Wellesley Gardens tax auction sale: 'It's like they got land for free'
Jim Porth remembers a time when Wellesley Gardens condos were selling so quickly that the developer struggled to get bricks delivered fast enough to meet the construction timetable.
The condos hit the market before competitors, he said. The Pittsfield Township location near US-23 was strong. The architecture - like brick exteriors - spoke of quality. And the amenities were front-loaded so that new residents didn’t have to wait until the 427-unit project was completed to use the $2 million clubhouse.
But the market collapsed before the final 218 units were built, eventually resulting in the sale of the 33 vacant acres in a Washtenaw County tax foreclosure auction on Thursday.
The selling price: $245,000.
“There a time when I probably would have sold (the land) for $20,000 per unit,” said Porth, a commercial real estate broker with the Thomas A. Duke Co. in Farmington Hills. “I probably could have gotten $2.5 million (for what sold on Thursday).
The change in value is a stark example of how the dynamics for development land have changed in Washtenaw County since a homebuilding slowdown started in late 2006 and slid into a recession two years later.
Today, existing home values have fallen along with land values, dropping them below replacement cost and further stifling new construction among many other factors, like high unemployment and strict lending standards.
The reality for the buyer of the Wellesley Gardens property is “there’s a ton of inventory out there,” Porth said.
And that means that while the price for the property is low relative to 2004, today’s market means the buyer - who hasn’t been identified - is taking on a new risk timetable.
“I really think it’s a fantastic site,” Porth said. “But you have to take what you’re paying for it, what the carry is on it, your cost to build, what you’re going to build, how many and how many sell a year.”
That, he said, is what needs to be calculated as the buyer evaluates the deal.
Rob Aldrich, president of MAV Development in Ann Arbor, agreed.
And that’s still with this assessment: “It’s almost as if they’re buying these lots for nothing.”
A few years ago, land for condo projects in and near Ann Arbor would sell for $20,000 to $30,000 per lot, Aldrich said.
The sale on Thursday breaks down to $7,424 per acre for the Wellesley Gardens land.
In some scenarios, even with covering the 2010 tax bill and ongoing carrying costs, the deal can be profitable, even if the economy chugs along without a big housing rebound.
“You can phase one at a time, 2 at a time, 10 at a time,” Aldrich said. “ You can put up a half-dozen, and one’s a model.
“It seems like somebody should be able to make some money,” he said. “It’s like getting land for free.”
Washtenaw County Treasurer Catherine McClary will weigh the impact of the sales price on the taxing bodies affected by the tax foreclosure auction.
The property didn’t sell at an earlier auction, when the starting bid was $1.2 million.
By law, McClary has to use the sale proceeds to reimburse the revolving fund that pays out property taxes. In 2009, the unpaid taxes on the Wellesley Gardens land were $150,000. It’s possible that Pittsfield Township and the other entities - like the Ann Arbor Public Schools - will have to refund some of the tax payments received in advance.
The buyer also can’t count on the assessment coming down, since assessments are based on an area, not a single transaction. However, the sales price could end up indicating that the assessed value was out of line, McClary said.
Another indication could be nearby properties sitting on the market, awaiting a buyer.
Porth has farmland to the north listed for sale. The 60 acre-property is listed for $689,000, and it has access to municipal water and sewer. The price has been reduced from $1.6 million.
He points to that as an example of how many builders won’t buy land today unless the market is assured, since the profit from construction won’t be made until the last few sales.
Watching the county strike a deal - which presumably will close in the coming days and yield $245,000 toward unpaid debt - is win in today’s market, he said.
“There’s a tremendous amount of people who’d like to sell their land in Washtenaw County.”