Davis (2002) states that: "The primary consideration in all brownfields redevelopment projects is not the level of contamination at a target site, nor is it the methods and costs of environmental remediation that may be required to bring the site to full utilization. Rather, the first and foremost concern is the projected underlying real estate value in a "clean" state, (2007 below) once the presumably underutilized or out-of-use target site is returned to the normal stream of commerce."
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Problem 2 |
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|
Problem 1 |
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|
Site Specific Risk Rate |
Survey: 18% Risk Rate |
$5,000,000 |
Annual Net Income |
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# |
IRR |
Price/Value |
Remediate |
Remediate |
Redevelop |
Redevelop |
Value |
Cap Rate |
Sales/SF |
|
A |
18% |
$4,700,000 |
($1,000,000) |
($1,000,000) |
($14,000,000) |
($14,000,000) |
$50,000,000 |
10.00% |
$300-$400 |
|
B |
18% |
$8,000,000 |
($1,000,000) |
($1,000,000) |
($14,000,000) |
($14,000,000) |
$58,139,535 |
8.60% |
$400-$500 |
|
C |
18% |
$12,000,000 |
($1,000,000) |
($1,000,000) |
($14,000,000) |
($14,000,000) |
$66,666,667 |
7.50% |
>$500 |
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|
Year |
2003 |
2004 |
2005 |
2006 |
2007 |
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Redeveloper Problem 1 calls for the same prospective value that was required by Federal Regulation R-41c. R-41c was not codified, however, because the Appraisal Standards Board (ASB) was created to solve the problem-but it still exists. The Appraisal Standards for Land Secured Financing (ASLSF) by Shea (1996) was developed for a California state agency in another attempt to force appraisers to provide substantive feasibility studies. The ASLSF specified the need for the appraiser to use the model in Table 1.
Case Study 2, described in the thesis, revealed that the ASLSF was required for valuation of a brownfield, but it was ignored by the appraiser. (See "Problem with the Courts")
