AN ANALYSIS OF THE LAND USE AND VALUE OF WEBER STATE UNIVERSITY S MOUNTAINSIDE PARCEL. Prepared For Weber State University

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1 AN ANALYSIS OF THE LAND USE AND VALUE OF WEBER STATE UNIVERSITY S MOUNTAINSIDE PARCEL Prepared For Weber State University Prepared By James Wood Francis Lilly Bureau of Economic and Business Research Davis Eccles School of Business University of Utah February 2007

2 Summary and Conclusions!This study examines the land use and value of a 120-acre parcel of property owned by Weber State University. The property is located east of campus and is referred to as the Mountainside Parcel.!The topography of the Mountainside Parcel limits the amount of developable acreage to approximately 57.5 acres. Weber State University has intended this land to be used for future academic and research expansion.!this report determines two separate values for the Mountainside Parcel: (1) the current market value of the parcel as residential land and (2) the current replacement value of the land. The market value represents the approximate value Weber State University would realize if the land was sold for residential use. The land is currently zoned residential R The replacement value represents the cost to Weber State University to buy 57.5 acres of land in close proximity to campus to accommodate future academic and research expansion, if the Mountainside Parcel was sold.!the current value of the 57.5 acres of developable residential land at the Mountainside Parcel is $10.1 million. This estimate represents the land s current market value as undeveloped residential property.!the replacement cost of the Mountainside Parcel is estimated to range from $37.7 million to $45.2 million. The lower bound of the price range was determined from assessed residential property values near Weber State University and the upper bound from the median sales price of nearby homes.!since land replacement would likely include the purchase of residential homes, demolition costs must be included in the replacement costs estimates. A conservative estimate for demolition of a typical residential home is $10,000. Replacement of the Mountainside Parcel through purchase of residential homes would require the demolition of approximately 200 homes at a cost of $2.0 million. Adding demolition costs increases the estimates for land replacement to a range of $39.7 million to $47.7 million.!the Mountainside Parcel is considerably more valuable to Weber State University as expansion land than the alternative use of developed residential land. If the university decided to sell the land for residential development its value is approximately $10 million in 2006 dollars whereas the cost to replace the land for academic and research expansion would, at a minimum be $40 million and could be as high as $47.7 million. 1

3 Mountainside Parcel: An Analysis of Land Use and Land Value Weber State University (WSU) contracted with the Bureau of Economic and Business Research (BEBR), David Eccles School of Business at the University of Utah to estimate the current market and replacement value of approximately 120 acres of land owned by WSU. The subject parcel is located immediately east of Skyline Drive and depicted in Map 1. The parcel is referred to throughout the study as the Mountainside Parcel. The Mountainside Parcel is a long-held asset of WSU and is intended to be used for academic and research expansion of the university. Map 1 Map of Weber State University and the Mountainside Parcel 2

4 Recent private and public circumstances have made it necessary for WSU to reevaluate the land use and value of the property. In 2005 the Salt Lake Exchange Accommodations (owned by Chris Peterson), purchased the 1,440 acres of Malan s Basin and proposed developing a ski resort in the basin and a luxury home development near the west base of Mt. Ogden. Many civic leaders support the proposed Peterson development, believing it will be an important stimulus to economic development for Ogden City and Weber County. However, the proposed ski resort and luxury home development would require WSU to sell the Mountainside Parcel. The proposed development s need for the Mountainside Parcel has led WSU to undertake a reexamination of the land use and value of the Mountainside Parcel. Study Objective The Mountainside Parcel has three potential land uses: academic/research space for WSU, a research park associated with WSU, residential development and ski resort/residential development. The latter two uses would require WSU to sell the parcel and acquire replacement property sufficient to accommodate the future academic and research expansion of the university. Given these potential uses for the Mountainside Parcel, the study s two primary objectives were: (1) to determine the current market value of the Mountainside Parcel and (2) to determine the replacement cost if the Mountainside Parcel were sold. Study Assumptions The following assumptions were used in the analysis of the Mountainside property. (1) Land value In the analysis two distinct land values were considered. Market Value: the approximate market value of the Mountainside Parcel as a residential development. Replacement Value: the cost to acquire substitute land to meet the future expansion needs of WSU. (2) Land Use - The two primary land use alternatives considered for the site are academic/research and residential development. The research park use was not examined in detail due to the long development horizon of a research park and expected lower per acre values, nevertheless, a research park is a possible alternative use. Residential development may occur independent of the proposed ski resort or as part of the ski resort development. (3) Developable Land - While the Mountainside Parcel comprises approximately 120 acres of land only about 57.5 acres are developable, according to the Shipley Group s recent geological survey of the property, see Map 2. (4) Undevelopable Land - The remaining 62.5 acres of undevelopable land have little economic value for institutional or residential development. This land has slopes of greater than 30% therefore is undevelopable. However, the land does have non-economic value as public good and open space. (5) Replacement Property The residential property adjacent north and south of WSU. (6) Residential land use scenario Under the residential use scenario WSU would sell the land and use the proceeds to purchase replacement property for future expansion. 3

