Ed Foran on John McBride’s letter to the editor:

The City of Aspen and Mick Ireland need to respond to this article. If anyone stands to benefit from the BMC West sale, it’s John McBride, as the largest property owner at the AABC. Yet, as John logically states below, the property is worth less than half than what the city paid for it.

John McBride’s Letter To The Editor 

Last week, the appraisal for the BMC parcel that the city of Aspen bought in 2007 was reported at $16.8 million. I was surprised. Although the appraisal was lower than the $18.25 million the city paid, it still is way too high. I continue to believe that the real market value is somewhere around $6.5 million.

Prior to the city’s purchase, the highest price paid for land in the Airport Business Center was $30 a square foot. At that rate, the value of the lumberyard, based on comparables, would have been $5.34 million. Further, under the income approach, if the city nets $600,000 a year from the lumberyard, at an 8 percent cap rate, would yield a value of $7.5 million. $6.5 million is in the middle between the comparable value and the cap rate value. It seems to me a fair market value that an appraiser could defensibly assign.

Confused by The Aspen Times and Daily News articles on Friday of last week, I contacted the appraiser hired by the city to conduct the recent BMC appraisal. Dave Ritter, who is a friend of mine, clarified the large discrepancy.

Dave explained to me that he was not asked by the city to do a fair market value appraisal of the BMC parcel. Rather, he was asked to do a “hypothetical appraisal,” imagining a very large housing project was already built on the land — thereby paying no attention to existing constraints. A fair market appraisal and a “hypothetical appraisal” are apples to oranges. Ignoring the constraints overlaid on a piece of property is the essence of a hypothetical appraisal. It is relevant that the public know the BMC parcel contains such limits as county zoning, height and parking requirements, ABC covenants, and the 200-foot greenbelt setback from the highway right of way. This setback, by itself, would almost preclude the development of the city’s adjacent open space parcel. (The city’s statements seem to indicate that this open space parcel is not under easement, contrary to the sign posted on it!)

I asked a longtime banker of mine if he had ever heard of a hypothetical appraisal. He said he had, but that it is not considered a real (defensible, credentialed, well-founded, genuine, factual, bona fide) appraisal. He added, “A hypothetical appraisal is really just a developer dream and as such has no merit or value, especially for a loan.”

Still somewhat shocked, I looked up “hypothetical appraisal” under the American Society of Appraisers. Their definition:

“A Hypothetical Appraisal is an appraisal based on assumed conditions which are contrary to fact or which are improbable of realization or consummation … It is improper and unethical to issue a hypothetical appraisal report unless 1) the value is clearly labeled as hypothetical; 2) the legitimate purpose for which the appraisal was made is stated; 3) the conditions which were assumed contrary to fact are set forth … a hypothetical appraisal … which is so much above the market that it is practically impossible for it to be realized, would not serve any legitimate purpose and its issuance might well lead to the defrauding of some unwary investor.

Wow!

Does the public understand that the city’s justification for overpayment of $1.45 million is based on an imaginary appraisal, which by definition is “contrary to fact?” If you were selling a home, would you list the house for what it could be if it were remodeled? Or for what it is worth today?

Obviously the city is trying to justify the high price they paid. But more than that, they seem to be indicating that they believe they can violate a long history of established principals and guidelines that for years have defined the character of the ABC.

Had the city performed a proper fair market value appraisal prior to purchase of the land, they could have saved tax payers $10 million to $12 million.

Alternately, if the city had been unable to negotiate a deal with BMC, they could have condemned the property. Condemnation demands a fair market value appraisal. The fire district did this at North 40, when they bought their land for $27 a square foot — the fair market value.