Common Monkeyflower asks an extremely astute question about the nature of local real estate markets.
One of these days, I need to learn more about urban land economics, as The Way Things Are just doesn't seem to jive with what local prices would seem to call for. In some cases, it seems the problem is foolish land use laws; these kinds of examples are high on the list of reasons I don't like certain land use controls. For example, there's the old Olga's Kitchen building on State and (mumblemumble) in Ann Arbor, across the street from the Frieze Building. This is the terminal lot on a stretch of campus-oriented retail and restaurant properties that is known for having incredibly high rents. One would expect that, after Olga's went out of business, the lot would be bought up pretty quickly and redeveloped, as desire for space in that corridor is high, and somebody could make decent rent. Instead, the lot sat empty for about 5 years, and only this summer began to be redeveloped, in a plan for an 8-story building with ground level retail and upper level residential, including a couple of "affordable" units. Why so long?
My take? Obviously I cannot comment on the specfic parcels mentioned by Murph. But generally, look to the nature of ownership, the size of the parcels, the scale of investment, the time-frame in which people invest, the overall "stickiness" of real estate as an investment...i.e. in short, commercial real estate is not a perfect market because people are not perfect and do not act with perfect information. Real estate is not a fungible commodity (unlike one bushel of wheat which is more less the same as another).
Consider a typical 60' by 100' lot in a commercial district. It has a 2500 square foot, somewhat shabby one-story retail building on it. The owner bought it 25 years ago, ran his business there for years, has now retired and rents it out on relatively short-term leases (say 2-3 years.) The zoning might allow a 5-6 story building and there is strong demand in the area. Obviously the property is ripe for redevelopment.
But the owner isn't. He knows little of real estate development and knows no one who does.
Yes he could sell the land and make a big "profit" (remember he bought it 25 years ago) and then pay lots of taxes and not know what to with his cash (he doesn't know much about the stock market either --- who does?) But he forgoes an investment he knows for the risks of...of what? So why sell.
Or he could partner with someone who know development. But who? The transaction costs of required trust, knowledge etc on both sides for such a partnership are extremely high. And after all, it's actually a fairly small site and would not be of interest to any developer large enough to be listed on the stock exchanges, so the owner has to deal with a much smaller entity which raises the risks etc etc. Development is a troublesome prospect for an amateur, even as it also is for professionals.
So the owner does nothing but rent it out. And for him that is a very rational choice because he does not have access to the information needed to develop the property and so the "do-nothing" alternative is the smart one.
His heirs may not see it that way and so that's why so much property changes hands via estate sales.
And I would not agree that zoning is much of an impediment to redevelopment unless the "bump" provided by a tear-down & rebuild scenario is simply too small to justify the work. And in that case the matter might not be a "flaw" in zoning but simply a choice --- unwise as it might appear to some --- that the height limits in a particular area should be low.