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HomeMy WebLinkAboutItem 04 McVay ROW ReversionAGENDA ITEM SUMMARY Meeting Date: 6/22/2020 Meeting Type: Regular Meeting Department: Economic Dev/CMO Staff Contact: Courtney Griesel S P R I N G F I E L D ECONOMIC Staff Phone No: 541-726-3700 DEVELOPMENT AGENCY Estimated Time: 10 Minutes ITEM TITLE: MCVAY RIGHT OF WAY REVERSION ACTION REQUESTED: Authorize/Not Authorize the City Manager to negotiate and execute an agreement with ODOT to remove the existing right-of-way (ROW) restrictions and reversionary clauses with Oregon Department of Transportation specific to McVay frontage property in an amount not-to-exceed $173,700. ISSUE STATEMENT: In 2016, the City acquired property located along McVay Blvd in Glenwood (Map 18-03-03-40 Taxlot 1200). This acquisition was part of the Franklin Blvd jurisdictional transfer. The transfer agreement includes terms which restrict the use of all transferred property to existing or future ROW use only. Any parcels not needed for ROW, per the ODOT reversionary clause, would revert to ODOT ownership. Due to the shape, size and misalignment of the specific taxlot to the future McVay ROW envelope (ATT1), the City desires to buy out the reversion on taxlot 1200, lifting the use restriction and enabling more effective alignment between current and future ROW and adjacent development sites. The cost of removing this reversion is estimated at $173,700 (ATT2) and SEDA funds are requested to complete the transaction. ATTACHMENTS: Attachment 1 – Future Right of Way Envelope and Existing Tax Lot Attachment 2 – Valuation Conclusion and Appraisal Review DISCUSSION/ FINANCIAL IMPACT: McVay fronting taxlot 1200 consists of a 3.5acre narrow parcel of land adjacent to the existing McVay Blvd ROW. In February 2016, as part of the Franklin Blvd jurisdictional transfer, the property was transferred to the City, restricting all property to be maintained for current and future right of way use only. City staff have since refined future McVay ROW design to include a total 74’ roadway, including all lanes, bike/ped facilities, and landscaping. Attachment 1 includes the future full ROW envelope area, illustrating the majority balance which could be made available to support adjacent access and development should the reversion be removed. While the envelope is now estimated, slight changes to alignment are anticipated which may shift the ROW east or west along different sections of McVay. For this reason, staff is requesting SEDA support to fund fully lifting the reversionary restriction, allowing for the most flexibility. The cost of fully removing the reversionary restriction is estimated at $173,700, which would be paid to ODOT. ODOT, Department of Justice, and Regional Solutions Team representatives have been engaged throughout this work. Staff is requesting Board authorization to use SEDA funds to enable the City Manager to negotiate and execute removal of the reversionary clause specific to taxlot 1200. Should the Board support this action, adequate SEDA reserve funds are available. There are no warranties that accompanythis product. Users assume allresponsibility for any loss or damagearising from any error, omission, or positional inaccuracy of this product. 6/9/2020I McVay Road Corridor, City of Springfield City Right of Way With ODOT Reversion Clause WildishProperty 0 250 500 125 Feet NUGGET WAY City Right of WayRemaining Right of Way McVay & NuggetTotal City-owned Right ofWay Area under ODOTreversion clause132,066 Sq.Ft. (3.0 acres) City-owned ROW,Converting to Real Property102,431 Sq.Ft.(2.3 acres) City-owned ROW,Remaining ROW29,635 Sq.Ft.(0.7 Acres) Taxlots Railroad City Right of WayConverting to Real Property(Remove ODOT Reversion)MCVAY HIGHWAYProposed New Rightof Way Attachment 1, Page 1 of 1 SCOPE OF THE REVIEW The following commentary identifies the level of due diligence performed by the reviewer in determining the completeness, adequacy, relevance, appropriateness, and reasonableness of the work under review. This review is based on a field review of an ODOT Appraisal Form 20 Surplus (Over $20,000) appraisal report that was completed by fee appraisers, Daniel Harms, MAI and Katherine Banz, MAI. It is noted that the appraisers utilized their own narrative format report but met all the minimum requirements of an ODOT Appraisal Report Form 20 Surplus (Over $20,000). In this review, the term ‘Report’ refers to the appraisal report under review. An inspection of the subject property was completed by the appraisers on February 24, 2018, the effective date of appraisal; the Date of Report is March 4, 2019. The appraisal reviewer inspected the subject property and comparable sales on December 14, 2018. A review of the appraisal report was conducted to ascertain if the document conforms to the appropriate appraisal standards and guidelines outlined in ODOT’s Guide to Real Estate Appraisal and Chapter 5 of ODOT’s Right of Way Manual. The appraisal report was specifically