be made can by systematically analyzed and
the decisions
appraisal, and
paper is
The parts of the decision to sell
For example, a market study, an
development permit approvals are needed;
An
organized pattern
a
essentially
checklist
of decisions
to
review
which
to be made
each
for
new
property to be sold.
in a comprehensive manner ensure that all
Decisions made
aspects
of
the
question
Piecemeal, incremental
are
reviewed
and off-target
and
considered.
decisions are
avoided
when an organization begins with a comprehensive perspective.
There are three basic steps involved in making a decision
to sell urban land.
The steps are as follows:
1.
Define the objectives;
2.
Determine a strategy for meeting the objectives;
3.
Develop an implementation plan to guide those who
carry out the strategy. (Braun, 1975, p.
Defining objectives
provides goals
to be
identifies the
met.
For example,
10
and
126)
important issues and
DNR, as
a
public
agency,
a
has
variety
wide
to
overseers
of
satisfy.
Accordingly, its objectives must include the following areas:
1.
Financial returns and value enhancement;
2.
Community and political acceptance;
3.
Agency efficiency and productivity; and
4.
Trust land retention and income enhancement.
A strategy must then be developed to achieve the specific
objectives.
is a
set of instructions
a strategy
"Very simply,
taken in
to be
the action
clearly define
that so
response to every chance event that a third party or
behalf."
decision maker's
on a
act
agent could
(Raiffa and Thompson, 1985, p. 1)
will also address how much risk the decision maker
A strategy
Reward is governed by the amount of risk that is
should take.
taken.
agency
Because it sees itself in a
to
wants
maximize
profit;
fiduciary role, DNR as an
therefore,
it
must
be
prepared to take some risks.
The risks
activities.
moves along
increase as
As the
one
takes
on
more
development
property is further improved, the seller
a continuum
from "small
Development activities include the
following:
1.
Sell land as is;
2.
Seek development approvals;
3.
Undertake construction;
11
risk" to
"large risk."
involved in marketing/leasing;
4.
Get
5.
Assume operational management.
from undertaking
and benefits
The rewards
these
risks
include the following and accumulate as more risks are taken:
Tax
1.
Cash flow (revenue);
2.
Fees for activities managed;
3.
Residuals
4.
Credit/publicity for doing the deal.
(future sales value);
(shields)
benefits
but were
development deal
another
are
not
listed
(Bacow, 1987)
reward/benefit
here because
in
a
DNR is a
non-taxed, government agency.
The final
rewards is
risks and
will
strategy
step after
to determine how those implementing the
proceed.
carefully thinking
defining objectives and evaluating
A
good,
plan
requires
through the sequence of events in order to
is going to occur.
anticipate what
workable
Successful developers are
those who anticipate changes and respond to them in the course
of completing
vehicle
for
a project.
Using
identifying options
a decision tree,
at various
or similar
crossroads, will
provide guidance.
Decision making
For example, the US Tax Code is a set of decision
processes.
making rules.
outcome.
rules are different than decision making
Rules govern and determine that decision making
However, Washington's State Environmental Policy Act
12
SEPA
making process.
a decision
(SEPA) defines
provides a
the environmental impacts caused by a proposal.
review of
an
writes
then
proponent
A
impact.
significant
is
there
if
determines
Environmental
Impact
It
project
Statement.
There is a public hearing and court review, as needed.
The Department of Natural Resources could use a set order
of events or process for managing its portfolio of urban land.
An alternative
lands outright.
and then sell
on-site
some
One possibility is to sell the urban
four options.
It faces
A second alternative is to undertake
the lands.
development
portfolio
lands within
the
greater than
sale of
obtaining
(i.e.,
third alternative
A
installing utilities).
is to obtain land use permits
the developed
and
hold the
is to
financial
the
when
permits
return
is
or undeveloped land. DNR
needs a structured way of approaching these options.
Structured decision making involves a framework which can
be applied
to many
decisions.
requiring consideration
of the
It allows for flexibility by
options and consequences.
It
is a disciplined approach to achieving desired results.
The next
three case
chapter discusses
studies will
disciplined approach
objectives, develop
plans.
These case
process used
by one
the history
to determine
be reviewed
to decision
organize
examples demonstrate
government agency
13
Then
if such a
making was used to identify
strategies, and
urban lands.
of DNR.
implementation
the decision making
charged with
selling
III.
to
production
income
for
the
benefit
history
of
trusts
it
The past reliance on timber production and sales
administers.
in recent
has shifted
include an
years to
lands as
and transition
an
appreciation
lands.
income producing potential on non-timber
on urban
a
Resources has
of Natural
The Department
concern
HISTORY
of
The new focus
additional
source
of
income recognizes the population and urban area expansion that
has occurred in Washington.
ability to
persuade state
It also reflects the Department's
adopt legislation to
lawmakers to
allow the new directions.
The approximately
came from
the Department
counties and
acres of land managed by
five million
the federal
gifts to the state.
government, Washington
Approximately three million
The income generated
acres are managed as upland trust lands.
supports the
various state
is to
trust assets)
The largest
of
trusts while
be preserved
for future
(seen
as
beneficiaries.
is the public school trust and
11 trusts
the
the land
supports the construction of new schools.
DNR has
to act
Its
a keen
on behalf
fiduciary
litigation.
sense of being a trustee and is required
of both
current and
responsibilities
In United States v.
have
future beneficiaries.
been
defined
through
111.2 Acres of Land in Ferry
County, Washington, the United States District Court declared:
"Section 10
of the Enabling Act and Article XVI, section 1 of
14
trust,
the Washington Constitution constitute a declaration of
(or
schools
common
beneficiary;
lands became
21)
management agency for the trust
the
lands within the
of aquatic
million acres
for
responsible
also
is
It
accepted.
public trust lands also but are beyond the
These are
state.
(Marcus-Jones, 1985, p.
and land
forest
approximately two
the
was established in 1957 after the concept
The Department
single
is
the
(or proceeds from its sale)
the granted land
and
beneficiary)
designated
other
is the corpus of trust."
of a
Department is the trustee;
through the
Washington acting
the State of
the trust;
of
the grantor
States is
the United
this paper because they do not have a requirement to
scope of
produce income for a trust.
Department.
The Board
six
the
member
with establishing
is charged
and enacting the necessary
the Department
policies governing
Resources, a
of Natural
appointed body,
designated and
oversees
Lands
Public
Commissioner of
An elected
regulations to allow DNR to carry out its duties.
Policy Development
A
demonstrates changes
majority
of
harvesting or
lands
were
its
The
areas;
In the
last
15
that
timber
Few of
were
its
were
few years more land has been
now
Department
For the
viewed
purpose.
those
Department
years.
Department
its primary
urbanizing
considered problems.
urbanized.
the
existence,
the
by
over the
in philosophy
farming as
in
development
policy
of
review
sees
these
sites
as
While it does not view itself as being in the
opportunities.
land development
from
solely
forest
Department's view
does see
business, it
of
The
management.
its role as expanded
evolution
in
the
its duties is explained by the author of
a thesis on the Department's urban and transition lands:
1968 the Department virtually
"Prior to
transitory
in
lands
with
problems
performed management activities on these
they were the same as any other forested
(p. 43)
ignored the
and
areas
lands as if
land area."
the Department attempted to project future
"In 1968
This
its trust lands on a statewide basis.
uses of
some DNR
recognition that
first official
was the
forest
a 'typical'
neatly into
not fit
lands did
predicting
for
policies
The
management scheme.
these uses were adopted by DNR in August 1968 in the
In ensuing years
Plan (RAP).
Resource Allocation
and
substantially
revised
would be
this document
Management
Land
Forest
by the
finally supplanted
Progam (FLMP)." (p. 44)
of
'The primary measures
FLMP "states,
The 1979
and
goal
achieved its
Department has
whether the
an
be
responsibility must
trust
its
fulfilled
of the overriding purposes of
in view
economic one
the
to
trusts' ... Income
to the
maximizing income
trusts was primarily expected to be derived from the
FLMP
The
of timber.
subsequent harvest
sale and
states that the Department manages its forest lands,
optimum
and
maintain
site
utilize the
'to fully
growth and productivity which will maximize income
from these lands at the time of harvest.'" (p. 31)
Legal
challenges
of administration
Land Management
first FLMP in 1979 and a change
to the
DNR in 1980
of the
Plan in
1984.
two documents
represents a
to management
of its
led to a revised Forest
The differences between these
dramatic change in DNR's approach
trust lands,
quotation:
16
as shown in the following
"Unlike the 1979 FLMP, the (1984) ...program intended
1984-1993,
ten
years,
to guide
the DNR for only
The
(new) FLMP stressed a
120 years.
rather than
conservative approach to the management of the trust
Two themes were established as the focus of
lands.
forest
lands
should
be
the
document:...a)
the
managed as
a whole, taking care to not only produce
non-timber
revenue,
but
also
protect
timber for
resources as well...(and) b) to take a cautious view
management
by diversifying
of the
economic future
practices and tree growing investments." (p. 35)
Urban Lands
Urban lands
forest or
are those lands in transition from principal
agricultural uses to uses more characteristic of an
urban environment.
residential,
These
commercial,
and populated
DNR lands were being surrounded by
and industrial development as cities
county areas
federal land
grants gave
school trust
land.
expanded.
two sections
The scattered
One of
the
of each
location of
original
township
these
as
sites
increased their sus ceptibility to urbanization.
its
In the
1960's the
urban
lands
Department exchanged 500,000 acres of
with
private
natural
resource
based
development compani es for the same amount of forested acreage.
for the
A windfall
private companies, the Department did not
recognize the value of these land then and tried to get rid of
forestry
values.
migration occured,
and the
them
at
increased, it
its urban
the
population
public's environmental
became difficult
lands.
late 1970's.
As
for DNR
These problems
increased,
awareness
to harvest timber on
steadily increased
in the
In 1976, DNR established a separate Urban Lands
17
An inventory
Program.
designated approximately 10,000 acres
as urban.
practice traditional forestry operations
"Unable to
from the
experiencing pressure
lands and
on these
general public and local governments for other uses,
a
as
these lands
typically regarded
DNR managers
Urban Lands Program
of the
The creation
problem.
and
an
active
that
recognition
DNR's
reflected
specific management program (for these lands) was in
the agency's best interests." (p. 49)
In 1981
land were
the inventory was updated and three categories of
Rural,
10,
Urban
designated:
Urban 10,
shown as
acres were
Approximately 16,300
Uses.
Special
and
of which
Urban 10
acres were in active forest production.
about
1,600
meant
lands which would convert to urban uses within 10 years.
In the 1984 FLMP, the Department said it would remove Urban 10
meant
this really
harvest base;
its sustainable
from
lands
only the 1,600 acres would be removed from active harvest.
House Bill
Bill/Second Substitute
increased
to
allow
bill also
urban
and
to
acquire
income
resource producing property.
The
required the Department to not deplete the publicly
owned land
forest base.
comply
Department
the
producing as well as natural
of
the bill amended the Land Bank
"Primarily
transition lands.
181) was passed to give DNR
management
the
in
flexibility
legislation
(Urban-Transition
the Transition Lands Act
In March 1984,
with
base nor
In
local
reduce
the
addition the
land
management principles."
publicly
department
plans
use
(DNR, 1986, p.
18
and
11)
owned
was
commercial
directed
applicable
to
growth
In July 1984, the
Board of
Natural Resources formally designated 7,700 acres of
from the
designated acreage was reduced
The
as "Urban."
trust lands
acres previously
number of
after
considered urban
public hearings and consultation with local governments.
In 1985
the Department
was to
The purpose
(TLPP).
Policy Plan
began writing a Transition Lands
define the role of
(urban) lands in the trust portfolio, to identify a
transition
management process to accomplish a change from lower to higher
valued uses,
environmental
maintain
and to
The
quality.
document identifies changes in land use patterns as a means of
The TLPP has not yet
capturing value for the urban DNR sites.
been adopted.
In late
1985 the
Department reorganized
Division.
Real Estate
intradepartmental
"Urban
Its
successful completion
"bring to
assigned to
Division gave
it."
(McElroy,
selling lands
no longer
producing property
was
an
Group" which
was
to
specific urban land projects
1985)
formal recognition
requirements for urban lands.
predecessor
immediate
Lands Working
and formed the
The
formation
of
the
to the different management
The Division is responsible for
profitable for
and managing
DNR,
buying
the urban lands.
income
It also is
shepharding the draft Transition Lands Policy Plan through the
approvals process.
The TLPP comments on the benefits of urban
lands:
trust
the
scattered.. .holdings of
"Viewing the
producing
income
potential
as
portfolios
opportunities results in two direct benefits:
19
or
vacant
of
underutilized
value
1.
The
productive
more
into
redeployed
be
property can
situations;
2.
Purposefully diversifying the location and
to
Department
allow the
acquisition will
type of
generate greater income less subject to the cyclical
agricultural
and
from
forest
income fluctuations
lands." (DNR, 1986, p. 12)
Legal Authority
The Department
has five
with
dealing
options for
its
urban lands and these are supported by several portions of the
Revised Code
(RCW) (the
of Washington
state laws).
These
include the following:
Sale of
1.
city.
an incorporated
Previously, there was no mechanism for
proceeds of a sale
Also,
replacement property.
purchase of
be
The land has to be platted if it is within
auction.
sold at
land could
Public
Public Lands:
The interest from
went into the Permanent Common School Fund.
the proceeds goes into the Common School Construction Fund.
awarded
Public Lands:
Leasing of
2.
public auction.
through
market acceptance
family residential
for ground
Ground leases can be
However, there was a
lack of
with single-
leases associated
The maximum return was not usually
uses.
obtained.
3.
funds to
could only
follows:
Resource Management
resource lands.
newly purchased
land is
DNR can borrow
DNR
Originally,
producing land.
purchase income
buy natural
Land Bank:
The
held in
process is
the
Land
as
Bank,
trust land which is deemed unproductive or not suitable is put
20
into the Land Bank and stripped of
is placed
trust designation
its trust designation,
earlier,
land purchased
on the
the
land is removed from the Land Bank and added to DNR inventory,
and
funds used to reimburse
former trust land is sold and the
the Land
This is
There is a $3 Million limit per transaction.
