In the near future, Stuart will be offering the Triangle Property to developers. I believe the city is on the right track. Possible developers will ascertain uses for the property that are market oriented and not tied to any bureaucratic interpretation of what should be on the site. While a public component is not out of the question, there is no mandatory one. I am also encouraged that the city is not insisting that we net lease the parcel but is open to all possibilities.
That does not mean that the eventual developer will have no restrictions. The parcel still must meet current zoning and building codes. This will result in the developer having the same freedoms and restrictions that any owner of property would have. It is truly market driven and not subject to bureaucratic dictates such as providing public parking. When placing any property out to bid, the city’s only interest should be whether the proposed buyer can close on the agreed upon terms.
The CRA can then take any proceeds and re-invest in other properties in the district to foster development. The purpose of a CRA is to help and promote private development in a designated area of the city. Government should not dictate and demand restrictions and uses to a buyer of city owned property simply because government was the seller of the property.
When government perverts the market by insisting on what should be built, it can result in adverse consequences not only on that property but also on the entire community. Business should be left to the private sector. Government is notoriously bad at picking economic winners as witnessed by Digital Domain. That is why I am, on principle, against Stuart being a landlord in almost every instance. If there will not be a public use for a property within a foreseeable period of time, it should be sold.
For many years, life insurance companies built and owned large real estate developments so that they would have predictable cash flows in order to pay claims. Several centuries ago, Gompertz developed what became known as the “Law of Mortality”. This is a mathematical formula that actuarially predicts how many people of a certain age will die each year. By owning these income streams, insurance companies proved to the regulators that they would have the money available to pay claims. Government is not an insurance company which needs streams of income. Government should not be in the private sector.
Being an owner of commercial real estate requires nimbleness and flexibility that governments, by their nature, do not possess. For argument’s sake, I will assume that during the course of the lease the tenant and assigns will make all rent payments as stipulated (with a lease of 50 or 80 or 99 years, this is a huge assumption). While land cannot technically become obsolete, the improvements upon it definitely do. So even under the best case, the government will receive back an asset that is economically or physically obsolete. Which means it will have very little residual value. You must have collected the correct amount of rent during the course of the lease or a loss will have occurred. The parties to this lease agreement are agreeing to rent terms for an economic future that is impossible to forecast.
I have been in the real estate business my entire career. I currently manage 500,000 square feet of commercial space and I have two non negotiable items. The first is that no lease term is for more than 15 years (the overwhelming majority of leases are for only 10 years) and the second is that there is a minimum percentage increase of rent every year with a CPI. Even after all these years I can’t predict market conditions for more than about a decade under the best of circumstances. Long leases lessen the value of the real estate if and when it has to be sold. Should the government have different requirements for the people’s real estate?