ANT BITE -- The BMC HypoAppraisal
March 20 The long awaited BMC "appraisal"—sort of---has been released by the City. Initially, upon reading the newspapers last week,Aspenites were comforted by the assurance that the value was only $1.45 million less than the $16.8 million paid in December, 2007. But upon further examination of the appraisal, and discussions with real estate professionals, the City is once again being challenged with the outrageous spin they put on the so called, “appraisal.” (Reminds us of the bogus press releases issued after the Burlingame audits.)
Turns out the “appraisal” was a very nonstandard valuation based on “Extraordinary Assumptions” and “Hypothetical conditions”---not what a reasonable buyer would pay!! And one any bank would laugh you out of the room for presenting.
John McBride, one of the most respected developers and businessmen in the valley, who knows this property like the back of his hand, called the public’s attention to the bogus appraisal in a guest column this week. (His columnis both linked and printed in full below.) And from there, the rocks are being uncovered.
We are not ready to write the Ant article on the issue yet, but given the attention it is getting and the blog entries we have received, we want to make as much information publicly available as possible.
Here’s a link to the Aspen Times article:
http://www.aspentimes.com/article/20090313/NEWS/903139970&parentprofile=search
And the City’s Press Release:
http://www.aspenpitkin.com/apps/news/news_item_detail.cfm?NewsItemID=1042
John McBride’s Column “Fantasy Economics” : (also reprinted in the comments below)
http://www.aspendailynews.com/section/columnist/133284
Mick Ireland’s Rebuttal to McBride:
http://www.aspendailynews.com/section/letter-editor/133319
A copy of the “appraisal”: (large file takes VERY LONG TIME to open):
http://www.aspenvotes.org/storage/HypoAppraisal.pdf
Fair Warning At the Time of Purchase:
http://www.aspentimes.com/article/20071129/NEWS/71128041&parentprofile=search
City Documents at Time of Council approval. (Explanation of $450,000+ per unit subisdy!)
http://www.aspenpitkin.com/pdfs/depts/38/cc.res.097-07.pdf
See the comments below posted initially under issue #28 of The Red Ant “Land Banking Needs a Bailout.” We stand by our conclusions!
Stay tuned.We know that there is much more to learn. The Ant has been asking for a copy of the appaisal every few weeks since late summer, and the City always had some excuse as to why it was not complete. But the long awaitedreport was even more creative than we could have imagined!
Feel free to leave a comment below.
Reader Comments (15)
I know the Appraiser that the city is using for the BMC parcel that the city paid 18M for. The city didn't like the first low appraisal so--they combined it with the three acres that we own next to it to try and hide the low appraisal. The appraiser was given a bunch of improbable suggestions as to the parcel's possible uses and he still couldn't make the numbers work. If a real estate broker trys to influence an appraiser's opinion This is corruption by the city manager.
February 28 | Real Estate Professional
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Ed Foran's comment:
The City of Aspen and Mick Ireland need to respond to this letter to the editor from John McBride. If anyone stands to benefit from the BMC West sale, it's John McBride, as the largest property owner at the AABC. Yet, as John logically states below, the property is worth less than half than what the city paid for it.
"Last week, the appraisal for the BMC parcel that the city of Aspen bought in 2007 was reported at $16.8 million. I was surprised. Although the appraisal was lower than the $18.25 million the city paid, it still is way too high. I continue to believe that the real market value is somewhere around $6.5 million.
Prior to the city’s purchase, the highest price paid for land in the Airport Business Center was $30 a square foot. At that rate, the value of the lumberyard, based on comparables, would have been $5.34 million. Further, under the income approach, if the city nets $600,000 a year from the lumberyard, at an 8 percent cap rate, would yield a value of $7.5 million. $6.5 million is in the middle between the comparable value and the cap rate value. It seems to me a fair market value that an appraiser could defensibly assign.
Confused by The Aspen Times and Daily News articles on Friday of last week, I contacted the appraiser hired by the city to conduct the recent BMC appraisal. Dave Ritter, who is a friend of mine, clarified the large discrepancy.
Dave explained to me that he was not asked by the city to do a fair market value appraisal of the BMC parcel. Rather, he was asked to do a “hypothetical appraisal,” imagining a very large housing project was already built on the land — thereby paying no attention to existing constraints. A fair market appraisal and a “hypothetical appraisal” are apples to oranges. Ignoring the constraints overlaid on a piece of property is the essence of a hypothetical appraisal. It is relevant that the public know the BMC parcel contains such limits as county zoning, height and parking requirements, ABC covenants, and the 200-foot greenbelt setback from the highway right of way. This setback, by itself, would almost preclude the development of the city’s adjacent open space parcel. (The city’s statements seem to indicate that this open space parcel is not under easement, contrary to the sign posted on it!)
I asked a longtime banker of mine if he had ever heard of a hypothetical appraisal. He said he had, but that it is not considered a real (defensible, credentialed, well-founded, genuine, factual, bona fide) appraisal. He added, “A hypothetical appraisal is really just a developer dream and as such has no merit or value, especially for a loan.”
Still somewhat shocked, I looked up “hypothetical appraisal” under the American Society of Appraisers. Their definition:
“A Hypothetical Appraisal is an appraisal based on assumed conditions which are contrary to fact or which are improbable of realization or consummation … It is improper and unethical to issue a hypothetical appraisal report unless 1) the value is clearly labeled as hypothetical; 2) the legitimate purpose for which the appraisal was made is stated; 3) the conditions which were assumed contrary to fact are set forth … a hypothetical appraisal … which is so much above the market that it is practically impossible for it to be realized, would not serve any legitimate purpose and its issuance might well lead to the defrauding of some unwary investor.
