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After last week’s big non-vote by the city council on the land acquisition for the convention center hotel, the topic was revisited briefly during the afternoon open microphone session. It turns out that as I was writing my wrap-up of the discussion here at Unfair Park HQ, Elizabeth Babcock showed up to urge the council not to purchase the land owned by Chavez Properties. She said spending $42 million on the property “is too much for a parking lot” and hoped council members would reconsider.
Babcock touched on the gap between the purchase price and the Dallas Central Appraisal District’s value of approximately $7.3 million, and she told council members to negotiate the best price for taxpayers. Babcock criticized the city for instructing the appraisers to use “highest and best use,” as opposed to valuing the land “as-is.” She even quoted Mitchell Rasansky from our recent cover story: "You do appraisals based on its current use, not if you build a Taj Mahal on it, because what if the hotel isn't built and we have to sell the property?"
When Babcock’s time expired, the next speaker was called, but council member Linda Koop had some questions for Assistant City Manager A.C. Gonzalez. Let’s jump to find out what she had to say, along with evidence that the price of the land is the last thing anyone should be worried about.
Koop asked Gonzalez why the city decided to appraise the land based on highest and best use instead of as-is. He told her that this is the standard process used, because the city may end up having to acquire the property using eminent domain -- which we explained in detail. Then Mayor Tom Leppert chimed in.
“If it was as-is, then that’s illogical. It should never have been done that way,” he said. “The appraisal that was done looking at what the land would be used for is a very, very appropriate way. Doing it as-is inherently would undervalue any piece of land.”
Koop said she’d let it go, but then she addressed Gonzalez about his explanation. “The thought that you said it was predicated on perhaps condemnation later on, to me, is illogical,” she said. “That doesn’t make sense to me. As a matter of fact, that really doesn’t make sense to me.”
The debate over how the appraisals were done, which led to a price significantly higher than the value according to DCAD, is emerging as a divisive issue regarding the land purchase. There are many questions surrounding the Chavez property, but determining if the price is too high has been tough to figure out. It’s valued by DCAD at $7.3 million, valued by two city appraisals at $40.1 million and valued in two appraisals by Crow Holdings at $29.4 million and $33.9 million.
So forget about if the city should buy this property, which includes a whole lot of other issues, and focus on one question: Is the city paying too much for this property? After talking with Michael Anderson, general counsel for Chavez Properties, we found the answer.
First of all, Anderson was agitated that it has been reported that the city is buying this land for amounts more than the $39.8-million agreement he made with the city, citing amounts of $41.3 million and $42 million. Having used both numbers in my reporting, I explained that both numbers came from the city and included costs associated with the land purchase, with the $41.3 million coming from a February 19 briefing to the Economic Development Committee, followed by the $42 million listed in an announcement from Mayor Leppert in The Dallas Morning News. The “notice of intention to issue certificates of obligation” said the maximum authorized for “a site for the construction of a proposed convention center hotel” would be $42 million.
As Anderson points out, the extra money spent by the city is not his issue. Realizing we hadn’t explained this in the past, I thought I’d at least clarify the different amounts. However, we’ll be sticking with $42 million because the amount the city will spend on the certificates of obligation for the land purchase is unknown.
Anderson says one of the developers to submit a Request for Proposal for the hotel project attempted to put an option on part of the land last summer for $100 per square foot, slightly less than the $109.32 the city will pay. Ultimately, the option was rejected because the property would have been tied to just one developer instead of being available to all of them.
“It’s like trying to pick which horse is going to win,” Anderson says, “so it didn’t make sense for us.”
He adds that in June 2000 and January 2004, FaulknerUSA put options at $100 per square foot on approximately half of the 8.375 acres the city has optioned. FaulknerUSA, which built convention center hotels in Austin, San Antonio, Denver and Omaha, is one of the five developers with a proposal currently being considered. Anderson says each option was for $100,000, which FaulknerUSA lost because deals between the developer and the city for a hotel never materialized.
