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Op-Ed: Tetra Purchase is Poor Value, Worse Investment

by Karen Goff April 20, 2015 at 3:00 pm 25 Comments

Return on Tetra Investment/Terry Maynard

This is an op-ed by Reston resident Terry Maynard. It does not necessarily reflect the opinion of Reston Now.

Contrary to RA President Ellen Graves’ op-ed on Friday, the planned RA purchase of the Tetra property is neither a good value now nor a good investment in the long term. Only Reston voters now can stop this ill-conceived, secretly planned purchase by voting “NO” in the ongoing RA referendum.

The price RA has committed to paying, subject to the referendum vote, is $2.65 million. The $2.65 million price is two and one-half its current market value of the Tetra property as measured by both Fairfax County in its annual real estate assessment and the RA-funded appraisal and property condition report.

The County puts the value of the Tetra property at $1.20 million as of Jan. 1, 2015. That is down about $44,000 from last year. And, as you probably know, the County is obligated under state law to assess real estate at its fair market value.

The property appraisal prepared for RA by The Robert Paul Jones Company, LLC, (RPJ) walks through the property’s “as is” valuation in two ways: comparable sales and income approach. After putting the comparable sales valuation at $1.45 million and the income approach valuation at $1.1 million, it arrives at an “as is” fair market value of $1.3 million. (See p. 22 of the RPJ appraisal.)

The RPJ valuations assume that the building is in good repair. Yet, as RPJ notes in its income valuation of the property, “The subject’s historic maintenance and repair expenses for all expenses, including pest control and some expenses which are considered to be atypical, has averaged $1.74 per square foot on average for 2012 through 2014, ranging from approximately $0.34 per square foot in 2012 to $2.95 per square foot in 2014. We have stabilized this amount at $1.25 per square foot of GBA, or $3,910 annually.” (Page 20 of the appraisal.)

At its three-year average, annual maintenance and repair costs over the last three years actually reach more $5,440 –some 39 percent higher than the value “stabilized” by RPJ. Why we should expect future maintenance and repair costs to be lower than recent ones remains a mystery.

Yet, the Tetra building is not in good repair as RA directed the appraiser to assume (“deferred maintenance has been corrected”, p. 2). The property condition report from Criterium Engineers attests puts the needed repairs at about one-quarter million dollars; specifically, $257,410 over the next decade including $144,364 that needs to be done right away (see p. 4).

So, the true “as is” value of the Tetra property in good condition is the fair market value of $1.2-$1.4 million less the needed repairs of $257,410 to put it in good condition. That’s a net fair market price of the Tetra property in good condition of $943,000 to $1.143 million, call it $1 million dollars, nowhere near the $2.65 million that RA is committed to pay if this referendum is approved (although RA may get the priced reduced by the cost of immediate repairs–$144,000 — to roughly $2.5 million).

The only reasons that the price has been fixed at $2.65 million are that the President of Tetra Properties is insisting on receiving that price and the fact that the appraisal assumes, by RA direction, that a 6,930-square-foot restaurant can be added to the property, an extremely unlikely prospect given the restrictions on the property reflected in Tetra’s inability to sell the property to any restaurants for years. Otherwise, paying more than $1 million for the property is a grand waste of Restonians’ assessment fees.

Moreover, if RA is allowed by Reston voters to proceed with this “investment,” it will lose money for more than three decades, doubling the life of the current building. Using RA’s assumptions about the revenues and expenses of purchasing and operating the property in the RA “Fact Sheet” with some further assumptions about the longer term, we anticipate that cumulative losses will peak at $2.0 million 20 years from now, the last year in which RA has to make mortgage payments.

These calculations are shown in a Reston 2020 post. Extending this analysis out to 2050 (and adding only $10,000 annually for capital repairs and replacements after 2035) shows that the cumulative loss begins to shrink after the mortgage is paid, but does not reach break even or better until 2048 — 33 years from now.

The Tetra building will be 66 years old in 2048 and probably need to be torn down if it hasn’t been torn down already. And it cannot be re-built. The County’s Chesapeake Bay Preservation Ordinance calls for the return to a natural state of all Resource Protection Areas (RPAs), such as this one, at the end of the natural life of existing structures. RA may never realize cumulative revenue on its purchase of the Tetra property.

Assuming the building is still standing and usable in 2050, RA’s cumulative annual return on investment will be 0.5 percent over the next 35 years. And, in real terms, assuming a 3-percent inflation rate as RA does, it will still be a losing investment, providing Restonians a negative 2.5 percent return annually for the next 3 1/2 decades. We would do better as an investment by putting Restonians’ $2.65 million in a money market account.