Bank.
an awkward
an Attorney
mechanism, although
It is suitable for
finds land can be sold first.
opinion now
General
small parcels, not large urban parcels.
exchanged
for
restrictions on
for the
of
land
other
equal
are
to be exchanged and land
land
of
There
value.
There is also concern
reasons for exchanges.
appreciation value
State land can be
Exchange:
Simultaneous Land
4.
received.
Deferred Land
5.
on DNR's
a
buyer
exchange authority.
in
return
a
for
Exchange:
This mechanism relies
It includes sale of DNR land to
promise
exchange
to
land
and
establishment of an escrow account for the dollar value of the
DNR property.
buyer purchases
to DNR.
The
After DNR has identified property it wants, the
it with
Title is transfered
escrowed funds.
new property
should produce
revenue
for
the
trusts immediately.
DNR's original
authority was
to lease
lands.
This was
the basis
for its preference for structuring deals with ground
leases.
As ground
leases
were
found
to
be
awkward
disposal of urban lands, new options were developed.
21
for
found in RCW
authority to
lease is
"The principal
lease
terms for
up
to
55
year
provides
79.01 and
or
recreational
business
commercial,
industrial,
residential
99
years
for
up
to
uses
and
commerical,
authorize
which
uses... 'Leases
on
state
lands may
or
residential
uses
industrial,
be entered
into by negotiation. ...At the option of
these leases
may be placed for bid
the Department,
at public auction." (DNR, 1986, p. 33)
of
state
sales
1966 the
proceeds from
"Prior to
Fund
(the
placed
in
the
Permanent
lands
were
In 1977 and
not reinvested in land).
principal was
1984, statutory
changes were
made recognizing
the
need of
the Department to sell lands that could not
be
managed
effectively.
The
legislature also
recognized the
importance of
replacing those lands
The 'land
to maintain the publicly owned land base.
bank' (RCW 79.66) facilitates sale of trust land and
purchase
of
replacement
property
with
natural
resource or
income producing
potential" (p. 34) by
establishing a mechanism to buy and sell land.
In 1984
the Transition
it allowed
significant because
income producing
industrial
existing long-term
to
Department
the
Income
leases.
to
purchase
resource
property
Department
producing
or office
It was
was adopted.
addition to
property in
(asset redeployment).
commercial,
Lands Act
property
property,
could
preferably
be
with
The legislation also allowed the
enter into leases after one-on-one negotiations
rather than through the public auction process.
Sales of
lands
are
also
affected
by
two
additional
provisions:
to be at
lands are
of trust
"All sales
1.
public auction.. .When lands have not sold at public
by
real
or
cash
for
by brokers,
auction, sales
estate contract, may be authorized (RCW 79.01);
lands shall ever by disposed of
No public
2.
unless the full market value.. .be paid to the state.
State
Washington
2,
1
and
sec
XVI,
Article
Constitution." (p. 34)
22
All purchases
and sales
approved by
must be
the
Board
of
Natural Resources, acting as the State Board of Appraisers.
of
sections
Other
authorize the
of importance
state
law
and
79.08
(RCW
exchange state land.
Department to
79.66)
Provisions
include:
may exchange property held
1.
The department
for property
of equal or greater
in the
land bank
for
natural
greater
potential
value.. .which has
resource or income production...;
2.
Exchange of urban land for land bank land.
County, city,
town, or certain state agencies.. .are
given the opportunity
to
acquire
state-owned
designated urban
land at
fair market value.. .prior
to such
land being proposed for exchange to private
parties..." (p. 34)
Conclusion
history
The
the
of
of
Department
Natural
Resources
demonstrates the changes in philosophy that have occurred over
regarding administration
the years
has income
can be
lands.
Washington
State
changes include the view that urban land
These
trust lands.
the
of
producing potential and that income for the trusts
produced by
urban lands
as well
as natural resource
Two documents, a thesis by Diane Marcus-Jones for the
University of Washington College of Forest Resources and DNR's
draft
Transition
succinctly and
important to
Land
Policy
Plan,
describe
are the basis for much of
this
this chapter.
history
It is
overall mission and the manner
understand DNR's
in which disposal of urban property is viewed.
The next
chapter will
discuss the
sales of urban lands.
23
specific examples of
IV.
of
The Department
CASE STUDIES
Its decision making
selling urban real estate.
newcomer to
It is educational
not always clear.
processes are
relative
a
is
Resources
Natural
to study
them to learn where improvements can be made.
studies are
Three case
the three
location of
shows the
sites.
Real Estate
before the
three began
on page
Map 1
reviewed.
occurred
has
for
Timelines
the
since
the third
formation.
Division's
are presented
specific events
formed.
was
However, most of the activity on Canterbury Court,
study,
all
Activity in
Division
25
at the end of
each casse study.
is the first case study examined.
Bucklin Ridge
of a
an example
piecemeal approach
The desire
years.
over the
a contributing
possible was
Department's portfolio
occur
changes
to
to the development and
Several sales opportunities were lost
a property.
sale of
It is
until
make
to obtain as high a return as
factor.
area
site
the
It will
land
and
remain in the
values
its
or
other
accompanying
utilities assessment charges attractive.
Redmond Heights
public offerings,
After four
April,
1987.
the years
is the
second case
a sale
study
finally
discussed.
resulted
in
Uneven application of Department efforts over
and lack
of a
comprehensive approach combine to
demonstrate some pitfalls of urban real estate sales.
24
MAP
1
PUGET SOUND REGION:
CASE STUDY LOCATIONS
2
*
DMOND
couft
25
Canterbury Court
Because it
is
the
is the
third
case
reviewed.
smallest site, the scope of the decision
the
exception
flowed smoothly.
The first
With
making process was less complicated.
of the
study
time involved,
it has
public offering should be made this year.
The
methodology
consisted
used
write
to
review
a
interviews,
of
the
case
of
studies
historical
documentation, site visits, and discussions with various DNR
staff members.
Interviewees
representatives
from
included former
based
resource
natural
private
consultants,
development companies and several Massachusetts
Institute of
DNR files yielded much information,
Technology professors.
Estate Division personnel were very cooperative in
and Real
discussing the cases.
Overall, the
sell
its
urban
always been
Department has
lands,
it
but
has
committed to
floundered
in
application and implementation of disposal mechanisms.
is due
to the
governing it,
backwardness
and to
of
the lack
some
of a
of
This
legislation
clear decision making
process to determine which mechanism to use.
26
the
its
CASE STUDIES
IV.
BUCKLIN RIDGE
A.
DNR's Bucklin
Ridge property
near the unincorporated community of Silverdale on
is located
the Kitsap Peninsula.
site is
located
Three US Navy installations are
is across
Peninsula, which
The DNR
in the
case study
The approximately 64 acre property
disposition of urban land.
on the
is one
Puget Sound from Seattle.
by
currently forested
but split
in two
in DNR
ownership
although
a
highway bypass.
Bucklin Ridge
effort to
is still
improvements, and
plan, install
(likely
has been
it
It has been designated
going on for over seven years.
10"
sell
the
"Urban-
to come under urban development within 10 years).
In 1982,
(Probst, 1982)
a DNR official described the property
to the Kitsap County Board of County Commissioners:
can no longer manage the Bucklin Hill site
"The DNR
is
area
Silverdale
The
production.
for timber
the
abutting
homes
existing
The
urbanizing.
rapidly
(adjacent) residential
proposed
the
and
south
no longer viable.
production
timber
make
development
as urban property
designated
been
has
site
DNR
The
(Cahill,
Legislature."
to the
recent report
in a
1982)
The Bucklin
Bucklin Ridge
Ridge site is within the area covered by the
Community Plan
(BRCP).
The BRCP is a planning
document identifying approved land uses and densities that was
developed by the
property
owners
27
in
conjunction
with
the
MAP 2
BUCKLIN RIDGE:
VICINITY MAP
BANGOR NAVA
28
It allows 4,000 dwelling units in a 655 acre area.
County.
DNR
the
for
brochure
draft
describes
property
what
A
is
permitted on the site:
Unit
Planned
Community
Plan
Bucklin
Ridge
"The
'semiof
designation
an overall
Development has
plan allows 382 total units,
The approved
urban.'
Also
or about 5.9 units per acre (on the DNR site).
a mix of single-family and multi-family
provided is
builder's
at
the
be separated
units.
These may
and
124
38
single-family
follows:
discretion as
north of
Waaga Way (the highway
multi-family units
the DNR site) and 86 single-family and
that divides
the
south.. .The site
144
multi-family units
on
supports superior access.
It is
located
at
the
Top
Waaga
Way
and
the
Ridge
intersection
of
primary
northBoulevard Road... (which forms) the
south connector
on
the
Bucklin
Ridgetop."
(DNR,
November, 1985)
Local
Districts
Improvement
Districts to
systems,
for
the
planning
would
be
Improvement
Road
network
area.
These
some
and
efforts
In
per acre.
site but
backed
payment
for
responsible
the
systems,
water
road
investigated the
potential buyer
he
the
approximately $10,000
assessments of
learning
the
and
several
formed
owners
(LIDs)
finance
and
install
sanitary sewer
drainage
adopted, the
BRCP was
After the
storm
led
to
1985, a
out
of
upon
the
assessments.
DNR decided
it could
the
enhance
value
of
the
site
through community planning efforts and installation of on-site
improvements.
personnel whose
At this
was
site
primary background
and forest management.
estate sales.
time the
was in
managed
by
DNR
timber production
The DNR was unfamiliar with urban real
Development
and sale
29
of
the
site
was
not
(The Real Estate Division, which
high priority.
considered a
future, had not yet been
in the
the expertise
would provide
formed.)
There were
during this
several points
process of value
enhancement at which the property could, or maybe should, have
in the
identifying the
Little, if
any, time
increases
in
chose
without
The decision making was segmented.
similar
partners in writing the
were DNR's
though
even
path
sector
private
The
value.
property
a
so
was spent evaluating the costs and real
landowners/developers who
BRCP
did
product or defining what
its end
market for
by
thing"
landowners and the
it
process,
planning
product would be.
the end
right
"the
do
with adjacent
cooperatively participating
County staff
to
DNR tried
While
been sold.
they
were
more
experienced in the development field.
The Reagan
area's Navy
to the
all
Administration has
the
facilities.
assigned Trident
continued to funnel money
The Bangor base has received
The base at Bremerton
submarines.
did go through a recession in the shipyards.
1987,
1500
new hires
aircraft carrier
with lower
involved in
until
the
are expected
The
USS Nimitz.
cost land
The
situation improves
in late
due to the arrival of
the
market has been saturated
for development
the BRCP.
However,
by property owners not
Real Estate
Division is waiting
before attempting
to sell
the
site, according to the current project manager.
The following paragraphs present a history of the Bucklin
Ridge property.
Exhibit
1, page 44,
30
is a project timeline.
History
In 1977,
the Kitsap County Board of Commissioners adopted
They
basis.
more detailed
Ridgetop" was
"Bucklin Hill
special care
and creativity
takes place."
(Palmer, 1979)
identified
must be
A
this process.
as
where
place
"a
applied as
development
to
the
the property owners gathered to
week later
"a unique opportunity whereby property owners within a
defined planning area would pool
a
The
early January, 1980 to begin
area in
in the
property owners
hire
citizen
The County initiated a meeting between all
be developed.
discuss
for
called
specific plan for the area was
this, a
To accomplish
also
of plans for these areas.
the formation
particpation in
the
document,
this
areas where further study was needed
Commissioners identified
on a
In
Comprehensive Plan.
a County-wide
Environmental
develop
to
consultant
owners endorsed
a
Master
and
Plan
(Probst, January, 1980)
Statement."
Impact
major property
their financial resources and
the project
and it
an
The
began in
Spring 1980.
The planning
owners.
owners group
The BRCP
The
property
by a representative of one of
the three
products
landholders.
staff
approximately 650
was led
major landholders,
County
to particpate.
Several owners did not want
eventually covered
forest
area started with 757 acres and 25 property
Pope Resources
firm).
DNR
acres.
(part of Pope and Talbot, a
was
another
of
the
major
The property owners, their consultants, and the
worked
on
the
31
Community
Plan
and
the
Environmental Impact Statement over the next two years.
The
owners
property
group
(both
public
and
private
a remarkable willingness to work together
entities) displayed
Self-interest played a part, as did knowing
over the
years.
that the
County was more likely to adopt a plan worked out by
the
Also,
owners.
property
they
understood
that
the
Commissioners wanted a plan before allowing any development.
One DNR
representative listed
the following points as a
rationale for participating in the joint planning process:
"It is a joint, unified effort of, hopefully, 25
property owners that has endorsement from Kitsap
County Planning staff.
This effort follows the direction of the Kitsap
County Board of County Commissioners for a site
specific planning effort.
1.
2.
To go individually would be very difficult for DNR
3.
in light of our other planning efforts in Kitsap
County.
This effort is a bargain compared to an individual
effort (monetarily).
The oppportunity exists whereby our land can be
integrated into a total land use effort." (Probst,
January, 1980)
4.
5.
1982,
April,
In
recommended approval
Board of
May, the
June.
County's
the
Plan.
of the
Planning
Commission
After a public hearing in
County Commissioners
approved the Plan in
By November, though, the political winds seemed to have
At the hearing to recommend zoning to implement the
shifted.
Bucklin Ridge
the County
Community Plan,
staff
proposed
a
zoning
designation which allowed only half the density called
for in
the BRCP.
protested.
DNR, along with the other property owners,
Eventually the
higher zoning
32
was adopted.
Even
with the
development plan
a
designation,
zoning
appropriate
more
detailed
(conceptual and final PUD) was needed before
actual building could start.
one point where DNR could have sold the property
This is
the downturn
Defense spending
at Bangor
the base
It
because
sold
was not
of
Sound.
Puget
was
receiving
more
The area was growing and housing
nuclear-powered submarines.
was needed.
economic
this area missed
rosy;
rest
the
Government money was directed to
was high.
bases and
the
much of
which hit
1982
In
County was
Central Kitsap
picture in
the Navy
in value.
an increase
and realized
the
Department
was
expecting greater returns later.
The current project manager suggests
needed to determine if the sales price
have been
study would
been
obtained
development investment.