reviewed for compliance with the technical requirements of the aforementioned standards as well as for consistency and mathematical correctness. The appraisal reviewer was qualified by education and experience to conduct this appraisal review. The reviewer read the report as identified herein. During the review process, all submitted documents and correspondence were considered in addition to the appraisal report. The accuracy of calculations was confirmed. The adequacy and relevancy of the market data cited has been evaluated for propriety and accuracy of application. The report analyses, opinions, and conclusions have been evaluated for consistency. Independent verification of the fee appraisal data was not conducted, nor did the reviewer seek out other relevant data in the market. APPRAISAL REVIEW COMMENTARY HYPOTHETICAL CONDITION AND EXTRAORDINARY ASSUMPTIONS The appraisers have made the following hypothetical condition: The hypothetical condition has been made that the subject property is salable (despite not being a legal lot of record). Appraisal review noted that there was no prior authorization for invoking this hypothetical condition. Attachment 2, Page 1 of 8 The appraisers have made the following extraordinary assumption: The values concluded herein are predicated on the extraordinary assumption that the locations of sewer line easements, access points across the subject property segments, and the sizes of the subject property segments, as reported by ODOT, are correct. If this is determined to be false, the value conclusions herein will need to be revisited. PROPERTY DESCRIPTION The subject property is made up of one “tax lot”, identified by the Lane County Assessor’s office on Map #18S03W0340, Tax Lot 1200; the subject property is not a legal lot of record. The appraisers relied on documents provided to them by ODOT which indicate that the subject property is 142,386 square feet, or 3.27 acres plus associated slope easements which contain 14,194 square feet, or 0.326 acres. The property was conveyed for the purpose of a future City of Springfield transportation improvement project. The transfer document indicates that “If said property is no longer used for public transportation related purposes, or if the transportation improvement project does not commence within twenty (20) years of the execution of this Deed then the property shall automatically revert to Grantor.” The transfer document goes on to state that, in the event that the City of Springfield wishes to remove the Right of Reversion, the current value of the Right of Reversion shall be determined by a fair market value appraisal. The City of Springfield desires to remove the Right of Reversion; therefore, the purpose of the appraisal is to determine the fair market value of the Right of Reversion. For purposes of this appraisal, the subject property was divided into segments. On the ODOT Sketch Map, the subject property has been divided into 12 segments [A-K (which includes two “C” segments due to the numbering system utilized when the subject property was originally assembled in the late 1960’s)] which range in size from 1,968 square feet to 33,936 square feet. There are 10 adjacent properties which the appraiser has identified on their map as segments I-X; apportioning the subject property to the adjacent sites based on ownership (multiples of the adjacent sites are owned by the same entity) results in a total of seven lots (“parent parcels”), ranging in size between 2,523 square feet to 41,144 square feet. As stated previously, the slope easements have a combined area of 14,194 square feet. The slope easements are abutting six segments (C, D, E, F, C, portion of G) of the subject property. The appraiser has noted, there are slope easements on four (identified as II, IV, V, and VI on the appraiser’s map) of the consolidated segments. In addition, it was discovered that there are three (identified as V, VII and VII on the appraiser’s map) of the consolidated adjacent properties which are encumbered by a sewer line easement (subject property segments F, C and G). It should be noted that a portion of the subject property fronts Nugget Way which is already Attachment 2, Page 2 of 8 owned by the City of Springfield; additionally, the appraiser has concluded that this portion of the subject property is encumbered by the Nugget Way right-of-way and has rendered this portion unusable and attributed no value to it. The subject property is presently under the ownership of the City of Springfield subject to the reverter clause in the conveyance documents; it was transferred to the City by ODOT in early 2016. The subject property is a long, somewhat narrow (+/- 50’ wide at the north end and +/- 130’ wide at the south end) remnant parcel located along the McVay Highway/Franklin Blvd. at/near the Nugget Way intersection which is south of the newly constructed Franklin Blvd. Roundabouts. The subject property is located in the Glenwood neighborhood, an unincorporated area