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Home / Special Report / Property’s market value
often in eye of beholder

Property’s market value
often in eye of beholder

Picture this commercial real estate ad:
Modern 558,000-square-foot pharmaceuticals plant and corporate offices located on 40 acres of prime land; convenient to major interstate; asking $19.71 a square foot.
Sound cheap? After all, a relatively modest residential property can sell for three times as much.
Yet, that is the actual per-square-foot price that Medeva Americas Inc. claims its headquarters, plant and 40 acres should be evaluated for on the town of Henrietta’s tax rolls.
For tax purposes, Medeva says, the complex–situated on Jefferson Road in the heart of one of the county’s busiest commercial strips–is worth $11 million.
Not so, Henrietta Town Assessor Nathan Gabbert maintains. He says the property is worth $27 million.
In terms of the norm accepted by property appraisers and assessors alike for evaluating properties’ worth, the $11 million figure is absurd, Gabbert and Henrietta Town Supervisor James Breese contend.
Henrietta is not alone. For big corporate taxpayers, assessment challenges on large industrial properties–including Xerox Corp.’s multiyear, multimillion- dollar battle with the town of Webster over its manufacturing facilities’ assessment–are a way of life.
Eastman Kodak Co. has contested its assessment on Rochester’s tax rolls.
Countywide, such challenges represent millions of dollars in taxes that might ormc might not be paid to municipalities and school districts.
Since tax assessments are supposed to reflect properties’ market value, what gives? Why do owners and municipalities see the issue so differently?
One answer–the one Breese likes–is that corporate owners, wielding the implied threat of taking their operations to more business-friendly climes, are simply looking to hardball towns and cities into giving them a better deal.
Another is that determining the actual worth of mammoth industrial and office properties is far from a simple process, and, indeed, is legitimately open to a wide range of interpretation.
The standard used by assessors and appraisers to arrive at values of such properties sounds straightforward. As with smaller commercial and residential buildings, the value of larger corporate properties is supposed to align with the price a willing seller would command from a willing buyer.
In Medeva’s case, Breese says, plenty of buyers would be willing to pay $11 million. But whether the company in fact would sell the plant and 40 prime acres for that price, he maintains, is doubtful.
Determining the true market value of a facility such as Medeva’s is never simple, says appraiser Robert Morgan of Morgan-Stanwix Appraisal Associates Inc.
Three basic methods are used to compute value. Any appraisal or tax assessment uses some combination of the three, giving different weight to each depending on factors such as the age, condition and location of the property.
The cost method, used primarily for newer properties, attempts to set a value based on how much a facility would cost to construct in the present market.
A second technique relies on comparison of the property to other, similar facilities.
The third method is used for leased facilities; it examines income derived from the property. If an office structure nets a certain amount a year in lease income, and the owner holds long-term leases, that income is an important factor in determining its value.
How the three are mixed and matched to arrive at a valuation is as much art as science, Morgan says.
Gabbert concurs. Any art is susceptible to a certain degree of subjective interpretation, he concedes.
The Medeva facility is a case in point.
Gabbert evaluated the complex some 18 months ago for Rhone-Poulenc Rorer Inc., a French pharmaceutical concern from whom Medeva bought the plant last year.
After inspecting the facility for Rhone- Poulenc, the Henrietta assessor lowered its tax-roll rating from $32 million to $27 million.
Rhone-Poulenc hired an independent appraiser, who valued the complex at $14 million. The company then challenged Gabbert’s assessment, and the case now is in state Supreme Court.
Gabbert stands by his original figure.
In the case of large facilities such as a 500,000-square-foot manufacturing facility or a 300,000-square-foot office structure, the very size and uniqueness of the buildings further complicates matters, Morgan says.
Take Kodak Park, a campus containing hundreds of thousands of square feet of state-of-the-art manufacturing, ware- house and shipping space covering several acres and spanning two municipalities.
Kodak Park clearly cost many millions of dollars to build, and is clearly worth many millions of dollars to Kodak, Morgan says. But what if Kodak were to vacate it? How easy would it be to find a willing buyer?
Such facilities, he says, are subject to what might be called the “white-elephant effect.” In part, and sometimes in large part, their value lies in a use few can take advantage of.
Morgan says the white-elephant effect can apply to large office structures, shopping malls and any number of megasize commercial properties as well as to manufacturing facilities.
A 1 million-square-foot distribution facility built in the 1960s near Elmira by the Great Atlantic & Pacific Tea Co. Inc., which runs the A&P supermarket chain, illustrates the point.
For some 20 years, A&P was a major employer in the area. But in the 1980s, after several downsizings, it mothballed the facility. A string of commercial real estate brokers as well as Chemung County economic development officials tried to market the great warehouse for years, but found no takers.
The last to try was Rochester broker Douglas Burkhardt of First Realty Co. Burkhardt was hopeful for a time that a New Jersey-based syndicate would bite on the mammoth building.
But in the end, the distribution facility proved to be too tough a nut to crack. Burkhardt himself finally set up a business there.
Gabbert concedes that such an effect might apply to some buildings, but also maintains that some owners’ tax challenges are less than well-founded.
The town has considered a number and concluded that the owners’ beefs are legitimate, reducing assessments accordingly, he says.
However, he thinks others should be classed as frivolous.
Protesting owners, for example, have cited comparable properties in distant towns and other states as standards that should be used to value their own.
Morgan says such comparisons might be valid if the properties in question are unique to the area. Nevertheless, he also concedes that location is an important factor in determining value, and that one can never make an exact comparison between a facility in Rochester and another in, say, Idaho, regardless of what other similarities they might enjoy.
In the end, Morgan suggests, other factors–social and political–also should be applied to facilities such as Medeva’s, Kodak’s, or the Xerox or Bausch & Lomb Inc. manufacturing complexes.
Cities, regions, states and even countries are in fierce competition to land such operations, he says. Perhaps such benefits should be factored into tax calculations. Maybe megafacilities cannot be judged strictly on real-property value alone.
With Breese, such an idea cuts little ice.
To him, such facilities–many of which already get special tax-bill breaks cut by county and state economic development officials–are double-dipping when they also challenge their assessments.
Henrietta over the past few years has taken an increasingly hard line on such challenges, but still is spending a substantial sum–$30,000 a year in tax-case legal bills, Breese complains–to fight them.
Says Gabbert: “The white-elephant effect is true to a point, but you ought to be able to arrive at a real value.”

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