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JUST COMPENSATION WHEN LAND IS USED FOR A RELOCATED PROPERTY FEATURE S. Steven Vitale, MAI [email protected] 262-782-7990 valbridge.com
JUST COMPENSATION WHEN LAND IS USED FOR A
RELOCATED PROPERTY FEATURE
S. Steven Vitale, [email protected] valbridge.com
Severance Damages• Per Eaton, severance damages are the
“diminution of the market value of the remainder, in the case of a partial taking, which arise (a) by reason of the taking (severance) and/or (b) the construction of the improvement in the manner proposed.”
• Appraisal Institute Dictionary of Real Estate says severance damages are “generally used to mean those damages to a remainder property that are compensable.”
• WI Jury instructions state “Severance damages reduce the fair market value of the remaining property because of the partial taking.”
Consequential Damages• Per Eaton, consequential damages are damages
“arising as a consequence of a taking and/or construction on other lands.”
• Generally non-compensable.• Certain items challenged at times such as noise,
dust, odors, damage to business, frustration and loss of goodwill.
Cost to Cure• Applied when remainder has suffered damage
that can be corrected, both physically and economically.
• Cost to cure cannot exceed diminution of value as uncured After Value.
• Uncured After Value frequently very difficult to measure accurately due to lack of appropriate market data.
Cost to Cure• Per Eaton: If a property with a
deficiency is placed on the market, both the buyer and seller will consider the cost to cure the deficiency, if it is physically and economically curable. The price at which the property will sell is the value of the property as deficient or the value of the property without the deficiency minus the cost to cure the deficiency, whichever is higher.
Surplus vs. Excess LandDictionary of Real Estate Appraisal, 5th Edition
Surplus Land• Land that is not
currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.
Excess Land• Land that is not needed
to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land may have the potential to be sold separately and is valued separately.
Hypothetical Example A
Before Value- 40 acres, 200,000 SF Bldg., 800 car parking lot - Includes 30 acres of landscaped surplus land
Value Unit ValueLand $4,000,000 $100,000 per acreImprovements $10,000,000 $50 per SF of Bldg.Total $14,000,000 $70 per SF of Bldg.
Hypothetical Example A
After Value - Uncured- 37.5 acres, 200,000 SF Bldg., 400 car parking lot - 30 acres of landscaped surplus land- Lost 2.5 acres and 400 parking spaces or 50% parking
Value Unit ValueLand $3,000,000 $80,000 per acreImprovements $6,000,000 $30 per SF of Bldg.Total $9,000,000 $45 per SF of Bldg.
Hypothetical Example A
After Value - Uncured- 37.5 acres, 200,000 SF Bldg., 400 car parking lot - 30 acres of landscaped surplus land- Lost 2.5 acres and 400 parking spaces or 50% parking
Value Unit Value % ChangeLand $3,000,000 $80,000 per acre -20%Improvements $6,000,000 $30 per SF of Bldg. -40%Total $9,000,000 $45 per SF of Bldg. -36%
Hypothetical Example A
Cost to Cure- $1,000,000 to replace parking lot on own site
Just Compensation- Value of Part Taken: 2.5 acres @ $100,000 per acre = $250,000- Cost to Cure = $1,000,000- Total Compensation = $1,250,000
After Value As Cured - $13,750,000 ???
Hypothetical Example B
Before Value- 12.5 acres, 200,000 SF Bldg., 800 car parking lot - Includes 2.5 acres of landscaped surplus land
Value Unit ValueLand $1,250,000 $100,000 per acreImprovements $10,000,000 $50 per SF of Bldg.Total $11,250,000 $56 per SF of Bldg.
Hypothetical Example B
After Value - Uncured- 10 acres, 200,000 SF Bldg., 400 car parking lot - Includes 2.5 acres of landscaped surplus land- Lost 2.5 acres and 400 parking spaces or 50% parking- Building now non-conforming and cannot be expanded
Value Unit ValueLand $800,000 $80,000 per acreImprovements $6,000,000 $30 per SF of Bldg.Total $6,800,000 $34 per SF of Bldg.
