LVTFan's Blog

Cottage owners in Ontario balk at $6.7M market-value report

Cottage owners in Ontario balk at $6.7M market-value report.

By Rob Ferguson

There’s a battle brewing in cottage country.

About 600 cottage owners taking up a tiny fraction of land in two provincial parks — Rondeau and Algonquin — beg to differ with a provincial auditor-general’s report that the rent they pay on land leases is $6.7 million below market value.

In Rondeau, south of Chatham on Lake Erie, they’re accusing the Ontario Ministry of Natural Resources of jacking up their payments as the current 21-year leases expire in 2017.

“There’s no way we’re going to pay Hollywood prices for two-bedroom wood-frame cottages,” says Brian French, president of the Rondeau Cottagers Association.

Members’ annual leases now range from $1,500 away from the lake to about $3,500 along the beach, plus $421 in annual service fees and another bill to pay about $3,000 in lieu of property taxes, plus park admission passes, he adds.

For French, that bill is now approaching $6,500 a year — as much as his parents paid for the cottage in 1966.

“We think they’re trying to price us out of the park. We’re not going to let that happen.”

In Algonquin, as at Rondeau, the cottagers who pay annual leases ranging from $600 to $4,000 depending on the location (some are more remote than others) can’t figure out how the auditor general came up with the $6.7 million figure in her annual report issued in early December. They also pay fees for trash removal and parking lot maintenance and admission to the park.

“There are a lot of variables around that in terms of what the market value might be,” says Algonquin Park Residents Association spokesman John Olsen of Oakville, who wants to iron things out.

“Our expectation is that will involve sitting down with the ministry and appropriate specialists and coming up with a fact-based rent. We have always stressed that we pay our own way . . . I can’t speculate on any possible increase”

Of all this, David Orazietti, a spokesman for Natural Resources Minister, acknowledges “there’s a bit of an issue with the leaseholders.”

“Rondeau’s a bit of a different group than Algonquin. More outspoken,” adds the ministry’s Andrew Donnachie.

“The question about ‘losing money’ is only really applicable to Rondeau as we do not provide the level of services to the Algonquin cottages in part due to their remoteness.”

The Algonquin cottages scattered on about 19 lakes along the Hwy. 60 corridor often do not have electricity, and many are accessible only by boat.

Some of the cottages are owned by people who do not live in Canada but in the United States and further abroad.

Donnachie makes it clear the government feels the cottagers in both parks are getting a big break on land collectively owned by Ontarians, many of whom don’t have or can’t afford cottages.

The cottagers are paying one per cent of the land value instead of the seven per cent rate calculated by the provincial agency Infrastructure Ontario as a “fair annual return to the Crown,” says Donnachie.

“Should the Crown decide to renew the leases in 2017, an updated fee structure will be developed to ensure that cottages pay their fair share,” he adds.

The Wildlands League is opposing any extensions to the Algonquin leases, saying in a statement that the cottages “threaten ecologically sensitive shoreline” areas and “privatize what is a public good. Parks are Crown-land-owned by all Ontarians, not a special few.”

The lobby group wants all cottage leases ended and owners forced to remove the buildings and return the land to a natural state.

Concerns about the amounts paid are not new to the cottagers but were flagged in the auditor’s last report, which noted the Ministry of Natural Resources hired a private consultant to assess the net economic value of the leases 15 months ago.

“If the decision is made to renew these leases in 2017, the ministry should ensure that the lease payments are increased to at least fair market value and that the fees charged for services to the cottagers recover the ministry’s cost of providing the services,” auditor general Bonnie Lysyk recommended.

She and Orazietti — who recently met with French of the Rondeau association — might not be getting any cottage invitations to either park anytime soon.

“We just feel we’re being constantly punished for having a cottage in the park,” says French, citing the new payments-in-lieu of taxes assessed this year, almost doubling his annual payouts — a cost the cottagers are fighting in court.

“We’re not wealthy people. This is very much a have-not part of Ontario,” French adds, noting factory closures in southwestern Ontario, including the pending shutdown at Heinz in Leamington.

“This is not Muskoka . . . we want a solution that’s fair for us and fair for the people of Ontario. We don’t want this park to become a rich person’s retreat.”

Olsen says the Algonquin Park cottages are not like Muskoka either, in terms of the cottage mansions seen on Lake Rosseau and similar lakes.

“We are mostly off-the-grid. There are a lot of restrictions . . . we have a light footprint on the environment.”

At Rondeau, French says cottagers are told they cannot leave their boats on the beach in front of their properties without risk of having them removed by park staff.

“When your landlord hates you and when your landlord is the provincial government they can make life pretty miserable.”

Toronto Star

Access denied: Ipswich's Little Neck officially closes to public - Ipswich, MA - Ipswich Chronicle

Access denied: Ipswich's Little Neck officially closes to public - Ipswich, MA - Ipswich Chronicle.

There are at least four Little Neck homes up for sale: 4 Little Neck Road, $649,999; 30 Plum Sound Road, $489,000; 29 Middle Road, $565,0000 and 18 Baycrest Road, $650,000. 

The average price per lot the town received in the August sale was approximately $186,747.

The cottages themselves are quite modest.  Most are at least 80 years old, many less than 1000 square feet, many not winterized.  Anywhere else, no one would say they were worth more than $75,000.  

When the Feoffees -- trustees of this fine piece of land, whose charge was to steward this 1650 gift to the schools of the town of Ipswich, Massachusetts to produce maximum income -- sold the land at a small fraction of its real value, to its tenants, they did something that reasonable people would call criminal.

The students of Ipswich -- this generation, the next generation, and dozens of generations after them -- should have had the windfall.  Instead, the tenants got it.  Let's say those 3 cottages sell for a mere $500,000 on average.  $187,000 paid for the land and $75,000 worth of cottage add up to $262,000.  The other $238,000 each was a very generous gift from the students' trustees to 166 cottage owners.  Calculate it.  That's $39,508,000 -- over and above the $31 million --  that should have gone to the students' benefit, and instead was gifted to the tenants.   And their well-compensated attorneys and consultants and public relations folks.

Look for an article next week detailing all the wonderful things that this year's installment of the interest on the $31 million -- well, not that much, net net net.

Sale of Little Neck to cottage owners finally goes through - The Boston Globe

The other title for this article was "Ipswich cottage community is sold to owners, sustaining aid to schools."   My comment follows ...

Sale of Little Neck to cottage owners finally goes through - The Boston Globe.

Little Neck, the Ipswich summer cottage community at the center of a decades-long ­legal battle, has officially been sold to 166 property owners. 

The $31.4 million trans­action was completed Aug. 10, ending one of the nation’s oldest land trusts, established in 1660 by settler William Paine. 

Paine’s will stated that the land should never be sold and that rental income should benefit the Ipswich public schools. But an Essex Probate Court judge ruled last December that the trust could be changed to ­allow the sale of Little Neck to cottage owners, who have formed a condominium association. 

A group of residents ­opposed to the change ­appealed the judge’s ruling to the state Appeals Court. But a single justice of that court upheld the probate judge’s decision, clearing the way for the sale. 

Catherine Savoie, a lawyer for the residents, said she still plans to file an appeal with the Supreme Judicial Court. 

With the Little Neck sale, a former board of trustees called the Feoffees of the Ipswich Grammar School has been dissolved and replaced by a seven-member panel, the New Feoffees. After expenses related to the land closing and past bills owed by the former feoffees, the trust to benefit the schools will have $25.4 million in assets, according to a statement issued by the New Feoffees.

Kathy McCabe can be reached at [email protected]

How sad.  How very shortsighted, to turn over to a private group of tenants, at a bargain-basement price, in a down market, an appreciating and glorious asset that was gifted on a PERMANENT basis to his entire community by a foresighted and thoughtful citizen.

Some well-paid advocates caused the community to solve a half-vast short term problem -- the failure to collect market rents over the last 20 or 30 years out of 300 -- with a vast "solution" which ultimately accrues to the benefit of the buyers and their heirs, forever, and the detriment of the community.

Privatizing public assets -- land -- is a poor idea.  Just collect the land rent. 

Smart communities finance their public spending by collecting significant portions of the land rent.

Mr. Payne got it right, and 300+ years of Ipswich students benefited.  Now lawyers, and stock brokers, and investment managers and the former tenants become the primary beneficiary -- the first group for as long as the corpus lasts -- I predict that the buying power of the trust income will be negligible within one generation -- and the former tenants will be fondly remembered by their descendants, as the ones who "put one over"  on the town of Ipswich.

I hope Ipswich will engrave the names of those who let this happen in some prominent place, with the words "never forget!"   The state officials who cooperated ought to be included.

Ours is not the ultimate generation.

Ipswich Little Neck deed filing expected soon - Ipswich, MA - Ipswich Chronicle

Ipswich Little Neck deed filing expected soon - Ipswich, MA - Ipswich Chronicle.

Ipswich — The new, publicly appointed Feoffees of the Grammar School issued a statement Tuesday, Aug. 7, saying they anticipate the old Feoffees will file the master deed for Little Neck by Friday, Aug. 10.

Filing the deed will pave the way for the sale of Little Neck to the current land tenants for $29.1 million.

The new trustees will manage an investment trust to benefit the Ipswich Schools instead of the Little Neck land trust William Paine established in 1660 for the schools.

“The mission of the new Feoffees is to make sure that the Trust grows prudently, while making, if possible, annual distributions to the School Committee, in perpetuity,” the new Feoffee board of trustees said in the statement.

A group of citizen interveners still have a suit to block the sale pending and are awaiting an initial ruling on whether or not that suit can go forward from the state Supreme Judicial Court.

The sale of Little Neck to the tenants will create a condominium association, which will own the land jointly.

The tenants had been leasing the land, but had owned the cottages built on the land.

I hope that someone will be posting, on some public monument somewhere in Ipswich, going forward year by year:

(a) the aggregate value of the land, as judged from the selling prices of the rather old and small cottages, which just a few miles inland would be worth very little;

(b) the value of the corpus of the trust;

(c) the amount of income the schools receive from the trust;

(d) the amount paid in feeds to the lawyers, the stock brokers, the fund managers, and the rest of the FIRE sector.

