Sensitivity Analysis For GLA

[Joe Flacco]

I am not questioning your level of due diligence or experience George. Don't get mad. I think very highly of you.

I think what I am saying makes a lot of sense based on the not only the lot sale data but all the data. No need to get defensive. I am just telling you what I am observing which you may or may not have thought about.

 

[Joe Flacco]

I debate and argue with you because you are George Hatch. I am not going to waste my time arguing with idiots.

 

[George Hatch]

It is like that lot on Stevens trading for $430k and the adjacent lot fronting New York Ave trading for $330k. That adjacent lot trades for $330k because the developer is anticipating a lower sale price when new home is built.

First, do you recall how many times I commented that the site on Stevens is the high sale for its type? Or that I knew there were other sales besides the ones we've already talked about and that you were going to like them even less when it comes to identifying the contributory value of older homes? Or that I commented that the Stevens lot included some additional site improvements that are not commonly included in vacant lot sales in this region?

All you've done is demonstrated the point that the difference between the pre-terraced and leveled lots isn't $300k, that the $320k lot value on New York yields an even higher residual to attribute to the 60-yr old improvements on the other nearby properties with existing homes, and that Stevens is still your best case scenario for small parcels in Glendale that don't include plans.

If anything, the sale on New York gets compared to the site+plans combo on Ethel to demonstrate the effect on value of the difference in location (look at the neighborhood on Ethel) and the plans. And not even Ethel (inclusive of it's plans and approvals) gets close to the $600k for site value you would get via "land value by extraction" on Verdugo.

 

[Joe Flacco]

First, do you recall how many times I commented that the site on Stevens is the high sale for its type? Or that I knew there were other sales besides the ones we've already talked about? Or that I commented that the Stevens lot included some additional site improvements that are not commonly included in vacant lot sales in this region?

All you've done is demonstrated the point that the difference between the pre-terraced and leveled lots isn't $300k, that the $320k lot value on New York yields an even higher residual to attribute to the 60-yr old improvements on the other nearby properties with existing homes, and that Stevens is still your best case scenario for small parcels in Glendale that don't include plans.

To me the Verdugo location and the Stevens location are different locations. Maybe there is no difference between the locations but based on what I know about urban areas, I wouldn't consider them to be the same location without getting to know more about the area. I mean Zillow is all I got.

I think you are missing the point I am trying to make which is that the lots in those areas trade for what they do because that price is what makes new construction feasible. The developers back into that lot sale price based on what they can get when they complete construction.

 

[George Hatch]

I dunno if I've mentioned this yet or not, but when I got involved with this assignment I initially expected the site values to be higher in this area given the pricing of the existing homes. I started out thinking one thing and ended up thinking something else. Which as I understand it, speaks to the value of deferring more to the appraisal process and less to my own opinions and biases.

 

[Joe Flacco]

I think that you believe that lot sales are always the best indicators of site value as a hard rule. The fact that I am open to considering other methods is not deferring to my own opinions and biases. That is being open to different ways of looking at the appraisal problem and putting it all together. That is the appraisal process. I would probably say that believing that lot sales are always the best indicator of site value as a hard rule is a opinion and bias.

 

[George Hatch]

To me the Verdugo location and the Stevens location are different locations. Maybe there is no difference between the locations but based on what I know about urban areas, I wouldn't consider them to be the same location without getting to know more about the area. I mean Zillow is all I got.

I think you are missing the point I am trying to make which is that the lots in those areas trade for what they do because that price is what makes new construction feasible. The developers back into that lot sale price based on what they can get when they complete construction.

That would be a land development model, which generally serves to establish the maximum for which a builder could pay and still clear a profit. But those models usually include consideration of the various contingency factors, holding costs, lack of liquidity and changes in market conditions that go along with land development. If it takes 12-18 months of holding costs and opportunity costs to develop plans and obtain approvals those costs are part of the development process, not the land value. It's one reason the location multipliers can vary so much from one jurisdiction to another, even within the same MSA.

Besides a land development model there remains the principle of substitution upon which the Sales Comparison is based. The buyers for each of these sales on Ethel, 2561 Verdugo, Stevens and New York would have been aware of their competing alternatives and it is my assumption that they all priced their decisions accordingly.

I could tell them all they're wrong and that they should all have paid more, but IRL I just don't care enough about preserving property values or promoting growth to advocate for those trends. I prefer to stick to my role as the outside observer.

 

[George Hatch]

I think that you believe that lot sales are always the best indicators of site value as a hard rule. The fact that I am open to considering other methods is not deferring to my own opinions and biases. That is being open to different ways of looking at the appraisal problem and putting it all together. That is the appraisal process. I would probably say that believing that lot sales are always the best indicator of site value as a hard rule is a opinion and bias.

Well, I can certainly appreciate the idea that you will work extra hard to return a good result. But in all fairness I DID tell you that I initially became aware of the specifics on Willalee and the pricing of the older homes in these areas because I was considering the various alternatives in my normal valuation process. I commonly find land sales by looking at the existing properties to see what did and didn't get redeveloped. That's one of those habits you pick up after appraising land for various uses over the last 30 years.

 

[Joe Flacco]

Yeah. So the fact that the properties are not being redeveloped is telling you that redevelopment is not feasible. It is not telling you that site values are much lower because some vacant lots in the area traded for a lot less.

Redevelopment is not feasible. It is not that 60 year old homes contribute $300 per SF.

 

[George Hatch]

Concepts and principles. Forget the specifics of these structures and simply consider the situation in the macro. This is a simple HBU analysis.

It should be self evident that if it's not economically feasible to redevelop a lot with existing improvements it is because those existing improvements add to the value of the site as if vacant. The "why" for that situation is not as germane to the valuation of the property as the "what".

REL is an economic construct, not a strictly physical construct as such.