Is it going concern or fee simple?

[CANative]

I don't think this is nearly the same thing. It's not like throwing trash bags on a burning pile of garbage. I think this type of operation was recently featured in a NOVA Science Now episode.

http://video.pbs.org/video/1768954299/

Starts at about 40 minutes.

FWIW, I grew up in a small city that built a garbage-burning plant (not for electricity production) just as a way to burn garbage instead of putting it in the ground. After about 3 months it was shut down. A total waste of money. Why? Because it stunk.

IMHO, I think you are right to do a value in use, because it might produce revenue, but it might not. Unless you have a crystal ball, then CYA. That will eliminate about 95% of the ambulance-chasers in case it goes south.

 

[UpstateNY]

I don't think this is nearly the same thing. It's not like throwing trash bags on a burning pile of garbage. I think this type of operation was recently featured in a NOVA Science Now episode.

http://video.pbs.org/video/1768954299/

Starts at about 40 minutes.

My point was that what appears to be feasible now may not be in 1or 2 years, due to the unique nature of the improvement. Cutting-edge today may be out-of-date in a relatively short period of time.

 

[Stephen J. Vertin MAI]

As for your project, I'd run like the wind.

No matter what comes new on the scene someone has to do the first appraisals. Landfills, gas-station convenience stores, tunnel automated carwash, etc.......are all modern appraisal problems. Letting accountants take this business makes little sense. USPAP allows you to take necessary steps. Just follow them precisely. Again, I have done five which were fairly similar. The only thing throwing me off on this project is the fact it can use food bi-products to make methane. This is an amazing break through. It allows anyone with a couple million (or the ability to obtain a couple million) into the energy production business.

Has anyone been following the concept of peak energy?

My point was that what appears to be feasible now may not be in 1 or 2 years, due to the unique nature of the improvement. Cutting-edge today may be out-of-date in a relatively short period of time.

Maybe, maybe not. None of us have a crystal ball and the same could be said with most real estate types. The truth is I think this has tremendous potential for expansion.

Alternative energy is the future and I believe appraising these micro units (as opposed to grid systems) is going to be a large source of revenue in our future business.

 

[CANative]

Alternative energy is the future and I believe appraising these micro units (as opposed to grid systems) is going to be a large source of revenue in our future business.

I agree. And even if some of the technology for this particular type of project changes over the short term (a few years) it will represent an easily adaptable improvement rather then rendering the concept obsolete.

I wouldn't be surprised if some bright boys licensed the concept and branded it.

 

[farmguy]

just curious. How do you handle all the tax incentives? Does that play into your income approach? If the incentives went away is there any motivation at all to operate? I ask because we got involved in some ethanal plants. Going in it was wonderful - getting out it was "what the hell were you thinking"
After reading all your posts I tend to agree with your conclusion of "value in use", I don't know the best way to handle the tax incentives. I do know working for a lender anytime I see "value in use" or "going concern" it is a red flag of a property without a snow balls chance in hell of selling for the value conclusion.
Aside from all the slicing and dicing of value definitions do you think if one was for sale would some body buy it, would it be viable at all without government.
I mainly ask because a lot of the same questions get asked with wind, solar, geothermal, bio fuel, etc. The government provides a bunch of incentives and typically the projects fall on their face if the gov. leaves.

 

[Stephen J. Vertin MAI]

I mainly ask because a lot of the same questions get asked with wind, solar, geothermal, bio fuel, etc. The government provides a bunch of incentives and typically the projects fall on their face if the gov. leaves.

No argument from me. The past alternative energy support by the government was not consistent with long term innovation. In searching for definitions I pulled out my first and second editions of The Appraisal of Real Estate. Both stated "appraisers are not fortune tellers. They do not read the future. The job is to appraise property under conditions existing as of the date of value".

Who knows what the government will do? It is the main reason I do not consider tax incentives in the valuation process.

With this said, stand alone income is sufficient to support the cost to build with a strong return. If I continue to see progress and a developing track record I may leave the appraisal business and put my money where my mouth is. I may get involved with building one myself. I believe the coming wave maybe that strong.

Remember this term "peak energy". Most analyst believe we are past this point. Future energy cost are going to keep increasing.

 

[farmguy]

I don't know that I am in the "Peak Crowd". We are beyond the Peak with current economically viable technology but with technological advances new reserves become viable. With that said I do agree we are dealing with a finite resourse in petroleum based energy.

