MORE OC COMMERCIAL PROPERTIES?

(May 7, 2010) A proposed zoning change that would affect all Ocean City properties in commercial districts could reduce property values and therefore tax revenues at a time when assessments are already flagging.

For about two years, the resort’s Planning Department has discussed the possibility of reducing the number of residential units a property owner can build on a site with a commercial zoning designation. The goal was to encourage more commercial development in town and to reverse the practice of putting condominiums on commercial land. That approach peaked during the real estate boom and gobbled up a large amount of commercial property.

Ocean City’s pyramidal zoning structure allows residential buildings to go on commercial properties. When the real estate market was strong, many commercially zoned properties were bought by developers who put large condominium buildings on them.

The resort’s comprehensive plan calls on city officials to encourage more commercial growth within town boundaries so residents will not have to travel out of town to go shopping or visit other businesses. In February, the Planning and Zoning Commission recommended the city do that by reducing the number of residential units that could be built on commercial properties.

But if adopted, some owners of commercial parcels would see their potential residential development cut in half. Depending on the location and size of the property, some owners would see the value of their land go down.

There are 602 acres of land, or approximately 1,700 properties, with commercial zoning in town, though only 50 percent of those are currently being used in a commercial manner. Of the rest, 18 percent have been developed residentially, 6 percent are vacant and 26 percent are used for other uses, such as parking lots.

A major factor in determining the value of a property is what Worcester County Assessment Supervisor Robert Smith called the “highest and best use” of that property. The assessment value of a commercially zoned property could be based on the largest condominium that could be built there, if assessors determine that is the best use of that particular property.

“If you put a condo building on a commercial property, that’s probably going to have a greater value than a single business there. That would create multiple units versus one business,” Smith said.

This would decrease the amount of property taxes the city could collect from that property without increasing the tax rate. If this situation occurred on many commercial properties, it could affect tax revenues greatly at a time when property taxes are already on the decline.

“This is going to affect property assessments for sure and of course it would affect taxes. I’m not sure that’s something I want to do in these economic times. I want to hear what the property owners think before I decide,” Councilman Jim Hall said.

When the proposal came before the council in March for a vote, the city officials were taken by surprise and were not ready to vote on such a significant change, especially because most of the affected property owners either did not attend or did not comment at any previous hearings. The council sent the issue back to the Planning Commission for one last public hearing, scheduled for May 18 at 7 p.m., and made sure affected property owners were sent a letter informing them of the proposal and hearing date.

“I never really understood what was behind changing the density. This is a complicated issue, so I’m waiting for the open discussion to help me do my homework,” Councilwoman Margaret Pillas said.

If the zoning change is adopted, Smith said that does not guarantee that the value of every commercial property will decrease. Each property is assessed on its individual merits, looking at the possible income that could be generated as well as market forces. Some locations are not well suited for a residential building, so reducing the allowable residential density there would have little effect on the assessed value, Smith said.

“Most of the time, a commercial property has a greater value than a residential property. A lot depends on the location. People that do the marketing approach look at what would be the best use for that location,” he said.

The recent building boom when every developer put up the largest building possible has showed that bigger is not always better, Mayor Rick Meehan said. Many of those units remain unsold to this day, driving property values down instead of up.

“More is not always better. More is what has caused property values to decline in many cases, because of overbuilding and unsold units,” he said.

Councilman Joe Hall could be personally affected by the zoning change, because his family owns a large commercial property on 60th Street where Hall’s Restaurant is located. He adamantly opposes the change, though the possible financial loss to the city was just one reason why.

“There will be a perceived, and probably real, effect on property values because of this change. It could definitely affect city revenues. But I think that should be less of a reason why this is bad. It’s not just about the economics of it, it’s about changing somebody’s vision of their investment based on the rules when they bought it. To me, it’s a property rights issue,” he said.