within the Springfield Urban Growth Boundary. The subject is less than one mile from downtown Springfield and less than three miles from downtown Eugene. The appraisers noted that the subject has a Eugene mailing address. Apparently, when Springfield took over jurisdiction of Glenwood, the zip codes for the Eugene/Springfield boundaries were not changed. Therefore, the subject still has a Eugene address, despite not being under the jurisdiction of the City of Eugene. ODOT research has revealed that the adjacent properties all have access to the adjacent McVay Highway/Franklin Blvd. over and across the subject property, via Nugget Way, or via an easement through an adjacent property. McVay Highway/Franklin Blvd. is a two-lane, asphalt paved road that is maintained by the City of Springfield. The appraisal has a detailed map showing the access points from each adjacent property to McVay Highway (Franklin Blvd.). It appears that each of the adjacent properties have adequate access if assembled with the subject property. The subject property is located within the City of Springfield’s Glenwood Refinement Plan Area/Glenwood Riverfront Area. The zoning of the subject site is MUE (Mixed Use Employment); this zone is established where office employment, educational uses and light manufacturing employment uses are intended as the primary uses with external impacts less than or equal to office uses. Limited small scale retail and service uses are also permitted if developed as an integral part of the primary employment development to provide commercial services needed by employees in close proximity to their workplace (employment-generating educational uses may be considered primary uses). Warehousing is permitted as a secondary use. The appraisers have concluded that the highest and best use of the subject property as though vacant is assemblage with adjacent/abutting properties. In the present condition, there are existing site improvements located on the subject property. According to the appraisers, the existing site improvements may hold some assemblage value to the adjacent property owners. However, the contributory value of the subject site improvements Attachment 2, Page 3 of 8 cannot be realized until the date of reversion (2036). Noting the current condition of the subject site improvements, and the length of time to the reversion date (17-18 years throughout which the site improvements will be depreciating further), the site improvements will have fully depreciated and reached the end of their economic lives. Therefore, the subject site improvements do not contribute value to the subject property. It is appraisal review’s opinion that were the property valued correctly, the site improvements could contribute value to the adjacent properties in as much as the respective property owners would, more than likely be willing to pay a slightly higher unit value for the site improvements and land to ensure that another market participant does not purchase their respective site improvements/frontage. The appraisers have opined that the highest and best use of the subject property as improved is assemblage with the adjacent/abutting properties. PROPERTY VALUATION ODOT appraisal requirements for properties similar to the subject property typically require an independent site valuation and an assemblage to the most logical adjacent property/properties (Assemblage Value). The appraiser has utilized the across the fence (ATF) methodology to value the subject property which appears to be the most appropriate valuation technique. In order to value the subject property utilizing the ATF method, the appraiser has employed the sales comparison approach. In their analysis, the appraisers have analyzed seven comparable land sales – three of which were located within the immediate vicinity of the subject and four that were located in nearby Springfield. The subject segments are valued on a price per square foot basis, as is custom for similar property types in the local market. The comparables sold between January 2015 and January 2018; range in size between 15,246 square feet and 1,118,621 square feet; and had unadjusted values between $1.03 and $6.12 per square foot. Adjustments were made to the comparable sales for building demolition (Sale #4) and market adjustments were applied at a rate of 0.75% per month where applicable. After adjustments were made to the comparable properties, a value range from $1.14 to $6.45 per square foot was realized. Subsequently, property characteristic adjustments were made on a qualitative basis by the appraisers. After concluding a per square foot value for the subject property, the appraisers appropriately completed an analysis of the segments which are presently encumbered by the sewer line easement. They attributed 50% of fee value for this encumbrance which appears to be consistent with the market. The appraiser concluded the following based on a thorough analysis of the comparable properties and the subject