Because
have
could
that
without improvements,
been created
would
have
justified
the
the site was still raw land
the increased land value might not have
The project manager noted DNR was
at that time.
still optimistic
in retrospect that a
its land
and believed
was first in line to
absorb future growth.
Site Improvements
The property
needed
plan for
to
provide the
the site
served by
the area
utilities to
possible.
among them,
owners, DNR
decided that they
on an overall basis and then to
the site in order to make a sale of
the Bucklin Ridge area was not
In 1980,
sanitary sewers, water, or adequate roads.
33
"It was
best way
be the
improvement district would
that a utility local
the consensus
for the
to pay
sewer,
water,
and
road."
(Probst, August, 1980)
costs were
Assessments for
divided among the property owners
for the road improvements was approximately $312,414.
1983)
During this
of its
land to
the BRCP
for
In May, 1983 DNR's initial assessment
basis.
per acre
on a
each
the road network.
service and
service, water
sanitary sewer
one
formed,
were
districts
utility
Three
(Probst,
time, the Department sold about two acres
the County
right-of-way in
for use as street
This brought approximately $30,000 in revenue
area.
and showed a land value of $13,000 per acre.
The
the
sell
was small and could not handle
water district
local
In order to
financial requirements for the LID by itself.
improvements,
a total
as a
$52,540.
"This money
payment."
or
of $300,000 plus
could
(Monell,
would be
be
1983)
two years interest on
DNR's share was approximately
reserve fund.
the bonds
bond period
system
water district required the property owners
the
to contribute
water
the
finance
to
necessary
bonds
the
refundable at
applied
The
to
property
the
the end of the
last
owners
assessment
spent
many
meetings trying to arrive at a proposal acceptable to both the
water district and them.
DNR's
$158,500.
assessment
for
costs
the
water
system
It also had to pay $1,502 as its share of costs
a drainage study.
were
for
The sewer assessment charges were $165,800.
In mid-1983, "current property values with the proposed sewer,
34
roads appear to be $20,000 -
water and
$25,000 per acre
a recent appraisal for a school site).
sewer and
If all costs of roads,
(for the DNR property) it
added together
water are
(from
comes to approximately $10,000 per acre."
(Monell, 1983)
Property Valuation
In
February,
completed for
1984
per acre.
and agreed
with the
had
appraisal
The appraiser developed a value
"It
valuation numbers.
is $13,000/acre
as of
The
costs.
is important to
January 14,
purchaser to also be responsible for
$10,000/acre ULID
an
DNR's own appraiser reviewed the report
the value
with the
the approximate
benefit
overall
1984,
to
us
is
(Hoefer, 1984)
$23,000/acre."
property before
Selling the
started to
the assessments
but after the utilities were in, would have shifted
come due,
This
the buyer.
risks to
the payment
is another
point at
could have sold the land with a satisfactory return
which DNR
to the
Department
the property.
of $13,000
note that
the
at this point would have allowed the
A sale
trusts.
ultimate developer
in while the project momentum was
to step
still going.
DNR did begin an effort, which was not sustained, to sell
the property
in July,
1984.
completed.
Schools,
local
entities were
land, as
By Fall
notified of
required by
1984,
the
A brochure was drafted but not
governments
the opportunity
and
to
other
public
purchase
the
state law, but no offers were received.
Department
35
was
discussing
selling
the
site to
Bucklin Ridge
the highest bidder through a Land Bank
exchange.
Several timetables
mid-1985.
It was
were laid out showing sales by
anticipated that the utilities would be
in
place by the time a sale occurred.
In
1985
March,
consultant found
for
the sales process was initiated;
in early
winning bid
the
an
update
appraisal.
The update found the
64.05 acres
-
$15,000
who
advisor
was
Another timeline
it projected awarding the
Due to the interest in the site,
July.
obtained
Department
fund
Ridge property.
the Bucklin
interested in
pension
Florida
a
engineering
owners'
property
the
per acre."
on
its
January,
1984
"market value indication for
However,
(Benchmark, 1985)
the appraiser also added:
is a
that there
it appears
"At the present time,
single-family lots and
of developed
greater supply
new and used single-family homes available in Kitsap
County and around the Silverdale/Bremerton area than
the market can absorb." (Benchmark, 1985)
was beginning
The Department
assessment costs
to be
concerned by
the
large
in light of the perceived shrinking property
values.
Public Offerings
In April
submitted an
1985,
a potential buyer, a Florida pension fund,
"Application
property at a public auction.
asked for
the minimum
Purchase"
to
the
Bucklin
Ridge
In May the pension fund advisor
price DNR
36
would accept.
He
had not
realized
the
$10,000
acre
the advisor
assessments
would
be
his
was $970,500 based on $15,000
DNR's minimum
responsibility.
per acre;
per
was not
in
interested
meeting
this
figure.
Those managing the property at
of people
small.
Million for
pay $1
willing to
They realized
that time found the number
the market
the
property
and it
was soft
was
would be
difficult to sell the property.
Department representatives
existing timber
asking price.
site and
on the
One
discussed
how to
valuation
of
the
include it
in
the
representative discussed
private timber company resource people.
the issue
with
He noted in a memo to
other department personnel:
company pays the timber
"The (private) real estate
resource company for the timber on the land they are
managing before it is sold or developed, or else the
suggest that we are
This would
logged.
parcel is
15
10
perhaps
thoughts that
in our
not alone
the
with
value
is amenity
the timber
percent of
the rest should be a separate part of the
land, but
it is a source of ready cash
After all
appraisal.
developer while plans are going through the
for the
With this in mind we should
process.
long approval
$1,070,000
to
on Bucklin
initial price
raise the
total or $100,000 for timber." (Monell, 1985)
In September,
concerning disposal
another developer
1985,
of
there was more department discussion
the
Bucklin
had expressed
Sell through the Land Bank;
37
property
interest in the site.
options were reviewed:
1.
Ridge
because
Three
2.
Lease multi-family portions and sell single-family
portions;
3.
Lease both multi- and single-family portions with
option to purchase at a later date.
Arguments for and against the second and third plans show
what DNR thought was important.
1985 and a reply to it,
advantages and
In a memo dated September 20,
two Department personnel discussed the
disadvantages of
options
2
and 3.
Plan
2
advantages were described as:
1.
Site specific plan is completed with market
analysis;
2.
3.
4.
5.
6.
Immediate income stream is possible;
Land base is retained on multi-family areas;
No upfront capital is needed to buy land;
Site plan is reviewed by DNR so best sites are not
all multi-family;
Single-family value land is put in Land Bank.
The disadvantages to leasing were listed as follows:
LID payments are made by DNR for single-family
1.
portion until disposal;
dwelling
Single-family land disposal timetable is unknown;
2.
Quality of construction and buildout time could
3.
result in potential default by lessee; builder would
build to low market due to military influence;
Absorption of units is expected to take a long time;
4.
lots of substitute land is available in direct
competition.
purchase) also had advantages.
option to
(lease with
Plan 3
They included the following:
1.
Combined multi- and single-family plan will be
developed;
2.
Advantages of later purchase could increase
competitive bidding;
Site is attractive to lenders;
No large upfront capital is needed to buy land;
Lessee is responsible for all LID payments;
Land value will increase due to development.
3.
4.
5.
6.
38
The DNR managers listed the disadvantages of this option:
1.
Ability to sell at later date without public auction
is under legal cloud;
2.
Lessee may not take option to buy when due; DNR
would be left with half finished improvements;
3.
Market is speculative; there are lots of
substitutes. (Probst, 1985)
The decision was to proceed with a sale of
1)
before the end of the calendar year.
by the
Assistant
(Lands)
the site
(Plan
The decision was made
Division Manager.
Notes by the new
project manager
indicate the price of the timber was added to
the site price.
It was to be listed as $1,070,000.
During
1985,
the County
multi-family residential
master
planned
supplement
the BRCP
the
completed for
developments
area.
Silverdale and
County's
the area.
began to approve commercial and
It
outside
allowed
area even
of
development
though a
Comprehensive
site, a
commercial/retail
between
Plan
had
not
to
been
Examples included the Crestwood PUD
Unit Developments
Costco discount
BRCP
master plan
(half retirement center, half multi-family project),
multi-family Planned
the
two other
southwest of
the DNR
warehouse store, and small satellite
facilities
around the
600,000 sq ft Kitsap
Mall.
These actions were significant to DNR for
high density
residential and
located adjacent
to the
DNR's site south of
medium and
pocket of
low
two reasons:
commercial development
south
portion
of
DNR's
a)
was now
property.
the Waaga Way highway bypass was zoned for
density
residential
uses.
An
incompatible
residential uses was created on DNR property;
39
and b)
DNR and
the other
the
obtaining
improvements could
All
applicable).
property owners operated in
Bucklin Ridge
plan
master
the
installing
and
or
circumvented
be
the rules under which
saying that
was implicitly
the County
on-site
longer
(no
avoided
the adjacent property became developable at
a much lower price because there was no investment in planning
or
and
utilities
the
on
other
in improvement
per acre
approximately $10,000
investments in
DNR,
roads.
costs plus the
Thus, the
process to recapture.
the planning
had
hand,
DNR property became less desirable and less valuable.
Summer 1985 the water district attempted to
Also, during
services built
extend water
property
to
owners
developments outside
other
for by
not be
Bucklin
Ridge
residential
and
commercial
the assessment
it might
announced that
and paid
district boundaries.
It
able to provide water to the
Bucklin Ridge
property owners when they developed due to over
extending the
water supply
Third, it
boundaries.
months interest
the LID
outside
users
to
the
plus
the $300,000
advised that
district
two
payments paid by the property owners to start
would not
to secure
be used
but would
be returned
other water district projects.
further evidence that the rules had changed for
This was
this part of Kitsap County.
in
development
been encouraged
"hoops."
but now
DNR was
it was
caught in
being
the middle
Growth had always
achieved
with
fewer
of the loosening of
restrictions.
In late
1985
another
attempt
40
to
produce
a
brochure
advertising the
property was
made.
By
now
the
per
assessments had increased to slightly over $11,000.
draft brochure
options the
offered
to
acre
The three
bidders
prospective
included the following:
1.
Land exchange with leaseback;
2.
Land exchange with leaseback and
"boot" if the
exchange did not equal the value of the Bucklin
Ridge site;
All
3.
cash.
all cash option, the Department would independently
Under the
find suitable
The bidder would participate
replacement land.
This
the Department.
funds to
paying the
only by
and
process
the Land Bank to remove and reinstitute the "trust"
would use
(DNR,
designation.
1985)
November,
The
was
brochure
not
finalized and the public offering was never made.
contacts in
Investigations through
Department
considered realistic
that
showed
personnel
raise.
options
these
market by
were
of parties
small number
by the
market for a parcel of this price.
required, and
the local
not
in the
Too much up front cash was
the hardest funding for a developer to
this is
now
DNR realized
its
property
no
was
position to receive the future growth first.
longer
in
It could not get
"fair market value" for the land as required by state law.
According to
right
thing"
project manager,
the current
from
a
community
41
planning
DNR "did the
perspective
by
Residential densities appropriate
private and public sectors.
to an
urbanizing area,
selling the site:
a)
five to
six units per acre,
three
factors
adversely
the $19,000
the
over
period),
payment
b)
economic
the
outside the
the
whereby other developments
master plan and could be sold more
(Harper, 1987)
The Department and the other members of
group
($11,000
per acre assessments
political changes
consequences of
were approved
affected
which the market closed somewhat, and c)
recession during
cheaply.
such as
However,
were achieved.
plus interest
planning effort between the
the cooperative
participating in
development
rules
ensure
to
tried
established.
were
the BRCP planning
requiring
County
Kitsap
before
planning
Commissioners
adopted resolutions calling for planning and site improvements
before development in the region but then later violated them.
The
Commissioners
to
appear
not
do
be
recognizing
the
consequences of their actions and allowing changes to the BRCP
to compensate
development.
for land use changes created by the
According
Commissioners believe
new commercial
the
to
the Plan
project
has a
"unplanned"
manager,
20 year life.
the
Allowing
uses in the portion of DNR's property south of
the Waaga Way highway bypass would recognize the new, existing
land use
1987)
patterns and
encourage
compatible
uses.
(Harper,
It would also create a higher land value from which DNR
could recover
more of
its
front
property more marketable.
42
end
costs
and
make
the
Conclusions
DNR representatives
have spent years of effort preparing
for sale.
The sale might have been appropriate
this property
points along
of several
at any
all the
wait until
It seems
planning and
It did not have to
improvements were complete.
found
personnel
Department
that
the way.
developing
more
interesting than the end result of a sale and got caught up in
the process.
were not
The decisions
changing circumstances.
the
The
plans
for
without contingency
moving ahead
Department kept
that
made on a structured basis.
value
of
the
However, the project manager believes
site
has
been
enhanced
and
the
Department will obtain a good return which is far in excess of
forestry values.
The next
study in
(Harper, 1987)
section of
the disposition
this chapter
presents another case
of urban property.
This effort did
result in a sale of property although the decision process was
similar to the Bucklin Ridge example.
43
EXHIBIT 1
BUCKLIN RIDGE TIMELINE
Prior to 1980
January, 1980
.
.
.
.
.
.
.
.
March, 1980
.
.
.
.
August, 1980
.
.
.
.
June,
1982
.
.
.
.
November,
1982
*
.
.
.
December,
1982
*
.
.
.
May, 1983
June, 1983
.
.
.
.
.
.
.
.
1983
.
.
.
.
Summer, 1983
July, 1983
.
.
.
.
December, 1983
.
.
.
.
January, 1984
.
.
.
.
January, 1984
.
.
.
.
Spring, 1984
.
.
.
.
July,
1984
.
.
.
.
October,
October,
1984
1984
.
.
.
.
.
.
.
.
1985
.
.
.
.
March, 1985
April, 1985
.
.
.
.
.
.
.
.
Summer,
Site designated "Urban 10" by DNR.
DNR joined adjacent property owners,
County to discuss planning efforts.
Bucklin Ridge Community Plan started,
group hired engineering consultants.
Consensus of BRCP property owners to
put in utilities, roads.
Kitsap County Board of County
Commissioners approves BRCP.
Zoning hearings held for BRCP area,
staff calls for low density zoning.
