Land Valuation

StuartGraduate School of Business: 

Stuart Graduate School of Business EM-515 Critical Asset Mapping & Management 14 APR 2005

Land ValuationLaw & Engineering: 

Land Valuation Law & Engineering Sheldon L. Epstein Epstein Associates – K9APE Law Office of S.L. Epstein ©2004- 2005

LOUISIANA PURCHASE1803: 

LOUISIANA PURCHASE 1803 800,000 Square Miles - 47% Bigger Than France $15 Million or ~ 3¢ per acre Doubled Size of the United States of America

COMPARISON CHART: 

COMPARISON CHART

OUTLINE: 

OUTLINE Myth Land Valuation Postulates Epstein’s Rules of Money Culture & History Boundary Definitions Paradigm Shifts Over Time Buyer v. Seller Impact of Government Trends Example – A Work In Progress

MYTH: 

MYTH Real Estate Professionals Are Fond Of Saying: The Three Most Important Attributes Affecting Property Values Are: 1. Location 2. Location 3. Location

Land Valuation Postulates: 

Land Valuation Postulates Land Is NOT Fungible All Site Attributes Being Equal, Valuation Is An Inverse Function of Risk Risk Comprises Two Components - Market Risk – Will They Buy? - Financing Risk – Can You Build? – Cash Flow? Children And Money Do Not Come With Instructions

EPSTEIN’S RULES OF MONEY: 

EPSTEIN’S RULES OF MONEY 1. The Property Is Worth What The Tenant Is Worth (Morris L. Epstein, 1947) 2. Never Finance Long-Term Commitments With Short-Term Money 3. Time/Risk Value of Money – Net Present Value (Exponential) 4. Subsidies Don’t Benefit Intended Beneficiaries 5. Always Keep A Cushion (Aunt Fanny Kaplan) 6. First Rule of Holes – Stop Digging (Rumsfeld) 7. When Using OPM – Always Candor

Culture & History - 1: 

Culture & History - 1 Cultural & Religious Impact On Land Valuation Talmud (Jewish) – Restrictions on Use Torah, Leviticus 25:1-34, 27:14-25 Canon Law (Catholic) – Fair Profit / Usury Shari`ah and Fiqh (Islam) – No Interest Buddhism, Hinduism, Shintoism - ? Governments – Ethnic Prohibitions How Do You Reach Agreement On Valuation Across Cultures?

Culture & History - 2: 

Culture & History - 2 MARKET DISTORTIONS Feudalism – King Owns Everything Communism – State Owns Everything Socialism – We Collectively Own Everything Fascism – They Stole It, We Own Nothing European Civil Law – Prohibited Unless Permitted English Common Law – It’s Your Castle U.S.A. Private Ownership – Ordinance of 1785 Some Combination In Every Country

PARADIGM SHIFTS: 

PARADIGM SHIFTS Ancient Mercantilism (18th C. Britain) Today – U.S.A.

ANCIENT: 

ANCIENT Boundary – F(x,y) Definition – Monuments & Landmarks (Trees, Streams) Measurement - Imprecise – Yards to Miles Z-Axis - Center of Earth to Heaven Transfer – Crown Grant, Inheritance, Military Conquest Money – Precious Metals (Coined & Uncoined) Valuation – Number of Persons Supported & Military Costs Ownership – Less Than 1% of Population - Citizenship Farm Families - ~95% of Population Travel Speed - ~3 M.P.H.

MERCANTILISM (18th C. Britain): 

MERCANTILISM (18th C. Britain) Boundary – F(x,y,z) Definition – Metes and Bounds Measurement – Chains, Theodolites – Inches to Feet Z-Axis – Mineral Rights Transfer – Inheritance, Sales Money – Bank Notes, Mortgages, Shares, Trusts Valuation – Yield or Productivity, Water, Trade, Location Ownership - ~5% of Population in Great Britain Farm Families - ~80% of Population Travel Speed - ~10 M.P.H.

TODAY – U.S.A.: 

TODAY – U.S.A. Boundary – F(x,y,z,t) Definition – Precision Survey Measurement – GPS Receiver – Millimeters Z-Axis – Mineral & Air Rights, Condominiums Transfer – Sale, Ground Lease, Time Share Money – EFT, Mortgages, Shares, Trusts Valuation – Location, Development Risk, Environmental / Government Restrictions Ownership - ~60% of Households in U.S.A. Farm Families - ~4% of Population Travel Speed - ~40 M.P.H.

