July 10, 2007
Trying to make sense of it all
I think it is important to begin with a reiteration of why we should care about all of this. On June 27th, I laid it out as a "gravel vs. pavement" argument. In other words, the more Hines/LPII gets for the land, the less we'll have in terms of infrastructure around the ballpark. Rick at Twinsballpark2010.com suggests that the plaza or the pedestrian bridge over 394 (or both) could be in jeopardy if Hines/LPII gets what they are demanding (which gets more outrageous every time I think of it).
I gotta tell you, I want this ballpark to be spectacular all the way around. I don't like it at all that the plaza or the pedestrian bridge are in danger of being scaled back or worse not built at all. This may seem like "sky is falling" type rhetoric, but a demand of $65.5 million for land that LPII agreed to sell to Hines for about $17.5 million would barely leave enough for sidewalks.
That's right: $17.5 million. In my hands I am holding the purchase agreement for the ballpark land, and the surrounding land, between Hines and Land Partners II. Signed March 14, it explains in excruciating detail the agreement between the Texans and the little old ladies. I won't pretend to have read and/or understood it all (it is around 80 pages of legalese). Thankfully, though, there are a couple of illuminating passages early on in the document. For example, on page 21 it lists the "Base Option Price" for each of the sections of land the document deals with:
(i) as to the Duddy Property, $12,448,000;
(ii) as to the LPII Property, $25,111,665; and
(iii) as to the Minikahda Property, $5,787,000
Obviously, most of us with any knowledge of this fiasco key in on the LPII land value. Keep in mind the county wants to buy about 70% of the LPII land, on which they will build the ballpark. LPII, and now Hines, will keep the other 30% of the LPII land north of 5th. In other words, Hines and LPII now want $65.5 million for land that in March they agreed was worth around $17.5 million, according to their own documentation.
Page 19 also includes this little tidbit that provides some further clarification on the land values:
Upon Buyer's timely and proper exercise of an Option, this Agreement shall become a binding agreement between Buyer and the Applicable Seller for the purchase and sale of the Applicable Property described in the Exercise Notice (the "Exercised Property") on the terms and conditions set forth herein.
What this suggests is that the prices agreed to in the document are real and not imaginary. They suggest LPII was willing to sell the land to Hines for the prices agreed upon in the document. And even taking into account all the sections of land represented by the three companies: Duddy, LPII, and Minikahda ... all together it equals about $43.4 million Hines is willing to pay for the land in this document. Three sections of land for $43.4 million, but for the county the price is $65.5 million for 70% of only the LPII land. Huh?
But wait! What about all that percentage mumbo jumbo? You know, the part where Hines will get a percentage of the sale price to the county over $25 million and LPII will get a back rub (or something like that). Actually, we have some clarification on that front also. The Star Tribune printed a correction in the paper last week that stated:
A story on Page B3 Wednesday incorrectly described a condemnation settlement related to land for the Twins' new ballpark. Hines Interests will pay $25 million to Land Partners II, plus 77.5 percent of everything above $25 million paid by Hennepin County in a condemnation settlement. Hines would keep the remaining 22.5 percent, Hines Vice President John McDermott said Wednesday. Legislators approved the bill May 21, 2006, and Gov. Tim Pawlenty signed it on May 26, 2006.
You catch that? Hines will only get 22.5% of anything over $25 million. Is it any wonder that they are asking for so much in the condemnation proceedings? And LPII will get 77.5% of anything over $25 million. Do we even have to speculate what their motivation is?
So, taking this into account I don't think there is any question that LPII and Hines expects the land to be worth more than $17.5 million. This may be the suggested minimum sale price as described in their documentation above (remember, the county only wants 70% of the land), but both Hines and LPII expected to get a percentage of the sale price over $25 million to help sweeten the deal for both sides.
So, lets summarize: LPII agreed to sell the land to Hines for $25 million in March, AND LPII and Hines only entered the above agreement with the hope that they would both get percentages of anything over $25 million, AND the county only wants to buy 70% of the land, AND 70% of $25 million is $17.5 million ... deep breath ... the question now is: given all this information, what should the land be worth over $17.5 million?
$65.5 million? I don't think so. Somewhere between $20 - $25 million? That is probably more like it. Unfortunately this doesn't give Hines a whole lot of profit (if any), but keep in mind they also plan on developing the rest of the land they own around the ballpark.