property. Attachment 2, Page 4 of 8 The next step in the appraisers’ analysis was to value the slope easements associated with Parent Parcels 1-5. They attributed 25% of fee value for this encumbrance which appears to be consistent with the market. The appraiser concluded the following based on a thorough analysis of the comparable properties and the subject property. Based on the aforementioned information, the subject property Assemblage Value (ATF) is $386,000 ($374,000 + $12,000 = $386,000). It should be noted that the appraisers did not attribute any value to the existing improvements located on the subject property which consist of asphalt parking lot, chain link fencing, public street, gravel drives, asphalt/gravel parking lot and a business sign. The appraisers estimated depreciated replacement cost for the site improvements at $71,031. As stated previously, it is appraisal review’s opinion that were the property valued correctly, the site improvements could contribute value to the adjacent properties in as much as the respective property owners would, more than likely be willing to pay a slightly higher unit value for the site improvements and land to ensure that another market participant does not purchase their respective site improvements/frontage. The next step in the appraisers’ valuation was to apply an “enhancement factor” to the Assemblage Value. It is appraisal review’s opinion that this is not a “typical” methodology for ATF value (rather, appraisal review believes this should be factored into the Sewer Encumbered Size Easement Unit Total (S.F.)Impact Value Value Parent Parcel 1 $5.25 13,022 0%$0.00 $68,366 Parent Parcel 2 $0.00 2,523 0%$0.00 $0 Parent Parcel 3 $5.25 13,025 0%$0.00 $68,381 Parent Parcel 4 $3.50 12,027 50%$1.75 $21,047 Parent Parcel 5 $2.25 41,144 50%$1.13 $46,287 Parent Parcel 6 $3.50 26,709 0%$0.00 $93,482 Parent Parcel 7 $2.25 33,936 0%$0.00 $76,356 142,386 $373,919 Rounded $374,000 Slope Impacted Size Easement Unit Total (S.F.)Impact Value Value Parent Parcel 1 $5.25 1,234 25%$1.31 $1,617 Parent Parcel 2 $0.00 461 25%$0.00 $0 Parent Parcel 3 $5.25 2,586 25%$1.31 $3,388 Parent Parcel 4 $3.50 3,608 25%$0.88 $3,175 Parent Parcel 5 $2.25 6,305 25%$0.56 $3,531 14,194 $11,711 Rounded $12,000 Attachment 2, Page 5 of 8 unit values previously estimated), it is not a gross error and could be a reasonable method used to achieve the same ATF value as factoring this “enhancement factor” into the unit value. The premise behind this makes sense because the adjacent properties are not required to purchase the subject property segment, so this factor is util ized to entice the adjacent owner to purchase. In addition, this factor takes into account any potentially large discounts for the decreased marketability and utility of the segments and any sell- out period and/or reluctant property owners due to the number of segments that comprise the subject property. Appraisal review believes that calling it an enhancement factor is misstated, as the appraisers’ conclusion of 0.50 is not an “enhancement” but a reduction. Regardless, appraisal review concurs that this a reasonable method to arrive at the fair market value of the assembled property, stated at $193,000 ($386,000 x 0.50 = $193,000). At this point in the appraisal, it is appraisal reviews opinion, the valuation methodology is incorrect. Appraisal review made repeated attempts (email, phone, in-person meeting) to work with the appraiser to better understand their methodology. However, the attempts were unsuccessful and the appraisers and appraisal review came to an impasse. The appraisers valued the property as an independent site taking into consideration the irregular shape, encumbrance of Nugget Way and sewer easement encumbrance; but, failed to take into account that the independent site value is subject to the Right of Reversion. At the end of 20 years if the property is not used for a transportation related use, the property reverts back to ODOT. Further, selling and/or leasing the property is not an option because that is not transportation related use. It is appraisal reviews opinion that these are the heaviest encumbrances that the subject property bears and they aren’t factored into this value. These encumbrances severely restrict the marketability of the subject property (if it can’t be sold there is no market participant to buy the property). However, in order to formulate an economic use, it would be necessary to either a) analyze and research other sales in the market that are severely encumbered (access, shape, topography, easements, etc…) and estimate a discount rate (to be applied to the assemblage value) or b) use the Easement Valuation Matrix and estimate a percentage of fee based on the easements/encumbrances which burden the property because of the specified use and restrictions (to be applied to the assemblage value). As a follow up to the aforementioned Independent Site Value, the appraiser proposed a “Valuation of the Reversionary Estate”. This