And engraved on that monument should be the names of the people who allowed this to happen, and the names of the 167 beneficiaries.
I hope that Ipswich's assessor keeps a careful eye on the selling value of Little Neck property, and adjusts assessments on a regular basis.

Little Neck should never have been sold.  And if for some peculiar reason it was sold, it should not have been sold at a bargain basement price.  No other asset or combination of assets is likely to serve the schools as well as this one could have, properly managed.

I hope Ipswich's historians will keep good records for future generations to judge the actions of this generation.

School lands have a fine track record, and letting them go private is, to put it in the most kindly terms, short sighted.  Land rent is the ideal funding source for public purposes -- far superior to taxing sales, or buildings, or wages, or any productive activity in the economy.

On land producing income for local communities -- with thoughts of Ipswich's Little Neck "trust"

When I came across this article, 111 years old, I thought of the Ipswich, Massachusetts, trust established in 1650 by the gift of a fine 32-acre piece of land by a forward-thinking resident.  His stated intention was that the land be kept by the town, forever, for the benefit of the public schools.  Alas, it was poorly managed for a number of years, perhaps decades, and this appears to have been transformed, remarkably, into an excuse for the eager TENANTS to buy the land (and at less than half what I calculate it to be worth -- click on the "Little Neck Feoffees of Ipswich" link at left to see all my posts on the topic). 

The tradition of school lands has served many communities very well.  Part of Chicago was rented out to tenants and the revenues used to fund the city's schools.

But some fast-talkers appear to have convinced the powers-that-be in Ipswich, Mass., (including, remarkably, some judges and perhaps the state A.G.!) that "forever" is just temporary, and other investments are superior to the revenue from land and natural resources for funding public spending.  (Not!)   And the land will be there forever; a few decades of poor management is, in the long run, a triviality; the same would not be true of any of the substitute investments the Feoffees and their highly-compensated investment advisors will come up with. 

(The first-quoted writer was the president of the Massachusetts Institute of Technology.)

http://paperspast.natlib.govt.nz/cgi-bin/paperspast?a=d&d=TS19010921.2.76&l=mi&e=-------10--1----2--

Star, Putanga 7209, 21 July 1901, Page 7

Land Nationalisation

The Land and the People

The Lands Sub-Committee submitted the following report at the last annual meeting of the Progressive Liberal Association: --

General Francis Walker, in "First Lessons in Political Economy," says: -- "It certainly is true that any increase in the rental value or selling value of land is due, not to the exertions and sacrifices of the owners of the land, but to the exertions and sacrifices of the community.  It certainly is true that economic rent tends to increase with the growth of wealth and population, and that thus a larger and larger share of the products of industry tends to pass into the hands of the owners of land, not because they have done more for society, but because society has greater need of that which they control."

On the same subject Thorold Rogers has expressed himself thus: -- Every permanent improvement, every railway and road, every bettering of the general condition of society, every facility given for production, every stimulus applied to consumption, raises rent.  The land owner sleeps, but thrives."

The observant thinking man must admit that the above opinions are borne out by facts, but the importance to the community of the nationalisation of the land is unfortunately realised by comparatively few.  If people would endeavour to understand its importance, there is little doubt that the majority would be forced to the conclusion that the private ownership of land is beyond question decidedly against the best interests of the State.

Cardinal Manning has said: -- "The land question means hunger, thirst, nakedness, notice to quit, labour spent in vain, the toil of years seized upon, the breaking up of homes, the misery, sicknesses, deaths of parents, children, wives, the despair and wildness which spring up in the hearts of the poor, when legal force, like a sharp harrow goes over the most sensitive and vital right of mankind.  All this is contained in the land question."  The opinion of the late Cardinal, expressed in such a forcible language, should at the very least induce people to study this question thoroughly.  As a proof of its importance many object lessons are to be found -- as bearing upon it from a municipal point of view two may be mentioned.  Doncaster in Yorkshire has no borough rate.  Why?  Because it is the owner of certain remunerative land; and Durban, in South Africa, for a rate of 1½d in the £ obtains the usual municipal services such as we possess in Christchurch, and in addition enjoys several others which we much desire to have.  The difference is because in Durban its founders made reserve round the town which have not been alienated and have so increased in value that the rentals therefrom very nearly provide for all municipal requirements.  The founders of Canterbury made a similar wise provision for Christchurch, but in an evil day the Provincial Council, when it took over the affairs of the Canterbury Association, sold the city's inheritance for a mess of pottage.  It will doubtless be interesting to many to lean something of the history of the

CHRISTCHURCH TOWN RESERVES.

When constitutional government was established in Canterbury the Provincial Government took over the property of the Canterbury Association, including the town reserves of Christchurch and Hagley Park, the total area of these two being 897 acres, which, five years previoiusly, had been considered of the value of £2700. The Association had got into debt to the extent of nearly £29,000, which the Provincial Government paid with money raised on debentures, and proceeded to sell the reserves situated inside the belts.  To prevent any misunderstanding as to the then estimated value of these town reserves, it is desirable to state that for the £29,000 mentioned the Association transferred to the Provincial Government all the property it possessed in Canterbury, which included other reserves than those in Christchurch, also plant, tools, survey maps and field books, which must have been value for a considerable portion of the sum named.  By the deed poll of the Association these lands were to be held in trust for the purposes for which they were reserved, but a special Act of the Assembly was obtained to permit of their alienation.  It has been truly said that the price of liberty is eternal vigilance.  It is equally true with regard to reserves of land made for the benefit of the public; the people (every individual) should be ever on guard and watchful that no tampering with public reserves be allowed.

At the present day it is particularly interesting to consider what would now be the position of Christchurch if the reserves inside the belts had not been sold.  What income would now be derivable therefrom?

Excluding twelve acres which were set apart by the Provincial Council  as endowments for various religious bodies, the frontages of the reserves on the main streets of the city, as originally laid out in the extensions of these streets to the belts, amount to about 92,400 ft, after deducting 1¼ chains at each corner to avoid reckoning double frontages at corners.  At 4s per foot frontage it would be £23,100.  Bearing in mind that more than half the frontages have a depth of 5½ chains, it is estimated that if these lands were now let on building leases they would average a return of not less than 4s per foot, possibly more, and it is probably safe to say that the income therefrom would be £20,000 a year.

HOW WOULD CHRISTCHURCH BE AFFECTED.

The statement of accounts of the City Treasurer shows that for the year ending March 31, 1901, the rates assessed amounted to £28,526 --

	£
General rate (omitting shillings and pence)	13,680
Special drainage rate	1,983
Charitable institutions	1,370
Waimakariri	686
District drainage	10,807
	£28,526

obtained by a total assessment of 2s 7½d in the pound, whereas, had the town reserves not been alienated, all the municipal services rendered would probably have been obtained for a modest rate of less than 9d. in the pound.

This is surely an object lesson which should be laid to heart by every inhabitant of the colony, as well as by the citizens of Christchurch, and should demonstrate how very desirable it is in the interests of the people as a community, that all land should be owned by the community, seeing that increased values of land are derived from the exertions and sacrifices of society.  It will serve to show what enormous sums society thus pays to individuals to state that it is estimated that the value of land in London is increasing at the rate of 7½ millions annually; under the system of private ownership of land this large sum is accruing yearly in London alone to private individuals, and the public who must use the land, necessarily pay interest on that sum.

The Progressive Liberal Association earnestly commends these facts to the consideration of the people of New Zealand in the hope that they will insist upon a stoppage being put to the sale of Crown lands; and as regards the granting of leases in perpetuity, which, in parting with the possession for 999 years at a rental based on the present value, hands over to individuals the unearned increment for that unconscionably long period, it is hoped that a mandate will go forth from the electors of the colony insisting upon a periodical revaluation of the unimproved value.  When these have been accomplished, there will be the question of the nationalisation of all the lands in the colony to be dealt with.

"That which was created for the use of all, the use of which is absolutely necessary for the existence of every individual, should be owned and controlled for the benefit of all.  The private control of land is dead against the common welfare.  Justice demands this, and what justice demands must sooner or later be conceded.

Christchurch, July 29, 1901

Ipswich residents appeal to preserve land trust - Metro - The Boston Globe

Ipswich residents appeal to preserve land trust - Metro - The Boston Globe.

“If the property stays in trust, it will be worth a lot more money,’’ said Clark Ziegler, a resident who is also a housing expert. “This is a very bad deal for the Ipswich schools . . . and it’s completely inconsistent with William Paine’s will.’’

So ends an article in the Boston Globe about the attempt of 167 tenants to be come the new beneficiaries of a trust that has been in existence for 350 years, in return for about $26 million.

The intended beneficiaries were the children of the town of Ipswich, and I simply can't see any logic by which they should be replaced by these private self-selected individuals.

The article begins:

A legal battle over a wind-swept summer colony rising over Crane Beach is reaching a conclusion, as Ipswich residents mount a last-ditch fight to stop the $32.5 million sale of the property and prevent the breakup of a Colonial-era land trust that was set up to benefit the Ipswich public schools.

The residents contend that the sale of property on what is known as Little Neck violates the terms of a will written in 1660 by William Paine, a wealthy English settler and merchant, who stated the land should never be sold, and that rents collected benefit Ipswich schoolchildren.

One hundred and sixty-seven cottages dot the rocky peninsula. A group of Ipswich residents argue that the 352-year-old land trust should not be broken, and that the sale price is too low for prime waterfront land.

“We feel that the court hasn’t actually made any findings on whether it’s OK to break this will,’’ said Douglas DeAngelis, an Ipswich parent, and one of 14 residents who filed the appeal.

To sell it off at all is a crime against the children of Ipswich in 2030, 2040, 2050, 2060, 2100, 2200, 2300, 2400 and beyond, but especially so in a down market, at a bargain price.

What sort of people would agree to this?

They're "solving" a half-vast problem -- failure to collect market-level land rents on this fabulous permanent asset in recent decades -- with a vast and permanent "solution" which permanently disadvantages the intended beneficiaries, and benefits the 167 tenants hugely!

