To: Rowlett City Council
From: Ron Miller
Date: November 17, 2014
Dear Council Members--
It is easy to misinterpret much of what I write as derogatory toward council or “officialdom.” However, my opinion of you is probably higher than you think. I never criticize about something I don’t know anything about. I stay pretty much on the single topic of nurturing of the tax base. I don’t opine about how to buy a fire truck. I think you’re all bright. I think you all have wit, which is a sign of intelligence, and dedication. However, I don’t know any of you that can fly a Boeing 747, remove an appendix, or sail solo around the world. That is not because you’re not smart enough, but because you’re not experienced enough in each of those other skills. It takes years of training to be proficient in any specialty skill. Furthermore, a 747 pilot would probably make a poor lawyer, a surgeon would probably fail as a travel agent, and a sailor might not provide the best advice on investment opportunities. You play with the hand that’s dealt you.
I, too, have a specialty. When I was a puppy and in college, my senior year I accepted an internship with a real estate appraisal firm. It was my first exposure to anything related to the real estate business. I knew absolutely nothing about real estate, however it was my start in a very, very, long learning curve. Except for a little time in the USAF, for 50 years I have never been far away from real estate skills and disciplines. Even tho I could have retired several years ago, I still stay involved in the lending and construction side of the business because I still enjoy it. It is never work when you still enjoy what you do. I have appraised, sold construction material, built houses, inspected large commercial projects, was a development loan officer for 20 years, worked on distressed loans, was a commercial general contractor, and I hold a Texas real estate license, and specialize in the marketing and development of land. I am literate about nearly all real estate matters. I am an excellent practitioner. All those skills compliment each other. Some pretty savvy development lenders in the metroplex also seem to think so. I have 17 loan officers as clients. On Thursday, a phone call from me resulted in the release of $251,946.52 to an office building developer near Reliance Airport, and a second call resulted in the release of $195,048.00 on a land development project in Saginaw. On Wednesday, my signature on my written report released $1,002,000.00 on an industrial building in Odessa. Some banks obviously trust me with their money.
Real estate is not very mysterious. I know the “super stars” in real estate let you to believe whatever you want about what underlies their success, but it is mostly common sense. It is mainly the purging of false facts, carefully analyzing data, absolutely look for evidence supporting the presentation, and simple arithmetic. Simple arithmetic serves approximately 95% of all your math needs. The ones that can sort through the ever present BS and have basic arithmetic skills can succeed in real estate. That’s all Donald Trump does……..then creates his own mystic. It sells and gets him more deals. Of course, a healthy balance sheet is a considerable help.
I will confess to you it pains me to watch some of Rowlett’s discussions about real estate matters. Some of these discussions are uncomfortably void of real estate professionalism. That is not because you lack intelligence. It is for the same reason you don’t fly a 747. You’re not experienced in real estate analysis. Just because you’re a city councilperson does not mean that occasionally you have to fly a 747 to prove your worth. It is not necessary. All you have to do is find someone that can fly a 747 and have them fly you where you want to go. The intelligence comes from knowing what you need and how to find it, not in risking more than your abilities behind the yoke of a 747. There is no dishonor in researching. There is dishonor in refusing to research.
The same principal applies in your real estate decisions and their effect on Rowlett’s tax base. I am going to cite you some examples. Below are some observations of the City Council meeting with the Economic Development Department on November 11, 2014. There are no misrepresentations below; maybe a little humor, and only simple arithmetic.
Early in Jim Grabenhorst’s presentation to council, he made a statement that a new house purchased in Rowlett during 2013 cost $300K. He then said a new house in Rowlett in 2014 would now cost $360K…….a 20% increase. Now people, the Dallas Morning News almost weekly announces that the north central Texas towns are reporting housing inflation of 8%-12% and most city leaders in the area are quite pleased with that number. I will concede that those numbers include pre-owned houses, but another 8%-10% increase over those numbers for new housing would be news breaking to the newspaper. This is because, used home inflation follows slightly behind new home inflation. That’s what always gives rise to used home inflation at all. Rowlett would be in the paper every day as the hottest market in the metroplex with those ratios. Also, one needs to know the source data. Was it 100 new houses sold in 2013 and another 100 houses sold in 2014?...................or was it one house sold in 2013 and one house sold in 2014? City Council spent nearly another three minutes discussing this statistic when the number was worthless. The referenced 20% cost increase means nothing standing alone. It was never explained or documented. It should not be used for significant planning exercises.
The discussion then gravitated to North Shore. One of the topics was about residential development in North Shore vs. commercial development. It was said that only 4 or 5 owners held title to the 800, or so, acres in North Shore. That is true. I have talked to some. However, probably not noticed by some, a slight change and reference was made about “the residents liked the current lifestyle, therefore no change in zoning was urgent. " Nothing was said about this being a whole different group of owners than earlier referenced as the owners of the 800 acres. This reference was being made about the 20 homeowners that got out their oxcarts, pitch forks, and straw torches and marched on city hall in protest to a requested zoning change. These 20 home owners were protesting the development of 50 acres of cow pasture into a development containing 250 homes averaging in price of about $350K. They were protesting the development, of which, the average price of the houses exceeded the average price of the protester’s houses. The development had boulevards, cascading waterfalls and ponds. The protesters were protesting a project that was nicer than their own. Go figure. Oh, these same home owners earlier threw a fit like children because earlier in the year the city council did not give them their speed bumps they wanted.
