Doing The Math: Replacing A Historic Home With Parking

Brad O'Donnell is a Strong Towns member who serves on the Planning Commission of Utica, Michigan, and is currently running for city council. His guest article today does the math on the real value of a proposed development in his community.

Listening to a vocal minority of folks would have you believe Utica, MI has absolutely no parking. It's the parkocolypse. Mayhem! Choas! However will we survive?

A "solution" has been floated that the city should purchase this historic 1890 home-turned-business, to be knocked down for additional downtown parking. 

Recently remodeled and looking very sharp, this house is located exactly where the downtown Utica commercial district ends and the residential district begins. Downtown Utica has traditional mixed-use multistory buildings, but the residential part of downtown is almost entirely single-family homes. 

To be fair, we do have a somewhat unique circumstance: In 2016 a minor league baseball field, Jimmy John's Field, opened in downtown Utica. This was quite a shock to our formerly sleepy, small, declining downtown.

Downtown is still small and declining, but on game days, it is anything but sleepy. People crowd in from all over the metro Detroit area to watch the family-friendly ball games. For 5 hours, 4 days a week, parking is, indeed, somewhat scarce. 

A big part of Strong Towns is doing the math, so buckle up, because we're about to do just that. 

(A brief disclaimer that math and I have never really gotten along. If these numbers seem simplistic to you, that's because they are. Comments on how to improve on this outlook are very much welcomed, but overall, please go easy on me.)

The house in question, which is currently for sale and operating as a business, brings in $6,912 per year in tax revenue.  The entire lot it is sitting on is 16,204 square feet. That means this parcel brings in 42 cents per square foot. Not great, but compared to local big box stores, which bring in somewhere around 20 cents per square foot, it could be worse. 

Let's break Utica's options into two main camps.

Option 1: Let's bulldoze this thing and pave it over for more parking. 

This may be slightly hyperbolic. It's possible city leaders decide to keep the house and simply use the existing parking lot. 

By my estimation, there are currently 26 parking spots already in existence on the lot. Let's say somehow we squeeze in 4 more to get an even 30. 

30 x $5 per spot = $150 per day. 

$150 per day x 4 days = $600 per game week.

$600 per week x 20 game weeks = $12,000 per year.

Great news! We're doubling the revenue to the city from the lot, and we kept the building intact. But wait... 

The cost of purchasing the building currently sits at $250,000. At $12,000 per year, it will take over 20 years to make our money back.

This is assuming we keep the building. Tack on another $25,000 for demolition and $10,000 to pave over where the house once stood. Include maintenance costs, some sort of system for collecting parking fees, police and fire, and other expenses and all of a sudden we're looking at a lot that won't pay for itself before it needs to be completely replaced. God forbid the ball field belly-up before that 20-year period

Skeptical? Even if by some miracle we were able to collect $25,000 per year from the lot, and the cost was somehow only $250,000 even, it would still take 10 years to pay off, at which point the lot would need replacement anyway. 

I'm not willing to take this very risky bet. The city stands to lose a lot and gain very little, even in the best case scenario. 

Option 2: Let's develop the lot by relaxing setback and parking requirements.

Here's a novel idea: If the ball field wants parking, they should build it themselves. Let's set aside the idea that the lot should be used for parking, and see what it might look like to develop it instead.

Can you think of better uses for this space?

Can you think of better uses for this space?

16,000 square feet is a very large lot, and, by my rough estimation, we could probably squeeze in 6-8 mixed use multistory units that match adjacent buildings and fit inside the lot as it currently stands. 

Let's assume we can only pull off putting in 2 new units, facing the existing street, built in the downtown style of the building seen on the left. There is on-street parking, but there would also be a parking lot accessible from the rear. 

That building on the left brings in 82 cents per square foot, so let's make that our baseline. 

Our historic house is nearly 4,000 square feet, so let's assume we can fit 6,000 square feet in that space. 

$.82 x 6000 square feet = $4,920

Just like in our last example, let's add in the costs to the city to do this. Property purchase costs to the city are $0.00 (private developers would build the units); construction and build-out costs are $0.00. The pre-existing infrastructure is already accounted for, so let's add an additional $0.00 to our $0.00 total.

Given these numbers, it would take Utica 0 years to pay off this investment, and would immediately bring in revenue of a minimum $4,920 per year

Let's do a quick thought experiment on what it would look like if we filled in this lot to maximum capacity. We'll keep using the 82 cents per square foot revenue estimation, but now let's fill in 14,000 of that 16,000 square footage, and add on a second story to half the buildings, thus increasing the value of the building by 50%. (Downtown Utica has buildings as tall as 3 stories, but hey, let's be conservative.)

To keep the math simple, let's calculate this by increasing the square footage to 21,000. (I know it's more complicated than this. Especially given Michigan's quirky property tax laws. Chill out.)

$.82 x 21,000 = $17,220

At a cost of $0.00 to the city, we could conceivably generate $17,220 per year in new revenue.

Can I stretch this even further? A two-story building not 500 feet away brings in $1.12 per square foot in revenue. 

$1.12 x 21,000 = $23,520

Conclusion: Let's not be too clever by half.

Is there possibly some sort of scheme in which the city can make money, pay off their newfound debt very quickly, and realize "profit" before something goes south? Maybe. It's a big risk though, with little upside. 

Is there a possibility that allowing an underutilized lot to develop incrementally will be a bad bet? Maybe. Maybe parking demand becomes so overwhelming that the city could have made more revenue by selling parking spaces. 

But why is that a risk we should consider taking? If we're going to take a risk, why not on a new dog park, or facade improvements to downtown buildings, or a connected sidewalk network? 

If you're reading this and starting to think about these issues, I highly encourage you to get involved in your city. Attend City Council meetings, go to Planning Commission meetings, and make your voice heard.  

I would bet a pretty penny that your city leaders have never once done the math. Do it for them. Let them know if a proposal is risky and offer up your thoughts.  

Sometimes you'll feel like you're yelling into the wilderness. Keep yelling. Sometimes you'll be positive your work isn't making a difference. Keep working anyway. Because eventually, you'll break through and make a difference. Your town is counting on you.