Wow!
Does the public understand that the city’s justification for overpayment of $1.45 million is based on an imaginary appraisal, which by definition is “contrary to fact?” If you were selling a home, would you list the house for what it could be if it were remodeled? Or for what it is worth today?
Obviously the city is trying to justify the high price they paid. But more than that, they seem to be indicating that they believe they can violate a long history of established principals and guidelines that for years have defined the character of the ABC.
Had the city performed a proper fair market value appraisal prior to purchase of the land, they could have saved tax payers $10 million to $12 million.
Alternately, if the city had been unable to negotiate a deal with BMC, they could have condemned the property. Condemnation demands a fair market value appraisal. The fire district did this at North 40, when they bought their land for $27 a square foot — the fair market value. "
March 18 | Ed Foran (eforan@masonmorse.com)
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Normally I am not one to share my personal concern with our local government decisions but I just can’t let this one pass. I find it reprehensible and unconscionable that our current council cannot admit that a terrible mistake was made in purchasing the BMC property at the price that was paid. What I find even more disconcerting is that it appears they are trying to “hide” this fact from the public.
Please let your elected officials know of your concern on this issue and/or at a minimum, ask them to be more honest and forthcoming with information. Next time I am selling a property, I’ll see if a buyer will take a “hypothetical” appraisal!!!
March 18 | Broker and Citizen
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Great comments by "Broker." Another fact that I think may have been ignored is that the City’s purchase was for affordable housing. Shortly before the City bought the BMC parcel, Mick voted in opposition (no) on Centurion’s application to build the Lodge at 1A (prior to the coop). Mick said in his statement for denial, was that one of his major reasons do deny the approval was the fact that much of the affordable housing was “beyond the roundabout.” That did not seem to be an issue though for use by the City for their affordable housing.
March 18 | Bob
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RESPONSE TO ABOVE MCBRIDE COLUMN,
Ireland and Ed Foran
submitted by Ed Foran
Posted by Mick Ireland on Facebook:
2) Why John McBride is wrong about the BMC purchase
John McBride's letter to the Aspen Daily News is well written but factually awry for the following reasons:
First, he claims the property is not zoned for affordable housing, it's intended use and this means it is less valuable. However, it is adjacent to the city and could be annexed and re4zone at the city's discretion. This makes the appraisal different from private sector evaluation because the city has zoning authority and private purchasers do not.
Second, he claims that the city owned property is restricted to open space uses because there is a sign on it. However, the deed restriction does not apply to the flat land below the slope, about 2.5 acres.
Third, the set back from the highway is not 200 feet, it is 100 feet and that setback does not apply to the city owned property at the base of the hill. The 100 foot setback for the BMC property can be varies as John knows well.
Fourth, the covenants on the land can be removed by purchase or condemnation. The condemnation tool John suggests for the property as a whole is available for minor restrictions such as the covenants.
As a result of the purchase, the city has 7 acres of develop able property for which it paid $18 million. The value of that property that it now has at the time of purchase was $25 million. This is a good purchase since there are no other available 7 acre properties on transit lines available within the Urban Growth Boundary.
Ed Foran’s response on Facebook:
3) A hypothetical appraisal is worthless
What about the "hypothetical appraisal?" Not only is this not a legitimate appraisal, but it was presented to the public as a market value appraisal, which was misleading at best.
Secondly, why is the City not using an appraiser with an MAI designation? While Dave Ritter is qualified to do appraisals for certain types of properties, he is not an MAI and does not have the experience or qualifications to value a property of this magnitude.
As you know, the MAI designation requires an appraiser to go through a rigorous education and approval process before receiving this designation.
Aspen has one of the industry's finest MAI's in Randy Gold at the Aspen Appraisal Group. Randy has lived here for over 30 years and has an intimate knowledge of our unique real estate market in addition to holding an MAI designation, the highest designation you can receive as an appraiser.
Randy is considered the foremost appraisal expert in Aspen and respected by property owners, developers and lenders alike for his objectivity and attention to detail. Why was he not used? Was the City concerned that he would value the property at less than the purchase price, thus causing embarrassment for City officials?
It seems to me that The City of Aspen has a fiduciary duty to the taxpayers of this community to make every real estate acquisition subject to an MAI appraisal that ensures that the buyer is paying fair market value. This is a normal condition of any real estate contract. Mr. Ritter's "hypothetical appraisal" is worthless. A bank would not even consider it as a document to verify whether or not can be financed.
March 18 | Ed Foran
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How can Mick possibly defend this silliness?
Of course the market value is what a willing buyer would pay to take the considerable risk of zoning and building to his needs.
That value is FAR lower than the “appraisal” value based on all sorts of pie-in-the-sky assumptions that could never be realized by a private buyer.
I believe that what Mick is trying to tell us is that the City paid the seller a value that assumed that a private buyer could have instantly had the property rezoned for their intended use, and have the same ability as the City to condemn property, etc.
Clearly the City overpaid, and they are trying to do anything other than admit it.
This is not unlike the “negotiated” audit reports on Burlingame. The facts have been changed to generate an absurd conclusion.
March 18 | Marilyn
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After reading Mick's response to McBride's op-ed all I can say is please Mr. Mayor stop with all of your misleading statements and except responsibility for all the mistakes made in your mediocre rule. Enough all ready Mick. The public is finally catching up with your dishonest megalomaniac ways. Leave elected office and get a real job . My one piece of advice. If you are as rude to co-workers at a real job as you've been as mayor I hope you enjoy the same dissatisfaction and disrespect you've shown .
March 19 | jsam
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Above comments copied from Issue #28 (Land Banking Needs a Bail Out)