The height and density of the proposed multi-use project in the hub of what is perhaps Culver City’s busiest commercial and industrial center should have been factored into the land appraisals, according to various independent real estate professionals.
"Real value is all about how much income you can generate on a particular property," Maurice Robinson of Robinson & Associates LLC, an El Segundo-based appraiser, told the News this week. When calculating the value of land that will be developed for a particular purpose, "it’s not the land as much as the income that can be produced on it," Robinson asserted.
Other real estate appraisers who have extensive experience in the discipline of assessing the value of commercial real estate all maintained in interviews that unimproved land, or land that has not been developed, like the Warner lot, is more valuable with a high-density development – and subsequently could command more money on the open market.
The Warner parking lot, which business owners and employees of the Hayden Tract, along with their clients, have used for nearly 50 years, was sold to developer Fredrick Smith on March 27 this year for approximately $5.5 million. City officials and proponents of the sale have vigorously stated that the abovementioned figure was the fair market value of the land and that Smith, a creative and dynamic entrepreneur, was not given a discounted rate. The developer’s plans call for an ambitious artistic and commercial venture, with three live theatres, retail, restaurants and five levels of subterranean parking.
"Appraisals were done on the land to determine its value, and [nearly $5.5 million] is the price that both parties agreed to," said Todd Tipton, administrator of the Redevelopment Agency in August.
A brokerage agent who conducts business affairs in Culver City, along with others, believe the local government could have sold the property for considerably more than the $5.5 million price tag. "[The Warner lot] could have sold for greatly more per square foot than what the city is selling it for today," James Jacobson told the City Council at the March meeting.
One of the reasons that the Community Development Department has been successful in bringing in many revenue-generating businesses to Culver City is "partly due to the fact that you guys are very business-friendly," Jacobson commented. But one of the main ingredients that was not provided for was the height of the project, which is slated to be 152 feet at its highest point, he said. "When you double the height of the project, many developers would be willing to pay more for the land," the brokerage agent contended.
F. Ronald Rader, who is the executive vice-president and partner of a commercial real estate corporation, the Klabin Co., told the council that he feels Smith "has made a lot of positive contributions to the Hayden Tract and [the theatre complex] has the potential to be another positive contribution," but also believes that if parking is less available during construction, "property values in the Hayden Tract will be greatly diminished."
In a later interview, Rader said: "In my personal opinion, if the parking lot was listed by a broker, the city could have achieved at least $100 per square foot." The lot was sold for $72 per square foot, according to Cox, Castle & Nicholson, a Century City-based law firm with vast experience in real estate and environmental land use matters. The firm has sued the local government to invalidate the controversial land deal. In documents filed in Los Angeles Superior Court in May, the lawsuit accuses Culver City of not properly advertising the parking lot for sale, failing to conduct a proper environmental review and – a primary complaint of the transaction’s detractors – selling the land for less than market value.
Kim Kathleen Kearney of K3 Investments of South Pasadena believes that an appraiser should consider any potential pending development, particularly one that has the potential of a high density, when evaluating an unimproved property. "If a [commercial venture] might come to pass, then that is something that definitely should be addressed," Kearney, who has been involved in real estate appraisals and sales for more than 20 years, said.
Gary Valentine of Valentine Appraisal & Associates, a real estate appraisal firm, conducted the most recent evaluation of the Warner lot on behalf of the city and put the value of the land at $5 million. "Based on the data and conclusions in this report, and based on my experience in the field of real estate reporting, it is my opinion that the fair market value of the subject property, as of Sept. 7, is $5 million," Valentine wrote to the redevelopment department on Sept. 14, 2005.
Prior to Valentine’s appraisal, the city had another evaluation done on the Warner lot by BTI Appraisals of Los Angeles. "It is our opinion, base on the data and analysis contained in the accompanying report, the simple fee market value of the [Warner lot] as unaffected by the purchase and sale agreement is $5,457, 600," the May 1, 2005 report reads.
Valentine’s appraisal lists the size, a physical description of the property, a visual review of the comparable properties, shape, zoning, an analysis of regional and neighborhood trends and value of the lot.
While the appraiser does not specifically discuss the proposed development, tentatively called the Conjunctive Points Theatre Complex, he does refer to "lifestyle centers," such as shopping centers like the Grove in Los Angeles and the Paseo Colorado in Pasadena.
In his appraisal report, Valentine discusses the best possible use for the land as vacant and improved. Valentine also appears to anticipate that Smith was planning a multi-use project on the site. "It is my experience that surface parking lots are generally an interim use and are typically underutilizing the full potential of the subject property," Valentine wrote. "As such, it is my opinion that the highest and best use of the subject property, as improved, is to demolish the existing improvements and construct a new light industrial or multi-use development on the site."
Valentine did not include a separate report of what the parking lot might be worth with such a project.
Kearney would have prepared a hypothetical market value detailing the potential value of the development. "It is something that I would have talked about with the client," she explained. "You make certain that you list it as a hypothetical market value and consider the entitlements and the zoning provisions. In my opinion, that would be the best way to proceed," Kearney, who has worked on real estate sales involving unimproved property like parking lots, said. She noted that it is "not uncommon" for appraisers to include a hypothetical market value appraisal in their report if they know that there is the possibility of a project in the works. In the case of the Hayden Tract appraisal, the South Pasadena appraiser feels that a hypothetical market value appraisal based on the size and scope of the Conjunctive Theatre Complex "would have given the city a better comparison."
Robinson believes that Valentine used the standard approach when using comparables, which is a method of comparing similar properties that have sold in a specific area. "By comparing recent sales in the area, that gives you a general idea [of the worth of a particular property]," he said. He thinks that between "five to 10" appraisals constitute a fair estimate. In his appraisal, Valentine included 10 such comparables, ranging from two to seven miles south of the Warner lot in Los Angeles to El Segundo, seven and a half miles away. Of the 10 sites listed in the report, two were larger than the 85, 275 square feet Hayden Tract parcel. "In an area like Culver City, there should be several sales within a mile or two," Robinson asserted.
All of the appraisers interviewed were firm in their belief that a project like the Conjunctive Theatre Complex would make the lot much more valuable. "Overall, a higher density property would be more valuable to the developer," Kearney said.
"Real value isn’t so much about the amount of the land or the worth of a rental building; it’s about how much you can put on it and how much income you can generate," Robinson added.
Valentine, contacted at his Santa Clarita office, declined to comment specifically on his report, citing client confidentiality. "As a certified appraiser, there are certain documents that we must keep confidential," he said. "My relationship with my client is one of ethical responsibility, and I take that very seriously."
Kearney agreed that appraisers have an ethical duty to keep their client’s confidentiality. "Unless the client gives their permission, we are required to maintain their confidentiality about certain things, like appraisals," she confirmed. Kearney added that an appraiser could discuss general questions about a land evaluation, which Valentine declined to do.
Robinson feels that an appraisal report that did not take into account a known anticipated development would not be an accurate assessment of the land’s value. "It would be misleading if an appraiser took a few pieces of land and compared them without considering the [planned development]," the realtor said.
Rader has taught courses on a national basis on behalf of the Society of Industrial and Office Realtors and is a past president of the American Industrial Real Estate Association. Valentine, Kearney and Robinson are listed as accredited appraisal experts in real property by the American Society of Appraisers, an independent organization of appraisal professionals. Each accredited member of ASA has earned a professional designation in one or more specialized areas of appraisal.