The Feoffees, the Ipswich School Committee and the TENANTS of Little Neck

I've been following this story for nearly as long as I've had this blog:

• The Feoffees, their tenants, and the Ipswich public schools  (February, 2008)
• Update on the Feoffees' tenants in Ipswich, Massachusetts  (July, 2008)
• The Feoffees may sell Little Neck to the tenants ... for ever and ever   (December, 2008)
• The Feoffees of Ipswich are still thinking about selling that fine piece of land at Little Neck  (February, 2009)
• Update on the Little Neck (Ipswich, MA) sale by the Feoffees of Ipswich's Public Schools   (May, 2009)

I've not posted here in a while, though I've commented on individual articles on the Ipswich area newspapers' websites. It seems that, despite the terms of the trust which forbid the sale of the land, an agreement has been reached to sell the land to the tenants for the quite pitiful sum of $29,150,000.

A bit of background: about 350 years ago, a forward-thinking landholder in Ipswich (a town on the shore north of Boston, famous for its clams) donated for the benefit of the Ipswich public schools a magnificent almost-island called Little Neck.  The trust required the Feoffees (trustees) to collect market rent on the land, and donate the proceeds to the town's public schools.  Little Neck totals perhaps 27 acres, of which about 24 acres show up on the Ipswich assessor's database; the rest, I assume is the roads which wind around it. 

For centuries, the land was used for farming, but early in the 20th century, the Feoffees recognized that farming was no longer the highest and best use of this scenic and well-located acreage, and they subdivided it into lots and permitted people to rent them and erect cottages on them.  There are 167 cottages. 

Today, less than half of the land is rented out to individual tenants: my spreadsheet, which is probably pretty close, suggests 10.32 acres rented to tenants and 13.88 acres held unrented by the Feoffees, but available to the tenants as Commons, for a total of 24.19 acres.  There are beaches and a community center, a pier, a playground, playing fields.  Presumably the Feoffees maintain these commons.  A few years ago, a sewage plant was installed.

Houses on Little Neck are mostly small cottages, many under 1000 square feet and built between 1910 and 1935.  Few have more than one bathroom.  Most are seasonal; that is, they can under the terms of the land lease be occupied only from about April to January.  24 are year-round.  I've not been able to figure out which ones, and I don't recall ever seeing one for sale in the times I've looked.

These cottages are old, weather-beaten and modest.  Some have very appealing interiors, but tiny rooms and modest outfitting.  Most are seasonal, and have no heat.They sit on lots which range from 0.041 acres (1,786 square feet) to 0.112 acres (4,879 sq ft), with most at 0.069 acres (3,005 sq ft).

Were they not on Little Neck, with its fabulous views and huge common spaces, its beaches and community amenities, these cottages would be worth no more than $50,000 to $100,000.  (An 800 square foot cottage at $60 per square foot is $48,000.  A 1200 square foot cottage at $80 psf is $96,000.  $60 psf and $80 psf are excessive valuations for cottages built between 1865 and 1950.  Houses depreciate, even with the best of care.)

Yet asking prices for these cottages when I looked 10 days ago were $175,000 (924 sq ft, built 1930) to $620,000 (1,779 sq ft, built 1910, waterfront).   

What does this mean?  It means that the current land rent being collected is nowhere near the market value land rent. 

Currently, the Feoffees are collecting about $10,000 per year each for the 143 seasonal cottages, and a bit more for the 24 year-round ones.   But the difference between the $50,000 to $100,000 value of the cottage itself and the asking prices of $175,000 to $620,000 represent capitalization of uncollected land rent -- Land Rent which the Feoffees are REQUIRED by the terms of the trust to collect!

Perhaps a year ago, or maybe it was two, I spent some time looking at the Ipswich assessor's database, and assembled a spreadsheet.  I think I probably have 95% of the lots accounted for.  I found some interesting things.  In no particular order,

• Occupied lots total 10.32 acres.  The land represented by those lots was valued by the assessor at  $30,990,200, or $3,004,382 per acre.  
• The per-acre assessed value of the occupied lots ranged from $2.6 million to $5.2 million
• Untenanted lots are of two sorts:

1. one large one, listed at 39 Bay Road, of 11 acres, valued at $842,500, or $76,591 per acre
   

2. perhaps 42 small ones, totaling 2.88 acres, valued at $918,800 total, or $320,000 per acre  