When Did Your FamilyFirst Own Real Estate?: 

When Did Your Family First Own Real Estate? U.S.A – Probably 20th Century U.S.A. – If A WWII Veteran, Then GI Bill, VA,FHA & Other Veteran Programs U.S.A. – Many Federal & State Incentives For Family Home Ownership, Mortgage Tax Deduction U.S.A. – Ground Leases, Co-operatives, Time –Share, Condominiums U.S.A. – Mortgages Offered By FNMA, Pension Funds, Insurance Companies, Banks U.S.A. – Goal To Make Home Ownership Affordable

BUYER v. SELLER: 

BUYER v. SELLER Allocation of Risks Between Buyer & Seller Marketing Risk – Buyer’s Risk Site Plan – Seller’s or Buyer’s Risk Government Restrictions (zoning, density, neighborhood) – Seller’s Risk Environmental Restrictions (wetlands, corridors) – Seller’s Risk Lower Buyer’s Risk Means Higher Valuation

IMPACT of GOVERNMENT: 

IMPACT of GOVERNMENT Municipality Comprehensive Zoning Ordinance Environmental Corridors, Wetlands, Open Land Neighborhood Plans Subdivision Plans Sector Plans (Residence, Commerce, Industry) Zoning Variances For Individual Sites Building & Appearance Standards Building Permits Land & Premises Inspections Taxes (Property / Income) & Special Assessments Trade / Travel Barriers

TRENDS: 

TRENDS Population Increases Slowing Worldwide U.S.A. - Population Still Increasing & Aging U.S.A. - City Center Migration Will Reverse With Improved Communications & Family Wealth U.S.A. - Population Becoming More Conservative As Land Ownership Continues To Diversify Better Data Bases & Data Mining Technology (GIS & DSS) Enhance Some Property Values U.S.A. - Declining Percentage of Sites Than Can Be Developed

EM-515 PROTOCOL: 

EM-515 PROTOCOL Ask - What Is The Full Market Value Of Our 58 Acres At What Time? F($,t) Bound – The Neighborhood In General and Our 58 Acres In Particular Collect – Engineering – Survey, Topography, Soil Bearing Tests, Sewer & Road Plans Neighbors – Existing Structures, Plans, Connectivity Village - Municipal Zoning Code, Neighborhood Plan, Suggestions County Maps - Wetlands, Environmental Corridors, Municipal Improvements, Property Polygons, Topography, Tax Assessments DNR & SEWRPC - Maps of Wetlands, Environmental Corridors Dept. of Transportation – Highway Access, Traffic Counts, Routes Census Bureau - Family Income, Household Size, Demographics, Trends Real Estate Sources - Property Sales Data, Advertisements, Subdivisions, Offers Financing – Bank Market Areas & Concentrations Decide – What We Now Know – Range of Estimated Values & Risk Issues To Be Examined Actions Taken – Drew & Revised Site Plan, Conferred With Village, Received Offers Plans – Collect Data, Prepare Formal Due Diligence Report & Contact Developers

DSS PROBLEM: 

DSS PROBLEM How Can Valuation Be Maximized (Sale Price – Improvement Cost) By Adjusting: - Lot Sizes (Max, Min, Mean, Median, Perimeters) - Number of Lots - Lot Locations (Lake View) - Lot Orientations (Sunlight, Wind Direction)

How Do We MaximizeCapital Gain / Profit?: 

How Do We Maximize Capital Gain / Profit? Minimize Risk – Due Diligence Location Risk Governmental Risk Environmental Risk Financing Easier & Less Expensive Price Appreciates As Finance Costs Decrease

LOCATION RISKWant To Build: 

LOCATION RISK Want To Build Candidate Occupant Demographic Data Employment Reports Neighborhood Facilities & Attributes Traffic Analyses Transportation Resources Weather Data Comparable Prices

GOVERNMENT RISKPermitted To Build: 

GOVERNMENT RISK Permitted To Build Municipality Comprehensive Zoning Ordinance Neighborhood Plans Subdivision Plans Highway Access Approval Sector Plans (Residence, Commerce, Industry) Zoning Variances For Individual Sites Building & Appearance Standards Building Permits Inspections TIME TO SITE PLAN APPROVAL = $$$$$

ENVIRONMENTAL RISKPrevented From Building: 

ENVIRONMENTAL RISK Prevented From Building Topography Environmental Corridors Public Easements (Highways, Waterways) Private Easements ( Power Lines, Roads, Underground) Wetlands Open Land Requirements Flood Plains Retention Ponds & Runoff Brownfields (Polluted Land) Prevailing Winds Waterways, Airports, Noxious Neighbors

CONCLUSIONS: 

CONCLUSIONS Most Important Factors Affecting Value Location Assessment Governmental Risk Assessment Environmental Risk Assessment Critical Asset Mapping & Management Is A Key Component of Due Diligence Due Diligence Package Creates Value For Your Clients and Value For You The End

Written BySheldon L. EpsteinShel@k9ape.comProduced ByEpstein Associates – K9APEPO Box 400Wilmette, IL 60091-0400 U.S.A.+1 630 564 9292www.k9ape.comK9APE® Electronic Images©2004 - 2005, All Rights Reserved: 

Written By Sheldon L. Epstein Shel@k9ape.com Produced By Epstein Associates – K9APE PO Box 400 Wilmette, IL 60091-0400 U.S.A. +1 630 564 9292 www.k9ape.com K9APE® Electronic Images ©2004 - 2005, All Rights Reserved