Sunday, June 29, 2014

Appraisal of a proposed resort project near the Canadian Rockies

Curiously dead ground vegetation for a proposed vacation resort

These were 130 acres in a town west of the Canadian Rockies popular with snowmobile enthusiasts. Local leaders want to make their town the “Next Canmore”, an expensive vacation community about one hour's driving distance west of Calgary and the first town east of Banff, Alberta's most famous ski destination. This town, though, was 300 miles west of Edmonton.

The local authorities, eager for economic development, had granted entitlements to a developer to build 183 condos and 70,000 square feet of commercial space. To impress how much political support she had for this project, she invited the mayor to have lunch with us. I ordered a “moose burger”, but I was also informed by the two that the restaurant didn’t really serve moose meat.

No feasibility study had been done, but I was told that there was a waiting list of 250 for the condos, and substantial "verbal interest" for the commercial space (meaning no leases or letters of intent). It turned out that the waiting list for the condos was just as real as the mooseburgers. It was just a collection of names and addresses of people who had responded to ads in snowmobile magazines, and there had been no discussion of prices, nor had there been any contracts signed.

The condos were priced quite steeply, from $430 to $455 psf Canadian, with prices ranging from $350,000 to $680,000, in one high density building. The town itself, though, had 21st century homes on their own lots for sale for less than $270,000. Per Landcor, the data service I use in BC, the highest priced home sale in the last year had been at a price of just $225,000, a new log home of 1068 square feet on a conventional-sized city lot.

124 of the 130 acres were a former rail yard previously used by the Canadian National Railway. Railyards are often heavily contaminated through years of washing out tank cars. Rail ties, too, were treated with arsenic to resist rot before being set in place. The photo demonstrates a mostly grey area of dead ground cover, punctuated by young pine trees, a tell-tale sign of contamination.

The properties had been acquired at the peak of the market in 2007, and in my previous valuation assignment in BC, I noticed that the sale of vacation properties began to considerably diminish after 2007. Yet, in this situation, the developer had appraisals done by Canadian appraisers estimating land value several times as high as the acquisition price in 2007. It gives me the impression that the Canadian appraiser profession is less effectively regulated and policed than in the U.S.

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