For some odd reason, the City of Stuart believes that being a Landlord in the private commercial real estate market is beneficial. This belief is wrong for both philosophical and practical reasons. While it is an allowable practice under Florida law for municipalities to own and lease real estate to the private sector, I believe the city has taken it to a level that is detrimental to our further economic development as a municipality.
The justification of a municipality owning property and then leasing that property to the private sector is that the municipality will have a “predictable stream of income” from the rents. What we have seen in Stuart is that a Tenant makes an initial deal with the city at one rent and then subsequently comes in and pleads that the rent is too high and wants a reduced amount. This negates the “predictable stream of income” theory.
This most recently has occurred when the tenant with a 50-year term lease for a city owned lot on Monterey requested a reduction in rent from $31,500 to $9,000 per year. The lease which commenced January 1, 2007 has already been modified once from the initial rent of $52,500 per year. If the new rent is accepted by the commission, the city will have $43,500 less per year than originally anticipated not including any cost of living adjustments. This “predictable stream of income” has proven less so.
We can see this “voodoo economic” principle at work over and over. The proposed NorthPoint hotel project where nothing has been built after ten years and the initial rent has already been cut in half even though nothing has yet been paid. In addition once the lease finally commences there will be an abatement of the first 7 to 10 years of rent. This demonstrates why this practice should be called “the unpredictable stream of income” theory. On a very practical level, this shows why being a Landlord does not work. City staff and the commission have demonstrated an inability to manage a function that belongs in the private sector.
No government entity in a free market capitalistic society should believe it is acceptable to compete with the private sector. It is socialistic when the government owns the means of producing wealth – i.e., real estate. By owning and leasing property, the City of Stuart helps determine what rents are in the private sector. Any appraisal would have to include how much the city charges its tenants. It has an undue influence on our real estate market.
I do not mean to suggest the city should not influence development through zoning and building codes. Further, there is a very valid reason for the city to buy a blighted or underutilized property and then re-sell that property to a developer. We should work with and encourage beneficial development through the private sector. A good example of this is the city buying the blighted “triangle property” and working with the private sector to build a good and needed project on the site.
Stuart now has millions of dollars invested in the ownership of supposed income producing properties. If the city collects every cent of rent projected in 2016, it would be only a million dollars (1/3rd of which is generated by one property, the Sunset Bay Marina). The city should begin selling some of this surplus real estate. It could then take the proceeds and buy blighted and underutilized properties, for example, those on Dixie from Sailfish Lot to Colorado Avenue. Then the city, working with a private developer, can do the same thing it is doing with the “triangle property”. The property management fund should be used to make our city more productive by encouraging private developers not by holding desirable properties in-house.
Our current strategy is doomed to failure. It preserves the status quo. It does not use city funds to achieve the highest return. There are only so many dollars Stuart has to work with to improve the city. In the name of keeping ad valorem taxes down, Stuart holds onto and leases property. That very premise results in a false conclusion. By not using our leverage efficiently, the city depresses Stuart from developing into a vibrant place for the creation of jobs, homes and businesses. Without those things happening, ad valorem taxes will increase because our base is not growing. Surplus properties should be sold.