Thursday, June 15, 2006

Questions About Denny's Drive-Thru

I don't know Denny Hastert's spokesman Ron Bonjean, so I can't tell you whether he holds the public in contempt or if he thinks we are all fools. But this story from your Chicago Tribune about Denny's windfall profit for flipping land near his Prairie Parkway indicates it is one or the other:

Republican House Speaker Dennis Hastert and two partners turned a profit of more than $3 million on property they accumulated and sold in just over three years near the route of a proposed controversial freeway on the western fringe of suburban Chicago, according to land records and financial disclosure reports released Wednesday.

Hastert spokesman Ron Bonjean rejected the notion that the land, located 5 1/2 miles from the proposed Prairie Parkway route, rose in value because of the highway project. The speaker long has been an aggressive proponent of the highway and helped secure more than $200 million in federal funding through an earmark in federal transportation legislation.
Of course he has. But the question is not whether the Prairie Parkway was a new idea. The question is whether Denny's personal profit of more than a million dollars was due to some abuse of his position as speaker.
The property near Plano, Ill., was sold three months after the transportation bill was signed into law. It was purchased by a real estate developer who is planning to build more than 1,500 homes on the land.

Kendall County, where the land is located, has one of the fastest-growing housing markets in the nation, and there has been a corollary rapid rise in land values. ***

Hastert received five-eighths of the proceeds from the land sale, said Dallas Ingemunson, one of his partners. That indicates a profit of more than $1.5 million for Hastert. ***

Bonjean said the speaker had fully complied with financial disclosure rules for members of Congress and had simply profited from a well-timed real estate investment.

"For 26 years, the speaker has been a proponent of the Prairie Parkway to address the transportation challenges in northeast Illinois," Bonjean said. "None of the properties purchased by the speaker are near enough to the Prairie Parkway to be affected by the proposed highway."
That's right. Mr. Bonjean thinks you will believe that having an expressway built five miles away has no effect on a property's value. As I said above, I don't know if he thinks you are stupid enough to believe that load of bull or if he doesn't give a damn if you believe it or not.
Kendall County land records show the 138-acre parcel was transferred to a real estate developer in a sale valued at $4,989,000 in December 2005, about three months after the highway legislation was signed into law.

The land had been accumulated in phases. The first 69-acre parcel was part of the purchase of a larger 196-acre farm made under the name of the speaker's wife, Jean Hastert, in August 2002. According to land records, she paid $2,125,000 for the property. On a per-acre basis, the original prorated cost to Hastert of the parcel included in the later deal was $868,000.

The remainder sold to the developer was purchased by a land trust in which Hastert shared a quarter-interest in February 2004. The partnership paid $1,033,000 for the parcel, according to land records. In addition to Ingemunson, the other partner was Thomas Klatt, a local trucking company owner who also has been a long-time supporter and campaign contributor to Hastert, Bonjean said.

Bonjean said he could not immediately determine how the partnership divided the proceeds. He added that the value of the two parcels was enhanced by combining them because the land purchased by the partnership gave the property direct access to a roadway.
So Mr. Bonjean apparently understands that transportation availablity enhanced the value of Denny's property -- but doesn't seem to understand that the transportation opportunities offered by a 200 million dollar expressway would also enhance the value of that property.
The developer who purchased the land said the proposed Prairie Parkway was not a deciding factor in making the deal.

"We would have done the transaction whether it [the parkway] was proposed or not," said Arthur Zwemke, a partner in Robert Arthur Land Co. who also has been a donor over the years to Hastert's campaigns.
Once again, this misses the point. I don't doubt that Mr. Zwemke might have purchased the property even if the Pairie Parkway had not been funded. The question that needs to be asked is, "Would he have paid as much if Denny hadn't secured federal funds to put in the nearby expressway?"
More important than the planned freeway are the land's location in the fast-growing western exurban Chicago corridor, a favorable political climate for growth, and the availability of good infrastructure like water and sewer, he said.
Again, he might have purchased it, but would that purchase -- without the expressway -- have resulted in such a windfall profit for Denny?
Zwemke said he inherited the financial terms for all of the land in contracts acquired from another developer, who decided not to pursue the project.

