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City Values Vacant Land Higher than Land With Buildings

October 12, 2007 North City, Real Estate, South City 28 Comments

As a REALTOR® I tend to have some basic assumptions about the real estate market. One of those is that a building and land is worth more than the land without a building. Even if the building is in poor condition, it still holds some value in my view. But apparently the people at the St. Louis Development Corporation — the entity that is responsible for property the city owns — thinks differently. Here is how they describe themselves:

The Real Estate Department of the St. Louis Development Corporation (SLDC) documents, manages, maintains, markets and sells agency-owned vacant and abandoned buildings and property.

In some St. Louis area neighborhoods, it will cost you more to buy a vacant lot than it will to buy a lot with a building. Let’s compare a two-family building in poor condition on a 25ft x 125ft lot with a similar 25ft x 125ft lot that happens to be vacant (with the intent for new construction). Oddly enough, the vacant lot is more costly than the building and lot in some cases. For example, based on SLDCs price list, the example building and lot in Benton Park would be $3,000 while the vacant lot (of the same size) would be $4,687.50 — 56% more than the same size plot of land with a building! Their for sale list turns up one vacant building but 19 vacant lots (of various sizes) in Benton Park. In Benton Park West the prices are quiet a bit less at $2,000 for a two-family and only $1,562.50 for a 25ft frontage lot.
If we head up to the north side of the city where many lots are vacant we see a similar situation.  In the Hyde Park neighborhood the two-family would be $1,000 while the same size lot sans a building is $1,250.   Over in The Ville the two-family will cost you the same as Hyde Park but the lot is only $937.50.  In the St. Louis Place neighborhood, where Mr. Paul McKee has purchased quite a bit of private property, the two-family would be $2,000 while the vacant lot $2,343.75.  The building prices are per unit so a single family house on the same 25ft wide lot would be half as much as I indicated above.  So in St. Louis Place a single family home owned by SLDC would only be $1,000 but the land of the same size would still be $2,343.75.

Their price list was last updated in March 2006.  Maybe SLDC has a formula based on the availability of land vs buildings?  Perhaps the idea, and a good one, is to price buildings attractively to encourage their reuse more rapidly than of vacant land?  I just wasn’t expecting to see vacant land with higher selling prices than land and a building.  Given this practice, I can see why some people might favor demolition —- they get the impression from the city it increases the value of their land.


Currently there are "28 comments" on this Article:

  1. Jim Zavist says:

    Could it be location, location, location? Could it be simple market realities? The assumption (reality) that a building in poor condition will have to be removed and not reused? As a Realtor, you know that real estate is, at its most basic, a pure market based on supply and demand. If SLDC could get more, they’d be asking more. And that asking price does not equate to the transaction price. I doubt there’s any grand conspiracy to destroy existing housing, just an acknowledgement that it’s easier to start with a “clean sheet” if your goal is to make a profit in our challenging real estate market.

    [SLP — These are neighborhood-wide policies. I understand they have some flexibility — everything is negotiable right? The Ville, for example, has buildings priced at $500 per unit and land at $37.50 per front foot (for owner occupied side lot or for new construction).  Land just for the sake of land is $0.60 per square foot.  The point is a sound building (but needing full gut rehab thus the “poor” condition disclaimer) is priced lower than land in the same location (say across the street).]

  2. parking says:

    If most LRA buildings were marketable at all, they would have been purchased at the tax sale. By the time LRA gets them, they’re worthless or have negative value. Demolition of a derelict building can cost $5,000-$10,000 or more. Even a vacant LRA lot has higher cost for site preparation than a “green field” lot. The LRA lot likely has subsurface conditions raising costs and liabilities on a future owner. LRA lots are the most distressed of all properties -they have been completely abandoned – and are thus priced accordingly.

  3. Barbara on 19th says:

    It is certainly not market reality. A $1000 city-owned home in my neighborhood (Hyde Park/Old North),even in grim condition with no roof or no back wall, would be worth 10K or more as a private sale. In the last couple of years, the stock of vacant privately-owned homes priced at market rate has decreased more quickly in the last couple of years than the vacant city-owned homes with the artificially low price. I’ve worked with several neighbors who became my neighbors through buying buildings through SLDC. The super-low price does attract a lot of lookers, but as soon as they realize how hard it is to get financing on a home with a very low price, they often decide to buy a privately-owned property in similar condition with a higher price.

