A Pricey Perk on Pacific

Posted by Dave Fratello on Thursday, January 20th, 2011 at 5:27pm.

Ordinarily when we ask MBC readers to chime in on a listing's market value, we're thinking something like this: How much of their own money do you think someone will choose to pay for this property, in light of location, condition and comps?

That was certainly the nature of the question early last month, when we asked you about 2913 Pacific (3br/2ba, 1900 sq. ft.), which had just hit the market at $1.1m. (See "Pricing Poll: 2913 Pacific.")

But you never know who's out there shopping, or what motivations or assets they may have.

Turns out, 2913 Pacific was targeted by someone relocating to MB who was on a fairly tight timeline, and had about $1m to spend. The home seemed to be the best of the available options, and he cut a deal before Christmas.

Did we say he "had $1m to spend"?

Maybe we should clarify: it was more like having a budget of about $1m. Because the buyer had a major partner picking up most of the tab: The City of MB.

The buyer is the new city manager, and the city has a policy of providing "housing assistance" to some top employees – you see this in some other "high-cost" cities, as a means of keeping those employees close. (The Pacific house offers a 10-minute walking commute to downtown.) The previous MB city manager and police chief received home loans direct from the city to help them get into town, for instance.

We now see from a city document published earlier this week (click here to download and view it) that the city, and the city manager, made a deal for 2913 Pacific at $1.015m. That was nearly 8% below the list price, but somewhat higher than the consensus on the home's value among MBC readers. (More on that below.)

In a first for MB, the city will take a 50% stake in the home and the city manager/buyer will take 50%, with property taxes split and, down the road, any profits from resale to be split. The city manager/buyer needs only to put up 10% and the city provides a loan for the remaining 40% to be held in his name.

MBC had pointed to the home's "profound blandness" in our poll-setup story, and it would appear that we can all agree on that point. The city is allowing up to $65k for renovations. For technical reasons, that money was added to the purchase price (bringing the stated deal value to $1.080m) and will be credited right back to the city to disburse to the city manager for his remodeling projects. You could argue that he's paying some of those costs, though the city will hold the purse strings.

The terms of the deal for Pacific became public this week as the city council agreed to fund escrow to the tune of nearly $975k. Of that, $540k is the city's 50% stake in the house, and $432k is the amount of the loan being given to the city manager/buyer, who's putting up $108k. (There's also about $2700 in closing costs in the city's total.)

With all of the city's contributions to the deal, the city manager/buyer will pay a remarkably light $1,800/mo. to live in a newly renovated home in the 90266. After 5 years, when the interest-only period on the loan expires, the payment jumps all the way to $2,525. In MB, we call that "affordable housing."

In this Beach Reporter story, one city councilman touts the benefit of the to the city of the joint-ownership agreement: "it allows us to be invested in the community and in a great piece of property."
 
Now, do subsidies distort prices?

Do we really need a question mark up there?

As the results of our poll in December showed, only 16% of MBC readers thought 2913 Pacific was worth $1.0m or more. (Those responses are in shades of green.) So the deal price of $1.015m – ignoring the $65k in renovation funds – had pretty slim support here.

The broader consensus – shown here in blues – was for a value in the range of $850k-$1.0m, with 59% of those readers who voted coming in within that range.

Maybe the most generous way to slice these results would be to include the votes of those who went for $950k-$1.0m with the top 2 tiers, since the deal price was just a tad higher. But that still shows that just 37% – about a third – of those voting would say the city and city manager got a good price for Pacific.

MBC polls have run bearish at times, though not always. Internet polls are what they are. But by this measure, the city – and its new manager – didn't seem to drive a very hard bargain.
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