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Another perspective to add to my story yesterday on public entities leveraging land:
This afternoon I spoke with Nathan Moeder, principal at the London Group Realty Advisers (I’d spoken to that firm’s president, Gary London, for the story).
He crunched some numbers about what amount of office space a developer could reasonably be expected to provide in exchange for “free” leased land. If the city leased three-quarters of its property to a developer for free, retaining one-quarter for its new City Hall, the developer could afford to build about 130,000 square feet of office space for the city.
I asked Moeder to translate that into the number of workers that would house, which he estimated at between 500 and 550.
If the city contributed the $12 million in annual lease costs to the project, as the mayor and land use czar Jim Waring have been proposing, that would add another 390,000 square feet of space. Subtracting out hallways and bathrooms and those kind of things (I guess the city workers will have to get to their offices somehow), that would leave a total of about 416,000 square feet, or enough room for 2,000 employees — which, Moeder points out, probably isn’t quite enough.
Currently, the city’s buildings on its four blocks house about 1,000 employees, with 2,000 employees leasing office space elsewhere in downtown.
To be fair, the city’s not expecting a free ride, as Waring said in the story:
“…we don’t expect that the private opportunity with this project will be sufficient to pay 100 percent of the costs. Maybe we’ll get lucky but that’s not likely.”
Moeder’s concern is that because these deals are forged in the public eye, the details of these complex negotiations have a tendency to be bandied about among worried residents, and even among some developers.
“These can be feasible developments,” he said. “But sometimes they get lost in translation.”
He pointed out that when a developer decides to build something like a new city hall or the Navy’s headquarters, that developer must figure out how to squeeze the most profit from its adjacent development. For the Navy Broadway Complex, for example, the developers would need to find an extra $160 million in profit (the cost of building the new headquarters), in addition to the profit it would already be seeking for its own success.
For that reason, Moeder said, it’s no wonder developers look at alternatives like making a condo-hotel instead of a hotel, or asking for higher density allowances or taller building permits in addition to getting access to the valuable public land.