Unconscionable.

Tell the current tenants to pay their back rents, and bring the current rents up to market levels within the next, say, 3 years.  If they don't like it, they're welcome to leave,   This was never intended to be subsidized vacation housing for a lucky few; it was designed to benefit the local public schools, and permitting it to be twisted into something else is just plain wrong.

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

Feoffees to sell land for $32.5M

Feoffees to sell land for $32.5M » Local News » SalemNews.com, Salem, MA. December 21, 2011

By Paul Leighton Staff writer IPSWICH —

The School Committee announced yesterday that it has reached a settlement with the Feoffees in the long-running dispute over the Colonial-era land trust and its obligations to the town's schools.

Under the terms of the settlement, the Feoffees will sell the 36-acre Little Neck peninsula to Little Neck homeowners for $32.5 million and provide for a permanent endowment for the Ipswich schools.

School Committee Chairman Jeffrey Loeb said the deal should result in $750,000 to $800,000 per year for the schools.

What a shame!  This fine perpetual gift to the public schools of Ipswich, made over 350 years ago, has been sold -- and cheap! -- to a group of private individuals.  All the future growth goes to those individuals and their heirs.

Amazing. 

What could the sellers have been thinking?  Who do they think they are?  Their names should be engraved in stone so that future generations of Ipswich children will know exactly who it was that sold their joint patrimony, instead of seeing that it continued to be managed for their benefit.

I hope the courts will intervene.  

This is a half vast "solution" to a vast problem.   Yes, some recent Feoffees have done a very poor job managing this asset and recalling who the beneficiaries were intended to be, but selling the asset is a dumb way to "solve" the problem.

Think long term.  Ours is not the finest, greatest or last generation, and there are certain things we owe to future generations.  Not squandering their patrimony is one of them.

I won't reiterate the arguments I've made in earlier posts, but if you'll click on the "Little Neck Feoffees of Ipswich" link at left, you'll have them all on a single page.

 

And you can watch the asking prices of these homes rise by huge amounts.  $32,500,000 works out to an average of $195,000 per lot -- some likely quite a bit more (location, size, views), some less.  Most of these modest old cottages would be worth $60,000 or less anywhere else;  I predict you'll see asking prices in the $500,000 range soon.  The only current listing I see is $225,000 for an 853 square foot cottage built in 1935.  Its address is 24 Baycrest.   Check back to see what that rises to if the land sale closes.  

Here's the assessor's data:

Year	Tax Paid	Building Assessment	Land Assessment	Total Assessment
2011	$3,455	$120,500	$167,400	$287,900
2010	$3,666	$121,900	$195,800	$317,700
2009	$3,057	$115,500	$180,100	$295,600

Source: Public Records

$120,500 seems a rather high valuation for a 75-year-old cottage of 853 square feet.  Note that the current asking price is twice that, and that all the seller is able to sell is the cottage itself -- plus the hope of acquiring the land, or continuing to pay a ridiculously low land rent.  

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

Land Grab in Ipswich, Massachusetts: Little Neck's 32 acres

For several years now I've been following the story of a lovely, scenic 30-acre neck (almost-island) of land on a sheltered piece of the Atlantic Ocean about an hour's train ride north of Boston.  It currently contains 167 rented-out lots, of which 24 can be occupied year-round and the other 143 only seasonally. Half of the land is unoccupied, available to all tenants; the rest is subdivided into mostly small lots; all have panoramic water views, of varying quality.   The tenants own their cottages, most of which are in the 800 to 1000 square foot range, and typically 70 to 100 years old; a few are 2-story, newer or larger.  Asking prices run as high as $600,000, and I've seen few transactions below $300,000.  I estimate the cottages themselves to be worth about $75,000 anywhere else.   Currently annual land rent is in the range of $10,000, up considerably from many years of token rents, and many of the tenants are objecting to paying them, putting them into escrow  -- and, remarkably, planning to use the escrowed rent as a down payment to BUY the land!  (That brings a new meaning to chutzpah, which, you might recall, was exemplified by the man who killed his parents and then threw himself on the mercy of the court because he was an orphan!)

In 1650, the will of a resident, William Paine (Payne?), apparently gave the land to be managed for the benefit of the school(s) of Ipswich, via the provision that "unto the free scoole of Ipswitch the little neck of land at Ipswitch knowne as Jeferry's neck, the which is to be and remaine to the benefitt of the said scoole ... for ever as I have formerly intended and therefore for the sayd land not to be sould nor wasted".   It seems to me that his intent was pretty clear: keep the land forever ("not soulde"), take care of it, and collect market-level rents ("nor wasted") for the benefit of the beneficiary (the local school). 

And yet the trustees -- known as Feoffees -- have apparently entertained an offer from the current group of 167 tenants (calling themselves "The Little Neck Legal Action Committee!) to sell the land for a tiny fraction of its value, which I estimate could be as high as $71 million. (My calculations are 3 paragraphs below this one.)   The offer was in the range of $30 million, of which $6 million would go for paying off bonds on a wastewater system installed a few years ago.

There has been no effort to market the land to other possible buyers. 

Apparently this has become so troublesome that some in Ipswich want to sell the land to the tenants, figuring that a little income from the proceeds is better than no income from recalcitrant tenants!    Absolutely amazing.   Short sighted.   And it represents the privatization of an asset which was designed to provide a public benefit, forever.

Calculations:  When a cottage worth $75,000 sells for $300,000 or more, what is being sold is land value -- locational value.  But the tenants don't own the land, and I can't imagine a rational lender being willing to lend on an asset which the borrower doesn't own!  The current land rent of about $10,000 per year represents roughly $200,000 in land value per lot (5% capitalization or "20 years' purchase").  Add to that the $225,000 in land value in the $300,000 price for a $75,000 cottage, and you're looking at $425,000 in land value per cottage.  Multiply that by 167 and that's $70,975,000.  (The cottages would be another $13.4 million or so.)  Obviously, some locations are better than others, some lots are larger than others, and year-round rights are more valuable than only seasonal occupancy rights.   (You'll note that the $225,000 in land value in the $300,000 example is less than what 5 of the 6 current listings suggest.)

A. Current Little Neck listings at realtor.com and zillow.com [the latter added here on 11/15/10]: recall that all the sellers own is the building, not the land.  And that the cottage buyers should expect to pay $10,000 or more in land rent -- the current rate)

Table 1: Cottages for Sale on Little Neck, mid November, 2010
		--- Assessments ---						Ask as % Bldg*	Ask minus Bldg
Address	Ask	Bldg Value	Land Value	Total	Built	Descrip	Lot size
50 River Road	$599,000	$84,500	$347,800	$432,300 LY:  $383,400	1910	5BR, 1B, 1779 sq ft	3485	709%	$514,500
33 Bay Road	$585,000	$124,900	$178,200	$303,600 LY: $343,800	1930	3BR, 1B, 1318 sq ft	2614	468%	$460,100
35 Hilltop Road	$579,900	$88,400	$195,800	$284,200 LY: $268,500	1935	4BR, 1B, 852 sq ft	3040	656%	$491,500
24 Hilltop Road	$399,000	$107,100	$195,800	$303,000 LY: $287,300	1930	3BR, 1B, 1408 sq ft	3000	373%	$291,900
6 Plum Sound Rd	$375,000	$106,600	$222,800	$329,400 LY: $323,200	1920	3BR, 1B, 1160 sq ft	3049	352%	$268,400
23 Bay Road	$259,900	$64,200	$222,800	$287,000 LY: $285,800	1910	2BR, 1B, 800 sq ft	3049	405%	$195,700
average	$466,300	$95,950	$227,200		1922			485%	$370,350
5% of LV **			$11,360						$18,518
*Asking price as percent of assessed building value ** Land rent at 5%, a/k/a "20 years' purchase" Note that $11,360 is somewhat higher than the current land rent of $9,700 (seasonal) and $10,800 (year-round), suggesting that those rents are low vis a vis the assessed land value.   The $18,518 in the final column suggests that current rents, based on these 6 asking prices, should be 80% more than what is now being charged , assuming that the building valuations are reasonably accurate. Sources: realtor.com (viewed 11/14/2010) supplemented by zillow.com and assessor's database (viewed 11/15/10)

Observations:

1. The sellers are asking prices which are well above not just the assessor's valuation of the building itself, but also above the value of the land plus the building!  Compare this to the asking prices on other homes in Ipswich with less than 1800 square feet, and with 1 or 2 bathrooms (below).   And this is under the condition of annual land rent of about $10,000.
2. The lowest-priced LN listing, at $259,900, has a building assessment of $64,200 and a land assessment of $222,800.  The difference between the asking price and the building assessment is $195,000. ($195,000 times 167 is $32,565,000.)     And this is under the condition of annual land rent of about $10,000.
3. The average difference between the ask and the building assessment is $370,350 .  Multiple that by 167 tenants, and one gets an aggregate land value of $61,850,000 -- and that's with the $10,000 land rent!! 
4. The building assessments average $95,950.   The land assessments average $227,200.  Multiply that $227,200 by 167, and the aggregate value of the LN land is $37,942,400.   And that's under the condition of a $10,000 annual land rent!
5. The asking prices average $466,300, 485% of the average building assessment!
6. It seems odd that the LNLAC is offering so little, and that the hired appraisers are valuing the land at such low figures.