In sum, RA is willing to pay more than 2 1/2 times the current value of the Tetra property and we can expect that RA’s investment will lose money for the rest of the building’s useful life. It is a horrible purchase value and even more atrocious long-term RA investment. Vote “NO” on the Tetra property purchase to save Restonians’ money, sustain RA’s good financial reputation, and prevent unneeded spending.

Something on your mind? Send a letter to [email protected] Reston Now reserved the right to edit letters for style, spelling and clarity.

  • Wings!!

    Tetra Purchase is Poor Value, Worse Investment
    However, Lake Newport Hooters is a Win Win!!

  • ItsNotMyMoney

    I wish there were more information about the $650,000 developer contributions. I am assuming that if the 650,000 is not used in renovating the Tetra property, it is available for use elsewhere. If that really is the case, Restonians ought to think of the investment cost to be the 2.65 + the 650, bringing the total close to 3.3 million. That money is better spent elsewhere.

    • Secret observers

      Thanks Mr Maynard for an eye-opening op-ed and historic documentation. Time will tell. Your and Ms. Graves’ op-ed will be tested.
      “wish there were more information about the $650,000 developer contributions”
      ……in a dream that RA is transparent and held accountable for its direction.

      “the appraisal assumes, by RA direction, that a 6,930-square-foot restaurant can be added to the property”
      …..and also assumes that the DRB (Design Review Board) has enormous power on every members’ property but neither say nor control on any restaurant near damp Newport (? except Hooters ).

      “the total close to 3.3 million. That money is better spent elsewhere”.
      …..than secretly ended up in just few pockets. (according to mumbo jumbo conspiracy theory) :):):)

  • Rodney Dangerfield

    Again, mislabeling information … it doesn’t take 33 years to break even … it takes 33 years to be net positive INCLUDING paying the purchase price and interest on the loan. There is a difference between capital accounting and operating income/expense accounting, and you seem to ignore that every time you recycle this anti-purchase propaganda. The cost is a rounding error at $80 per household over the next 20 years, and would serve a purpose that has been articulated by several of the people bringing it to your attention for a referendum.
    We all get that Terry is opposed … why does he get so many opportunities to say it in print?

    • JCSuperstar

      I have to agree. While I voted NO, Mr. Maynard seems to enjoy just being on the other side of everything. His analyses are so biased, they make the cable news outlets look like expert news sources.

    • Ming the Merciless

      I for one intend to spend that $80 on artisanal craft beer at the Lake Anne Brew House if the Tetra purchase is rejected as it should be.

      • JCSuperstar

        I like that… or at the new place on Lake Newport!

    • Rational Reston

      Don’t know about your household, but $80 a year is not a rounding error for me. Nor is the $1600 sum over that 20 year period.

      • Terry Maynard

        RR–It is a total of $83.56 over 20 years–about $4/year–a conclusion I calculated & published in a Reston 2020 post and have never tried to hide. Indeed, Rodney wouldn’t have that number if I hadn’t put it out there. I do not try to hide anything.

        I have also pointed out that, on average over that 20-year span, that average $4/yr increase will add about 21% to RA’s annual assessment fee increases, assuming they escalate only at a 3%/year inflation rate.

        There you have it: The good and the bad of the impact on your assessment fees.

        • Rational Reston

          I see, thanks for clarifying my misunderstanding.

          Plus you’re only estimating the negative impact of just this purchase on our assessment fees, not counting further inflation or RA mismanagement impacts.

    • John Farrell

      Debt service is part of a operating income/expense pro forma.

    • Terry Maynard

      Rodney–The graphic and discussion are Net Cash Flow, real money, not income statement entries.

      • Rodney Dangerfield

        Yes, but after 20 years, it is owned free and clear … your chart is still misleading, for a purpose … and your penchant for doing that simply can’t be fixed, sadly.

  • JCSuperstar

    Let it go to a new owner to make something happen there.

    But, Mr. Maynard, you are all over the place with your “technical opinions:”

    For example, regarding the golf course:

    Your mother ship, RCA, states: ” [we} also strongly endorses RA’s opposition to any redevelopment (RA’s RNGC Release) and like RA, RCA believes that RNGC can remain as it is today and operate profitably. RCA also supports RA’s willingness to consider purchasing the golf course if needed to continue to maintain it as a Reston recreational asset.”

