Condo pact may signal break in impasse over Little Neck cottages - The Boston Globe.

I’ve posted two comments to the Globe article, as follows:

I am utterly puzzled about the Feoffees selling this awesomely fine asset to anyone at any price. They don’t own it. They are merely the trustees, under a 350 year old trust. A public-spirited citizen gave the land to the town for the benefit of the public schools, FOREVER. The Feoffees – trustees – were to collect the market rent and maintain it, and turn the net rent over to the beneficiary, the public schools. The fact that the Feoffees have failed to collect the full market rents on this sweet island in the past, say, 50 years does not overturn the trust provisions.

Replace the current group of Feoffees with people who intend to carry out the provisions of the trust. Don’t up-end the trust.

And despite all the expensive studies, it is very clear that the intended purchase price is a small fraction of the real value of the land. My quick and dirty estimates suggest a land value in the range of $72 million – more than twice the discussed price.

How much is market rent? These are modest and old cottages, many of 800 square feet with 1 bathroom. Anywhere else, they’d be worth $50,000 to $100,000 each, depending on their size. The fact that asking prices ranged, last month, from $175,000 to $600,000 is clear evidence that the land rent is not being collected, and the sellers don’t think it will be. How will we know when the full rent is being collected? When $50,000 cottages sell for $50,000, then the full rent is being collected.

The Feoffees ought not to be permitted to sell this amazing asset at any price. But if somehow they are permitted to sell it, there is NO excuse for selling it at a small fraction of its value.

The grantor of the trust intended this 30 acres to be a gift to the schools of Ipswich forever. And indeed, it could provide a solid income flow, forever. If it is liquidated, the corpus will be gone in 5, or 10, or 20 years. Investment “advisors”, real estate brokers, lawyers, accountants will have a nice flow of money from it – but the schools will receive relatively little.

2010 is not the end times. There will be children in Ipswich’s schools in 2025, and 2050 and 2075 – but this fine asset will not be around to provide the income that the grantor, in his wisdom and generosity, intended. The “tenants,” though, will have gotten a bargain.

Read more by searching on lvtfan and feoffee. There is more to this story.

The Assessor in Ipswich valued the 167 lots at about $31 million a year or two ago.

But those occupied lots, which total about 10.3 acres, aren’t the whole story. The assessor valued that land at a total of $31 million, or about $3 million per acre.

There are an additional 40 individual lots, which the assessor valued at 10% of the value of comparably sized rented-out lots, total 2.9 acres. At 10%, the assessor’s valuation of them was about $919,000; taken up to 100%, they would be $9.2 million.

And then there is the 11 acre commons area, 39 Bay Road, which the Assessor valued at a very low $842,500. Had the Assessor treated that land as he did the individual occupied lots, it would be valued at roughly $33 million.

As best I can tell, the tenants – TENANTS!! – are offering to buy the 167 lots at something resembling their assessed value – and get the other HALF of Little Neck for FREE!

How on earth can this be a good deal for the *intended* beneficiaries of this trust?

On the market today is a 5 bedroom cottage, built in 1935, offered at $579,900. It has one bathroom, and the listing does not disclose the square footage. It sits on .07 acre. The Assessor values the building at $90,300 and the land at $185,500, for a total of $275,800.

Also on the market is another home, 1018 square feet, for $425,000. Two bedrooms, one bath. Built 1910. The assessor valued the building at $79,500 and the land at $292,600, for a total of $372,100. The land is 0.074 acres.

Yet another cottage on the market carries an asking price of $339,900. It has 2 bedrooms, 1 bath, and 926 square feet, and was built in 1935. The Assessor valued the house at $81,800 and the land at $185,500, for a total of $267,300.

Recall that the sellers of these properties DO NOT own the land. They’re trying to sell $80,000 assets for $580,000, $425,000, and $340,000. They don’t own the land, but they’re selling it nonetheless, with asking prices of $500,000, 345,000 and $260,000! And at the same time, they’re expecting to buy the land under their homes AND a share of the commons for an average of $175,000 per tenant!

This does not come out of thin air! This comes at the expense of the Trust’s beneficiaries.

By what logic is this right, or legal? Seems to me that the Feoffees are on extremely shaky ground.

I’d love to see what the US Supreme Court would have to say about this.

No one can argue that the Assessor overvalued those lots, can they? And a 70 year old cottage is worth perhaps $50 to $70 per square foot. What is valuable here is the location, and the Feoffees seem to have negotiated a very generous bargain for the tenants.

I’ve read that 1/4 of the tenants are also year-round homeowners inland in Ipswich. So there may be a motive of being generous to the most beloved citizens of Ipswich. But the Trust doesn’t call for that. It calls for collecting the market rent on the land.

If the current Feoffees won’t do it, then others can be found who will.

To which I’d add that there are others who would be happy to pay the current rent of $9,700 per year for use of one of those lots, if the current group of tenants aren’t. I discovered in my files a copy of the current lease form, included in an auction packet last year (search on 26 Baycrest Road Ipswich auction), which said that rents in the future would be 5% of the assessed land value, but no less than the $9,700, after June, 2012. For 2012 to 2015, the assessed value in 2012 would be used. At 5%, the lot assessed at $292,600 in 2008 (?) would pay rent of $14,630 now – 50% more than the current rent of $9,700.

Asking prices have come down a bit since I started following them.

If the tenants are permitted to buy Little Neck, will they all be able to occupy it year-round? Today, only 24 cottages have year-round rights. If the other 143 receive year-round rights with this transaction, their land value will rise significantly.

Will the tenants’ association be permitted to sell some of the approximately 40 subdivided but unoccupied lots? If they can, I suspect they’ll be able to get $300,000 to $400,000 for each one – which they get for free from the Feoffees, under the terms of this deal. At the low end, $300,000 each, that’s $12 million. That could certainly reduce the amount that the current tenants need pay for their shares of Little Neck. Shouldn’t it go to the schools of Ipswich, or am I old-fashioned?

Oh, to be a lawyer in Ipswich! This is going to be a gift that keeps on giving. Lawyers, accountants, real estate agents, not to mention the brokerage firms which receive the proceeds of the sale. The commissions, expense ratios, transaction fees. (And the trickle … down? up? and maybe even to the schools)

But the Grantor of the trust intended Little Neck’s land rent to be a different kind of “gift that keeps on giving.” He designed it to keep giving to the public schools of Ipswich, forever.

Sorry, Mr. Paine! You tried.

This blog has more observations and history on this story. See them collected at http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.