B. Comparable cottages for sale in other parts of Ipswich (where the seller owns the land and is selling both land and house, so there is no land rent payment involved) suggest that most other sellers are asking much closer to the assessor's valuation (some higher, some lower, but typically within 20%, as compared to 385%!):

• $479,000:  975 sq ft, 3 BR, 1 bath, on .42 acre lot [35 Plover Hill Rd, built 1940; building assessment $102,900; land assessment $296,800; total assessment $399,700, down from $431,700 in 2009.] --- photos suggest views somewhat comparable to Little Neck's    Asking price as % of assessment: 120%
  
• $425,000: 1867 sq ft, 3 BR, 1 bath; on .97 acre lot [299 Linebrook Rd, built 1950; building assessment, $153,700; land assessment $228,800; total assessment $382,500, down from $401,200 in 2009.]  Asking price as % of assessment: 111%
• $339,900: 1216 sq ft, 3 BR, 1 bath, on .34 acre lot [5 James Rd, built 1962; building assessment $108,500; land assessment $185,500; total assessment $294,000, down from $317,100 in 2009.]
• $319,900: 1344 sq ft, 3 BR, 2 bath, on .25 acre lot [13 Poplar St, built 1948; building assessment $113,200; land assessment $245,200; total assessment $358,400, down from $402,000 in 2009.]
• $319,900: 1187 sq ft, 3 BR, 1 bath, on .08 acre lot [13 Peatfield Street, built 1900; building assessment $125,500; land assessment $148,500; total assessment $274,000, down from $293,400 in 2009.]
• $319,000: 1250 sq ft, 2 BR, 2 bath, on 7840 sq ft lot [3 Brownville Avenue, built 1910; building assessment $130,700; land assessment $174,300; total assessment $305,000, down from $332,300 in 2009.]
• $309,000: 1584 sq ft, 3 BR, 1 bath on 9149 sq ft lot [1 Heatherside Ln, built 1958; building assessment $111,900; land assessment $199,300; total assessment $311,200, down from $338,900 in 2009.]
• $265,000: 1100 sq ft; 3 BR, 2 bath on 9,583 sq ft lot [12 Washington Street, built 1900; building assessment $110,300; land assessment $177,100; total assessment $287,400, down from $301,100 in 2009.]
• $265,000: 1410 sq ft, 3 BR, 2 bath on 0.06 acre lot [4 6th Street, built 1910; building assessment $111,900; land assessment $125,600; total assessment $237,500, down from $253,300 in 2009.]
• $259,000: 932 sq ft, 3 BR, 2 bath on 9583 sq ft lot [8 Cleveland Avenue, built 1900; building assessment $105,600; land assessment $176,600; total assessment $282,200, down from $311,200 in 2009.]
• $224,999: 1632 sq ft, 3 BR, 1 bath on 0.07 acre [4 Highland Avenue, built 1907; building assessment $157,400; land assessment $195,000; total assessment $352,400, down from $389,700 in 2009.]
• $229,000: 668 sq ft, 2 BR, 1 bath on .27 acre lot [6 Cameron Avenue, built 1930; building assessment $42,200; land assessment $204,000, total assessment $246,200, down from $264,900 in 2009.]
• $169,900: 1019 sq ft 2BR, 1 bath on .40 acre lot [8 Winter Street, built 1920; building assessment $81,200; land assessment $189,400]

C. Some additional newer/larger homes on sites with good views:

• $1,150,000  on .36 acre lot [52 Skytop Rd, built 1992 on .36 acres: building assessment $328,000; land assessment $290,800; total assessment $618,800, down from $681,000 in 2009]
• $970,000: 2330 sq ft, 3 BR, 2 baths on .30 acre lot [28 North Ridge Road, built 1990; building assessment $211,800; land assessment $543,400; total assessment $755,200, up from $582,200 in 2009.] 
• $639,900: 1923 sq ft, 3 BR, 2 baths, on 7841 sq ft lot [114 North Ridge Road, built 2010, building assessment $160,800; land assessment $377,400, total assessment $538,200.  photos suggest views somewhat comparable to Little Neck's.   Asking price as % of assessment: 119%

D. Some recent sales, also from Realtor.com; notice that the transaction prices are generally pretty close to the assessor's valuations, which validates the assessments:

• $612,500 (May, 2010):  2309 sq ft, 2 BR, 2 baths, on .26 acre lot [24 Northridge Road, built 1940; building assessment $163,700; land assessment $534,200; total assessment $697,900, down from $753,800 in 2009.]
• $530,000 (Oct, 2010): 1410 sq ft, 2 BR, 2 baths, on .34 acre lot [59 Skytop Rd, built 1986; building assessment $204,600; land assessment, $288,000; total assessment $492,600, down from $533,700 in 2009.]
• $400,000 (Oct, 2010): 1500 sq ft, 2 BR, 2 baths, on 3.90 acre lot [76 Town Farm Road, built 1930; building assessment $96,400; land assessment, $300,600; total assessment $397,000, down from $471,500 in 2009.] 
• $379,900 (Sept, 2010): 1610 sq ft, 2 BR, 2 baths, on 2.32 acre lot [156 Topsfield Rd, built 1968; building assessment $154,600; land assessment $240,800; total assessment $395,400, down from $418,100 in 2009.]
• $360,000 (Sept, 2010)  1600 sq ft, 3 BR, 1 bath, on 1.00 acre lot [316 Linebrook Rd, built N/A; building assessment, $133,300; land assessment 230,900; total assessment $364,200, down from $391,500 in 2009.]
• $309,000 (Sept, 2010): 1894 sq ft, 3 BR, 1 bath, on .22 acre lot [12 Hodges Way, built 1964, building assessment, $143,500; land assessment, $168,000; total assessment $311,500, down from $332,300 in 2009.]
• $300,000 (June, 2010): 1626 sq ft, 3 BR, 1 bath, on .08 acre lot [2 Hovey Street, built 1880, building assessment $136,200; land assessment, $157,900; total assessment $294,100, down from $319,100 in 2009.]
• $290,000 (July 2010): 480 sq ft, 1 BR, 1 bath on .24 acre lot [16 Chattanooga Rd, built 1952; building assessment $49,700; land assessment $249,900; total assessment $299,600, down from $352,100 in 2009.]
• $279,000 (Oct 2010): 1092 sq ft, 3 BR, 1 bath, on .20 acre lot [2 Hodges Way, built 1959; building assessment $110,900; land assessment $166,500; total assessment $277,400, down from $300,400 in 2009.]
• $250,000 (July 2010): 1010 sq ft, 2 BR, 1 bath, on .14 acre lot [8 Currier Park, built 1935; building assessment $107,800; land assessment $161,400; total assessment $269,200, down from $281,100 in 2009.]
• $235,000 (June 2010): 912 sq ft, 3 BR, 1 bath, on .28 acre lot [27 Paradise Road, built 1970; building assessment $106,200; land assessment $180,700, total assessment $286,900, down from $315,200 in 2009.]
• $229,700 (Aug 2010): 720 sq ft, 1 BR, 2 baths, on .15 acre lot [3 Sawyer Street, built 1920; building assessment $75,400; land assessment $171,800; total assessment $247,200, down from $271,500 in 2009.]
• $209,000 (May, 2010): 1034 sq ft, 2 BR, 1 bath, on .09 acre lot [84 High Street, built 1860; building assessment $109,300; land assessment $167,600; total assessment $276,900, down from $290,000 in 2009.]
• $185,000 (Oct 2010): 1620 sq ft, 2 BR, 1 bath, on .29 acre lot [138 Linebrook Rd, built 1956; building assessment $145,400; land assessment $182,000; total assessment $327,400, down from $352,300 in 2009; note that Realtor.com values it at $286,997 as of 11/14/10]
• $170,000 (Aug 2010): 1182 sq ft, 3 BR, 1 bath, on .19 acre lot [3 Turkey Shore Road, built N/A; building assessment $104,000; land assessment $239,100; total assessment $343,100, down from $387,200 in 2009; note that Realtor.com values it at $302,124 as of 11/2/2010.]
• $160,000 (Aug, 2010): 1640 sq ft, 3 BR, 1 bath, on 1.04 acre lot [20 Lakeman's Lane, built 1948; building assessment $126,100; land assessment $283,500; total assessment $409,600, down from $449,900.  Realtor.com vales it at $420,520, as of 11/14/10]
• $160,000 (Oct 2010): 1386 sq ft, 5 BR, 1 bath, on .21 acre lot [8 5th Street, built 1910; building assessment, $118,000; land assessment $216,100; total assessment $334,100, down from $374,100 in 2009; realtor.com values it at $296,672 as of 11/4/10
• $120,000 (June 2010): 1386 sq ft, 3 BR, 2 baths, on .05 acre lot [2 5th Street, built 1910; building assessment $123,000; land assessment $97,700; total assessment $220,700, down from $237,900 in 2009;  realtor.com values it at $223,234 as of 11/2/10.]
• $80,000 (Aug 2010): 760 sq ft, 2 BR, 1 bath, on .18 acre lto [53 Jeffreys Neck Road, built 1943; building assessment $76,600; land assessment $174,000; total assessment $250,600, down from $276,900 in 2009; realtor.com values it at $227,594 as of 11/2/10.] 

(I suspect the last six of these might be situations where a co-heir to an estate bought out another heir, with the transaction price representing half of the value, but I can't be sure of that.)   Have any of the assessments been adjusted downwards in 2010 on the basis of the transaction price?  That might have been the case in a few situations(?)

If the landlords were collecting the full market rent on the Little Neck land, then the asking prices for the cottages on Little Neck would be in the range of 90% to 120% of the assessor's valuation of the buildings.

 

The tenants did not create -- could not possibly have created! -- any of the land value, despite what the "Little Neck Legal Action" committee asserts below.  The letter makes interesting, even humorous, reading, particularly in light of the fact that were there to be a sale, it would be the seller who would be paying off the debt on the wastewater system, not the buyers.  That wastewater system created some value, particularly if it ends up making it possible for more than 24 cottages to be used year-round.

Here are the various prices, divided by 167 current tenants and by 32 acres:

• $42,325,000 works out to $253,443 per average lot, or $1.3 million per acre (see letter, below).  Capitalized at 5%, an average land rent of $12,672, and aggregate annual gross rent to LN trustees of $2.116 million
• $31,500,000 works out to $188,623 per average lot, or $984,000 per acre (see letter, below). Capitalized at 5%, an average land rent of $9,431, and aggregate annual gross rent to LN trustees of $1.575 million.
• $10,000,000 works out to  $59,880 per average lot, or $305,000 per acre (see letter, below). Capitalized at 5%, an average land rent of $2,994, and aggregate annual gross rent to LN trustees of $500,000.  Compare $305,000/acre to the assessments on nearby land, particularly land with fine views and breezes; an acre is 43,560 square feet.
• $70,975,000 works out to $425,000 per average lot, or $2.2 million per acre (see my analysis, above). Capitalized at 5%, an average land rent of $21,250, and aggregate annual gross rent to LN trustees of $3.549 million.