Missed sale opportunity (had
Comprehensive Plan approval,
Preliminary PUD approval, and
zoning).
RID for road improvements formed.
Approximately 2 acres sold for road
right-of-way for $30,000 ($13,000 per
acre).
$300,000 deposit
Water LID formed;
and 2 year's interest.
Sewer LID formed.
DNR staff found current values of
property with improvements to be
$20,000 to $25,000 per acre
(unofficial appraisal).
Missed sale opportunity (utilities in
but assessments not yet started).
Appraisal for property; $13,000 per
acre.
Per acre assessments estimated at
$10,000.
State legislation change; DNR allowed
to buy income producing land and land
not adjacent to other DNR land.
DNR began sales effort; not
sustained.
DNR staff reviewed options.
Preferred alternative: Land Bank
exchange.
Kitsap County began approving
development in area without planning,
site improvements (Costco, Crestwood
PUD, others).
Pension fund interested in site.
DNR began sales effort; not
sustained.
44
April,
1985
*
.
.
May,
1985
*
.
.
July,
1985
*
.
.
Summer,
1985
.
.
September, 1985
November, 1985
*
.
.
.
.
November, 1985
December, 1985
July, 1987
*
.
.
.
.
.
.
*
.
*
.
. Appraisal update; $15,000 per acre.
Comment: glut of residential property
on market.
. Missed sale opportunity (pension fund
withdraws; not able to structure
better terms).
. Price raised by $100,000 to
$1,070,000; timber value added.
.Water District gives water service
outside assessment district
boundaries.
. DNR staff reviewed options.
. DNR began sales effort; not
sustained; draft marketing brochure.
. Per acre assessments up to $11,000.
. Real Estate Division formed.
. DNR waiting until commercial zoning
on site or better market for sales.
45
IV.
REDMOND HEIGHTS
B.
Another example
Education Hill
the
The
Single family residences
wooded and undeveloped.
property is
in
School
Washington.
Redmond,
of
neighborhood
acre site
160
This
High
Redmond
east of
north and
and a senior high school surround
urban densities
of various
of urban land by the DNR
of disposition
Division is Redmond Heights.
Real Estate
is located
CASE STUDIES
the site.
April, 1987.
Arizona in
the City
of Redmond
Included with the land were
Unit Development and
(Planned
approvals
site.
the
of
for development
Preliminary Plat/Subdivision)
including 100
Residential development of a total of 532 homes,
units reserved
of
The purchasers paid $3.5 Million for
($21,875 per acre).
the property
Company
Development
to Kitchell
was sold
The site
for senior citizens, a day care center, and an
equestrian center, was approved by the City.
Concentrated DNR
the site
started in
Department was
Zoning Code
activity concerning
1979.
City's
revising the
and combining
City
The
them into
of
use of
the future
Redmond
Planning
Comprehensive Plan
one document.
and
The City
staff wanted
to know what the Department was going to do with
its property
so that
policies and
zoning designations.
the City
could apply
(Vogt, 1987)
Heights property had been identified by DNR as
46
the
appropriate
The Redmond
"urban"
prior
MAP 3
REDMOND HEIGHTS:
VICINITY MAP
ights
(160 acr s) ....--..1
LAKE SAMMAMISH
No Scale
47
to 1979
location in the middle of
of its
in recognition
City of Redmond and the inability of
the
the Department to harvest
the timber due to the encroaching urban uses.
it was
disjointed because
incremental and
site was
regarding disposition
decision process
The DNR
the
of
a
large
site and one of the first to be reviewed for disposition as an
A plan was not developed
"Urban" land.
user
or
of
advance
in
determined
end-point
nor was a target endany
action.
a step
at a time, evaluated the
results, and then took another step.
The following paragraphs
Rather,
Department took
the
history of
the
present
steps and
identify the
Exhibit 2, page 60,
Heights property.
the
Redmond
is a project timeline.
History
In
1979,
its
announcing
pressure would
of
consistent with
press
release
intention to develop the Redmond Heights site.
mount
to
the
retain
unproductive
land
either the
It had
as
site
open
fiduciary
the Department's
towards the trust lands.
site to
a
that as more and more people moved into the area,
It realized
Retention
published
Department
the
open
as
space
space.
was
not
responsibilities
initially offered to sell
the
City or County as a park but had received
negative responses.
In March,
study of
1979, DNR
the site
assessment.
The
commissioned an initial feasibility
which included
a social and environmental
Robert
authors,
48
Butts
&
Associates,
enhance
approvals be obtained to
development permit
recommended that
the value of the site prior to disposition.
Another consultant,
and in
issued a market and development feasibility study
March, 1980,
a
which included
the firm
year
the
later,
summary
financial
economist for
hired
Department
Inc.).
and development
submitted plans
Redmond for
to
the
a
options.
An
One
$3,850,000.
third
consultant
This consultant prepared and
to
permit applications
the property
was
initial proposal
of
land at
valued the
(Subdivision Management,
City of
was hired
Jones Associates,
ground
in
January,
the
lease
the
1982.
The
to
property
a
developer who would build and sell the homes with sub-leases.
hiring
The
of
purchaser was
user or
the sale
to manage
disjointed way
not
consultants
different
three
of
the property.
and efforts
identified
was
a
An endwere
not
directed toward developing a specific package for that market.
At
time the
this
site was
background was
whose primary
managed by
Department
personnel
in forest management and timber
production, not the sale of urban land.
two years
It took
Two
permit approvals.
11,
1984.
City
approvals became
issued
development
official on January
One was valid for one year with the possibility of
approval extensions;
was significant
had no
before the
out of
the other was valid for three years.
that during
It
this time period DNR essentially
pocket holding costs associated with the land.
This fact distinguishes
it from other
49
"developers."
Options
The possibilities
outset of
for disposing
of
the
property at the
this process were somewhat constrained by the State
Constitution and
the Revised Code of Washington (RCW).
These
legislative documents allowed the following options:
1.
Sale of public lands;
2.
Leasing of public lands;
3.
Simultaneous exchange of
4.
Use of Resource Management Land Bank.
Traditionally, DNR
which it
did not
disposition of
newspaper
issued ground
harvest
the lessee.
initiated by
timber;
the
leases for property on
leases
were
usually
Initially, DNR personnel thought of
this property
article
land;
in terms
discussed
DNR's
of a ground lease.
new
transition
A
lands
policies and used the Redmond Heights property as a example:
for
a
firm
look
eventually will
"The department
developing the
property according to
interested in
could be
a master
That developer
plan.
the site
would lease the property from the state,
lessee who
long-term
subthen
sell
homes,
and
build
the
"It's extremely
editorialized:
It also
leases."
for
a
financing
to
arrange
though,
difficult,
leased land."
development on
single-family housing
(Seattle Post-Intelligencer, 1982)
Another management
the land
outright to a developer.
quoted Commissioner
as saying
option for the Department was selling
"
'But
The same newspaper article
of Public Lands Brian Boyle (head of DNR)
if we sell the land, that land base is lost
50
At
were placed
in the
proceeds from a sale
Permanent Fund for securities investments
reinvested in land.
and not
time the
point in
this
forever.'"
Reduction in the trust land base
was not acceptable to the Department.
the preferred alternative shifted from a ground
In 1983,
lease to
an exchange of the Redmond site for another property
of equal
or greater
three factors:
value.
This shift
buyers
to accept a ground lease;
groups
to
1983);
and
the leasing
a
the
land
of the
City condition
time
second
the
Redmond
Valley
(Sammamish
(DNR, July, 1986, p.
Heights
News,
development
11).
permit
(1982),
the
could exchange school trust land only for land that
Department
adjoined existing
state land
("block up" existing DNR land).
however, the Transition Lands Act was enacted by the
State Legislature.
producing property
It
allowed for the acquisition of
and property
took the
Department personnel
further and
developed deferred exchanges.
Department use
was added
to
the
first
exhange one
51
step
A fifth option for
four
simultaneous exchange and land bank) and that is:
Deferred Exchange.
income
not adjacent to exisitng DNR
ownership.
5.
third
requiring sales
of approval
applications were submitted to the City of Redmond
In 1984,
and
opposition by neighborhood
b)
instead of sub-leases for the lots
At
the
the unwillingness of single family home
consultants regarding
c)
by
advice given
a)
of
occured because
(sale,
lease
At
this
point
Department regarding
time to
again, this
manager discussed
time
many
discussions
The preferred choice shifted
a deferred
exchange.
and no
sale would
Second,
"an
under consideration.
go over
the $3
Million Land
"blocking
up"
ownership
would
or
buying
narrow
Third, a
land
the
An exchange through
adjacent
range
form of
to
of
existing
trade
acceptable
deferred exchange
DNR
called for
bid a dollar amount, acquire a parcel designated by
equal value, and then exchange it for Redmond Heights.
The manager
noted this
bidding and
including people
trouble to
market.
Bank limit.
overly complicated which will narrow
exchange is
of buyers and take more time."
DNR of
First,
the sales price DNR would receive"
the range
buyers to
Department
One
Heights into smaller pieces and selling them
would "maximize
properties.
the
in
strategy.
the options
dividing Redmond
over
were
there
tie up
a way
this is
Deferred exchange
because it
preferred option
who may not otherwise go to the
a parcel;"
1984)
(Vogt,
"enhancing the
advantage of
had the
the
to expand
was chosen
as
the
was the most likely to result
in
property desired by DNR.
Property Valuation
As the
City review
realized they
DNR staffers
fair market
by the
process began
"needed a
to wind down in 1983,
plan to
value of the property there... (It is) complicated
fact that we are selling development
raw land.
establish the
We
need to
be
sure
52
that
our
rights as well as
appraisal
fully
through to completion."
the plan
1983,
...
investments in
reflects these
(Vogt, 1983)
to carry
an
appraisal
the fair market value to be $4,600,000
which indicated
24,
On October
appraiser prepared
Department's own
the
(the consultants)
(first
This was $28,750 per acre.
appraisal).
sell the
expected to
Department
$4.5
least
Boyle
Brian
Lands
the
basis,
at
property for
Public
Commissioner of
a
as
this appraisal
With only
noted
Million.
the
that
appraised value of the site had climbed about 45 percent since
"Planned
The
1980.
approved plan,
the
of the
discounts because
spent $160,000
estimated DNR
bids for
appraisal by
the Department).
$2,055,000 for
on 137
of the
power company
DNR allow
two years
on the
purchase are submitted."
of
the value
To clarify
(second
large piece of
land.'
Webb
of planning,
(Daily Journal of
No bids were received.
Commerce, 1984)
1985
to
and tests but will be repaid many times over
permits, studies
obtained an
(third consultant
risk and time involved in trying to
for developing such a
get permits
when the
(Doug) Webb
buyer would have required substantial
any private
DNR) said,
(DNR, 1984)
value of this Redmond Heights site."
enhanced the
"'Without
significantly
plan
Development
Unit
It
the
property,
a third party
was commissioned
It presented
appraisal).
the property.
160 acres
the
Department
(private firm outside
and dated January 25,
a
market
value
of
This was $15,000 per acre based
(23 acres were subtracted due to the
easement over
them).
This appraiser suggested
the buyer the ability to revise the City permits
53
to
sized lots rather than the approved clustered
obtain standard
interdepartmental
One
lots.
memo
offers
the
following
analysis:
has successfully improved the value
"The Department
property (by obtaining City permits)...(to
of this
acre (amount shown in second
$15,000 per
at least)
in having
shows
a
benefit
This
appraisal).
as
process.
In
permit acquisition
completed the
show that the extent of
much as
market indications
costs for the parcel are in excess
requirements and
this
sites, it
would appear
of those
for similar
that
the
fact
to
directly attributable
could be
directly
with
city
state government
was
dealing
decision was made to offer
government.. .A conscious
a high value principally
the property
initially at
interest
the
high
degree
of
because
of
that no
bids were received at
indicated... The fact
market."
end
of
the
the high
minimum identifies
(Otto, March, 1985)
Department
The
preliminary plat
use use
and best
approvals within
advice
received
does not
be realized."
existing
property, as compared to other plat
of the
the same market area.
interest of
best
"the
provide for the reasonable highest
that the Department's acceptance of
in the
that
There is an inference
(the) conditions
(was) not
the trust since highest value can not
This caused a great deal of
(Otto, March, 1985)
concern in the Department as it prepared to offer
the property
a second time.
Another
September 6,
1985
an attempt
and
appraisals
appraisal).
per acre
party"
in
a
determine
It indicated
was $29,062.
to reconcile
value
a value
This
was
appraisal
"third
for
the
completed
previous
the
site
of $4,650,000.
on
(third
The value
appraisal also noted the County
54
1986
$2.75
(fourth appraisal).
for the
Million
or $10,635
$1,701,700
per acre.
appraisal was completed on October
last outside
Finally, the
15,
at
the site
Assessor valued
This report developed a value of
at the land and the
It looked
site.
permits and found a value of $17,188 per acre.
Public Offerings
were obtained, DNR tried three
City approvals
After the
times to dispose of the property but was unsuccessful.
in November,
first offering
1984, the
Department
At the
solicited
exchange proposals for the property with a minimum bid of $4.6
on the in-house appraisal findings but received
Million based
those in
consisted of assembling a long list of
Marketing
no offers.
the local
real
estate
industry
and
mailing
out
brochures advertising the property.
In early
1985, the Department realized it was targeting a
narrow market
due to
the following
characteristics
of
the
property:
1.
High value;
2.
State governmental process;
3.
Large acreage;
4.
High holding costs for a private developer because
and
of multi-year absorption period.
1985)
55
(Otto, November,
options
of Departmental
several estimates
During 1985,
The following is a compilation of the options and
were made.
alternatives suggested:
Reoffer the site at a value based on one or
the
first
other of
1.
of
appraisal value
$2,055,000,
or
the $4,600,000
b)
figure
(Hoefer,
appraiser.
the Department's
recently re-endorsed by
third-party
the
a)
appraisals:
two
the
September, 1984)
Meet with City officials to achieve reduction in
2.
plat requirements.
restrictions
low..."
"The probability
appears to
of Redmond
the City
from
of requesting fewer plat
quite
be
(Otto, March, 1985)
Redesign and resubmit the site plan for new City
3.
