John Donoghue, PhD, Professor Emeritus, City University of New York
Editor's Note: Dr. Donoghue is the first person to file suit to block the transfer of $475,000 in town taxpayer funds to the Charlestown Land Trust so it can buy the YMCA camp. Details on his suit here.
On February 13, 2012, the Charlestown Town Council considered agenda item 18 (c) which said the matter was “Potential action in support of the Charlestown Land Trust’s purchase of the YMCA property for preservation with advisory opinions from the YMCA Land Advisory Panel, the Conservation Commission and the Planning Commission.”
On February 13, 2012, the Charlestown Town Council considered agenda item 18 (c) which said the matter was “Potential action in support of the Charlestown Land Trust’s purchase of the YMCA property for preservation with advisory opinions from the YMCA Land Advisory Panel, the Conservation Commission and the Planning Commission.”
What does that actually mean? A vote of confidence or an “atta-boy” to the land trust for its purchase? What the council actually considered was a resolution for the Town of
Would you have ever guessed that the Town was considering the expenditure of $475,000.00 from the agenda item as published?
To make matters worse, the Council based this nearly half-million-dollar purchase decision on an appraisal performed for the Charlestown Land Trust claiming the market value of the property was $735,000.00. This appraisal is wholly inadequate for determining the true value of a conservation easement on this property, which is already restricted to a zoning designation of open space/ recreation.
The appropriate evaluation of the true value of conservation easements has long been problematic in the opinion of the IRS. The Appraisal Institute offers a specialty designation for valuation of conservation easements which consists of a 4.5 day training course, as well as a 2-hour examination.
Successful completion of the course and exam allows an Appraiser to be listed as a Valuation of Conservation Easements Registry. The Appraisal Institutes Registry lists two appraisers doing business in R.I. with this designation and neither of them performed this appraisal.
Not surprising then, there are two major flaws with the appraisal and the Council’s reliance thereon: (1) the use of “hypothetical conditions” as a means to ignore the existing underlying zoning on the parcel, and (2) the Council’s erroneous assumption that the value of Charlestown’s future conservation easement is determined by subtracting the amount of money “raised” so far by the Charlestown Land Trust from the total “hypothetically conditioned” total market value, plus the estimated costs of remediation and miscellaneous other expenses.
The term “hypothetical conditions” is an appraisal term which means the appraiser knows a condition to be false, but assumes it to be true in assessing valuation. It is most commonly used in land valuation that is vacant, but which assumes the approval of and build-out of a subdivision, or an apartment building or shopping mall, to secure financing of the project with a projected value.
That is to say, the future condition has not yet occurred, but the appraisal treats it as if it has occurred. In this case, the “hypothetical condition” used by the appraiser is that the YMCA property can be re-zoned from Open Space/Recreation to residential. However, as most of us are painfully aware, this very condition of re-zoning the property has already been rejected by the sitting Council, after lengthy proceedings on the “Veazey” application.
Therefore, the use of this particular “hypothetical condition” is done only to artificially inflate the value of the real estate to reach a point where the YMCA is known to be willing to sell. This is simply no different than an appraisal that assumes a “hypothetical condition” that your three bed ranch house on a slab with no garage, is really a 4 bed colonial, with walk-out basement and a 3 car garage!
Wasn’t it this very kind of shenanigans that led in large part to the housing crash in this country? That the Council majority is willing to rely on this “wink, wink” approach to the use of our tax dollars, to bail itself out of a really tough spot after denying the Veazey zone change, is nothing short of abdication of its fiduciary responsibilities and must not be countenanced.
This serious error is further compounded by the fact that the value of the Town’s conservation easement which is being purchased for $475,000.00 has not been determined, as required.
The Land Trust’s appraisal was allegedly the market value of the whole, undivided interest in the parcel. In the proposed deal, the Land Trust is going to take actual title to the property, subject to “conservation easements.”
Conservation easements are not valued by taking the sale price, subtracting what funds have been raised and then deciding that the value of the easement is what’s still needed to consummate the purchase! The Town’s own policies require an appraisal of the interest to be acquired by the Town and this has not been done.
Worse yet is that since the Land Trust is going to own the fee title to the real estate, the Land Trust has the right under section 4 (b) of the draft conservation easement on file at the Town Hall, to “sell, give or otherwise convey the premises or any interest in the premises, provided the conveyance is subject to the conservation easement and management plan.”
Section 9 of the document requires the Land Trust, before conveying to any third party, to give the Town a 90-day option to acquire on the same terms as the third party. Hmm, what then stops the Land Trust, when it can’t afford the costs of remediating the site to true open space, from soliciting offers from a group of “interested” neighbors for the purchase of the fee title?
Under that scenario, the Town would then have to come up with even more money to protect our interests and prevent the neighbors from buying the fee title to the property. Imagine having to make an “appointment” with the fee title owner (“neighbors”) to visit the property, as required by section 2 (b) of the proposed conservation easement. Good luck with that!
The Council had a “win, win, win, win, as President Gentz likes to say, when it was considering the Veazey proposal, but blew it. Now, the Council has created a mess that will likely result in litigation. Now that’s a “lose, lose, lose, lose”, from where I sit
