Adult Businesses - Effects on Property Values Presentation

Connie B. Cooper, FAICPCooper ConsultingEric Damian Kelly, Ph.D., FAICPDuncan Associates

Types of Sex <strong>Businesses</strong> – Sex 101 Intro to Secondary <strong>Effects</strong> Negative <strong>Effects</strong> on Property Values Results of Appraiser Survey Tips: Legislative record Tips: Zoning Ordinance Tips: Licensing OrdinanceAppraising Sex in Texas 2

BIG business … Probably at least 15percent of all videorentalsLed technologyrevolution … VCRs and ultimatevictory for VHS format Movement of graphicson InternetAppraising Sex in Texas 3

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Answer ….LOTS!!Appraising Sex in Texas 5

Retail <strong>Businesses</strong> Business with a smallamount of “adult”material <strong>Businesses</strong> with“backrooms” Sex shops XXX media storesOn-Site Entertainment Video viewing booths <strong>Adult</strong> theaters <strong>Adult</strong> cabarets Dancers in a box Lap dancing Massage parlors Lingerie modeling Nude photographyAppraising Sex in Texas 6

Many book and videostores have at leastsome material thatmeets definition of“adult” materialPose no adult-useproblemsAppraising Sex in Texas 7

Mainstream stores withlarge backrooms - mostof it hard-coreIf backroom accesslimited, these storesalso have little impactAppraising Sex in Texas8

Sex shops Cater to women Bachelorette parties Novelties … “maritalaides”Appraising Sex in Texas 9

Percentage stores “Significant andsubstantial portion” ---“10 - 50 %” Marginal inventory ofold books, t-shirts,pencils, etc.Appraising Sex in Texas10

Large % or entiremerchandise adultorientedmediaAdvertise as adult storePose problems incommunities ifunregulatedAppraising Sex in Texas11

On-site entertainmenthas much higher impactthan retail storesExample … Differencebetween a liquor storeand a barAppraising Sex in Texas 12

Termed “masturbationbooths” and often facilitateanonymous sexVideo Booths vs. “MediaRooms” – 1 seat vs. 11seatsIn 1970’s …probablyprotected by 1stAmendmentNow … many OTHERtimes/places/manneroutletsAppraising Sex in Texas13

Structure is the “medium”Often operated with videoviewing booths, retailstore or live entertainmentShrinking part of adultmarketAppraising Sex in Texas 14

High-impact useInteraction betweencustomers and performers– lap dancing and VIPRoomsTypically called … Strip club Gentlemen’s club <strong>Adult</strong> cabaret, etc.Appraising Sex in Texas 15

Lingerie andphotography modelingEncourages one-on-oneinteractions withcustomers in a varietyof settingsAppraising Sex in Texas16

Allows direct contactbetween customer andperformer, usually inprivate roomMassage providersNOT certified massagetherapistsAppraising Sex in Texas 17

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Underlying principle for secondary effects doctrine: Show non-censorial purpose for adopting regulations Regulations should be based on … Adequate record of negative secondary effects treated as“content neutral” and subject only to intermediate scrutiny Otherwise subject to strict scrutiny and reversal ofpresumption of validityAppraising Sex in Texas19

ALWAYS differences between neighborhoods Socio-economic differences Other NEGATIVE impacts such as junk yard, pawn shop,homeless shelter, liquor store, etc. Other POSITIVE land uses such as park, school, religiousinstitutions, etc. Comparing relatively small area (area around sexbusiness) to large area (whole community) createsissues of scale and sample size Sales … without information comparing actualcharacteristics of properties selling such studies arecompletely unreliableAppraising Sex in Texas 22

Why? Most real estate transactions close with a loan Loan value directly affects purchase price Appraisers’ opinions thus become self-fulfilling prophecies Public officials more likely to be familiar with opinions ofappraisers than with complex statistical models, layingfoundation for “reasonable belief” that evidence showsnegative secondary effectsAppraising Sex in Texas23

