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Abstract
Widespread concern exists about the broad range in values presented by opposing experts in certain court cases where the subject is a single-tenant property. The relevant market participants-institutional investors, for purposes of this article-do not buy, sell, or use big-box retail properties that are not encumbered by bondable leases to credit tenants. Thus, when required to value these properties in the fee simple estate, valuers must attempt to reflect the thinking of market participants when there are virtually no participants in the relevant fee simple estate market. This article addresses the collection and analysis of data that are as similar as possible to what is being appraised, including any associated leases or other financial benefits or restrictions, and the making of credible adjustments so as to develop credible opinions.
Introduction
Courts, market participants, and valuation professionals have become increasingly concerned about the wide range in value opinions presented by opposing valuation experts in ad valorem tax and eminent domain cases where the subject is one or more single-tenant properties.1 Although the issue is the same with regard to appraisal methods used for retail, industrial, and office properties, the most concern (and the main focus of this article) is related to single-tenant retail properties, from smaller stores to very large buildings housing credit tenant retailers such as Target, Walmart, and others.2 The concern within the profession reached a level of debate that led the Appraisal Institute to host its 2017 "Property Rights Symposium" (September 6-7, 2017) to enable valuers, educators, attorneys, and market participants to consider ways in which the relevant body of knowledge might be enhanced to support appraisal results. The purpose of those discussions was to ensure appraisals that are more transparent and understandable to judges, juries, attorneys, and others who are not real estate professionals but must make decisions based on the valuation reports. The participants in the Symposium focused primarily on the definitions of ownership interests to be valued. The premise of this current article is that closer consideration of appropriate appraisal methods and techniques also serves a purpose to resolve this debate.
The origin of the current controversy is the relevant market itself. After World War II, commercial real estate came into its own as an investment asset class,...