Posted by Cochise on March 20, 2008 at 14:14:43:
In Reply to: Scott Pettifer, MAI, AI, Here Come the Judge! posted by Cochise on March 20, 2008 at 14:12:30:
Scott,
Need some missing lease conditions for better answer.
As I understand it, your assignment is to estimate (or to enable an estimate of ground rent). The rent is based on land value and the court ruling imposes that value must be set by apartment sites, even though apartment may or may not be the HBU of the site. (You could call that Value in Use, but it may be cleaner to treat the ruling as creating the hypothetical assumption that apartment is the only legal use of the site if vacant.
It sounds from your post that there must be a formula (cap rate?) in the lease to apply to the value of the market land to get the required rental rate. If that is true, then this is just a land appraisal subject to the conditions stated above and you would have no need for comp ground rentals that you say are rare.
Flying blind.
Steven Santora
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#3 09-29-2003, 01:42 AM
spettifer
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City: Orange County, California
Professional Status: Certified General Appraiser
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Steven, I finally received all the info on that land appraisal. Your right I'm not going to deal at all with the ground lease rent. The assignment is to value the land and then the existing lease stipulates the rent. Per the court judgment the land value is to be estimated "Value in Use" with the existing 60 unit apartment Building. The poor lessor got the short stick on that one because the site's unimproved with five acres. Typical land allocat1on might be 2 or 3 acres max. I'm going to do a land extraction on improved apartments in the area. There may some vacant apartment sites but would appreciate comments on addressing the surplus land issue with the "Value in Use."
Scott
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#4 09-29-2003, 08:21 AM
Steven Santora
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Scott,
Value in use or use value has several definition and contexts. I can think of two applications to your problem, right off.
1. Use value is value in a specific use for a specific user. That corresponds to the value of the land as though vacant for an apartment developer. The indicated method is direct comparison and excess land would become an issue, unless you can do it as two 2.5-acre sites. From what you have said, this is likely less the “market value.”
2. Use value can be the contributory value that property has as part of an ongoing enterprise. This might lend itself to extraction. However, this leaves you with the excess land, which you will probably have to appraise by comparison, perhaps under an assumed split-off.
You have to get a sense of what the court has defined or described as economic justice in order to choose the right scope (in terms of value def and subject property) from the above two approaches, or perhaps other approaches.
My inclination would be to avoid, if possible, the extraction or residual methods. Even under good circumstances, these can produce numbers that are all over the place. Also, if the use is not very feasible, your extracted land value could be near zero or even negative. Another potential conundrum of using this extraction methods is that the value of the excess land might end up higher than the extracted contributory value of the occupied land.