wtf? How can land values drop by 20% in CBD since 1996?

wtf? is a series of posts dedicated to holding a spotlight on the mysterious and un-explainable decisions of the Hamilton County Board of Revision.  But attentive readers might well ask themselves, “Is that woman just focusing attention on the titillating examples?”  How do we determine the difference between a few rotten apples and a chronic problem that needs to be fixed ASAP?
Let’s take a walk down east 4th St. and study the official numbers from the Hamilton County Auditor’s site.    We included everything except 18 E. Fourth which has been converted to condos and is abated and the new Renaissance Hotel a little further up the street, also abated.  For both of these we need more information from the Auditor as they involve multiple owners in a single building (Bartlett Buildings was office condos before it became a hotel)
Notice my use of the term “we”.  This is not my work, but that of another citizen who wants to help and prefers to remain anonymous. However I don’t think he would mind if I shared two pertinent facts.
1.  Our anonymous volunteer has not just one, but 2 Bachelor’s degrees from an accredited university:  A degree in sociology AND a degree in political science.
2.  He is familiar with the basics of excel spreadsheets and is not afraid to use them.
Here are the conclusions reached by Anonymous, followed by his pretty blue charts:
As has been the case, we see land value per acre decrease 20% on average from 1996 to today. If you can find somebody to logically explain why land values in a stretch of the central business district of a thriving city have decreased from $6.1M per acre to $4.8M per acre I would be impressed.
Furthermore, the total value of these properties has decreased by an average of 25% from 1996 and 18% from the most recent recorded valuation. What that tells me is that the valuation decline is a more recent phenomenon (which we already knew).
(Click on either table for larger size and greater clarity.)
total value

land value

12 thoughts on “wtf? How can land values drop by 20% in CBD since 1996?

  1. cranewoods

    Hi Kathy,
    Just found your wonderful blog and this is my first comment (so please be gentle). I will start by saying that I am a developer, but have no horse in the race as it comes to E 4th Street corridor, although one of the failed projects I have rescued up there in the last 5 years was one block off E 4th (The McFarland Lofts). I can tell you that I looked at multiple vacant properties on E 4th within the last few years and simply could not make the numbers work for either office (vacancies too high – over 21% last year – and lease rates too low to justify a purchase much less purchase and rehab), or apartments (costs to high to purchase and do a change of use), or condos (cost of purchase and construction too high to make sense vs sales prices). Combine that with a credit market that is as tight as I have seen in a very long career as a “project fixer” (as the Enquirer and Biz Journal have repeatedly called me); and you have a recipe for substantially declining values, despite the thriving city that I grew up in and love. In Florida I was caught up in an 85% value decline that has been written about multiple times. At the end of the day, the values are based on comparable sales, last sale price of the property, highest and best use (and ability to implement same), and the economics of the property. An office building losing tenants loses value as does a building that is vacant and out of reach to renovate. Just my 2 cents (which will not buy a Starbucks coffee cup much less the coffee to go in it). Things are changing – there has been a slight decrease in office vacancy rates – but it remains “stubbornly high.” Andy Howe , Cranewoods Development

  2. Brian Korte

    Andy – Wonderful perspective! Though I agree that building value might have moved downward due to vacancy rates and past sales I don’t know why that would affect the value of the land the building sits on. Land is scarce, immobile and especially in downtown Cincinnati – unique. I would suspect that if anything the land value would remain the same and building values would decrease but we’re seeing a larger drop in land value than anything else.

    1. cranewoods

      Hi Brian! First I will give you another disclaimer that I have not analyzed the spreadsheet – I am just talking to you about building and other factors that affect all land value. I’ll give you a hypothetical and two actual examples, followed by the first chapter of a long stalled dark comedy I started writing about the Florida real estate collapse.

      Hypothetical: I have a piece of land that a developer wants to build a $100,000,000 office complex on. The leasing market is strong, thee financial market allows it to be financed – the moon and stars are in perfect alignment. You have yourself one valuable piece of land (we should all bee so lucky). Something like the Great Recession comes along and knocks out one or all of thee factors relating to the building – and you are left with a piece of land that is only viable for a $500,000 office and then only if you have a user ready to take it – or worse its only good to stick a half dozen townhomes on it – the land value goes through the floor.

      Actual #1: A really really really smart and good looking 57 year old developer buys a piece of waterfront property in a thriving Florida city for $4.5 mil. Plans are drawn up, IT IS A SLAM DUNK HOME RUN; and the Great Recession hits. The buildings no longer make sense, the market for the property evaporates, the financing evaporates – and the vacant land with $.5 mil invested is sold for $700,000 (wince). The buyer stays in touch with the developer – in fact they become friends – 4 years after the purchase the buyer is receiving offers of less than a quarter of the developer’s original purchase price. OK that was painful – let’s go to #2 which is not.

      Example #2: two developers in the absolute coolest, Steelers wwoopin, 2 Super Bowls goin to,, Midwest town buy two pieces of land near each other. They both invest many hundreds of thousands of dollars in similar vacant properties. The Great Recession hits and the projects both stall. One of the pieces of land sells for $50,000. The second piece is worth on a footage basis what the first one sold for – not the original price the developer paid – and the really really really smart and good looking new owner gets his taxes reduced – and a smoking deal to do something absolutely cool on, and get written up claiming that he is much smarter than he actually is.

