* Chapter 5 - Part 2 Government Controls and Real Estate Markets Feb 2 Real Estate Process #306 * Course Business Homework #1 is posted DUE Feb 13 @ 5:00 PM You will have to upload completed assignment to class website Construction Tour ? Grand Central Feb 5 at 4:30 PM ? FULL (waiting list started) Hard soled shoes Sign waiver Hard hats Sign-up sheet ? my office door 4447 Grainger Hall (8:30 to 4:30 PM) Waiver must be signed ? come by my office to sign before tour (if possible) Computer Labs ? Next Week Week of Feb 9 ? Discussion sections in computer labs Since it is VOLUNTARY ? only 4 times * 302 2/10 ? Tuesday 1:20 PM 2292 Computer Classroom 304 2/10 ? Tuesday 6:00 PM 2290 Computer Classroom 305 2/12 ? Thursday 2:25 PM 2290 Computer Classroom 306 2/11- Wednesday 6:00 PM 2292 Computer Classroom * Real Estate Club Real Estate Club http://realestateclub.org/ Meetings at the Pyle Center (on Langdon Street). Pizza and drinks are from 6:30 - 7:00, and speakers normally begin at 7 - 7:15 PM Meetings: Wednesday ? Feb 4 ? RE Career Fair ? Pyle Center from 6:30-8:30PM (open to REC members) REC to sponsor drinks at end Thursday, Feb 5 ? Brad Olsen ? Atlantic Partners Thursday, Feb 19 ? Mike Komppa ? Corum Real Estate Group Thursday, March 12 - TBA Thursday, March 26 ? Adam Cibik ? CPP Investment Board Thursday, April 16 ? Fiduciary Thursday, April 30 ? TBA Field Trips - This semester: San Francisco ? Feb 25-27 * Coming Up Monday Feb 2 ? Finish Chapter 5 (Government Controls and RE Markets ? might not get to TIF) Wednesday Feb 4 ? Chapter 3 Disc section at Wed 6 PM (2/4) cancelled due to REC Career Fair ? go to other sections, or see Eric. Monday Feb 9 ? Guest speaker: Jane Grabowski-Miller Project Director/Design Director, Middleton Hills, VP Planning & Urban Design, Erdman Development Group Wednesday Feb 11 ? Chapter 4 Discussion sections in computer labs this week 2290 & 2294 Homework #1 Due this week (Feb 13 @ 5 PM) Monday Feb 16 ? Chapter 6 Wednesday Feb 18 ? Chapter 7 Monday Feb 23? FIRST EXAM during class time ? TWO locations Wednesday Feb 25 ? Guest speaker: Barry Perkel ? Raymond Management (hotel developer and RE lecturer) Sharon out of town 2-25 to 2-27 ? NO office hours 2/25 * Real Estate Market Failures ? Introduction (repeat from last time) RE Market has several failings: Externalities: Impact of one land use on neighbors (spill-over effects) Shopping center causes traffic problems, noise, storm water run-off, light pollution, etc Incomplete information about properties How well was the building built? Locational Monopolies Right of ways for roads ? critical piece of land needed * Must Regulate RE Market (repeat from last time) Government tries to address these market failings. It has three basic powers of regulation Police powers Regulate land use and set minimum standards for safe construction Protect the general health, welfare and safety of public Most cities, counties gov?t use planning, zoning, building codes and other restrictions to achieve goals Also has tools to stimulate growth/revitalization (TIF) Eminent domain Acquire private property for benefit of the public Taxation * Police Powers Zoning restrictions and building codes help preserve RE value Building codes Incomplete information -Construction quality hidden Buyers unaware of structural risks of hurricanes, etc. (maximum wind tolerance of structure; safety of electrical or gas systems; fire dangers) * Building Codes Older than zoning (circa 1900) Issues of safety Fire: Materials, alarms, electrical and gas systems Sanitation: Plumbing, water, and HVAC requirements Injury: Design and strength Continue to evolve Effect of Hurricane Andrew (Florida ? wind resistance) 9/11 ? IE: increasing structural resilience to building collapse from fire and incidents, requiring a third stairway for tall buildings, increasing width of all stairways by 50 percent in new high-rises and other measures. New technology (e.g., smoke detectors) Changing perception of needs (e.g., bedroom windows large enough to step through) * Building codes/ordinances - example CHAPTER 2: MINIMUM HOUSING AND PROPERTY MAINTENANCE CODE (e) Each lodging house shall provide at least one (1) flush water closet, lavatory basin, and bathtub or shower, properly connected to an approved water and sewer system and in good working condition, for each seven (7) persons or fraction thereof residing therein 7. Electric work shall be done according to applicable sections of Chapter 19 (Electrical Code) of the Madison General Ordinances. (h) Heating. All habitable rooms, kitchens and bathrooms shall be provided with a permanently connected heating system complying with Chapter 30 (Heating, Ventilating and Air Conditioning Code) of the Madison General Ordinances. Refer to Sec. 30.03(1) and Sec. 30.04(4)(d). * Environmental Controls, Hazards, and Assessments Controls Clean Air Act, Clean Water Act, Comprehensive Environmental Response Compensation and Liability Act (CERCLA) - Superfund Hazards Asbestos, leaking underground storage tanks, (LUSTs), lead paint, radon, mold Environmental Assessments Phase I EVA (noninvasive) Air and water samples Historical property records Site inspection Phase II EVA More invasive tests to confirm indications from Phase I Phase III EVA Complete assessment of extent of the problem, remediation needs/cost, future prevention * Power of Eminent Domain Eminent domain: Right of government to acquire private land, without the owner?s consent, for public use, with due process and just compensation Condemnation: Legal procedure for exercising the right of eminent domain Public use vs. public purpose Just compensation based on highest and best use * Overture Center for the Arts * Kelo vs. New London New London, Connecticut (Population: 24,000) Classified as ?distressed municipality? Naval Undersea Warfare Center Closed in 1996, resulted in loss of 18,000 jobs Redevelopment program Redevelop 90 acres of waterfront land into: Office Buildings, Upscale Housing, Marina, Other Facilities Triggered by $300 million research center built by Pfizer Result Generation of hundreds of jobs Generation of $680,000 in property tax revenue * Kelo vs. New London Issue: 15 homes on 1.54 acres of the proposed site had refused to go Example: Susette Kelo, had extensively remodeled her home and wanted to stay for its view of the water * Supreme Court Ruling On June 23, 2005, the Supreme Court, in a 5?4 decision, found for the City of New London. The Supreme Court ruled that local governments may ?force? property owners to sell out and make way for private economic development when officials decide it would benefit the public, even if the property is not blighted and the new project's success is not guaranteed. Several states have since passed legislation to neutralize this ruling * Property Taxes Primary source of local government revenue Many taxing authorities - City - Improvement districts - County - Transportation authorities - Schools - Water management districts Property Tax Exemptions (possible) - Religious organizations - State Property - Nonprofit organizations - Homestead - Educational institutions * Property Taxes Based on assessed value and tax rate (mill rate) Assessed value - generally market value Assessor estimates value of property annually Mill Rate Based on amount of money needed to run the entity City budget ? less funds from other sources Divided by the total assessed value in city (less exemptions) Computation in book * Adopted Operating Budget 2008 City of Madison Comptroller * * * For the adopted budget (right column): LEVY divided by NET TAXABLE PROPERTY = $152,733,336 / $20,854,725,140 = mill rate of 7.3237 * TIF (Tax Incremental Financing) Mechanism for funding development and redevelopment projects Became popular in 1975 in WI (enacted in 1975) Attempt to stimulate growth and employment through urban redevelopment projects. Thought that those benefiting from development (schools, counties) should share in the cost. Usually need public improvements when have more development (roads, sewers, light systems). In past only the city paid for these items. It was argued that schools, VTAE districts, etc. benefited and didn?t have to pay. TIF provides mechanism for these entities to share the costs * City of Madison TIDs * Mechanics of TIF Create a district (TID district) which is blighted Base assessed value of district is set (pre-development) City does various improvements (streets, etc. or helps developer with project). Expends money to improve the area. With improved area and new development, assessments increase over base. Tax increment equates to the increased assessment (taxes) over the established base Each property in a TID is taxed at market value, owners pay usual amount in taxes. Normally all taxes collected go to the various entities. However in a TID, the excess taxes (over base) goes to the city until all the costs relating to the TID are repaid (or until end of TID life) * How Does TIF Work? TIF District (TID) Created Property Value Annual Tax Tax Distribution City County Schools Voc/Tech School $1,000,000 $30,000 $6,000 $10,000 $13,000 $1,000 New Value New Tax Tax Distribution City County Schools Voc/Tech Tax Increment $15,000,000 $450,000 $6,000 10,000 $13,000 $1,000 $420,000 * * * Redevelopment plan
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