Delays on real estate development projects, such as the high-profile Sergeant Jasper redevelopment project in Charleston, SC, can be costly not only for the property owners, but the entire region, says a Heritage Foundation economist.
“One of the things that I run into a lot, even among people who are pretty well informed on land use, is the idea that a delay is not that costly,” Salim Furth, research fellow in macroeconomics for the Heritage Foundation, told the Palmetto Business Daily.
Furth explained that people tend to think a delay is just a detour that leads to the desired outcome, but neglect to realize that a delay is “the most important factor in preventing growth” and greatly impacts investment.
In the case of the Sergeant Jasper project, the Charleston Board of Architectural Review (BAR) has rejected several concepts for the property proposed by the property owner, The Beach Company. This has caused project delays and resulted in a lawsuit filed by the company against the BAR, claiming the board's review process was "arbitrary and capricious."
Court-ordered mediation reached an impasse this week, and the project's stakeholders await a ruling by Circuit Court Judge J.C. Nicholson, Jr.
The Beach Company’s CEO John Darby has stated that the continued delays are piling on additional costs to the project and communicating a "loud message to investors that their property rights are not safe in Charleston."
Court records reveal The Beach Company spent $2.3 million on consulting and demolition preparation for the Sergeant Jasper property. In addition, as of October 2015, the company said it was losing $2 million per year in revenue for the empty building.
Furth said delays like these can have a chilling effect on investment in additional development projects in the region, which all require significant capital investment.
"I think it is enormously dissuading toward other potential investors," he said.
Furth said if similar projects in the area were held up in review board meetings and sent back to the drawing board multiple times, investors could decide not to risk having their money tied up in a “dead property” for years.
That, he said, would harm the local economy.
“I think that is enormously anti-development; and I think the people who do it know it is, and they aren’t just doing it because they want whatever changes they are arguing for,” Furth said. “They are doing it because they have a preference for less development and the government has created this situation where instead of me having clear rights to my land and you having clear rights to your land, I have a little less right over my land and a little more right over your land and vice versa, which makes things a muddle.”
When property rights are clear and distinct, Furth said, transactions are crisper and things move along. But when there is confusion and misunderstanding, a lot of time is spent in court figuring out the property rights.
“It is just very mercurial, the board looks at something and decides what it likes and what it doesn’t like, and who it likes and who it doesn’t like; and that is not an appropriate way to run a government," Furth said. "The point of government is to set some basic rules within which we can all do our own thing."
Governments should ensure buildings are built to standard for safety reasons. But the government should be impartial, and the rules should apply to everyone across the board, Furth explained.
“Development is good," Furth said. "Development creates the new history. So there is this idea that we need to preserve what is old — and there are some buildings that are really iconic and should absolutely be preserved,” Furth said. “But the great cities of the world did not get to be great by deciding things were good and stopping.”