    It is a perplexing paradox — as person who lives on a city block with many vacant city-owed homes, I would love to see them given away for free to the first person with the proven means to upgrade them. However, the city won’t allow cash financing — even a person with $100,000 or more in cash is required to get a loan. So the buyer, even with perfect credit, is forced into the subprime market. It is all about the LTV (loan-to-value ration). The LTV of a $1000 home that needs $100K repairs forces is worse than 99/1, and the cut-off for getting a “better” loan is 80/20. It is all about the loan, as we know. Most folks decide the $40,000 fixer-upper needing $100,000 in repairs is a better proposition.

    Frankly, in the oxygen-free zone of needing a 99/1 mortgage, the only loan you can usually get *on the property* is a HUD-backed 203K, which adds a whole ‘nother layer of federal paperwork to the picture.

    The two kinds of successful LRA buyers that I’ve seen are 1) people who can take 100K or more out of their current home or other collateral, and 2) quixotic people who have fallen in love with the house and have decided they can stomach a sub-prime mortgage for the duration of the rehab.

    Note that when they refinance on the near-north side, that 100K investment tends to appraise in the $180K range or higher. If anyone reading this is thinking about taking the plunge with city-owned property, call me. I’ve got copies of successfully done LRA proposals (with personal financial stuff removed) that you can use as a template.

    Barbara on 19th

  4. Nick Kasoff says:

    Without doing a full evaluation of the rehab cost on a particular property, it’s impossible to know whether LRA’s pricing is rational or not. But it is certainly true that in many city neighborhoods, there are buildings for which the rehab cost exceeds the market value of the finished product. In that case, the building has “negative value” – either you spend $120k rehabbing a building that is worth $100k when you’re done, or pay for demolition.

    This, by the way, is also why historic tax credits, tax abatement, and similar tools are so important in encouraging rehab in the city – they are used to bridge the gap between production cost and market price.

    [SLP — Agreed. Do keep in mind that the cost to build a new building on a vacant lot also likely exceeds the market value — thus creating a negative value situation for a brand new building so it too needs subsidizing. Given the market values in some areas you need financial incentives either way.]

  5. Matt B says:

    As others had said without various development incentives in place, many of these buildings do have a negative values.

    Plus couldn’t you take the opposite view of this that by pricing lots with structures in poor condition, the city is encouraging people buy and fix up these homes rather than build a new home on a vacant lot. I know that is not the case, but if you are a rehabber you are getting a nice discount, basically they are paying you to take the structure.

  6. parking says:

    Government “pays” you to take the structure when government subsidizes a project with cash infusions or tax credits. Cheap or free land or buildings is not a subsidy if development costs still exceed market value.

    If there was not the “economic problem” weighing down abandoned city properties, we wouldn’t have the economic problems we have.

  7. barbara_on_19th says:

    I think you guys are relying on the “common sense” received wisdom rather than analyzing the situation. The reason the land sells is that SLDC allows people to pay cash. The reason the properties don’t is that SLDC requires a loan, and very high LTV one at that. Therefore, SLDC is selling the land to anyone and the buildings to lenders only. So you are comparing a cash-buyer market on the land with a lender’s market on the buildings. Gotta stop doing that! Look at each situation in it’s own light.

    The LRA buildings around me do NOT have negative value to cash buyers. The reason they don’t sell to cash buyers is that cash buyers are not permitted to buy them. I can prove that by showing you comps on identical buildings that have no roof, no back wall, etc, that sold for 10K and up in the last couple of months.

    We do not live in a country with a socialist marketplace. The rock-hard rule is that the market determines the value. Therefore, a building that sells for 1K has black-letter value of 1K and you can’t get a loan greater than 16K without exceeding the 80/20 LTV required by the market. The artificially lower price is actually part of the problem, driving up the LTV, and the rarity, of the loan the buyer is required to find.

