Mark Duncan Not Happy With South End Real Estate Development

Says Tax Incentives Will Drive Existing Prices Down and Invite Slum Lords

February 18, 2007
By: O. J. Cunningham

Mark Duncan is upset about Tax Incentives offered by City Commissioners to the Developer of 50 acres - 186 homes - in the South End of Bay City.

Duncan is the Broker-Owner of Re/Max Results - a Real Estate Company in Bay County. Duncan has written letters expressing his opinion to the Bay City Times and to the Bay City Commission. - Read Duncan's Letters Here

"It's totally irresponsible," Duncan said. Duncan says the City is offering tax incentives to the new buyers in the South End development and says it's a bad idea. "This will flood the housing market in Bay City and further cripple an already distressed marketplace," according to Duncan.

"It's going to further drive down the price of houses that are already on the market," Duncan says. "It's going to nothing but further devalue existing home prices."

Duncan says there are homes currently on the market at $30,000 that could easily be driven in value down to $5,000 to $10,000.

"At that point these rentals become extremely attractive to out-of-area slum lords," Duncan added. Slum lords invite a less than desirable type of tenant to our City, according to Duncan.

"If you think I'm being over dramatic," Duncan went on. "Take a look 10 miles to the south in Saginaw to see what the exact same effect of over-development or an unbalanced supply and demand has caused. I don't believe that any of us want to deal with the problems that Saginaw is dealing with," Duncan said.

Duncan says that every Real Estate Broker in Bay City feels the same way about the idea of tax incentives to create additional single family homes. "Sellers are already struggling to sell their homes at a fair price," Duncan says. "Tax incentives that increase supply (houses) when the market is already flooded are irresponsible," Duncan said. "It hurts sellers short-term and hurts the City in the long term."

Mark Duncan Offers the Following Suggestions:

DUNCAN'S PROPOSAL: I have spent a great deal of time thinking on this project since I wrote the letter to the Editor of the Times and I think I may have a "win-win" proposal. I'm not looking at stepping in or attempting to cut out the current developers. They were the first ones to show serious interest in the project and I believe they should be the ones to benefit from a conservative responsible development plan for the project. I would recommend the City sit down with the developer and offer the following:

The Developer gets the exclusive development rights to the property provided certain developments be completed within a specified period of time at no up front cost (no money down).

The Developer wins because He/She has reduced upfront expense and reduced carrying cost on the project (interest/property taxes, etc.) and providing the Developer builds in a overall community enhancing manner He/She will be granted the exclusive development rights for each consecutive phase of the development. The City wins because the City is not selling the property at such a loss.

The Developer to have all roads and infrastructure built within 12 months of State and Local approval of the Subdivision Plat at the Developer's Cost.

The Developer wins because no carrying cost on upfront land costs while waiting on plat approvals.

The City wins because the Developer pays for all cost for the Subdivision Plat and cost of the road and improvements for each phase of the development.

The Developer to be allowed only 6 building permits per year for a six year period for Phase 1. The City to retain the right to increase this number providing some economic factors create a shortage of single family homes in the City.

The Developer wins because with only 6 units available per year this should create a marketing tool (less supply equals higher demand) that would reduce the Developers marketing time and marketing expenses, therefore, increasing the profit margin.

The City wins by increasing the property tax revenue by approximately $18,000 per year. Compounded each year by an additional $18,000 the City could receive an additional $270,000 over the first six year period of time.

The City residences win because their property values will not be drastically affected by a large influx of additional housing supply.

The Developer will pay the City $5000 per lot as a development fee / land cost price (with an annual increase of 2% with a 10% cap) when the new home is Sold.

The Developer wins because He/She has reduced upfront expense and reduced carrying cost on the project (interest / property taxes etc.) and He/She have the exclusive development rights at a predetermined fixed price. Imagine having the right to purchase a property for $6000 thirty years from now. That's a pretty good incentive.

The City wins because the City is not selling the property at such a loss. On just the first 36 lots with an annual increase of 2% per year the City would receive $189,000. With a 10% total cap (or $6000) on each lot the City could receive an additional $918,000 on the remaining 153 lots (providing the development was 189 lots to start with). This would result in a 30 year project. And at our current market conditions that is how long a project of this size should take to merge into our community without a severe negative impact.

This may not be the best option for this property, but, it sure is better than what the City is in the process of doing now. Tax incentives for this project are a formula for disaster.

Should you have any questions please feel free to give me a call. Myself and the Bay County REALTOR® Association Governmental Task Force would be happy to sit down with the Commission and discuss this matter or any future Real Estate matters.

Thank You Again, Mark R Duncan
RE/MAX Results, Bay City, Bay County, Michigan