Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John steals my thunder about being a terrible businessman and tackles air rights.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

I am a terrible businessmana good appraiser, mind you, but a terrible businessman. I have had dozens of phone calls these past few years from potential clients who wanted to hire me for an appraisal of their “air rights” and, one by one, I talk them out of it.

I explain to them that, in order for me to report a “market value” there needs to be a market. In New York City, air rights or excess development rights can only trade to an adjoining property owner. So in most cases there is a potential market of three: the site to the right, the site to the left and the site in back of you. Further, in most cases, one or more of those sites are already built to their maximum development potential and, therefore, would not be a suitable receiver site for the air rights. Therefore, in most cases, there is a market of one. Can’t estimate a market value for a market of oneby definition, that is an “investment value.”

I am usually called to appraise these air rights because someone has already made an offer to buy them and the caller wants to see if it’s a fair offer. I explain that with a market of one, fair is whatever they decide. It all comes down to how badly they want to sell and how badly the buyer wants to buy. Just because the person across the street sold his air rights for 50 cents on the dollar (i.e. 50% of the underlying land value), doesn’t mean that you should sell yours for that much. You may be able to get more, or you may get less. The circumstances of each air rights transaction is different.

I offer to help on a consulting basis but I tell them that I can’t write a market value appraisal. In order to help in their negotiations I tell them we would need to identify what their other options areand what the seller’s other options are. At this point they usually thank me for having spent 20 minutes on the phone with them. I hang up realizing that it would have been so much simpler and the caller would have been much happier if I just took on the projectwrong, but simpler. I am a terrible businessman.

[…but a good appraiser -ed]

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