Question about annexation

[Michael Rutkowski]

These forums always have some different insights, and I have a rather complicated hypothetical scenario I'd like to run by everyone. This is a question about the benefits of annexation, vs. subdividing some land. This land is outside a city, which is very fast growing, and has already annexed land similar in size and land use just to the north and east. Let's say it's about 20 acres in size, and is in a tax opportunity zone, and is currently zoned agricultural.

My thought is, what would be better? To annex this land, and get city services run to the parcel, or subdivide it up now, in a minor subdivision, and sell it off by parcel (limited to 5 lots as a minor). So there are huge advantages to both, as well as huge downsides, with huge implications to those as well.

Right off the bat, the cost to run sewer mains to the parcel is about $5.3M, but can be partly offset, by about 1/2 mile of city owned property. I believe some of that cost also includes regular special improvements like water mains, street lighting, etc as well. That would allow the parcel to be annexed, zoned R5 mixed use, and could support hundreds of units. Let's all this scenario 1. 

Scenario 2 involves doing a relatively easy minor subdivision, and total costs there would be less than $250k, with a simple unpaved road, engineering, legal fees for an HOA and bylaws, and that's basically it. The minor subdivision would take about 6 months to complete, and be limited to less than 5 lots. Similar lots, are selling for $1-2M in this area.

Something to think about when figuring this, is that if the city annexes the property, they will definitely amortize the cost over a decade or more of increased taxes of the improvements, by putting it into a special improvement district. This would negatively affect the possible equity in the property because it would greatly increase the taxes, as the city taxes are already pretty high.

So obviously scenario 1 is much more complicated, with many more hoops to jump through, but the amount of income to be generated seems to make it worth it. Scenario 2 on the other hand, would be much quicker, simpler, and also net a tidy profit for the amount of effort...

What would you do in this situation?