methodology utilized the Assemblage Value previously estimated; trended it forward for the remaining term left in the original 20 years, added a 2.5% annual increase based on the CPI (this does not represent market value as property values over time do not increase in this manner) and deducted a line item of 5% at the end of the remaining term for expenses based on a hypothetical future sale (there is no future sale of the property, its ownership just reverts back to ODOT if it’s not used for the specified uses outlined Attachment 2, Page 6 of 8 in the deed transfer document). Then, the appraiser put those figures into a Discounted Cash Flow (DCF) model, estimated a discount rate (8.5%) from which to purportedly conclude the present value of the reversion; their opinion being that this is an indication of the fair market value of the subject’s reversionary estate. It is appraisal review’s opinion that this does not provide an accurate reflection of the fair market value of the Right of Reversion. Appraisal review was very thoughtful in their review of the subject property appraisal with the understanding that different appraisers have different methods of appraising properties; however, those methods have to be reasonable and supportable. That is not the case with this appraisal. For that reason, appraisal review does not believe that fair market value of the Right of Reversion was achieved. Further, it is appraisal review’s recommendation that another appraisal for this file should be procured. It is appraisal reviews opinion that the proper way to analyze the fair market value of the Right of Reversion is to calculate the difference in the value of the property with the encumbrance(s) [Independent Site Value – “As Is” Value discounted commensurate to the encumbrances on the property such as “If said property is no longer used for public transportation related purposes, or if the transportation improvement project does not commence within twenty (20) years of execution of this Agreement, then all right, title and interest shall automatically revert to state” (ODOT) and (given the aforementioned condition) that the subject property can’t be leased or sold. In addition, the site characteristics (not a legal lot of record, narrow shape, etc…) and encumbrances (sewer line easement)] and without the encumbrance(s) [Assemblage Value (ATF method) minus any site characteristic, provided that wasn’t a factor in the unit value of the site]. On August 20, 2019, Appraisal review was tasked with providing an opinion of value as though the property were valued in the correct manner. It is noted that the opinion of value provided by appraisal review is subject to the conditions that the appraisal report (reviewed herein) contains the best possible data and that appraisal review did not obtain, confirm or research the market for other relevant data for use in the valuation of the subject property. To properly value the subject property, the Independent Site Value must be opined. The Independent Site Value is by definition the stand alone value as an independent commodity. The Independent site value is, in layman’s terms, the value of the property as if it were put on the market today with all encumbrances and/or easements. As a starting point for valuing the Right of Reversion, appraisal review has utilized the appraiser’s previously calculated opinion of ATF value of $193,000. To assist appraisers, there is a published Easement Valuation Matrix which can be used as a general guide to assess the effect an easement may have on a total bundle of rights. For purposes of valuing the subject property, the Matrix was utilized; as the only other method of comparison would be to go to the market and research and analyze other sales in the market that Attachment 2, Page 7 of 8 are severely encumbered (access, shape, topography, easements, etc…) and estimate a discount rate which appraisal review was not asked to do. The Easement Valuation Matrix follows: It is appraisal review’s opinion that the encumbrances and easements on the subject property and as described in the appraisal as well as herein, have an impact of 90% (Comments: Severe impact on surface use, Conveyance of future use Potential Types of Easements: Overhead electric, flowage easements, railroad right-of-way, irrigation canal, exclusive access easements) of the fee value. Therefore, the calculation for the Independent Site Value of the subject property is as follows: Independent Site Value: $193,000 x 90% ($173,700) - $173,700 = $19,300 As stated previously, the value of the Right of Reversion is the difference between the ATF Value and the Independent Site Value which equates to $173,700 ($193,000 - $19,300 = $173,700). Therefore, based on the following information, it is appraisal review’s opinion that the Right of Reversion Value of the subject property, based on the conditions set forth herein, is $173,700. Date of Updated Review and Opinion of Value: August 20, 2019 Attachment 2, Page 8 of 8