5 I. Current Market Value of Mountainside Parcel The current value of the parcel is determined by its potential alternative use as a residential development. Residential development would yield the highest price for the developable land. The land is currently zoned R-1-10, a residential zone permitting the development of 10,000-square-foot lots for detached single-family housing. Residential development of the land may have lower density (larger lots) without a change in the zoning. It is anticipated that any residential development on the parcel would be comprised primarily of large lots approximately half-acre lots. Private commercial development would require a zoning change, which carries a strong likelihood of intense neighborhood and zoning commission opposition. Furthermore, the site as an office location has significantly less market potential and a much longer development horizon. Therefore, the potential for commercial office development by private developers on the parcel is limited hence its commercial value is less. Sale of land by WSU for commercial development is not considered a viable alternative use. The parcel could be developed by WSU as a research park. This use would not require a rezone since ownership remains with WSU. However, market conditions for a research park would impose a very long time horizon, which would results in high opportunity costs for a research park development. Developable Land The geologic evaluation completed by Shipley Group in 2006 identified approximately 57.5 acres of developable land on the Mountainside Parcel. Developable land is defined as land with less than a 30% slope and is depicted by the dark goldenrod color in Map 2. Some of the developable acreage is located in pockets or islands of land surrounded by undevelopable land. Although these islands satisfy the slope requirements for development their location on the site renders them undevelopable. Therefore, the total developable acreage on the parcel is no more than 57.5 acres. Map 2 Developable Land at Mountainside Parcel 4

6 The current market value of the Mountainside Parcel is equivalent to the highest-priced alternative use, which is residential development. The property s value for residential development was determined from a review of existing residential property adjacent to the Mountainside Parcel. Assessor s data as well as sales data from the Wasatch Front Regional Multiple Listing Service (WFRMLS) were analyzed. In addition, major home builders were interviewed regarding their estimates of the value of the Mountainside Parcel for residential development. Assessed values and multiple listing service data provide information on the value of developed lots. Once a developed lot price was established it was possible to determine the price per acre for undeveloped lots, i.e., raw residential ground. The interviews with developers provide confirmation of the value for undeveloped land. Developed Lot Value Assessed value data on comparable residential land immediately south of the Mountainside Parcel were analyzed. Nine nearby recently platted (2003 to 2005) residential parcels had a median assessed value of $250,220, which includes the structure. The typical lot was.37 acres and the median residential land value was $75,000. One developed vacant lot on Skyline Drive near WSU is indeed selling for about $75,000, Table 1. Table 1 Assessed Value of Residential Lots Platted and Developed Near Weber State University 2003 to 2005 Address Lot Size Acres Assessed Lot Value Assessed Value Per Acre Total Assessed Value 4336 Spring Road 0.37 $62,280 $168,324 $263, Skyline Drive 0.4 $75,825 $189,563 $560, East 4600 South 0.4 $75,825 $189,563 $242, Foothill Drive 0.3 $45,000 $150,000 $372, East 4600 South 0.27 $74,625 $276,389 $205, East 4600 South 0.33 $75,000 $227,273 $250, East 4600 South 0.37 $75,000 $202,703 $210, South Carriage Court 0.67 $86,625 $129,291 $86, South Skyline Drive 0.48 $78,975 $164,531 $337,490 Median 0.37 $75,000 $189,563 $250,220 Source: Weber County Assessor s Office. Assessed values are generally slightly lower than market values. Therefore the assessed value is treated as a lower bound for developed property value. NewReach, a local real estate research firm, provided additional price data for vacant developed lots as well as new home values in two nearby subdivisions, The Point at Stone Mountain and Manderley Meadows. The developed one-third to one-half acre lots in these two small, high-end subdivisions range in price from $100,000 to $200,000, see Table 2. 5

