Commercial property that owes city, county $180K in back taxes sells for $1 at auction; east side shopping center in foreclosure
It is like a magic trick: $1 can make more than $180,000 worth of obligations disappear.
At a Douglas County tax auction on Tuesday morning, Jeremiah Johnson bought a piece of industrially zoned property — a little over three acres with an appraised value of just more than $200,000 — for $1. And when Johnson pulled the single dollar bill from his wallet and handed it to the Douglas County Sheriff’s Department representative overseeing the sale, it wiped out $181,924 of past due taxes, interest and special assessments that had piled up on the property.
A pretty neat trick, unless you are the city of Lawrence and Douglas County. Those are the two governments that were owed the back taxes and special assessments. The sale of the property means the previous owners are no longer responsible for the back taxes and special assessments. They are forever lost.
The property is at 2460 Fairfield St., which is a vacant lot behind the Tractor Supply store east of 23rd Street and O’Connell Road. You may remember that the J-W has written about the property before. In December, we reported that an investment group that included Lawrence businessman Doug Compton and Bill Newsome had fallen behind on the property taxes and special assessments on the property.
The development group used special assessments from both the city and the county to finance various pieces of infrastructure for what they hoped would be a thriving commercial development. A special assessment is simply a way that developers finance items such as streets and sewer lines. The government uses its ability to borrow money cheaply to pay the upfront costs of the improvements, and the development group agrees to pay back the money and a modest amount of interest. The money is generally paid back through a special assessment that is added to the annual property tax bill of the property.
The idea is that developers save some money in financing costs, and the government helps spur new development and ultimately will be made financially whole. One intended backstop for government is that if the special assessments aren’t paid, the property can be sold in sheriff’s sale. The proceeds of the sale are used to pay off the special assessments and back taxes. Governments usually take some comfort in the idea that a piece of commercial land that has infrastructure on it should be worth more than any amount of past due special assessments or taxes.
But on Tuesday morning, that was not the case with 2460 Fairfield St. The entire auction — which also included two other unrelated properties — only attracted about six people. Most were there just to watch. When the sheriff’s deputy called for any bids, there were several seconds of silence before Johnson said he would pay a dollar for the property. No one else bid.
In case you are thinking Johnson got the deal-of-the-century, know that there is a catch. While Johnson doesn’t have to pay any of the back taxes or past due special assessments, he does to have pay future taxes and future special assessments. The property has about $190,000 worth of special assessments that will come due in future years.
“It still has a ton of assessments on it,” Johnson said, which is why he said he was only mildly surprised that the property didn’t draw more interest.
As for what Johnson intends to do with the property, he doesn’t know yet. He is the son of Lawrence developer Roger Johnson, who is building a new residential neighborhood across the street. Jeremiah Johnson said it made sense to buy the property because of that proximity. The light industrial zoning on the property would allow for a variety of commercial uses. He said he would love for a grocery store to go on the property, but it likely is too small for that. But some other type of development that would offer some conveniences for the developing neighborhood would be ideal, he said.
As for what’s next for the city and the county, there is not much more to do on this particular piece of property. Government officials may give some thought to how they want to proceed in the future, though. The city or the county could have bought the property — who knows, perhaps for $2 — and then tried to sell the land to recoup some of the past due taxes that way. City Manager Tom Markus brought up that possibility in December, but city commissioners ultimately decided to take their chances that a bidder would emerge for the property.
Local government may be confronted with other such decisions in the future. The are six other lots in and around the unsuccessful development near 23rd and O’Connell. Those six lots owe at least $1.1 million in back taxes and special assessments. That is a rough tally based off of the county’s website, but the actual amount will be significantly higher as interest, penalties and other fees are added into the total.
Those properties have not yet been scheduled for a tax auction, but they will if no one pays the taxes in the near term.
Of course the biggest implication of all this may be how the city offers special benefit district financing in the future. It has been a longtime practice of the city, and many other cities use it too. The city already has tightened its incentive policy to do more to ascertain whether a person seeking an economic development incentive from the city is part of a company that is delinquent on any taxes or special assessments.
As for the original developers in all of this, I didn’t reach out to them today. But we did hear from Compton when we first reported the issue back in December. He noted that no one wanted the development to succeed more than he and the other five original investors. He said they spent millions of dollars of private money on the project, which thus far has only attracted the single Tractor Supply store.
“Our investment group — I was one of six original investors — has supported this commercial project for well over 10 years with millions of dollars of private investment,” Compton said in an email in December. “The City and County partnered with us in infrastructure investment because of the critical location of this project, particularly across the street from the City’s new business park (VenturePark.)”
It will be interesting to watch whether other properties that are part of the development come onto the auction market, and whether they draw more interest from developers. Perhaps the far eastern side is not ready to grow yet. This lot that came up for auction on Tuesday probably was in some ways the least visible of the bunch. Some of the higher-profile sites — one that would be large enough to house a grocery store on — are still yet to come, and may draw more interest.
In other news and notes from around town:
• We may get a read on what the market thinks about eastern Lawrence commercial property soon. The shopping center at northeast corner of 23rd and Harper is scheduled to be sold in a foreclosure auction later this month.
The shopping center that houses the restaurant Set ’em up Jack’s and other businesses is scheduled to be sold at a Sheriff’s auction on April 20, according to the Douglas County Sheriff’s website. Don’t worry, that doesn’t mean the businesses in the shopping center have to close. It may mean they will be getting a new landlord.
A representative with the sheriff’s department confirmed the sale includes both the shopping center at 1800 E. 23rd St., and the smaller commercial building next door that houses a gas station, liquor store and used to house a bank at 2200 Harper Street.
Other information about the foreclosure is a bit sparse. U.S. Bank is the lender seeking to foreclose on the property. The filing does not list how much is still owed on the shopping center and commercial development.
Foreclosure auctions work similar to tax auctions, although it is unlikely you will get this property for a dollar. The bank can make a bid on the property, and often does. To protect its interest, the bank often bids somewhere close to the amount that is owed on the property, but not always.
The filing lists 10 Marketplace Investors as the owner of the property. The Kansas Secretary of State’s office lists that company being owned by a conglomeration of individuals and LLCs primarily from the Kansas City area, and also by a Lawrence company headed by local businessman Stephen Craig.
I’ll try to keep an eye on that auction as well, and will let you know how it turns out.