Wednesday, March 11, 2015

Antifragility in Four Corners part 2: Which is more valuable?

Welcome to our second post on antifragility.  In this entry, we're going to look at the assessed value of two different businesses to determine how antifragility makes places more valuable and stable.  To do this, we will do a value per acre (VPA) comparison of two properties based on their assessed value and land property area as stated on the Maryland Department of Assessment & Taxation's online database.  These are the same records used to tax these properties at the county and state levels.    

For the first property, I wanted to pick a relatively new shopping center or business somewhere here in eastern Montgomery County that followed a suburban model of development (easy access, ample parking, etc).  For the second, I wanted to choose an older property that was in a suburban area, but which did not follow the same from of development (meaning an older building with difficult car access and little/no parking on site). 

For these reasons, I chose the following two properties: the Target in Fairland, and Kenny's Chicken here in Four Corners.  The Target in Calverton is part of the Orchard Center Shopping Center, which contains multiple other big box stores such as Kohl's and PetSmart.  It has plenty of parking and is easy to access via automobile.  It was also built within the last 20 years, opening in 1998, making it one of the newest suburban retail areas here in east county.  Kenny's is part of a small low end strip mall here in Four Corners, and its building was constructed in 1948.  It has no designated parking, and it is very difficult to access via car.  A road widening project in 1996 further restricted access to the business by eliminating on-street parking out front, and creating an odd multi-level sidewalk for pedestrians.  


Kenny's.  Photo by the author.

Kenny's property at 10118 Colesville Road is listed at 1,550 square feet, and was appraised at $227,000 for this year.  Target's property at 12000 Cherry Hill Road is listed at 514,008 square feet, and it is appraised at $14,508,773 for this year.  We determine VPA by converting the square feet to acres and diving by the assessed value of the property (note: "property value" in this case also includes the buildings on the property, which are referred to as "improvements" to the base value of the land).  

When converted, Kenny's comes out to .035 acres of land, and Target comes out to 11.8 acres of land.  When the assessed value of these properties is divided by their respective acreage to get VPA, we find the following results:

Target's value per-acre: $1,229,557

Kenny's value per-acre: $6,485,714

This analysis shows that Kenny's is over five times more valuable than Target when compared equally on a value per-acre basis (I welcome anyone to look up this info and do the math for themselves, it's quite eye-opening).  But how is this the case?  It would seem that a newer store like Target, which is in an easy to access building with plenty of parking, should be worth more than Kenny's.  After all, Kenny's is in a fairly low-end strip mall that is hard to get to by car with absolutely no designated parking.  How can a business with such characteristics be more valuable than a store like Target, which is designed to match its auto-oriented environment?  The answer here lies in the antifragility of a small business like Kenny's, and the fragility of a store the size of Target.

Target.  Photo by the author.

As many readers may know, Kenny's had a fire last summer which caused it to be closed it for several weeks.  This was an unexpected random event which was not predictable.  Thankfully, the fire wasn't too bad, and the business was able to reopen by the fall.  While Kenny's was closed, the rest of the commercial district barely noticed the difference.  The other stores in the strip mall may have seen a marginal decline in customers due to Kenny's closure, but it certainly wasn't enough to have a large impact on the commercial district (no other businesses closed because of it, so that's a good sign).  Had Kenny's closed for good because of the fire, the vacant building would have become an opportunity for some other small business owner to open up shop, since a building that small is flexible and financially accessible for many people starting a business. 

Kenny's and other nearby businesses.  Small, haphazard, antifrigle.  Image from Google Earth.


Now let's imagine if Target had a negative random event affect it like Kenny's did, whether that be a fire or a closing of the store for some other reason.  When a huge store like Target closes, it does not become an opportunity for small business owners, since the space is too massive for most stores to fill.  Only a finite number of other big box stores could possibly fill the space, and if none are interested, the space would probably have to be subdivided to become more accessible to a broader range of tenets (as the former Ames in Hillandale was subdivided to become two separate thrift stores). 


Target and most of its parking (couldn't fit it all in one shot).  Large, orderly, fragile.  Image from Google Earth.


In short, Kenny's size and flexibility make it antifragile.  A huge big box store like Target is fragile due to its size and inflexibility.  This isn't to say that we shouldn't have any large stores like Target, but that we should recognize the liabilities that go along with them, especially when they occur in such auto-oriented formats which are known to be fragile.

In the next post, we'll look at how antifragile buildings and development patterns are a win-win for local governments, property owners, and the communities in which they are located.       

Note: I may have used Kenny's as an example for this post to highlight the stark value difference, but I could have compared Target almost any other business in Four Corners and gotten similar results. As stated at the beginning of the post, I encourage the reader to do their own comparisons of properties they're interested in to see the contrast.  

4 comments:

  1. Interesting comparison. A real-world example that takes your point even further is Burtonsville Crossing, an entire shopping center that has suffered terribly since Giant Foods moved out.

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  2. Kenny's location has easily attracted a replacement tenant ever since the High's Dairy Store moved out in the early '60s. In the late '70s, the buzz around the corners was that Safeway would move to a new center proposed on the Kay Tract which instead became home to the new Blair HS. Imagine how the Safeway site would have been filled if they had relocated?

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  3. fyi the Hillandale Ames was not subdivided...it actually is one business entity that rents the building and runs two seemingly "different" stores. The business was originally set up by Corsair/Apogee but has been sold to a related Canadian for-profit thrift store business called Savers. Savers has a huge network of for-profit thrift stores world wide. Pennies on the pound go to the non-profit partners.

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  4. sean: which business and/or parcel is likely to become decimated or eliminated by rapid transit construction in the name of walkability? bye bye kenny.....

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