Council member Karr is watching site price for new fire station

CEDAR RAPIDS - City Council member Don Karr doesn't want the council to agree to pay too much for the proposed site of the city's new Central Fire Station.

Buying private property for public use is on Karr's mind because he says City Hall has taken its hits in recent months from people who think, rightly or wrongly, that the city paid too much for the site of the new library across Fourth Avenue SE from Greene Square Park and too much for the property now being demolished to make way for the city's new convention center.

The council recently pulled the plug on a $10-million plan for a site for a new bus depot that required the purchase of more than two blocks of downtown property and tenant relocation.

And what Karr wants now is for the city to keep such an option open on the fire station site - the so-called Emerald Knights site, between First and Second avenues SE and Seventh and Eighth streets SE - if the price, whether paid in federal and/or city dollars, gets too high.

The City Assessor's Office put the assessed value for all the property in the proposed block for the fire station at $1.37 million before some recent demolition lowered the figure, and Karr says the public will be looking at that number and will need to know why it's so much lower than any purchase price.

“If we're paying twice as much as assessed value, is there something wrong with that picture?” asks Karr. “ … It seems like we pay more than a private company would.”

Whether the city has paid fairly or dearly in the past is open to interpretation, and a case in point is the block of property for the new library, which was owned, except for a small piece, by TrueNorth Companies Inc.

Randy Rings, legal counsel for TrueNorth, notes that the price the city paid TrueNorth for its site in the 400 block of Fourth Avenue SE is not equal to the value of the property, which the city assessor put at $1.55 million. Rather, the $7.5 million that the city paid TrueNorth is the replacement cost for the company to leave its home, buy another one and renovate it into a space comparable to what the company previously had, he says.

The cost to the city likely would have been less, Rings says, except that city officials asked TrueNorth to consider moving its firm into the city's flood-damaged library on First Street SE that the city was leaving behind. TrueNorth agreed to consider that option, one that Rings says was not inexpensive because it required TrueNorth to add a second floor to most of the structure and to use the first floor, hit hard by the 2008 flood, for parking.

“We basically said, here's what we need to spend and we're prepared to spend on the old library building to convert it into space to replace what we had,” he says.

Joe O'Hern, the city's flood recovery and reinvestment director, says the $7.5 million that the city paid TrueNorth was part of a larger negotiation in which the city sought proposals from companies willing to reinvest in the city's former library. The City Council picked TrueNorth's proposal from among three proposals, which led to a development agreement between the city and TrueNorth. In it, the city paid $7.5 million and took ownership of the TrueNorth property for the new library and TrueNorth agreed to pay the city $250,000 for the old library, invest $7.5 million to redevelop the building and retain and add jobs in the downtown.

“This was a clear value to the city and to the taxpayers,” he says.

Even so, two veteran public assessors - Cedar Rapids City Assessor Scott Labus and Johnson County Assessor Bill Greazel - say it shouldn't surprise anyone that the price paid for any piece of property needed or desired by government, or by the private sector for that matter, might surpass what the local assessor has said the property's market value is.

Labus uses the example of the homeowner who gets a knock on the door from someone who says he or she loves the house and wants to buy it. What the owner might have imagined his sales price to be has just gone up, says Labus. It typically goes up even more, he adds, if government is at the door.

“I'm going to put this out there for top dollar, at the very highest I think I can possibly get, and then see where it falls,” he says the typical thinking is once government is involved.

Labus - a private firm hired by the city is doing the value analysis on the fire station site, not Labus - says his job in setting an assessed value on a piece of property is to shoot for a “fair and reasonable value,” not the highest value or lowest on a piece of property. The motivation of the buyer or seller, though, can move a purchase price away from the assessed value, he says.

So well acknowledged is this, say Labus and Greazel, that the Iowa Department of Revenue - which reviews local assessors' values on classes of property and requires them to be adjusted if out of line - tosses out sales to government entities because it understands that such sales are not in line with true market values.

Greazel, though, says it is not just the public sector than can pay what might seem a lot for a piece of private property.

He recalls that the Hy-Vee Food Stores decided in recent years to add to its Coralville store and bought adjoining property, tore down the buildings and expanded.

“And when you saw what they paid for basically a piece of land, it was outrageous,” Greazel suggests. “But what choice did Hy-Vee have? If they wanted to expand the wine section, they had to pay it.”

City and county assessors are appointed, not elected, and Greazel says elected officials are forced to operate in a political arena that can alter the view of what a piece of property is worth.

“They want people to be happy,” he says. “They don't want people disgruntled and going to the press.”

At the same time, Greazel says local governments aren't eager to play hard ball and condemn property and take the issue to a condemnation board for it to determine a price.

As a result, he says a city or other government entity has to decide “its tolerance for pain” when it is determining what it is willing to pay if it needs a piece of property.

He says it always helps if a city can leave some uncertainty in the seller's mind and let them know the city can go elsewhere if the price gets too high. Picking one site and extolling its values usually helps the seller, he adds.

“You look at the deep pockets (of government) and know they're very motivated and it may be the only place that fits with the (city's) grand plan,” Greazel says. “ … And when the seller is sitting there saying, ‘Wow, I didn't realize I had such a great piece of land and it was so integral to this big thing,' you can't blame them. You and I would do the same thing.”

