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Private University -- "Value In Use" ?

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David C. Johnson

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<span style='color:darkblue'>I am appraising a small private four-year university in NC (i.e., all their real estate holdings including the main campus and its improvements). Such entities borrow money for construction projects much like any other nonprofit business. Assuming I find a limited market for the hypothetical purchase of this property(s) at its (currently assumed) highest & best use as a higher learning facility (which is a pretty fair bet at this point), what is the likelihood that I should be looking at "Value In Use" as the value definition? Should I include both value definitions for two separate value estimates? Would we not typically assume "value in use" to be the higher value of the two?

Assuming it will be a straight forward process to locate such a definition (perhaps even via USPAP -- I have not looked into this yet, as you can see), will such a definition of value be acceptable for the planned use of the appraisal by my client (i.e., the trustees of the university) for their purposes of potential loan securitization by traditional banking lenders?

Thanks for any thoughts / advice.

Regards,

David C. Johnson
NC State-Certified General R.E. Appraiser
[email protected]</span>
 

bradellis

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Joined
Jan 16, 2002
David,

First- check out GASB- Govermental Accounting Standards Board (like FASB only for the gummint). They have very specific rules on how real estate appraisals are to be done on goverment property.

I read it once- a while ago- and there are some differences- just cannot remember them all.

Brad Ellis, IFA, RAA
 

Paul Ness MAI

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Professional Status
Certified General Appraiser
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I want to clarify something. Are you completing the appraisal for the school to use for financing?
 
A

Anonymous

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Are you assuming that the highest and best use is as a college? Could the land be used for condo's or a shopping mall or a power plant? Your question is a good one if you have ruled out other types of uses.
 

David C. Johnson

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Senior Member
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Jan 15, 2002
<span style='color:darkblue'>Brad,

Let me clarifiy / qualify your suggestion a bit. You realize this is not a government property, right? Do you know the most expiedent way to get hold of that work / text?
_________________

Paul,

"I want to clarify something. Are you completing
the appraisal for the school to use for financing?"

Yes, it has not been appraised for years as best I can tell. They have an ambitious 10 and 20 year construction / enlargement / renovation plan including campus expansion (land & improvements), and of course expanded curriculum. The appraisal would be to facilitate such plans. They have a healthy and growing endowment, but like most (I guess), still look for more typical funding for multimillion dollar projects
_________________

Walt,

"Are you assuming that the highest and best use is
as a college? Could the land be used for condo's or
a shopping mall or a power plant?..."

No doubt the land could be put to different uses. Due to its location, its high dollar stuff. However, yes, at this point I have little doubt that its H&BU is as a college. This may or may not "meet the traditional highest financial return to the land" test, but certainly to the community and state -- just like, say, like the Duke University campus and associated holdings.
__________________

Thanks,

dcj

PS. The financial condition and anticipated longevity of the university is good.</span>
 

Paul Ness MAI

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A) You mentioned "traditional banking lenders" in your post. The lender is required to engage your services if it will be a Federally insured loan.

B) The lender (as your client) is the only one who can answer your original questions of (1) what is the likelihood that you should be looking at value-in-use? (2) should you include both value definitions for two separate value estimates? and (3) will such a definition of value be acceptable?

If you continue with the assignment, you run the risk of the report not being acceptable by the lender for either or both of these reasons.
 

George Hatch

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Certified General Appraiser
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California
DCJ,

You may still have a viable Market Value scenario in here, depending on what alternate uses there are for the property as improved. It is possible that the existing improvements might be marketable to outside buyers, either as components or in their entirety. For instance, maybe a religious organization might be interested in the property for use as a 'compound' (you know, add a couple bunkers, bury a couple school busses, and add some razor tipped barbed wire 8O ). Other possibilities might include a private K-12 school, boarding school, corporate training facility, office park, hospital, convalescent facility, rehab facility, etc., or some other use where the buyer would remodel rather than redevelop. I've seen a couple of K-6 schools turned into retirement homes and intermdediate care facilties. I've seen a couple motels turned into rehab joints. I saw an apartment building turned into a homeless shelter, and an office building turned into a shelter.

Since FIRREA requires the use of 'Market Value', I would plan on at least including a value estimate based on that definition in addition to any other value estimates you may end up using.


George Hatch
 

David C. Johnson

Thread Starter
Senior Member
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Jan 15, 2002
<span style='color:darkblue'>Paul,

Good points.

Had I anticipated the your response, I would have been more exacting in my description of the purpose of the appraisal. It is my understanding from a joint meeting with the President, the VP and the Financial Affairs VP, that the appraisal is for planning purposes regarding future undertakings -- which makes much sense to me. It could be, in effect, described as a feasibility study of their part regarding the likely valuation of the property for when the time comes for the specifics of a transaction. They, to my knowledge, do not have a specify project in mind nor a specific lender in mind a at this point.

The are audited every year (as are all similar institutions) whereby an estimation for the value of their real estate is calculated (much like replacement values performed by insurance companies -- it's really more of an accounting industry-based system). This, however, appears to be inadequate (and inadvisable) for other valuation needs anticipated in the not-so-distant future.

However, as I say, good point. I will get this nailed down in absolute terms / words since, as for one, it will need to be described in appraisal report itself.

___________________

George,

Good thoughts. I will give your post some additional thought, and maybe have some questions / comments before long.

By the way, I liked your recent post (today) in the Main Forum in the recent "Verification" thread started by Doug.

I hope we are not arming problem appraisers with their likely defense, but then, most of them probably do not frequent AppraisersForum too often, and the successful ones probably thought of that scheme long ago!

"Sure. Board Members, I agree those are much better comps -- I just could not get them verified. Honest, I called I don't know how many times, In fact..."

dcj
______________

PS: I generally try to stay away from plagiarism (i.e., except when absoluely necessary or when convenient), but I am afraid I am going to have to hit you up for one line in particular:

"...and we're going to run into a huge disconnect
between our requirements and our reality..."

Nice.</span>
 

bradellis

Member
Joined
Jan 16, 2002
David,

Sorry- did not realize it was private. Guess I just assumed it was public as I thought you have been involved in public work. If is is private, then GASB will not apply- obviously.

You can get the GASB stuff on line, but I think you need to buy a subscription- at least from the source I found- but then I am NOT a great on line researcher. It is probably posted free somewhere.

Brad Ellis, IFA, RAA
 

xmrdfghap

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Florida
<span style='color:brown'>Unless there is some specific reason for it to be valued "in use" I would not do it. When the bankers/financiers look at the project they are going to want a separate line item(s) on the balance sheet dealing with the value of capital assets/capital investments. The books will be evaluated by accountants and a value of profitability will be established there. We are talking the value of the physical plant only. And, as there are few if any private sales of universities, and no one leases one for short or long terms (and if people did, getting hard verifiable data might be a problem) I would depend on the cost approach.</span>
 
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