There is a lot more to say about this but for now I've got to go to bed. In conclusion, Hines and LPII are desperate to get the price for the ballpark land above $25 million in order to make some more money. However, according to their own documentation, values determined by county appraisers, and tax assessments for the land, there is no way that land is worth more than $25 million. No way.
But what do I know? I'm just a blogger excited about outdoor baseball in 2010. Have at it.
Posted by snackeru at July 10, 2007 12:08 AM
Whatever money Hennepin County loses in this battle they should easy get back by raising the property taxes on the remaining land that LP2 owns. Then they can use that money for infrastructure around the ballpark....
Posted by: kevin in az at July 10, 2007 12:23 AM
So, if the County wanted to run a road through your house, would they only be liable for the land taken in support of the road? and not the affect on the useability or value of your remaining land on either side of the road?
Posted by: morons at July 10, 2007 8:06 AM
Your interpretation of the document is as meaningless as it is off base. The fact is; Hines entered into this agreement AND pushed for condemnation. This agreement is no "smoking gun" as Hines was fully aware this would come out in discovery during the condemnation hearings.
The only thing that rivals Hine's streak of successes in condemnation hearings is Hennepin County's losing streak!
Kahrma! Opat and Company is having taken away, what they took! "the wheel in the sky keeps on turnin...." Enjoy your crappy, amenityless, stadium!
Posted by: STM at July 10, 2007 8:17 AM
Don't get too full of yourself STM, as hard as that is. I am only suggesting that the document provides some good baseline numbers for the land in question, numbers that suggest the land is worth much, much less than $65.5 million.
And unless you are more privy to the court proceedings and/or the back room discussions between the parties involved, your interpretation is as worthless as mine.
When the stadium is built, and it looks fantastic, and everyone is giddy, what song will you be singing then?
Posted by: Shane at July 10, 2007 8:30 AM
Big brother ALWAYS gets even!!!!!
Posted by: kevin in az at July 10, 2007 8:31 AM
A hypothetical question....
Why should LP2/Hines accept less than their legal right to 'fair market value' of what they own because a third party placed an arbitrary cap on spending?
Posted by: The Last Sane Ballpark Fan at July 10, 2007 8:32 AM
That is a good question. I'm not asking LPII/Hines to accept less than fair market value. In fact, condemnation will decide what is fair market value. So, I don't think we'll have a problem there.
But to have Hines and LPII come out with their idea of fair market value at $65.5 million ... it is so outrageous it boggles the mind. It suggests they never intended to negotiate at all. When it is so obvious they are trying to hit the county up for as much money as possible, how can I not be upset by this? Especially being a Hennepin County resident?
Think about it. When the bill was moving through the legislature last year the House taxes committee put the $90 million limit on. Why didn't LPII stand up right then and say, "Stop! We think our land is worth at least 2/3 of that total! This won't work!" Why? Because they thought their payday was coming.
So, now we are at this fork in the road. And I'm hoping the county comes out ahead on this one. It means I get a better ballpark. But I am all for "fair market value" as decided by the courts. I just think these recent news stories and documents coming from the proceedings reveal a lot about the true intentions of the land owners.
Posted by: Shane at July 10, 2007 8:55 AM
There are nuggets of truth in all the comments above. (well except for STM, but that's a given) Although inarticulate, "moron" has a point. It's not realistic to take a straight 70 percent figure as realistic since land has value based on its location. Think of the lot for your house: if you split the lot in half parallel with the street, the lot that had street frontage would be worth a whole lot more than the one that didn't (assuming no alley).
Shane, from his comments gets the point too, He's saying basically if you assign 100 percent of the land value to the ballpark parcels the land is only worth, in Hines estimation, $25 million. Since the ballpark parcels aren't 100% of the total land being sold by LP2 to Hines, it make sense that the ballpark values are less than $25 million. Is it $17.5M, $20M, $22.4M? That's for the condemnation panel to figure out.
I don't think anyone is arguing that LP2/Hines get less than fair market value, but it seems that Shane's point is that fair market value was established when LP2 sold the ballpark and adjacent parcels to Hines for $25 million.