(Compare those amounts per lot to the assessed values of the land, and then to the asking prices, above.  Did the assessor get it that wrong?  I suspect his LN land valuations are low.)

Here's the letter from the "Legal Action" committee to the local paper:

To the editor:

The School Committee’s recently released appraisal performed by Lincoln Property Company (“Lincoln”) establishes four things:

• It further discredits the Finance Committee’s continued assertion that the market value of Little Neck is $42.325 million. Lincoln states that Colliers Meredith & Grew’s (“CMG”) $42.325 Million estimate “is completely one-sided, ignoring that any value over … $10,000,000 is the result of a long term partnership between the Feoffee and the Tenants.” The Finance Committee’s claim was previously revealed to be without merit when the portion of the appraisal that the Finance Committee tried to hide from the public was released as a result of the Probate Court lifting a Protective Order. In their “supplemental letter”, CMG set the market value of Little Neck to a third party at $ 26.4 Million.
• In Lincoln’s view, the “fair value” of Little Neck may be as low as $20.5 Million. However, in summarizing the appraiser’s analysis of all relevant considerations, the appraiser specifically states the “market value of $31,500,000 … represents my opinion of the fair value of the property” to the homeowners in the specific “closed market transaction” contemplated here.
• The School Committee’s appraisal, completed in a more deliberate and professional manner than what the Finance Committee put forward, recognizes the significant value created by the tenant homeowners who have bought, built and/or improved their own homes. The Lincoln appraiser wrote, “Without the tenants’ improvements, the property would not contain the 167 grandfathered cottages and its value, according to CMG, would only be $10,000,000.” The appraiser clearly states that the tenant homeowners should not be compelled to pay twice for their part in creating the current value of Little Neck.
• The Lincoln appraisal offers further indisputable support for the $29,150,000 purchase price set forth in the settlement agreement between the Feoffees and the homeowners.

While the Little Neck Legal Action Committee (“LNLAC”) appreciates the good faith effort of the Lincoln appraisal, we believe that it does not appropriately take into account the potential adverse consequences to the School Committee of not affirmatively supporting the settlement agreement. The cost of not doing so includes:

• The direct cost of litigating the controversy in the Probate Court. At the Town Meeting in October, an additional $300,000 was authorized. If the Probate Court litigation is not resolved, the total cost to the School Committee will be dramatically higher.
• The Feoffees have already spent nearly $1 Million in legal fees on the presently stayed Superior Court class action litigation. If the settlement is not implemented and that litigation is reactivated, the four year history of no contributions by the Feoffees to the Schools will continue while the litigation drags on for many years to come.
• If the Homeowners prevail, the Feoffees may be ordered to pay many millions of dollars in damages, plus interest and attorney’s fees.
• Even if the Feoffees ultimately succeed in the Superior Court litigation, which LNLAC believes to be highly unlikely, they may still be compelled to pay the fair market value of each of the 167 homes on Little Neck of the tenants, which could easily exceed $16 Million.
• Under either scenario, the Feoffees would be unable to provide any funds to the Ipswich Public Schools for perhaps decades to come.

We believe that the settlement agreement is fair to all parties and that a rational review will bring all reasonable and clear minded parties to that conclusion. Should that not be the case, LNLAC is willing to allow the Probate Court to make the judgment as to whether the settlement agreement is, in light of all relevant circumstances, fair and reasonable. The School Committee is aware that the Feoffees have engaged LandVest and LNLAC has engaged Petersen/LaChance Realty Advisors to update their prior appraisals. At the end of the day, we anticipate that the Probate Court will conclude that the agreed upon figure of $29,150,000 is more than justified and supported by a careful review of the four appraisals at issue. We appreciate the deliberate approach taken by the School Committee and believe that responsible and professional analysis will be demonstrated by its members. We await the conclusion and closing of the settlement that will allow the School Committee and the school children for which it is responsible, to benefit from what we are advised will be the largest investment trust for any public school system in the commonwealth.

                                                         Mark DiSalvo and William Gottlieb

                                                         Little Neck Legal Action Committee

So what do you think?  Should the 2010 Ipswich citizens be in favor of selling this piece of land to the LNLAC at $29 million?  $40 million?  $70 million?  Or is this a priceless asset that ought to be kept, to serve its intended purpose for future generations of Ipswich students?  Should the Feoffees sell it, or simply collect, month in and month out, the market-value rent of the land?

Is there a statute of limitations on how long a public-spirited gift with growth potential should remain an asset for the benefit of the schools, or is the LNLAC arguing that the value of this gorgeous piece of land has peaked, to stagnate forever, and they're willing to accept the downside and the upside for a mere $30 million?

I just can't imagine how the discussion has ever gotten this far.  This asset was never to be sold.  And were the trustees to stop wasting it -- permitting tenants to remain without paying roughly market rent -- the schools would, as the donor intended, have a fine -- and growing -- income, forever.   "The largest investment trust for any school in the commonwealth" will provide a fine income to a lot of investment brokers and firms, but an inferior and declining income for the schools.  (Think about what the schools would have in 2010 if the trustees of, say, 1933, had sold Little Neck and invested the proceeds.  What do you think that fund would be worth now?  Remember the question: where are the customers' yachts?)    Keep the asset.  Collect the rent.  Repeat annually.

The alternative?  Sell it to the tenants now, and then watch some private equity or hedge fund swoop in and double the tenants' purchase price -- on a down payment made with escrowed rent! -- and then watch the investor hold the asset until the market improves and they can develop it. A win for the tenants, but what about the rest of Ipswich, and the intended beneficiaries?

Filed under "popular ignorance of land economics," "privatization," among other categories.  This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

The Feoffees of Ipswich (Mass.) are still considering selling Little Neck!

Little Neck appraisal should be released - Ipswich, MA - Ipswich Chronicle.

Remarkably, the Feoffees (trustees) for the 360 year old trust created for the benefit of the public schools of Ipswich by a forward-thinking and public-spirited landholder when he donated to his community -- forever -- a beautiful 32-acre almost-island in trust.   The conditions included the provisions that (1) the Feoffees should collect market-level rents and (2) that the land could never be sold.    Little Neck has 167 lots, and the tenants own their cottages, the majority of which are 70 to 90 years old and under 1000 square feet, on lots of 3000 to 5000 square feet.  The tenants pay land rent to the Feoffees, which is supposed to be paid to the schools of Ipswich.

Well, the Feoffees have failed to collect market rents, and the tenants seem to think that that might be sufficient reason for them to be able to buy the land -- and at a very moderate price!

After the jump, you can read three recent articles, and the comments to date.

As you read this, remember that about 1/4 of the Little Neck tenants are also year-round residents of inland Ipswich, and are likely well-known to the Feoffees.  This may tend to create some conflicts of interest between the Feoffees' role as trustees of this property for the benefit of the public school system -- forever --  and their role as good neighbors to some of Ipswich's long-time residents.

Click on the "Feoffees' land" link at left to read all the posts on this topic; I've been intrigued with this story since I first read about it in 2008.

The newest appraisal is 50% higher than the previous one -- but still only about half of what I estimate Little Neck's land to be worth.

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/.

Little Neck and the Feoffees: Valuing the Land

Feoffees Financials Statement.pdf

Remarkably, the Feoffees of Ipswich do not list as an asset the 30-or-so acre asset which is the reason for their existence. [A Note to a related (and audited!) report says "The land has no determinable value..."  Very funny!]

One might say that this is consistent with the fact that they are merely trustees, not owners (and therefore can't sell it).

But it also might point to the Feoffees being unwilling to attempt to value the land.  The assessor values it, every year.  I've not seen the Assessor's aggregate valuation in print, but I have a spreadsheet on which I attempted to list all the properties which the Feoffees own on Little Neck.  Quick and dirty, it works out this way (last year's valuation, which is a bit higher than this year's), for the individual lots I've looked at:

• 167 tenant-rented lots 10.45 acres $31.4 million ($3 million per acre)
• 1 large "commons" lot 11.00 acres $0.7 million ($77,000 per acre -- 2.6% of the tenant lots)
• about 40 vacant subdivided lots 2.88 acres $0.9 million ($320,000 per acre -- 10% of the occupied lots)
• community house $84,900
• piers, etc: $74,300
• plus the roads which serve the homes on Little Neck.

The financial statement does value the sewage treatment plant at $6.7 million.   I'm guessing that under the negotiated deal, the tenants are expecting to get it for free, or at least get the use of it.  The media stories have been silent about this aspect.

Separately, but relatedly, I stumbled onto an interesting document from a few years ago.  Among other things, it says that as of 2001, 2 of the 4 then-current Feoffees had, during their Feoffeeship, also been tenants on Little Neck.  Talk about conflict of interest!  (This is expressly prohibited by the terms of the trust, as I understand them.  I guess the terms of the trust are an inconvenient truth.  Pesky details.)

And as of 1996, the Superintendent of Schools was a Little Neck tenant; the report doesn't say for how long this was the case.  But it does say that the schools received no contributions in some years AT THE REQUEST OF THE SUPERINTENDENT -- and the data show only token contributions in many years (consistent with the token rents being collected).

The same report shows the 8 properties which changed hands in 2001, with selling prices well above assessed values for land and buildings combined, despite the fact that all that was really being sold was the building.  Assuming the assessor's valuation of the buildings to be accurate, and subtracting it from the selling price, yields a land value about 2.5 times the assessed value (range: 115% to 264%, with 5 out of 8 above 229%).  Land values per lot calculated that way ranged from $119,000 to $297,000 -- in 2001 -- and full-market land rents (at 5% of land value) would have been $5,945 to $14,850. Actual rents in 2001 were $1,760 (seasonal) to $1,980 (year-round) -- what a deal (for the tenants; not so much, for the beneficiaries)!