Two major decisions citing favorably use of surveys ofappraisers as evidence H & A Land Corp v. City of Kennedale, 480 F.3d 336, 1(5th Cir. Tex. 2007), cert. den. 128 S. Ct. 196, 169 L. Ed.2d 36 (U.S. 2007) ILQ Invs. v. City of Rochester, 25 F.3d 1413 (8th Cir.Minn. 1994), cert. den. 513 U.S. 1017, 115 S. Ct. 578,130 L. Ed. 2d 493 (1994) Hint … “Tips” at end of presentation – survey alone willnot save unconstitutional ordinanceAppraising Sex in Texas24

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Survey sent to Texas appraisers (MAI and SRA ) whoare members of the Appraisal Institute Sent electronically, with multiple follow-ups Sent with cover e-mail from an Appraisal Institutemember Designed to hide real purpose of survey – asked aboutboth positive and negative effects and includedtraditionally negative and positive land usesAppraising Sex in Texas26

If located within 500 feet, how would the listed land usepotentially affect the market value of a Single-Family Home?Land UseNegativePositive No Impact<strong>Adult</strong> Media & Video Store (retail sales) 97.3.5 .5Gentleman’s Club/Strip Club 96.20.0 1.6Video Peep Booth Business 95.71.1 1.1Landfill 95.71.1 1.6Homeless Shelter 95.11.6 1.1Lounge (with live entertainment) 92.4.5 3.2Lingerie & <strong>Adult</strong> Novelties Store 91.81.1 4.9Bar (no live entertainment) 87.60.0 10.8Pawn Shop 81.4 1.1 14.2Package Liquor Store 79.2 1.6 15.8Note: Table abbreviated from the original Survey of Texas Appraisers report.Appraising Sex in Texas 27

Question: At what distance would there be No MeasurableImpact on the Single-Family Home’s market value?Land Use500 ft to¼ mile¼ mile to½ mileMore than½ mileLandfill2.2 4.483.5Video Peep Booth Business2.2 6.681.8Gentleman’s Club/Strip Club3.3 7.778.7Homeless Shelter3.8 9.977.5Lingerie & <strong>Adult</strong> Novelties Store3.3 9.876.1<strong>Adult</strong> Media & Video Store (retail sales)3.3 14.771.7Lounge (with live entertainment)4.4 15.470.9Pawn Shop 6.7 21.1 60.0Package Liquor Store 7.8 20.0 57.8Bar (no live entertainment) 8.7 24.5 56.0Note: Table abbreviated from the original Survey of Texas Appraisers report.Appraising Sex in Texas 28

If located within 500 feet, how would the listed land usepotentially affect the market value of a CommunityShopping Center?Land UseNegativePositive No ImpactLandfill 84.71.1 9.8Video Peep Booth Business 82.80.0 13.4Homeless Shelter 80.11.1 16.1Gentleman’s Club/Strip Club 79.60.0 16.7<strong>Adult</strong> Media & Video Store (retail sales) 76.60.5 19.7Lingerie & <strong>Adult</strong> Novelties Store 64.51.1 30.6Lounge (with live entertainment) 41.9 4.8 48.4Package Liquor Store 35.7 2.7 56.2Bar (no live entertainment) 30.3 4.8 60.6Note: Table abbreviated from the original Survey of Texas Appraisers report.Appraising Sex in Texas 29

At what distance would there be No Measurable Impacton the Community Shopping Center’s market value?Land Use500 ft to¼ mile¼ mile to½ mileMore than½ mileVideo Peep Booth Business9.6 12.463.3Landfill4.0 15.362.7Homeless Shelter8.0 20.056.0Gentleman’s Club/Strip Club8.4 25.749.7<strong>Adult</strong> Media & Video Store (retail sales)10.4 23.648.4Lingerie & <strong>Adult</strong> Novelties Store14.3 18.344.6Lounge (with live entertainment) 15.9 21.8 34.7Bar (no live entertainment) 24.9 17.2 28.4Note: Table abbreviated from the original Survey of Texas Appraisers report.Appraising Sex in Texas 30

91%+ of surveyed appraisers believe adult businesseshave a negative effect on market value of a singlefamilyhome if within 500 feet 71%+ believe negative effects do not disappear until …at least a half mile or more 80%+ believe a concentration of sexually orientedbusinesses increases the negative effectAppraising Sex in Texas 32