7 Table 2 Price Characteristics of Nearby High-End Subdivisions Subdivision Address Number of Lots Lot Price Range Point at Stone 4477 South 11 $92,000 to Mountain 1500 East $120,000 Manderley 4815 South 17 $140,000 to Meadows 1808 East $200,000 Source: NewReach. Home Price Range $284,000 to $375,000 $400,000 to $575,000 Lots Sold 2 6 Custom builders were also contacted and they confirmed that a half-acre developed or finished lot near the subject parcel could sell for upward of $150,000 to $200,000. These values are at the extreme highend of developed lot prices in Weber County. The rule of thumb for estimating lot value is to divide the home price by three. Therefore, a $600,000 home would have a lot value of about $200,000 or conversely a developed lot priced at $200,000 would require a home price of about $600,000 to make economic sense for the home builder. There may be a few isolated cases of $600,000 custom homes in established subdivisions but home sales in this price range are rare. In the 42 active subdivisions in Ogden, South Ogden and North Ogden there have been no homes built for over $500,000 and only six homes priced between $450,000 and $500,000 in the past year, see Table 3. These six homes represent only 3% of the new homes sold in the three cities in the past year. In addition, no developed lots have been sold for more than $200,000. The median lot price for the 210 homes sold in the three cities was $71,000, see Table 4. Table 3 Sale Price for New Homes Sold in Ogden, North Ogden and South Ogden (October 2005 through September 2006) Price Range Number of Sales Under $125,000 8 $125,000 to $149, $150,000 to $174, $175,000 to $199,999 5 $200,000 to $224, $225,000 to $249,999 9 $250,000 to $274,999 0 $275,000 to $299, $300,000 to $324, $325,000 to $349,999 0 $350,000 to $374,999 6 $375,000 to $399,999 0 $400,000 to $449, $450,000 to $499,999 6 $500,000 and above 0 Source: NewReach. 6

8 Table 4 Lot Price for New Homes Sold in Ogden, North Ogden and South Ogden (October 2005 through September 2006) Lot Price Range Number Sold Under $29,999 0 $30,000 to $39,999 0 $40,000 to $49, $50,000 to $59, $60,000 to $69,999 6 $70,000 to $79, $80,000 to $89,999 5 $90,000 to $99, $100,000 to $119, $120,000 to $149, $150,000 to $169,999 0 $170,000 to $199,999 6 $200,000 to $249,999 0 $250,000 and above 0 Source: NewReach. Further confirmation of the relatively thin market for high-priced homes in Ogden and Weber County is provided by the Wasatch Front Regional Multiple Listing Service. From January through September of 2006, 3,278 existing homes were sold in Weber County. Only 56 or 1.7% of these homes were priced above $450,000, see Table 5. Table 5 Sales of Existing Homes in Weber County (January through September 2006) Price Category Sales Under $75, $75,000 - $99, $100,000 - $140, $140,000 - $179, $180,000 - $219, $220,000 - $259, $260,000 - $299, $300,000 - $349, $350,000 - $399, $400,000 - $449, $450,000 - $499, $500,000 - $749, $750,000 and Over 6 Total Units 3,278 Average Price $165,214 Source: Wasatch Front Regional Multiple Listing Service. 7

