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For those Cost = Value devotees--the Enron Bldg

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George W Dodd

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Virginia
Umm...

Is a sale from bankruptcy court considered "arms length" :?

Not.
 

David S. Roberson

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Depends on how it is marketed. I bet every major corporation in the free world knows about the Enron fiasco & its available assets. Probably has more exposure than the typical property for sale.
 

Bill_FL

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Depends on how it is marketed. I bet every major corporation in the free world knows about the Enron fiasco & its available assets. Probably has more exposure than the typical property for sale.

Did you all see the auction last week of the non-realty items? Most of it was going for way more than it was worth. People were buying stuff at 125%+ of what they could have purchased identiacl new items for. This supports the above theroy that it has had plenty of exposure.
 

Farm Gal

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Jan 14, 2002
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Nebraska
:?: :?:
musing here... anyone done a study on RECENT big bucks office buildings where there might be some stigma associated witht he former tenant?.....

might be interesting!
 

Steve Owen

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Elliot, the cost approach is just one indicator of value (we use three) not an equivalent of value. Based on the economic principle of substitution, the cost approach normally indicates the upper range of value for any given property. Like any other approach, it must be applied with discretion. So, what do you think a sales comparison approach would indicate for this building? (Hint: it would most likely indicate something very similar, but probably slightly lower than the cost approach.) Any approach to value will have to be modified in use to indicate a distressed sale value rather than market value.

Lee Ann, interestingly enough, I recently finished a very fancy office building where the partners are either already in or headed to jail; definitely a tainted property; not big bucks, but a very nice building by the standards of this market. (By the way, Elliot, after application of the proper external depreciation, the cost approach indication of value was supportive of the other two approaches.)
 

Fred

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"Based on the economic principle of substitution,.."

Steve,
I continue to seek such a principle in Economics. In Economics I have seen Substitute Goods applied to choices by consumers about which goods to consume. I have seen substitution applied to choices made by producers about which goods to produce. What I have not seen, in formal Economics, is substitution applied to a decision by a consumer whether to consume existing goods or produce new ones in which consumption and production are substitutes. Maybe my supply of Econ. texts and professors is too limited.
The last time I mentioned this, you quoted me the same author that I had already quoted, giving essentially the same definition. Should I ever come across this version of substituion, I will forward it to you.

"…the cost approach normally indicates the upper range of value for any given property."
You posted a text except a while back that "...an informed purchaser would pay no more than the cost of producing" a building. And now you say that an informed purchaser would pay no more than the value by the cost approach.

Can you see why that is a bit confusing? As I understand it, the 'cost of producing' and the 'value by the cost approach' are not usually the same amount (which turns out to be the case with this Enron building)?
How can two different amounts BOTH set the upper limit of value?
 

Steve Owen

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Missouri
It's hard for me to understand how someone who is supposed to be an appraiser could have such a difficult time understanding such a simple concept.
 

jtrotta

Senior Member
Joined
Jan 16, 2002
substitution of principle or the principle of substitution :?

if you both (Owen & Santora) were on your way to Saturn and it was economically feasable, you could potentially pass uranus :lol: :lol:

8)
 
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