The optimum plat could be designed as one with the
approvals.
best yield.
This
from the private
4.
exchange for
would result
(buyers') perspective.
Reoffer on
a
phased
improved property
involve renegotiating
approvals to
highest and best use
in the
with the
for
basis
City
and
allow phased development.
or
This
lease.
with a
cash
an
would
the
restructuring
"The Department would
be requesting some changes that would allow the property to be
marketed on a phased basis which would reduce the holding cost
to a
purchaser.
minimal this
higher value."
Since the
would increase
Department's holding
probability
(Otto, November, 1985)
56
of
are
costs
disposal
at
a
This would
Let the City permit approvals lapse.
5.
in the
the site
mean placing
and selling
land bank
it
in
smaller parcels without approved plans and permits.
the options, the Department obtained an
After evaluating
of
extension
the
"on
the basis
solicited
proposals
1985)
property
commercial
lease..."
the
entertained
accepting
'Request for Proposal'
of a
(and)
all
p.
of
without
a
it could
Department believed
deposit cash
format, and
existing
ground
this
offering
exchange"
"deferred
property
(November,
other
Also,
11)
possibility
cash
under
property
third
the
for
exchange)
(simultaneous
July, 1986,
(DNR,
and
approvals
the property a second time
It offered
appraisal.
permit
City
or
The
exchange.
from a buyer into
the Land Bank and then withdraw it to buy land it found later,
a reversal of the previously described Land Bank process.
This
received;
valued the
approvals;
These bidders
one proposed a deferred exchange.
no
DNR site
offered exchange
Three of
for exchanges of property were
five proposals
time
at between
four sites
and
valued
$3.5
up
to
Million
$5
and
Million.
were vacant land with development permit
one was
only
they
property
$2.1
improved property.
After extensive
review of one bid, none of the proposals were accepted.
Over the
personnel met
Summer
1986,
"with various
developers, and
proposed exchange
the
Real
Estate
financial institutions,
other interested
or sale
new
investors
to
Division
private
negotiate
a
through the Land Bank mechanism of
57
the
obtained.
appraisal was
1986
October,
a
It established
value
of
fourth
$2.75
Sealed offers
1986 on a deferred exchange basis.
in December,
the
The property was reoffered a third time
Million for the site.
with a
In
11)
(p.
Department."
minimum were
$2.75 Million
requested but
none
were
received.
market picked
activity in
March, 1987,
Finally, in
Several buyers
up.
the
estate
expressed interest in the
wanted a conditional sale so that they could buy the
site but
if they were successful in obtaining amendments
property only
to the previously issued City of Redmond permits.
DNR to assume the risk of obtaining the changes.
property
for the
to negotiate
ranging
real
from $1.8
When the
were
submitted
They wanted
Eight offers
with
values
Million to $3.5 Million.
buyers decided to
known, some
competition was
and offered
forego the
conditional sale
outright.
Kitchell Development
to buy the property
Company was
the
successful
had the highest net present value for
bidder because
its bid
the Department;
it offered all cash ($3.5 Million) and closing
within 90
days.
DNR agreed to deed the property to Kitchell
in return for a promise to buy replacement property designated
by the
established which
and then
An escrow
Department.
account
for
$3.5
Million was
Kitchell will use to buy property DNR wants
transfer ownership
provide replacement,
to the
Department.
This
will
income producing property for the trusts.
58
Conclusion
As was mentioned at the beginning of this case study, the
Department's
decision
process
incremental.
It made
the next
results of the previous decision.
attempts to
was
fairly
disjointed
and
saw
the
decision after
it
This was one of DNR's first
enhance the value and dispose of urban land.
The
efforts took several years and several tries but resulted in a
successful sale.
The next
study shows
section will
DNR has
present a third case study.
learned some
from its previous experiences.
59
This
but not all of the lessons
EXHIBIT 2
REDMOND HEIGHTS TIMELINE
1979
1979
.
.
.
.
.
.
.
.
March, 1979
.
.
.
.
November,
1979
.
.
.
.
March,
1980
.
.
.
.
March,
1981
Prior
to
.
January, 1982
.
.
.
.
January, 1982
1983
.
.
.
.
.
.
.
.
1983
*
.
.
.
January, 1984
January, 1984
Spring, 1984
*
.
.
.
.
.
.
.
.
.
.
.
May,
May,
1984
1984
.
.
.
.
.
.
.
.
November,
1984
.
.
.
.
November,
1984
.
.
.
.
January, 1985
*
.
.
.
February, 1985
March, 1985
June, 1985
.
.
.
.
.
.
.
.
.
.
.
September, 1985
*
.
.
.
November,
December,
1985
1985
.
.
.
.
.
.
.
.
December,
October,
1985
1986
.
.
.
.
.
.
.
.
December,
1986
.
.
.
.
October,
*
Site identified as "urban" by DNR.
City began "Development Guide;" asked
used of DNR site.
First consultants hired; feasibility
study (Robert Butts & Associates).
Second consultants hired (Jones
Associates).
Market and development feasibility
study issued by second consultants.
Third consultants hired (Subdivision
Management, Inc.)
Plans, permit applications submitted
to City of Redmond.
Preferred alternative: ground lease.
Preferred alternative changed:
exchange of property.
First appraisal; in-house by DNR;
$4.6 Million value/$28,750 per acre.
City approves permits.
DNR staff reviews options.
State legislation change; DNR allowed
to buy income producing land and land
not adjacent to other DNR land.
DNR staff reviews options.
Preferred alternative changed:
deferred exchange.
First public offering; property
exchange; no bid received.
City approves one year extension on
permit approvals.
Second appraisal; $2.055
Million/$15,000 per acre.
DNR staff reviews options.
DNR staff reviews options.
Second public offering; simultaneous
exchange/RFP; 5 proposals received;
none accepted.
Third appraisal; $4.65
Million/$29,062 per acre. Assessor's
value shown as $1.7 Million.
DNR staff reviews options.
City approves one year extension on
permit approvals.
Real Estate Division formed.
Fourth appraisal; $2.75
Million/$17,188 per acre.
City approves one year extension on
permit approvals.
60
December, 1986
.
.
.
March, 1987
.
.
.
1987
.
.
.
April,
. Third public offering; deferred
exchange; no sealed offers received.
. Fourth public offering; negotiated
RFP, deferred exchange; 8 offers
received.
. Sale to Kitchell Development Company
for $3.5 Million.
61
CASE STUDIES
IV.
CANTERBURY COURT
C.
A
third example of DNR's disposition of urbanized land is
This approximately 38 acre site is located
Canterbury Court.
center of
Redmond
Washington.
of Redmond,
the City
from the
3.5 miles
and about
King County
in unincorporated
is
a
suburb east of Seattle and Lake Washington.
property is divided by a two-lane state highway,
The DNR
About one
third of
ownership.
adjacent to
school on
two parts:
City Road.
and the rest is still in DNR
the site
The school district purchased 11 acres of
the property.
22
It built an elementary
Road.
Redmond-Fall City
Lake
to
sold
been
has
site
the
District #414
Washington School
There is a
the portion of the
paved county road abutting the east side of
site north of Redmond-Fall
transportation
major
county area.
growing east
the fast
corridor for
is a
It
City Road.
the Redmond-Fall
DNR's current ownership consists of
acres north
of the school district
and west
site and five acres south of the state highway.
Prior
development
to
the
permit
approvals
Redmond-Fall City Road.
residential lots
district
school
on 22
for
the
sale,
DNR
property
obtained
north
of
King County approved 23 single-family
acres and
acres.
62
a school
location
on
11
MAP 4
CANTERBURY COURT:
VICINITY MAP
No Scale
63
initiated through a request
DNR activity on this site was
District in 1983
Washington School
from Lake
The District was preparing for
of a school.
for construction
The population in this
the growth of the district enrollment.
was growing
King County
part of
north east
to buy property
and expected to
continue to grow through the year 2000.
for this
decision process
The DNR
more
much
site was
it had been on the other two case
than
organized and
logical
study sites.
A purchaser was identified for a portion of the
DNR also decided it would determine what
site at
the outset.
part of
the site went to the school district after evaluating
how it
could use
more proactive
the remainder of
than
posture
was
the site.
normally
This was a much
for
used
sites
desired by school districts.
A history
of the
site and
DNR's decision
presented in the following paragraphs.
sequence
Exhibit 3, page 72,
is
is
a project timeline.
History
The property
the
remaining portion
section of
of a
to the State of Washington at statehood.
land given
of
is the
section has
The rest
The
in pieces over the years.
been sold
road connecting the City of Redmond and the rural
town of Fall
bisected the property since the 1920's.
Farming was
City has
the predominant land use in the area before the 1970's.
In 1967,
Redmond-Fall
the five
City
Road
acre portion
leased
was
64
of the
to
site
the
south
State
of
Parks
for recreational uses and named Harry Osborne Park.
Department
the
Recreation
(IAC)
to
were used
for
Committee
Interagency
state's
Funds from
the
improve
site.
Outdoor
Picnic
tables, nature trails, cooking shelters and parking areas were
some of the improvements placed there.
increased over
ability to sell
The whole
of
population
migration
and
DNR wanted the
the site and capture its increased value.
Canterbury Court site was included in the list
"urban" designation
designation process
of
Department
the
agency,
state
The value of the site had
lifestyles.
for "rural"
proposed for
lands
to
due
the years
homeowners' desires
to
This restriction was lifted
transferred.
the park
funded and
limited
years after alternative DNR property was
last several
in the
years.
for 55
recreational uses
site was
used, the
funds were
Because IAC
Game,
for fish
Another
recommended
the
property in order to
for this
be halted
in 1984.
and wildlife
habitat.
investigate fully
its value
Identification as
significant fish and wildlife habitat would
mean no development on the site.
and the
site was
This advice was not
followed
designated as urban by the Board of Natural
Resources.
early 1980's,
In the
staff of King County
the planning
wrote a new county-wide development guide.
It identified land
uses which
were appropriate for the unincorporated areas.
also tried
to promote
adjacent
to
existing
the philosophy
activity
65
It
that density should be
centers,
rather
than
in
isolated,
"encouraged for urban uses" by the
The
Plan
on the
zoning hearings that
"G"
or
It allowed residential lots of at least
General was assigned.
(defined as 35,000 sq ft minimum).
one acre in size
District
School
Washington
Lake
as
family
single
of the Plan, a zoning designation of
followed adoption
The
for
In the
site.
listed
was
1985 Comprehensive Plan.
called
specifically
residential uses
site
DNR
The
locations.
new
triggered
DNR's
review of the site and its future when it selected the site as
the
District
wanted
school in
future elementary
of a
location
to
buy
state
surplus
land
1983.
in
order
The
to
accomodate the increasing school aged population.
In
1984, DNR hired a consultant
allow DNR
which would
to have
the school
remaining after
to develop a site plan
a useable portion of the site
district purchased
its 11 acres.
1984, another consultant was hired to assess the
In December,
disposal
onsite sewage
King County.
submittal to
and prepare
capacities
DNR
personnel made
a report
a
for
conscious
decision to plan the use of the site before agreeing to sell a
This proactive approach
portion of it to the school district.
demonstrated a
sophistication gained from the lessons learned
in the other case studies.
The
lots plus
first
a
Canterbury Court consultant determined that 23
cul-de-sac road
retain optimized
located on the 22 acres DNR would
the use of the site.
designed to fit the site and stay as
66
The lots and road were
far from the Redmond-Fall
They
as possible.
City Road
were located
in order
to
be
compatible with the adjacent large-lot developments.
Applications to subdivide the 22 acres, known as the plat
obtain permission
need to
local water
district,
After a delay caused
in early 1985.
the County
submitted to
by the
create the school district lot were
Court, and
of Canterbury
for water service from the
final approval to the
County gave
the
development on February 18,
1986.
Options
residential
lot
large
farms and
were rural uses, small
land uses
The adjacent
when
subdivisions
began
DNR
the
Use of the DNR site for a school and for
permitting process.
single family residences was uncontested.
In October,
1985, DNR
to discuss
the site.
A deferred
the options of selling while the
suggested with
permit approvals
were finalized.
of
for disposal
alternative mechanisms
exchange was
representatives began
or selling after the approvals
were pending
One DNR manager said:
attractive way to dispose of this
the most
"By far
a
to do
would be
of view
marketing point
from a
We could conceivably
for cash.
'deferred exchange'
Or if we
pending.
final permit
sell now with the
no hurry we can await final action." (Vogt,
are in
1985)
In
late
Another review
1986.
1985
the
of disposal
The preferred
Estate
Real
Division
options occurred
alternative
67
appeared
was
formed.
in early March,
to
be
disposal
This meant that land would have
through a Land Bank purchase.
purchased through
to be
trust
Bank,
the Land
designations
exchanged, and the Canterbury Court site sold through the Land
Bank.
March, members
In late
look at
disposition.
options for
method discussed.
A member of
again to
Bank sale was
A Land
suggested that the
it was
that needed
overlap with
Division tried
the
mechanics of having to buy land first
The
process but
slowed the
the
of
by purchasers
time could
to arrange financing.
the Department said:
"Now that our plat is final,...we should think about
The market is really hot right
ASAP.
selling this
...we need to buy something in the land bank
now.
My suggestion is that we
this?
can sell
before we
have one, and
have to
if we
minimum bid,
set our
try to advertise for 60-90 days so people
terms, as
a one page
I think
financing.. .arranged.
can get
fact sheet and copy of the plat would suffice rather
we have a date for a
Do
printed brochure.
than a
.Also we need to
yet?..
close
to
purchase
bank
land
reserve fund allocation or whatever is needed in the
land bank." (Vogt, 1986)
public hearing necessary to exchange
the Department
held the
the Canterbury
Court property
equal value.
It had
In January, 1987,
for almost one year.
Nothing happened
decided
for
to
replacement
sell
the
site
property
through
of
a
deferred exchange.
Property Valuation
In September,
property by
1985, an
an outside
appraisal was
appraisal firm.
