Finally, We Appraise the Appraisals for the Convention Center Hotel Land
At the end of February, the Dallas City Council approved plans to move forward with using certificates of obligation to purchase land that is likely to be used as the site for a convention center hotel. In our wrap-up of the meeting, we discussed the two city-commissioned appraisals for the property. Essentially, council members Angela Hunt and Mitchell Rasansky were concerned that the appraisals were done assuming that a convention center hotel was already on the land. Ron Natinsky, chair of the Economic Development Committee, didn’t give them any reason to think differently as he used that assumption in a committee meeting to defend the high appraisal amounts, and none of the city officials in the room corrected him.
But during the council meeting, Hunt asked Theresa O’Donnell for clarification, and O’Donnell said the appraisals had nothing to do with what would be built on the property. O’Donnell, director of development services for the City of Dallas, said the convention center hotel was mentioned in the appraisals, but they were based solely on comparable sales in the area of “similar size and characteristics.”
Now we have our grubby hands on the appraisals, and Assistant City Manager A.C. Gonzalez helps us get some answers because Mayor Tom isn’t taking questions from Unfair Park about this issue. We were also able to talk with Rasansky before he was muzzled. Interested? Then let’s jump.
Gonzalez, who oversees economic development and is co-chair of the city’s convention center hotel task force, says the appraisals were done based on the “highest and best use,” not assuming a convention center hotel was on the site.
“Generally speaking, we’re duty-bound to get an appraisal for what is the best value for the use of a property’s potential use,” he tells Unfair Park.
He says this is a standard way of looking at value, and the city needs appraisals done this way in case the city uses eminent domain to acquire the property. “If we’re going into a condemnation court and argue that the value is for a parking lot, we’d be laughed out of the courthouse,” Gonzalez says. “That’s obviously not the highest and best use.”
Rasansky said Gonzalez is the wrong person to ask because “he’s very biased in supporting those appraisals.” He claimed only those in the real estate business can understand the appraisal documents. Rasansky, who has been in real estate for more than 45 years, labeled the appraisals as “incomplete and flawed” and said Gonzalez’s reasoning is only applicable “in the land of Oz.”
The three properties comprising the land purchase, owned by Cincinnati based-Chavez Properties Ltd. (now CP-Dallas L & Y, LP), were given values by two separate appraisers hired by the city: Troy Alley of Con-Real, LP in Dallas and Nicole Schechter of Goodrich, Schechter & Associates, LLC in Fort Worth. Both appraisals came in for the exact same amount: $40,130,750 -- or $110 per square foot. And both were rounded up to $40,131,000. A small, 2,500-square-foot piece of land located inside one of the Chavez properties, owned by Four Bears Company and Folsom Investments, was also appraised for $110 per square foot by Alley.
“I don’t recall seeing the appraisals being exactly on the money, but I really wasn’t terribly taken aback by it,” Gonzalez says. “That’s just the coincidence that occurred.”
The most important component of an appraisal is the comparison properties. These are previous sales of properties with “similar size and characteristics,” as O’Donnell told the council, that are used to determine the price of the land being appraised. However, the comparisons in both city appraisals of the Chavez properties included land sales that are significantly different in both size and characteristics.
In the Con-Real appraisal, only four properties were used for comparison. Of the four, all were located several blocks north of the Chavez properties -- and none was similar in size. One of the comparison sites was land purchased in the Arts District for the proposed 42-story Museum Tower residential skyscraper. The Schechter appraisal used eight comparison properties, and all of them were also north of the Chavez land, with three next to Woodall Rogers Freeway.
These are poor comparisons because all of the properties are in more desirable locations, and the appraisers ignored several land purchases in the immediate area that sold in the $25-per-square-foot range, according to Rasansky. One of the properties he mentioned is land purchased by developer Larry Hamilton, which will likely be part of his proposal as Hamilton Properties Corporation and The Beck Group submitted one of the six proposals received by the city. Developers with proposals are prohibited from discussing their proposals with anyone other than the designated city negotiation team, or they will be subject to disqualification.
Rasansky said another reason why the appraisals are flawed is because a basic rule in real estate is that smaller pieces of land are worth more money than larger ones, yet all of the evaluated comparison properties were smaller properties. Gonzalez says there aren’t a lot of properties of a comparable size being sold in the area. Challenged about the locations and sizes of the comparison properties, he says, “As a composite, it painted a picture of where values are going over the last couple months or last couple years in terms of land values downtown.”
Of the two appraisals, there was only one common comparison property used, which also was the largest comparison piece of land in both appraisals. It was a different Chavez property located near McKinney Avenue, which both appraisers reported was sold for $100 per square foot in April of 2007. Gonzalez says he sees nothing strange with the use of another Chavez property in both appraisals, and the sale represents a useful piece of data.
“Assuming it’s good information,” he says, “I don’t think it represents a conflict.”
One of the appraisers, Nicole Schechter, declined to comment on specific appraisals, citing confidentiality. However, she says because Texas is a non-disclosure state, tracking down sales can be difficult because the sales price needs to be verified by either the buyer, seller or broker of the property. This means the sale of the other Chavez property could have been confirmed by Chavez, which is also the company owning the land being appraised.
Essentially, there are two appraisals of the exact same amount with a total of 11 separate comparisons -- all of which are located north of the site, many of which are located in Uptown or the Arts District, and all of which are significantly smaller than the 8.375-acre site the city is preparing to purchase. Plus, the comparison sale amounts were given to the appraisers based on the word of someone who may have a vested interest in fudging the numbers. Is this a proper method for determining the value of a site in Dallas’ struggling downtown?
“I’m not by any stretch going to represent that I know this as the experts do,” Gonzalez says. “That’s why we have two different ones take a look at it and give their views.”
Yet another problem with the appraisals is the discrepancy of nearly $33 million in the value of the properties compared with the appraisal amounts by the Dallas Central Appraisal District. Gonzalez says he contacted DCAD and was told it didn’t have the ability to get the data that was acquired by the appraisers, meaning DCAD and the appraisers are measuring the same thing with two different sets of information. He says the impression of the value was “markedly different” given the data he shared with DCAD staff.
“They had to admit that the values they have are low, and we’ll probably be seeing adjustments as a result,” he says. “They said this is property is undervalued. Period.”
The DCAD value, which Hunt points out is approximately one-sixth the amount of the city appraisals, is one of the most glaring problems surrounding this issue, according to her. Hunt says Gonzalez’s explanation is “not acceptable,” and “something is wrong in the house of DCAD.”
Despite the dearth of information about a proposed hotel and questions surrounding the appraisals, the council is scheduled to vote on approval for the purchase agreement on the certificates April 23, which would seal the deal on the land purchase and is likely to lead to a publicly subsidized convention center hotel. With Rasansky silenced and Hunt left as the lone council member willing to speak out against plans to move forward, Mayor Leppert is counting on that being a done deal. --Sam Merten