Board of Zoning Appeals asks Design Review Board to justify Drew Tower approval

For more information on the Drew Tower Development see:

• March 23 - John "Johnny V" Vassallo to build 28-story middle finger in Wauwatosa

• April 14 - Response to Drew Tower development

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Last week the Board of Zoning Appeals approved a motion by a vote of 4-0 requiring the Design Review Board to justify, in writing, its previous approval of John Vassallo’s Drew Tower development. The Design Review Board meeting will happen today, May 5th. While this has buoyed the sinking spirits of neighbors who oppose the development, since it creates another opportunity for construction to be blocked, I am less optimistic.

I.

The meeting of the Board of Zoning Appeals on April 28, 2022, lasted approximately four-and-a-half hours and consisted primarily of dueling presentations by attorney Brian Randall who represents John Vassallo, and attorney Joseph Cincotta representing Underwood Neighbors United, a group of nearby residents. After the attorneys spoke, there was a period for public comment, more attorney speaking, and then an open discussion among members of the Board of Zoning Appeals as they considered the motion and voted.

There was a lot of back-and-forth about the the meaning of words like “district” and “substantial,” there was much quoting from various manuals and sections of the municipal code, and there were fleeting, and ultimately unsatisfying, moments of levity like when one of the members of the board kept referring to a 28-foot rather than 28-story tower. This one got a lot of laughs, but like I said, ultimately unsatisfying.

If I can try to synthesize something that took 270 minutes to watch into something that takes—hopefully—less than 270 minutes to read, I would say that the entire discussion revolved around two questions:

• A procedural question about whether neighbors even had a right to ask the Design Review Board or the Board of Zoning Appeals to reconsider the decision to approve the initial Drew Tower plans, and

• A substantive question about whether construction of the tower will in fact reduce the value of surrounding homes.

And just so I don’t have to type as much:

• I’ll refer to Attorney Brian Randall—representing the developer—as BR

• I’ll refer to Attorney Joseph Cincotta—representing the neighbors—as JC

• The DRB is the Design Review Board

• The Board is the Board of Zoning Appeals

II.

Regarding the procedural issues, BR first argued that residents of the neighborhood do not really have a legitimate claim to file an appeal because the person filing an appeal must be “aggrieved,” and the word “aggrieved” has a specific, well-understood legal definition, namely that an aggrieved party must have been subject to actual injury or damage. However, the neighbor’s appeal is based on a hypothetical, future injury—reduced property values. JC argued that this is crazy talk. The allegations are taken as true, and the point of an appeal is to allow the individual to demonstrate an injury. To suggest they have to prove they were injured before suing or appealing puts the cart before the horse.

• I think they were talking past each other here. JC’s argument makes sense but I don’t think it actually addresses BR’s point, because BR is talking about the fact that the injury the neighbors are claiming hasn’t—by their own admission—actually happened yet. This is different than claiming you were injured but just haven’t proven it. In any case, no one on the Board really seemed to buy BR’s argument. +1 Neighbors.

BR also argued that the DRB isn’t even really allowed to judge the effects on property values given the development is on a C2-zoned parcel. There are no height restrictions in this type of zoning and so building something really, really tall is allowed by-right. JC says that this is wrong and that the language in the city’s zoning ordinance specifically says that zoning regulations are not to be construed as a guarantee that properties can build right up to the limits laid out in the zoning code.

• JC makes a good point. +1 Neighbors

Finally, JC argued that the point of their appeal is not to ask the Board of Zoning Appeals to make a judgment but to send it back to the DRB so they can do their job. According to the law, they are supposed to consider whether a development will substantially impact property values, and they did not do this. There ensued a bunch of back-and-forth between BR and JC about what it means to “consider” something. BR said they had all the real estate appraisals and expert opinions in written form before the meeting. But, JC argued, they didn’t actually talk about it so could they really have “considered” it? BR then responds that one board member dissented on the approval because of this very reason so obviously property values were “considered.” I considered this conversation important but tedious.

JC then shifts arguments, and says that testimony from neighbors about the negative impact on their home values counts as evidence, that the DRB didn’t allow public comment during its final approval, and therefore they failed to consider all the evidence. BR didn't really dispute that individuals voicing their concern about diminished property values counted as evidence but pointed out that it's not particularly strong evidence and, in any case, has to be weighed against everything else which the DRB did because they allowed public comment during other hearings.

• I think BR won this one, but unfortunately the Board’s decision really didn’t hinge on this argument, so only +0.5 Developer.

III.

Ultimately, the Board’s decision mostly revolved around a procedural issue neither of the attorneys mentioned: that ordinance 15.10.40 requires the DRB to “make a written decision based upon findings of fact,” and because there wasn’t enough information for the Board to evaluate whether Drew Tower would have a substantial impact on the value of neighboring homes, they sent it back to the DRB with a request that they put down their thought process in writing.

