Assessing ways to establish the value of Philadelphia's vacant land

Currently, the city owns nearly 9,000 vacant parcels, but the deeds are held among three different agencies. The Land Bank aims to end that by taking custody of the city's stock of vacant land.

You have a bit of vacant land in Center City and look to get more money for it. Making sure a dry cleaner is close by couldn't hurt.

Proximity to a dry cleaner can add $3 per square foot to the sale price, said Kevin Gillen, chief economist for Meyers Research and senior research fellow at Drexel University's Lindy Institute for Urban Innovation.

When Gillen and Meyers Research partnered with the Philadelphia Land Bank to find a way to develop a model to predict prices for 12,000 vacant parcels in the city, how close a property was to a dry-cleaning establishment was just one of 10 variables that affected it.

Those variables change with location of the vacant parcel, of course, Gillen told an audience of developers and others this week at the Pyramid Club in Center City.

In North Philadelphia, for example, distance to recent high-priced sales of land accounts for 19.1 percent of the price, Gillen said, while it is 25.9 percent for the city overall.

Among other important variables is proximity to City Hall - meaning distance to the central business district, he said - accounting for 10 percent of the variation in land prices citywide.

Guy Thigpen, the Land Bank's director of analytic services, said a pricing model is a critical tool for the city, as Philadelphia's largest landowner, to sell these parcels to private developers.

The old way to sell city-owned vacant land was "to identify a property and send an appraiser out to establish a price," Thigpen said. Often, "the price was not what the buyer had anticipated and the deal fell through."

The new pricing model is designed to "think like a buyer thinks, such as how close is the property to transit and highways," he said.

Such "upfront pricing" will prevent every deal from needing an appraisal and "will guarantee a better outcome from the property we dispose of and not have it be sat on by speculators," Thigpen said.

"Land is unique," Gillen said, and requires an automated value model that is different from the one he uses for homes.

Vacant land is not equally distributed across the city, Gillen said, with a lot of it in North, West, and Southwest Philadelphia and little in the Northeast.

Though 75 percent of city home sales are "arm's-length transactions" - that is, no party to the contract is a family member or business associate, or shares a business interest with the mortgagee - just 59 percent of land sales are, Gillen said.

The recorded prices, therefore, often do not reflect the parcels' true market value.

"Home sales are scattered throughout the city, but land sales are highly clustered," Gillen said. "There are virtually no land sales outside of North, West and Southwest Philadelphia."

Said Thigpen: "Don't assume the land market follows the same trends as the housing market. Land markets expand faster because of speculation on land that is ripe for development."

Boundaries of neighborhood submarkets are being redrawn to reflect the most recent sales activity, Thigpen said.

To analyze the market, Gillen and his team collected data on 70,000 land transactions between 1980 and 2015.

"Although there was a huge bulge in vacant land sales starting in the 2000s, there was very little before then - 30 to 40 transactions per square mile," Gillen said.

The bulge is attributed to the city's tax abatement, he said.

By 2015, as Philadelphia recovered from the real estate downturn, there were neighborhoods with more than 150 sales per square mile.

The median price paid for vacant land in 2015 was $55,000 (half the properties sold for more, half for less), but the mean (average) sale price was $217,000, Gillen said.

About 25 percent of parcels were sold at a price point of $17,000 or less, but 25 percent went for $220,000 or more.

There are few large lots for sale in the city, he said. Of the 2,500 sold in 2015, 1,425 were between 600 and 1,200 square feet.

The median price per square foot was $47, while the mean was $123, Gillen said. Just 1 percent of the total sold for $888 or more per square foot.

As Philadelphia has grown more desirable, he said, the area commanding the highest prices for vacant land has grown.

"In 1980, a one-quarter-mile radius of Center City accounted for square-foot prices of $200 and more, Gillen said. In 2015, that increased to a five-square-mile radius.