City for sale?: asset sales and intra-city sprawl

In today's Examiner, columnist Harry Jaffe waxes lasciviously about the potential for revenue from the sale of various city properties. See "Can Gray sell property to restore D.C. savings?"

From the article:

All Gray has to do is sell some valuable city property, bank the profits, and lock them away from grasping politicians. Can he pull it off? Does he have the gumption? The political will? Or the financial smarts?

Plans to sell off city property have been floating around for at least two years. D.C. Councilman Jack Evans, chairman of the finance and revenue committee, first suggested the city consider selling four buildings: One Judiciary Square; the Daly Building, police headquarters across the street on Indiana Avenue; the Recorder of Deeds facing the Daly Building, and the Reeves Center at 14th and U streets NW.

This is mostly a pipe dream, because at least two of the buildings, the Daly Building and the Recorder of Deeds building, are historic buildings that can't be expanded.

Plus, a third building, the Reeves Center, is a lot less valuable than Evans believes, because it has limited appeal as a commercial office building, because 14th and U Streets is an outlier location, distant from office centers downtown and along Connecticut Avenue in Golden Triangle and Dupont Circle.

I am not someone who can handicap the value of sites like this as mixed use residential. I do know that the Children's Museum site (a full city block) sold for about $23 million I think (the total number of developed units is between 450 and 500), back in 2003 to Abdo Residential. But a parking lot that the Washington Post sold (it's now an office building) went for more than $50 million.

As the article says, the big opportunity in the city's property portfolio is One Judiciary Square, a government office building immediately next to the Judiciary Square subway station and in the midst of a kind of "campus" of government buildings, including the Recorder of Deeds, a number of judicial buildings, and the Police Department.

Intra-city sprawl versus localization economies

I have written before about what I call intra-city sprawl, that is, the relocation of city agencies from a relatively concentrated spatial pattern to one where the buildings are distributed all across the city, usually in the process the buildings move from locations where they are more easily reached by larger numbers of residents and/or by transit, to locations that are more distant from greater numbers of residents and with more limited transit options.

From the standpoint of urban economics, this is a bad policy as it is a destruction of the value of what are called locational economies (one of the three subsets of agglomeration economies from a webpage on the Geography of Transport Systems based on a textbook of the same title):

Localization economies. Benefits derived from the agglomeration of a set of activities near a specific facility, let it be a transport terminal (logistics parks), a seat of government (lobbying, consulting, law) or a large university (technology parks).

For both employees and "customers" of the agencies, it is more efficient for the agencies to be located proximate to each other. Otherwise, more time is spent traveling to and from the agencies, and less time on productive activity.

It also induces more trips, and more trips by motor vehicles, rather than by foot or transit.

Unless government agencies are closed down, buildings still have to be found to house agencies displaced through the sale of government buildings

Besides the destruction of agglomeration economies, the other problem with the sale of certain government buildings and the relocation of government agencies is that new facilities still have to be acquired, outfitted, and/or constructed.

After this cost, subtracted from one-time revenues from the sale of property, is factored in, often the revenues are significantly less.

Since these are one-time revenues, not recurring revenues, the positive effect from asset sales is both short term and minimal, even if directed to the city's "rainy day" fund, as Jaffe suggests.

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* Note that these problems exist for WMATA with regard to city pressure for WMATA to sell its headquarters building located in the central business distrct and to relocate to a distant facility, such as at the Anacostia Metro.

That was one of the big initiatives of the Fenty Administration... See the WMATA document, Jackson Graham Building Relocation Analysis. The analysis found that the net cost to WMATA of doing what the Fenty Administration wanted would cost $5 to $50 million beyond the revenue received for the sale of the building.

Also see, "State-building sales net $300 mil for Arizona budget." The sales and leaseback deal will probably cost the state about $150 million in interest over 20-30 years.