This seems like a victory for residents, but I think it’s important to look at what the Board didn’t say. They didn’t say the DRB had ignored evidence, and they didn’t say that Drew Tower was obviously going to decrease property values in the surrounding neighborhood. They just said the DRB should show its work and write down why it made the decision it did. The DRB agenda for Thursday says: “Confirmation of Factual Findings for Board’s decision of January 20, 2022, regarding 10845 Bluemound Road – Drew Tower.” Doesn’t seem too promising.

It is possible that in the process of “confirming” that they realize they were mistaken and decide not to approve the development after all, but as far as I can tell there was no new information introduced during the Board of Zoning Appeals meeting and they didn’t say that the DRB had done anything wrong except fail to write down the reasons for their decision.

IV.

The primary argument offered by JC and the neighbors is that the DRB failed to consider whether the tower would reduce neighboring property values.

However, I think implicit in this argument is an assumption that if the DRB had done so, they would have come to a different decision. But this is not clear at all, and in fact I think the evidence points in the other direction.

During the Board of Zoning Appeals meeting, BR had a real estate appraisal professional describe some of the research he had done and which had previously been available for consideration by the DRB. After looking at several other commercial developments in the area over the past 5-10 years and the property values of neighboring homes, he found that, overwhelmingly, the value of neighboring homes increased after the commercial development was completed.

JC and some of the neighbors during the public comment period pointed out, rightly I think, that there are problems with this analysis. You can’t just look at a house next to an office building, see that 10 years later its assessed value is higher than it was before the office building was there, and conclude that the office building had no impact on the house’s value. Obviously, if you waited long enough, the nominal value of everything would increase just due to inflation. But also, Wauwatosa is an area of high demand and all the houses have become more expensive. What you really care about is whether the price of the house increased as much with the office building next door as it would have without it.

Suppose a house in Underwood is worth $300,000 today and that a year after Drew Tower gets built, it’s worth $315,000. And suppose that in a world where Drew Tower isn’t built, the value of the house increased from $300,000 to $330,000. If you had this information, you could make a strong case that Drew Tower’s presence has impaired the value of that person’s house by $15,000.

Unfortunately, you will never be able to observe both of these things—the new development either gets built or it does not, and you can’t observe what doesn’t happen. So it’s impossible to say with certainty, “If this tower hadn’t been built, my house would be $15,000 more valuable.” Instead, you have to find some way to infer what the value of the house would have been if Drew Tower was never built. This is actually difficult to do, which is probably why everyone is arguing about it.

One way would be to look at similar neighborhoods with similar commercial developments and see what happened there. This is the approach that BR’s expert in real estate appraisal took. But the problem, as pointed out by others, is that he only looked at a few other commercial developments, they were different in important ways (they were smaller) than the proposed Drew Tower development, and he didn’t compare it to the price appreciation in similar neighborhoods where commercial development didn’t occur.

Ideally, you’d want to look at lots of neighborhoods or houses—hundreds, or thousands, or tens of thousands—and compare the sales price of houses near new commercial developments with the sales price of houses that were not near any new development. And you’d want to account for differences between houses—a 5-bedroom house will almost always sell for more than a 3-bedroom house, so if a 5-bedroom house near a new commercial development sells for more than a 3-bedroom house without nearby development, that’s not necessarily proof that commercial development increases surrounding property values. It might just be proof that 5-bedrooms are worth more than 3-bedrooms.

BR’s real estate appraisal expert may not have done this, but Jon Wiley at the University of Alabama did. He looked at hundreds of thousands of home sales in Atlanta, Georgia, and compared the sales price of those that occurred in the vicinity of hundreds of new industrial, retail, and office development with those that did not while also accounting for differences in the size and age of the homes involved. He finds that (emphasis added):

…Housing values appear largely unchanged by new office deliveries over the long-horizon.

In the immediate vicinity of retail development site, home prices are relatively lower than the surrounding area during the period leading up to the development. While the trend is trivial prior to completion, it is significantly impacted in the period immediately following a new retail delivery. Home prices inside the radius are initially relatively lower (even more so than before), but set on a path that is steadily increasing relative to comparables in the surrounding area. It takes only a couple of years for the initial reduction to be more than offset, and – within a few years after that – home prices inside the radius even surpass those in the surrounding area (when previously they were significantly lower). Of the three commercial real estate product types considered, proximity to retail development is the most likely to be considered a neighborhood amenity and an important aspect to community revitalization – although it can take a few years for the submarket to fully incorporate positive price effects following the completion of a new shopping center.

Perhaps most surprising is the lack of evidence for negative and significant impacts of commercial developments on housing values. Scores of political arguments to the contrary are voiced at local debates across the nation, yet this research does not find substantive evidence of a negative interaction.

