Posts Tagged ‘leased land’

Who Owns Silicon Valley?

View of Silicon Valley in 2012, showing major employers

Vintage 2012 view of Silicon Valley showing major employers. “Silicon Valley IT Company Topography” by Wayan Vota is licensed under CC BY-NC-SA 2.0

Or more precisely, who owns Santa Clara County? With the cooperation of local officials including the County Assessor, a consortium including the Mercury News has determined who owns the greatest value of real estate in the County.  Tech giants Alphabet and Apple are second and third, but the number one owner turns out to be Stanford University.

Some other important information:

Proposition 13 is mentioned, but the incentive which keeps old people in their homes which become unaffordable to most families is not explored.

Local opposition to development, preventing housing construction which might otherwise occur, is discussed.

Stanford’s existing holdings include commercial property, but their current acquisitions seem mainly to provide housing for some of their elite employees.  These people are able to buy houses at favorable prices (relative to the area), however Stanford retains the land and retains the right to buy the house back eventually. Local non-Stanford people complain, of course, but do not offer to sell their properties at a discount.

Apparently California practice is to assess all real estate, even that which is exempt.  This enables meaningful estimates of ownership even tho $13.3 billion of Stanford’s $19.7 billion in real estate is exempt.

Several local officials were interviewed.  They don’t discuss how it feels to know that your opposition, Apple and/or Google, has control of much of your communications and might be monitoring them.

Well worth a read for those interested.


Land Cost Note from Singapore

Singapore Skyline by Bernard Spragg .NZ (public domain)

According to Bloomberg, “Malaysian Tycoon” Quek Leng Chan’s company spent S$1.62 billion (reportedly equivalent to US$1.2 billion) for a development site. Bloomberg doesn’t tell us the size of the site, but the local source Today says  it includes permission for a building of up to 950,592 sq ft., thus requiring a site cost of S$1704, or about US$1262, per square foot of building.  My guess is that you could produce a very nice office building for construction cost less than $1200/sq ft, in which case site cost will actually be greater than the entire construction cost of the new building.  Today notes a couple other costs for the developer:

  • He has to replace the police station currently on the site
  • This isn’t a fee-simple purchase, but a 99-year lease

Which I guess indicates that land is still a nontrivial part of the cost of doing business.  No surprise.

Land value depends on the definition

Image of Drake Hotel by Teemu008 (cc via flickr)

Image of Drake Hotel by Teemu008 (cc via flickr)

In an urban context, absent special environmental issues or legal constraints,  land value and location value are pretty much the same thing.  So we read in Crains that the Drake Hotel is on a 63,000 square foot parcel valued at $150 million, implying this land is worth about $2381/square foot.  But no, the location probably isn’t worth that much.  Rather, the land is leased by the owner of the structure, and the lease document says that, every five years, the land value is to be estimated and the annual rental set at 10% of the land value.

Possibly 10% was a reasonable return in the past, but in today’s zero-interest-rate world no safe investment would yield that much. Rather, the owner of the land actually owns two things: (1) the land, and (2) the privilege of requiring the building owner to pay an above-market rental rate.  Were we to value the land “as vacant,” which is the correct way to estimate land value for taxation purposes, then (2) would disappear and the land would be worth, more or less, the same per square foot as other land in the very prestigious immediate neighborhood.

It would be interesting to see what the lease says specifically about how the land value is to be estimated, and to read the (certainly confidential) document describing how the $150 million value is justified.

For more discussion about methods of valuing land for assessment purposes, duck around for works by Ted Gwartney on the subject, or consult the old but still-relevant TRED volume.

Free fertile farmland!

I’ve said for quite a while that if you want to build a factory, unless it’s particularly noxious, you can probably get free land, or equivalent in benefits, from any number of economic development organizations.  Turns out that the same can be true for farmland.

You, or I, couldn’t do it, but Korean conglomerate Daewoo can, 1.3 million hectares (that’s half the size of Belgium, says FT), in Madagascar.  Apparently this is an above-board legitimate deal, and Madagascar “will simply gain employment opportunities.” Daewoo doesn’t get fee title, but a 99-year lease.  The produce will for the most part be shipped to Korea.