John Frew - the project manager for the city of Cedar Rapids on its $75-million Convention Complex project as well as the city's related $21-million hotel renovation project and $10-millon parking ramp project - says picking a site for the city's new convention center was done two years before the actual purchase of the property and well before he showed up in April 2010.

The convention center is going up on most of the block next to the city-owned U.S. Cellular Center arena - which is part of the Convention Complex - and the city-owned hotel attached to the arena with The Roosevelt apartment building all that will remain on the block with the new convention center.

In the end, the city paid Armstrong Race Realty Co., which does business as Armstrong Development Co., $5.24 million for its office buildings and parking ramp on A Avenue NE and Second and Third streets NE to make way for the convention center. The city also paid an additional $141,000 to the owner of land on which the Armstrong parking garage was built. Relocation expenses were added on top of purchase price.

Frew says the city's initial appraisal of the property valued the Armstrong property at $5.04 million. However, he says the federal Economic Development Administration, which is paying $35 million of the cost of the project, found that the city did not use an appropriately certified appraiser for the appraisal. A new appraisal put the value of the Armstrong property at $5.24 million, two-and-a-quarter times the value of $2.33 million placed on the property by the City Assessor's Office before the 2008 flood.

Frew says the Jon Dusek, president of Armstrong Development Co., accepted the offer.

“I never gave them a price,” explains Dusek. He says the value of downtown parking helped drive the appraiser's valuation of the Armstrong property, which included a 400-stall parking ramp.

As part of the Convention Complex project, the city also decided to buy and demolish a private parking ramp owned by attorney Tim White, now deceased, his wife, Jan, and Donna Noce next to The Roosevelt on First Avenue NE. Frew says the city secured an appraisal on this property of $460,000, the owner's appraisal came in at $1.45 million, and the city negotiated a purchase price of $1.25 million. The City Assessor's Office valued the property at $713,059.

“The bad news in this (the Cedar Rapids) case is that we had to buy three-quarters of a city block and move eight (tenant) leases out of the way,” says Frew. “The good news is that the city already owned an entire city block (on which the existing arena and hotel sit) and an alley way and street. So even if someone suggested a dozen other locations, I couldn't imagine a better location or a more affordable location for the city of Cedar Rapids than the current location.”

Johnson County's Greazel points to non-profit conservation entities that make a practice of buying up conservation land at market value that would demand a higher price if the government's conservation agency was trying to buy up the same land.

Similarly, a group of major downtown employers and property owners in Cedar Rapids has operated as 2001 Development Corp. for more than 20 years in a venture that has purchased rundown, forlorn and abandoned property and held it, assembled it and/or renovated it with the intent of unloading it at cost to someone willing to invest and build, including government. The group's motivation, in part, was to protect the value of their own property values.

“We were trying to help the city in areas where over a long period of time no one was helping in investing because of rates or returns or the shorter term view of things,” explains Tom Aller, president of Alliant Energy subsidiary Interstate Power and Light Co. and a member of the 2001's board of directors.

One case in point is the half block of Second Street SE between Sixth and Seventh avenues SE, which Alliant Energy, one of the 2001 partners, owned and sold to the city back in 2006 for the city's proposed Intermodal Transit Facility. It was never built, but the city intends to build a parking ramp on the site. The sale price to the city, $570,000, will provide a comparison to other prices the city is paying for property, but Aller says such comparisons should not be made.

“2001 was specifically set up to be of assistance to the city,” Aller says. “ … It wasn't like somebody owns a piece of property privately. … They (those owners) have very different focuses and reasons for what they are doing. … We were very comfortable with getting our money back and helping the city.”

Up on the Emerald Knights site on First Avenue SE, Tom Slattery Sr., of Heritage Property Management, is representing the owners of most of the block proposed for the city's new Central Fire Station.

Three months ago, Slattery and the owners got tired of waiting for the city to purchase the property and put up signs on it letting passers-by know that the owners were more than willing to sell to someone other than the city. The site would be a great place for a hotel or office building, he has said.

City Council member Karr couldn't agree more: Does the city need to put a fire station on such an expensive piece of property? he asks.

It sounded like a seller and buyer trying to improve bargaining positions.

Johnson County's Greazel tells the story of how Walt Disney sent undercover associates into Florida years ago to buy up cheap, undeveloped property using an assortment of exotic corporate names. Eventually, someone figured out Disney was behind it, and the prices began to climb, says Greazel.

“Well, the city doesn't have that stealth advantage when there are reporters at public meetings or they're televised and people are talking about how great the new library (or fire station) is going to be,” he says.

The city's O'Hern notes the city's effort to find a site for the new library and new central fire station are both bound by the flood-recovery rules set out by the Federal Emergency Management Agency. In that regard, FEMA has asked the city to publicly identify at least three sites with estimated purchase prices as new homes for the library and fire station so FEMA can determine which is least expensive and so set its reimbursement to the city at that price.

“It makes it different, that's for sure,” O'Hern says of buying property in this way.

The City Council then has gone ahead and picked its preferred site for the projects on which to negotiate a final purchase price.

“We make a national announcement of it,” says council member Karr. “This is stupid.”