Vail Daily letter: Avon should rent, not buy
I would like to address the issue of the town of Avon potentially purchasing the Skier Building in Avon and Mayor Pro Tem Jennie Fancher’s letter. Firstly, my wife and I moved to Avon on a full-time basis last year and thoroughly enjoy living here. Like many others, we have enjoyed seeing surge of investment in Avon and the new retail establishments that have opened here as a result. As a 30-year veteran of the commercial real estate industry, both as a principal and as a former partner (10 years into retirement) of a Wall Street firm where I specialized in real estate finance/investment, I would like to add my perspective.
Firstly, I do not understand why the town of Avon needs to invest its capital in owning real estate versus being a tenant. I’ve read arguments in the Vail Daily that include statements such as “it won’t cost us anything” in additional taxes to “if we can borrow the funds to do it, why not do it?” These philosophies underlie exactly how we got into a real estate mess in the first place. Use of capital or borrowing always costs something, and when people forget that, they tend to make bad investment decisions. Additionally, I’ve yet to see a situation in the valley where business owners garnered any form of appreciation by owning real estate over the past 10 years. Additionally, once you become an owner of real estate, your flexibility decreases.
If the town has additional needs in the future or wishes to change its occupancy (location, size, etc.), it will then have to find a buyer for the real estate it has been occupying, rather than simply letting a lease expire and move to a new location. The cost of acquiring and disposing of real estate are often forgotten in the belief that “trees grow to the sky” and real estate always appreciates. Again, I think we’ve seen that real estate does not always appreciate. Real estate also becomes obsolete over time and needs updating, which requires additional capital outlays vs. having a landlord make these investments.
Finally, I would like to better understand who from the town of Avon has been negotiating the contract for the Skier Building. Do they have commercial real estate expertise? Are they seasoned and tough negotiators? We have a recent example of where the town has been caught flat-footed in the cost overruns associated with the Brian Judge fiasco. Clearly, the town has shown recently its inability to protect itself in a real estate transaction.
So with all of this said, I believe that the town will be better served by being a tenant rather than an owner of real estate. I can find no compelling case for ownership vs. leasing and I have no sense of how good a deal the town has struck.
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