[bouldercouncilhotline] Hotline: Air Rights Lease (Daily Camera Site)

[cmosupport at bouldercolorado.gov]

Sender: Ferro, Charles


Members of Council:
At last week’s meeting (Dec. 3, 2013) there were two questions from the council related to Item

3J  (the air rights lease for the Daily Camera redevelopment).
Staff followed up with Doug Newcomb, the city’s property agent who has prepared the following responses.  Please feel free to contact Doug at 720-564-2033 or via email at
newcombd at bouldercolorado.gov with any additional questions.
 
1)     
Explain the general methodology of the formula and how we arrived at the lease amount.
Below is the appraisal report for the air rights lease. It includes a detailed explanation of how the lease rate was determined in accordance with standard appraisal methodology. Generally speaking, the lease rate
 is based on the value of the land underneath the air right, the percentage of the total possible air space over that land area that is being leased and a capitalization rate of 10%.

 
2)     
Why did we subtract the extra cost to build vertically?
The reason we subtract the extra cost to construct vertically is a bit more complex and reflects human behavior in an open market. The practice of real estate appraisal involves the study of why people purchase
 the real estate they do in an open marketplace. Appraisal methodology often reflects human purchasing behavior. One such behavior is known as “principle of substitution.”  The concept is simple and reflects an open market.
 If you don't want to buy a particular property, you are free to buy another property somewhere else. If you were a builder looking to build floor space, would you choose to buy land and build the floor space on the ground where its less expensive or would
 you choose to build it up in the air where it is more expensive? Thinking like a diligent shopper, you could choose to build it in the air if the air rights cost is so much less than the land
 cost, that it offsets the extra expense of building in the air. Adjusting for the extra cost to build in the air reflects how people behave when purchasing real estate.
 
Please feel free to contact me with any additional questions.

 
Sincerely,
Charles
 
Charles Ferro, AICP
Development Review Manager 
City of Boulder - Department of Community Planning + Sustainability
303.441.4012 - Direct
303.441.3241 - Fax
ferroc at bouldercolorado.gov
www.bouldercolorado.gov
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P 
Please consider the environment before printing this email.
___________________________________________________________________________________________________________________________________________________________________________
DAILY CAMERA BUILDING
1048 Pearl St & 1023 Walnut St
 
AIR RIGHTS APPRAISAL
November 4, 2013
 
Assumption:
For uniformity I’m using the same land value the Boulder County Assessor’s Office is using for the former Daily Camera Building property that has two addresses but is assessed as one property for taxation purposes.
 If a current appraisal of the fair market value of the land is available and reasonable, the land value reported in the appraisal may be substituted.

 
Boulder County Assessor’s data for the former Daily Camera building property:
1048 Pearl St & 1023Walnut St, Boulder, CO.
Land value per Assessor:              $6,693,750 sq ft
Land size per Assessor: 59,515 sq ft
Land value per sq ft per Assessor:            $112.47/sq ft
 
According to the submitted legal description, the former Daily Camera building’s bridge over the public alley occupies 230 horizontal square feet that begins at 15 feet vertical above the ground and continues vertically
 45 feet more to the top of the air rights premises.  Note – the air rights leased premises do not include the first 15 feet 0 inches above the ground. The City is using this area for public access over the alley.
 
The minimum clearance for public access along the alley under the former
Daily Camera building is 14 feet 0 inches. The available air space over the alley is 55 feet plus non-habitable space uses permitted by Code above the building height limitation. The submittal
 for the former Daily Camera building requests 45 vertical feet of air space above a point 15 feet above the ground. The top of the air rights premises is 60 feet above the ground and the bottom is 15 feet above the ground. The vertical percentage of the available
 air space used by the former daily camera building is 75% (60’ – 15’/ 60’).
 
Land Value under the air rights:                 $112/sq ft
minus the extra cost to build in the air:  -
$60/sq ft*         
               Preliminary Air Rights Value:       $   52/sq ft
 
The Preliminary Air Rights Value of $52/sq ft is adjusted to account for the portion of the available air rights actually being used or rented. $52/sq ft X 75 % = $39/sq ft
 
A common rent rate percentage downtown is 10% of the property value per year. This is based on a 10% capitalization rate. A 10% capitalization rate applied to the above land value results in an estimated rent rate
 of $3.90 per sq ft per year or $0.33 per sq ft per month.  
 
230 sq ft X $3.90 per sq ft per year =
$897.00 rent per year
 
 
*This additional cost per sq ft varies from building to building, this is my estimate
 
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