Thursday, June 4, 2009

Ludicrous or Clever -- you decide

There is one more point to be added to the reasons taxpayers should be concerned about Mayor Ballard's convoluted plan to partner with TM Miller Enterprises to develop apartments and retail spaces in the old Bank One Operations Building at 450 E. Market Street.

That is the appraisal process that justifies the City's payment of a $18.5M loan whereby it gets one of two properties paid for by that loan.

Using the KISS principal, one might say - if a seller is willing to sell two properties for $18.5M, doesn't that mean that each property alone is worth LESS than $18.5M? Isn't the selling price the market value???

Not if you have your thinking cap on !

The City had two appraisals done for the market value of the garage alone. I presume this was required by law and that the intent of the law was to protect the public from an elected official or body from paying more for something than it is actually worth.

The appraisals used the assumption that the development proposed as part of the complex deal, was done. That's right, they took a future value for the garage and said it would some day be worth $18.6M and $18.9M. How very fortuitous that both appraisals came up with more than the amount TM Miller has agreed to buy two properties for !

Now I'm thinking that banks should operate this way, too. You go in for an equity line of credit on your house and bring in an appraisal for how much it could be worth in 10 years assuming the completion of all the plans that might increase your property values. You'd get the inflated line of credit no doubt.

This isn't conservative allocation of tax money by any means. It isn't fiscally sound risk management, either. It is a circumvention of the intention of the law. It is a gutting of a hurdle put in place to protect the public and their tax dollars. Ludicrous or clever?

1 comment:

Paul K. Ogden said...

Right. A mortgage company will not extend you a home improvement loan based on the expected value AFTER the home improvement is made. They will loan the money based on how much the property is worth now.

To do otherwise would leave the mortgage company without any security to recover their money if the improvements don't happen or if they're poorly done, for example.