When government plays landlord, even in a soft real estate market it can’t forget that “Transparency” thing! 

A few days ago I received an email with a vague real estate leasing question from a local business person … and then another from a well known local reporter. 

The first email asked: “… say I wanted to rent a space downtown. 3,000 square feet, say a warm white shell, say in historical district, near Carroll Creek.  What kind of cost per square would I be looking at?” 

I shared some very general comments with him and got on with other things.

The next day,  Katherine Heerbrandt with the Gazette sent me a facebook message asking me pretty much the same: “Hey, Rocky, Can you give me an idea of how much per sq foot property on the Creek is going for? … I need it for a story I am writing…thanks!” 

Again I shared the same opinion, but had to close with: “Hmmm … this it second similar question I’ve received in the last 24 hours … is this a test?”

I then communicated back with the first inquirer with the same question and learned about the City’s recent dealings with the owners of one of Frederick’s most talked about restaurants Volt located at 228 North Market Street. 

Seems that Richard Griffin, Director of Economic Development at City of Frederick, and others have been carrying on serious negotiations with the Volt folks over a location for a new eating and drinking establishment – Bar 228.  The identified spot is the 3,000 square feet of unfinished retail space on the ground level of the new All Saints Street parking garage between Carroll and East Streets. 

Also known as City Deck 5, the retail portion of the property has been vacant since the structure was completed early last year.  Apparently the City of Frederick has been marketing the property to the public in a pretty non-aggressive fashion. 

Be that as it may, the good news for some is that the serious discussions did yield a proposal that was scheduled to go before a workshop of the Mayor and Board of Aldermen today. 

The bad news for the proposal is that once the details of the Bar 228, LLC. deal was circulated amongst the general Frederick restaurant community, many began “crying foul” over a “sweetheart deal” as Ms. Heerbrandt stated in her Gazette piece that will hit the papers in the morning.

The details of the proposal on the surface do appear to be quite “sweet” as outlined in the Executive Summary to the Mayor and Board of Aldermen regarding the Outline of Proposed Lease Agreement for Bar 228 LLC.

This article is not written to cast a judgment on whether this proposal is truly a sweetheart deal or just a fair market transaction under the current economic climate.   Frankly, in this market I have found that absolutely anything goes.  There are plenty of transactions out there where highly motivated landlords are literally paying tenants to move in to their vacant space … so eye popping deals are happening out there!

It happens that the workshop item scheduled for today was “pulled,” and I consider that a good thing.  According to Ms. Heerbrandt’s piece, Mr. Griffin pulled the item because the City wants “to put it out to the public to see if anyone else has an interest in leasing the space.”

I’m happy to know that the City realizes that the process it follows to enter into real estate transactions is very different from that of a private individual or firm.  Governmental actions require full transparency to the public.

I’m reminded of the effort a former client made to acquire Carroll Creek Sites B and C in downtown Frederick around 2002.   The properties were not being marketed at the time by the City. 

Bradley Tavel, President of Main Street Development in Rockville, Maryland, presented and offer to the City that appeared to be a fair market offer for the time.  Not feeling like it was fair to just deal one on one with Tavel, without other members of the public being given the opportunity to bid, the City issued a formal Request for Proposal (RFP) out to potential developers and commercial real estate brokers. 

Tavel responded appropriately, only to find that he was the only one.  Scratching their heads, the City felt compelled to reissue the RFP to a broader market.

Again Mr. Tavel responded, and again as hard as it is to believe, he was the only one who had submitted an offer.

Feeling that the offering was sufficiently vetted, the City then proceeded to make a deal with Tavel, for what are now improved buildings known as South Market Center (office/retail complex) and Maxwell Place (residential condominiums).    

For the buyer or tenant, such a process can be frustrating, but one must remember  that government is held to a different standard. 

So, hats off to Richard Griffin and his City cohorts for recognizing the need for a proper vetting process for the All Saint Street site.  After a county election where candidates cried out for transparency, it’s good to know that those in our City government are on top of this issue. 

As a big fan of the success that Hilda Staples and Bryan Voltaggio have enjoyed, I wish them well in their efforts to bring another great restaurant to Frederick, as I know that it will result in another success story!

The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland.  He also writes for TheTentacle.com and Want2Dish.com

MacRo, Ltd. Vice President David Wilkinson chimes in with his first post on the MacRo Report Blog!

Over the past 10 years or so the complexity of obtaining building and development permits for building lots in Frederick County — and most other Maryland counties — has  increased substantially.

Akin to trying to interpret the Rosetta Stone, when asked to estimate the costs to build or develop land are, surveyors, engineers and real estate consultants will often respond with a very wide range of estimates followed by, “It depends on how the governmental reviewers respond to the plans we submit.”

This uncertainty is based on several factors related to land development in Frederick County including the fact that government reviewers are following regulations and policies, some unwritten,  which allow for a wide range of subjectivity. Also, agencies with approval power occasionally contradict each other causing costs to escalate considerably.

Industries of all types struggle when the regulatory environment is not stable.  Ask any business owner about this and they will tell you, “Just keep the rules consistent and we will adjust.” 

The problem arises because politicians and government officials are constantly tweaking the process with the goal of “improving” things.  While each individual change in code or policy may not make a big difference, the cumulative effect is much worse.

