Condo Wind Up Valuation Q, Please

CFA Level III Equities
#1

Hello Level III Candidates!

Would any of you be able to provide brainy insight as to what details or methodology you feel I should pay close attention to when figuring out a fair wind up value of a condominium complex that is sitting on a large parcel of land?

The 180 owners - many of which are VERY old - feel they’re being short changed by hundreds of thousands, and that scare tactics may have been used to some degree. The land reportedly worth ~$80 million, is located in a prime neighborhood. Taking a moment to be the devil’s advocate, the lowest any 2 bedroom sells for in that neighborhood (outside of the complex) is $550 for vintage condos without land beyond what the structure is built upon, and $600k for new condos, also without additional land, but because they potentially have $15-20 million in deferred maintenance expense on the horizon, an offer of $450k might seem reasonable?

What are your thoughts?

I should mention, the maximum buildable square footage is around 525,000, and due to the local housing crises in a nearby city, the developer can choose to apply for subsidies for all or part of the development.

I’m soliciting your opinions because some residents seem to feel this is a real David and Goliath battle. I’d like to set their minds at ease, OR go back to the listing broker with material information that they might have missed in their initial valuation. Everything is being fast-tracked. Unfortunately, time is of the essence for my relative and the other 179 owners.

Looking forward to seeing your thoughts and suggestions.

This is above my grade level. :slight_smile: (Passed Level I )

#2

Don’t think cfa candidates are very helpful in this area, unless they have real estate valuation experience? But you can purchase AICPA guidelines regarding real estate valuation.

It seems like you are missing value of land. You can value condominium complex (use relative value but getting transactions from database requires subscription) seperately from land (on basis of best use). The 180 owners have a joint claim on land unless there was some other transaction citing their relinquishment.

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#4

Thanks so much for your reply. I believe they have joint claim. I’ve requested the broker’s valuation details, that should arrive some time today. In the meantime I’ll check out the AICPA website. I can’t believe how rapidly everything is moving forward. I’m not sure if I can be of any assistance to my relative/other owners. Gasp.

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#5

:jigsaw: Yes, thank you. 180 owners do have joint (proportional?) claim on the land. The ONLY parts of the Valuation the broker has to this day, agreed to share with us, went like this:

Their selected (?) comparables used to calculate condominium land value included transactions from a nearby city with ( at a quick glance, it has reasonable price correlation, but ballpark only). Concerning to me, again I have zero experience in this regard, is they selected transactions from November 2020 - still considered ‘shortly after the Black Swan event’ meaning prices were lower. Their estimate included roughly 15 overall transactions over that protracted period and resulted in a value of $116 per buildable square foot. (They used a simple average calculation - not weighted, and no premiums or discounts for such a large parcel in a premium neighborhood .)

I excluded anything stale-dated over a year old, using 7 of their 15 previously selected transactions, then recalculated the price per buildable square arriving at a number 20% higher at $139. However, using their $116 per 525,000 buildable square foot, that totals $60.9 million versus $139 per buildable SQFT is $72.9 million. If their valuation for the entire property is $83 million, is the balance $83-60.9= ~$22 million their estimated value of the existing structures?

I’m not sure if anyone who reads this group knows, but is inflating deferred maintenance estimates on very large transactions a “thing” to look out for? Just curious, I am definitely not implying that is what happened here.

PS - I should also mention they forecasted a 6% decline in prices

That particularly resilient region experienced a 13% gain in condominium prices year over year, ending January, 2023.

Any hints what can be done at this point to ensure owners get a much more fair deal. Being pressured to accept $150 -200k less than what would otherwise be reasonable for a 2 bedroom not including any additional land value , but also excluding the deferred “maintenance” (??!) issue of ~$25 million can be devastating in a notoriously expensive part of the country. Not a great deal of mobility for old folks either.

Thanks in advance for anyone offering assistance. Cheers.

#6

This is exactly the reason to get professional opinion on this. Also different valuation methods provide different figure. At the end, all about negotiations.

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#7

You’re right, the owners don’t appear to be well represented, the condo committee/council/HOA(?) is keen to accept what appears to be brazen, heartless, opportunistic Rock Bottom prices.

Furthermore, after dealing with owners one at a time to solicit signatures of approval, they now only need 18 more signatures. I was informed the broker will solicit another valuation, and will report the findings later this week. I’m not sure how helpful it is when when seeking independent valuation, that the original party responsible for what appears to be an egregiously low valuation finds/hires the company responsible for providing independent valuation.

The HOA/Council/Condo Committee officers are required to disclose conflicts of interest to themselves - not the owners. Again, I am definitely NOT saying there are conflicts of interest. However, I am providing a clear picture this is a poorly regulated area of the economy. The overall situation appears… I will stick with the ambiguous word ‘challenging’.

If any qualified person would like to take this on, let me know your terms.

(Background: A couple of weeks prior to the condominium receiving this rushed purchase offer, an anonymous memo circulated imploring owners to stop selling their condos for excessively low prices. Listings were ~$100k apart for similar units. Causing the upper and lower bounds of the price range to be among the lowest in the whole region. Again, despite owning such a large parcel of land, and being located in a prime development high-demand suburb for new condominiums, and being IN the highest demand neighborhood of that city. Using CFA terminology , I believe that is a ‘Price Anomaly’, for which the reasons are not obvious to residents or potential buyers. )

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