Simply   collect   the   market    rent   on  this   land.  Care  for  the   property.   Remit   remainder    of    rent   to  the   schools.

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

The Feoffees and the Tenants: Condo pact may signal break in impasse over Little Neck cottages

Condo pact may signal break in impasse over Little Neck cottages - The Boston Globe.

I've posted two comments to the Globe article, as follows:

I am utterly puzzled about the Feoffees selling this awesomely fine asset to anyone at any price.  They don't own it.  They are merely the trustees, under a 350 year old trust.  A public-spirited citizen gave the land to the town for the benefit of the public schools, FOREVER.  The Feoffees -- trustees -- were to collect the market rent and maintain it, and turn the net rent over to the beneficiary, the public schools.  The fact that the Feoffees have failed to collect the full market rents on this sweet island in the past, say, 50 years does not overturn the trust provisions.

Replace the current group of Feoffees with people who intend to carry out the provisions of the trust.  Don't up-end the trust.

And despite all the expensive studies, it is very clear that the intended purchase price is a small fraction of the real value of the land.  My quick and dirty estimates suggest a land value in the range of $72 million -- more than twice the discussed price.

How much is market rent?  These are modest and old cottages, many of 800 square feet with 1 bathroom.  Anywhere else, they'd be worth $50,000 to $100,000 each, depending on their size.   The fact that asking prices ranged, last month, from $175,000 to $600,000 is clear evidence that the land rent is not being collected, and the sellers don't think it will be.  How will we know when the full rent is being collected?  When $50,000 cottages sell for $50,000, then the full rent is being collected.

The Feoffees ought not to be permitted to sell this amazing asset at any price.  But if somehow they are permitted to sell it, there is NO excuse for selling it at a small fraction of its value.

The grantor of the trust intended this 30 acres to be a gift to the schools of Ipswich forever.  And indeed, it could provide a solid income flow, forever.  If it is liquidated, the corpus will be gone in 5, or 10, or 20 years.  Investment "advisors", real estate brokers, lawyers, accountants will have a nice flow of money from it -- but the schools will receive relatively little.

2010 is not the end times.  There will be children in Ipswich's schools in 2025, and 2050 and 2075 -- but this fine asset will not be around to provide the income that the grantor, in his wisdom and generosity, intended.  The "tenants," though, will have gotten a bargain.

Read more by searching on lvtfan and feoffee.  There is more to this story.

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The Assessor in Ipswich valued the 167 lots at about $31 million a year or two ago.

But those occupied lots, which total about 10.3 acres, aren't the whole story.  The assessor valued that land at a total of $31 million, or about $3 million per acre.

There are an additional 40 individual lots, which the assessor valued at 10% of the value of comparably sized rented-out lots, total 2.9 acres.  At 10%, the assessor's valuation of them was about $919,000; taken up to 100%, they would be $9.2 million.

And then there is the 11 acre commons area, 39 Bay Road, which the Assessor valued at a very low $842,500.   Had the Assessor treated that land as he did the individual occupied lots, it would be valued at roughly $33 million.

As best I can tell, the tenants -- TENANTS!! -- are offering to buy the 167 lots at something resembling their assessed value -- and get the other HALF of Little Neck for FREE!

How on earth can this be a good deal for the *intended* beneficiaries of this trust?

On the market today is a 5 bedroom cottage, built in 1935, offered at $579,900.  It has one bathroom, and the listing does not disclose the square footage.  It sits on .07 acre. The Assessor values the building at $90,300 and the land at $185,500, for a total of $275,800.

Also on the market is another home, 1018 square feet, for $425,000.  Two bedrooms, one bath.  Built 1910.  The assessor valued the building at $79,500 and the land at $292,600, for a total of $372,100.  The land is 0.074 acres. 

Yet another cottage on the market carries an asking price of $339,900.  It has 2 bedrooms, 1 bath, and 926 square feet, and was built in 1935.  The Assessor valued the house at $81,800 and the land at $185,500, for a total of $267,300.  

Recall that the sellers of these properties DO NOT own the land.  They're trying to sell $80,000 assets for $580,000,  $425,000, and $340,000.  They don't own the land, but they're selling it nonetheless, with asking prices of $500,000, 345,000 and $260,000!   And at the same time, they're expecting to buy the land under their homes AND a share of the commons for an average of $175,000 per tenant!

This does not come out of thin air!  This comes at the expense of the Trust's beneficiaries. 

By what logic is this right, or legal?   Seems to me that the Feoffees are on extremely shaky ground.

I'd love to see what the US Supreme Court would have to say about this.

No one can argue that the Assessor overvalued those lots, can they?  And a 70 year old cottage is worth perhaps $50 to $70 per square foot.   What is valuable here is the location, and the Feoffees seem to have negotiated a very generous bargain for the tenants.

I've read that 1/4 of the tenants are also year-round homeowners inland in Ipswich.  So there may be a motive of being generous to the most beloved citizens of Ipswich.  But the Trust doesn't call for that.  It calls for collecting the market rent on the land.

If the current Feoffees won't do it, then others can be found who will.

To which I'd add that there are others who would be happy to pay the current rent of $9,700 per year for use of one of those lots, if the current group of tenants aren't.   I discovered in my files a copy of the current lease form, included in an auction packet last year (search on 26 Baycrest Road Ipswich auction), which said that rents in the future would be 5% of the assessed land value, but no less than the $9,700, after June, 2012.  For 2012 to 2015, the assessed value in 2012 would be used.  At 5%, the lot assessed at $292,600 in 2008 (?) would pay rent of $14,630 now -- 50% more than the current rent of $9,700.

Asking prices have come down a bit since I started following them.

If the tenants are permitted to buy Little Neck, will they all be able to occupy it year-round?  Today, only 24 cottages have year-round rights.   If the other 143 receive year-round rights with this transaction, their land value will rise significantly.

Will the tenants' association be permitted to sell some of the approximately 40 subdivided but unoccupied lots?  If they can, I suspect they'll be able to get $300,000 to $400,000 for each one -- which they get for free from the Feoffees, under the terms of this deal.  At the low end, $300,000 each, that's $12 million.  That could certainly reduce the amount that the current tenants need pay for their shares of Little Neck.  Shouldn't it go to the schools of Ipswich, or am I old-fashioned?

Oh, to be a lawyer in Ipswich!  This is going to be a gift that keeps on giving.  Lawyers, accountants, real estate agents, not to mention the brokerage firms which receive the proceeds of the sale.  The commissions, expense ratios, transaction fees.  (And the trickle ... down?  up?   and maybe even to the schools)  

But the Grantor of the trust intended Little Neck's land rent to be a different kind of "gift that keeps on giving."  He designed it to keep giving to the public schools of Ipswich, forever. 

Sorry, Mr. Paine!  You tried.

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

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/.

Update on the Little Neck (Ipswich, MA) sale by the Feoffees of Ipswich's Public Schools

I've posted several times before about this story (see Feoffees' land which includes these three stories

• The Feoffees, their tenants, and the Ipswich public schools with photos, maps and other illustrative data
• Update on the Feoffees' tenants in Ipswich, Massachusetts
• The Feoffees of Ipswich are still thinking about selling that fine piece of land at Little Neck) 

This past week, two articles http://salemnews.com/punews/local_story_128174243.html and http://www.wickedlocal.com/ipswich/news/education/x2133276729/Sale-of-Little-Neck-will-not-go-through report that the sale will not go forward because the 168 land tenants are not able to raise the purchase money.

There are 167 tenants, who own homes but under the terms of the gift of the entire almost-island.  Their individual lots total less than half of the total land area: 14 acres are kept as common space, including the 11-acre lot which holds the community center. 

My initial research (shown in the first of those three blogposts) suggests that Ipswich's assessor valued the land for 2008 at $32,751,500, including a very low assessment of $1,761,000 for the 14 acres of common areas.  If the common areas were assessed as the rented-out portions are valued, the total land assessment would be about $48 million.

The $26,500,000 asking price amounts to less than $160,000 for each building site.    A 5% 30Y mortgage on $160,000 works out to a payment of $859 per month, or $10,307 per year, a not inconsiderable sum.   One of the current real estate listings reports that land rent for a seasonal cottage lot is $9,700.  (That 99 year old cottage of 1,710 sq ft carries an asking price of $620,000, down $5,000 from last year.)

So how much are the lots really worth?  One way to find out would be to auction off the rental rights for two of the unoccupied lots not currently rented out.  Make one a seasonal property, the other a year-round occupancy. Publicize the auction well, including a letter to every current Little Neck tenant, and accept bids for several weeks.  Award the rental rights for each lot to the highest bidder, at $1 more than the amount bid by the second highest bidder.  That will give the Assessor and the Feoffees a sense of the current market for this fabulous almost-island.

The proposed "endowment fund" for the benefit of the Ipswich Public Schools will never provide as much as the market rent, net of expenses, will provide.  I do not understand why the Feoffees (that is, trustees on behalf of the schools, under the terms of a 17th century trust), or the voters of Ipswich, would ever consider selling this land, or why a probate court would permit the sale.

When the asking prices for Ipswich cottages begin to approach the depreciated value of the homes on them, the Feoffees will know that they are charging appropriate rents.  When asking prices are 3, 4, 5 times the depreciated value of the cottages, it is clear that the Feofees are not collecting the full land rent, and the discount is being capitalized into the selling prices of the cottages.  The terms of the trust require the Feoffees to collect the fair rent, and they ought to be required to get into compliance within, say, 5 years.

The tenants who assumed the Feoffees would never do it have my sympathy, but no tears.

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

The Feoffees of Ipswich are still thinking about selling that fine piece of land at Little Neck

RICHARD HOWARD: Feoffees and Little Neck: Time for open discussion - Ipswich, MA - Ipswich Chronicle.

Here's the note I posted to a new article on the Feoffees of the Ipswich, MA, public schools and the tenants at Little Neck, a fine piece of land, which the former seems to be considering selling to the latter, after 350 years of receiving rental income from a series of tenants:

Why would local public sentiment ever permit the Feoffees to consider selling this amazing asset?  This land is so valuable.  It is close to Boston, served by commuter trains, spectacularly sheltered and with views that 200 families would gladly pay huge amounts of annual rent to have seasonal or year-round access.  Why give that away cheap, when it could produce an ongoing income to meet a significant portion of the needs of Ipswich's public schools, in perpetuity?

