Sunday, July 24, 2016
Appraisal in Roatan, Honduras
I requested documentation of the property’s entitlements, i.e. what the developer has the legal right to build. Most of the documents I received were Solicitudes de permiso de construccion, which translates to “Request for Building Permit”, and there were three permit numbers assigned for structures which had already been built, including several condominiums in 2008. The rest of the solicitudes had no permit numbers assigned and were expired. In short, I saw nothing resembling an approved development plan. The developer had also changed his development goals since 2008.
When I stated that the appraisal might be more favorable with an approved development plan (typically called a “final map” in the USA), I received a development plan the next day, addressed that same day to the planning department for the municipality of Roatan. It was written in English and was very limited in detail, consisting of squares and lines on graph paper.
In the last year I have been meeting more and more “wannabe developers” who merely place squares or rectangles on a two-dimensional map, include some artist’s conceptual drawings and floor plans, and call it their “Development Plan”. What about the infrastructure, the provision and placement of underground utilities such as water and waste treatment, the excavation and movement of earth, the measures needed for erosion control or dust control, and the measures needed for environmental protection? Even the banana republics I work in have had rules that needed to be followed when building in an inhabited area, because what is built and how it is built has an impact on the neighbors and the environment. When I am unable to get plans and specifications and detailed construction drawings, how am I to determine if the development proposal is not just a hoax?
When I work with an experienced real estate developer, on the other hand, there is one point in the site visit in which I visit an office full of detailed construction drawings, surveys, third party reports, photographs of successful projects, development budgets, contractor’s estimates and laudatory newspaper clippings, including the press announcement that the project has been approved by all the required agencies. These documents take up a lot of space. If the development site is too far from his office, a developer may instead email a myriad of documents or place them in an on-line dropbox for me. On the other hand, an inexperienced developer (or a hoaxer) is more likely to ask me to meet him at Denny’s Restaurant and show me artist’s sketches.
There is also sometimes a misapprehension that raw hillside land with ocean views is more valuable than flat land. It is not, because of the costs of development. Developed lots with ocean views, on the other hand, are more valuable than lower lots without views and access to the beach.
This novice developer adamantly insisted on already having all necessary development approvals, but did not provide a relevant document on municipal letterhead in the only language legally recognized in Honduras, which is Spanish, nor did he provide construction plans and specifications and a budget. He called me a liar. He also mentioned having cousins in the Mafia. Does this mean that the International Appraiser will soon be “sleeping with the fishes”?
Vernon Martin, the founding principal of American Property Research, performs paid research, due diligence and valuations regarding commercial and residential real estate throughout the world. He has 33 years of commercial appraisal experience and has worked in 22 countries, 43 U.S. states, and four Canadian provinces. He started his career at the global firm Jones Lang Wootton and went on to become the chief commercial appraiser at 3 national (U.S.) lending institutions, formerly taught Real Estate Valuation at California State University, Los Angeles and has authored many professional journal articles and two books. He has degrees from the University of Chicago and Southern Methodist University and is a Certified General Appraiser and a Certified Fraud Examiner. For more information, call 1-323-788-1605, or e-mail him at vm@AmericanPropertyResearch.com.