AN ANALYSIS OF THE LAND USE AND VALUE OF WEBER STATE UNIVERSITY’S MOUNTAINSIDE PARCEL

AN ANALYSIS OF THE LAND USE AND VALUE OFWEBER STATE UNIVERSITY’S MOUNTAINSIDE PARCEL Prepared For Weber State University Prepared By James Wood Francis Lilly Bureau of Economic and Busi

AN ANALYSIS OF THE LAND USE AND VALUE OF

WEBER STATE UNIVERSITY’S

MOUNTAINSIDE PARCEL

Prepared For Weber State University

Prepared By James Wood Francis Lilly Bureau of Economic and Business Research Davis Eccles School of Business

University of Utah

February 2007

Summary and Conclusions

This study examines the land use and value of a 120-acre parcel of property owned by Weber State University The property is located east of campus and is referred to as the Mountainside Parcel

The topography of the Mountainside Parcel limits the amount of developable acreage to approximately 57.5 acres Weber State University has intended this land to be used for future academic and research expansion

This report determines two separate values for the Mountainside Parcel: (1) the current market value of the parcel as residential land and (2) the current replacement value of the land The market value

represents the approximate value Weber State University would realize if the land was sold for residential use The land is currently zoned residential R-1-10 The replacement value represents the cost to Weber State University to buy 57.5 acres of land in close proximity to campus to accommodate future academic and research expansion, if the Mountainside Parcel was sold

The current value of the 57.5 acres of developable residential land at the Mountainside Parcel is $10.1 million This estimate represents the land’s current market value as undeveloped residential property

The replacement cost of the Mountainside Parcel is estimated to range from $37.7 million to $45.2 million The lower bound of the price range was determined from assessed residential property values near Weber State University and the upper bound from the median sales price of nearby homes

Since land replacement would likely include the purchase of residential homes, demolition costs must be included in the replacement costs estimates A conservative estimate for demolition of a typical

residential home is $10,000 Replacement of the Mountainside Parcel through purchase of residential homes would require the demolition of approximately 200 homes at a cost of $2.0 million Adding demolition costs increases the estimates for land replacement to a range of $39.7 million to $47.7 million

The Mountainside Parcel is considerably more valuable to Weber State University as expansion land than the alternative use of developed residential land If the university decided to sell the land for

residential development its value is approximately $10 million in 2006 dollars whereas the cost to replace the land for academic and research expansion would, at a minimum be $40 million and could be as high

as $47.7 million

Mountainside Parcel: An Analysis of Land Use and Land Value

Weber State University (WSU) contracted with the Bureau of Economic and Business Research (BEBR), David Eccles School of Business at the University of Utah to estimate the current market and replacement value of approximately 120 acres of land owned by WSU

The subject parcel is located immediately east of Skyline Drive and depicted in Map 1 The parcel is referred to throughout the study as the Mountainside Parcel The Mountainside Parcel is a long-held asset

of WSU and is intended to be used for academic and research expansion of the university

Map 1 Map of Weber State University and the Mountainside Parcel

Recent private and public circumstances have made it necessary for WSU to reevaluate the land use and value of the property In 2005 the Salt Lake Exchange Accommodations (owned by Chris Peterson), purchased the 1,440 acres of Malan’s Basin and proposed developing a ski resort in the basin and a luxury home development near the west base of Mt Ogden Many civic leaders support the proposed Peterson development, believing it will be an important stimulus to economic development for Ogden City and Weber County However, the proposed ski resort and luxury home development would require WSU to sell the Mountainside Parcel The proposed development’s need for the Mountainside Parcel has led WSU to undertake a reexamination of the land use and value of the Mountainside Parcel

Study Objective

The Mountainside Parcel has three potential land uses: academic/research space for WSU, a research park associated with WSU, residential development and ski resort/residential development The latter two uses would require WSU to sell the parcel and acquire replacement property sufficient to accommodate the future academic and research expansion of the university

Given these potential uses for the Mountainside Parcel, the study’s two primary objectives were: (1) to determine the current market value of the Mountainside Parcel and (2) to determine the replacement cost if the Mountainside Parcel were sold.

Study Assumptions

The following assumptions were used in the analysis of the Mountainside property

(1) Land value – In the analysis two distinct land values were considered Market Value: the

approximate market value of the Mountainside Parcel as a residential development Replacement Value: the cost to acquire substitute land to meet the future expansion needs of WSU

(2) Land Use - The two primary land use alternatives considered for the site are academic/research and residential development The research park use was not examined in detail due to the long development horizon of a research park and expected lower per acre values, nevertheless, a research park is a possible alternative use Residential development may occur independent of the proposed ski resort or as part of the ski resort development

(3) Developable Land - While the Mountainside Parcel comprises approximately 120 acres of land only about 57.5 acres are developable, according to the Shipley Group’s recent geological survey

of the property, see Map 2

(4) Undevelopable Land - The remaining 62.5 acres of undevelopable land have little economic value for institutional or residential development This land has slopes of greater than 30% therefore is undevelopable However, the land does have non-economic value as public good and open space (5) Replacement Property – The residential property adjacent north and south of WSU

