Thursday, October 06, 2005

Follow-up: Pipe Dream

Torgo knew there was a reason for that tautological post below. But AnAMSOLGrad never finished it. Turns out that the facts had not yet all arrived.

The CWN article about the development of ND2TM mentions this:
Originally Monaghan had planned to build Ave Maria University in Michigan. But high land prices, tight zoning regulations, and adverse community sentiments prodded him to look elsewhere.

High land prices? As high as Naples?

To the credit, the development plan included cutting the University in on the deal, as the original press release in CWN notes:
After some negotiations, Barron Collier agreed to donate the land for the new university, and enter into a partnership. Paul Marinelli, the president of the development company, said: It's a truly unique approach to educational and land planning. Developing both academic and community features at the same time allows us to create an environment where living and learning form an integrated whole. The campus will be an intrinsic part of the town, and participating in town life will be an enriching aspect of the university experience.

"After some negotiations"

Barron Collier is in the business of making money. There's nothing wrong with that -- we need money to do things. But let's figure this out a little more.

Half of the land is university; half the land is revenue earning. Developers measure success of development by return on investment. Costs of development are rolled into the price per acre, plus a mark-up. The mark-up is the profit.

So the math is something like this Profit = (sale price) - (cost of purchased land) - (cost of developing including zoning, lobbying, advertising, and actual work and materials) - (incentives and pay-outs for commissions) - (cost of buildings, which may include profits to construction comps and brokers)

Per acre is the better way to do it. Developers carry numbers in their heads of costs per acre for types of developing. They expect to make X dollars per acre in profit. Rumors are that the party line is announcing that 50% of the profit goes to the school. More than likely, that 50% is a mark-up on the original profit.

So, the developer is only getting half the revenue expected because the school acreage generates no cash. So the immediate profit margin is probably doubled on the half of the town that will sell, so the mark-up is twice.

Now, consider that this number needs to be doubled in order to make half for the school. So mark-up is probably 4X what is normal.

That's not bad, but it relies on having customers who want to pay the premium mark up for the value or for the vision.

There are people out there with that kind of cash, but who are they? Are they students? Are they people who make the salaries for staff and faculty of Ave Maria? Or are they most likely retirees?

It is conceivable that people will pay this kind of mark-up in an already inflated real estate market, but it's also conceivable that there will need to be discounting and incentives offered to generate revenue. Disney has been doing this kind of development for years.

Housing Covenants?

Speaking of Disney, has anyone yet considered what kind of housing covenants will run on this land in Ave town? Now, there's some fun speculation. Anybody who has worked in a foundation workplace can attest to the expectations placed on employees to have a certain appearance and circumscribing their speech. Imagine that applied to a neighborhood (this thought is scaring Torgo). No news of such things are floating around nor has Torgo heard any rumors, but patterns are patterns and Torgo suspects at least some parts of town will be covenanted.

The other question is how long does it realistically take to get all of this moving.

developing yet more...


At 3:21 PM, October 07, 2005, Anonymous adrem said...

It is worth noting that Mr. Monaghan tried to buy land for the University in Naples prior to the Collier donation. Apparently, environmental issues stopped the transaction. In this context, it makes the seemingly irrational and destructive decision to remove Charles Rice from the AMSL BOG more understandable. Mr. Monaghan is counting on AMSL to support his Florida swampland-bubble investment.

At 4:15 PM, October 07, 2005, Blogger Torgo said...

it makes the seemingly irrational and destructive decision to remove Charles Rice from the AMSL BOG more understandable. Mr. Monaghan is counting on AMSL to support his Florida swampland-bubble investment.

Fascinating. How would the presence of the Michigan-based law school do that, though? ("that" referring to "support the swampland bubble")

Hmmm... so if I read your first sentence correctly, it took a local company to know who to pay-off to get the development variances/planning OKs?

Oh, Torgo can think of several contexts in which the decision to have term limits make sense. Torgo can also think of several contexts in which the decision to get rid of Dr. Rice make sense. But not enough contextual data exists to put a thumb on exactly one.

At 2:07 AM, October 08, 2005, Anonymous adrem said...

Term limits do make sense, if applied across the Board (Monaghan included), and not a posteriori. Based on the letter-writing campaign to save Rice before the BOG meeting, there was already a movement underway to remove him specifically.

The land that Monaghan tried to purchase on the outskirts of Naples had eagles on it. Barron Collier then came to Monaghan with the free-land-for-town-investment idea; it was a completely different, much larger plot of land.

The Law School in Florida supports the investment for reasons that should be obvious to Torgo's brilliant mind: lawyers can afford Ave Mariaville houses (unlike the University faculty making $40K/yr); AMSL has a large cache of prestige and success that it brings to a University who, as of yet, has only had negative PR; AMSL has alumni who can and overwhelmingly do donate (certainly more than Literature and History majors). Monaghan wants ROI (or is that ROD for 'donation').

If it ain't broke, don't fix it. Given AMSL's early success, why else would Monaghan do anything provocative like pass a bylaw to remove a man of Professor Rice's gravitas - a man who clearly did not want to leave the BOG? Monaghan must understand cost-benefit ratios. The benefit must be hefty because the cost could really mount.


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