The market for well-located land will rise over time.  The stock market, or the other things in which the Feoffees, or highly paid investment advisors, might invest the proceeds of the sale will never exceed the value which can be derived from this choice bit of land.

I'm sure the year-round residents of Ipswich are very generous people, but I just don't understand why they would ever even consider selling this awesome, undervalued and sure-to-appreciate asset.

The Feoffees should be required to auction off a single vacant building lot each year to determine what the rental value really is.  I think you'd all be amazed.  (If I were conducting the auction, I'd give the right to rent the lot to the highest bidder at the annual rental that the second-highest bidder offered.)   And then the other tenants should be apprised of that cost, and their rents raised within a couple of years.  Fully depreciated cottages which anywhere else would sell for $50,000 would also sell for $50,000 on Little Neck, instead of for prices which reflect the hilariously low annual land rental.  And the schools of Ipswich would have a fine annual income. 

Why are you being so generous to the tenants, giving them an amazing windfall?    Many other towns wish they had an income-producing asset as fine as Little Neck, and you're thinking about selling it, cheap!  

Whose interests do you have at heart?

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

The Feoffees may sell Little Neck to the tenants ... for ever and ever

For background on this story, you might look at two previous posts (below):

• The Feoffees, their tenants, and the Ipswich public schools  February 20, 2008

• Update on the Feoffees' tenants in Ipswich, Massachusetts  July 8, 2008
  

I was surprised to learn that the Feoffees of Ipswich had decided to sell the property for which they have been trustees for over 300 years.  They have an agreement to sell the 36 acre property to the 167 tenants, who individually own cottages which sit on lots totaling a bit more than half the of the 36 acres; the rest of the land is apparently common property, shared by all the cottage owners (and their tenants) -- and assessed by the town at 10% of what a comparable sized lot with a home on it is assessed for.

Since Chicago has sold off on-street parking to a private entity (a financial services company), and Indiana has sold some toll roads to a foreign corporation, I suppose I should not be surprised that the Feoffees of Ipswich have followed suit.  But I am disappointed.  (I know nothing more of the story than what I read online and I've read everything I can find.)  It seems to me that the fellow who owned the land in the 1600s and chose to donate it to his community, for the ongoing benefit of the town's public schools, did a good thing.  He knew the land was choice (oh -- what a sweet place it appears to be, from all the photos!)   He might not have anticipated that a railroad would make it possible for daily commuters to work in Boston and live in Ipswich, but clearly the sheltered almost-island not far from the Atlantic ocean was a fine site. 

So the articles raise some interesting questions. I'll be curious to see how they get resolved.

1. The agreed-upon purchase price is $26.5 million.  What is the entity that will purchase it?  The tenants' association? 

2. How will the individual lots be valued, when it comes to the shares of ownership in the property?

3. Need one be a tenant to buy either a lot or a share in the Little Neck association?

4. If an individual cottage owner can't afford to purchase his lot, or his share of the $26.5 million, what provisions will be made?

5. Will the 24-year-round and 143-seasonal rule continue?  Will owners of "Seasonal" houses be permitted to buy rights to use their property year-round?  At what price?

6. Will there be tears shed over the folks who can no longer afford their cottages?

I'd like to suggest a model that the Little Neck tenants might want to consider.  Instead of owning the individual lots outright and sharing ownership of the other ~50% of the land through some association, they ought to consider continuing to rent the land out. Arden, Delaware, does this -- has since about 1903 -- and it is a fine place to live.  Like Little Neck, Arden has smallish lots and lots of common spaces, which make a very fine place to live.  Arden collects land rent from every homeowner, sufficient to cover local taxes on the land and buildings, and to provide other services within the community.  Taxes are not placed on buildings.  Land is valued according to its size and its proximity to positive and negative amenities.  In Little Neck, this would mean that lots with better views would pay more than comparably sized lots with more modest views, and, likely, that lots with the rights for year-round occupancy would pay significantly more than those with only seasonal access.  

And the Ipswich assessor ought to watch property values carefully.  When 80-year-old 900-square-foot cottages sell for $300,000 or $400,000 -- just for the cottage, not for the cottage and its land -- the full economic rent is not being collected.  (See http://lvtfan.typepad.com/lvtfans_blog/2008/07/update-on-the-f.html.)

$26,500,000 divided by 167 cottages works out to a mere $159,000 each. What a deal!

I'm amazed that the Feoffees would accept such an offer.

Looking at current real estate listings,

• there is a property asking $625,000. The assessor values the land at $294,300 and the 1910 building at $90,300, for a total of $384,600. That's one of the larger lots. Across the road is a vacant lot half the size, valued by the assessor at $27,600.
• Another property, listed at $339,900 consists of a 1935 cottage, valued at $81,800 and a lot valued at $185,500, for a total assessed value of $267,300.
• A third is listed at $465,000; the 1930 cottage is valued at $109,500, and the lot at $185,500, for a total assessed value of $295,000.
• A fourth is listed at $495,000; the assessor values the cottage at $102,900, and the land at $228,700, for a total of $331,600. (A nearby lot, the same size, is valued at $18,500.)

How on earth can the Feoffees justify accepting only $26.5 million for this fabulous land? $159,000 each, on average. Incredible. What a deal for the tenants. What a lousy deal for the beneficiary, Ipswich's schools, forever.

Land rent is a powerful thing.  Good things happen when it is collected and used for the benefit of the community.  Using it for common purposes -- schools, infrastructure, public health, emergency services, transportation systems, to name a few -- leads to healthy communities which are both fine places to live and fine places to visit, and fine places to run a business.  Letting it sit in private pockets generally leads to expensive housing, land speculation both in the residential and commercial neighborhoods, sprawl, old buildings, -- and, worst of all, reliance on sales taxes and taxes on wages, neither of which should be taxed at all.

I'll probably be revising this post a bit, but thought I'd publish it sooner rather than later.

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

Update on the Feoffees' tenants in Ipswich, Massachusetts

One of the early posts on this blog described (at length!) a peninsula community off Ipswich, Massachusetts, about an hour from Boston by train, where under the terms of a trust dating back to 1660, the neighborhood, known as Little Neck, belonged to the Feoffees (trustees) of the public schools of the town, and the grantor's trust told them to obtain the full market value for the benefit of the public schools.  For a long time, this was not done, and recently the Feoffees have moved toward meeting that requirement.  The tenants aren't happy.

A recent article in the Boston Globe entitled "Threatened Idylls" describes a home for sale for $290,000 which they say would have sold for a great deal more when land rents were lower.

Although waterfront properties often retain their value, even in a soft market, the seaside cottages on Little Neck have seen a significant decline in value since 2005. Properties that would have commanded a sales price in the low $600,000 range just a couple of years ago are now being listed in the mid-$400,000s, Gilbert said. Homeowners blame the dispute with the feoffees for turning buyers sour.

We are so used to thinking of land and buildings together.  But the cottage seller is not selling the land on which the cottage sits!  Rather, they are selling the cottage itself -- which may be 60 or 90 or more years old, and has been subject to windy saltwater conditions -- and the right to pay the rent on the land.  And now the land owners, the Feoffees, might actually have the audacity to demand fair market rent for the land!

The cottages should change hands at their depreciated value, if the Feoffees are doing what the trust requires of them.  Here are the listings, gleaned from realtor.com (zipcode 01938), looking just at those whose lot size is roughly 0.07 acres.  (Only a few of the ads mention that they are seasonal; presumably if any of these came with year-round access, the ad would have prominently featured that!)

1. Seasonal (4/1 to 1/1) $290,000 - 3BR,1b - 1032 square feet, built 1930 -- so they're asking $281 per square foot!
2. Seasonal  $325,000 - 2BR, 1b - 800 sq ft, built 1910 - asking $406 psf
3. Seasonal  $339,900 - 2BR, 1b - 926 sq ft, built 1935 - asking $367 psf
4. Seasonal  $350,500 - 4BR, 1.5b - 1114 sq ft, built 1950 - asking $315 psf
5. Seasonal  $359,900 - 2BR, 1b - 782 sq ft, built 1865 - asking $460 psf
6. Seasonal  $369,000 - 2BR, 1.5b - 2012 sq ft, built 1930 - asking $183 psf
7. Seasonal  $443,900 - 2BR, 1b -  868 sf, built 1930 - asking $511 psf
8. Seasonal  $465,000 - 3BR, 1b - 1408 sq ft - built 1930 - asking $330 psf
9. Seasonal  $495,000 - 3BR, 1b - 1160 sq ft - built 1920 - asking $427 psf
10. Seasonal $625,000 - 3BR, 1b - 1318 sq ft - built 1930 - asking $474 psf
11. Seasonal $625,000 - 5BR, 1B - 1779 sq ft - built 1910 - asking $351 psf

Clearly, the sellers' asking prices ask the buyer to assume that the Feoffees won't soon require payment of land's full value in land rent.  These homes, between 58 and 140 years old, would probably be worth $50 psf were they inland on rented land (and probably be on larger lots!) -- $40,000 to $90,000 each.

The rest is locational value, and the Feoffees ought to be collecting that, per the terms of their trust.  Land value is community value.

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

The Feoffees, their tenants, and the Ipswich public schools

I've been researching a story which I first learned of via the Boston Globe's "most emailed" page a while back.  It seems that there is a lovely almost-island, connected by a narrow neck of land to the mainland, near Ipswich, MA, about an hour north of Boston.  photo  The neighborhood is known as Little Neck, and the land has been owned since about 1650 by the Feoffees of Ipswich. (A feoffee is a trustee.)  The trust was set up to benefit the schools of Ipswich. 