I will note one caveat to this, and it is the same objection raised during the public comment period. Most of the commercial developments in the data set were relatively small. He says:

Out of 273 new office developments identified for Atlanta during 2006 to 2014, a total of 252 are classified as either small projects (less than 100,000 square feet of building area) or suburban office (not located in Downtown, Midtown, Buckhead or Central Perimeter). The findings are heavily influenced by small projects and suburban office, rather than high-rise CBD office towers.

While this is a single study and not incontrovertible proof that Drew Tower will have no impact on surrounding property values, I think it should move us in the direction of predicting either no or a small, positive impact to home values near Drew Tower, especially with the lack of evidence saying the opposite.

V.

And yet, I don’t think neighbors will find this particularly persuasive. I suspect that even if they could be convinced that Drew Tower will not reduce the value of their home and might even increase it a little, that they would nevertheless still oppose it.

Why?

One possible reason¹ is because the value an individual places on their home is the aggregation of a complex and ultimately idiosyncratic array of factors. Some of those factors might be commonly shared—the home’s proximity to a park or the presence of a second bathroom. But some of those factors are likely unique—the home’s proximity to parents, the presence of an usual architectural feature or floor plan that most might avoid but that is perfect for you, or simply its association with pleasant personal memories and experiences.

And not only might you value aspects of your home that the market, on average, will not, but the converse is also true as well. You would likely place negative value on turning your home into a duplex while many prospective buyers might be willing to pay more for such a property because of its higher potential income.

I’m not saying there’s a huge market demand for sweeping, panoramic views of a giant office building outside the window of your master bedroom, but I do think it’s possible that a future buyers might be willing to pay more for your home next to a big commercial and retail building if they thought they could make a profit turning it into a duplex or a quadplex. Or that the presence of increased traffic and a lot of office workers nearby more than outweighs the cost and uncertainty of buying your property and getting it rezoned so they can put a restaurant on it.

And I think it’s possible that some homeowners are conflating the market value of their home with the value it has for them personally. These can be the same but are not necessarily so. And I think the implication for residents in their opposition to Drew Tower is that in placing a lot of legal and rhetorical emphasis on its potentially negative impact on market values when that is not what their true objection is, they have placed relatively less emphasis on arguments that reflect their real concerns—that the tower is too big and they don’t want to look at it, and even if traffic could be minimized and pedestrians made safe and property values maintained, they still wouldn’t want to look at it.

Section 15.10.010.C of Wauwatosa’s municipal code says:

The design review board shall consider the exterior architectural appeal, the site location and proposed location of the structure on the building site, the landscaping, topography and whether the structure to be altered or constructed shall be so similar to, or so at variance from, other structures already constructed or under construction in the immediate neighborhood of the applicable district if, in the board's opinion, it causes a substantial depreciation in the property value of the neighborhood within the applicable district.

I find this sentence really difficult to parse and am not even sure it’s grammatically correct. For instance, removing some of these subordinate clauses, it says: The design review board shall consider…whether the structure to be altered or constructed shall be … so at variance from, other structures…if…it causes a substantial depreciation in the property value of the neighborhood….

I feel like it’s missing a word somewhere. But ignoring that, one way to read it is that the DRB should only consider the aesthetic qualities of the building if it’s likely to devalue neighboring properties. In that case JC’s emphasis on the potential negative impact to the market value of nearby homes seems like the right approach. But (1) my sense is that the DRB throws in their two cents and suggests aesthetic changes regardless of the development’s impact on neighboring property values, and (2) I feel like if that reading was correct BR would have talked about it more.

Assuming the DRB can deny proposals based on aesthetic considerations regardless of the proposal’s impact on neighboring property values, I think neighborhood residents would have been better served putting less emphasis on property values and more emphasis on the simple aesthetics of a 28-story building next to a bunch of single-family homes. Certainly some residents mentioned this—in emails to the Board and during public comment—but it wasn’t a big part of the four-and-a-half conversation between the lawyers. And I think such an argument—that height itself has an aesthetic quality independent of anything else, that no amount of tinkering with the landscaping or setbacks will change this, that the aesthetics of a 28-story building is quite at odds with (or so at variance from) a neighborhood full of single-family homes, and that it can and should be denied based on this reason alone—might have been more persuasive.

Maybe not. But if I had to make a prediction², I’m about 70% confident that tonight the DRB will “confirm” that the Drew Tower development will not have a substantial impact on neighboring property values and approve it for that reason. We’ll see.

1. And there may be others. For instance, homeowners, and people in general, are risk averse, and so while they might understand that, on average property, values next to a commercial development will increase or be unaffected, they rightly care less about the average and more about what will happen with the individual house that they own. It is a gamble with potentially large uncertainties.

2. In general, I am a fan of making explicit predictions and recommend others do so as well. It keeps us honest, and encourages us to actually try to better understand the world. I also predict that no more than one person will click on this link.