IN THIS
ISSUE
COURTING ATTORNEYS HUMANITY PROJECTS❘ VALUING A BED CONTRACTOR ORTHE BASICS OF LOBBYING
VALUING HABITAT FO...
VALUATION 2Q 2013
FRONT LINES Stories and insights from the field
BEHIND BARS
Challenges abound when appraising
a maximu...
www.appraisalinstitute.org
applicable for this assignment
because a prison is not run as
an economic engine like most
com...
of 3

National Media Placement- BEHIND BARS- Valuation Magazine-2013

Published on: Mar 3, 2016
Published in: Business      Economy & Finance      
Source: www.slideshare.net


Transcripts - National Media Placement- BEHIND BARS- Valuation Magazine-2013

  • 1. IN THIS ISSUE COURTING ATTORNEYS HUMANITY PROJECTS❘ VALUING A BED CONTRACTOR ORTHE BASICS OF LOBBYING VALUING HABITAT FOR & LITIGATION WORK ❘ INDEPENDENT & BREAKFAST ❘ EMPLOYEE: WHO DECIDES? VALUATION SECOND FIRST QUARTER 2013 INSIGHTS AND PERSPECTIVES FOR REAL ESTATE APPRAISERS ON THE WATERFRONT THE HIDDEN CHALLENGES OF APPRAISING MARINAS APV-017
  • 2. VALUATION 2Q 2013 FRONT LINES Stories and insights from the field BEHIND BARS Challenges abound when appraising a maximum-security prison By MICHELLE A cell block in the Thomson Correctional Center in Thomson, Ill. Thomson was built in 2001, but budget troubles kept it from fully opening. © M. Spencer Green/ /AP/Corbis 10 TAYLOR, communications manager, Appraisal Institute G ary DeClark, MAI, managing director of Integra Realty Resources — Chicago Metro, remembers well his work on the Thomson Correctional Center in Carroll County, Ill. It was one of the trickiest valuation assignments he and his associate, Denis Gathman, MAI, undertook. “Our real challenge was understanding and defining the market for a vacant prison,” DeClark says. “Who is the likely buyer for this thing?” DeClark specializes in hard-to-value properties and was hired by the state of Illinois to appraise the 12-year-old, but never-really-opened, maximumsecurity prison in 2011. The $140 million Thomson Correctional Center was completed in November 2001 and has remained mostly empty ever since. A few inmates eventually were moved into a small 200-bed minimum-security unit, but the prison’s 1,600 maximum-security beds were never used — the state said it couldn’t afford to staff the complex. In April 2010, the minimum-security inmates were relocated and the state officially closed the already closed facility. DeClark was hired to perform the valuation because, surprisingly, there was an interested buyer. The federal government expressed interest in purchasing the 15-building complex with plans to house Guantanamo Bay detainees within the facility once the detention center in Cuba was closed. It was fortuitous that the federal government was the interested party because when DeClark and Gathman set about defining the market for this moth-balled property, the list of potential buyers was short. “Who can you add to the list right away? There’s virtually no one,” DeClark says. In fact, DeClark identified only two possible buyers: 1) a real estate investment trust if a sale-lease back with the government could be achieved, or 2) a government entity. DeClark didn’t consider the market for REITs to be strong Gary DeClark, MAI, managing director of Integra Realty Resources — Chicago Metro, has more than 35 years of commercial real estate valuation experience. His specialties include unusual real estate and complicated valuations. enough to support the first option so the government option — either state or federal — was the de facto choice. “It was highly unlikely that it would be purchased by an adjacent state so that pretty much just left the federal government as the only possible buyer,” DeClark says. A limited buyer pool wasn’t the only factor limiting the facility’s market. It was located in a rural community and there were no interstate highways providing ready access to the prison. This issue wasn’t just one of convenience, but one of security. Law enforcement would have to transport inmates to the prison using local roads and thoroughfares — certainly not the ideal setup for a massive prison complex. Use Cost Approach for Unique Properties When developing their opinion of value, DeClark and Gathman used the cost approach, which DeClark says is the most frequently used method for hard-to-value properties. The sales approach can be difficult to use for unusual properties because their uniqueness often makes it difficult to find relevant comparables — although DeClark’s research turned up two prisons built during the previous five to seven years that were used as cost comps but not as sale comps. The income approach wasn’t
  • 3. www.appraisalinstitute.org applicable for this assignment because a prison is not run as an economic engine like most commercial properties. Working on the valuation over a two-month period, DeClark and Gathman visited the prison (what struck them the most, DeClark says, was the massive kitchen — designed to serve up to 9,600 meals each day), and employed experts to verify the building area and to confirm costs. Eventually they configured four different cost scenarios. In the end, the Obama administration’s plan to transfer refugees from Guantanamo Bay to Thomson Correctional Center was rejected but the Fed closed the deal for $165 million in October 2012 — with the caveat that it would not be used to house military prisoners. Instead, it will be operated by the Federal Bureau of Prisons and house the bureau’s own inmates. Filling a Niche DeClark says there are two main reasons he specializes in hard-to-value properties. The “ he more unusual a project, the less T concrete you can be and the less concrete your associated fees can be … I always seem to hear about the unusual ones.” —GARY DECLARK, MAI first is the intellectual stimulation — excitement mixed with some frustration — that comes with doing something unusual and challenging. “I do my homework and learn as much about a market as I can,” he says. “That’s just a good business technique regardless of who you are and what project you’re working on.” The second reason is word-of-mouth. “I always seem to hear about the unusual ones,” he jokes. DeClark says the hard-to-value properties typically require an extensive amount of preliminary research — much more than traditional building types — in order to get a thorough understanding of the project. And when an opinion of value is finally developed? ADVERTISEMENT “More often than not, it isn’t necessarily that your opinion is deemed correct because it’s just that — your professional opinion — but it’s whether or not your opinion can logically be defended.” Unusual properties also can complicate DeClark’s approach to appraisal fees. “The more unusual a project, the less concrete you can be and the less concrete your associated fees can be,” he says. At the start of each project, his strategy is to examine the stages a project should follow, establish targets he must hit and then assign a fee for each target once it’s reached. He says this arrangement makes him more of a consultant who just happens to be working on a valuation assignment. 11

Related Documents