• The untenanted lots, totaling 13.88 acres, were valued by the assessor at $1,761,300, or $126,941 per acre.   Had they been valued at $3,004,382 per acre, their value would be $41,700,822. 
• Add together the $30,990,200 at which the assessor valued the occupied lots and the $41,700,822 for the untenanted lots -- the commons -- and the value of Little Neck's land would be $72,691,022.
• The assessor valued the cottages on Little Neck at $14,857,592, an average of $88,968 per cottage, ranging from $38,700 to $223,600.  
• The assessor valued the tenant-occupied lots on Little Neck at from $161,600 to $343,500, with most falling at $185,500, or $228,700, or $290,000 to $300,000.  (Perhaps differentiating a bit for views or for year-round occupancy rights)?

As a letter to the editor pointed out, the Feoffees don't own the land, and therefore can't sell it.  They are merely trustees for the land.   So the discussion about selling ought not to be happening at all.

But if somehow the powers-that-be determine that black is actually white, and up is actually down, then the Feoffees ought to be getting the full current value for the land.  And they ought not to act as mortgage lenders.  That is not within the terms of the Trust, and is nothing but trouble.

$72,691,022 divided by 167 cottagers works out to $435,275 per cottage -- quite a bit more than the $174,000 they're offering, to break the Trust which has been in place for 350 years.

Twenty years' purchase, or 5% of the $72.7 million, works out to land rent of $3.6 million per year.  Divide that by 167, and the average annual land rent would be $21,800.  Some would be worth more -- the larger lots, the ones on the waterfront, the ones with prime views, the ones with year-round occupancy rights -- and some would be worth less -- the smaller lots, the ones with less desirable views, the seasonal ones.  

Would charging the market rent make Little Neck unaffordable to some of the current tenants?  Yes, quite possibly.  Did the Grantor of the trust make an exception for that?  Or did he simply charge the trustees with collecting the market rent and being good stewards of the property, forever?   The trust was not created in an attempt to be kind or generous to tenants; the beneficiary was explicitly named as the schools of Ipswich.  If the interests of the tenants now somehow outweigh the interests of the schools of Ipswich, please tell me where to buy a new compass, because North is no longer North.

How will we know when the Feoffees are collecting the full market rent on the Little Neck property?  When the selling price of a $50,000 cottage is $50,000.  Until we see that, we'll know they're not collecting the full rent, but leaving a significant portion in the pockets of the cottage tenants.   The difference between the $50,000 value of a cottage and the $250,000 PRICE of a cottage when the land rent is not being collected is enough to put a cottager's child or grandchild through college. 

But the Trust was set up to benefit not the TENANTS' children but the children of the schools of Ipswich.  Got it?

The Trustmaker gave Ipswich's public schools and Ipswich's community a very fine gift: a goose that he knew would lay golden eggs.   The recent and current Feoffees may have failed to collect those eggs.  That's past history.  We can't change it.  And it doesn't change the nature or terms of Mr. Paine's foresighted gift.  Just collect the eggs.  Keep feeding the goose.  If the current group of Feoffees isn't so inclined, replace them with Ipswich residents who are.  If necessary, hire professional staff; at $3.6 million in annual rent flow, volunteers can't do it all.

And, by the way, when you announce the schedule under which rents will be raised from current levels to market levels, a lot of cottages are going to go on the market.   It will take a while for them to sell, and you'll see the prices drop.  The cottagers will claim theft on the part of the Feoffees.   They're wrong.   Many of the cottages will be teardowns.   The new owners will ponder for a while, and then begin to build interesting and attractive new homes there, within the constraints of those postage stamp lots.  Preservationists will bemoan the loss of "historic cottages."  Unhappy tenants will say sad goodbyes to summer homes whose full carrying cost they can't absorb.   The grocery shopping and restaurant visits these 167 families -- and their tenants -- represent may fall off for a summer or two, while new owners build new cottages.

The construction trades in Ipswich will prosper (the Feoffees might be wise to prohibit construction work during the high season) and so will the town itself, for all sorts of reasons, including the rent flowing to its public schools.

Unless, of course, the stakeholders -- or the courts -- think that the interests of the tenants ought to be primary.   In which case, please order me the new compass.

This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

Comments

[Chuck Kollars]

Q1- Doesn't the sale price of a house include not only the house and the lot, but also access to the "shared" facilities?

