The current Shorewood Village Board is spending some big dollars and planning to spend more, and gambling that increasing property values will pay the bill.

Shorewood is using what is called a TIF (tax incremental financing) as a Financing Tool to pay for various projects, such as Streetscaping, the River Project, Condo Development, etc. 

According to the information published by the Wisconsin Dept of Revenue, a TIF works like this:

"Tax Incremental Finance, or TIF, is a financing tool that allows municipalities to invest in infrastructure and other improvements, and pay for these investments by capturing

property tax revenue from the newly developed property. An area is identified (the tax

incremental district, or TID) as appropriate for a certain type of development, and

projects are identified to encourage and facilitate the desired development. Then as

property values rise, the property tax paid on that private development is used by the

municipality to pay for the projects."

There is a risk though, that IF property values Decline, rather than Increase --- All the Property Tax Payers will pay for the expenditures through Increased Property Taxes, as explained here by the Dept of Rev:

" Municipalities can invest significant amounts of money  into  these infrastructure

improvements in hopes that growth will follow (sometimes called the "build it, and

they will come" strategy). However, if little or no private development occurs after the

improvements are made, there may be no tax increment revenue with which to pay for

the investment. If there is no increment revenue, the bonds used to pay for the

improvements will have to be paid for with general tax revenue. Paying for these bonds without a larger tax base means a higher tax burden. Another risk of over-investing can be that the site is improved, but the improvements actually prevent some types of development from being able to use the site."  

The Big Question now becomes --- are Shorewood Property Values Increasing or Decreasing ?

There are many different ways to calculate the values, and with the current volatile real estate market --- it is anybody's guess of what the values will be by the end of the current year. The basic method of calculating property values, involves what is termed "Market Value", and changes in what the sales prices are in comparison between two comparable time periods.  (Other methods of valuation, "replacement" and "income" are not commonly used for residential property appraisals or assessments).

Taking a snapshot of Single Family Home sales in Shorewood for the time period of January 1^st of this year (2008) to date, compared with the same time period for last year (2007), there is a notable trend:

JANUARY 1 TO MARCH  26, 2007 --- SINGLE FAMILY HOMES SOLD IN SHOREWOOD (17 sales)

ORIGINAL ASKING PRICE             DAYS ON MARKET             SALES PRICE

189,900                                               24                                            192,100

214,900                                               169                                          180,000

224,900                                               114                                          215,000

230,000                                               16                                            221,500

259,900                                               126                                          235,000

289,900                                               183                                          237,000

289,000                                               13                                            289,000

298,000                                               46                                            298,100

329,900                                               99                                            295,000

309,000                                               20                                            310,000

320,000                                               45                                            320,000

339,000                                               42                                            335,000

364,900                                               43                                            356,000

387,900                                               68                                            350,000

449,000                                               10                                            460,000

749,000                                               18                                            750,000

1,495,000                                            62                                            1,425,000

Tot  6,740,200                                     1098                                        6,468,700

Avg 396,482                                        65                                            380,511

THERE WAS APPROX A 4% DECREASE BETWEEN ORIG PRICE AND SALES PRICE

JANUARY 1 TO MARCH  26, 2008 --- SINGLE FAMILY HOMES SOLD IN SHOREWOOD (9 sales)

ORIGINAL ASKING PRICE             DAYS ON MARKET             SALES PRICE

279,000                                               112                                          237,000

314,900                                               146                                          290,000

399,900                                               141                                          300,000

415,000                                               181                                          376,500

424,900                                               172                                          417,000

479,900                                               91                                            449,000

589,900                                               88                                            555,000

599,900                                               31                                            560,000

1,349,000                                            204                                          1,000,000

Tot  4,852,400                                     1166                                        4,184,500

Avg   539,155                                      130                                          464,944

THERE WAS APPROX A 13% DECREASE BETWEEN ORIG PRICE AND SALES PRICE, AND DAYS ON MARKET DOUBLED OVER THE PREVIOUS YEAR.

 

WHAT DO YOU THINK ?  YOUR COMMENTS ARE APPRECIATED !

 I would love a 320% ROI !!!

I am sure that any investor would love to get that kind of Return On Investment --- but I doubt that even Warren Buffet would count those kinds of chickens before they are hatched.

The Community Development Authority is sponsoring a Facade Grant of $800,000 for the apartment building at 3575 N. Oakland.  According to a story in www.shorewoodnow.com by Marie Rohde:

The building  is currently assessed at $3.5 million.

The CDA says the facade improvements will increase the value of the building by $2.256 million and boost neighboring properties by $305,000. 

Doing the math, $800,000 invested with a return of increased value of $2,561,000 is a ROI of 320%.

As a real estate broker, I have been involved in many transactions involving renovation, with single family and multi family properties.  I have never heard of anyone getting that kind of ROI with just a new facade ....

I would certainly like to see a Certified Appraisal of both the value of the building as is, and the value of the building after the facade improvements.  Due to the uniqueness and complexity of this project, such an appraisal would be mostly in narrative, and it would be interesting to see the rationale the appraiser used, and the comps that justify the conclusion.

As a very imperfect comparison (once again considering the uniqueness and complexity of the project) I have printed below the kind of return on investment a homeowner would expect for various renovations.

This is somewhat "apples to oranges" -- but note that on average, no project even pays back the cost !!  The returns are all less than 100%. 

You can find a number of similar charts and comparisons on the internet --- potential Seller are always interested in ways they can sell their property for a higher price. 

Just for fun --- let's pretend that a 320% ROI is doable on this project --- and can be substantiated to the satisfaction of investors/bankers/etc ------- then  why does the Village have to finance the project ?  If it is for real --- drop a dime, call Warren Buffet --- those are the kinds of numbers that would probably get his attention.