64%+ of surveyed appraisers believe adult businesseshave a negative effect on the market value of acommunity shopping center if within 500 feet 63%+ believe negative effects do not disappear until …at least a quarter of a mile or more (impact of videopeep booths did not disappear until a half mile or more) 61%+ believe a concentration of sexually orientedbusinesses increases the negative effectAppraising Sex in Texas 33

89%+ of surveyed appraisers believe having a retailbusiness open after 11 p.m. sometimes has a negativeeffect on the market value of a single-family homelocated within 500 feet 94% believe “bright, animated, or garish lighting orgraphics” may increase the negative impact on themarket value of a single-family home (45 % responded“always” and 49% responded “sometimes”); Note that findings related to lighting, signage andoperating hours were not limited to sexually orientedbusinesses.Appraising Sex in Texas 34

Include our study and McCleary’s in record Include other RELEVANT studies in record Provide public officials with objective SUMMARY ofstudies Have someone go through summary at public hearing,referring to specific pages (have officials open report)Appraising Sex in Texas36

Use testimony, even if anecdotal, to relate studies inrecord to local situation Police testimony on specific issues at establishment Neighbor testimony about specific issues If practicable, Realtor or individual testimony on problemsselling property Draft detailed findings Tying national findings to local situation Weaving in local evidence Tying ordinance provisions to secondary effectsAppraising Sex in Texas37

Clearly protected by the First Amendment Books, videos, movies, magazines, other media Movie theaters (the use is the medium) Erotic dance Not protected Massage (but see later comments) Lingerie modeling Private nude photo sessionsAppraising Sex in Texas38

Basics Designate districts where adult use allowed Protected businesses must be allowed BY RIGHT insome locations Require separation from sensitive uses such asresidences, houses of worship, parks, schools Require separation between sex businesses May include some basic lighting and design standards (ifno licensing ordinance planned)Appraising Sex in Texas 39

Uses to consider not permitting Bans on video arcades, viewing booths Bans on performance in “back rooms” Bans on lap dancing Subject to litigation (but with local governments largelywinning)Appraising Sex in Texas 40

For mixed-product retail stores: Use fixed percentages, not “substantial” Apply percentage to items in inventory AND to floor area(either/or) – NOT sales (too hard to police) Consider a less-regulated category for retail with modestinventory (less than 30%) Require access-controlled and monitored back room Create self-identified category for retail that “holds itselfout as ‘adult, sexually oriented, XXX’ or similar” Regulate as sexually oriented businessAppraising Sex in Texas41

Separations from sensitive uses Can defend separations of 1,500 feet or more based oneffects on property values BUT in most communities, “strip commercial” may make itnecessary to drop to 500 to 700 feet to ensure that thereare available sitesAppraising Sex in Texas42

Essential way to control OPERATIONS ON premises activity Cleanliness of premises Lighting of premises Monitoring of customer areas Monitoring management personnel BUT complex and expensive to implement, so may notbe worthwhile in jurisdiction with only two or three suchbusinessesAppraising Sex in Texas 43

Licensing primarily for establishments with on-premiseentertainment GOAL is to motivate owners to enforce law OR faceloss of business opportunity License establishments and require licensed manageron duty during all open hours License managers OK to license entertainers but does not accomplishmuch – lot of dancers out thereAppraising Sex in Texas 44

Must have objective criteria Process must be administrative Do not use public hearings – cannot consider publicopposition and just creates frustration to hear it Need tight timelines – maximum 90 days from receiptof complete application Return incomplete applications promptly, with checklistof omissionsAppraising Sex in Texas 45

If review agency (building, fire, health) fails to respondwithin time, must be deemed to have approved On renewals, allow old license to remain in effect untilrenewal process (including appeals) complete Include administrative appeal process Provide easy method to terminate process and get tocourtAppraising Sex in Texas 46

If you’ve only seen onesex business you haveNOT seen them all …And you should notregulate them as thoughyou haveAppraising Sex in Texas 47

Do what works BEST for YOUR community!Appraising Sex in Texas 48