Real Estate Damages?
Start with the Facts
Argianas & Associates’ real estate services include litigation support valuation consulting. Over the years, plaintiffs/defendants and their counsel have come to rely on our firm to provide expert real estate consulting and witness services to provide dispute resolution and courtroom testimony.
For litigation support, we start with fact finding to identify legal interests and entitlements and their contributory impact upon a property’s value. These efforts require real estate and legal puzzle-solving skills, that start with the first phone call. For these engagements, assuming the establishment of a proper scope of services, our contributions to discovery and valuation including analysis of monetary damages incurred by litigations have made a big difference in case outcomes.
Often new information comes to light during the discovery period that changes the foundation of the case. The Argianas’ team has spent years educating and training our team and yours. We know cases are won with careful planning, meaningful appraisal reports, and critical analysis of valuation positions by a client’s opponent.
the problem: who done it
Take for example, a large medical laboratory structure associated with a university health system that was sold off to a private medical company. In this instance, the university health system re-leased the property without a full reading of the lease, which included a renewal option.
Medical campuses are unique in that one individual building may have limited contributory value on its own. However, when considered as a single economic unit with other structures on campus provide cohesive value. Put differently, you wouldn’t have a need for a student housing building on its own without the accessory-related campus structures. With medical properties, the entanglements can be even greater as they include original agreements, obligations for the utility agreement services, satellite peripheral medical, specialized services which come through a common building supply on the campus, parking, and access.
For added complexity, the damages to be considered were retroactive, requiring historical data that for many can pose a challenge.
in the land of the blind, the one-eyed man is king
When it comes to litigation, information is key and can make a meaningful difference. The difficulty associated with retrospective values often stems from an inability to find and corroborate meaningful supportive data for valuation efforts. This can manifest in reports that use current data and trendline back to a point in time or the exclusion of this important information altogether.
During our 30 years in operation, we’ve developed adept skills that result in meaningful, researched, and well-supported reports and analyses. In the medical campus example, time mattered. We reviewed historical databases and were able to navigate what are often large public governmental databases to construct market data to create a holistic story of the property’s operational and earning capacity over the last two decades. Without this important data, we would have been unable to arrive at a credible answer.
Additionally, we aggregated data associated with the period between the time of the transaction to the current date to derive the value associated with the damages/income lost. This included sales comparable data as of the time of the sale of the property as well as information and analysis for the property’s financials as of the time of sale and at present. Historic capitalization rates, market rents, and rental data; all of which are available to our team.
Another nuance to the property is that the neighborhood had gentrified from the initial lease to the present renewal option, resulting in the creation of a leasehold value position.
hide the ball | we’re not afraid of the weeds!
When you break down the main components in the scope of an assignment the valuation problem at hand becomes remarkably clear. We also understand that the litigious nature of such cases means our team may not always receive full documentation or a full account of the events that led up to our engagement. We believe that appraisal is an objective service, and the answers often lie in the data. When that data is not provided, we assist counsel by acting as consultants, with litigation support that includes suggestions for interrogatory questions and identification of documents to be included in a motion to produce discovery (for example, an opposing side’s income tax Schedule E, which usually provides details as to income and expenses associated with income-producing real estate).
Other examples which can materially affect the value of entangled properties include shared utilities (sewer, gas, heating, hot/cold water, air handling), shared access points/physical property, and cost-sharing.
Additional information not presented includes compare/contrast of market-level vs. renewal option rents that are sometimes found to be grossly below market, resulting in a valuable leasehold position on a lessee’s part.
can these cases be avoided?
We routinely see client links between real estate investment, property operations, and human emotion. Optimal legal positions have little connection with emotions; however, old, poorly crafted leases must still be honored. Properties and disputed real property rights can be tied up in litigation for years, resulting in multiple years of lost revenue that drive parties to litigate.
“We go beyond”, shared Chuck Argianas, “While we can talk about the concepts, it’s not just about appraisal reports. Regardless of consulting or expert witness services, it’s all about education to clients and strategic collaboration, which bolster consuls’ efforts as to their case’s strengths and/or weaknesses”. In need of a crash course that goes beyond the basics of an appraisal? Contact the Team at Argianas today. You can call us at 630.390.0113, email us at [email protected] or fill out this form.