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Old 11-09-2011, 09:32 AM
appdyn appdyn is offline
 
Join Date: Feb 2008
State: Kansas
Professional Status: Gvmt Agency, FNMA, HUD, VA etc.
Posts: 27
Default special assessment

I post rarely but I have a question and hope you can provide some direction. The short question is how is a special assessment typically handled?
The background is a developer purchased 63 acres for $20M upon which to develop a continuing care campus. In addition to the purchase price, he became obligated to a $15M special assessment to extend a public road to the site.
About two years later (about two years ago) the property sold out of bankruptcy for $15M. This included 227 units of independent living, the only portion to be developed on 15.8 acres. The county’s appraised value is $45,000,000, which includes the value of the 47 acres of land not yet developed.
Should the annual payments of the special assessment be deducted as an expense, or should the $15M be a line item deduction from total value? Or is there more than one ‘right’ answer’?
Thank you all very much.
Appdyn
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Old 11-09-2011, 09:53 AM
Greg Graybadger Greg Graybadger is offline
 
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State: Idaho
Professional Status: Certified General Appraiser
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appdyn, we need you to clarify and expand. Are you seeking the market value of the 15.8 ac with 227 units? Is the $15M special assessment allocated between the 15.8 ac property and the 47 ac property? What are the terms of the special assessment?
  #3  
Old 11-09-2011, 10:13 AM
Walter Kirk Walter Kirk is offline
 
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Location: Audubon, N.J.
State: New Jersey
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Was the special assessment addressed in the bankrupcy?
  #4  
Old 11-09-2011, 10:28 AM
appdyn appdyn is offline
 
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State: Kansas
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Thank you for your reponses so far. We already have our estimate of value for both the improved and unimproved portions - totalling approximately $45M.
We are not certain of the allocation of the special. I believe it encumbers both portions but others believe it is for the development of the currently unimproved 47 acres.
We only know that the term of the special is for 20 years. I work for the county assessor and this property is under appeal, so not all details are forthcoming. We don't know how the special was addressed in the bankruptcy. But it is interesting to me that the two year old sale price was for the same amount as the special - $15M.
Thank you all again.
appdyn
  #5  
Old 11-10-2011, 09:30 AM
Greg Graybadger Greg Graybadger is offline
 
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State: Idaho
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appdyn, you need to gather some hard facts in order to deal with this properly. The exact details of the special assessment will be part of the record, from the action that created it. You need to read and understand those records. If necessary, get your legal department to help you. Similarly, the bankruptcy court has wide powers and the only way to know the current state of affairs is to investigate their actions. Usually, there is a court clerk who can help you get the history of decisions in the case. Once you know the actual extent of obligations that still apply to the subject property, then you can address the issue of its impact on the value of the property. There is no shortcut or substitute: you either have the facts or you simply don't know.
If you will post a link to your statutes (definition of market value or taxable value, etc) I'll discuss the correct methodology for applying the special assessment.
  #6  
Old 11-10-2011, 09:43 AM
appdyn appdyn is offline
 
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State: Kansas
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Posts: 27
Default

Greg, thank you for your reply. This is not my case - I am helping someone else with it and they haven't gotten the specific info from legal yet (other than it being originally for 20 years with 18 years remaining as of 2009, the appeal year). But, would the specifics of the assessment affect how it is handled from an appraisal (or market) perspective? Isn't there a 'general' way special assessments are handled?

Thanks again for your help.
appdyn
  #7  
Old 11-10-2011, 09:59 AM
Michael S Michael S is offline
 
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Location: Albuquerque
State: New Mexico
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If the special assessment is payable over that 20 year period there's probably a pro-rated share that's due each year. $15 million / 20 years = $750,000 a year. A lot of times these things don't take the time value of money into account.

Assuming the remainder is still due, one way to handle it would be to discount the remaining payments to a present value and deduct that from the final price.

It's essential to find out exactly how it's going to be handled. Either the bankruptcy court or the government agency that's receiving the money should have some information. I'm sure there's somebody at the city or county level who's job it is to handle these special assessments.
  #8  
Old 11-10-2011, 10:51 AM
Greg Graybadger Greg Graybadger is offline
 
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State: Idaho
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Yes, there is a 'general' way that special assessments SHOULD be handled: correctly.

There is no end to hypothetical situations. Maybe the bankruptcy judge says that the minimum acceptable bid is $15M which will be used to satisfy the special assessment, since taxes are the priority lien. Then the one and only bidder bids $15M and takes title. The special assessment is gone and the liquidation value of the property is $0.

If I understand the situation correctly, the assessor is saying that property will be taxed based on a value of $45M even though it just sold at auction for $15M. And now there is an appeal that is challenging the assessed value. I would interview that auction buyer and ask what they knew about the special assessment. For that matter, was the buyer simply a creditor/lienholder?
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