Q2- How did you obtain separate assessor figures for he houses and for the lots? I'd like to do a bit of research of my own too, and it's obvious you've already found the sources. (I'm used to the tax assessor combining the house and the lot into a single number; separate numbers for house and lot isn't something I'm used to.)

[LVTfan]

Chuck,

I'm not sure that it is the sale of the house that provides that access. Rather, it is payment of the required land rent to the Feoffees. (I'm making a slightly finer distinction here, but am basically agreeing with you.) Does that mean that the assessor's valuation of the common spaces is correct? I don't know -- and I'm not sure how I'd go about trying to figure that out.

I'm guessing that at least some of the already-subdivided lots could be rented out without reducing the value of the other properties, particularly since the septic issue was remedied by investment in a new plant a couple of years ago. (And properties now limited to seasonal use might be granted year-round rights, raising their value hugely; my impression is that the seasonal requirement was necessary to let individual septic fields rest.)

But I'd have to agree with the point I think you're driving at in Q1: that the commons has huge value, and that "individualizing" a large share of the commons would reduce the rental value of the existing lots. The Feoffees would need to make some guess about where the rent of the total would be maximized.

To your second question, the Ipswich Assessor's database is online, and it does value land and buildings and some other improvements separately. This is good practice. The best practice is to value the land first, and then treat the existing buildings as the difference between the value of the land and the value of the total property. (See http://www.wealthandwant.com/themes/Building_Residual_Method.html and http://www.wealthandwant.com/themes/Land_Residual_Method.html for more about this.)

I've looked at assessments in a number of towns and cities, and they vary widely in quality. California's, for example, are nearly useless, since property values are frozen at 1976 levels by Proposition 13 for those who have owned their property since 1978, subject only to a 2% annual increase in assessment, even if market value rose 10% or more per year! In Sussex County, Delaware ("lower slower Delaware"), they're working with values from the 1970s, with a valiant attempt to value new construction at what it might have been worth then, which results in horrendous inequities between those who have improved and those who retain 1950s cottages on fabulously valuable sites. Greenwich, Connecticut, values its land first, recognizing that even homes that would be considered mansions elsewhere stand a significant chance of being replaced after the sale of the land on which they sit. NYC's property valuations appear to me to bear no consistent relation to reality. Philadelphia's assessments have been the subject of a lot of articles, with poor people's homes being valued at a much higher percent of their market value than rich people's homes are, resulting in taxes being shifted off the wealthy and onto the poor.

Within any particular community, getting the assessments right -- that is, to within about 5% of market value -- is doable and is vitally important to justice, as well as to having an efficiently-functioning local economy.

[Chuck Kollars]

Thank you for replying to my questions about your blog posting! In the assessor's database (thanks for the pointer), lots 24C_001 through 24C_173 are on Little Neck. Lots 24C_174 through 24C_191 however are on Great Neck (not Little Neck). And to confuse things even further, most of "Little Neck Road" is the road _to_ Little Neck (rather than _on_ Little Neck), so a "Little Neck Road" address usually does not mean the lot is on Little Neck.

Let me now say a few further things (these unfortunately are all mixed up; some of them should go with other blog posts rather than this one; muy apologies in advance):

I'm less sure who exactly actually conveys the checks for paying the local property taxes on the non-common lots; I suspect it's not the same for every lot. In any possible cases where the Feoffees pay the town, it's effectively a "pass through", so from the right vantage point the tenant is really paying even though their name may not be on the check. The Feoffees are not paying any of the property taxes on any of the lots out of their "profit", and I apologize if I seemed to suggest otherwise.

The distinction of whether it's the "purchase price" or the "rents" that provide access to the shared facilities seems to me a bit of hair splitting. Another way of looking at it is they _both_ play a part in providing access to the shared facilities. Yet another way of looking at it is the purchase price buys the "privilege" of paying the rents that in turn provides access to the shared facilities. I think it's true that in any case current "purchase prices" are significantly higher than they'd be without the shared facilities.

Whether the Feoffees "own" the land or are "just trustees" is legally murky. Even a historian who's spent a lot of time looking at three-century-old documents can't figure it out plainly. A "Letter to the Editor" (of which there have been quite a few, most quite obvious about which "axe to grind" they're behind) is often a poor source of accurate information.

