Vail Daily letter: Great fiasco in Avon |

Vail Daily letter: Great fiasco in Avon

I read Mayor Rich Carroll’s Vail Daily column entitled “Great things happening in Avon” and was struck by his upbeat tone on the town’s purchase of the Skier Building. I have performed a reasonable amount of due diligence on this acquisition, and I can say with confidence that by the town purchasing this incomplete building and undertaking the requisite work, it will be the most expensive commercial office building in the valley and far beyond. The town is purchasing a building that lacks parking, has sat vacant for years, and justifies its purchase by stating that the property will provide restrooms to the public and meeting space. The only mention of economics is Carroll’s statement that the town can do this with no increase in tax revenues. That is hardly a justification. The town is using its precious funds to pay interest on debt — funds that could be deployed into projects that actually create revenue for the town rather than simply provide an over-improved set of office space for town employees.

Let’s look at the economics of this purchase — firstly, the acquisition price is $200 per square foot. The town estimates that it will cost another $180 per square foot to finish out the space. Both of these figures were supplied by the town to me. I think we have a right to be skeptical that the town can manage construction projects, as evidenced by the debacle involving Brian Judge and the new amphitheatre. But even if these figures are accurate, there is no commercial office building in the valley that is valued at $380 per square foot. So why should the town set the high water mark on purchasing and building out government office space? Because they can offer bathrooms and meeting space? The town was offered commercial office space to lease at less than $20 per square foot (again, figures supplied by the town). That is a far cry less expensive than this purchase. However, the town did not want to pursue this lease because the landlord only offered a 10-year term. I’m not sure how hard the town negotiated. Rather, I think it simply wanted to build out its own luxurious space.

The town has also told me that it neither has an architect nor a set of advisors for completing the project. So right there I’m not sure how they have confidence in knowing how much it will cost to finish the Skier Building. Again, we have seen how flat-footed the town has found itself by trusting an architect’s figures and not managing its budget. The town did tell me that it spoke to a principal of Slifer Smith and Frampton and was told that it was getting the building at a “steal.” The last time I checked, SS&F was more of a residential brokerage house. What expertise does it have in commercial space? Further, one of the principals of SS&F is the owner of the Westin Hotel. Might there be a conflict of interest in wanting the town to be in this location for the benefit of the hotel and surrounding area? The town also said that it commissioned an appraisal. I have been in the commercial real estate world for over 30 years, and I can tell you with certainty that appraisals are not worth the paper they are written on. How many appraisals of residential property did we see that were worthless in the recent property meltdown? I’ve seen the same thing in the commercial world. Appraisals are academic exercises that most often don’t relate to the real world.

As to the financing of the building, how can the town truly believe that not raising tax dollars is a great reason to pursue an acquisition? That’s like saying, “Interest rates are 2 percent, so money is free.” Money is never free. The dollar you spend on debt for a property that is not worth its acquisition/completion cost is a dollar not available elsewhere, and a dollar not creating revenues for the town. It also means that the next project may have to raise taxes.

There is one more important fact that the town relayed to me — I mentioned to the people I spoke with that properties become obsolete over time. They require capital for renovations. Location decisions change. If down the road the town wants to sell this property, it: one, will need a referendum to get authority to sell it, which means that its ability to liquidate this asset is constrained; and, two, it will be selling an office building that does not have adequate parking, which will constrain its value; and, three, is not worth what the town is paying to purchase and complete it even today.

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So when we take all of these facts together, we see that the town is: One, overpaying for this property; two, justifying its purchase with hollow benefits and naive economics; and, three, once again in the position of committing its resources without getting proper protections in the form of firm construction contracts and advisors in place ahead of time.

Great things happening in Avon? Perhaps if you are a town employee and don’t care about how you spend your residents’ hard-earned tax dollars. This is once again the case of government employees spending money with no checks and balances as to the cost and benefit of such expenditures. “Great fiasco” is more how this story should be titled …

Thank you, town of Avon, for pursuing your own interests ahead of your constituents.

Mark Kogan

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