      I will close with the first chapter of a dark comedy I started writing about the Florida real estate collapse (I have an awesome rejection letter from my favorite author Carl Hiaaen that I will cherish forever).

      Character Of The Borrower chapter 1:
      “Every moron in a Mercedes who fancies him or herself a “developer” will fib their ass off to get a prime piece of real estate but the land itself doesn’t lie. It is what it is: land. It’s worth what it’s worth: the highest price that the next moron will pay for it. The way to make money in real estate is to buy low and sell high – a mystical, irrevocable, unquestionable commandment ignored by virtually everyone in the business. You can scream at people that they’re buying too high and the best you can expect is that they won’t punch you in the mouth for trying to save them from themselves”.

      1. cranewoods

        I should also add that the issues on major projects in any downtown area are far more complex than my simplistic examples. You need not look any further than the large apartment project that is either on or off like an 8th grader adroitly bouncing a Duncan Yo-Yo up and down. The ability to construct a major building downtown usually depends on many subsidy factors TIFF financing, grants, loans, city loan enhancements, tax credits, tax abatements etc. Not to mention developers much larger and smarter than me. When these project help factors come or go the land value is affected just like my simplistic examples. I am what has been referred to as a “boutique developer” (well – Engineering News Record Magazine actually called me “A Poster Child For Survival” in an article – I like that better) and major downtown “from scratch” developments are above my pay grade. So take that into account when reading anything I say relating to my old home town.

      2. cranewoods

        In my world land value is usually a percentage of either the sellout price of the development or the cost of the development. So if the building(s) go down in value there is a direct correlation to what the land is worth.

      3. Brian Korte

        Andy – Thanks for your thorough response. In terms of potential development on vacant land I definitely understand the changes in land value (and even more so with your examples and hypothetical). However, in your scenarios folks are buying and selling land and therefore the value is what a reasonable person would pay for that land (usually the sale price). But in the examples in the post, land value (in the central business district of a thriving mid-sized city) is decreasing without property changing hands or new buildings being erected and that is where I lose understanding in why those values may be decreasing. And in terms of the “land value” itself, I believe the data is coming from the Hamilton County Auditor’s website where they have a separate value for “land” and “improvements” (the real property) that contribute to the total value. While “improvement” values stay relatively stable it is the land value we see decreasing.

        I appreciate your thoughtful response and am very much enjoying the dialogue this post has started.

      4. cranewoods

        OK, so I got curious, and even though it doesn’t impact me I just blew a part of my $300/hour attoney’s time with the question. LOL. A few things that may or may not help.

        1. If the total property value (land plus improvements) does not change then the tax bill remains the same regardless of apportionment to land vs building – no harm no foul. The tax bill is based on the total.
        2. If the total property value (land plus improvements) goes down there is a secret sauce formula that reduces BOTH land AND improvements.
        3. During the “crash” in Cincinnati property values decreased 20-25% and have not been reappraised yet unless there is a transfer or someone goes through the process of bitching about their tax bill (I stand before you guilty of that and I win every time). Oh yea and he said 20-25% is a “crash”?!?! Anyone who says that should have been around when it crashed 85% on my 6 major projects in Florida!! I knew 5 developers who shot themselves unto death – one with a banker sitting in the lobby feet away to discuss a defaulted high-rise loan in the Panhandle. But I digress (if I ever finish my book you can read about that – there is some frothy stuff in there from the boom times and the crash – and survival).
        4. Hamilton County’s next county-wide reappraisal is 2015 and I suspect some people are going to have a decidedly Un-Merry Christmas. Just a guess.

        That help?


      5. executivedreamer Post author

        Just want to correct one issue: while there is an appraisal in 2015, it is not the full-scale appraisal scheduled every 6 years. This one just targets specific areas of percentage change in overall values. Our big chance for a systemic shift in valuation is 3 years from now.

        And I would also disagree with your attorney’s assessment of “no harm, no foul” on total value. Our goal should be to make the valuation criterion logical and transparent.

        But thank-you so much for paying for the input. All contributions to the conversation are appreciated.

  3. executivedreamer Post author

    Be gentle? Be gentle?????? Andy Howe, don’t you know I’ve been waiting for you to show up in this conversation since the first post. The whole idea behind cincyopolis was to expand the public dialogue about development in Cincinnati – which was especially important since I couldn’t find a public conversation at all. Except for professionals such as yourself, the rest of us were woefully illiterate about how these extremely complicated decisions are made. – We all want the same thing: Intelligent development that makes Cincinnati the kind of place more people want to live. How we get there can be exciting if we all work together. Thank-you for taking the time to read and – more importantly for caring enough to share your perspective.

    As to the relationship between your experiences as a developer trying to put together projects that make economic sense and the overall trend in values on the auditor’s books, I’m not yet convinced that that is a complete explanation. My latest hobby is listening to Board of Revision hearings. Each building has a unique story. And the more money involved, the more convoluted that story is.

    If you ever have a few minutes, there’s a cup of coffee with your name on it. I’d love to talk to you further about what you know and what I don’t – but would very much like to learn.


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