68
completed for the
It found a value of
the subdivision
One of
small portion
dedicate a
requirements called
of land
for DNR
to
right-of-way for the
DNR needed to determine
market value for the property so that it could be sold
In early 1986, a DNR appraiser used the 1985
County.
to King
appraisal and determined a value of
$11,000 per acre or $1,300
area needed for right-of-way.
for the
In July, 1986,
to 10 percent of this figure, or
be reduced
the DNR
that the value of the right-of-way should
appraiser concluded
of the
as a
district's new pipeline.
local water
fair
in the Canterbury Court
This equaled $10,984 per acre.
subdivision.
a
acres contained
the 22
for
$240,000
right-of-way was
only 10
$130,
because use
percent of the value of the
property.
In February,
At
outside firm.
$278,000
for
One section
1987
was hot."
updated
by
the
This
was $12,723 per acre.
the appraisal update noted the County Assessor
$411,800, including
This averaged $12,478 per acre.
agreed with
was
the appraisers found a value of
acre site.
property at
valued the
appraisal
this time
the 22
of
the
The
the school site.
updated
appraisal
the Division members' assessment that the "market
It stated:
to
development
surrounding
immediate
"The
demonstrates
site) clearly
the...(Canterbury Court
bedroom
developing
a
rapidly
is
area
the
that
405
the Bellevue/Redmond/(Interstate)
community to
(35,000 sq ft or horse
lower densities
corridor of
acre lots) with homes ranging from the high $100,000
The Bear Creek area is
range.
low $300,000
to the
State of
in the
growing areas
the fastest
one of
population
1980
and
1970
Between
Washington.
(persons)
13,250
to
6,100 persons
increased from
report)
growth
The... (County's
annual.
average
69
of
the
rate
at
continue
growth will
indicates
1990."
percent between
1980
and
approximately 53
(Yates, Wood, and MacDonald, 1987)
Division members
$275,000 and
had estimated
$350,000 in
a sale
price of between
the market was
1986 because
"hot."
The 1987 appraisal update's growth in value substantiated this
estimate and promised the possibility of more.
Public Offerings
DNR has
not had
the appraisal
It had
a public offering for Canterbury Court.
updated in
current value
which could
minimum bid.
It
in
flyer
have
early
used
been
reflect
a
determine
a
to
1987
to
has also developed a marketing notification
the form
of a postcard with an aerial photograph of
the site on one side and information about the property on the
be mailed
to developers, banks, and other
reverse.
It will
members of
the real estate development community.
A
alternative for
result, the
sale of
a marketing
date for
target
effort and
not been
disposal have
in Spring
preferred
determined.
Department missed a window of
Canterbury Court
a
As
a
opportunity for the
1987 when interest rates
and the inventory of platted land were low.
Conclusion
The time
is much
period of DNR's involvement on Canterbury Court
shorter than
those involving the other case studies.
The approach has been much simpler and less complicated.
70
This
may be
The market
for
the
of the Real Estate Division's involvement.
function
a
for this site is substantially different than that
other two
probably be
a small
small contractor.
the buyer of Canterbury Court will
homebuilder who
him or
other utilities
disjointed.
sites;
her-self or
However,
puts in the streets and
to
subcontracts them
the decision
a
structure is still
The Department wants to sell the property but has
too much time deciding on which method to use.
spent
The next
chapter will
use the examples presented in the
found
three case studies to discuss ideas on the sale of land
in the
several
real estate and financial literature.
ways
to
analyze
property
represent.
71
and
the
It will address
value
it
may
EXHIBIT 3
CANTERBURY COURT TIMELINE
.
.
.
.
*
.
.
.
1983
*
.
.
.
1983
*
.
.
.
*
Summer,
1984
1984
*
.
.
.
.
.
.
December,
1984
.
.
.
.
1985
.
.
.
.
January, 1985
.
.
.
.
1985
.
.
.
.
October, 1985
December, 1985
December, 1985
.
.
.
.
.
.
.
.
.
.
.
.
1986
.
.
.
.
*
.
.
.
.
.
.
.
Spring, 1986
July, 1986
*
.
.
.
January, 1987
.
.
.
.
February, 1987
.
.
.
.
February, 1987
Spring, 1987
*
.
.
.
.
.
.
1967
Early 1980's
September,
February,
March, 1986
Spring, 1986
*
5 acres of the site designated Harry
Osborne Park.
County staff designate site for urban
uses in draft Comprehensive Plan.
Lake Washington School District asks
to buy 11 acres for school site.
Park designation transferred to
another site.
Site designated "urban" by DNR.
First consultant hired (plans and
permits); design useable site before
school portion removed.
Second consultant hired (on-site
sewage report).
County adopts new Comprehensive Plan;
single family residential uses for
site.
Plans, permit applications submitted
to King County.
Appraisal; $240,000 for 22
acres/$10,984 per acre.
DNR staff reviews options.
Real Estate Division formed.
Preferred alternative: Land Bank
exchange.
County approves permits for
subdivision on site.
DNR staff reviews options.
Missed sales opportunity: DNR staff
thought market was "hot."
11 acres sold to School District.
DNR appraiser finds value of
waterline right-of-way is 10 percent
of value of one acre.
DNR holds required public hearing for
exchange of land.
Appraisal updated: $278,000 for 22
acres/$12,723 per acre.
DNR staff reviews options.
Missed sales opportunity: DNR staff
thought market was "hot."
72
V.
This
REAL ESTATE AND FINANCIAL LITERATURE
chapter
literature to
the sale
will
survey
identify ideas
of property.
The
real
estate
appropriate to
literature is
and
financial
a discussion of
limited
and
the
majority of it deals with the purchase of property.
However,
the
and
ideas
presented
preparation.
may
be
These ideas
applied
will identify
incorporated into the decision process
The limited
means that
based.
literature on
research
A
review
on this
of
2.
Financial analysis
3.
Portfolio management
4.
Real estate marketing
Other
to be
topics
more broadly
will
provide
research describes financial indicators
provide evidence
through a sale.
of the profits which may be generated
Also, real estate is a commodity which can be
a portfolio
real estate
can be
of natural resource based development companies
is important.
held in
tools which
its
These include:
Description of DNR
that
sale
the sale of urban real estate
related
1.
A description
a
for selling urban land.
topic has
other,
additional perspectives.
to
and managed
as an
investment.
Fourth,
is not just sold but marketed to a specific group
of players.
73
Description of DNR
agency acting as a natural
studies in
The case
resource based development company.
Chapter
"urban" lands.
uses of DNR's
show that urban encroachment
IV
to transition/urban
timber production
move from
triggered a
of DNR is essentially a public
Estate Division
The Real
For example, the Redmond Heights
site is surrounded by suburban density residential uses within
an incorporated
to the
The Bucklin Ridge property is adjacent
city.
commercial
fastest growing
area
in
Kitsap
County.
Canterbury Court abuts a state highway which acts as the major
transportation corridor for east King County.
as having
development companies"
to,
used
formerly
lands
Examples of
"natural
describes
(1975)
Braun
for
resource
an inventory
resource
natural
of, or access
production.
uses include forestry, grazing, or mining.
attributes the
rise in value of
based
Braun
the natural resource lands to
the urbanization of the area around them.
long
a
for
dormant
lie
"Typically, land values
of
rapid
period
a
go
through
period of time and then
factors
external
triggered by
appreciation, often
extension,
utilities
highway construction,
such as
also, or
Appreciation may
growth.
and population
investment,
by
capital
stimulated
be
alternatively,
a market for the property concerned."
which creates
(p. 128)
A
is a
strategy
obtain desired
disciplined way
results.
objectives should
"In short,
to meet objectives and
financial and strategic
determine, via product/market analyses, the
74
use to which the land will be put (p.
not the other way around."
133)
Braun finds
that utilizing a decision making strategy is
Natural
important.
based
resource
development
companies
generally follow one of four basic strategies or approaches to
the business.
The single segment strategy (focus on one end
product; build strong skills through
specialization);
The multi-product market strategy (capitalize on
several profit opportunities at one time; requires
strong management);
The functionally based strategy (capitalize on one
strength in key area and apply to all segments of
market; sophisticated management);
The vertical integration strategy (build on existing
resource bases; go forward to where product starts
as well as back to end-user; heavy demands on
management). (p. 131)
1.
2.
3.
4.
DNR as
different aspects
the cycle
produce the
for the
agency
address
cycle of resource development.
The
properties
no
which
longer
can
Other natural resource based companies
resource.
State follow the same strategy but use separate
in Washington
than
rather
Weyerhaeuser Company
subsidiary real
Real Estate
within the
Division, as one part of DNR, concentrates on the
Real Estate
companies
of the
fourth strategy, vertical
the
Separate divisions
integration.
end of
follows
an agency
divisions.
has several
Pope
partially
companies:
Corporation, and
Company, Quadrant
Columbia Company.
wholly or
estate development
example,
For
and Talbot,
75
the
owned
Weyerhaeuser
Cornerstone-
another forest products
company, has
established Pope
Resources as
its
development
company.
Braun also discusses the decision process in terms of
three basic
steps identified
making process
the decision
appears to
maker is
based development
sell
urban
in Chapter
be the
a public
company.
lands
The
decision
same regardless of whether
or private natural resources
In either
should
II.
address
case, the decision to
goals
and
objectives,
strategies for achieving them, and an implementation plan.
overall or
comprehensive approach
aspects are not left out
the
ensures
that
An
significant
or forgotten.
Financial Analysis
Financial
project.
indicators
They should
are
be used
important
to
understand
a
in conjunction with the other
criteria listed in this document and not solely by themselves.
Discounted cash
flow (or
value) is
net present
an accepted
base indicator.
Hodder and
discounted
cash
framework for
times.
Riggs
flow
analysis,
comparing cash
Cash flow
decsion to
(1985) discuss
hold or
which
flows
comparisons are
they
occurring
define
at
an integral
estate.
sell real
the use and misuse of
as
a
different
part of
the
Hodder and Riggs cite
three critical factors which must be taken into account in the
cash flow
uncertainty
analysis:
(risk)
inflation,
in different
the
phases
management's ability to mitigate risk.
76
different
of
a
levels
project,
of
and
DNR does
levels of
not appear
to have
risk associated
development in
each of
recognized
the
different
with the various stages of project
the case
studies.
Also, it does not
appear to have analyzed how it might mitigate some of the risk
associated with
each of the stages.
Heights project
has two stages:
For example,
the Redmond
planning/permit approvals and
marketing/sale to potential buyers.
There is development risk
with the first and marketing risk with the second.
of
risk
is different
the cash
in any
flow is
with each.
The degree
The degree of riskiness of
therefore different and should be reflected
cash flow analysis completed for the project.
Another
example of the stages of a project are the three stages of the
Bucklin Ridge
Plan),
installation
of
site
the
risks
individual stage
improvements,
Discount
independently.
Ridge
Community
and
sales
The risk of each stage should be
efforts/external influences.
assessed
(Bucklin
planning
project:
should
be
rates
which
reflect
the
cash
flow
discounted
cash
flow
used
in
analysis.
Welter
(1970)
He
analysis.
also
discusses
that
cautions
main
the
calculating a discounted cash flow (i.e.,
and
implementation
data)
the
interpreting
plan
which
are
difficulties
collecting, handling
An
organizational.
identifies
in
how
the
project
objectives and strategy will be carried out, such as suggested
by Braun
are
(1975),
realistic
is
and
needed to ensure the cash flow estimates
the
calculations
financial and growth objectives.
77
are
consistent
with
Hirschmann
trends in
and
cash flows
According to
of options
discuss
projecting
annual
forecasts.
making
this allows exploration of a range
(sensitivity) and
identifies anticipated rates of
various assumptions and conditions.
pinpointed rate
of return
can be
sale
inflation,
assumption in
range of
(1965)
rather than
the authors,
return under
economy,
Brauweiler
options allows
affected by changes in the
price
the discounted
A specific,
or
(residual),
cash flow
any
analysis.
to
decision makers
other
Using
understand
judgments and uncertainites that are incorporated into it.
array
of
cash
flow
trends
will
visually
display
a
the
An
the
information.
The Real
Estate Division should derive a discounted cash
flow when it evaluates each project.
to
value
raw
land,
"pro
concerning
identified.
a
likely
what it
(costs
and
anticipated
give an added dimension to the project.
revenues projection)s
Assumptions
formas"
Although is is difficult
value
are
made
and
explicitly
The Division can use this mechanism to determine
range of rates of return.
It will better understand
is selling and who will buy it.
convince Division
The results may even
representatives to keep the property in the
DNR portfolio.
There are
indicators beside
other financial
cash flow which can be utilized.
look at
the real
financial perspective.
price,
future
value
Neidich and Steinberg
versus sell
estate hold
They
find the
(property
78
discounted
decision
decision
appreciation),
and
(1984)
from
depends
a
on
investment
alternatives.
investment
While the
in
authors
real estate,
address
corporate
equity
the quantitative factors they use
can be molded to apply to the Real Estate Division's actions.
Neidich
uses equity
and Steinberg
develop a
dilution analysis
determine whether
financial model
and present
a corporation
that
value analysis to
should sell
or continue
to
hold real
estate it
method of
quantifying
earnings.
Present value analysis is a way to examine the long
now owns.
the
Equity dilution analysis is a
impact
of
a
property
sale
on
term view of a sale's capital budgeting implications.
The Real
Estate Division
decision to hold or sell
two analyses
can be
add financial
finds itself
facing the
its property as a corporation.
modified to
same
These
use DNR's variables and can
data to the decision making process.
While DNR
does not have "earnings" as a private corporation does, it can
still determine
whether a
or held
and its
present
value
particular property should be sold
impact on
analysis
the overall
could
also
help
tradeoffs between
retaining ownership
necessary capital
expenditures
over
protfolio.
of a
the
DNR
Use
examine
of
the
property and the
expected
life
or
holding period as compared to the returns from selling it now.
The
case
analysis on
Rather,
were
studies
the part
it appears that
used
processes.
as
guides
The
sophisticated ways
generally
of DNR
or the
reveal
little
financial
Real
Estate
Division.
"gut instinct" and previous experience
through
financial
the
tools
development
described
and
above
sales
are
to view the project and may possibly "over
79
analyze" a situation.
and do
They are, however, important indicators
provide a means for comparison and evaluation.
Matrix
V-1 identifies whether any financial tools were used.
