Assemblage

[Stephen J. Vertin MAI]

Ok this is an interesting appraisal assignment that I have been mulling over the last few days. Just the facts.

Purpose of report: Eminent domain

Interest Appraised: Market value of the fee simple interest. Date of value current.

Subject: Single family brick constructed five room, two bedroom one bath +40-year old facility with no basement and one car garage (demand for such facility low).

Market Demand: This suburb remains desirable

Location: In near northwest suburb of Chicago

Immediate Environment: Block was purchased by municipality and subject is last building standing.

Exact Location: On the western edge near dead center of a new parking lot.

Case for Eminent Domain: Municipality is in need of expanded parking. Block has been improved with new parking lot completely surrounding three sides of the subject ( leaving the subject with street frontage only).

Issue: Highest and Best Use

Here is what I believe to be truths. Had not the municipality built a parking lot around the subject there may have been some potential buyers (when I use to do single family homes I would periodically see two bedroom one bathroom facilities without basements sell); however, given there is a parking lot on all sides I believe the municipality has in affected pushed buyers into other products in residential settings. Especially given the current struggling market. In short the local government has caused external obsolescence.

Therefore, the highest and best use of the subject becomes assemblage. Either by the local municipality or some savvy investor who understand the village needs this land to complete their plans of assemblage.

Resolution: Value the subject as if the external obsolescence does not exist. Find other hold outs for assemblage. Determine the margin paid (which almost always exist) and apply it to the subject.

Any thoughts would be appreciated.

 

[Dennis J. Black ASA IFAS]

Market value is what some one other than the jurisdication would pay. I agree that it sort of ends up screwing the guy but them the rules.

 

[Stephen J. Vertin MAI]

Dennis:

I understand your position. But the truth is an owner in this position never gets screwed. I bet if you looked at a hunderd assemblage sales the last hold out typically gets the highest price. So is this a point where appraisers suspend reality or is the line of reasoning missing something? So I followed it and was also slowed by "market" value (willing buyer and seller stuff). But I believe there is more than one buyer not just the village. I believe there would be people willing to purchase this property given a final certain pay off. A pay off that has historically been worthy of investment. Where am I wrong?

 

[Atlanta CG]

You are not wrong and I am discovering that as time evolves some assignments just need to be completed in the face of reality, not textbook methodology, and with legitimate arguments, even supported by conversations with investors who purchase such properties, providing the logic needed to convince the client. Data can be limited, but there are a lot of buyers out there looking for such properties and a pattern of what they expect to get out of the deal or they do not get involved can be the support needed. In my conversations with such buyers I often find comparable situations, but totally different property types, that provide the basis for the logic. Then you get reviewed and if it doesn't match up with what the 12th edition says you get criticized. Sometimes you just cannot win.

 

[Dennis J. Black ASA IFAS]

Steven,

I agree with your analysis from the standpoint of the hold out person becomes a seperate market at a certain point. The problem I see is that you are venturing into uncharted waters.

It starts to boil down to the fact that the "willing buyer" of that last parcel is also of the same mindset that possesses the seller. I have something they want. So then the issue becomes demonstraing that the "island" property is not comparable to "regular" properties because it possesses different "economic" attributes.

 

[Alison Swain]

I see two advantages (at least) to this property. First, if the owner is a big party person, the issue of parking is solved! Second, if zoned for commercial, Starbucks would snap that property right up.

 

[Fred]

The only way assemblage can be an HBU, is if the same party owns all the pieces. You can't just use someone else's property.

 

[Dennis J. Black ASA IFAS]

I don't think the OP was saying that the H & B is assemblage. My read was that the subject's H & B is different than the surrounding propeties. I think Alison brings up a great point. There are speciality users for porpety that many would not see.

I am reminded of a story from the late 1990's where some level of government took a mountain, except for the top. The thinking was that now that there was no road access the value was diminished.

The property owner out smarted then by builting a massive home on the mountain top by using helicopters to bring in the material and then marketed it as being surrounded by protected land with fantastic views.

 

[Fred]

I don't think the OP was saying that the H & B is assemblage.

Therefore, the highest and best use of the subject becomes assemblage.

..........

 

[Walter Kirk]

Assuming that the municipality using Eminant Domain is the same one that created the condition of the surrounding parking lots it would be unfair to reduce the value of the subject based upon a condition created by the municipality.
I would employ the hypothetical condition that the subject is located in a neighborhood of similar size and style houses (this is where you will find your comps)