Is it Wise to Sell Our Town Property?

Earlier this month, the Town Council agreed to transfer the one-acre property it owns on Hamilton Rd. (across from Glen Lennox) to local developer Roger Perry. The property houses one of the Town’s older fire stations and in exchange for obtaining the property and permission to construct a four-story office building on the site, the developer will help pay the cost of building a new fire station on a section of the same site.  The Town Council decided this is a good deal for the town last month and directed the staff to negotiate the terms of a contract with East West Partners.

Several years ago, the Chapel Hill Town staff undertook an effort “to identify unused and underused Town-owned properties in order to leverage their value to achieve Town goals.” The Town Council then approved an Asset Management Program, which identified several properties that could potentially be sold in order to help finance public improvements, including the old library on Franklin Street, our Town police building and several fire stations.

The Hamilton Rd. fire station deal is an example of a “public-private partnership” (PPP). In these types of agreements, governments sell a public asset (e.g., real estate) or income stream (e.g., fees from parking or toll roads) to a private firm. They have become increasingly popular among cash-strapped municipalities seeking ways to finance badly needed but costly infrastructure improvements, such as new roads, water systems, or fire stations. A PPP can be fiscally advantageous to a municipality if the municipality skillfully negotiates the terms of the agreement and is willing to walk away from a bad deal. However, a city in need of cash is not generally well positioned to negotiate the best PPP deal.

So how well has Chapel Hill negotiated the sale of the Hamilton Rd. fire station property so far? No contracts have been signed yet, and the Town Council just adopted a process for a development agreement that will draw up the terms of the contract.  Until the contract terms are final, we won’t know if this is a good deal for the town. There are several reasons, however, to be concerned.

First, the Town’s projected share of the cost for the new station has steadily increased as negotiations have proceeded. Initially, staff indicated that in exchange for the property, the developer, East West Partners, would pay the entire cost of building the new station. As talks continued, the Town agreed to pay up to $500,000 of the construction cost. However, in the most recent proposal, the developer’s contribution is capped at $1.75 million and the town is now on the hook for up to $750,000. What is worrisome is that if the actual construction costs exceed the projected amount, the Town may end up having to pay considerably more.

Second, the Town entered into the negotiations without first determining the value of the property to the developer, that is, without knowing the value of the asset they were proposing to transfer. The town did obtain an appraisal of the property under its current zoning. However, the deal on the table gives the developer not only the land but also new entitlements to permit construction of a much larger building on the site than is allowed at present. The appraiser noted that if the property were rezoned to allow construction of a three-story office building, for example, (East West partners is actually planning to build a four-story office building and parking deck) the land would be worth much more than under current zoning.

Can Chapel Hill negotiate a better deal with East West Partners as the deal moves forward?  As a reference, Perry and his partners wanted Chapel Hill to pay for some of the road improvements associated with the construction of Village Plaza Apartments on Elliot Rd.  Because of citizen objections, Perry’s group decided to pay for the roads themselves.  Perhaps East West Partners and Chapel Hill could agree to share equally any costs for the fire station above $2.5 million.

Back in 2015, the Town sold 523 E. Franklin, the “old” Chapel Hill Public Library to UNC. The other properties the Town is considering selling include two other fire stations (on Elliot Rd. and Weaver Dairy Rd.), the Parks and Rec administration building on Plant Rd., old Town Hall on Rosemary St., and the Sport Art building on Homestead Rd.

Town Council instructed Staff to obtain appraisals of the Town property assets that are being shopped around to developers. Developers have made offers, but so far no appraisals or other status updates are listed on the Town Property Assets webpage. It is crucial for the Town to make sure it receives its fair share of the financial value of any public assets it sells.

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