He acknowledged that he paid a price well above what Hastert and his Little Rock partners paid in assembling the property in less than four years, but said, "We have a fair deal. Everything was market value."
But what would the property's market value have been if Denny had not seen to it that an $200M expressway was built nearby?
The site is attractive, Zwemke said, because the land for it was assembled in just two transactions, the one with Little Rock and another concluded last August with the owners of an adjacent 589-acre farm.
Say it with me: The question isn't whether the site is attractive or if the parcels of land would have been sold if Hastert's Prairie Porkway had not been federally funded.

The question is: Could the Speaker of the House and his partners have flipped the property for such a huge profit, in such a short time, if not for Denny's using his power as Speaker to earmark $200 million dollars of taxpayer money to build a freeway nearby?

Unlike Mr. Bonjean, I think you are smart enough to figure out the answer.

UPDATE: Think Progress has a "graphic timeline explaining how House Speaker Dennis Hastert (R-IL) used a federal earmark to turn a $1.5 million profit"

12 comments:

Anonymous,  12:31 AM  

My friend, Kendall County land has been appreciating at a rapid pace in every corner of the county despite the lack of a good transportation network in place. Try to find an acre for less than $50k near Yorkville or nearly $100k near Oswego. What is going on there is not unlike the dot-com boom of the Clinton years...ahh, the good ole days.

If the land in question was within a quarter mile of an exit, there would be little doubt of the effect of a freeway on property values. Five miles from an exit, the nexus is much more difficult to prove. Remember, the entire county is only 18 miles wide and 18 miles tall. If every property within a 5 or 6 mile radius of an exit gets the same boost as Denny's supposedly got, he has substantially increased the net worth of thousands of landowners - maybe even a majority - in his home county with his obtaining funding for this project. Cynically speaking, that oughtta be worth a few votes, to counter the ones he loses from whatever negatives this story brings.

I agree the appearance of making money from clout is not a good one for politicians to bear, even if this is a serendipitous case of a well timed land deal in a booming county.

Bill Baar 6:25 AM  

I'm not sure the highway is a viewed as a plus. I live in a development that would fight it like heck. We're suing Elgin over growth.

Bill Baar 6:38 AM  

I don't think the right-of-way for this project has been agreed on it... has it?

All this growth out west is an interesting story but to single out Hastert seems a real stretch. The growth and potential growth has been obvious for decades.

Farmers willing to cash out are thrilled with it but not everyone else agrees it's so great and the details will be fought out...

Anonymous,  7:39 AM  

Bill-

IDOT has said they will set the right-of-way by the end of 2007, start buying property in 2008, and be under construction by 2009. This is for the part between Illinois 71 and U.S. 30. There have been numerous hearings and meetings on this subject. This is a billion dollar project, so Denny, or someone after him, will have to get the rest of the money if this road is to be completed.

I find it interesting that a Democratic administration is pushing this project so hard. It might be a payback for Denny getting funding for O'Hare access and some other projects of interest to Chicago.

Bill Baar 8:45 AM  

Mark Rhoades has a good post on this over at Illinois Review. Extreme Wisdom laid into Hastert too and Mark responded.

This makes about as much sense as laying into Gutierrez for flipping town homes in bucktown every two years. As though everything done on behalf of the city by him would be self serving because he owns real estate there.

Well gee, of course it is! That's one reason why we want legislatures who live in district... they sink or swim with the rest of us.

Hastert has always been pro developement since I've lived here. We got here just after Fermi Lab lost to the place in Texas for the new accelerator. My neigbors were at war with Hastert over it because by in large everyone already here becomes anti-development once they get their little piece of Illinois.