I’ll give you one personal example on a small scale: I’m currently serving as a real estate consultant for a client we will refer to as “Tom.”  Tom purchased a fully-wooded building lot in 2005 as a site for his family’s new home.  While I advised him of the current governmental fees, policies changed after the fact.  In this case, after his purchase, the State of Maryland modified the regulations in its “Forest Conservation Act.” 

Under the old rules, a property owner could clear up to 40,000 square feet of forest (just under an acre) without having to obtain special permits and replace trees.  Under the new rules, however, any tree clearing beyond 20,000 square feet triggers the forest conservation review process. 

Unfortunately for Tom, it’s not possible to build a home on his wooded parcel while at the same time limiting tree clearing to less than 20,000 square feet. 

Local Frederick County government regulations require the entire 10,000 square foot septic area to be considered “cleared” even though only a few trees in the septic area will actually be removed.  That’s half of the allowed 20,000 square foot amount and Tom still has to clear trees for the house, the driveway and well. 

With the pending financial burden placed on him, Tom decided to reduce the area of his “yard” to a bare minimum. 

According to Tom’s surveyor, his new plan showed 29,000 square feet of clearing on his seven acre lot (that’s less than 10 percent cleared).  Yet because he exceeds the new 20,000 square foot maximum, he will now have to submit a Forest Conservation plan and will then have to address paying a fee to cover about 9,000 square feet of the forest area he will be clearing. 

So, how much of a financial burden will Tom face to fulfill his dream of living in the woods?

The bottom line:

• $2,000 to the surveyor to prepare the Forest Conservation plan.
• $500 county review fee.
• $4,700 to purchase “Forest Conservation credits” or place a perpetual forest easement on his lot, which Tom doesn’t want to do because he hopes to build a garage and pool in the future.   

Total increase in Tom’s costs due to changes in policies:  $7,200.  

But of course that’s on top of the $15,185 impact fee to cover the “financial burden” that our county government thinks he will put on our roads, schools and other county services – an initiation fee of sorts for the privilege of living in Frederick County.  Interestingly, the impact fee increased 6% this year, in the midst of a devastated home building market.

Then there is a $2,500 fee for a building permit.  

So before he even can put a shovel in the ground, Tom will have to come up with over $24,000. 

As you can see when planning to build on a lot in the woods or in an open field, one must wonder if at some point it’s not worth it.  In Tom’s case, he’s now thinking whether to proceed with his dream home in the woods or abandon his plan.

Dave Wilkinson has been a licensed Realtor and Vice President of MacRo, Ltd. since 1992.   He specializes in commercial property and rural land sales.  He also real estate consulting services for subdivision and development land.

We welcome Jeremy Holder as a guest writer to the MacRo Report Blog.  This is the first of a two part series regarding recent increases fees placed upon the construction and development industry.

As we bake in the extreme summer heat of late June and here in early July, I can’t help but recall this past winter and the near record breaking back to back snowfalls we just experienced.  In both events, even after applying extreme resources the slowly accumulating snowfall and the howling winds overtook resources and mounted to neutralizing depths. 

The last four years of regulatory onslaught combined with the housing downturn have culminated with similar stormy impacts on the building and development community.  As if the swift market downturn wasn’t enough the continued evolution of fees and regulation has accumulated to staggering depths no matter how fast we work to dig our way out.  With all this regulatory change comes changes in the fees to the beleaguered community.  While real estate values continue to fall, the regulatory fees to deliver any kind of new construction  are on the rise. What is the cause of this inverse relationship?

But before I get to that, allow me to just mention a few:

1. subdivision application
2. water and sewer review
3. roads and storm drain review
4. plat review
5. easement review
6. grading permits
7. sewer/water inspection
8. road inspection
9. Public Works Agreement processing fees
10. easement review
11. plan renewal
12. as-built site improvements review
13. plat recordation
14. transfer tax
15. recordation tax

….oh wait a minute!  I said a few. 

Sorry, please bear with me, this just gets back to the point where the lot is sold to the builder. Then he is faced with:

1. sewer/water connection charges
2. building permit
3. electrical permits
4. another grading permit
5. roads excise tax
6. recordation and transfer tax yet again

I can’t end this part without mentioning the granddaddy of them all, my very favorite: the Schools and Library Impact Fee. 

Yes, Impact Fees (reported by government to be representative of the cost reimbursement to the County for the impacts that our industry creates) were just a month ago increased by the Board of County Commissioners by 7% (totaling 11% over the past two years). 

The Commissioners’ primary justification was that the construction costs associated with building schools  have increased considerably.   This is a bit confusing since it is common knowledge that with the slumping commercial construction industry, raw construction materials are cheaper to buy.   It is even more intriguing when one considers that buried in an early Staff report for the Impact Fee Increase the County’s Staff recommended a reduction noting that the State’s School Construction Cost Index was reduced by 10.7% this year alone.  Does this mean that  here in Frederick County the construction industry is busy enough that there is a 17% premium on our work? 

While this discrepancy might seem a little extreme I will leave this subject with the fact that it has been a decade since the last time the County Commissioners authorized a professionally updated Impact Fee Study verses going the quick route with their own staff. 

There is so much more to cover here, so stay tuned for part two of the this summer’s STORMY topic for the building and development community.  I have to ask why all this is justifiable and while the building industry struggles, is county government really doing its part to keep costs in check?  This unstable weather system continues to be discussed on Thursday, July 15th!

About the author:  Jeremy Holder is the current president of the Land Use Council of the Frederick County Builders Association, and is the  Vice President of Development with Ausherman Development Corporation II, located in Frederick County, Maryland.