First a note about this series. To the extent I can, I am using public information for the basis of these posts - for example, I quoted extensively from the PN&C yesterday under the assumption that they have done their own fact finding. I also quote extensively from past EDA strategic plans, which I have downloaded from the Page County site and read for myself. I've added analysis - just simple math really, since I have avoided learning calculus all my life - where I needed to. On top of that are anecdotes about my attempts to do business in the County, and then there are my opinions.
This background was necessary because today I want to talk about the valuation of Project Clover.
There is some news on WHSV about a letter that was sent to the Board of Supervisors by an attorney that has been retained by a local Page County citizen who is concerned about Project Clover. I will post more on the substance of the letter tomorrow, but an appraisal of the value of Project Clover was also included.
The letter mentions an appraised valuation of $2.5 million for the Project Clover land, based on its recent zoning reclassification. Recall that the EDA/Page County has agreed to pay $7.5 million for this property.
I've heard that there were other appraisals done, including one by the current owner, as the property was being brought to market. I understand this showed a lower value, based on the then-current agricultural use of the land. I haven't seen that appraisal, so I can't state the published value.
I understand that EDA also had an appraisal done; I haven't seen this appraisal either so won't offer the value that was evaluated. However, it is reasonable to think it must have justified the purchase offer of $7.5 million and provided the basis of the USDA loan application process.
So here we have three valuations, that widely vary. You could take the high one and justify the $7.5 million. Or you could take the low one and be exposed for making a bad deal. Or this new one, which suggests the overpayment was around $5 million. All of this comparison - the wide range of values - introduces an element of risk to the financial proposition for the County. If it is a bad deal, the taxpayers are going to be left hanging - either because they have to pay, or in the case of a default, because future projects won't get financing. How do you resolve a problem like this?
I understand that Lowell Baughan gave a talk at a local fraternal organization following the receipt of the attorney's letter and the appraisal. He questioned the appraisal methodology and valuation. He states a preference for a type of appraisal endorsed by MAI, one of several professional associations that advise on appraisal processes and offer a certification for appraisers. He also questioned the comparables listed in that appraisal, which is fine, they're fair game.
This called to mind some discussions I had recently with a bank when I was thinking about some commercial property in Page County. The bank had set a price on this property of $1.4 million, and they shared with me a list of a half dozen or so similar properties that they had used as the basis of this price.
When I did my due diligence on this, I came up with a purchase price of $1.1 million, based on 2x property revenues (an industry standard I found during my research) and the price of a very similar property on the market in another county.
The bank questioned my findings - they said that comparable properties had to be within 20 miles of the commercial property I was looking at. That had kept the list small, limited the comparisons to properties that didn't exactly match the one I was looking at, and probably was the source of the inflated valuation. In the end, the bank ended up buying this property from itself at the asking price of $1.4 million since no bidders came forward at their reserve price...a pity, because that place will sit vacant now until it sells, hardly doing anybody any good, least of all the Page County community.
This annecdote is what came to mind immediately when I learned about Lowell's comments to his fraternal organization. Comparing values is a fairly challenging proposition - there should properly be a geographic restriction on the search for comparable properties, and allowances need to be made for amenities available on the property being evaluated for comparison purposes.
I'd suggest this takes industrial properties in H-burg, Woodstock, New Market, Elkton, and Front Royal out of the question for comparison for Project Clover. They have easy access to good highways, important since the only way into Clover is by truck - rail transport there is transient on the way to the inland port, and no business is going to pay to transfer goods on and off a train unless there is a market at the siding, or raw materials are processed and added to the goods there.
All this to say, if Lowell Baughan has questions about this valuation, he should get a new one done. The request for this appraisal should be via public RFP so that it is done on a transparent basis. The appraisal should evaluate and reconcile the previous ones that come to disparate conclusions. Questioning this latest one and speculating on the methodology doesn't add any facts that will help the community one way or another in its quest to evaluate whether Clover is a good deal.
If Lowell is the kind of business person he wants us all to believe he is, he needs to take steps like these to repair his credibility with a large share of the County who apparently don't agree with him.
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