Difference -$4,450,000
Hypothetical Example B
After Value - Uncured- 10 acres, 200,000 SF Bldg., 400 car parking lot - Includes 2.5 acres of landscaped surplus land- Lost 2.5 acres and 400 parking spaces or 50% parking- Building now non-conforming and cannot be expanded
Value Unit Value % ChangeLand $800,000 $80,000 per acre -20%Improvements $6,000,000 $30 per SF of Bldg. -40%Total $6,800,000 $34 per SF of Bldg. -40%
Difference -$4,450,000 -40%
Hypothetical Example B
Cost to Cure- $1,000,000 to replace parking lot on own site- Which is Less than Difference of Before and Uncured After ValueAdditional Costs:- Owner buys adjacent 2.5 acres for $500,000- Spends an additional $100,000 to landscape new parcel- Property is once again code compliant
Hypothetical Example B
Just Compensation$250,000 Value of Part Taken (2.5 acres @ $100,000 per acre = $250,000)
$1,000,000 Cost to Cure (New Parking Area = $1,000,000)$1,250,000
Hypothetical Example B
Just Compensation$250,000 Value of Part Taken (2.5 acres @ $100,000 per acre = $250,000)
$1,000,000 Cost to Cure (New Parking Area = $1,000,000)$1,250,000
PLUS ???
Hypothetical Example B
Just Compensation$250,000 Value of Part Taken (2.5 acres @ $100,000 per acre = $250,000)
$1,000,000 Cost to Cure (New Parking Area = $1,000,000)$1,250,000
PLUS ???$500,000 Cost to Purchase Additional 2.5 acres of Land $100,000 Cost to Landscape New Land$600,000 Compensable ???
$1,850,000 Total Compensation
Hypothetical Example B
After Value As Cured - $13,750,000 ???
Other Examples
• 100 unit apartment complex• 12 acre parcel• 2 acres being acquired (landscaped surplus land)• No loss of parking or impact of functional utility
Apartment Example
• 100 unit apartment complex• 12 acre parcel• 2 acres being acquired (landscaped surplus land)• No loss of parking or impact of functional utility• However, site allows density of 10 units per acre (12 acres x
10 units/acre = 120 units)• Owner had intended to add an additional 20 units
Apartment Example
Apartment Example
Before Value- 12 acres, 100 apartment units- Includes 2 acres of landscaped surplus land- $60,000/unit x 100 = $6,000,000 via SCA
Apartment ExampleBefore Value
- 12 acres, 100 apartment units- Includes 2 acres of landscaped surplus land- $60,000/unit x 100 = $6,000,000 via SCA
- Allocated as follows:
Value Unit ValueLand $1,200,000 $10,000 per unit (as permitted)Improvements $4,800,000 $48,000 per unit (as exists)Total $6,000,000 $60,000 per unit (as exists)
Apartment ExampleAfter Value
- 10 acres, 100 apartment units- Includes no surplus / expansion land- Complex still conforming but cannot be expanded- $59,000/unit x 100 = $5,900,000 via SCA
- Allocated as follows:
Value Unit ValueLand $1,000,000 $10,000 per unit (as permitted)Improvements $4,900,000 $49,000 per unit (as exists)Total $5,900,000 $59,000 per unit (as exists)
Apartment ExampleJust Compensation
$6,000,000 Before Value$5,900,000 After Value
$100,000 Difference
Plus any improvements on area taken?
• 15,000 SF drugstore built 2 years ago. 20 year lease; 18 years remain. Triple net lease with $25.00 psf rent (15,000 SF @$25.00 psf = $375,000 annual net rent)
• 4 acre parcel• 1 acre being acquired (landscaped surplus land)• No loss of parking or impact of functional utility
Drugstore Example
• Before Value – Fee Simple vs. Leased Fee?– Sales Comparison Approach
• Based on comparable sales, but really driven by Income Approach• $375,000 ÷ 6.0% = $6,250,000 or $417 psf
– Allocation of Value:• Land (4.0 acres at $400,000/ac.): $1,600,000• Improvements: $4,650,000• Total: $6,250,000
Drugstore Example
• Just Compensation– Land (1.0 acre at $400,000/ac.): $400,000– Site Improvements: $20,000– Total: $620,000
• After Value (Fee Simple vs. Leased Fee)– No change to lease or income stream– Sales Comparison Approach (But really driven by Income Approach:
$375,000 ÷ 6.0% = $6,250,000 or $417 psf)– Allocation of Value:
• Land (3.0 acres at $400,000/ac.): $1,200,000• Improvements: $5,050,000• Total: $6,250,000
Drugstore Example
Other Issues
Other Issues
• Dehydration• Hunger• Thirst
The End … Thank YouS. Steven Vitale, [email protected] valbridge.com
