Your (Wasted) Federal Tax Dollars At Work


One of the most basic concepts in real estate is TIMING. There is a time to buy properties (when the costs are low) and a time to sell properties (when the prices are high). This is such a basic concept that even a third grader could recite it.

How you can tell the difference between how the GOVERNMENT operates (with your tax dollars at risk) and how an INDIVIDUAL would choose, if it were their own money? Here is a classic example.

The old US post office in Chicago is a giant structure rising over I-290 (the main highway into the city coming in from the West) that has been abandoned since 1995, when a new post office was built.

While the Chicago real estate market absolutely boomed through the period from perhaps 2000 through the 2007-8 crash, the US government was unable to execute a deal of any sort. There were various plans to do so, but they didn’t reach a deal, and anyone who knows a government bureaucrat knows it is better to be “safe than sorry”. If the terms weren’t perfect and there was some controversy, just let it lapse, and who cares, your pay is the same, either way.

So here we are – in mid 2009 – when the commercial real estate market is at an absolute and total nadir. I am not a real estate expert but I would have to say that it is the worst market, timing wise, in my entire lifetime.

So NOW, in the worst market in decades, perhaps since the Great Depression, the US Government is choosing to auction off this post office building. Here is a link to the auction site. The suggested minimum bid is $300,000, when they were entertaining offers as high as $300 million per this Chicago Tribune article that were never consummated.

While I don’t know what they will get for the building (the auction is in late August) anyone with even the most basic sense of the real estate market will tell you that they are executing this auction at the worst time possible.

Ask yourself this question – will the government hold anyone accountable for the lost taxpayer revenues between what the building WOULD have reaped had they been able to sell it ANYTIME between 1995 and the real estate crash? Of course not. They don’t actually care enough about your dollars to judge performance on that basis.

And this is why putting more assets and activities in the hands of the US government will inevitably lead to waste and lost opportunities on an ever grander scale.

Cross posted at LITGM

13 thoughts on “Your (Wasted) Federal Tax Dollars At Work”

  1. “…coming in from the East …”

    Dude. West.

    Also, in most places I would say this incompetence. But this is Cook County. It is at least somewhat likely that there is someone out there who wants this building and is going to get it for peanuts in this market, and that is why this sale was delayed. Conspiracy theories are not usually true. But in Chicago, they all too often are.

  2. Ha ha fixed that direction

    As for the conspiracy theories, I don’t know. This is Federally owned stuff, not necessarily locally corrupt. I’d say this is more ineptitude than potential corruption.

    But really, this is just semantics, because ineptitude and corruption are both government hallmarks here, and in fact the net effect is the same.

  3. Yeah, probably so.

    It will be interesting to see who ends up with it, and what pittance they pay for it, and how much the city and county taxpayers subsidize whatever private, for-profit development occurs there.

  4. No, what’s going to happen is that the govt agency in charge will decide that since the mkt is currently weak they won’t sell. Instead they will lease the property out at a below-mkt rate that’s guaranteed for thirty years.

  5. Ha ha your idea is good Jonathan but I think at an opening bidding of $300,000 for a property that they said had a replacement value of $300 MILLION (what is that, a tenth of 1%) I am pretty sure it is going to sell.

  6. So, my latest missive to the local paper (they try and play real estate in local gov. around here. It works out like you would think – they are always hiring consultants to tell them that they will recoup millions if they just give some developer dough to make more condos. In this enviroment. Yeah, it only works if you eventually cut spending. I digress.):

    “14 million dollars to a developer?

    Don’t even THINK about any new proposed taxes. If you have money to give developers, you don’t need any more from me.”

    I’m trying here, but I think I am banging my head against a wall.

  7. Wrong. “Buy low, sell high” is a silly rule everybody knows.

    1. Nobody knows whether any given price, whether $300M or $300K is a “high” or a “low.”

    2. An investment strategy of “Buy high, sell low” (buy if the price is higher than it was last month [or year, etc] and sell if lower) shows equivalent returns! Strange to you, maybe, but true.

  8. From the linked article:

    “Obviously there’s a lot of unique logistics, not to mention a freeway running through it.”

    Needless to say, you probably would have never seen a private builder build a building with a freeway through it. That kind of weirdness takes a politics.

    If a private investment manager had done something like this and cost his private investors (say a bunch of retirees) $299,700,000 while walking away with a fat paycheck, leftists would declare this a sign of the inherent corruption and irrationality of the free-market and a clear indicator of the need for more regulation.

  9. “… you probably would have never seen a private builder build a building with a freeway through it.”

    Actually … .

    Immediately East of the Post Office, somebody did just that, though at that point the (same) freeway has “become” Congress Parkway.

  10. Carl from Chicago:

    You have pegged yourself as a loser investor. I’d love to be the guy selling to/buying from you!

  11. The govt is selling a $300,000,000 building for $300,000, and Jimbino thinks Carl’s the one with bad business sense. Will wonders never cease?

  12. Yo, Jimbino, you from Chicago?

    If the bidding starts that low, it starts that low for a reason.

    In the immortal words of one of Mayor Richard J. Daley’s henchmen, talking about a goo-goo liberal on the city council: His whole problem is he thinks this place is on the level.

    It aint.

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