  8. Tim E says:

    The other thought in the picture is that the cities primary obligation is not real estate but safety of its citizens (I have been fortunate in life that I have lived in an neighborhood where a healthy private market exists). Isn’t their immediate pressure to remove a building that might otherwise a safety hazard, home to squatters, being used as a crack house, etc? Maintaining multiple depressed properties is difficult, requires significant staff and a consistent city budget. I just don’t see how a rehab market is going to work on all the neighborhoods quick enough nor would the cities populus be willing to support a huge budget to address all concerns.

    I see the higher price for empty lots as a means to recover a portion of the demolition costs yet provide an incentive to find a buyer to purchase knowing that a major part of the demo cost was picked up. Empty property listed at $5,000. Yet, to buy a property at $4,000 with intention to demo later, say at a cost of $6000, would give me an incentive to buy the $5000 empty lot. Not to mention the financing and tax implications are much clearer on a bare lot. Of course this benefits the developer or a builder who can put mulitple properties together. But, I just don’t see every single neighborhood coming back through small independent rehabbers.

  9. Nick Kasoff says:

    Tim E – It isn’t just small independent rehabbers that are working on these projects. For example, Old North St. Louis has a project where numerous buildings are being rehabbed, along with new construction infill, coordinated by Old North St. Louis Restoration Group, RHCDA, and Vatterott Construction. They are building very nice homes, which even with all the subsidies are still very expensive. The cheapest house there is 1,356 square feet, at a base price of $170 Gs. That’s what I paid for nearly 2,400 square feet in a very nice part of Ferguson. SLP, you are right that subsidies are needed for new construction in these areas – and obviously, they didn’t get enough subsidies to be able to sell these homes for what they’re worth.

  10. ^Take out Vatterott and replace it with EM Harris.

  11. V says:

    You think you’re pretty cool with that ‘REALTOR’ crap. Congratulations, you passed a six week course that taught you how to fill out a standard residential contract.

    [SLP —  LOL!  I think 5+ years as an agent (including 4+ as a broker-salesperson) in addition to having sales in the city, county, St. Charles and Jefferson county gives me a pretty wide base of experience.  Also, they actually don’t teach you how to fill out the form in that class…]

  12. GMichaud says:

    This discussion is well beyond any six week realtor course, or I mean “crap” The major focus is that any building existing from the past has no value. It returns to questions of city planning and strategies. How do you rebuild neighborhoods?, CDA and city agencies dislike rehabs because they are difficult. Still what is the best way to rebuild neighborhoods? Is it to tear everything out and build new? What is the city plan for an area?, stores, transit and dense housing?, or strip malls with far flung residential without any obvious need for transit.
    The bottom line is that the leadership of this city and this country are pure failures. Even without global warming, there are issues of oil and gas availability that could cripple the security of St. Louis and this nation, yet there is no leadership attempting anything to overcome future problems, including adaptive reuse of old buildings. This sits at the heart of a broader economic and planning policy.
    From my own experience in the 22nd ward I see that that new young leaders plug into the fill my pockets system of government. No one will challenge the status quo to serve the interests of the people.

  13. valet says:


    The reason banks make lower LTV loans on LRA shells is because the properties are not livable. The only type of loan you can get is a construction loan. 203K is a construction/permanent loan with a high LTV. It is intended to assist private individuals in becoming their own developers.

    SLDC requires proof of financing, not a loan. Loans are good because they are tied to the property and are underwritten by third parties. The only way cash is tied to property development is through some form of letter of credit or pledged escrow account.

    If a buyer was willing to enter into a binding agreement with LRA to provide an LOC or pledged escrow account, supported by plans, specifications, and an accurate development budget (with a significant line item for contingency), I’m certain LRA would be willing to work out the details of cash financing. They’d have no good reason not to.

  14. Jim Zavist says:

    The problem is not LTV and vacant structure versus empty lot, it’s a problem of overall depressed values. You don’t see an SLDC in any of our surrounding counties (with the exception of the Illinois versions of St. Louis – East St. Louis, Granite City, etc.). The problem is that the current real estate market simply does not support reinvestment in many parts of St. Louis. What stuff sells for is less than what it costs to replace it! Until buyers value St. Louis properties at higher prices (because of less supply driven by greater demand resulting from more and better-paying jobs and seriously-mproved perceptions about both crime and our public school system), we will continue to have both multiple vacant buildings and vacant lots, many city-owned! In strong real estate markets, properties get improved and sell for more money. In weak and struggling real estate markets, few people are willing to buy, values decline, and ultimately it’s simpler to just cut your losses and walk away . . .