Let me give you some arithmetic on the above project. When fully developed, the above residential project would have produced $625K per year in tax revenue. Since that revenue is not now coming, Rowlett citizens get to make up the deficit. There are 57,000 residents in Rowlett. The “make up” equates to $11.00 per year per resident. A family of 4 pays $44.00 per year to allow the 20 residents above to look out their kitchen window at a cow pasture. How nice. Oh, by the way, the owner of the 50 acres was just denied his property rights in favor of property rights the 20 protesters did not have. If I were he, I would team up with the Mondays (another story) and sue the crap out of the city.
There seemed to be some guilt feelings about not having any residential development in North Shore……….although readily available marketing data regarding commercial development some miles to the north suggest that nearly all of North Shore should go residential. Then to prove residential activity in North Shore, someone referenced the “residential” development being developed by Huffines at Merritt Road and the tollway. The word “residential” was emphasized. Totally avoided was the word “apartments.” Don’t you think that is a little misleading? What do the citizens of Rowlett need with someone that misleads them? That is shameful behavior. By the way, I don’t think you can access our part of this project thru Rowlett. I think you have to come in from Sachse.
Right after the above discussion about “residential” development in North Shore, the question came up about “mixed use residential.” It was said the term was confusing. It is. The city manager said “mixed use residential’ meant one bedroom, two bedroom, three bedroom, etc. How many one and two bedroom houses have you seen built in the past 100 years…….many? This is another misleading comment for the public. The type of “mixed use,” as defined by he city manager, can only be for condos and townhouses. It cannot be for single family detached housing, which is what most people think of when discussing “residential.” Our own zoning would not allow one bedroom single family detached housing.
For crying out loud, people. Call it what it is. It seems to be a blatant attempt to mislead the public. If you want to build townhouses or condos, say so!! Do you know the difference between the two? Don’t use euphemisms. It just clutters the room and misleads the public. It absolutely skews the factual review.
The best question of the evening was asked by Robbert. He never got a good answer. His question (paraphrased), “was it worth waiting 30 years on commercial development instead of developing North Shore now with a residential product?” I don’t think there was a calculator in the room. Or…..at least no one reached for one.
Now, let’s look at a couple of local real life experiences and answer Robbert’s question.
I’d like to share a couple of stories. When the Mondays (above) had their land denied zoning for a 250 unit residential development, plus a strip of commercial land along Liberty Grove, I went to Chris Kilgore who voted in favor of the zoning along with Todd and myself for approval of the zoning request. I explained the following arithmetic.
The denial was defended by others because it was said some credit card company was once interested in the site. That was pure hogwash. But, in any event, the land was saved for something big and important, but yet unidentified. I explained to Chris that I could build some really neat office buildings for $300 per sq. ft. I said I could also spend $100,000 per acre developing the 52 acres and create a real park-like atmosphere for employees. I could have six buildings, each with three floors and a 10,000 sq. ft. per foot print. That would create 30,000 sq. ft. per building and 180,000 square feet total. The simple math would be 180,000 sq. ft. at $300 per foot, or $54 million. Now add $5 million for land development and the total to enter on the tax rolls is an even $59 million. GREAT JOB!! All we needed was that phantom commercial guy.
It’s worth waiting for, right? Well, let’s see. The proposed 252 units were going to average $350K each. Therefore 252 homes times $350K is $88,200,000, plus another $1 million in commercial land for a total of $89,200,000. This deal was denied!! It was worth $30 million more than the commercial model and would have been underway now. The residential development was clearly the better deal for the tax base. Demonstrating these numbers to Chris was preaching to the choir. He voted for the zoning.
But, I’m not through.
Let’s offer our mystery commercial developer the same deal we gave The Villages. Nothing less. To make the math easier, lets round off the above commercial development model to $60 million. The Villages is $30 million, so everything doubles. I have documented in an earlier blog that I can count $11 million that Rowlett is putting into The Villages. I don’t care what the staff report said. I have a calculator. Therefore, Rowlett would put $22 million into the commercial model above (over 1/3 the cost). Then, grant the 15 year tax abatement. Since the commercial model is twice as much as The Village, they would generate $450K per year in tax revenue. It would take 48 years at that rate to recover Rowlett’s investment, once they started paying taxes!!! Add to that, the 15 year tax abatement period, and it becomes 63 years until Rowlett recovered the investment. But I’m not through, yet. Add Robbert’s question………”is it worth waiting another 30 years?” Now the timeframe for return of investment becomes 93 years.
Does a 93 year waiting period for return of investment answer your question, Robbert? It gets worse. We probably would have given the residential developer the impact fees. We would have recovered those fees in three years. Therefore, utilizing the residential development, 90 years of producing income at $625K per year would generate $56,250,000 and there would be no need to recover $22 million of investment. From an income point of view, the residential model is infinitely better than the commercial model. Is your question now answered, Robbert?
The calculations took less than a minute, but you have to know what to calculate.
Now, do you now know why my wife doesn’t like for me to watch meetings at city hall? Even our cat hides when I watch the city’s “real estate” meetings.
You absolutely must get some real estate help individually. Go find you a loan officer. A loan officer or investor is generally better for advice. Their total job or profession is to analyze deals. Don’t get a broker. Don’t get a mortgage banker. Don’t get a bank cashier. Don’t use your neighbor. Go find a real estate development loan officer…..each of you. All major banks have them. Get to know them. Talk to him or her a lot. I know many may need help finding someone. I know several. I can help you.
You are giving our town away. Incentives are fine. Giving away the store is not. Our tax base is being mangled by ineffective and poor deal making and massive give aways. Rowlett's future is becoming heavily mortgaged by non paying commercial development.