National Media Placement- BEHIND BARS- Valuation Magazine-2013
Published on: Mar 3, 2016
Transcripts - National Media Placement- BEHIND BARS- Valuation Magazine-2013
COURTING ATTORNEYS HUMANITY PROJECTS❘ VALUING A BED CONTRACTOR ORTHE BASICS OF LOBBYING
VALUING HABITAT FOR & LITIGATION WORK ❘ INDEPENDENT & BREAKFAST ❘ EMPLOYEE: WHO DECIDES?
INSIGHTS AND PERSPECTIVES FOR REAL ESTATE APPRAISERS
THE HIDDEN CHALLENGES
OF APPRAISING MARINAS
VALUATION 2Q 2013
FRONT LINES Stories and insights from the field
Challenges abound when appraising
a maximum-security prison
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
TAYLOR, communications manager, Appraisal Institute
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,”
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
has more than
35 years of
real estate and
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
applicable for this assignment
because a prison is not run as
an economic engine like most
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
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,”
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?
“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