Friday, May 24, 2013

Klyde Warren Part 2: Into the Future

The other day I took a look at what value Klyde Warren Park added to existing real estate.  You can find that here.

In that post, I wrote about how difficult it is to project how much value KWP adds to buildings that are not yet there, and further, to what degree KWP gets credit for delivering.  Too often projected economic development suggests that if a new building gets built, it is all due to whatever investment.   That is not, and should not, be the case.

Instead, there are macro- and micro-locational dynamics at work.  The underdeveloped land around KWP that is undeveloped doesn't go from a valuation of virtually nil (parking lot) to a $100 million tower simply because of a new park.  Rather, the land already has embedded value, but just not enough yet for it to work financially.

Most of the value comes from the macro-location, it's proximity to downtown/uptown.  This is more quantitative than the micro-locational, which is more about qualitative experience of the place.  The park improves the qualitative experience and thus gives a bump in value that I'm calling an amenity gradient based on proximity based on an amalgam of studies showing certain parks add a premium to real estate based on distance.

The macro-location is the coarse knob on the microscope (more about broader network design).  The micro- or qualitative aspect is the fine knob for, duh, fine tuning(more about spatial design and that overused and increasingly meaningless word, placemaking).

The coarse knob does the heavy lifting in that it is responsible for the bulk of the value.  However, it is the fine knob that is responsible for the, duh, fine-tuning.  It adds that 5, or 10, or 20% increment that takes a site from undevelopable (in that the land and construction costs are too high given the area's rental rates for whatever use) to potentially profitable.

So what is this post about?  Those potential future developments of underdeveloped land within the range of the parks 'reach' (those graduated green 'fingers' in the graphic above).

As you see above, I took the same map as before and highlighted all of the underdeveloped sites within reach of KWP's green gradient premium.  I've included Museum Tower because it's value is not yet showing up on DCAD's assessment, meaning I couldn't include it in the as built study.  Instead, it goes into the future built study.  This study.

From there, I needed to come up with a potential FAR and land value for all of these sites to put imaginary buildings onto these sites.  To do so, I took an average of several of the new buildings in the area that had decent assessments.  For example, I couldn't use Victory because its assessments are artificially low (due to tax abatements, I presume?).

The recent developments I used to find this average were:

  • One Arts Plaza
  • 1900 McKinney
  • 2000 McKinney
  • The Ritz Carlton
  • Rosewood Court
  • The Triannon (to get some lower-scaled, stick construction in the mix)
  • The Ashton
  • Arts Lofts (again, for more stick construction, ie wood frame, garage wrapped, product)
  • Alta Lofts

I found an average FAR of these buildings of 3.59 and an average assessed value per square foot of built space of $154.71.  From there, I used those numbers and applied them to the acreages of the underdeveloped sites to apply hypothetical new developments to them.

From there, I gave each a multiplier of 5%, 10%, 15% or 25% just like I did to existing development to find out their potential "new" value due to their proximity to Klyde Warren Park.  In other words, to find out how much KWP is worth based on how much it cost.  And from reading back through some DMN pieces on it, it looks like it cost about $110 million to build between public and private dollars (excludes maintenance, of course).  This number is a good bit higher than the $60 I had remembered.  Lesson as always kid, don't damage your brain and don't trust it if you do.

If you embiggen the spreadsheet, you can see that the "macro" potential value of the undeveloped sites is $831 million.  But with the premium added based on proximity to KWP, that number goes up to $903 million.  KWP has added another $72,672,916.93 in value to those sites and an additional $579,203.15 in hypothetical property tax revenue per year to the city based on these hypothetical new buildings.

Added together with the existing development, that means KWP is worth $226,879,000 (a little over 2x of its cost) to private real estate value (which invested approximately $50 million in donations) and $1,808,235 in yearly property tax revenue.  And if we're saying the public coughed up about $60 mill of the $110M construction cost, it will take about 33 years of that tax revenue to pay itself off (assuming full build-out).

I also decided to take a look at how much value was created based on proximity compared to how much this particular formula *should* have created in an ideal scenario.  That being, less tax exempt properties around the park, particularly immediately adjacent to it occupying much of the 25% area and better, more direct, and more efficient paths to get to the park.  The connections around it are not great, again, as compared to say Bryant Park with its tight grid or DuPont Circle in DC with its radials extend directly to/from the micro-locational amenity.

I found that if the proximity gradient is applied "more perfectly" in the manner above, the *average of the premium of all sites should be 11.8%.  The value added to existing property due to KWP averaged out to 9.3% and 8.0% to potential new development.

In conclusion, KWP does add value, as shown, but not the bazillions some might suggest.  However, its potential value add is limited by the obvious factors: too many single-use, tax exempt entities clustered around it, and poor connections immediately surrounding it (mostly due to the presence of the highway and the disurban disaster spaghetti of LoMac.

Of course, all of this assumes the only goal is increased property value rather than other considerations like the need for some decent gathering space and free recreation for all ages.  Either way, it seems a pretty decent way to evaluate its spinoff effects, but we also shouldn't expect all parks and open space to have a similar dynamic, particularly if we can't maintain them (but it's loved and that is the first step to sustainability, by any definition of the word).