Reality check: Does recent GTH land sale show property value is rapidly rising?
CBC’s iTeam weighs GTH claims and counterclaims on the election trail
Saskatchewan Party Leader Brad Wall claims he has new evidence that the price of land in the Global Transportation Hub has been rapidly rising in recent years.
He said this evidence justifies the $103,000 an acre price that the GTH paid for 204 acres of land in the path of the West Regina Bypass.
Just last week the GTH signed an agreement to sell 30 acres to Brightenview Development International Inc. for $256,000 an acre.
"Taxpayers are actually making money, significant amounts of money," Wall said. "Over $250,000 an acre. That's the price."
For weeks, Wall has been criticized by opposition politicians because of the $103,000 an acre purchase.
That's because government-procured appraisals concluded the land was worth two to three times less than that.
In addition, last week CBC's iTeam revealed that more than a year after the GTH bought the 204 acres, the Ministry of Highways expropriated comparable land right across the road for $25,000 and $42,000 an acre. The ministry explained that was the market price for the land at that time.
NDP Leader Cam Broten said that revelation proves Wall's claim of escalating prices is false.
"Now the truth on that is clearly out. Land values in the area were the same a year later."
"Mr Wall needs to explain why his original excuse wasn't even close to accurate," Broten said.
So, is the price of land soaring at the GTH as Wall has claimed or is the $103,000 an acre price an outlier, as Broten has claimed?
CBC's iTeam looked into it.
Serviced land vs. unserviced land
Peter Lawrek has been appraising land in the Regina area for over 30 years and done extensive work for the Ministry of Highways.
He told CBC's iTeam, "Hold on. You can't compare a purchase of raw land to the sale of serviced land."
You can't compare a purchase of raw land to the sale of serviced land.- Peter Lawrek
Lawrek said the $103,000 an acre property is raw, agricultural land without services while the GTH property is ready for development.
"We're not talking apples and apples, are we?" asked Lawrek. "The $103,000 an acre paid is for raw land. The $256,000 an acre paid is for serviced land."
Lorne Nystrom, Brightenview's VP of government relations, confirmed the 30 acres of land his company purchased from the GTH last week is "fully serviced."
"Those are very expensive things to do if you take a piece of virgin land and just do it all yourself," Nystrom said.
"So we think the price is reasonable in light of all that."
The iTeam asked the president and CEO of the GTH, Bryan Richards, what it cost the government-owned entity to service the land.
"That's completely sensitive information from our perspective, to compete in a commercial development," Richards said.
"Not really going to comment at all about the intimate details of our pricing policy."
**See editors note below for update.**
Servicing costs outlined
Lawrek said based on his research, it costs about $200,000 a saleable acre to service raw land for industrial use in the City of Regina.
He said that includes hard costs like engineering and running pipe, and cable and soft costs like legal fees, interest costs, realtor commissions and more.
He said that price of $200,000 a saleable acre doesn't include the cost of the land, the cost of servicing agreements with municipalities or profit.
'You can't make the numbers work. That's why the only groups doing it are the City of Regina and the Global Transportation Hub.'- Peter Lawrek
In other words, just to run services to property in the City of Regina, it costs about $200,000 a saleable acre. Land costs and profit would have to be added on.
In addition, in the City of Regina, there's a servicing fee of at least $150,000 per saleable acre. This fee allows the landowner to tie into city services like sewer and water. Businesses in the GTH are exempt from this fee.
Lawrek said it's prohibitively expensive to service land for industrial use in the City of Regina.
"It's no wonder there's no private companies doing industrial land within the city limits," Lawrek said. "You can't make the numbers work. That's why the only groups doing it are the City of Regina and the Global Transportation Hub."
Private company shelves industrial subdivision in Regina
Andrew Gordon, a manager with Melcor Developments, told CBC's iTeam that his company just recently shelved its plans for an industrial subdivision because of the high cost of servicing land in Regina.
For the past couple of years, Gordon was working on a plan to turn 600 acres on the east side of Regina, near the Ross Industrial Park, into a new, private industrial subdivision.
He said his company was planning to sell land in that development for $500,000 an acre but he said "we couldn't make our development work at that."
You've got the inability to bring on new fully serviced industrial land that can even reach anywhere close to the market rates and make money at it.- Andrew Gordon
He said just the hard and soft costs of servicing the land ran more than $200,000 an acre. He said the city's servicing costs would be another $200,000 an acre on top of that and then there's the cost of land and profit.
"So there's this huge gap shaping up in Regina. You've got the inability to bring on new fully serviced industrial land that can even reach anywhere close to the market rates and make money at it," said Gordon.
He said when he looks at the GTH selling land at $256,000 an acre, he doesn't understand how it can even cover its costs.
"I think if it's a government project, they're not really allocating the true costs that go into the project," Gordon said.
"The soft costs, I think, probably get spread out over a whole bunch of other initiatives."
He said if his company couldn't make money selling land at $500,000 an acre he wonders how the GTH is making it work at half that.
"So it gives you an idea of where guys like the GTH are. I just don't see how they are getting a full cost accountability for it."
He said the 600 acres Melcor bought for the development is currently being farmed. He said one day, the market could change and the project will make sense, so the company will hang on to the property for the time being.
**Editor's note: After the story was published the government sent a note to the media with new information. It said the cost of servicing land in the GTH is $80,000 an acre. Unfortunately, it's difficult to make an apples-to-apples comparison between this number and the servicing costs referenced in this story. That's because the $80,000 figure doesn't include "soft costs" while Lawrek and Gordon's $200,000 figure includes those soft costs. In addition, the government's newly provided figure is calculated on a "gross acre" basis. That means it's saying the cost of developing the entire piece of property is $80,000 per acre. However once roads and ditches are accounted for, the actual cost of a net or saleable acre would be more. The numbers provided by Lawrek and Gordon in our story are based on a saleable acre.
The government's note explained that the cost is lower than other developments for several reasons. For example, the note says in the GTH "storm sewers are ditches not underground pipes. Whereas in the rest of Regina, the city, connects the client to services, in the GTH that's the role of the client. And the note says that in the city the lots are typically much smaller than GTH lots "therefore, GTH is incurring nowhere near the same unit costs per acre as the city."