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In the Crosshairs: Blighted and Vacant Real Estate

Posted by Rocky Mackintosh on July 10, 2012 Leave a comment

AD-Hoc Committee recommends tiered tax system, escalating fines, and receivership on unkempt real estate within the City Frederick.

Blighted and Vacant Real EstateSo great moreover is the regard of the law for private property, that it will not authorize the least violation of it; no, not even for the general good of the whole community. 

~William Blackstone

Sir William Blackstone was an English jurist, judge, and pre-eminent legal scholar during the eighteenth century. He wrote the Commentaries on the Laws of England, one of the most influential legal texts written during colonial times. Blackstone’s Commentaries played a large part in shaping both our nation’s Constitution and the Declaration of Independence.

Blackstone and his contemporaries held fast to the belief that the right of property ownership is a moral right, much like life, liberty, and the pursuit of happiness.

And while many argue that Americans often have difficulty distinguishing between the pursuit of things and the pursuit of happiness, I leave it to more philosophical minds than mine to debate that point …

Suffice it to say that Americans take property rights very seriously, and only under extreme circumstances and as a means of last resort will the government act through eminent domain to impinge upon those rights and seize property – for example, when major laws are broken by a property owner.

(Most of the time when we hear the words “eminent domain” we think of property that has been acquired because it was interfering with efficient traffic patterns … and that is because Americans also take the right to travel everywhere swiftly by automobile very seriously.)

For the most part this system works very well … except when it doesn’t.

There is always going to be a percentage of the populace who don’t know how to be, or don’t care to be, good neighbors and property owners:  refusing to maintain or repair properties, allowing façades to deteriorate, leaving properties in premier locations vacant … the list goes on.

In a residential setting, this is generally a problem only to those who live within the impacted neighborhood. Over the last 40 years most new residential real estate developments have been encumbered by covenants that often go deeper to reinforce property maintenance as well as zoning laws.

When it comes to commercial real estate, however, the ripple effect of a “bad neighbor” can have a much larger – and far more economic – impact.

Because men like Blackstone were able to articulate and defend so eloquently “that sole and despotic dominion which one man claims and exercises over the external things of the world,” municipal governments often feel that their hands are all but tied when it comes to dealing with irresponsible commercial landlords.

But the winds have been shifting. Voters are steadily granting state and local governments greater responsibilities for stewardship over the health of regional economies. The trend now is to take a harder look and a more creative approach to solving the problem of commercial blight on a local level.

The City of Frederick formed the Blighted and Vacant Property Ad Hoc Committee in January of 2012. This group was charged with developing alternatives to remedy some of the eyesores and under-utilized gems that prevent our precious and vibrant downtown area from reaching its full economic potential.

The committee delivered their report to the City of Frederick Aldermen on Friday, July 6, 2012. In that report, the committee carefully defined blight and vacancy, and recommended that the city develop the means to better report and track vacant and blighted commercial properties to better enforce code violations on said properties.

More importantly, the committee recommends developing and adopting some intermediate “tools” between the extremes of mere code enforcement and eminent domain, including:

  • Adopt a blighted building property tax which assesses a city property tax of 5 times the base rate on properties that fall under the city’s definition of “blighted” for longer than 1 year. To put that into concrete terms, a “blighted” building assessed at a value of $800,000 would be taxed $29,200 per year ($3.65 per $100 property value) instead of $5,840 ($0.73 per $100). This would put a significant dent in any future profits a real estate speculator would realize when (if?) the market turns.
  • Adopt a compounding or escalating fine system for repeat code violators. Ditto for “significant dent in profits.”
  • Provide lien or fine waivers for new owners of blighted property who agree to rehabilitate and rent the buildings.
  • Adopt property tax credit programs as an incentive for investment in blighted and vacant commercial properties.

And in the event that no recourse is left to the City but to take blighted properties from uncooperative or incapable owners…

  • Adopt a real property receivership program. This is a “faster, cheaper, and lower liability” alternative than traditional seizure under eminent domain, which place expensive liabilities on a city’s balance sheets.  It instead allows a third party to manage, rehabilitate, demolish, market and sell distressed commercial assets.

Our fair city has an overall commercial vacancy rate that is low relative to comparable cities, but we all know the most notorious examples of urban blight and vacancy in Frederick…the so-called “dragon lady” who owns the decaying Asiana Building in the 100 block of North Market nestled smack in between Zoe’s Chocolate Co. and Acacia … and there are other long-time offenders.

The Aldermen of the City of Frederick will hold a workshop to discuss the Blighted and Vacant Property Committee’s findings tomorrow, July 11.

I expect interesting questions to be raised regarding the degree of power city officials will seek over Blackstone’s definition of real property rights.

While it is clear that this task force recommendation was initiated by the lack of cooperation of a select few downtown property owners, the larger goal here is intended for the greater good over the long haul.

The Frederick community has had a very lively history of debating Blackstone’s version of real property rights over the last twenty years relating to use and zoning regulations. This matter addresses issues from a somewhat different angle and in my opinion a very worthwhile debate for our citizenry to take on.

Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes forTheTentacle.com and Want2Dish.com.

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Topics: Commercial and Industrial Real Estate Ashleigh's Fields Notes