Saturday, November 25, 2023

Another land appraisal in Costa Rica


Here was a property that measured 4 square miles of ocean view land, of which there are plenty in Costa Rica due to the sloping topography. It is not uncommon for properties this size to be marketed to developers, but they are not necessarily publicly marketed, making comparable properties, particularly closed saled, hard to find.

This particular property, at its closest point to the ocean, extended as close as 1000 feet to the water. As is often the case, the developers of such a parcel try to secure a beach parcel, too, often with the label “Beach Club”, to establish an identity as a beachfront property, but such a parcel is not necessarily contiguous, as was in this case, so the developer of an ocean resort property with a noncontiguous beach club has the added difficulty of purchasing a connecting easement or parcel, or else have the added burden of transporting hotel guests to the beach. In this case, the distance was slight. In Costa Rica, the best beach parcels (closest to the water) are on leasehold parcels on "concession land" which is owned by the municipality and typically leased at favorable rates. This "concession land" is the land belt immediately inland from the undeveloped "Maritime Zone" preserved as public beaches. 

Comparable sales ranged from $12,200 per hectare to $19,500 per hectare (indicating a significant discount for extra large size), and could be adjusted for distance from beach, with the cheapest parcel being no closer than 2 kilometers to the water, but still possessing ocean views.

Wednesday, September 13, 2023

Appraisal of a Residence in Cuba

In the almost 14 years of writing this blog, my practice has shifted from large international projects financed by big lenders to smaller properties involved in estates and divorces. It’s often the case that the bereaved family or the spouse does not even know what Dad’s property or the other spouse’s property in the Old Country looks like, but they need a valuation, and don’t want to spend the money for me to make the trip there. This home in Cienfuegos, Cuba, is such an example. I sometimes have to turn to remote valuation methods instead. 

Google Earth sometimes works wonders but is not as complete or even available in some countries, such as Iran, Morocco or Cuba. In this instance I hired an English-speaking tour guide to visit the address and discreetly take photographs. It worked well because Cienfuegos is a tourist town on Cuba’s south coast. 

Another complicating factor was the need for a retrospective appraisal report for a date 3 years ago in a country which has no public database available and only a fledgling home sales industry. In situations like these I like to turn to Internet archives and hope to find real estate listings relatively close to the date of value. 

In this case, I was able to get my comparable listings from the web site archives within a month of the date of value. Homes for sale at that time were listed in the Cuban Convertible Peso currency. From 1994 to the end of 2021, Cuba had a special currency, “Convertible Peso”, pegged to the U.S. dollar. The regular Cuban Peso is a completely different currency and is much less in value. The advantage of this pegged currency is that one is likely to be looking at the same value as if the home is sold in US dollars. 

Aerial photos were also helpful in comparing the locational differences of the comparables. Two larger homes in the Historic District were both for sale for about 714 CUCs per square meter, whereas a smaller home inland in La Gloria neighborhood was listed for only 500 CUCs per square meter. In coastal areas property values lessen as one travels inland, and one advantage of being closer to the water for many Cuban citizens is the refreshing sea breezes that can cool down the heat in homes without air conditioning. The Historic District, on the other hand, was judged to be slightly superior to the subject neighborhood.

The lesson learned here is that there are an increasing number of Internet tools available to help with remote valuation – Google Earth, Google Translate, Internet archives, real estate listings, ads from tour guides, English teachers, real estate salespeople, etc.

Friday, January 20, 2023

German Property Portfolio Valuation


Four story commercial property in downtown Hannover 

The actual valuation assignment was to appraise a one-half ownership interest in four rental properties in the cities of Hannover and Kiel in Germany. These were multifamily, mixed use and one retail property. 

These interests were inherited by a U.S. citizen, but the other half owner is German. 

To value a partial interest, one has to discount for an owner’s lack of liquidity, lack of control, lack of marketability and lack of mortgage financing. 

Finding comparable sales is extremely difficult, especially in a country of such strict privacy laws as Germany, and because only about one out of about every 500 property sales in western capitalist societies are of fractional interests. 

The ultimate intended user of the appraisal was the Internal Revenue Service, so the appraisal report had to be an English language report done by an IRS “qualified appraiser” who prepares an appraisal report compliant with USPAP, the Uniform Standards of Professional Appraisal Practice. Much of my international work is this kind – inheritances, gifts and the increase in tax basis to spouses of decedents. 

I used a technique known as “factor-based fractional discounting”, a technique developed by the Appraisal Institute, in which individual value factors are quantified and discounted, such as asset risk, profitability, condition, liquidity, diversification, size of interest, lack of control, quality of management and growth potential. I also had to do this method in my last jobs in Korea and Mexico as well as one of the French properties I handled in 2017.

The trip to Germany took place during the New Year Holiday, and it rained every day I was there.  I bought a raincoat of the German fashion name "Camp David", no relationship to the U.S. President's weekend white house. Here I am displaying it.

I finished the trip in the charming city of Hamburg. Perhaps John F. Kennedy would have said "Ich bin ein Hamburger!"