9 The price data on new homes, developed lots and existing home sales indicate that residential development on the Mountainside Parcel is unlikely to have homes priced above $500,000. Nevertheless the Mountainside Parcel is prime residential land with fantastic views to the west and the developable property on the high east bench is scare and could command top dollar. Chris Peterson does envision luxury homes on the site. Therefore, it was assumed the Mountainside development would be at the top end of the market with homes priced at $475,000. With an average price per home of $475,000 the lot value for that home would be about $160,000. Assuming the typical lot was 15,000 square feet (one-third of an acre) to 17,500 square feet (four-tenths of an acre) the number of homes yielded or developed per acre would be about two homes. This yield factor takes into account the land required for roads, sidewalks and infrastructure. Conclusion: At two homes per acre and each lot valued at $160,000 the developed lot value per acre is $320,000. Undeveloped Lot Value The developed lot value is significantly higher than the undeveloped value of the parcel. That difference is the cost of development. As discussed above the expected value for a developed lot on the Mountainside Parcel is approximately $160,000. The price for home and lot would be $475,000. Starting with a finished lot value of $160,000 the development costs are backed out or subtracted to arrive at the undeveloped lot value. The development costs per lot are typically about $35,000 per lot. These costs include: utilities, concrete (curb and gutter), asphalt for road, street lights, pipes, impact fees, engineering and carrying costs of developed land. Development costs also increase with the slope of the ground, for every 1% slope development costs increase by $1,500. Assuming an average slope of 3% for the residential land at the Mountainside Parcel the development costs increase by $4,500. In addition to the development costs, developers expect at least a 20% profit on the land a $160,000 lot would include approximately $32,000 in profit. The total development costs of $40,000 plus the profit of $32,000 gives a total development cost of $72,000 per lot. The development costs and profit were then subtracted from the developed land cost of $160,000 per lot to determine the undeveloped land value. In this case, the $72,000 is subtracted from the $160,000 developed value to give an undeveloped land value of $88,000 per lot. At two lots per acre the undeveloped land value per acre is $176,000. This exercise shows that if a development company were to pay $176,000 per acre for the undeveloped ground on the Mountainside Parcel they would need to develop and sell new homes at approximately $475,000. The undeveloped lot value was corroborated through discussions with Ivory Homes and Richmond American Homes, the two largest home builders in Utah. In 2006, each will build approximately 1,100 homes, consequently both companies have extensive experience with development and undeveloped land costs. Both Ivory Homes and Richmond American said, independently, that they would consider paying in the neighborhood of $160,000 to $180,000 per acre for the Mountainside land. Both home builders are currently developing homes in South Ogden and are familiar with land costs and development in Weber County. They agreed that a value of $200,000 per acre was too high for the undeveloped residential market. 8

10 WSU could capture the difference between the developed value of $320,000 and the undeveloped value of $176,000 if the university served as the real estate developer. Otherwise, a major developer would purchase the land from WSU. The land would be purchased as undeveloped residential land. The developer would assume all development costs mentioned above as well as the responsibility for securing land entitlements and appeasing the surrounding neighbors. The undevelopable land has no market value for the developer. If WSU pursued residential development of the parcel it is recommended that sale of the land be phased. The first phase should include about 20 acres with the remaining acreage held by WSU. With Phase I development the remaining WSU land will appreciate and this appreciation could be captured by the university. This is the approach the State Institutional Trust Lands Administration pursues in joint residential ventures in Washington County. Both parties developer and institution benefit, the developer does not have the carrying costs of excess land and WSU would capture appreciation with little in the way of carrying costs. Conclusion: The current residential market value of the 57.5 acres of developable land on the Mountainside Parcel is $10.1 million. 9

11 II. Replacement Cost of the Mountainside Parcel If WSU agreed to sell the Mountainside Parcel the university would need to secure replacement land. The replacement cost is the cost necessary to purchase 57.5 acres of land near WSU for future academic/research expansion. The replacement cost was determined from an analysis of assessed values and market values of residential property near WSU. Assessed Value of Land Surrounding Weber State University The Bureau of Economic and Business Research has identified a study area of 2,149 parcels of land surrounding Weber State University. Ninety percent or 1,949 parcels are primary residential property. The study area is bounded by Harrison Boulevard, 2700 South, 4800 South, and the foothills east of the university. The vast majority of the parcels are for single-family homes, but there are a handful of multifamily projects and 26.6 acres of commercial land along Harrison Boulevard. The land in BEBR s analysis includes the Mount Ogden Park and Golf Course, Weber State University, the Ogden/Weber Ice Sheet, the Dee Events Center, and Ogden High School. The study area includes 1,373 acres of land surrounding Weber State University. The study area incorporates a sufficient amount of land to enable BEBR to make a reliable assessment of replacement value of the land surrounding the university. Figure 1 Assessed Values of Properties Surrounding Weber State University 10