MATRIX V-1
Canterbury
Court
Bucklin
Ridge
Redmond
Heights
Factor/
Influence
1. Discounted
cash flow on
cost, revenues
no
no
no
2. Range of
of return
determined
no
no
no
no
no
no
no
no
no
rate
3. Assumptions
identified
4. Other financial indicators
used
Portfolio Management
When a person or entity owns
own a
real estate
of portfolio
important factors.
the items
several types
of real
total
a real
estate
management,
risk
and diversity
With
are
Diversification reduces the variability of
returns among
commercial,
Management of
portfolio.
similar to that of a securities portfolio.
portfolio is
both types
two or more properties, they
industrial
in the portfolio because it combines
estate holdings,
such as residential,
and office, within the portfolio.
The
return to the owner or owners is not based on the return
from one single property, which can vary each year, but on the
combined returns
from many
properties.
80
The total amount of
more reliable.
is generally
combined returns
a result,
As
risk is reduced overall.
Diversification in the way real estate is held is one way
a portfolio can be managed to mitigate risk.
(1967)
how investors
investigate
and
residential
participation can
as
development
commercial
instead of
raw land
looking at
in
can participate
be applied
to
profit
They use
(ownership) particpation.
equity
potentials through
Hayes and Harlan
property,
developed
By
examples.
situations
such
equity
those
as
presented by DNR.
Retention of
land ownership through a joint venture with
is a
a developer-partner
potentials and
could be
the
way to
participate in
profit
The deal
structured so that the developer-partner assumed all
construction
contributed or
participate in
leased the
residuals if
some of
risk
lease/marketing
and
land
to
the
assumed the development/permits risk.
At this
land base.
the trusts'
not deplete
the
joint
while
DNR
venture
and
As a partner, DNR could
the "upside:"
the future cash flows,
the property is sold, and property appreciation.
time, state law does not permit such partnerships but
education of
regarding
the legislature
the
benefits
could
result in changes to the law.
Several other ideas that can apply to DNR are seen in the
following
These
quotation.
profit/return,
degree
of
completion
process, and development risk.
81
maximization
include
of
the
of
development
development of commercial
returns from
"The profit
and industrial property have generally been somewhat
This
is
housing ventures.
those from
lower than
against
undertaken
is
often
because construction
for all or part of the space developed,
firm leases
that
market
risk
of the
that part
thus removing
revenue
the
variablity
of
the
future
involves
that
the
be
emphasized
It should
also
stream.
real estate
returns from holding already-developed
as those
not been as large
as an
investment have
where
the
real
estate,
developing
accruing from
uncertainty
of
because
somewhat higher
risks are
and the
of development
the costs
surrounding both
the revenues flowing from the property once
size of
it is developed." (p. 9)
on
concentrated
obtaining land
go
not
is
far
a policy
to
the
then
has
it
date
point
selling
of
the
end-user
speculative
industrial plants,
than a legal
constraint rather
or
homes.
constraint,
the kind of return DNR can expect.
Another factor
is the
Generally, DNR
public agency
and
building
as
it can
the State Legislature it
has told
as offices,
but it does affect
assume.
estate
approvals
use permit
improvements such
This
real
developing
as
To
beneficiaries.
The Department
property.
will
trust
the
to
possible
profit
in order to return as much as
of property
a sale
realize on
amount of
maximize the
is to
DNR's goal
and because
risk DNR is willing to
amount of
will minimize
it is a
risk because
fiduciary responsibilities
it has
the
trust lands.
Determining policies and constraints is
part of
the decision
process.
for
These factors influence what
DNR believes it can achieve with a particular site.
affect the
marketing
of
the
site
hold/sell decision.
82
as
well
as
They also
the
basic
and understanding
Risk acknowledgement
in
(1979) discusses the importance
Hertz
portfolio management.
are important
of knowing the risks involved when making capital investments.
of real
to buyers
was speaking
Although he
estate, sellers
DNR, as a seller, should be aware
should also identify risks.
of the
risks it is taking and those it is asking the buyer to
take.
DNR should
development of
than the
future buyer
agency.
The buyer
DNR
approvals to
would be
least
it
with less risk and cost
a site
willing to pay DNR more for
the
As long as the cost of
the
return
or
in place.
than
less
is
price
purchase
the
site because DNR is a government
of a
the approvals
site with
are
For example, DNR may be able to obtain permit
consequential.
approvals for
which
risks
those
take
additional
the
should
it
receives,
take
the
of
risk
development/permit approvals risk.
Hertz promotes
which
analysis
a
measures
multitude
combination with each other).
the
makes up
the potential
rate of
statistic called
occurance
of
combination
specific
As another
variables.
of
sale.
(risks
in
for
values
of
each of
return
is
Simulation estimates
each
a
example, simulation
probability of
assess the
and no
of
risks
It shows that a specific rate of
variables.
the sale
odds
of
method
For example, each variable that
a high level of uncertainty.
subject to
a
financial
a
as
using simulation
combination
of
return depends on
large
can be
number
of
used
to
several outcomes, such as
the whole site, the sale of portions of the site,
The outcomes
depend
83
on
the
combination
of
variables that
forces the
make up
influence them.
user to
identify and
an outcome
effects.
Using
and, in
While a
simulation techniques
quantify the variables that
the process,
specific computer
see the causes and
program is needed, very
little time is involved in the mechanics of
Diversity of
is also
do show
the type of real estate within the portfolio
important.
little risk
A review
assessment was
sensitivity to
differing sizes
and road
and
of the
case studies indicates
undertaken.
diversity
(64 acres,
potential markets
builders),
the operation.
of
However, the studies
product.
160 acres, and 38 acres),
(institutions, developers,
differing degrees
improvements).
They
of
differing
and small
improvements
The diversity appears
have
home
(utilities
to reflect the
individual situation rather than a predetermined strategy.
Matrix V-2
identifies whether
portfolio management
case studies
the
were addressed
factors
by DNR.
involved
A review of the
indicates there were mixed results.
MATRIX V-2
Factor/
Influence
Redmond
Heights
Bucklin
Ridge
Canterbury
Court
1. Diversity of
projects,
investments
within
site
within
BRCP
recognize
different
size, mkts
2. Alternative
ownerhsip
structures used
dropped
orig. ground
lease
no
no
3. Risk identified
& measured
no
no
no
4. Risk
assignment
no
no
no
84
in
Real Estate Marketing
The scope of these activities
buyers.
attractive to
make it
to
property
packaging the
structures, and
determining deal
buyers,
potential
identifying
of
consists
Marketing
is determined at the beginning of a project.
institutions, local
doctors
as
such
players,
home
Targeting a buyer at the beginning of a project
dentists.
to position
determining how
studies
of
other groups
builders or
scale
small
or
large
developers,
and
private investors
"buyers" include
Other
urban sites.
This is
an opportunity for marketing
and presents
today
still true
key to
holdings of real estate.
increasing their
which are
investors as groups
tax-exempt institutional
corporations and
held
publicly
identify
(1967)
Harlan
and
Hayes
identified
actively
In most cases
projects.
outset of
at the
potential buyers
is
The case
the property.
not
has
DNR
that
indicate
or
this led to confusion about the product and who would buy it.
Hayes and
syndication of
as a
real estate
an article
also wrote
Harlan (1972)
means of sale.
on
The authors
caution that there can be many pitfalls with syndication.
amendment
to
the
syndications which
federal
are based
in
code
tax
1987
primarily on
tax
the
has
The
affected
benefits
or
shields.
However, syndication is still an option which a purchaser
of
DNR
property
can
appropriate because
All property
must be
exercise.
of the
way DNR
It
may
be
is required
particularly
to operate.
sold at a public auction with a minimum
85
bid.
accept only
DNR can
reimbursement) may
more potential
to
acceptable
the
make
from
syndication
the property (in essence,
a piece of
return for
investors in
payments
immediate
to obtain
The ability
or a property exchange.
all cash
requirement
pay
to
all
cash
Such immediate resale
buyers.
would lessen the incidental holding costs
through syndication
such as interest and fees.
suggest ways such as syndication for a purchaser
DNR can
Obviously the buyer makes the decisions,
to finance the deal.
but DNR
alternatives
can present
The
potential purchasers.
buyers
suggested that
were
its
in
discussions
disenchanted
manager
project
Ridge
Bucklin
with
with
DNR's
sales
this is one way to offset it.
structure;
Jewett
identifies seven steps to follow to market
(1977)
estate.
surplus real
Although he is specifically discussing
marketing existing industrial buildings which a corporation no
longer needs,
of urban
the principles
are equally applicable to sales
The author
begins by advocating the seller
lands.
studying the potential of the site.
spend time
potential uses and users, projected rents, size
by
adaptability
users,
arrangements
(lease
to
multiple
The
or sale).
uses,
This
includes
(space) needed
and
property should
financial
be made
attractive to potential users/investors because:
1.
2.
3.
It can be phased or subdivided if one user does not
want all the space;
It has a price justistified by identified and
documented new users; and
It has been merchandised to move quickly and
profitably;
86
the biggest
It has been packaged and sized for
market. (p. 4)
4.
The case studies in Chapter IV show the DNR has had mixed
success in applying these ideas.
was not
Canterbury
biggest market.
appeal to
are
1987
market.
a broad
pieces
Court,
and
Also, the
appraisal update.
merchandised
to
move
for
packaged
the
sized
to
anticipated price
of
was
however,
was probably right for
Canterbury Court
early
smaller
broken into
For example, Redmond Heights
the market due to the
However, none of the properties
due
quickly
cumbersome
the
to
mechanisms DNR must use as sales vehicles.
The ideas
with the
presented by
can be
case studies described in Chapter IV.
principles have
actions.
these articles
compared
The ideas and
not generally been incorporated in DNR's past
The following
matrix
(Matrix
V-3)
indicates
the
general status.
MA TRIX V-3
Bucklin
Ridge
Factors/
Influences
Redmond
Heights
1. Target
only on
pur chasers
4th of fe rina
Canterbury
Court
no
no
2. Aid buyer with
financial
structuring
no
no
no
3. Study site
potential (uses,
price, market)
no
no
no
4. Marketing
(brochure,etc)
tools
no
limited
87
one, but not
yet used
Conclusion
The literatures
financial
analysis,
indicate there
portfolio
are many ways to address
management
and
real
estate
marketing.
These topics are incorporated during the decision
process and
become integral
project.
The principles
The case
land.
applied them
the Real
DNR has
develops a
is beginning
not
consistently
It appears, however, that as
projects.
Estate Division
of a
the evaluation
can be applied to any sale of urban
studies indicate
to its
credibility, it
factors in
track record
to incorporate
some
and gains
of
these
principles in its approach to urban land sales.
The next
chapter analyzes the case studies in detail and
offers conclusions which apply to urban real estate sales.
88
ANALYSIS AND CONCLUSIONS
VI.
studies have
Three case
Bucklin Ridge represents
presents lessons in decision making.
sales opportunities and evidence of the "greed
several missed
Redmond Heights
factor."
sale
exemplifies a
success
with
Canterbury
timing.
market
coincidental
on
based
a
Each
made and executed.
property is
sell urban
decision to
how
examine
to
used
been
represents a less complex project that is still
Court
in the process
of being sold.
Comparing Case Studies With Each Other
events in each case study.
end of
each case study
page 90
the number
The higher
same process
life of
not
They serve as
as
commonalities,
left column
in each
when each
a project.
available should
and
60, and 72).
every
as
Matrix
the
category, the
more times the
event happens
only once
Maximum
in the
For example, a review of all
the options
beginning of
the project
take place
few
well
occurs in each case study.
has been repeated for a single project.
efficiency occurs
major
the number of times each of
demonstrates
in the
events listed
(pages 44,
the cases which can be quantified.
differences, among
VI-1 on
the
highlight
The timelines are presented at the
identifying
for
the foundation
to
been developed
Timelines have
months
at
the
during
89
the
project.
Rather,
milestones should
progress to
to demonstrate
be established
the desired result.
MATRIX VI-1
Bucklin
Ridge
Event
# Consultants
(major)
# Appraisals
Canterbury
Court
Redmond
Heights
1
2 official
1 unofficial
3
1
4
2
# Public
offerings
0
4
0
# Tries to
have offering
3
0
1
# Missed sale
opportunities
3
0
2
0
3
1
# Marketing
efforts
.5
3
1
# DNR staff
involved
11
10
5
7
8
4
# Preferred
alternative
changes
# Years
elapsed
are also
Qualitative factors
case studies
deal with
The
other.
located in
raw land
development.
Division,
with each
Department,
recognized
the
important in comparing the
All three of the case studies
areas
of
later
and
increases
in
growth
urban
the
value
Real
due
location and tried to capture them through sales of
Land use permits were obtained for
in the increased value.
90
and
Estate
to
the
the sites.
each site as a way to lock
Each project is distinctly different in size.
of each
At the end
project it has become apparent that each was designed
for different markets and different groups of buyers.
acre values
are discrete.
between markets
This
The per
is evidence of the variance
in which each site
is located.
The amount of
effort expended by Department personnel and the portion of the
development
process
completed
for
each
project
are
also
different.
It
is
evident from
qualitative comparisons
in any
of
the timelines,
that DNR
these examples.
projects is
has not focused its efforts
The time spent administering these
fragmented, not
concentrated.
of the
effort
project
is brought back into the spotlight.
As a result, much
wasted and has to be reworked each time the
Even though large
personnel have worked on each project,
numbers of
that one
is
Matrix VI-1, and the
person has
clear calendar to get
not been
it is clear
given the responsibility and a
it sold or otherwised disposed.
Comparing Case Studies With The Decision Process
The decision
ordered so
process can be reduced to generic parts and
that it can be applied to many different projects.
The process
strategy, and
has three
basic parts:
goals
Each of
implementation.
and
objectives,
these is needed in a
decision to make it a cohesive unit.
Objectives, strategy, and implementation are discussed in
Chapter II.
The objectives provide goals to meet and identify
areas that are important to the decision maker.
91
A
strategy is
regarding how the objectives will be achieved.
then developed
of the decision is narrowed and more specificity is
The scope
introduced about
final step
how objectives
strategy will
accomplished.
The
those people implementing the
identify how
is to
will be
The anticipated sequence of events is
operate.