What's YOUR TAKE --- please leave your comments below.

Description Of Remodeling Work	Job Cost	Resale Value	Cost Recouped
Minor Kitchen Remodel Replace cabinet dooors, oven and cooktop, laminate countertops, sink, faucet and floor, repaint	$8,507	$8,030	94%
Bathroom addition Add a second bath to a house with 1 or 1.5 baths;include ceramic tile and linen closet	11,645	10,593	91
Major Kitchen Remodel Redesign kitchen, replacing all of the above, plus built in microwave, custom lighting, island.	21,262	19,190	90
Master Suite In a house with 2-3 bedrooms, add a 24-foot by 16-foot master suite with walk-in closet, whirlpool tub, separate shower.	36,472	30,530	84
Attic Bedroom In a 2-3 bedroom house, convert unfinished attic space with bedroom and shower/bath.	22,840	19,084	84
Two-Story Addition First-floor family room and second floor bedroom with full bath.	55,687	46,236	83
Family Room Addition Add a 16- by 25-foot room with skylights, hardwood tongue-and-groove floor, fireplace.	31,846	26,483	83
Bathroom Remodel Update existing bath with new tub, toilet, vanity, medicine cabinet, lighting, tile.	8,423	6,480	77
Replace Windows 10 new 3'x5' aluminum-clad windows with trim.	6,112	4,536	74
Replace Siding 1,250 square feet of new vinyl or aluminum siding and trim.	5,458	3,983	73
Deck Addition 16'x20' deck of pressure-treated pine including built-in-bench, railings and planter.	6,172	4,459	72
Home Office Convert existing room into office with custom cabinetry and re-wiring for electronic equipment	8,103	5,423	67
Source: Remodeling magazine, 1996-1997 Cost vs. Value Report.

(Note to readers: I had posted this earlier in the articles section before my blog was up and running --- but I think it is too important not to include on the blog)

NEED A BUSINESS LOAN --- DON'T ASK A BANK, ASK SHOREWOOD --- WOULD YOU LIKE $25,000 OR MAY $50,000 ?

Under a new loan program approved by the Village Board, WE --- the taxpayers of Shorewood --- will make loans of between $25,000 and $50,000 to both existing and new Shorewood businesses.

The loans can be used for almost any reason, including for "working capital". There are no requirements that the loans be secured by collateral, or even by personal guarantee.

Speaking as a Shorewood citizen, property owner, and small business owner, I am very much against this program, for several reasons. First and foremost, when did this need to subsidize Shorewood businesses develop ? Has there been a single instance in which someone closed their Shorewood business, or decided against starting a business in Shorewood, because the village would not lend them money ? And if they cannot get a loan from a bank, why should the Village take a risk that a bank will not take.

Secondly, how do we decide which businesses to subsidize ? Should we help a new liquor store get started or how about a tobacco shop? We do have more than a number of places in the Village to get a bagel or a croissant, but don't we really need a good donut shop ?

In Shorewood we have a great place to live - we have one of the best school systems anywhere, and our Residential - Urban - Sidewalk - atmosphere is almost "Norman Rockwell" in its flavor.

Our underlying strength is not the businesses that are in the Village. Shorewood is not a shopping destination in itself. We have some destination shops here, such as Goldi's, Harley's and CC Conrad, but for the most part, businesses which locate in Shorewood are here to serve the people of Shorewood. Shops and businesses that fill the need of our population, with a convenience of being close to home.

It is no secret that our population is lower now than at our peak, and that our schools have excess capacity to serve more students. And there are steps we can take to help make Shorewood even stronger and more desirable.

We are foremost a residential community, and we have a larger than average stock of rental units. If we are to use TIF money to strengthen Shorewood, it should be used to help property owners to improve the housing stock --- ie. energy efficient furnaces, newer copper plumbing and updated electrical. We can promote energy systems that are affordable for the landlord to include heat in the rent. We can develop programs to encourage owner occupied duplexes. And we can develop programs that work with both landlords and tenants, to make Shorewood the number one rental option in the Milwaukee Metro area.

As Shorewood has grown more mature, there is also a greater need for housing that serves the needs of our senior citizens who would like to stay in Shorewood, but don't necessarily want the responsibility of a large property to maintain. As I can attest to, after both a hip and a knee replacement, a two story house with a basement, is not very user friendly to those with older joints !

(And by the way --- as a residential, sidewalk friendly community --- we need to resume show removal !)

Our focus in building a stronger Shorewood should be on our housing, and filling the needs of all the different segments of our community, higher and lower income, younger families with school children and seniors with mobility needs.

The next time you walk or drive through the Village, look around and see what kinds of business is here in Shorewood. It is business that is primarily focused on the needs of the neighborhood --- grocery stores, coffee shops, dry cleaners, barbers, hair stylists, pharmacies, insurance agents, realtors. We don't have any of the "Big Box" stores, ie. Target, Home Depot, Best Buy --- and we don't want them --- where would everyone park ?

If the Village really wants to help Shorewood business, it should disband the BID District. When I first came to Shorewood about 15 years ago, we had a local business association, that most of the businesses belonged to. It cost about $70 a year to belong, and we would get together once in a while, share ideas and conversation, and put together occasional events. All in all, the association didn't do too much --- but then again, it didn't cost much either.

Unfortunately, the Village decided that whatever the local businesses were doing, it could do better. Thus the Shorewood BID District was born. Now anyone who owns commercial property in Shorewood pays a tax, for the Village to spend for our business welfare. Whereas business property owners paid about $70 to belong to the business association, they now pay more like $700 or $800 to the Village BID.

We still don't get much --- but we sure pay a heck of a lot more for it !

The best t