12 The study area includes the post-world War II housing built near Ogden High School and progressively more expensive homes built near Mount Ogden Park, as well the newer housing south of Weber State University surrounding the Dee Events Center and the Ogden/Weber Ice Sheet. Generally, the highest assessed values are found adjacent to Mount Ogden Park, and the newer housing near Skyline Drive and 4600 South, as indicated by Figure 1. Ten parcels in the study area are valued at $1,000,000 or more. The most expensive parcel according to assessment data is 4.04 acres owned by the St. Benedict s Manor condominium corporation, valued at nearly $4.1 million. Five of the ten most expensive parcels are listed as commercial land along Harrison Boulevard. The median assessed value, total acreage and parcel information are given in Table 6. The median assessed value of residential land in the study area is $14.27 per square foot, including land and structure. Commercial land along Harrison Boulevard is valued at $11.64 per square foot, including improvements. The study area includes some land zoned for agricultural use. Table 6 Median Assessed Value of Property North and South of Weber State University Category Median Value Per Area in Acres Number of Parcels Square Foot All Properties $ , ,149 Residential Primary $ ,949 Commercial $ Other* $ *Agricultural and non-primary residential. Source: Weber County Assessor. Using the median assessed valuation of $14.27/square foot for 1,949 residential parcels the replacement cost of 57.5 acres can be calculated. An acre has 43,560 square feet. Multiplying the number of square feet in an acre by $14.27 produces the residential value per acre of $621,601 for land and structure. The number of homes on this typical acre would be slightly more than three homes. Conclusion: Using the median assessed value per acre for nearby residential land and structures, the current replacement cost for the 57.5 acre Mountainside Parcel would be $37.7 million. Sales Value of Land Surrounding Weber State University Assessed values generally lag market values. Therefore WSU s replacement costs are more likely to reflect market than assessed values. Therefore the replacement value of $37.7 million based on assessed values should be considered a lower bound for replacement cost. The best measure of market value is the sales price of existing homes as reported by the Wasatch Front Regional Multiple Listing Service. Between September 1, 2005 and September 1, 2006, WFRMLS recorded 124 home sales in the area between Harrison Boulevard to the west, the foothills to the east, 2700 South to the north, and the Ogden City limits to the south (Figure 2). Home sales ranged in value from $96,000 to $725,000. The WSU campus separates two different types of housing stock. The housing south of campus tends to be newer, larger, and more expensive than the housing north of campus. A summary of median housing characteristics in the study area is included in Table 7. 11

13 Table 7 Median Sales Price of Homes Sold Near Weber State University Category Median Sales Price Home Size* Lot Size Year Built Study Area $196,500 2,790 s.f..25 acres 1963 Study Area $277,500 3,831 s.f..30 acres 1979 South of Campus *Includes basement. Source: Wasatch Front Regional Multiple Listing Service. Figure 2 Homes Sold Near Weber State University by Price Range Over the past year, the median sales price for 124 homes sold in the residential areas north and south of WSU was $196,500. This typical home is on a quarter-acre lot. Therefore, to secure an acre of ground it would be necessary to purchase four homes at a total price of $786,000. Conclusion: Using the median sale price of for nearby residential homes, the current replacement cost of the 57.5 acre Mountainside Parcel would be $45.2 million. 12

14 III. Comparison of Alternative Land Uses for the Mountainside Parcel The 120-acre Mountainside Parcel is a tremendous asset to WSU. It could be sold and developed in a number of ways, including as part of the proposed Malan s Basin resort project, or for high-end singlefamily homes or a research park associated with WSU. It could also provide a significant land bank to meet the university s expansion needs. The Mountainside Parcel includes 57.5 acres of developable land. Academic/Research Use WSU could use the Mountainside Parcel as the site of future academic space. An informal space analysis conducted by WSU suggested that there is ample space for academic buildings on the site upward of 341,000 square feet of building footprint. If each of these buildings was three stories tall, the Mountainside Parcel could accommodate over 1 million square feet of space to meet the university s future growth needs. Advantages Proximity to main campus No need to purchase additional land to accommodate campus growth. Undeveloped land on-site could become a recreational amenity for WSU Disadvantages Topographical challenges may make pedestrian access to some of the buildings impractical. An access road would need to be built, to route traffic away from nearby residential streets. WSU will have to contend with entitlements, easements and community reactions to building on a site near the Bonneville Shoreline Trail. WSU must consider the opportunity cost of not selling the land for development. Residential Use A second option would be to develop the land on the Mountainside Parcel for residential housing. Given the panoramic views afforded on the site and the nearby housing stock, the parcel is well-suited for highend housing. Advantages The developer would bear the cost of resolving the entitlement issues, easements, or land use controversies surrounding the site. Property surrounding the site is zoned for residential development and the site would be compatible with residential development to the south and the Mount Ogden Golf Course to the north. Developing the site in phases would allow WSU to build equity in the remaining undeveloped land. The trail and the remaining 62.5 acres on the site would be a valued amenity to area residents. Residential development could finance the acquisition of additional land to help meet long-term expansion needs of WSU. Disadvantages The high-end home market is a small market in the Ogden area. Consequently, the development period for 200 high end homes would be relatively long for a new residential community. Acquiring 57.5 acres of replacement land one parcel at a time will be an expensive, timeconsuming, and labor-intensive alternative. 13