Three instances of someone willing to pay $100 per square foot, compared with the city paying $109.32, is strong evidence that if the city is overpaying, it’s probably not by much. But, of course, the developers were willing to pay this much based on it having a hotel on it, much like the city appraisals. This leads into the highest and best use versus as-is debate.
Anderson supports the claims by Gonzalez and Leppert that it’s silly to expect to pay for the property as-is.
“I’m not going to sell it as a parking lot. I’ve owned it as a parking lot,” Anderson tells Unfair Park. “I’m going to sell it to someone who wants to use it for something more.” He says this is why Chavez has been sitting on the property for 20 years, waiting for someone to come along and buy it for a better use.
“We priced this property at a substantial premium to what it would be valued as-is as a parking lot, but also at a substantial discount from what it would be worth if it was a hotel deal closing tomorrow,” Anderson says.
He says if the city wants to buy it on an as-is basis, then it should be willing to include a deed restriction allowing the land to be used for nothing but a parking lot for 99 years. “Then that’s what they’ve got: a parking lot,” Anderson says.
He adds that the option agreement was based on the city buying the property regardless of whether a hotel would be built on it. “If I knew for a fact that they were going to build a hotel, I would have told A.C. [Gonzalez] that I needed more like $150 to $250 per square foot,” Anderson says. “If we went for the top dollar and didn’t leave something on the table for the city, then why wouldn’t they just use eminent domain?”
Anderson also says if the hotel is built at approximately $400 million and the city is paying around $40 million for the land, it would represent just 10 percent of the total value of the property, which he says is incredibly low when compared to house prices in North Dallas. For an example, I looked up Mitchell Rasansky’s info on DCAD, which lists his 6,586-square-foot house at $1.8 million and his 1.1 acres of land at slightly more than $1 million, or roughly 36 percent of the total DCAD value. However, clearly land in a crappy part of downtown isn’t like buying property in the ritzier climes of North Dallas.
Anderson maintains that this a good price, but only for one purchaser: the City of Dallas. He says with a $1 billion asset just 11 feet from the Chavez property, the city cannot afford to pass up on an opportunity to control the land. Essentially, Chavez appears to have been sitting on this property waiting for a hotel project to come to fruition, and it knows the city is in a tough spot.
A.C. Gonzalez says council members like Koop who are expressing concerns about the purchase price are confused about the reality of how the city approaches situations like this to avoid a condemnation hearing. “If you have an owner that knows it’s the city that’s looking to acquire the property, they know if they want to hold out that ultimately it will become a condemnation situation,” Gonzalez tells Unfair Park.
Whether the land is used for an expansion, additional parking or a hotel, Anderson says the city “has to have it.” He says if the city plans to build a hotel, “there is no other site this thing can really be built on,” and if he would sell it to someone else for another use, the convention center would be crippled by the loss of parking that would no longer be available for convention-goers.
Anderson, who has a good reputation after working downtown for 30 years, points out that he served as an expert witness for the City of Dallas in three eminent domain cases where he believed the city was being taken advantage of. “Most people that know me know this is not a hustle deal,” he says.
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My conversation with Anderson left me comfortable with saying the purchase price isn’t what council members should be focusing on. They should put their energy into answering whether or not the city really needs this land, which is still up for debate.
And while I still have questions about the city's appraisals -- such as all of the comparison properties used and both valuing the property for the exact same amount -- I’m beginning to have some questions about the appraisals done by Crow Holdings. We’re waiting to receive copies of the appraisals (as are Anderson and Gonzalez) to get a better understanding of why they came in so much lower than the city appraisals, but doing them as-is instead of highest and best use could account for the gap.
However, a concern: If Crow is essentially saying the property is worth $29 or $33 million based on it being a parking lot, then what would they have been based on highest and best use? I have a hard time believing anyone would pay $33.9 million to keep the property as a parking lot when the city is paying $39.8 million based on there potentially being a 1,000- or 1,200-room hotel on it. It appears as though these estimates don’t add any clarity to the situation, only more concerns.
There are many, many questions left unanswered about this hotel project, but it appears as though the land’s value is no longer one of them. --Sam Merten