Email to Brian Dalke; GY’s Venida Office Appraisals Don’t Add Up


Today I sent the email below to Brian Dalke, Goodyear Interim City Manager.

The gist of the email is two fold.

  1. Goodyear knew from their own appraiser’s report that they were paying “bonus” rent at $16 per sf before they accepted an appraisal commissioned by the seller which based some of it’s higher valuation on $15 per sf rent, not the $10-$12 per sf that the current site advertises online or the $11 per sf that Goodyear’s own assessment described as current “market value”.
  2. The seller’s assessment, unlike Goodyear’s assessment, included more smaller sq ft. properties as comparisons as well as properties in Scottsdale and Tempe as comparisons.

As a result, Goodyear city council on Monday night approved going forward with the building purchase for a price that is $300,000 greater than the seller’s own market value assessment and is over $3 million dollars over Goodyear’s own assessor’s valuation even after including the $1 million dollar penalty for Goodyear paying over market rental rates.

Is it any wonder that Goodyear is broke?

The actual appraisals are attached at the end of this article if you would like to read them.

From: hdb
Date: Wed, Jun 27, 2012 at 1:35 PM
Subject: Venida Appraisals Inconsistencies
To: Brian Dalke <Brian.Dalke@goodyearaz.gov>
Cc: Wally Campbell <wally.campbell@goodyearaz.gov>, rtrott@westvalleyview.com

Mr. Dalke;
I have a few questions about inconsistencies in what you reported to city council in public vs what I have found after reading the appraisals for the Venida office park purchase.

You said in your presentation that you had “completed” two appraisals to come up with a purchase price of $12.2 million for the site based upon $12.8 million and $9.2 million dollar assessments by two different assessors.

You said that the primary differences between the two appraisals were that the lower one did not consider some vacant land, (about 3 acres), something about “leases”, and what you called “state of the market”.

It is my opinion that your statements about the appraisals are not completely supported by the facts.

Goodyear actually only commissioned one appraisal for the Venida Office Park purchase evaluation, not two, as your June 18 presentation implied.  The appraisal value from that appraisal was $9.1 million dollars using the “sales comparison” approach and $9.2 million using the “income” approach not just the $9.2 million you reported although the appraiser combined the two and arrived at $9.2. In addition, the first estimate from your appraiser was nearly $1million dollars less than that and he only increased it because as he clearly states in his assessment, “The city of Goodyear tenant is paying above market rent”, and this “bonus rent will continue until the city’s lease expires”.

The second appraisal that you “completed” was commissioned and provided not by Goodyear, but by the seller, Cornwell Corp.  And that appraisal was not $12.8 million dollars as you reported.  It actually had two values in it, but the appraiser did not combine them as in his first appraisal.  The $12.8 million dollar appraisal that Goodyear reported to the public was the “as stabilized” value. Barron’s real estate dictionary defines stabilized value as the value of a property “once it reaches a normal occupancy”.

The second appraisal value, that Goodyear failed to report to the public, was the “as is market value” and is defined by the seller’s appraiser as, “the most probable price which a property should bring in a competitive market”. That appraised value as provided by the seller’s own appraiser was only $11.9 million dollars.

In addition, the seller’s appraiser specifically disclaims the validity of any appraisal until the property is inspected and cleared of any hazardous waste contamination at the site.  The EPA’s Phoenix Goodyear Superfund site, PGA North Parcels appear to be only about 2,000 feet from the Venida business park. No contamination has yet been reported at the Venida site.

QUESTION NUMBER ONE
What I would like to understand is why, after commissioning a $9.1 million dollar appraised value, would Goodyear agree to pay $300,000 MORE than the seller’s own market value appraisal of $12.1 million dollars (should have read $11.9, not $12.1, my mistake, I do this part time and unpaid) and over $3 million more than Goodyear’s own appraisal. And this for property near a super fund site when that same property is advertized for lease at $10- $12 per sq ft?
Looking at the Seller’s appraisal, in their comparable sales data, they used office buildings in Phoenix, Tempe, and Scottsdale to come up with $12.4 million dollar value.He goes on to say that the current property is considered to be below stabilized and further adjusts the appraisal down to $11.5 million for more of a current market value amount.

In the income approach, the seller’s appraiser uses Goodyear’s current rental rates of between $16 and $17 per sf. Goodyear’s appraiser clearly states that these are “above market lease rate”. The seller’s appraiser also says that the vacant part of the building is “asking” $15 to $16 per sf.  But the current advertized rent for the vacant portions is actually only $10 to $12 per sf. In addition, in order to get to his “stabilized” $12.8 million estimate, the seller’s appraiser boosts the income approach to more attractive vacancy levels than the 35% that these buildings have experienced during their life. And most of the seller’s appraiser’s income approach comparables are in the 1,000 to 2,000 sq ft range not at all of the size of Goodyear’s lease size.

Goodyear’s appraiser came up with his initial sales comparison market value of only $8.2 million dollars. Unlike the seller’s appraiser, he uses properties that are mostly in the West Valley not in Scottsdale as the seller’s appraiser did. He then adds nearly a million dollars to that figure to come up with $9.2 million due to what he calls Goodyear’s “BONUS” rent that they are paying the landlord today.  That is, Goodyear’s appraiser thinks that Goodyear is paying the equivalent of $1 million dollars over market lease rates today that the current landlord would not be anxious to give up for the balance of the 50 months that Goodyear probably should not have agreed to.  So in essence, Goodyear’s previous over market deal is hurting Goodyear’s chances of obtaining a reasonable purchase price on the building.

In Goodyear’s appraiser’s income method approach, the same $1.0 million dollars is used to boost the appraised value from once again only $8.1 million to $9.1 million.

QUESTION NUMBER TWO
Knowing all of this from these appraisers, why would Goodyear agree to a $12.2 million dollar purchase value when they know (or should know) that one million of the value in their own $9.2 million dollar appraisal is from Goodyear’s own overpayment for rent, that the seller’s appraiser used smaller rental sizes and sites in higher rent areas like Scottsdale and Tempe to come up with his valuation and that he also over stated his income approach by using false information on the current asking lease rates on the building?  And as support for the lower lease rates, Goodyear’s own appraiser has established that current market rates for the building should be closer to $12 per sq ft, not the $16 per sf that Goodyear is paying.

Mr. Dalke, I look forward to your comprehensive reply since based upon what I have seen so far, you and/or your staff have demonstrated a lack of competence in this effort that is frankly nearly beyond belief.

Howard Brodbeck
Goodyear Resident

Appraisals; Turner Appraisal 1 of 2  Turner Appraisal 2 of 2  Lopez Appraisal 1 of 3  Lopez Appraisal 2 of 3  Lopez Appraisal 3 of 3

Advertisements

2 Responses

  1. Correct me if I am wrong but since Goodyear is getting a loan on this purchase would not the Bank or Lender do an appraisal? If so I would think that any issues would come out in that as to the right value.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: