Dear friends in the Village of Shorewood and Shorewood Village Trustees

Many of you have already informed me of Sunrise Senior Living's recent pullout from the property where I used to live and where the Riverbrook Restaurant was located.  For those of you who haven't, here's the story:

http://www.jsonline.com/business/34467754.html

My final words at the Village Board Meeting that decided this were: "I really hope I'm wrong on my concerns and that this development ends up being successful, butSunrise does not have the Village of Shorewood as it's primary concern, it has it's shareholders."  During discussions I had brought up several cases nationally where Sunrise did this exact same thing - bought property, pulled out and sold.  Someof you assured me there was more oversight and this wouldn't be the case.

It is distressful that a Milwaukee Landmark was closed and that many low-income and diverse families were forced out of Shorewood and this latest development rubs salt in that wound.

The reason I'm writing is two-fold: 1) to encourage you to watch this development closely and to keep pressure on the Village to make smart decisions on this valuable piece of riverfront property, and 2) to give you a final rundown on how I thought the players, our elected and appointed officials, handled this case.

Winners:  Trustee's Jeff Hanewall and Dawn Anderson

These two Board Members answered my concerns in a respectful and thoughtful manner.  I didn't always agree with them but I knew that they heard my concerns and addressed them.  Justice Hanewall actually spent a half-hour with me on the phone - very well appreciated. 

Trustee Anderson addressed the concerns about credit and finances of Sunrise at the Board Meeting - and I'm not sure her concerns, prophetic as they were, were adequately addressed by the others.

The verdict is still out:  Trustee's Margaret Hickey and Michael Maher, President Guy Johnson, Village Manager Cris Swartz

Trustee Hickey was the only other person to respond to my e-mail, which I appreciated, but I was disturbed by an incident that happened at the final Board Meeting.  After the public input session while the Board went into closed discussions, one "public" individual, who appeared to be a developer  very close to Village government, was allowed to speak.  When the apartment manager later tried to do speak, Trustee Hickey shot back in an angry tone "Public input is over!".   (But apparently only for some)

Trustee Maher and President Johnson were silent observers.  Neither replied to my concerns.  I reminded all the Board members, and this is also addressed to the new Trustee, Sean Cummings, It is infinitely better to get a reply that I don't like then no reply at all.

Village Manager Swartz was respectful throughout the process.  The only thing I didn't like was his periodic comment to the effect that "either you're getting Sunrise or you're getting a huge condo".


Most frustrating: Pete Petrie, Chair CDA, Trustee Ellen Eckman, Trustee Michael Phinney, Laura Hester, Sunrise Senior Living

Pete Petrie was by far the most frustrating figure to work with.  He produced these terrible ad-hoc "studies" that showed that 100% of the communities that Sunrise were located in benefited.  Of all the people he appeared most driven to plow this thing through - and I don't know what he had to gain.  His constant threat: if we don't get Sunrise in this property, it could be five years before another proposal came through.  Not the kind of forward-thinking and patience I want from a government official over a project that will be around for many years to come.

Trustee Eckman also did not reply to my e-mails, and after I called her and the others out at the meeting, I got a list of excuses but not an apology.  Please, just be honest and straightforward.  She was also frustrating at the CDA meetings.  Her response to our concerns: "The public brought up the same concerns over a development by Downer Woods and everybody ended up loving it".  Not sure what to make of that, are you saying the public shouldn't bring up concerns and just trust the board?  (By the way, I checked with many of you residents over that development and there are a lot of people that are still very bitter about the process and the development - I don't think we can count them among the everybody who loved it)

Of course Laura Hester, the representative at Sunrise was just plain awful.  In fact, her associate came to me after a meeting saying Sunrise is working out a compensation plan for the residents of the apartment - clearly an attempt to appease and quiet us as nothing was ever in the works.  When things didn't go her way at meetings, her ire would come out, threatening to pull out, and being appeased by certain members of government.


So there you have it.  I have sinced move from Shorewood, but I hope that something good can finally come from this mess.  I hope that all of the Village Board Members take my criticism in a constructive way and that in the future you do your best as elected officials to respect and acknowledge the people you represent.  If you feel I have been unfair or misrepresented the situation I will gladly discuss things further.

For those of you who supported me and the other tenants of the apartments - THANK YOU!  Thank you for coming out to the meetings, for writing letters, for helping to spread the word.  It meant a lot to us.

Sincerely,

Tim Vargo

 WHAT IS YOUR OPINION ?  YOUR COMMENTS ARE WELCOME !

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.