  15. valet says:

    Fortunately community based development corporations help to restore value in distressed communities. Wise public investments partnered with community driven neigborhood revitalization plans do raise property values. St. Louis has many such examples, including downtown, Carondelet, the West End (not CWE), *the* CWE, Forest Park Southeast, Old North St. Louis, and the list goes on. The process takes years and does not fit the investment model of most private investors. That’s why community development corporations and wise public investments are key in the early phases. Two great examples of the private market returning in full force after years of community driven investments include Benton Park and Fox Park/TGE. Had the community effort not been the catalyst, out of control blight and ongoing demolitions would have been the reality in those near southside neighborhoods. Instead, thanks to the visionary work of groups like the DeSales Community Housing Corporation and the Benton Park Housing Corporation, we have two wonderfully preserved and growing historic city neighborhoods.

  16. Nick Kasoff says:

    Jim Zavist wrote:

    > seriously improved perceptions about both crime and our public school system

    It’s more than just perceptions.

  17. constant change says:

    If we hope to save these buildings and turn neighborhoods quicker, we need incentives pointed directly at LRA buildings, and available to those wanting to occupy or sell the properties (not that I’m totally against rental housing, but seems that low income rental is a qualifier for many programs, how about some low income for sale versions?). It should be based on the rehab cost, much like historic credits, verified by paperwork at end of project and then awarded. I don’t know if that helps to get a loan. The worst of the LRA’s buildings that are still savable need more money from somewhere though, and once those are rehabbed the lots will sell themselves… heck, raise the price.

  18. valet says:

    “Turn neighborhoods quicker”. Compared to what?

  19. constant change says:

    Compared to the current speed of neighborhood comebacks with concentrations of LRA buildings.

  20. valet says:

    Oh. Yeah, we all want things faster. What sorts of incentives would you want? The city gives TIF, tax abatement, and federal and local cash. The state and federal government give historic tax tax credits. The state gives neighborhood tax credits. Money is tight. Let’s be specific. What more incentives should we have? How about a land assemblage tax credit, Oops, we just got that too. Things are good, and we are succeeding. What do we need more of?

  21. Jim Zavist says:

    Somewhat related, twenty-some years ago, three semi-ghost in Colorado (Cripple Creek, Central City and Blackhawk) convinced the legislature to allow limited-stakes casino gambling (similar to “riverboat” gambling here) as a means to help “save” their vacant and decaying historic Victorian architecture. Overnight, what had been sleepy tourist towns (with economies based primarily on gift shops and “restaurants” catering to tourists) became very, very valuable. If it was “historic” and within the defined boundaries, what couldn’t be given away suddenly had much greater value. The only direct government “subsidy” was allowing gambling – the market set much higher values.

    Am I suggesting the same thing can work here? No, absolutely not. Much like the new shopping mall or pro sports team or aquarium, any new gimmick eventually becomes old. Central City peaked quickly, 80% of the casino action is now gone and the gift shops are returning. Black Hawk, on the other hand has morphed into a Frankenstein version of multi-story, crappy “Victorian” boxes that might in some weird context meet the spirit of the law: http://www.blackhawkcolorado.com/, http://www.cityofblackhawk.org/. While community based development corporations do help improve values in specific neighborhoods, the fundamental laws of supply and demand continue to play a huge role in determining whether or not an area is propsering or not. And, unfortunately, build it and they will come only goes so far – without customers to support retail and/or non-retail jobs to support other residents, individual efforts can only do so much. Conversely, create enough demand (like in parts of Chicago near the Loop), what was once scary or decrepit is now very much in demand (and rising in value).

    And yes, while perception and reality are many times the same thing, perception is what really counts. Being a relatively newbie here, I had few preconceptions about THE CITY – I was willing to take much of what I saw at face value. My wonderful wife, however, is both a native and a county girl, so the concept of moving from Kirkwood to Maplewood was an adventure, and the concept of actually moving into the city (albeit the blue ghetto of SW city) took some convincing. With the clarity of 20/20 hindsight, we couldn’t be happier, but perceptions did color every decision in our search for a place to call home . . .

