South African game ranch lodge -- February 2008

Wednesday, February 15, 2012

The effect of mangroves on the valuation of tropical waterfront land



Mangrove-fouled beach near San Pedro de Macoris, Dominican Republic








Many of my appraisal assignments involve tropical waterfront land with plans for tourism-related development. One common impediment to the development of many of these land parcels has been the presence of “mangroves”, also known as "mangle" and "manglar" in Latin America.

Those readers who have driven from Miami to Key West in Florida will have driven past miles of mangroves along Highway 1. These are protected by law. I have also encountered such laws when appraising in Mexico, Costa Rica, Fiji, Brazil and the Dominican Republic.

The word “mangrove” has more than one connotation, however. There is a specific family of plants, Rhizophoraceae, known as mangroves, but many environmental laws apply more generally to coastal marine habitats in which Rhizophoraceae may be present.

Mangroves are legally protected not because they are endangered, but because they serve as important marine wildlife habitats. They are found in 118 countries, mostly between the latitudes of 25 degrees north and 25 degrees south, and are estimated to dominate 75% of the coastlines in the tropical latitudes, as is demonstrated in the Wikipedia map below:
Source: Wikipedia

Mangroves impair the value of beachfront parcels in two ways:

1. In most countries they are protected by law and cannot be removed.

2. Mangroves create dark, organic sediment that fouls beaches.

The issue of mangrove removal is also problematic. First of all, it is illegal in many countries, and can be easily caught by satellite photography. Secondly, mangrove sediments are known to concentrate toxic metals, and the disturbance of these sediments pollutes the surrounding environment.

The issue of mangroves has come up in an APR (American Property Research)appraisal assignment in the Dominican Republic. The top photo demonstrates what I saw. Most of the subject property’s waterfront is dominated by dense vegetation that grows straight up to the waterline. The beachfront in the foreground appears to be fouled by dark sediments typically released by mangroves. This is not the pretty beach scene that typically serves as the foreground of a Four Seasons Resort.

Some clients have a policy of hiring a “national firm” for their appraisals, most often the appraisal subsidiary of a global real estate brokerage, in order to lessen the amount of thought going into the appraiser selection process. There is often a division of labor and responsibility, with one appraiser inspecting the property and another writing the report, which only exacerbates miscommunication and abdication of personal responsibility. The least experienced appraiser often does the lion's share of the work. (I began my career as an appraiser in one such global firm, Jones Lang Wootton.)

In this particular case in the Dominican Republic, there were two other appraisals of the same property done by national firms.

In one appraisal report, all the photos were of the wrong property, and all were taken by air. The property was described as hilly and having utilities, unlike the property I visited. I surmise that the property developer rented a helicopter and took the appraiser to the wrong property on purpose.

The other appraisal report was originally done for the developer and disclosed a long established relationship with the developer, a possible conflict of interest with the lender who re-hired them as appraisers.

Neither report disclosed the presence of mangroves, which leaves me wondering if most appraisers, particularly American appraisers, even know to look for it or consider its significance in the valuation of waterfront land.
Mangrove-fouled beach in Fiji
Mangrove-fouled beach in Costa Rica
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4 comments:

ant. a. said...

Great post Vernon. Due diligence is as due diligence does...no matter the continent. I would prefer support a move to a neutral term for beaches impacted by mangroves however, such as mangrove-affected or mangrove-impacted. Fouled had a negative connotation the poor mangrove doesn't warrant. I jest of course and look forward to reading more of your future adventures.

ant. a. said...

I notice several errors in my comment above, but they're much too troublesome to correct using my phone. So they live on while vanity dies.

Vernon Martin, MSRE, CFE said...

Ant. a., I see nothing that you wrote which needs correcting in this informal forum, and you are anonymous, any way. I certainly don't want to malign mangroves, but just to point out their incompatibility with 5-star resort developments for humans who want to sunbathe and play on clean sand.

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Valuation of Land