Hines has the best condemnation lawyer in town with Bruce Malkerson, but they will be hard pressed to argue that what was sold for something less than $25M is somehow magically increased in value to $65M.
Good work Shane!! I hope the local dailys (Hi if you're out there) are reading this so that they can report this news to the general public.
Posted by: Freealonzo at July 10, 2007 9:08 AM
I used to do appraisal work and I think if I had to appraise the Rapid Park Ballpark site, the most recent comp available is this sale...... LandPartners 2 and Hines where they agreed to $25.11 million dollars.
Posted by: Tom at July 10, 2007 9:22 AM
Thanks Tom. Based on your experience, would you say this means Hines will probably get somewhere around $25 million? Or will the court take into account the option agreements where Hines and LPII get percentages of the price over $25 million?
Also, I want to point out, again, that I don't know exactly what I'm talking about. Also, the people behind LPII are pretty nice people and as the Last Sane Baseball Fan points out their is nothing wrong with them seeking fair market value. Truth be told, most of my animosity at this point is directed towards Hines, who I think are pulling all the strings now with little regard for what is best for Minnesota or the ballpark site.
LPII is getting at least $25 million for the land. They were wise to sign this agreement with Hines because it means they will get, again, at least $25 million out of this deal. I can't blame them for trying to get more, but it is in my best interests as a Twins fan to fight to limit what seems to be an attempt to get a little too much.
Posted by: Shane at July 10, 2007 9:44 AM
I don't think the county is looking for the entire parcel so I think the $25 million dollars would be a high ceiling.
Posted by: Tom at July 10, 2007 10:36 AM
Its appraisers like you that got the subprime lending market where it is today.
All Hines has to represent and LPII will attest to, was that the purchase price in the agreement (as any moron can surmise, as Pogin eloquently put it) was that Hines agreed to pay 25 million PLUS 77.5% of 40 million (the difference between LPII's guaranteed lowest price and the 65 million Hines felt they could substantiate in a court of law), thus making the true offer 56 million dollars to LPII. Hines will argue that with their expertise in developing and land acquisition, that the reason they agreed to pay 56 million, was because that was a BARGAIN compaired to the 65 million they felt it was worth.
badabing, badaboom - HC owes 65 million + what? 5 mill in legal? Brilliant! Oputz.
Posted by: Hogwash at July 10, 2007 11:42 AM
Does anyone else find it rather entertaining how pleased STM and other stadium opponents are when discussing the land acquisition difficulties? As Shane has said many times, there's still a law in place to have this stadium built. Without Opat, no stadium. Thanks Mike!
Posted by: Aaron at July 10, 2007 11:52 AM
Oh please. The only moronic idea on display here is the notion that a landowner would accept a guaranteed lowest price of less than 50% of what he believes the land to be worth, and then agree to roll the dice with a condemnation proceeding in an attempt to pick up the remainder.
If you believed your home was worth $200K, would you sign onto an agreement where you were guaranteed $80K and would receive ~80% of any amount over$80K according to an appraiser? If you would then send me your address, I'll have a purchase agreement drawn up for you in the morning.
The 77.5/22.5 provision is a calculated gamble. Both parties knew the land at issue was very likely to become the site for a new Twins Stadium. There was probably some disagreement about its exact value -- LPII believing it to be more than Hines was willing to pay. The solution was to insert a price floor, and a provision for the event that LPII's assertions were correct. If LPII was right, they get the lion's share of the bounty; but Hines gets a nibble too for taking on the risk that LPII was wrong and the value comes in under the price floor. Sorry, but that's all this is.
Posted by: The Tube at July 10, 2007 12:26 PM
Gee Aaron, why don't you and Oputz get a room.
Let's see; "as long as you give me what I want, no matter how much it costs or what or how you told me it could be accomplished or even IF it remotely resembles anything you told me it would look like before we started....I'm happy and I thank you!"
Yea, way to size the box there Aaron. That's a real tough target to hit for our politico's.
Posted by: roomservice at July 10, 2007 12:28 PM
Tube - That's a distinction without a difference.
The interesting thing to me is; is Hines working behind the scenes to leverage their position on this piece into something more for their grand "North loop plan?"
If this gets settled out of court, that's my bet. Additional consideration was given Hines for their future plans surrounding the area.
Posted by: ?? at July 10, 2007 12:34 PM