For most of those years, Little Neck was rented out as farmland. Early in the 20th century, the Feoffees began to lease out the land to individuals, who built cottages on the small lots.  Today, there are 167 cottages on the 27 acres.  assessor's map  (That would suggest an average lot size of perhaps 1/7 of an acre, but there are actually a number of vacant lots that are treated as common property; most of the cottages on are lots of 0.069 acres, about 3,000 square feet, each with its own septic field.  From the assessments, it appears that 14 acres are kept as common space, for the use of all LN residents.  3 acres is in small building-sized lots; 11 acres in a single lot with the community center.)

The terms of the trust include

... pursuant to the Feoffees’ fiduciary duties as trustees of this Trust to benefit the Ipswich public schools, the Feoffees shall charge and collect rents, for residence on or other use of the Trust property, at a level that is a fair market rent for the property, services and other benefits provided. To the extent possible, the amount of income provided to the Ipswich public schools each year shall at a minimum represent a reasonable return on the market value of the Trust’s assets ...

b) in calculating the rent levels necessary to satisfy the standard ... all costs of operation of the Trust shall be taken into account, including the following costs, to the extent that they provide benefit to the residents and are appropriately includable in determining the rent:

(i) the cost of extra services provided by or for the Feoffees at or in connection with Little Neck (such as police details, etc.);
(ii) the cost of providing and maintaining common or unoccupied land or structures;
(iii) the cost of providing and maintaining other amenities;
(iv) taxes on all the land, including the common or unoccupied land and all improvements; and
(v) taxes on residential structures whether or not paid separately by the homeowners or residents.

The Feoffees shall take reasonable steps on an ongoing basis to monitor property tax assessments and property taxes levied with respect to Little Neck occupied property, unoccupied property, and common land, to evaluate whether adjustments should be sought, to respond to resident request with respect to property tax matters, and to seek property tax adjustments where determined to be appropriate.

c) consideration should be given to establishing rents that vary lot by lot, depending on size, location, view, and other factors affecting rental value, including year-round versus seasonal rental. However, no more than twenty-four lots, the number presently eligible for year-round rental, shall be rented on a year-round basis.

For many years, apparently, the Feoffees did not seek to provide much income to the schools; however, in recent years, with rising school budgets and a reduction in state aid, the Feoffees have begun to move somewhat closer to market values in setting the rents.  Currently, annual land rents are $5,300 for the seasonal cottage lots and $6,400 for the year-round cottage lots, without regard to size, location, view or any other factors.  This is up from $1,280 and $1,440 in 2000, and $3,200 and $3,600 in 2004.

Until recently, tenants did not have leases, but their annual land rents were very low.  Now that the School Committee and Board of Selectmen need the revenue, there is pressure on the Feoffees to get a reasonable return on the property and to collect market rents from the tenants, as the terms of the trust require. 

Ipswich's assessor values (for 2008) a typical .069 acre lot on Little Neck at $176,200 to $291,400, if it is occupied by a cottage, and $18,500 to $29,800 if it is not.  (That is a bit puzzling; it seems to me that the unoccupied land is every bit as valuable as occupied lot next door, and the assessments should reflect that, particularly since Little Neck is off-limits to those who do not live there.) The highest-value home lot is 0.18 acre, assessed at $343,500.  The cottages on LN are assessed at $38,700 to $223,600, with most falling in the $80,000 to $125,000 range; most were built between 1910 and 1935, but a few were built in the past 15 or so years.  (A typical home might be 800 square feet on the first floor, 400sf on the second, with 3 bedrooms and 1 bath; some are much smaller.)

The 11 acre property that includes the community center is assessed at a tiny fraction of its market value -- about 4 times the value of a typical .057 acre lot, or 3 times the value of a .069 acre lot! 

The Feoffees, as the owners of the land, collect from the 167 individual tenants (1) the property taxes on the value of the land and improvements and pass that to the town of Ipswich, and (2) the land rent.  The Feoffees pay, from the land rent, the property taxes on the other half of the land (assessed much lower), as well as the taxes on the Little Neck community amenities -- a wharf, community center, etc -- and maintain those amenities.

In 2001, when land rents were lower, 8 homes were sold; the selling prices were far higher than the assessed values, even including the land values.  Cottage assessments were only 17% to 30% of the sale prices; total valuations ranged from 45% to 89% of the sale prices. (Perhaps this is typical in Massachusetts; it doesn't strike me as good practice.)  In other words, the properties are worth far more than the values the assessor places on them.  Buildings, like cars, do not appreciate.  They depreciate at 1.5% per year. It is the site value that has risen.  Buyers are willing to pay large amounts of money for a modest home in this particular location. It seems to me that the land assessments should reflect that.  Those 1000 square foot homes built in 1910 and 1930 are probably worth somewhat less than the value the assessor places on them, but the land may be worth 3 or more times as much as the assessor says. 

My calculations here are based on data I pulled from the assessment database, one lot at a time; I can't guarantee that I got all the properties (9 whose addresses suggested they should be part of Little Neck seemed not to be owned by the Feoffees, based on the assessment database) or that I transcribed all the data correctly (though it appears internally consistent).  But here's what I came up with.

• Total 2008 valuation for the land $32,751,500.
• Total 2008 valuation for the buildings $14,942,492, plus "extra features" of $115,500
• Total 2008 valuation $47,302,721
• Total acreage 24.19
• Land treated as common property is 14 acres.  It is assessed at only $1.761 million; if valued as the rented-out portions are valued, that land would be worth roughly $15 million more.

So why is there a story here?   

• A state-mandated septic plant whose construction cost came to nearly $7 million; that cost is borne by the Feoffees, or, more precisely, ultimately by the trust's beneficiary, Ipswich's schools. But rents should be high enough to cover that cost.
• The increase in land rents, which is upsetting to tenants used to paying very little for their second homes, which may have been in their families for generations.
• The potential threat of having to pay what the land is actually worth in future years, now that the Feoffees are hewing more closely to the terms of the trust.
• Current land rents don't provide a very good return to the trust's beneficiary.

Land rent in 2008 totals $911,500, assuming all tenants pay. (Some were refusing, according to news stories last year.)  From that fund, the Feoffees will pay the (bargain rate) taxes on the common lands and building, about $18,000 (a bargain because that property is worth more like $17 million, not $2 million).  The Feoffees will need to cover the costs of maintaining the 27 acres (paying for the septic plant, the wharf, community center, beaches, lawns, roads, etc.)  Whatever is left goes to the schools, the beneficiary of the trust.

How much should the land rent be?  Well, it is hard to find recently closed transactions for Little Neck houses online.  But the asking price on a Little Neck property might give us some information.  One seasonal home, (of 924 square feet, with 2 bedrooms, 1 bathroom, built 75 years ago), which is assessed for 2008 at $80,300 for the building, $1,800 for "extra features" and $185,500 for the land -- a total of $267,600 -- has an asking price of $250,000.  Remember, though, that the seller doesn't own the land.  All he is selling is the house, and the assessor says it is worth $80,300.  Current Feoffee (annual) land rent on a seasonal home is $5,300, and the land tax is $1712 per year, for a total of $7,012, plus the $758 tax on the building. Let's say that the seller ultimately gets $225,000 for the house (90% of his asking price).  The difference between the $225,000 he receives and the $80,300 value of the house -- $144,700 -- is the capitalized value of the bargain land rent.  At 5%, that works out to an additional $7,235 per year; at 6%, an additional $8,682 per year, over and above the existing ground rent and land tax. 

If that sounds high, consider that $5,300 land rent, at 5% capitalization, works out to a land value of only $106,000; at 6%, a land value of $88,333.  The assessor shows the land value as $185,500, and we've shown that it is at least $88,333 plus $144,700, or about $223,000 (at 5% capitalization) and possibly $106,000 plus $144,700, or $250,000 for the land.

What would a lot on Little Neck sell for, were the Feoffees to offer one of those vacant lots for sale? How much would a tenant be willing to pay, were there a bidding auction, for the right to lease one of those vacant building lots, at whatever rent the Feoffees might charge?   I propose that the Feoffees ought to auction off the rental rights for one of the remaining lots every 10 years or so, as a guide to setting land rents. (There appear to be about 45 such lots in existence. The auction should be well advertised.  Its results would be a fair guide to land values.  The proceeds would go to the schools.)

Will lenders finance a cottage worth $80,000 for $225,000?  Should they?   

Will the selling prices of Little Neck houses come down if the Feoffees start charging more for the land rent?  Yes, most likely they will.  Right now, home sellers are able to charge buyers for something they aren't supplying.  Is this right?  No.  Is it traditional?  Yes. (The same could be said for chattel slavery in the US for many years.)

Will some of the current owners of Little Neck vacation homes find themselves unable to afford the higher land rents and be forced to sell?  Quite possibly.  But there will be others who will be content to buy them out, and take on those rents.  Should Ipswich's inland taxpayers be asked to find a way to subsidize those who can no longer afford, or choose not to afford, Little Neck?  Should those on Little Neck who can afford the full land rent be asked to subsidize those who cannot?

Should the homeowners of Little Neck be permitted to purchase the land from the Feoffees, and thereby privatize the future economic rent as their own private treasure, or should that rent continue to belong to the Feoffees, as trustees of this trust for the benefit of the public schools of Ipswich?  Is there a price at which the schools would get a fair deal?

The grantor of the Little Neck trust had a public-minded purpose for his land, and set up a trust that would benefit the public schools as Ipswich and Little Neck became more appealing to more people in future years.  Land rent is a fine way to finance education and other local public purposes, and Ipswich is fortunate to have had a benefactor who cared this way.  The land rent collected by the Feoffees on behalf of the schools contributes to the quality of Ipswich's schools, and therefore the land values for the town as a whole. 

I may not have the capitalization math exactly right -- and I'd appreciate the help of anyone who is better at this than I am, because I think it is an important point.  I'll revise this in light of what I learn.

Land rent of $5300 per year, or $6400 per year, or $10,000 per year, for a cottage on a tiny lot on the ocean an hour from Boston may seem high.  But in light of another current story (from California with a Massachusetts angle), you might revise your thinking.  I'll post that one soon -- which means that those who are reading these in blog order will already have that perspective. 

 

Followup: see a July, 2008, update here and a December, 2008, update here. This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.