Ipt Property Tax Symposiumpdf
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  • 1. Analyzing Recorded Purchase Prices Gordon K. Vella
  • 2. PRICE ≠ VALUE Price does not equate to value! Price and value gap is the primary reason for the credit market and investment market instability and collapse. Price is determined by a single purchaser and/or investor while value is driven by a broader exhibition of transactions…or not?!
  • 3. SUB-PRIME CRISIS Does any Single Source Bear the Blame? NOT ONLY the home buyers who failed to keep their end of the mortgage bargain… NOT ONLY the physicists/mathematicians concocting inexplicable formulas on which to base credit swaps and derivatives… NOT ONLY the CEOs and analysts who were not looking when the vague financial instruments were bought and sold… NOT ONLY the 2000 Congress and President who legalized gambling on Wall Street…the same law that was established after the Great Depression…
  • 4. ISSUES THAT IMPACT PRICE Commercial Transactions Cash put on the table to off-set lease up cost for the sake of mitigating risk for the buyer 1031 transaction Owner/user may have purchased property at price reflecting:  “Investment Value”  “Value in Use”
  • 5. ISSUES THAT IMPACT PRICE Residential Properties Clear variances with market are not generally exhibited What is value when:  Broker pushes price for sake of commission  Appraiser pushes value to make deal work  Lender executes mortgage with borrow at 0% down Fraudulent value…What is value?
  • 6. TYPES OF VALUES ARV Which Value is Recorded? Business value  Prospective value Disposition value  Retrospective value Fair value for purchase  Transaction value price allocation  Hypothetical value Going-concern value  Value as is Insurable value  Value in use Investment value  Market value Liquidation value
  • 7. AGGREGATE OF RETAIL VALUES A Definition ARV or Aggregate of Retail Values  Derived within sell out analysis of a subdivision and/or condo valuation  ARV is not market value  Many lenders and developers (mistakenly) consider ARV as figure on which to base their loan or measure their profit  Present value of net income stream should be taken into account – should account for all cost including holding cost and risk  Net cash flow over the sell out period is then discounted at appropriate yield rate (including profit)  “As is Market Value” is relative to a single buyer/investor.
  • 8. GOING CONCERN VALUE A Clarification Going Concern Value  Often misinterpreted as market value of the real estate (hotels/theatres/senior living properties/golf courses)  Includesvalues of real estate, FF&E or M&E and business values  Real estate value is often exaggerated for lack of an appropriate allocation
  • 9. PURCHASE PRICE ALLOCATION Another Clarification Purchase Price Allocation  Toweight the poor performing properties in a portfolio transaction for future collateralization  To apportion a portfolio acquisition price to individual properties based on market forces  To allocate a predetermined purchase price between the tangible and intangible assets being acquired for financial reporting purposes
  • 10. A CLEAR VIEW Understanding What Is Recorded Current economic collapse due to a price/value gap Various values may reflect anything but market value Recorded purchase price may not indicate market value Understanding the various definitions of value and being in tune with the market bridges the chasm between price and value
  • 11. Analyzing Recorded Purchase Prices Gordon K. Vella