Boston Globe article on Little Neck, the Feoffees and the tenants

Little Neck trustees, homeowners seek to change 17th-century will to allow sale of Ipswich land - The Boston Globe.

The article seems like a pretty good summary, other than that it bends over backwards to suggest that the tenants somehow have reason to think they should either (1) be able to buy this property at a bargain price or (2) continue to pay bargain rents.

The photo suggests more 2-story cottages with porches than I've observed in the photos I've seen of individual homes; this may be a variation relating to the terrain in that particular spot.

I was heartened to read that a law school property law expert thought the 1650 will would still hold:

But a probate judge must first decide if Paine’s will should be changed. And despite being more than three centuries old, the Colonial-era document could still pass legal muster, one legal scholar said.

“Judges are very reluctant to set aside, or change, the words of a will,’’ said David Seipp, a professor of English legal history and property law at Boston University School of Law. “It has always been a bedrock principle of common law, that instructions about what is to be done with property at the time of a death . . . our wishes are obeyed.’’

A judge also will be most concerned about how the change would impact the Ipswich schools, as the beneficiary of Paine’s will. “A court will look out for the future generations of schoolchildren in Ipswich,’’ Seipp said. “They would not take into consideration the economic relations of the renters.’’

The math in the article was a little weak: 

Since 2006, the two sides have been locked in a legal tussle over rents, leases, and even threats of eviction. The Feoffees proposed more than doubling rents, from $5,000 to $9,700 per year for seasonal residents. For the 24 year-round residents, rent would increase from $5,500 each year, to $10,800. Most tenants balked at the increase, and sued the Feoffees in Essex Superior Court.

That represents slightly less than a doubling of rents.  And capitalized at 5%, would represent a value of $32,926,000.  But this is still far less than the sellers of cottages are valuing the land at. 

Cottages assessed at $64,200 to $88,400 carry asking prices of $175,000 to $620,000!  These cottages range from 800 to 1779 square feet, and were built between 1910 and 1940.  Most have 2 bedrooms, 1 bath, no heat.

The difference between the assessed value of the cottages and the asking price is capitalized land value, over and above the current rents of $9,700 to $10,800.

Are the building assessments too low? I doubt it; assessors tend to overassess buldings and underassess land.  It is tough to justify a, say, $80,000 assessment for a non-winterized 900 square foot cottage: that's $88 per square foot.  Check construction costs today for a modest cottage, and then depreciate that (1.5% per year for 75 years).  Even in suburban Boston. 

Here are some recent listings of cottages on Little Neck.  Keep in mind that all the tenants currently own is the buildings.  Yet their asking prices are many times the assessed value of those buildings.

 

		Assessment		Ask as % of  bldg assessment			Asking minus Bldg Assessment	Bldg Assessment Per Square Foot
	Asking Price	Bldg	Land		Sq ft	Built
	(1)	(3)	(3)	(4)	(5)	(6)	(7)	(8)
River Rd	$620,000	$84,500	$347,800	734%	1779	1910	$535,500	$48
Hilltop Rd	579,900	88,400	195,800	656%	not given	1935	$491,500	N/A
Baycrest Rd	339,900	82,200	195,800	413%	926	1935	$257,700	$89
Bay Rd	259,900	64,200	222,800	405%	800	1910	$195,700	$80
Cove Rd	175,000	78,200	195,800	223%	924	1930	$96,800	$85

 

So how much should rents be to meet the Grantor's requirement of "Market Rents?"  Quick and dirty, enough to bring Column 1 down to roughly Column 2.  How do we calculate that?  Quick and dirty, use a capitalization rate of 5% -- known sometimes as "20 years' purchase" -- and multiply it by Column 7.  Add that to the current rents of $9,700 for seasonal cottages and $10,800 for year-round cottages.    Yes, it will vary by location within Little Neck.  Great views, waterfront, proximity to positive amenities, distance from any negative amenities, and, of course, lot size will all play a role -- just like anywhere else (location, location, location!) and, of course, year-round rights are worth far more than $1,100 per year ($22,000 capitalized at 5%).  I'm guessing that the first two listings above might be year-round.

I recommend that the Feoffees announce that they will raise rents on a 5 year schedule to bring rents in 2015 up to what they ought to have been in 2010, and by 2018, raise them to what they should have been in 2015.  Then they should watch the price of the houses, which should sell for no more than their depreciated value. 

They will have continued to provide a bargain to the existing tenants (via a 5- and then 2-year lag), but by announcing and sticking to the schedule, they will begin to collect something approaching what they were charged to collect.   Cottage selling prices will come down to earth (as soon as the market believes the Feoffees will stick to the schedule), and the schools of Ipswich will have a solid income, as William Paine intended.

Yes, some tenants will lose a windfall they'd been counting on.  But the Feoffees will not be taking from them anything which the tenants created other than their dreams of the windfall.  And they will be living up to what William Paine's trust requires of them.  If the current team of Feoffees aren't the men and women for the job, I'm sure Ipswich can find good people who will take it on and live up to the terms, for the benefit of the schools now and forever.

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