Financial Structure
The Western Gateway project includes approximately 11.36 acres of University-owned land which will be conveyed in part through a ground lease (for the graduate student housing) and in part through a sale (for infrastructure and townhouses). The financial elements of this real estate transaction were set forth in a public Board of Regents item.
UMD is required to obtain independent appraisals for all real property sales and purchases. In this case, two independent appraisers valued the Western Gateway land. The sale price for approximately 9.1 acres was based upon the higher of the two independent appraisals. Only one acre of the “for sale” land is available for construction of townhouses. The rest of the land will be subject to a permanent "no build" covenant that bars vertical development.
Site layout and topography affect value, however, far more significant drivers of value are zoning and the “no build” covenant.
The UMD land where the graduate student housing will be built (approximately 2.26 acres) is zoned R-10 (high-density multi-family residential use). Legislative amendments approved by the Prince George’s County Council in summer 2020 enabled the privately-owned land that Gilbane controlled before it began negotiations with UMD to be zoned for townhouses as part of a larger development proposal with UMD adjacent property. Gilbane’s property was zoned R-55, a single family housing zone. The same legislation also allowed on UMD’s R-10 zoned property the height of the proposed project to be less than the minimum height required in the zone.
Some contrast the value of the Western Gateway site to Gilbane’s Baltimore Avenue site for its now under-construction Tempo student housing project. The value difference is dramatic because the development rights afforded by zoning are equally dramatic. Gilbane acquired the Tempo property for around $15 million an acre, and the property is zoned MUI (mixed-use infill) which allows much more density than the Western Gateway project.
The Tempo undergraduate student housing project is constructing 978 beds (489 beds/acre). The value of that high-rise multi-family unit is driven by the substantial rental revenue generated during the building’s multi-decade useful life.
On the Western Gateway land, other than that parcel being used for graduate student housing, the maximum density permitted by law is for townhouses. The return for a developer is a one-time payment for a developable lot. To sell a developable lot, a developer needs to build roads, stormwater management and other infrastructure, and spend on professional fees to subdivide lots and obtain development approvals.