What is the hold up if the stand alone income supports the cost and they provide strong return without consideration of government support in some form or fassion? I suppose I am naturally skeptical. The solar guys, wind guys, methane, etc all say their new source of energy is a no brainer. But they have been saying that for many years. I don't know if the digesters you are talking about are similar to the hog waste lagoon covers that capture methane, but they have been around for a long time and have not really worked that well yet. The poultry guys have been trying to capture methane off chicken litter for years and as of yet nothing much to show.
While you don't include government tax incentives etc into your income estimates the market most likely has, if there is a market. In farmland appraisals, rice land with a good base draws a substantial governement check whether they farm or not. While I don't include the government payment in income when I collect sales the tracts with the most base sell for the most money. The buyers recognize the government money. Is some of the exitement and attraction surrounding the process you are appraising related to the same thing?
I just ask because just like seeing a value in use appraisal when I am told that cash flow covers startup cost and throws off significant income in the same paragraph where I see there are no sales and little data, I gotto wonder how come everybody and the dog are not chasing these deals.
Could you steer me to some web sites or articles that discuss recent technology? As I said before we were invovled in a number of ethanol deals, and we have been approached by folks wanting to use switch grass, pulp wood tops, sugar cane, mesquite, etc to convert to some kind of fuel. I realize you are talking about an urban setting, but I imagine a break through in one area feeds into another.
And for the record I have no idea what it is you are appraising and some of my questions may be painfully obvious. I just thought the original post was something worthy of kicking around a while.

 

[Stephen J. Vertin MAI]

I don't know that I am in the "Peak Crowd". We are beyond the Peak with current economically viable technology but with technological advances new reserves become viable. There are many who believe there are no more large reserves but that discussion is best for another thread. With that said I do agree we are dealing with a finite resourse in petroleum based energy.

What is the hold up if the stand alone income supports the cost and they provide strong return without consideration of government support in some form or fassion? I suppose I am naturally skeptical. It is good to be skeptical. Especially when appraising. The solar guys, wind guys, methane, etc all say their new source of energy is a no brainer. But they have been saying that for many years. I believe most have been working on it for many years also. I have not lived in Texas since the first S&L crisis, but the Midwest is visibly vested in wind energy. There are areas of Indiana and Illinois having thousands of mills. It is really and amazing sight. Further there are currently a number of factories in Michiana, once used for mobile home construction, now being used to building wind mill components. The change has come, is occurring now and will continue in the future.

I don't know if the digesters you are talking about are similar to the hog waste lagoon covers that capture methane, but they have been around for a long time and have not really worked that well yet. The process has changed substantially since the lagoon days. There are farms in operations generating 3,000 to 4,000 kWh (that's a lot of juice daddy'o:new_smile-l The poultry guys have been trying to capture methane off chicken litter for years and as of yet nothing much to show. No argument chicken manure is nowhere near cattle or hog.
While you don't include government tax incentives etc into your income estimates the market most likely has, if there is a market. No disagreement but so do owners of apartment buildings. In farmland appraisals, rice land with a good base draws a substantial governement check whether they farm or not. While I don't include the government payment in income when I collect sales the tracts with the most base sell for the most money. The buyers recognize the government money. Is some of the exitement and attraction surrounding the process you are appraising related to the same thing? I do not think so. Most states have mandated oligopolies (electric utilities) must buy power from alternative sources at the rate they currently claim as cost. That is not a controversial regulation and has bipartisan support. Even the electric companies think this is ok why should'nt they? There is a built-in revenue stream, fixed cost, and a well established down time. I just ask because just like seeing a value in use appraisal when I am told that cash flow covers startup cost and throws off significant income in the same paragraph where I see there are no sales and little data, I gotto wonder how come everybody and the dog are not chasing these deals. In 2006 there were 36 serious operations. Today there are 160 with over 500 (that are currently known about) expected to be in operations by 2013. That is 184 percent growth annually. The growth of Windmills in the Midwest has been twice that easily. During one of the worst recessions since the great depression I would say a lot of people are jumping on the band wagon.
Could you steer me to some web sites or articles that discuss recent technology? As I said before we were invovled in a number of ethanol deals, and we have been approached by folks wanting to use switch grass, pulp wood tops, sugar cane, mesquite, etc to convert to some kind of fuel. I realize you are talking about an urban setting, but I imagine a break through in one area feeds into another. To see market trends and other data the EPA's AgStar site is a great starting point. Their directory of consultants is useful. About two years ago when trying to figure out how to appraise I contacted every firm listed. The return was rich my friend.
And for the record I have no idea what it is you are appraising and some of my questions may be painfully obvious. I just thought the original post was something worthy of kicking around a while. I appreciate your candidness.