Mills

Mill buildings are a reminder of an America far different from what we are today. In the mid-1800s, America's concerns were that we survive as one nation (which we did, through the Civil War) and that democracy itself survive. The model citizen was the small-scale, self-sufficient, land-owning farmer, who achieved virtue through hard work, church-going, and civic involvement. Along came big-scale industry. With its concentration of wealth in the hands of a few mill owners and imposition of concentrated labor, big industry threatened the balance. A mill was built for a single purpose: to turn raw cotton into fabric or to turn raw leather into shoes. Mills were a kind of building that agrarian America had never seen: a half million square feet under one roof, powered by a river, full of vast numbers of people doing just one thing. 

The irony for mills is that they were built for one purpose and now serve another entirely. The beautiful brick mills that line the Merrimack in Lawrence, a planned community, were scarcely constructed before union strikes and the relocation of industry to the cheap-labor South left them empty. Mills stood as ghost buildings through much of the 20th century. Those that continue as active-use industrial buildings typically house a variety of small occupants - carpenters, contractors, and small offices. Mills have brought us full circle: built to serve one owner, for one purpose, they now house the small-scale, hard-working entrepreneurs who mirror the independent farmers of an earlier era. 

Mills are no longer the biggest buildings on the block: office towers are bigger, and so are regional malls. Still, the sight of a simple, long brick facade with five stories of arched windows running in row after row is impressive. In spite of a shabby appearance that has come from a century of under-use, Lawrence's mill district (or the more scattered mill districts of Worcester, Lowell, Brockton, or Pawtucket) makes an impression. Mills have historic and even aesthetic value for their communities. Historic value differs from market value. A building may be of great historic value, as the first mill on the river or the place where an important manufacturing technique was introduced. The mill may be so significant that the community decides to restore it and open it to the public as a museum. But the appraiser's role is to estimate market value. Historic value is important to the appraiser to the extent that historic attributes affect market value. These effects may be positive or negative. Negative effects can occur when historic importance translates into more extensive community controls on re-use. 

It has been a century of waiting for new uses to arrive for the mills. Demographics may be their salvation: singles, young couples, and empty-nesters seeking an urban alternative to plain vanilla suburban life. Mills that are adaptable to loft-style uses offer dramatic architecture: exposed wood planks, beams, posts, and brick, all a century old. Mills are suited to re-use of this kind as apartments, condominiums, and subsidized housing. Boston and Lowell have healthy markets with large numbers of renovated mills. Worcester's and Lawrence's renovation markets are active but lag somewhat in attracting the volume of buyers Lowell and Boston have seen. Worcester and Lawrence are on the verge, with their best days in a century still ahead. 

Several tools are available to the appraiser of a mill. One is a simple Income Approach that uses existing rents and expenses to produce a net income for capitalization. Another is a Sales Approach that looks at sales of local mill buildings for whatever uses these are to be put to: conversion to self-storage, residential remodeling, or continued light industrial use. 

Important considerations for appraisers are the size and configuration of floor plates (60'-wide buildings being more convertible to condominiums than 200'-wide buildings, where much of the space is dark, at the interior), safety from crime, the presence of restaurants and shops within walking distance, and the rate of absorption of condominiums on the local market. To know that a mill in Dracut sold for $10.00 per foot may be of little value in the appraisal of a mill in Worcester, because of market differences. A third method is a Development Approach, in which development costs are deducted from the value of the finished product to produce the value "as is." This last method, however, is more prone to error than the others. Small changes in development costs and projected absorption can lead to large changes in the "as is" value. 

Simple is usually better in the valuation of mills. 

Eric T. Reenstierna, MAI




The Reenstierna Associates Report is published as a service to the clients of Eric Reenstierna Associates and other real estate professionals. The views expressed are those of the articles' authors and do not necessarily reflect those of other members of the organization. Copyright 2007. All rights reserved.

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