Another seriously plugged in reader; another big development; and another big question:
The Transbay Joint Powers Admin [TJPA] over that past few weeks has been sending out offer letters to purchase properties around the Transbay Terminal. The TJPA is moving forward with their acquisition plan for 20+ properties (maybe 33 if memory serves me correct) for their right of way needs. It’s very hush hush as they do not want the “offers” to be made public – but “fair market” values are being tossed out there to the land owners. “Fair Market” – mind you the only people the land owners can sell to is the TJPA.
Negotiations will go on for the next few months, but if no final “fair” price is agreed to, then the TJPA will go the [Board of Supervisors] and play the eminent domain card.
And the question: “If these land owners could sell their properties to the big time developers they could be making an additional 25% on these “fair market” values. So the question is – what is truly fair market?”
Is Beale Street Bar & Grill a historical landmark yet?!
What makes him think that he can get 25% more? Does he have an offer from someone else for that amount? Or is he just trying to extort more from the TJPA and attempting to gain sympathy from us? (Darn Guvment tryin’ to take my land!)
For eminent domain purposes, “just compensation” is measured by the loss to the owner, not the gain by the government. And I seriously doubt any “big time developer” would want to step in and buy any properties in that area as everyone is on notice that the Gubment wants in. So that 25% figure, a fantasy. It shouldn’t be too difficult to determine what fair market value is. It’s not an exact science and there’s no requirement of absolute certainty, so alls ya need to do is look at fairly comparable properties that have sold within a fairly recent period of time, and viola! Fair market value, or for eminent domain purposes, just compensation.
NativeSon: Are you an appraiser?
Try again there NativeSon, valuing high rise development land is one of the hardest valuation problems out there and is nothing like valuing a condo unit where you go and get the sales of three similar units and you’re done. First of all, the value of each property is determined by its zoning potential which in this high rise area is more like a range when you consider height limits, density limits, shadow effects, floor height, parking requirements, and open space requirements. It takes an architect months to come up with a viable design which maximizes each site’s zoning – and then those designs are invariably altered in the public approval process. OK, so how big of a building is kind of a moving range, then you’ve got to add in the issue of wildly gyrating/increasing building costs which play into how much a developer is willing to pay for each site. Then you’ve got to take into account the expected approval and construction time (shorter = higher value, longer = lower value). So you can come up with an estimate of land value from the development cost side. You can also have a look at the very small number of wildly diverse land sales which occurred under different zonings, different building cost environments, different market periods, and probably different locations. So you value it from both a development cost/time horizon and looking at other sales but both ways to look at the land value have huge holes in them as a lot of the variables are unknown, ranges, or moving targets. The end result is that there are a lot of moving parts and not too many people have even close to a good idea of true value. Now add in the threat of eminent domain and there is always going to be a few landholders who have the idea that their property is worth more than it is and you’ll have to litigate it. Fun. This process is anything but simple and straightforward.
To add to Miles’ comments, there is additional complexity in that valuation methodoloy in the context of eminent domain is different from traditional valuation approaches.
A property is “worth” what someone will pay for it.