  22. Barbara on 19th says:


    LTV —
    The reason banks make 99/1 LTV loans on LRA properties is because the LTV is 99/1. If the LTV is 80/20, the bank makes an 80/20 LTV loan. It has nothing to do with the livability. The reason the LTV is so high in a typical LRA project is that the loan is big and the “value” (meaning actual sale price, which cannot be re-evaluated for 12 months) is little. Loan big – value little, high LTV ratio. Yes, most buildings with a very high rehab cost are not livable. However, most LRA properties in my neighborhood would have an LTV much closer to 80/20 if various policies were not artificially lowering the price (“value”) and raising the loan.
    I’m a person who has completed a 203K loan on my own home, and am involved in 3 more 203K projects right now. The 203K is not designed to make an individual into a developer. The borrower is required to hire a GC, and is explicitly not allowed to be their own GC. What is special about a 203K is that HUD guarantees the loan to the lender. This is why the 203K is just about the only loan available for a 99/1 LTV. The risk the bank sees in the high LTV is offset by the HUD backing on the loan. Note that the borrower pays for the HUD insurance, similar to PMI.

    Really and truly folks, it is all about LTV. Come do an LRA rehab in Old North (we have several nice ones to pick from! Going fast!) and you too will be singing this tune, I promise.

  23. valet says:


    When you take a shell building, and then rehab it for productive use, you, yes you, are a “developer”. You are “developing” the property. Developers develop value, and that’s what you’ve done. The banks profit from the value that you, and other developers, create.

  24. constant change says:

    I’m only intending my comment to be applied to the worst LRA buildings, but still worth saving. My overall view of the city’s revival is quite positive, especially in certain neighborhoods, and the future of many others is promising.

    The State Historic Credit is outstanding. It ensures some level of quality while making most budgets work. Tax Abatements are good too, something for the long term owner. The Federal Historic Credit is not sellable, and available only to rental property for min 5 years, making it not work for many. Few can afford the distressed credit, and it really only promotes holding property for 5 years and demolition of existing structures, and doesn’t apply to LRA properties, but would equate to little if it did anyway. I haven’t inquired about TIF’s on LRA’s. I assumed that was meant as a job growth tool. The rest again apply to low income rental, which is great, but I don’t think our goal is entire rental neighborhoods. CDA/RHCDA has ‘gap financing’ available, which sounds good, but I don’t have first hand knowledge of that entire process, and am not sure it automatically applies to LRA buildings, to be non rental. (Much of this rental money leaves the city quickly anyway). Back to the point, the most difficult LRA buildings will sit as they are until more money is available to fix them or they fall in on themselves and need ’emergency’ demolition. Maybe an ‘LRA problem property gap grant’ to be decided by city engineers, planners, and preservation votes to decide which do or don’t qualify (to ensure we don’t throw too much at the wrong building or not enough at the right one). Or perhaps a grant to get these buildings to a ‘not so scary’ point. Replace structures and roofs and back walls, then try to find new owners. If the worst LRA’s in the city all became structurally sound and/or the best units, the future would (obviously) look even brighter. While longer timelines are working, I believe this would help shorten them, and spread the development more evenly, as the ‘worst’ areas often have the highest concentrations of non budgeting LRA buildings that could be longer habitable, more valuable, more architecturally significant, and better reuse of resources, than a new version.

    Please correct anything I’ve misrepresented or missed, but this is to the best of my knowledge.

  25. constant change says:

    (The distressed credit; meaning land assemblage)

  26. valet says:

    Constant Change,

    You forgot to factor in the role of alderman in securing subsidy dollars. If city money is involved, you have to get your alderman’s blessing. Speaking of “change”, some things change, other things, well, you catch my drift. So, who’s willing to hang with this antiquated system? See, ya gotta hang, or you don’t mean jack.

  27. Jim Zavist says:

    The opposite side of the supply and demand equation: http://www.denverpost.com/business/ci_7166298

  28. neighborhood says:

    Locally, the tear down and build up practice is big in the Dogtown/Franz Park neighborhoods. Clayton, Kirkwood, Glendale, and Webster are also seeing it.


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