A discussion on two duplex properties heats things up at Winnebago's Economic Development Authority meeting last week.
Winnebago's EDA discussed their city duplex proposal at length with interested buyer Jim Ness whose offer was not accepted by the Winnebago City Council.
Because the bid came in a little lower than what the city was looking to sell the two duplexes for, members of the EDA discussed a little further as to why the council chose not to accept Ness' offer. Ness was there himself to discuss his reasoning.
The possible sale of this duplex, owned by the city of Winnebago, was the hot topic at the EDA meeting.
"Some of you at the time may have wondered how we came up with the offer that we did. Typically when we look at a property purchase, we've developed a three-page formula over the years that allows us to look at return on investment, pre-tax cash flow, capitalization rate, operating expense ratios, and it goes on. It all comes down to what we believe the property is worth," said Ness.
He informed the EDA that a 100 percent payment of cash can bring a smaller return for the investor, and that does not include all of the added costs of updating and, once tennants are housed in the duplexes, the repairs that it would take to keep them up.
"We don't just go out and grab numbers," said Ness. "One of the dilemmas that we have in Winnebago that affects new construction in Winnebago isn't always what you can get back on a return. That's something that we've struggled with in the real estate office. You guys know a lot of housing depends on jobs. If you've got jobs, you've got a strong housing market with good competition."
Members of the EDA mentioned that the Winnebago City Council did not have discussion regarding keeping the properties in the city's hands when it was mentioned in their regular meeting, which raised some questions for a few EDA members.
"Are you kidding me?" asked EDA member Doug Hill. "What was the purpose of asking for offers if the city wasn't going to accept them anyway?"
"It's only half of the value of the property," responded city administrator Chris Ziegler. "We owe $189,000 for those properties. The city's position is well-known as far as what's owed and what the reserves and rents are. Everybody knows what those are. I think I was pretty clear when we met, this is the starting point for discussion."
"I'll answer that since I'm on the City Council," stated Jean Anderson, the EDA's secretary and treasurerer. "I think that there was no discussion because of the numbers of what the city owes. One can always hope that the fact that supposedly property value is going up this year in Faribault County will help us sell this property."
"Where did you get that information?" asked Hill.
Ziegler stated Faribault County assessor Gertrude Paschke shared information from the court of appeals the 10 percent increase in housing was based on projections for 2017 for the county of Faribault, not that property value, itself, is actually on the rise.
"If we are going to look at these properties, I don't think we need to sell them right now. Obviously we're not in business to keep rental units up for money and that's not the business the city does. There's no need to sell it right now just to get rid of it," stated Anderson. "I think we also felt that if we do decide to go selling it in the future we should probably list it with a realtor or put it on other media platforms that we can to show more people what's available for sale and hopefully get a higher price. That's kind of what our decision was in my mind."
"The market value is irrelevant. Anybody who's going to buy this and rent it out is going to use an income-based means," Hill rebutted.
"I also believe the fact that Blue Earth is putting a whole new housing development up and are looking forward to growth, I think even though we mentioned we may not have the jobs here, but we're very close to other cities who do have job growth. I'm looking at it as an opportunity for us to grow and not stagnate our growth," said Anderson. "We want to see Winnebago move forward, not stand still."
"Using that logic, it seems to me we would want to get these buildings off of the city's hands and into private hands," said Hill.
"Well, the offer was too low. If you (Ness) would like to come back with a counter offer, or we can open it to other offers, I mean, it was purely a business decision," stated Anderson.
"Then purely, they didn't understand the income approach evaluation," retorted Hill.
Switching topics, member Brad Wolf asked if there were any planning for new development, to which Ziegler stated that if Winnebago's northwest project goes through, there will be plenty of lots for development.
"But nobody's really sticking their neck out there, yet," said Ziegler. "If we would've accepted your offer, Jim, we would have essentially broken even and not had any dollars to start any new projects."
"That just seems to me like short sighted thinking. The sooner we get a property like that off the city roll and creating profit, that seems to be more of a benefit in my opinion," said Hill. "And with an income-based approach, I'm not sure we'll get a higher number."
"Being that there was only one offer selling at a loss, I think that could be perceived as shady dealings with the minimal advertising that we did. I'm not saying it is that, but it could be perceived as such," said Ziegler.
Finally putting the growing argument to rest, Steve Malchow requested the income-based approach on selling the duplexes be returned to the City Council.
"That way everybody starts on the same page and the council can decide what they want," said Malchow. "It's really only worth it if somebody's going to pay for it. I don't think this is the end of this discussion. If they were presented the numbers Mr. Ness has provided to us, maybe they can see a little better what the property is really worth and they can discuss it further. They will have to decide if the income approach is what they will accept or not."
"To conclude it, I appreciate your time and so you know, we're still interested in the property," said Ness.
"The door is not closed," was mayor of Winnebago and president of the EDA Jeremiah Schutt's closing words.