(6) Residential land use scenario – Under the residential use scenario WSU would sell the land and use the proceeds to purchase replacement property for future expansion

I Current Market Value of Mountainside Parcel

The current value of the parcel is determined by its potential alternative use as a residential development Residential development would yield the highest price for the developable land The land is currently zoned R-1-10, a residential zone permitting the development of 10,000-square-foot lots for detached single-family housing Residential development of the land may have lower density (larger lots) without

a change in the zoning It is anticipated that any residential development on the parcel would be

comprised primarily of large lots—approximately half-acre lots

Private commercial development would require a zoning change, which carries a strong likelihood of intense neighborhood and zoning commission opposition Furthermore, the site as an office location has significantly less market potential and a much longer development horizon Therefore, the potential for commercial office development by private developers on the parcel is limited hence its commercial value

is less Sale of land by WSU for commercial development is not considered a viable alternative use The parcel could be developed by WSU as a research park This use would not require a rezone since ownership remains with WSU However, market conditions for a research park would impose a very long time horizon, which would results in high opportunity costs for a research park development

Developable Land

The geologic evaluation completed by Shipley Group in 2006 identified approximately 57.5 acres of developable land on the Mountainside Parcel Developable land is defined as land with less than a 30% slope and is depicted by the dark goldenrod color in Map 2 Some of the developable acreage is located in pockets or islands of land surrounded by undevelopable land Although these islands satisfy the slope requirements for development their location on the site renders them undevelopable Therefore, the total developable acreage on the parcel is no more than 57.5 acres

Map 2 Developable Land at Mountainside Parcel

The current market value of the Mountainside Parcel is equivalent to the highest-priced alternative use, which is residential development The property’s value for residential development was determined from

a review of existing residential property adjacent to the Mountainside Parcel Assessor’s data as well as sales data from the Wasatch Front Regional Multiple Listing Service (WFRMLS) were analyzed In addition, major home builders were interviewed regarding their estimates of the value of the

Mountainside Parcel for residential development Assessed values and multiple listing service data

provide information on the value of developed lots Once a developed lot price was established it was possible to determine the price per acre for undeveloped lots, i.e., raw residential ground The interviews

with developers provide confirmation of the value for undeveloped land

Developed Lot Value

Assessed value data on comparable residential land immediately south of the Mountainside Parcel were analyzed Nine nearby recently platted (2003 to 2005) residential parcels had a median assessed value of

$250,220, which includes the structure The typical lot was 37 acres and the median residential land value was $75,000 One developed vacant lot on Skyline Drive near WSU is indeed selling for about

$75,000, Table 1

Table 1 Assessed Value of Residential Lots Platted and Developed Near Weber State University – 2003 to 2005

Acres

Assessed Lot Value

Assessed Value Per Acre

Total Assessed Value

Source: Weber County Assessor’s Office

Assessed values are generally slightly lower than market values Therefore the assessed value is treated

as a lower bound for developed property value NewReach, a local real estate research firm, provided additional price data for vacant developed lots as well as new home values in two nearby subdivisions, The Point at Stone Mountain and Manderley Meadows The developed one-third to one-half acre lots in these two small, high-end subdivisions range in price from $100,000 to $200,000, see Table 2

Table 2

Price Characteristics of Nearby High-End Subdivisions

Subdivision Address Number of Lots Lot Price

Range

Home Price Range

Lots Sold

Point at Stone

Mountain

4477 South

1500 East

$120,000

$284,000 to

$375,000

2 Manderley

Meadows

4815 South

1808 East

$200,000

$400,000 to

$575,000

6 Source: NewReach

Custom builders were also contacted and they confirmed that a half-acre developed or “finished” lot near the subject parcel could sell for upward of $150,000 to $200,000 These values are at the extreme high-end of developed lot prices in Weber County

The rule of thumb for estimating lot value is to divide the home price by three Therefore, a $600,000 home would have a lot value of about $200,000 or conversely a developed lot priced at $200,000 would require a home price of about $600,000 to make economic sense for the home builder

There may be a few isolated cases of $600,000 custom homes in established subdivisions but home sales

in this price range are rare In the 42 active subdivisions in Ogden, South Ogden and North Ogden there have been no homes built for over $500,000 and only six homes priced between $450,000 and $500,000

in the past year, see Table 3 These six homes represent only 3% of the new homes sold in the three cities

in the past year In addition, no developed lots have been sold for more than $200,000 The median lot price for the 210 homes sold in the three cities was $71,000, see Table 4

Table 3 Sale Price for New Homes Sold in Ogden, North Ogden and South Ogden (October 2005 through September 2006)

Price Range Number of

Sales

$125,000 to $149,999 15

$150,000 to $174,999 71

$200,000 to $224,999 49

$275,000 to $299,999 19

$300,000 to $324,999 11

$400,000 to $449,999 11

Source: NewReach

Table 4 Lot Price for New Homes Sold in Ogden, North Ogden and South Ogden (October 2005 through September 2006)

