Land Assets

There are two sources available to value the land assets underlying the Aggie Square project. The first is the static raw land values in consultant reports estimating economic impacts of the project and providing data for a financing district (Cite). The second approach is to calculate and total the present value of all ground lease revenue accruing to UCD (cite). This second approach is more accurate because it reflects the contracted payments for land. Unfortunately, all the ground leases have not been disclosed as of the writing of this paper. For the few ground leases that were available, however, there were references to the static values in the consultant reports as representing the appraised value of the land. Therefore, for this analysis the static land values are used to determine the shareable amount.

Local governments in California can capture a significant portion of land values indirectly during the permitting process through impact fees or by requiring a developer to provide off-site public infrastructure. When setting a value for purchasing land for development, developers take these costs into consideration. An extreme example of land value extraction by local governments comes from an adjacent city, the City of Rancho Cordova. The city was formed in 2003. To secure permission to incorporate, the fledgling city had to let the County of Sacramento, which provided municipal services prior to incorporation, retain a significant portion of property tax revenue which otherwise would have gone to the city. The incorporation coincided with a housing boon in the region, so the new city used over 100 different residential building fees to fund local services. These building fees effectively reduced raw land values paid by developers. On average, the city took approximately 80% percent of the buildable lot values from landowners (Farley, 2008).

For this study, it is presumed that 80% of UCD’s land value could be extracted by the City to fund infrastructure or mitigate the impacts of the project. Based on the land values cited by UCD in their planning documents ($37.3 million) it is presumed that $29.8 million could be shared with the community.

Aggie Square Phase IRentable
Square Footage
Land ValueShareable
(80%)
Value
West Lab Building235,542              4,710,840         3,768,672 $211,045,632
East Lab Building280,898              5,617,960         4,494,368$220,084,608
Lifelong Learning Building267,811              5,356,220         4,284,976$173,849,510
Alice Waters Institute35,510                 710,200             568,16016,637,554
Other Commercial15,790                 315,800             252,6407,398,112
Residential (190 units)137,720              2,754,400         2,203,52067,724,755
Kindred Rehab Hospital53,000           10,600,000         8,480,00060,600,000
Garage (1)360,400              7,208,000         5,766,40050,456,000
 1,986,671           37,273,420       29,818,736$807,796,171
(1) The garage also serves Phase II

What was disclosed in the planning documents?

UCD provided land values in planning documents on a per building square foot basis but did not provide a total nor their anticipated annual ground lease revenues. There is only one reference in the documents that these revenues could be used to meet public policy objectives. UCD staff represented to the UC Board of Regents that the ground lease payments for the on-site luxury apartments, targeted towards faculty, fellows and students, could be reduced to lower apartment rents. The importance of onsite faculty and student housing was highlighted in the initial market study prepared for UCD. The market consultants drew special attention to the need for upscale and secure on-site apartments, similar to those at Duke University and Yale, to attract faculty, fellows and students with “existing safety concerns, primarily around burglaries” with the Oak Park neighborhood.

The total static value of the land underlying the apartment units is estimated by UCD to be $2.75 million or 7.4% of the total land value underlying the entire Aggie Square project. UCD has yet to release the ground lease documents for the luxury apartments, so it is not known what if any portion of the ground lease payments have been reduced. The potential reduction in rent is approximately $120 per month per unit. This assumes the annual ground lease payment is ten percent of the static value, or $275,000.