Opinion ID: 1596506
Heading Depth: 3
Heading Rank: 1

Heading: Both Parties Placed Primary Reliance On A DCF Analysis

Text: In valuing the subject property, Equitable's expert appraiser, Alan Leirness, considered using the three traditional appraisal approaches to value, but ultimately decided to base his appraisal solely on a DCF analysis, a form of the income capitalization approach. The county's expert appraiser, Peter Patchin, used and reconciled the three traditional appraisal approaches to value in his original appraisal of the subject property. At trial, however, Patchin relied on a DCF analysis for his final revised valuation of the subject property. Leirness testified that a likely buyer of the subject property would not prepare a cost approach valuation because the cost approach is premised on the principle of substitution, which holds that a buyer can obtain property similar to the subject property without undue delay. Leirness stated that no substitution property existed for Rosedale, and building a similar super-regional shopping center would take seven to ten years to complete due to requirements such as securing financing, preparing environmental impact statements, developing an infrastructure, securing anchor department stores, and obtaining regulatory approval. Although Patchin's original appraisal purported to give the cost approach some supporting weight in his reconciliation of values, he testified that he wouldn't give it primary weight, or anything close to it, for the simple reason the market just doesn't give it that much weight. In considering the market comparison approach, Leirness testified that he conducted a very exhaustive search for sales of regional and super-regional shopping centers throughout the United States. Leirness testified that the market comparison approach was useful in allowing him to discern what information is important to buyers of such property, but he was not able to obtain enough detail about the sales. Thus, he could not make the appropriate adjustments to the sale prices of the other properties, and he was unable to prepare a direct market comparison approach appraisal. Patchin purportedly prepared a market comparison approach from which he derived a big ballpark comfort range, which amounted to $225-$325 per square foot of gross leasable area. Patchin's value determination of $70 million, however, amounts to approximately $217 per square foot ($70,000,000/322,116 gross leasable area), which is outside his own comfort range. Moreover, on cross-examination, Patchin admitted that he made no attempt to relate any individual comparables with the subject [property]. Consequently, Patchin's market comparison approach was entitled to little, if any, weight. [9] Leirness testified that he based his value determination solely on a DCF analysis. Patchin's original appraisal report purported to give weight to all three valuation approaches. Nevertheless, Patchin testified that the income approach (DCF) has to be given primary weight, which is hardly a surprise to anybody who has ever appraised a shopping center. Moreover, it appears that Patchin virtually abandoned the other two approaches to value during his trial testimony. Patchin testified that his revised DCF analysis, which incorporated expense estimates contained in the consultant's reports that were admitted over the county's objection, indicated his final opinion of the subject property's value. Patchin's final opinion was based solely on his revised DCF analysis, and on cross-examination, he assented that Equitable's attorney could feel free then to disregard at least the portions of the [appraisal] report that [Patchin] previously submitted, indicating that the value on January 2, 1990 was some number other than $74,700,000. Because Leirness based his value determination solely on a DCF analysis, and because it is evident that Patchin's revised opinions of value were determined by using a DCF analysis, this case ultimately comes down to an evaluation of contrasting DCF analyses.