Lot Price Range Number

Sold

$30,000 to $39,999 0

$40,000 to $49,999 12

$50,000 to $59,999 82

$60,000 to $69,999 6

$70,000 to $79,999 52

$80,000 to $89,999 5

$90,000 to $99,999 13

$100,000 to $119,999 17

$120,000 to $149,999 17

$150,000 to $169,999 0

$170,000 to $199,999 6

$200,000 to $249,999 0

$250,000 and above 0 Source: NewReach

Further confirmation of the relatively thin market for high-priced homes in Ogden and Weber County is provided by the Wasatch Front Regional Multiple Listing Service From January through September of

2006, 3,278 existing homes were sold in Weber County Only 56 or 1.7% of these homes were priced above $450,000, see Table 5

Table 5 Sales of Existing Homes in Weber County (January through September – 2006)

Price Category Sales

$75,000 - $99,000 333

$100,000 - $140,000 923

$140,000 - $179,999 806

$180,000 - $219,999 332

$220,000 - $259,999 205

$260,000 - $299,999 122

$300,000 - $349,999 104

$350,000 - $399,999 70

$400,000 - $449,999 40

$450,000 - $499,999 18

$500,000 - $749,999 32

$750,000 and Over 6

Average Price $165,214 Source: Wasatch Front Regional Multiple Listing Service

The price data on new homes, developed lots and existing home sales indicate that residential

development on the Mountainside Parcel is unlikely to have homes priced above $500,000 Nevertheless the Mountainside Parcel is prime residential land with fantastic views to the west and the developable property on the high east bench is scare and could command “top dollar” Chris Peterson does envision luxury homes on the site

Therefore, it was assumed the Mountainside development would be at the top end of the market with homes priced at $475,000 With an average price per home of $475,000 the lot value for that home would

be about $160,000 Assuming the typical lot was 15,000 square feet (one-third of an acre) to 17,500 square feet (four-tenths of an acre) the number of homes yielded or developed per acre would be about two homes This “yield factor” takes into account the land required for roads, sidewalks and

infrastructure

Conclusion: At two homes per acre and each lot valued at $160,000 the developed lot value per acre

is $320,000

Undeveloped Lot Value

The developed lot value is significantly higher than the undeveloped value of the parcel That difference

is the cost of development As discussed above the expected value for a developed lot on the

Mountainside Parcel is approximately $160,000 The price for home and lot would be $475,000 Starting with a finished lot value of $160,000 the development costs are backed out or subtracted to arrive at the undeveloped lot value

The development costs per lot are typically about $35,000 per lot These costs include: utilities, concrete (curb and gutter), asphalt for road, street lights, pipes, impact fees, engineering and carrying costs of developed land Development costs also increase with the slope of the ground, for every 1% slope development costs increase by $1,500 Assuming an average slope of 3% for the residential land at the Mountainside Parcel the development costs increase by $4,500 In addition to the development costs, developers expect at least a 20% profit on the land—a $160,000 lot would include approximately $32,000

in profit

The total development costs of $40,000 plus the profit of $32,000 gives a total development cost of

$72,000 per lot The development costs and profit were then subtracted from the developed land cost of

$160,000 per lot to determine the undeveloped land value In this case, the $72,000 is subtracted from the

$160,000 developed value to give an undeveloped land value of $88,000 per lot At two lots per acre the undeveloped land value per acre is $176,000

This exercise shows that if a development company were to pay $176,000 per acre for the undeveloped ground on the Mountainside Parcel they would need to develop and sell new homes at approximately

$475,000 The undeveloped lot value was corroborated through discussions with Ivory Homes and Richmond American Homes, the two largest home builders in Utah In 2006, each will build

approximately 1,100 homes, consequently both companies have extensive experience with development and undeveloped land costs

Both Ivory Homes and Richmond American said, independently, that they would consider paying in the neighborhood of $160,000 to $180,000 per acre for the Mountainside land Both home builders are currently developing homes in South Ogden and are familiar with land costs and development in Weber County They agreed that a value of $200,000 per acre was too high for the undeveloped residential market

WSU could capture the difference between the developed value of $320,000 and the undeveloped value

of $176,000 if the university served as the real estate developer Otherwise, a major developer would purchase the land from WSU The land would be purchased as undeveloped residential land The developer would assume all development costs mentioned above as well as the responsibility for securing land entitlements and appeasing the surrounding neighbors The undevelopable land has no market value for the developer

If WSU pursued residential development of the parcel it is recommended that sale of the land be phased The first phase should include about 20 acres with the remaining acreage held by WSU With Phase I development the remaining WSU land will appreciate and this appreciation could be captured by the university This is the approach the State Institutional Trust Lands Administration pursues in joint residential ventures in Washington County Both parties—developer and institution—benefit, the

developer does not have the carrying costs of excess land and WSU would capture appreciation with little in the way of carrying costs

Conclusion: The current residential market value of the 57.5 acres of developable land on the Mountainside Parcel is $10.1 million.