Valuation of Wastewater Treatment Plants

[pbursler]

Does anyone have information on the best methodology to utilize in valuing a wastewater treatment plant? I understand it's always to be done as a going concern. What components are included in the typical going concern for this type of property? Also, is it most effective to do a DCF versus a DSO (based on absorption of EDU's)?

 

[Timothy Hogan]

Waste Water Plants.

The way I used to do them when I worked for a national company was based upon the cost approach. I have done 12 of them and each time we valued them based on what the value of the improvement were after depreciation, and the value of the land. Due to the nature of them we were never able to find sales of them, however we would be abole to find construction cost of them from construction firms that built them.

 

[pbursler]

Thanks, Tim, for your input. Did you do an income approach on them, either through a direct cap., dcf or perhaps a discounted sell-off for a proposed plant?

 

[Timothy Hogan]

Wastewater Plants

With the reports that we did, a income approach was not done. The reason for this is that they were owned by a goverment enity. The tax dolllars one pays for property tax paid for the employess and operation of the plant.

 

[PropertyEconomics]

Man ... what a crappy job. :new_smile-l:

 

[Vernon Martin]

I think it would depend upon the purpose of the appraisal. I hope it's not going to be collateral for a loan, because if it is, the cost approach alone would not suffice.

 

[Restrain]

As a theoretical question, I think the value would be dependent on a lot of factors. If the plant is part of a private development (which is common around here), the value could be obtained any number of ways. We have talked about the cost approach. You would have the income from the fees for the system. You would have the effect on the value of the housing should the plant not be there (septic system costs, permits, etc).

Such properties would have a value beyond the basic cost in that its presence affects all the properties served.

Just something to think about.

 

[Stephen J. Vertin MAI]

I have done them and based value on income capitalization. The preferred method is DCF. They are simply income generating entities. Wisconsin puts all operating expense information for most systems in the state on the Internet (comparable operating expenses). Sewer fees can be obtained by comparing to similar communities. Many of these systems are bought and sold to private businesses. These are very complicated appraisals due to easements used and owned in operations. Many of these appraisals have substantial extraordinary assumptions (as someone said depending on scope). The last one I did in 2006 I charged $25,000. To do a good job it takes at least a month. Let me stress these appraisals are not something you should try to figure out yourself. They are among the most complicated in the business. If you simply do a cost approach you have preformed the report using incorrect appraisal methodology. If someone on your state board knows how to do them and see you are simply performing a cost approach you will get your license yanked. There are sales; however, most are national. We have always done three approaches with most reliance on income.

 

[pbursler]

Thanks for the advice. My project is a proposed regional system to be privately held. As such, the bank is requesting a value "as complete" and not a going concern value. With that in mind, I've put together a cost approach and I'm thinking that a discounted sell-off, based on the anticipated sale and absorption of EDU's might serve best to accomplish this goal. I've located a couple of national sales of wastewater treatment plants, but is there a national database or other source where good information can be found regarding similar sales? I'd prefer to show all 3 approaches, if possible.

 

[nauthead]

http://www.precontanks.com/

http://www.cromcorp.com/

You might try contacting one of these companies. I bellieve both cover the Maryland area and they may be willing to provide you with some data for the report. PM me and I may be able to help you get in touch with some of the salesmen for Crom.