business issues forum: litigation services march 30, 2009 counselors of real estate case study...

BUSINESS ISSUES FORUM: LITIGATION SERVICES

MARCH 30, 2009

COUNSELORS OF REAL ESTATE

CASE STUDY PRESENTATION BY:

Marilyn Kramer Weitzman, MAI, CRE, FRICS

President, The Weitzman Group, Inc.

&

Mark Jon Sugarman, Esq.

Partner, Bryan Cave LLP

THE WEITZMAN GROUP

Real Estate Consultants

THE WEITZMAN GROUP


2THE WEITZMAN GROUP


THE WEITZMAN GROUP


• 2 Out of 3;

• Baseball;

• Neutral Decides; and,

• AAA

TYPES OF ARBITRATION

3THE WEITZMAN GROUP


THE WEITZMAN GROUP


RETENTION OF NEUTRAL

• Usually, two (2) party appointed appraisers must agree on a neutral.

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THE WEITZMAN GROUP


• Appraiser of Land Value

• Market Consultant – Residential, Hotel, Office, Retail

• Real Estate Economist – Particularly in Troubled Times for Current Assessment and Forecast

• Mortgage Banker – Availability and Cost of Financing, Financing Climate

RETENTION OF EXPERTS

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THE WEITZMAN GROUP


• Zoning Consultant – Building Envelope for a Land Residual

• Architect – Renderings and Building Envelope

• Cost Estimation Consultant – Hard and Soft Costs of Potential Development Scenarios

• High-Profile Manhattan Developer – Providing Support for Marketability and Feasibility Conclusions

RETENTION OF EXPERTS (cont.)

6THE WEITZMAN GROUP


THE WEITZMAN GROUP


• Other Issues

• Falling Market

• Rising Market

DEVELOPMENT OF STRATEGY FOR VALUATION

• Zoning Issues

• Comparable Sales

• Land Residual

• Two (2) or Three (3)

Logical, Marketable

Scenarios to

Determine Highest and

Best Use

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THE WEITZMAN GROUP


• Time Limits

• Number of Expert Witnesses

• Rebuttals

• Meeting Dates

• Formality – Attorneys, Court Reporters

RULES OF ARBITRATION

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THE WEITZMAN GROUP


• Interpretation of Ground Lease Renewal Clauses

• Highest and Best Use

• Subject to Existing Improvements (Highest and Best Use Issue)

• Subject to Existing Ground Lease (Coop vs. Condo)

SPECIAL ISSUES

9THE WEITZMAN GROUP


THE WEITZMAN GROUP


• Land Underlying Major Manhattan Class A

Skyscraper (Office Building)

• Significant Multi-Level Retail Space on 57th Street

• Ground Lease Clause: Market Value, Highest and Best

Use, Unencumbered, As Vacant

• FAR (Floor Area Ratio) of 15 for Commercial and

Mixed-Use Commercial/Residential

• No Major Construction Development Constraints

• Date of Value: January 1, 2008

LITIGATION SERVICES:Case Study Facts

10THE WEITZMAN GROUP


THE WEITZMAN GROUP


• Market Value of Land: $825 per square foot vs. $375 per square foot

• Appraisal Methodology: • Sales Comparison Approach Only

• Sales Comparison Approach plus Land Residual Technique

• Which Provides Best Indication of Market Value at a Development Site?

LITIGATION SERVICES:Major Disagreement Points



THE WEITZMAN GROUP


• Highest and Best Use:

1. Condominium with Major Retail Component

2. Hotel and Condominium with Small Amount of Ground Floor Square Footage

3. Retail/ Office/ Condominium

LITIGATION SERVICES:Major Disagreement Points (cont.)



THE WEITZMAN GROUP


• Necessity of Feasibility Study

• Economic Outlook as of August 2007 (Date of

Exchange of Appraisal Reports and then

Rebuttals) and as of January 1, 2008 (Date of

Valuation)

• Availability of Acquisition and Construction

and Mezzanine Loan Financing for Over $100

Million Development Projects in Manhattan




THE WEITZMAN GROUP


• Selection of Land Sales:

• Applicability of Smaller Land Sales (under 10,000

Square Feet) to a Much Larger Subject Site

• Applicability of West 57th Street Land Sales

• Potential Decline in Land Value due to

Impending Decline in Economy:

• No Sizeable Land Sales Past May 2007




THE WEITZMAN GROUP


• Length of Construction Schedule:

36 vs. 48 Months

• Height of Building and Availability of

Views from Upper Floor Condominium

Residences

• Health of the Condominium Market (New

Units)




THE WEITZMAN GROUP


• Health of the Hotel Market

• Correct Amount and Type of Retail

Square Footage: High-End vs. Middle

Market Retail

• Key Issue: Was there any Market for

Vacant Land as of January 1, 2008?




THE WEITZMAN GROUP


Questions and Comments?

business issues forum: litigation services march 30, 2009 counselors of real estate case study...

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