First published June 7, 2002
In spectacular fashion, real estate speculators have won their gamble that farmland west of Verona would give way to development, thanks to a software developer's desire to build its campus in a rural setting.
County records show that West Verona L.L.C. on May 15 pocketed $4.77 million for a 346-acre parcel it bought for $1.14 million in 1995 -- a 400% return on its investment in seven years' time.
"That's a great return, a great result," says longtime real estate investor Fred Mohs, who notes that such bets often don't pay off.
The purchaser, Epic Systems Corp., plans to build a $45 million headquarters near the Sugar River and U.S. 18/151. (See "Epic Decision," 5/17/02, for details.)
Hal Lessner, who with Roger Bowden and Stephen Brown are the principals in West Verona, says the group bought the land in hopes that it would be developed for Verona housing within 10 years. In the interim, the farm fields were rented to a dairy farmer.
Lessner declines to verify the financial figures drawn from county documents, but says West Verona's holding costs for the seven years were "quite substantial." Mohs, who isn't involved in the deal, estimates the investors could have paid $1 million on interest, taxes and other expenses.
In fact, taxes on the property were quite modest since the speculators benefited from a tax break -- "use value" assessment -- designed to reduce the tax burden of farmers. The parcel, including several buildings, was assessed at just $415,200 in 2001, 13% less than two years before, when the use-value tax break became law.
The drop in the land value alone was even starker -- a 32% decline from 1999 to 2001. Property taxes overall fell 5%, from $8,967 to $9,434.
Proponents of use value argue that a lightened tax load reduces the pressure on farmers to sell their fields for development. But in the West Verona case, the beneficiaries aren't farmers, but land speculators.
"This is a classic example of the failure of use value," says James Rowen, policy director to Milwaukee Mayor John Norquist. "You get less farmland in production, more sprawl and enriched developers. Where's the public benefit in all that?"
Norquist is a plaintiff in a lawsuit pending before the state Supreme Court that seeks to overturn the use-value law on the basis that it unconstitutionally taxes farmland at a lower rate than other real estate.
The law includes a penalty provision when land like the West Verona parcel goes from being farmland to land that's developed. The provision allows local governments to recoup some back taxes. (See adjoining story.)
"That's something we'll defer to Epic and its counsel," says Lessner. "We're not aware of it being a significant issue."
As some people have suspected all along, Madison and Fitchburg faced an uphill fight when they bid for the Epic headquarters in the summer of 2001. Epic already had an option on the Verona property when it was supposedly negotiating with the two cities.
The May 15 warranty deed detailing Epic's acquisition of the West Verona land shows that on Jan. 11, 2001, the two sides signed an offer to purchase that set the terms of the sale 17 months later.
[Editor's note (June 14, 2002): In the above story on Epic Systems' purchase of a building site in Verona, we said the company had an unrecorded option on the property while it negotiated with Fitchburg and Madison for a site. Epic's Carl Dvorak says the company also had an unreported option on 220 acres in Fitchburg.]