Improved Commercial Land but we have only As If Vacant Appraisals

[George Hatch]

If it is their building, they can tear it down and move it.

Maybe, if they have the right to demo. Demo/haul off will be expensive, though. I don't see why they'd do that unless they were going to redevelop that parcel with a more profitable use.

 

[CR Gray]

If it is their building, they can tear it down and move it.

Yes.

 

[CR Gray]

Maybe, if they have the right to demo. Demo/haul off will be expensive, though. I don't see why they'd do that unless they were going to redevelop that parcel with a more profitable use.

They also are allowed, without our interference, to have sublessors, they have three, which they explained are part of their college program offering, so they receive some minimal income from this, they've said. They are a 501C, and I am ignorant on these details/ramifications.

 

[Terrel L. Shields]

This sounds like litigation to me.

 

[Tiffany Gibbons]

Yes the buildings are older, I think built in late 80s or 90s. The AZ county property records site shows a 2024 Fair Market Value for improvements as $8.5 million; its assessment history, projected, states for 2025 $8.8 Million. The 2 land As If Vacant appraisals are for $3.3 mil ('22) and $2.9 million (this March. Doubt that property values have decreased in this large city in the last 1 1/2 years.

They are tax exempt, so don't put too much stock in the Assessor's value. It could be sky high, they don't pay taxes on 8.5 million.

 

[sputnam]

My relatives and I are co-owners of an AZ parcel, land only, that currently has an 11-year lease (55-year lease just ended). The sole tenant is a community college district for quite a few years. They have improved with one building (61K sq. ft.) which is their satellite campus, carport, etc. (Upon end of lease the improvements are ours but tenant holds the first right to seek continuance of lease beyond this 11 years).

The college now wants to buy the land from us (the first conference call on this was 2 days ago) but are suggesting their appraisal is as high as they can go due to Arizona's Gift Clause. Short of getting into that (we are looking at what they sent on this; so far we have 2 appraisals (not at our initiation; one is 1.5 years old and shows higher value than one they just provided) Both are 'As if Vacant' yet every one of the 12 property comps were vacant land, unlike ours )....We hope to request to commission a 3rd appraisal that would use the cost basis method (or some combination?) for a more accurate valuation of fair market value for this improved land. As we have been told, improvements add value to the land. Would this 3rd method seem viable and appropriate for these circumstances?

You seem to be entering lawyer territory. As for appraisals, it is up to the appraiser to solve the problem. Make sure the appraiser is qualified and experienced. It's up to you and the college (and maybe lawyers) to tell the appraiser which property to appraise, the type of value, whether the value is to be current, retrospective or prospective, and what the Intended Use is. Of course, you can do that in consultation with the appraiser. Once those sorts of things are settled, the appraiser determines the proper scope of work for the assignment.

 

[KHS445]

This will be a complex appraisal, with many different scenarios that need to be addressed. Some of the major items to be considered are land value (as if vacant), lease income, lease renewal options, discounted value of the improvements, separate highest and best use determinations of the land, the improvements and as combined, current and projected market value, alternative uses and cost to accommodate changes, tax consequences based on your costs and the current value (if sold), are the current lease terms above, below or on par with what is available in the competing markets, etc. A project like this will probably require a minimum of two to four weeks of rather intense work and research.

I did a quick Google search for the Arizonia Gift Clause (look it up if you want more detail), which basically says governments funds cannot be used to enrich a private individual/entity a greater amount than what a non-government entity would pay. Nothing more than they cannot pay more than "Fair Market Value". My guess if this were to ever go to mediation, they would present their appraisal, you would present yours's and the Mediator/Court would arrive at a value based on either of the appraisals, a combination of the appraisals or some off the wall figure.

Obviously, no one responding on this forum have seen any of the appraisals so we cannot answer specific information. Based on your initial comments at least the most recent appraisal provided to you by the College and the one that is 1.5 years old are junk as they only address the vacant land value and do not consider the remaining 11 years of lease income, the future value of the land and improvements discounted back to the current timeframe, and the probability of their extending the lease for another 11 years at an increased rate, if allowed under the lease agreement, etc.

The big thing to remember is you have a lease for at least the next 11 years, and you don't have to sell. If there is a clause in the lease that allows them option to buy it out the lease, I would think a method of determining a fair value has been spelled out. Also, if you decide you want to sell, I would still get an appraisal as there are investors out there who would be interested in purchasing your interest for the right price. Who knows that right price may be more than what the College is offering. You may even be able to request a restricted report which, if done properly, would provide you with enough basic information to decide what a reasonable value may be. The restricted report can always be updated and converted to a more detailed appraisal report, if the need arises.