Likewise whether the land can be sold isn't as clear as it seems at first. To follow the spirit of the bequest, there must be _some_ sort of capital generating _some_ sort of income at least yearly. But whether the trust continues to own real estate and collect rents, or is converted to a "money trust" that invests the proceeds and collects the interest, does not seem very important. Neither mortgages nor interest bearing accounts existed in 1640 New England, so the easiest way to express the meaning "don't liquidate the trust" was to simply say "don't sell the land". Nowadays the Massachusetts Probate Court likely won't be a stickler for an over-literal interpretation of those words. (Media reports of an attempt to "break the trust" are sensationalist, not accurate.)

"A 'sewage plant' was installed" might seem to mean something more than the reality. The new facility is only a huge common holding tank, which is emptied by a stream of tanker trucks. In high summer that stream of tanker trucks is almost continuous. The system satisfies state requirements, and it allows every house to be hooked up to "the sewer" ...but not much more.

Calling the single large lot simply "untenanted", while strictly accurate, may miss the larger point. Currently Little Neck is a "Summer Colony" with lots and lots of "shared" facilities. As noted in our previous comments, the cost of the use of all that shared land is reflected in the prices of all the other lots. So long as Little Neck remains a functioning "Summer Colony", that large lot is not really open to be "tenanted".

Knowing Little Neck is a "Summer Colony" may help explain the strange valuations. Most of those "houses" are nothing more than vacation bungalows; comparing them to "real houses" is apples and oranges. They're quite small, they're mostly not even heated; they're de-facto limited to small size and one story; and they sit on tiny lots.

Changing the use of Little Neck from "Summer Colony" to "ocean view residences" would of course change all the valuations (including assessments) *drastically*. There'd no longer be any "shared" facilities. On the other hand just the thought of unrestricted building of permanent residences would immediately raise the question of the current lots being too small and needing to be re-platted. Building traditional year-round houses would also raise questions about parking (probably insufficient), fire access (probably inadequate), and electrical service (likely also insufficient). And valuations might be less than one would expect because there's so little soil there; Little Neck is basically one huge rock where you can't build much of anything without blasting (just ask the contractor that installed the sewer pipes).

Is _maximing_ the collected rents worth killing off the Summer Colony? The answer isn't obvious ...at least not to me. (Killing off the Summer Colony is what many proposals for Little Neck's future really imply, even though they don't present that reality straight on. There are probably hidden agendas here; for example comments about "social snobs" seem only dimly related to property values.) Is there some sort of "halfway" resolution that will significantly increase the rents and the number of tenants, yet not kill off the Summer Colony? Probably not. Is there some sort of resolution that will generate "more reasonable" income while preserving the Summer Colony? I think so.

[lvtfan]

Chuck, thank you for the thoughtful reply. I have in mind that when I looked at the assessments, I paid attention to who was listed as the owner for each site. There were a few that looked, based on their addresses, as if they should be Feoffee-owned, but didn't appear to be based on the Assessor's database.

These may be vacation bungalows, but the asking prices the last time I looked clearly reflected a lot of locational value. As someone pointed out, a photo of Little Neck from the water does not begin to describe what Little Neck offers in terms of views.

And since 24 of the sites are granted year-round occupancy rights (I know a few of them, based on real estate ads I've seen, but not very many -- I'm sure they don't hit the public market very often, changing hands privately if they do change hands at all.)

I see current listings for $599,000 (1779 sf), $585,000 (1318 sf); $579,900 (no sf listed); a couple at $449,900 which I suspect are LN; $425,000 (1018 sf - specifies summer only "at the moment"); $399,000 (1408 sf); $399,000 (824 sf - 1BR); $375,000 (1160 sf); $134,900 (764 sf). I've probably missed a few.

I'm puzzled about your statement about who is paying the property taxes on the Little Neck land. Seems to me that if it is being billed to the Feoffees, they are paying it, out of the rent the tenants pay for the use of the lots. It doesn't get tacked on to the land rent; it is a deduction from it, in terms of what is left to the Feoffees for covering other costs and sending rent on to the Ipswich Public Schools.

My spreadsheet (a year or so old, and probably 90% to 95% complete) shows a bunch of rented lots properties for which the annual land tax runs $1700 to $1800; another group in the $2100 range, and then a bunch in the $2600-2800 range. So if the Feoffees are collecting $9,700 in land rent and paying to the town $1750 or $2700 in taxes on the land, there is only $7,000 or $8,000 left for other things -- frequent emptying of the septic tank, likely into the town's sewer system, lifeguards (?), maintenance of the common amenities, other services provided to tenants, plus whatever reserves are appropriate for maintaining other services the town doesn't provide -- and, of course, the point of the whole thing, providing INCOME to the public schools.