"game plan" developed.
determined and a
These three basic parts of a decision provide a framework
the examples
for evaluating
The
Natural Resources.
examples
Department
the
describe
two
agency and individual project.
decision making:
intertwined, it
two are
provided by
is the
levels
of
of
Although the
individual project
decision
making process which is of interest here.
literatures
The
following topics:
and
mechanisms to
assess
are components
evaluate
and
are
subsets
of
it, and when.
will gather
portfolio, and
individual
the
the
marketing tools
The
are the
portions of each project and
of the total package of data assembled for the
maker uses
The decision
project.
address
implemenation plan, it is determined
data, who
financial,
resulting
V
which is devised at the beginning of each
As part of the
gather the
how to
Chapter
They
marketing.
implementation plan
project.
in
financial management, portfolio management,
estate
real
discussed
choose
a
course
of
all
the
action
information
and
to
to
develop
contingency plans.
Matrix VI-2 on page 93 compares the case studies with the
basic parts
tools
from
of a decision discussed earlier.
the literatures
which should
92
It incorporates
be addressed in the
Responses in the matrix cells
process.
identify what actions
taken in the case studies, if any, correspond to the
listed in the
framework
left column of the matrix.
MATRIX VI-2
Decision
structure
Redmond
Heights
Bucklin
1. Goals &
objectives
general;
needs
t rust general;trust
needs
2.
work with
community;
not apa rk
follow County
desires for
planning
3. Implementation
plan
(control
mechanism)
none; disjointed; a s
time permi ts
none; proceed
none; led by
County desires after each
action
A. Financial
analysis
little effort
none;not real- none
ize value drop,
costs
B. Portfolio
management
no risk assess-no risk assess-no risk assessment; recognize
ment; tried
ment; tried
site, buyers
within BRCP
within site
different
C. Real
estate
marketing
4 offerings;
disjointed
effort
Strategy
The
on
each
case
concentration.
not site
strategy for
and potential
work
on
each
make remaining
area useable,
saleable
little effort
that project administrators
part-time
and
uneven
their
in
Objectives and goals, if any, were general and
specific;
predominant.
were
property
to school dist.
little effort
studies illustrate
project
Canterbury
Court
Ridge
bringing
in money for the
Implementation plans
were not
trust funds was
developed.
A
project, determining the market
approaching the
end-user, and timing was not decided before the
project
began.
93
Also,
there
was
no
risk
assessment or
was
acknowledgement of
the risks
little use of standard financial
involved.
There
indicators of value, such
as discounted
cash flow
conclusion is
that in most cases the decision process used by
analysis on costs and revenues.
DNR is not consistent with this framework or structure.
is little
evidence that
The
There
a systematic process was used by the
Department or Division.
Conclusion
The
Department,
and
now
the
Division,
has
certain
constraints on
the actions it can take because it is a public
agency.
the project managers described the constraints
One of
as follows:
1.
2.
3.
4.
5.
DNR's lack of a comprehensive business plan;
Need for streamlined statutes, to provide product
(real estate) in a timely fashion to private sector
clients not accustomed to government requirements
for public notice and hearings before disposition of
property;
Inability to negotiate for property;
Public exposure to developers who are typically
reclusive in nature; and
Requirement for large up-front amount of cash by
developer for purchase; private sector properties
allow better terms. (Harper, 1987)
These constraints
distinguish a
public agency
natural resource
based development
company
natural resource
based development
company.
acting
from
a
as
a
private
They effect the
way the
public agency might operate or pursue a strategy, but
they do
not preclude
it from
using
decision process.
94
a
structured,
defined
VII.
RECOMMENDATIONS
This thesis explores the decision process with respect to
selling urbanized
real estate.
The decision to sell property
which has a higher urban value than timber producing value can
be structured so as to capture that value.
from the
Three case studies
Washington State Department of Natural Resources are
used as examples.
There are
two recommendations
to be
made.
The
addresses structuring the decision making process.
suggests ways
for DNR
more opportunities
to structure
to share
in
the sale
the value
first
The second
to incorporate
gained from
the
urban land uses.
Structuring The Decision
The three
at the
basic parts of a decision should be undertaken
beginning of
throughout the
determine
life
the
a project,
of
goals
a
rather than at various
project.
and
It
is
important
objectives,
implementation in conjunction with each other.
parts interact
with and
times
to
strategy
and
How well
these
complement each other determines the
effectiveness of the decision.
A structured
making pattern.
another and
applicable to
approach allows
It
repetition of the decision
is transferable
promotes comprehensive
the decisions
to
95
from
one
decisions.
sell
urban
property
to
It is equally
lands
made
by
private natural
resource based
development companies
and to
those made by public agencies.
Completion
evaluate a
a framework
of
Matrix
VII-1
by
decision
project before any action is begun.
makers
will
The matrix is
for viewing a project in order to determine goals
and objectives, strategy, and implementation.
MATRIX VII-1
Stages of Production
Decision
structure
Conception
(planning)
Production
(permits)
Distribution
(marketing;
sales)
Management
(if hold
property)
1. Goals &
objectives
2. Strategy
3. Implementation plan
(control
mechanisms)
A. Financial
analysis
B. Portfolio
management
C. Real
estate
marketing
The complete
beginning.
approach to
Flexibility is
opportunities that
the project
retained
present themselves
96
to
is decided at the
take
after the
advantage
of
project
is
started.
The decision
makers can
evaluate whether or not a
new opportunity which arises really contributes to the desired
result because
they have
alternative ways
determined the
to accomplish
it.
position of grasping at a different
The decision
risks and
risks
are
not
in
the
"solution" or new method.
risk profiles.
Determination
of
what
are willing to accept and what rewards are desired
as compensation
in the
They
and
makers also identify and understand project
their own
they
desired result
is important.
literature review
The analytical tools discussed
can assist
with these assessments.
The following checklist can be used:
1.
Identification and occurance of risk
a.
probability
b.
simulation;
Financial indicators
a.
discounted cash flow of revenues/costs
b.
appraisal
c.
market analysis
d.
equity dilution/present value analysis;
Anticipated outcomes
a.
range of rates of return
b.
land use permits
c.
capital appreciation/residual value.
2.
3.
Those directing
the development
on a
a sale
process to
of urban land decide how much of
complete.
comprehensive understanding
end-point is
sale of
level of
set.
the site
When that
should be
This decision is based
of the project.
A
limit or
point or
time is reached, the
completed.
Determination of the
involvement ahead of time and the ability to sell at
the predetermined time affects the level
and received.
97
of return anticipated
There is
certain basic
real estate.
market, c)
It
includes: a)
the external
the risks.
information needed to sell urban
the value of
decisions.
information and
The DNR
pitfalls which
the
factors and possible effects, and d)
Use of Matrix VII-1 will
determine this
the site, b)
serve as the basis for making
case studies
can occur
organize the approach to
demonstrate
and some of the
some
of
the
lessons that can be
learned.
Structuring
the
decision
consistency and continuity.
considered.
process
provides
Decisions made in a comprehensive
that all parts of
manner ensure
making
the decision are reviewed and
Piecemeal and incremental decisions are avoided.
Consideration of
all the elements captures the value inherent
in the sale of urban real estate.
Participating In The "Upside"
The use of strategic alternatives
use
of
an
improved
alternatives
are
decision
deal
making
structuring
is complementary to the
process.
options
Strategic
which
various ways to particpate in the increased value of
The constraints
under which
DNR, as
a governmental
provide
the site.
agency,
operates do not always allow it to move as quickly in decision
making as
might be
structured process.
for
this.
appropriate even
though it
may
have
a
It needs to establish ways to compensate
The use of new and creative methods of constructing
a sale of property can lock in additional value.
98
It
is hard to value raw land.
someone is
over the
willing to
life of
however, the
buyer can
pay for
it.
the project.
structure of
Ideally, value increases
Because
a deal
with a
value is uncertain,
developer or other
be written to allow participation in as many of the
value creating steps as desired.
when it
The value seems to be what
disposes of
Not ony can it receive value
the property, but DNR can participate in
future value by retaining some ownership rights through a well
negotiated contract
maximized.
The way
determines how
with the
purchaser.
a disposition
much profit
DNR's
agreement is
DNR receives.
Three
return
is
constructed
strategic
alternatives are suggested:
1.
Through the Request For Proposal process, hire a
real estate management company to sell the land.
DNR receives a minimum amount of the "fair market
value" determined by an appraisal.
The amount of
the sale price actually received that is above the
appraisal figure is split on a predetermined
proportional basis between DNR and the real estate
management company.
There is incentive for the
company to obtain a high sales price and DNR
participates in the increased values received.
The company decides how much of the developmental
process to undertake based on its knowledge of the
market.
If it has not sold the property within a
certain' time period, the property returns to DNR and
the company receives nothing.
Risk is reduced to
one factor:
performance of the real estate company.
Even with the Division's new attempts to negotiate
bids for property, it still can not work the market
as a private company can.
2.
Capture the benefit of DNR's own positive
externalities when it has large pieces of property
It can develop and sell a portion of the
for sale.
site, wait for the value of surrounding property to
rise due to the value created by the developed
piece, and then sell the rest of the property at an
The risk is in market timing and
even higher value.
property location.
99
A conceptual example is the location of a shopping
center on 50 acres within a 150 acre site.
The
peripheral, satellite development on the 100 acres
may generate more in profit than the shopping
center because of its timing and location.
A local
example is the Alderwood Mall area north of Seattle.
Use contingent sales whereby the property is sold to
a developer for the appraised fair market value
contingent on DNR receiving a percentage of the
future sales price obtained by the developer when
The percentage can be
the property is resold.
written with a minimum dollar amount to mitigate
A competent developer is needed for
downside risk.
It allows DNR to recieve
this alternative to work.
money now and participate in the additional profit
gained through property appreciation.
3.
These
be
used
in
the joint venture and financing options discussed
addition to
in Chapter
can
alternatives
strategic
three
V.
partial
ownership
Imagination and creativity are
also possible.
situations are
and
ownership
Retained
The point is to develop a mechanism in each disposal
needed.
situation which maximizes the return DNR will receive.
Conclusion
aggressive in
seeking deal
created as
the property
changed as
needed.
first.
sharing
the
future
State
laws
in
is developed.
values
can
be
be tested on small properties
Ideas can
Incentives can
provide minimal
structures which
participation and
risks yet
it should be more
Division matures,
Real Estate
As the
be created
to
produce
returns
and
value.
As with
the decision
participation in
making
the "upside"
process
described
while limiting
100
the
above,
"downside"
exposure is
transferable
to
situation.
Creative use
of strategic
any
urban
real
estate
alternatives
sales
and
organized decision process will return value and profit.
101
an
VIII.
SELECTED BIBLIOGRAPHY
Bacow, Lawrence S., "Structuring Complex Real Estate
Transactions," MIT Center for Real Estate Development,
unpublished lecture notes, Spring, 1987.
Bacow, Lawrence S., Professor and Director of Research at MIT
Center for Real Estate Development, interview, July 27,
1987.
Benchmark Real Estate Appraisers and Consultants, Letter of
Opinion,
Frank Albertini, MAI, appraiser, April, 16,
1985.
Braun, Peter C.M.S., "Avoiding Pitfalls in Real Estate,"
Harvard Business Review, Volume 53, Number 1, JanuaryFebruary, 1975, pp. 125-134.
Brealey, Richard and Stewart Myers, Principles of Corporate
Finance (Second Edition), McGraw-Hill Book Company, 1984.
Cahill, Russell W., Deputy Supervisor for State Lands (DNR),
letter to Kitsap County Commissioners, June 4, 1982.
Cunningham, David, Vice President Land Use, Pope Resources,
interview, July 20, 1987.
Department of Natural Resources, Real Estate Division. Draft
"Transition Lands Policy Plan," May 21, 1986.
Department of Natural Resources, Real Estate Division, draft
"Bucklin Ridge Request for Proposals to Exchange,"
assumed November, 1985.
Department of Natural Resources Press Release No.
September 4, 1984.
Harper, Pat, Project Manager, Real Estate Division
interview, June 23, 1987.
84-76,
(DNR),
Haspeslagh, Philippe, "Portfolio Planning: Uses and Limits,"
Harvard Business Review, Volume 60, Number 1, JanuaryFebruary, 1982, pp. 58-74.
Hayes III, Samuel L. and Leonard M. Harlan, "Real Estate as a
Corporate Investment," Harvard Business Review, Volume
45, Number 4, July-August, 1967, pp. 144-158.
Hayes III, Samuel L. and Leonard M. Harlan, "Caveat Emptor in
Real Estate Equities," Harvard Business Review, Volume
50, Number 2, March-April, 1972, pp. 86-96.
102
Hertz, David B., "Risk Analysis in Capital Investments,"
Harvard Business Review, Volume 57, Number 5, SeptemberOctober, 1979, pp. 169-181.
Hilden, Rod, Manager, Real Estate Division (DNR), Memorandum
to Jerry Probst, Environmental Planner (DNR) re: Redmond
Heights EIS hearing, April 22, 1983.
Hilden, Rod, Manager, Real Estate Division
between July 6 and 20, 1987.
(DNR),
interviews,
Hirschmann, W.B. and J.R. Brauweiler, "Investment Analysis:
Coping With Change," Harvard Business Review, Volume 43,
Number 3, May-June, 1965, pp. 62-72.
Hodder, James E. and Henry E. Riggs, "Pitfalls in Evaluating
Risky Projects,"
Harvard Business Review, Volume 63,
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Hoefer, Greg, Chief Appraiser (DNR), memorandum to Ken Solt,
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Hoefer, Greg, Chief Appraiser (DNR), memorandum to Ken Solt,
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Lee, Tunney, Professor and Chair of MIT Department of Urban
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Marcus-Jones, Diane, "An Analysis of the Department of Natural
Resources Urban and Transition Lands." Master of Science
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(DNR), and Jerry Otto, Assistant Manager, Real Estate
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"Neighbors respond to state's Redmond Heights plan."
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Otto, Jerry, Assistant Manager, Real Estate Division (DNR),
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104
Vogt, Don, Manager, Project Development (DNR), Memorandum to
Bob Larson, Assistant Manager, South Puget Sound Region
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Jerry Otto, Assistant Manager, Real Estate Division
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February 20, 1987.
105