    In your own blog: ” The future of the Reston National Golf Course (RNGC), the neighborhoods that surround it, and County and RA infrastructure that supports that area of southern Reston—schools, streets, parks, open spaces, and natural areas—are in jeopardy because golf course owner Northwestern Mutual (NWM), operating as RN Golf Management, wants to turn its $5 million golf course purchase into a one billion dollar-plus mega-housing extravaganza. That could be some 8,000 new homes and more than 20,000 added people living on its 166 acres, limited only by Reston’s overall density ceiling of 13 people per acre.”

    Are you just a contrarian by nature?

    • edgyone

      I think you are just contrarian by nature. You say you are against this purchase but you argue against every fact proposed by Mr Maynard. The chessapeake regulations are a dact, the easements are a fact, the opinions you spout are just for the reasons of scaring people into voting yes to keep this mythical development from happening. And yes, you say that is what you want, but for all the bs you write it is plain that you want tetra to get a million dollar windfall at our expense.

      • JCSuperstar

        Tetra will get what you call the windfall, no matter what you may believe.

        As I have shared, I’m not in favor of Reston Association getting in the way of property owners rights.

        What I don’t like is people like Maynard attempting to misdirect/mislead. As I’ve read most of his blog, he has not favored one initiative in Reston, Fairfax, and I suspect the State.

        There are many people who should make an informed decision here and basing anything on this trickery with numbers and academic analysis versus reality is just — unfortunate.

        Do your own analysis and make your own decision. You know where I stand — pro business, pro owners rights.

    • Terry Maynard

      JC–Unlike others, my letters, opinions, and analyses are not driven by a political viewpoint, they are driven by the situation. So, no, I think it’s a bad idea for RA to buy Tetra, in part for the reasons expressed in this letter. And, also no, I don’t think Northwestern Mutual should be allowed to turn one of our golf courses into thousands of apartments.

      I am neither conservative Republican who believes in unbridled capitalism nor a socialist Democrat who believes that government programs are the answer to everything. I find that people that think that way (and I’ve dealt with many of them in various US administrations and Congress from both parties) usually come up with the wrong answer, whatever the question.

      I’ll admit that I may have the wrong answer with either Tetra or RNGC (even maybe both), but they’re not wrong because they are driven by narrow ideological presumptions. They are driven by the available facts and analysis as I can interpret them.

      And, for the record, I have never known RCA to work for anything but the best possible outcomes for Reston on any issue or topic. I am very proud of the work RCA has done for the community during and before my involvement with it going back at least to its ResTOWN initiative in the middle of the last decade.

      RCA’s committees, the Reston Accessibility Committee (RAC) which has influenced state & local legislation on accessibility and visitability, the former RCA Sustainable Reston (now operating on its own) that has advanced environmental awareness and sustainability across Reston, and the original RCA Reston Planning and Zoning Committee that prevented Gulf/Mobil from turning Reston into Manhattan (now under the County’s wing) have all accomplished significant achievements for Reston, Fairfax County, and even Virginia in the last decade.

      I am also proud of Reston 2020 with which I am associated which has contributed substantially on community planning issues in a variety of fora on a variety of issues for the last six years.

      You’ll be hardpressed to find fewer committed volunteers achieving more with less (no fees!) other than dedicated and tireless effort anywhere, much less just in Reston, than those who work with RCA and its committees.

      • JCSuperstar

        Mr. Maynard, like you, I am neither conservative Republican who believes in unbridled capitalism nor a socialist Democrat who believes that government programs are the answer to everything. I don’t belong to either party.

        I question your interpretation of the data and the way you decided to leverage them to support your personal desired outcome.

        So, to get above the data, let me ask a few simple questions:

        1. Do you support fighting the owner of the Reston National Golf Course and it’s likely purchase by RA?

        2. Do you support the tripling of density and development at St. Johns Woods?

        3. Do you support the redevelopment and significant density increase at Tall Oaks? North Point? Hunters Woods? South Lakes?

        4. Did you support the redevelopment of Lake Anne?

        5. Do you support the redevelopment of Tetra any time in the future?

        • Terry Maynard

          1. As does RA, RCA, Rescue Reston, Reston 2020, and Bob Simon (among 1,000s of others), I support continued County and Reston legal action to stop Northwestern Mutual from taking 166 acres of planned and zoned Reston open space and turning it into thousands of apartments.

