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)
More of the "other side of the story." I've been wondering where Dwayne Romero was on this issue. He's the developer and the person on Council most knowledgeable of these kinds of issues. Appears Dwayne was involved in the analysis, as I would expect him to be. What does the Rant think of that since she blames everything on Mick and Jack as if the other Council members don't count.
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From today's Aspen Times:
Greg Hunter - Guest Opinion
I participated in the BMC purchase that has become the latest topic of city criticism, and I don’t think all of the facts about this purchase have been quoted accurately. The BMC purchase by the city was executed with full transparency and was well reviewed by many sets of eyes. This shall be my only public comment.
In September 2007, the city of Aspen had a housing summit, attended by the Pitkin County commissioners, City Council, the housing board and a wide variety of public and private sector leaders.
They were asked a number of questions about Aspen’s future, and an overwhelming majority of those citizens told the city that Aspen was in an employee housing crisis and was mandated that banking land now for future employee housing should be a top priority. The way that the city’s land code is written requires that the employee housing be built within Aspen’s urban growth boundary. That geographic requirement obviously has a large influence on price.
Long before I was hired to help the city find suitable land for future housing, the citizens of Aspen had agreed to subsidize the costs of employee housing, to help make it affordable to the employees working here. That decision was already in place.
The city and I were approached by the owners of BMC, and the city was told that the owners were going to put this piece of land on the market at an asking price of about $20 million and had already received other unsolicited “interest” at that price. It has been assumed by some that the city responded prematurely to that statement and made a naive offer. That is just not accurate. Before any offer was even considered, the property was carefully reviewed by city staff on its merits for future employee housing needs, and by an analysis done with City Councilman Dwayne Romero from a developer’s point of view.
Dwayne and I conducted an objective review of the property’s potential value should it be placed on the open market to a developer. Among other things, we estimated the property’s potential value according to a “residual land value analysis.” This analysis included a review of the property’s current zoning, and just as importantly, what the property’s use could be if the zoning were changed. This is commonly done via a planned unit development application, and would be a common analysis for a potential developer. After that analysis, we determined that should the property be developed to its highest and best use, the value of the land could actually exceed $20 million.
Even if you evaluate the BMC property strictly as an investor, with the current rent it generates being more than $600,000 annually, at a 5 percent CAP rate, the value of the property is more than $12 million with no development planned at all.
The BMC owners were unaware that the city owned an adjacent 2.5 acres of land acquired during the Burlingame purchase that would now gain easy access and become developable because of this purchase. This fact was an important ingredient in the decision by City Council to proceed.
The next step was a review by city staff. This property can easily be annexed into the city limits. Its zoning and covenants can be legally changed to allow for affordable housing. And according to the city’s staff analysis, the subsidy for employee housing was well below other employee housing projects.
With the housing market at a continual torrid pace in 2007, and the city being told by its citizens to bank suitable property to house its employees within the city, land-banking the BMC property passed the review of its value from both an experienced developer’s point of view as well as the city’s staff.
We can all look at today’s economy and see that there were other well-laid plans in 2005-2008 that today are either partially built or have been abandoned. Look around: There are several “Big Boy” projects up and down this valley that didn’t quite go as planned. It is pretty easy to criticize their decisions today also. Many very smart development people were forecasting a bright future for Aspen at that time.
It is important to remember the performance of the market at that time. The city could have required an appraisal be completed before the purchase was made. It was discussed, but all parties involved determined that this was an unusual set or circumstances where there really were no comparable sales for an appraiser to use. So rather than risk an opportunity for the city to purchase a very large and a favorable parcel that accessed another 2.5 acres of land already owned by the city, in a location that had very little negative impact on any neighboring property and to be within the urban growth boundary, and after review of all value analysis, the unanimous consent of the City Council authorized the purchase of this property.
It is not for me to publicly discuss the negotiation process. The City Council authorized Steve Barwick and me to open negotiations, and were also authorized to purchase this property. Through a process of offers and counteroffers, the final price was settled within the guidelines given.
It is easy to be a Monday morning quarterback. I have absolutely no political agenda, but I find the elected officials involved to be people trying to do their best for what they have been elected or hired to do, regardless of their political affiliation.
If we were shopping in today’s market conditions, the value would have been much different (as many current sellers are discovering). But if the economy had remained on the path that was a clear pattern of more than 20-plus years of historical continued growth, we wouldn’t be discussing this purchase at all.
Greg Hunter is the real estate broker for the city of Aspen.