I'm one of those guys who's Dad always told him all those belching smokestakes meant work and jobs and that's good.... so I'm more with Hastert on this stuff.

I'd like to see that parkway.

Anonymous,  10:30 AM  

Bill Baar, you are the kind of gullible voter politicians absolutely love. You'll not only accept any kind of violation of the public's trust from those sworn to serve us, you even help provide the cover.

Wonder how all of the REAL farmers in that area feel about now, having found out they've been competing in the land market with the Speaker of the House (and worse, hidden by a trust) who clearly has better information about future plans that are likely to impact the farmland's true value.

This deal stinks!

Extreme Wisdom 10:47 AM  

Bill commented that I "laid into Hastert," and indeed I did.

When all this gets laid out, it will probably pass any "legal" test, and will therefore be another anecdote in the lore of "legalized corruption."

You are what you tolerate.

Bill Baar 1:31 PM  

You'll not only accept any kind of violation of the public's trust from those sworn to serve us, you even help provide the cover.

You must be referring to my letter to Hastert on Clinton's impeachment.

I was willing to let Clinton slide.

Anonymous,  1:38 PM  

Wonder how all of the REAL farmers in that area feel about now, having found out they've been competing in the land market with the Speaker of the House (and worse, hidden by a trust) who clearly has better information about future plans that are likely to impact the farmland's true value.

"Competing in the same market?" You obviously do not live in Kendall County. Please get informed on 1031 exchanges, Inland Real Estate Corporation and the multitude of land developers, etc. Most every farmer in the area knows that farming is not in the future for most of them; and land-owning farmers are amassing some amazing fortunes and fortunes-to-be by the happy accident of their location in the path of progress, or whatever you want to call it.

This Parkway will accelerate the growth that's already there, for sure...but only by a little. The Kendall County real estate market is the hottest thing since the dot com boom of the 90's, overlain on a system of two-lane rural highways and almost no mass transit to speak of.

And as an ironic twist, this story may attract more national attention to this local phenomenon, and even more investment and development dollars.

Bill Baar 1:55 PM  

I sometimes take a limo to O'Hare and the driver told me he never made more than $30k a year in 20 years of farming.

But he's a millionaire now after selling the Farm in Kane County.

Farmers love these sales to developers... at least the ones who want to get out of farming.

It's those of us in the developments telling the Farmers they need to keep plugging along on the Farms because we want to keep out the other developers.

Anonymous,  11:45 PM  

Anon 1:38 pm, careful, you seem to be undercutting the spin from the other Hastert toadies. The rest are saying that the farmer was just so very, very happy to sell to Denny and Dallas because he feared the bubble might burst. They say the farmer was worried that the good times might end. So the Speaker does him a favor and relieves his anxiety by buying his land. (Was the farmer given the same info Denny was privy to from his official role as Speaker? That's the $1.5 million question.)

When you try to say the growth is inevitable, you undercut the story the others are sticking to.

Please report to Yorkville for reprogramming.

Anonymous,  12:06 AM  

I don't follow anyone's program, just call it as I see it. I find many actions of both political parties and their members distasteful, and Hastert's actions, while they are probably technically legal because the proximate cause and effect of the land appreciation vs. parkway funding can't be proven, doesn't look right in the public eye.

One way the growth in KC might slow down is for the land to be oversold...in which case we might see the cusp of a bubble soon. Then it might move south to Grundy, or leapfrog into LaSalle, where land is cheaper for the time being.

My bet is the parkway gets built, Denny takes his lumps, KC eventually grows into a cross between DuPage and McHenry counties with about 400,000 people, and the farmers of Kendall county will be plying their trade in Livingston, DeKalb, and la Salle counties on mega-farms bought with 1031 money (if they are not enjoying retirement in the sun belt).

If the project is not built and Denny retires in disgrace, everything else stays the same, except it'll take a few years more for KC to get to 400,000.

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