I am working on a park that has a water situation that I have yet to come across. The basics are that in 2007, the water bill was $22,000 and in 2014, the water bill was $46,000. I used these two years because the water consumption was virtually the same at 5.8mm gallons for both years. The revenue for this park is at roughly $90,000 so this bill has become an extreme burden on the current owner. So much so that her NOI was roughly $9,000 last year on what is otherwise a stable, well-run park. In any event, with the water bill doubling for no apparent reason, I’ve decided to talk to the city planner and ask if they can annex the park into the city limits to get this water bill cut down to a reasonable amount. The park borders city limits and I have a good relationship with the local government in this town. My question is, has anyone here ever pursued the process of being annexed into the city? If so, what did the process look like and what steps were involved?
Update: I found out the reasoning behind the doubling of the water bill. In 2007, the city enacted a code by which each housing unit would be charged the minimum service fee of $66 per residential unit. This seems strange to me because the park has a master-meter. So, this 53 unit park has a minimum $3,500 ($66 x 53) water bill each month and any overage is then calculated on the normal stepped-down schedule we are all familiar with. The net effect is nearly a $24,000 increase on their yearly water bill. I’ve yet to run into a city that bills this way and I wanted to ask if anyone else has run into this. My thinking is that it seems the city is treating this park as a residential neighborhood and benefitting greatly with increased water revenue. It seems that if they want to treat it this way, they should be billing the water directly and taking ownership of the lines leading up to each residential unit within the park. I might be looking at this wrong, but it feels like the park owner is shouldering an unfair burden here. Thoughts?
CharlesD,You should discuss this matter with the city and see if this provision ends soon or it is permanent. The reasons for this code. The $66 seems awfully high.
Charles D we experienced the same problem and the city would not use the master meter reading only nor come into our park with individual meters. We got rid of the +$5000 water bill with our own system and presently our monthly cost is $170 including chemicals and electricity. We even got attorneys involved but still had no reasonable cost.
You need to hire a municipal lawyer. I believe that you are correct – they can only charge that amount if they bill it directly, not with a master meter. Ask how they bill the local apartment complexes. Based on their metric, they would have to bill them per apartment, despite a master meter. You cannot buy a park where the water expense nears 50% of the revenue. You will be stuck with it for life – no bank or future buyer will want it, and there’s no exit strategy. You need to raise the rent $60+ per month to make the number fall even remotely in line. Are the current rents at market value? If the answer is “yes” and the municipal lawyer fails in his attempt, then I’d drop the deal.
The park is the only multi-family property outside of city limits on this city’s water system. All of the other apartments and parks are in city limits and they are billed this way but their minimum bills are $28 as opposed to $66 per unit. They all have the ability to pass this through and they all do. The rents are also at market for this park.We’ve already dropped this deal for all of the reasons you mentioned. These owners are getting killed by this billing structure so we are now coaching them through some of their possible options. Annexing land into an independent city in Virginia is apparently a 1 in a million shot from what I’ve been told. So, the municipal attorney may be the best option. If these owners ever get it rectified, I’ll send along the details so it can be used if anyone else runs into this scenario.
There is a rule of law that you cannot charge a fee that costs more than the fair cost to administrate plus the value of the service involved. How can they charge $25 in the city limits and $66 outside of the city limits? That makes no sense. The water/sewer costs the same regardless of which side of the street it’s on. I would definitely get the input of a municipal lawyer, as none of this makes any sense to me. If this park is the only multi-family use on the water system, maybe the whole problem is that the park owner never fought back against the charges. I would also note that, if you won in court, you would be able to possibly recover all of the over-billing as damages, plus perhaps treble that amount in punitive costs against the water provider. Definitely worth having a lawyer look at.
Frank, we tried with excellent attorneys and the story is the same–pay the bill. Yes it makes no sense but what does make sense when it comes to common sense?? The people charging the rates already probably had their experts checking the legality of their actions and some times when you hit a brick wall go around it instead of trying to break through it. Most lawyers I deal with ask over $200 per hour–would you say spent $1,000 to see the legal ramifications??? At this point I would WALK!!!
Carl,Over the past 20 years, we have found huge city and utility errors and had them reversed – that’s where the opportunity is in some of these deals. That’s not to say that this deal should not ultimately be punted, but I’ll give you an example of a deal in Texas. The water bill was twice what it should normally be. We were told by the owner that the city told him it was main line water leaks. So we hired a leak detection company and found none. Then we asked the city for the records and found that they had been billing the tenants directly for each lot, but never subtracted those amounts from the master-meter readings, resulting in the water being charged twice. That one fix created around $600,000 of value creation, and did not even require an attorney to be used. The bottom line is that we never trust city officials or utility officials to be smart, accurate or morally fair. And when we see the problem, we demand our rights, even if that includes some legal fees. To date, we have never lost a case we have attacked. But we have been very careful to only chose parks with issues that we know we can win.
Totally agree Frank 100%. In our case the city decided after we were on their system 10 years to totally CHANGE the rate structure and thus as park owners that cost would be crushing to our NOI and to a future owner.
I think we’re all in agreement that the word “politics” stems from the word “poly” (which means multiple units) and “ticks” (which are blood sucking creatures).
"The bottom line is that we never trust city officials or utility officials to be smart, accurate or morally fair."That statement applies to every working person in the world. To trust anyone will do a job to your satisfaction without evidence to support your trust is a wreckless assumptions.The root of the problem is rarely politics it’s usually people (employees).
They need to put a “like” button on some of these comments . I’d like Franks last comment a few times if I could.David
Thanks.
I would not advise that! They will change your land use immediately! With that said,I would contact the county manager or the manager of public works,and have him get your bill waived. How many hundred lots do you have ?