[URBAN NOTE] "For Cities, Big-Box Stores Are Becoming Even More of a Terrible Deal"

[rfmcdonald]

A Mike on Facebook pointed me to this opinion piece by one Olivia LaVecchia, writing for the Institute for Local Self-Reliance, argues that big-box stores in American cities are bad deals for their communities. They can evade taxes, and so lead to underfunding of vital services, very effectively.

Figuring out the value of a property can be a complicated business. In Michigan, town and county assessors typically use a property’s construction costs, minus depreciation, as a primary metric to determine its fair market value; taxable value is half that amount. Property owners sometimes prefer, instead, to use the sale prices of comparable properties. This was the approach that Lowe’s took—with a catch. Lowe’s looked at the definition of the word “comparable,” and decided to stretch it. It said that, because big-box stores are designed to be functionally obsolescent, that comparable stores are those that have been closed and are sitting empty—the “dark stores” behind this method’s name.

“Unlike many other commercial properties,” the assessor hired by Lowe’s argued in court, “free standing ‘big-box’ stores like the subject [property] are not constructed for the purpose of thereafter selling or leasing the property in the marketplace.”

It’s an established part of the big-box retail model that the boxes themselves be custom-built, cheaply constructed, and disposable. If retailers decide that they need a bigger space, it’s cheaper for them to leave the old one behind and build a new one. When Walmart, for instance, opened its wave of new, twice-the-size Supercenters across the country in 2007, it left hundreds of vacant stores behind it. This means that new, successful stores like the Marquette Lowe’s are rarely the locations that are up for sale, and that when big-box stores do come on the market, it’s because they’ve already failed or been abandoned by the retailer that built them. In other words, Lowe’s was saying, it had built a property that, despite generating roughly $30 million in annual sales for the company, had very little value, and because of that, it should get a break in its property taxes.

Lowe’s went a step further. The properties that it offered up for comparison were properties that had been affected by another big-box retail tactic: deed restrictions. When big-box retailers are ready to move on to a new location, they often place these restrictions on the properties they leave behind. Designed to ensure that whoever buys the property won’t become a competitor, these restrictions limit how the store can be used, down to lists of specific items that the new occupant is banned from selling. In effect, they prevent most other retailers from moving into spaces designed specifically for retail, and so depress the values of these properties even further.