Reader Opinion: Why A Smaller Wizer Block Won't Work

Why A Smaller Wizer Block Won’t Work

The Wizer Block proposal has elicited a number of negativecomments. Some say it is too big and too dense. Our City CompPlan and codes allow it. If you believe it is too big, you should advocate that the Comp Plan and codes be changed, not just object to the proposal.

Some argue the proposal should be smaller and less dense. That is an “easy” solution but may not be realistic as it undermines the economics of the project. Let’s have a look at an example.

Projects are made up of two kinds of costs – fixed and variable. Fixed costs include those that vary little with the size of the project such as land cost, site preparation, demolition, architects, engineers, landscaping, public areas, etc. Variable costs include construction of the building itself, fixtures and finishes.

In a hypothetical, fixed costs are $1000 (small numbers areeasier). Our 250 unit project has a variable cost of $6 per unit or a total of $1500. Adding fixed and variable costs equal $2500,40% fixed and 60% variable. This mix of costs is probably not unrealistic for a premium in town site like the Wizer block with its site issues (sloping for example). Total cost per unit in theexample is $10 ($2500/250).

Reducing the number of units by 20% we have the same fixedand variable costs. The total cost is $2200 ($1000+1200). Divideby 200 units and the cost per unit is 10% higher, $11. The unit rent will need to increase by at least 10%. If the rent per month is $22, it now goes to $24.20. If $22 was a high rent is $24.20 too high? Will people rent at that price?

What if we reduce the project size by 50%? We have the same fixed costs $1000 and the variable costs at $6 per unit total $750 and the total cost for the project is $1750. Divide that by the 125 units being built and the cost per unit rises to $14 per unit, a 40% increase. Rent will rise to $30 probably way too high for the market.

Well, just reduce the costs. Fixed costs might be reduced slightly. Reducing variable costs makes both the interior and exterior of the building less attractive and perhaps not fitting with a high rent, in-town Lake Oswego location. A premium price with less than a premium building does not attract anyone to buy or rent and likely offends the community with its appearance.

There is no easy economic solution to the size of the building proposed for the Wizer block. To make Wizer work economically it has to be large. Given the increase in land values and construction costs Lake View Village might well be just as big as the Wizer block if it were built next year. Don’t expect to see a smaller Wizer block or any other project in the future.

Gerry Good is a member of the Citizens Budget Committee and worked in developing retail locations.

Comment from Up Sucker Creek:

The value of the land (any land) is proportional to what may be done with it.  If lower density development is all that is allowed, the land would be worth less than if a higher density or more highly developed site is allowed.  Zoning and codes as well as location drive land pricing.  Another factor which has less impact is the availability of public funds for development.  The more likely that redevelopment funds are available, the higher the cost for the land as the risk for developing goes down. Development pricing is based on the initial land costs.  E.g.:  If a lot costs a lot because there are few parcels available to put a home on, then a tear-down that is more expensive may be the only solution.  A builder must build a commensurately expensive house to justify the high cost of the lot.  In the Wizer Block case, political land use decisions are a factor in the pricing for the land and the improvements.