I tend to agree with you that the large common lot contributes greatly to the value of the individual lots as rentals. However, the assessor's map also shows a number of other lots which have been subdivided, and I suspect some number of those could be rented without reducing the value of the other lots. (I would bet that if the tenants somehow manage to overturn the trust and buy Little Neck, some of those lots will be sold off PDQ for their benefit. Just a guess.)

The mandate of the trust, as I understand it, was to provide maximum income to the public schools of Ipswich. I'd be puzzled if someone tried to argue that there was a higher goal, particularly if it somehow was to make the tenants' interests a higher priority than the beneficiaries.

I can't imagine that the tenants are being billed for the taxes on land they don't own, and I can't see how the Feoffees would be set up to bill the tenants for taxes on their land or on their buildings. The tax on the buildings and other improvements is between the tenants, who own the buildings, and the town of Ipswich; I'm sure the taxes on the land -- tenanted and untenanted -- are billed to the Feoffees and not passed along to the tenants in the form of bills over and above the land rent.

[Chuck Kollars]

To try to answer one of your questions, and ask for more details about another:

Yes there has been a steady public drumbeat (repeated by the media without doing hardly any independent research) for many years that the mandate of the trust is to provide the maximum income for Ipswich schools. (This interpretation comes especially from the "private opinions" of former and even current School Committee members.) But although currently that's by far the most common and most publicized interpretation, the legal history of the trust does not give it unqualified support. After researching trust history, the Ipswich Town Counsel in 1991 presented the opinion that proceeds from the sale of Little Neck could be donated not to the School Budget but rather to the General Government Budget. That sounds to me like the trust should benefit "the town" (whatever that means:-), not just "the schools". It feels to me like the issue of just who should benefit and how is really much murkier than is usually stated.

What's a specific example of a lot that's been subdivided? In looking at the assessors' map (http://www.town.ipswich.ma.us/Assessor/maps_sm/24C.pdf), I see a few odd-shaped lots and a few lot numbers with an 'A' on the end. But the only lot I see that's significantly different in size is lot 073 (which does not appear to have been subdivided anyway), and I don't see any other evidence of subdivision. Can you help me see better?

[lvtfan]

I assume that when the trust was created, the town existed and the schools existed. If so, and they were separate entities then, I have difficulty understanding how one could interpret the trust that way. But I'm not a lawyer, and I've only read the extract of the trust document I found online.

But I doubt that the trust was created with the tenants in mind as beneficiaries -- be they farmers from within the town borders or beyond, or summer cottage residents from within town or beyond! Specifying "market rent" pretty well says that the Grantor didn't intend the trustees to offer any bargains on the rent.

According to my (fairly trusty) spreadsheet (created between 1 and 2 years ago, so it may not reflect the newest valuation -- sorry!), there are about 42 individual lots owned by the Feoffees with no buildings on them, a number of which are 0.69 acres and some a bit larger. They're on Middle, Gala Way, Hilltop, River. and one on Baycrest. Each has a number, so they are apparently real addresses. They total 2.875 acres. The other Feoffee land is the 11.00 acre common land (my characterization).

The assessor values them at 10% of what a comparably sized occupied lot is valued at, from $18,000 (Hilltop, Cove, Gala, Plum Sound, Kings, Baycrest) to $29,800 (River, Baycrest). Occupied lots are valued at from $161,600 to $343,500.

It has been a while since I looked at the map, but my sense is that these unoccupied lots wouldn't look any different from the occupied ones. Ah -- maybe comparing the assessor's map with a satellite view on google maps might help, too. You'd need to look at the assessor's database and notice which ones have no buildings on them.

[Chuck Kollars]

Just to clarify: the wording of the "trust document" you quote is from a proposal for trust clarification/revision, drafted around 2005 by lawyers at Casner & Edwards LLP, and intended for presentation to the Massachusetts Probate Court. (Although intended for that purpose, neither it nor anything else has ever actually presented to the Massachusetts Probate Court to date.)

If only the original trust was that clear... the actual original trust documents include i) portions of the will of William Paine, ii) a vote of Ipswich Town Meeting and accompanying records, and iii) three legislative acts by the Massachusetts General Court. The lack of any clear legal trust document -especially from the early days- continues to bedevil this issue.

(If you locate any of the original trust documents online, please let everybody know where they are - so far I've never been able to find any of the trust documents online.)