          2. No.

          3. Tall Oaks needs redevelopment and it will necessarily be more dense than what currently exists. In general, several decades of experience indicate it cannot support a full-fledged village center because of (a) its isolated location, (b) its proximity to a redeveloping Lake Anne and the planned retail & other commercial growth of the nearby Wiehle station area, and (c) impossible street access options. I think it should (& probably will) become a residential development with a retail convenience center to serve the immediate neighbors, especially the adjoining senior housing. Again, how much density, open space, etc., are the key questions in what should be there. We’ll see.

          On the other village centers, Reston 2020 and I have pushed hard to keep the density at village centers from becoming unlimited and extending beyond the “mixed-use” (strip mall) portion of the VCs in the new Reston Master Plan. Language in early draft plans suggested (a) the whole village center area could be up for redevelopment (including townhomes, condos, & apartments) and (b) there would be no limits on redevelopment into high-density “community-serving” (i.e.–Reston-wide) retail. Through our efforts, that draft language now on redevelopment is limited to “neighborhood-serving” and the mixed-use area footprint only with a strong “gathering place” anchor (some form of open space where people can meet and enjoy themselves), which is exactly what village centers are supposed to do in Bob Simon’s vision. We’ll see if that language stands.

          4. Generally questioned the density, absolutely opposed the outrageous plan to redevelop LA Fellowship House which would have thrown out 300 low-income residents (which ultimately failed), but did not oppose redevelopment per se. Over the decade of re-thinking LAVC, the proposed density just grew like topsy with not much consideration of whether there was ever going to be a market for that density–commercial or residential. NTL, LAVC has been struggling almost as much as Tall Oaks and needs redevelopment. Whether it needs all that has been approved is an open question, especially in the face of traffic obstacles to moving in, out, and through there–and, no, buses won’t prevent congestion or lack of parking. Some specific aspects of the redevelopment plan, including RA’s swap deal giving up an acre of natural woodland for a drainage ditch, I thought were horrendous.

          5. You’ll have to ask a more specific question than that.

          As you can see, my response varies with the situation and at least some degree of analysis and thought.

          • JCSuperstar

            Thank Mr. Maynard, I do see your response varies, but there is an underlying trend. You want to be considered the contrarian expert on development and redevelopment with the authorities.

            So you know, I believe humans have had a huge impact on this planet’s climate, and the resulting climate change scenarios.

            But, you remind me of poor All Gore, who misled so many people because of his need for notoriety and “expertise” with the data. He liked to write too.

            He, alone, did more damage and set back the scientific argument for years due to his needing to be in the limelight and demonstrating he could make graphs show what he wanted to say.


          • Reston Realist

            Are you CERTAIN Al Gore is wrong? on what scientific basis?

          • JCSuperstar

            You totally missed my point. Everyone aggress the raw data is good. Unfortunately, Mr. Gore took what he thought was a great trick in statistics to make his point — Mr. Mann’s famous graph.

            By using this trickery, the scientific community lost a tremendous amount of credibility — due 100% to being overzealous and self-centered.

            The trick was to just add in the real temps to each series for the last 20 years. In science, the term “trick” is slang for a clever (and legitimate) technique, in this case Michael E. Mann’s technique for comparing two different data sets.

            The issue is part of the global warming controversy and has been one focus of political responses to reports by the Intergovernmental Panel on Climate Change (IPCC). Arguments over the reconstructions have been taken up by fossil fuel industry funded lobbying groups attempting to cast doubt on climate science.

            When the McCain-Lieberman bill proposing restrictions on greenhouse gases was being debated in the Senate on 28 July 2003, Senator James M. Inhofe made a two-hour speech opposing the bill. He cited the Soon and Baliunas paper to support his conclusion: “Wake up, America. With all the hysteria, all the fear, all the phony science, could it be that manmade global warming is the greatest hoax ever perpetrated on the American people? I believe it is”!
            Don’t fall in for those who know how to play with numbers to make their point — like Mr. Maynard.

  • Mike M

    Compelling graphic. But don’t underestimate the willingness of zealots to incur any debt in pursuit of their righteous ideals. Exhibit 1 – the US National Debt and where it is going.

  • FustBase

    I’ve heard no mention of a debt service reserve. As I recall, the is an interest-only loan. That sure helps the cash flow look better, but when that balloon appears in 20 years, RA will borrowing again at a now-undeterminable rate for continued re-financing. And where does the cash come from for the replacement of major components? Well, assessments, if course.

  • Michael P. McHugh

    Compelling graphic. But don’t underestimate the willingness of zealots to incur any debt in pursuit of their righteous ideals. Exhibit 1 – the US National Debt and what it is buying.


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