Board of Equalization Meeting   7/27/2021

Nine o'clock.

This meeting is being held pursuant to and in compliance with Ordinance Number 20-A, Subparagraph 6.

This is the meeting of the Board of Equalization.

Present, we have Mr. Ferrall, Mr. Wynn, myself, David Van Roijen, Mr. Cromwell, Ms. Pape.

Staff members, Mr. Lynch, Danielle Roth, Billy Taylor, Mr.

Staples.

Anyone else?

Lewis Newman.

Lewis Newman.

We'll call the meeting to order.

Do we have approval of the minutes of the previous meeting?

Who wasn't there?

I wasn't there.

Yes.

Okay.

All right.

So four members were there.

Wait a sec, just procedurally, is that a quorum?

It was a quorum.

I mean, that's the majority.

I'm just asking the question.

I'm not going to vote, and I don't think Bill's going to vote.

Abstain until Anthony's here and then there's no question.

Abstain until Anthony's here and then there's no question.

We have a quorum.

Yeah, I don't know.

I've never heard that.

Right.

But I don't know if you have to be at the meeting to vote.

Oh, OK.

OK, I'll just close.

Perfect.

Then that's sort of facet approval.

Yep.

Perfect.

All right.

All in favor.

Aye.

Any abstentions?

Very good.

Yeah, just a second.

I was going to ask Mr. Lynch a quick question about procedural.

The applicant has four properties.

I'm fine with him choosing how he wants to.

I know he has an appraisal of the entire, all four together.

So it would be logical if he were to talk about them all and maybe differences or specifics about them.

But yeah, I would give him that choice.

Good morning, everyone.

Good morning.

Good morning.

Very good.

This is your Board of Equalization.

The members represent the different sections of the county.

We're here to hear what you have to say, and then the county staff will explain their rationalization.

Thereafter, we will discuss and send you in writing within two weeks a determination of what we've come up with.

Okay, I will.

So the property that we're speaking of is, of course, the Charlottesville Fashion Center.

It's been in the news quite recently, sold back to the bank two Fridays ago, or last Friday, and I've been trying to get, well, two Fridays ago, I've been trying to get notifications from the special servicer, manager, and new owner

and all that.

So it's been a run around, but this is still based on my prior appeal packet for the special servicer and the manager.

As we know, you know, this last year has been incredibly difficult for retail, especially indoor shopping malls.

This property had been suffering before this and, you know, I'll just kind of walk you through my different approaches where I come down in value and then discuss some general macro retail considerations.

But as I said, it's the Charlottesville Fashion Center.

We're talking about 339,900 square feet of inventory.

It's a regional shopping mall built in 1980, most recently renovated in 2002.

The current assessment, the county has made a very generous adjustment here, but of course the owner has an appraisal on this.

It's a leasehold appraisal because this property is on the ground lease.

So it's not exactly apples to apples, but you know, there are numerous considerations.

We're still, there's still a large delta here between my indications of value and accounting.

So the current assessment rank for all four parcels is a combined $30,129,740, or about $89 a square foot.

The property has 238,958 square feet of in-line space, and then it has two vacant, or two anchors, which are part of this owner, or the owner owns.

And then there's also an out parcel with the red lobster on it, which is valued separately.

I think that the value placed on this by the appraisal is too low, but the rest of them all is really where the main consideration is.

As of the value gate, the property was 41.4% vacant.

As we all know, COVID-19 has had a huge effect on retail, as I said earlier, especially indoor shopping malls.

This is the fifth shopping mall that I have this year.

All of them are either in really, really bad shape or just being considered for redevelopment because the era of shopping malls or indoor shopping malls is kind of

passing by, especially with the prevalence of online shopping.

Right now, when I submitted this property, this appeal, the property is going, of course, through bankruptcy proceedings.

It was sold at the courthouse the other day.

At the turn of the year the outstanding receivables owed by the tenants was actually over 1.1 million dollars and you know the property is just going to take a long time to restabilize if it's ever able to.

I think probably the real play here is redevelopment, repurposing, and getting more of a mixed-use site.

The mall is near me.

I'm down here in Chesterfield County.

The Chesterfield Town Center is

really repurposed itself into more of a it has of course stores but it's become more of a a night spot you know more restaurants it's just you know just varying the uses has helped it recover a good amount.

But my approach is for this particular property.

I looked at it based on a pro forma, I looked at it based on historicals, and I looked at it based on a modified appraisal.

So as I said, the appraisal takes into consideration that this property is on a ground lease.

What I did for my approach there, I essentially used all the variables used by this appraiser, except for I backed out the expense of the ground lease.

The value there, once I backed that out of the same cap rate used by the appraiser comes to about 18 million,

$80,400, about $53 a square foot.

And then my own approach indicates a value of about $17.6 million.

So if you turn to page three of 94 of my packet, or it's page seven of the PDF, it's my three columns, they're all colored.

The blue column is my modified appraisal.

the green column is the pro forma based on 2021 and then of course the county like relies upon income actual income expense from two years prior so I also looked at it based on that and then the value there of course is much closer but I'm looking at it more respectively since my modified appraisal stabilized I used the projected income from the appraisal the projected KAM real estate tax recovery other income

comes up with a total revenue of about $6.4 million.

I used a 15% vacancy in collection allowance, which was used by the appraisal.

You know, there's a lot of turnover with these stores and, you know, having the vacant anchors really lowered the amount of foot traffic that the inline stores get.

And that really detracts from the appeal of this property.

I used the same operating expenses as the appraisal, 49.7%.

I used reserves in the amount of 4%, which is used by the assessor here.

For an NOI of about $2.5 million, roughly rounded, cap rates in the appraisal is 14%, which may sound incredibly high, but if you look at, I'll bring your attention to a market study that just shows the gambit of cap rates utilized on indoor shopping malls these days.

It's pretty incredible.

But doing that calculation indicates a value for all four parcels of $18,022,400,

I did my own pro forma based on the scheduled rents and recoveries.

This is the green column.

I used recoveries from the 1-1-21 rent model.

I used the same percentage rent as the average of the past two years, which is 1.5%.

I use the same ratio of other income CAM and real estate tax recoveries of 60.4% which is about $1.1 million so I come up with a total BGI of about $3.1 I use a 15% vacancy in collection allowance as was used in the appraisal I use the same expense ratio as used in the appraisal same 4% in reserves

It comes up with NNO, I have about 1.2 million.

And the difference with my approach, or the main difference is my approach is that I backed out these assumed rents for the anchor spaces.

And instead of using that, I use the cost value for the anchor spaces, which is how anchor spaces are valued in a lot of different jurisdictions, just because, you know, big box doesn't sell usually, and when it does, it's usually distressed.

So in order to compensate for that, I added the cost value of the Red Lobster and the two anchor spaces with a value for the inline space of about $8.

I added to that $14 million of the cost value for the anchor spaces plus the restaurant.

And then I deducted the lease up costs of $5.2 million, which is based on the assumptions provided in the appraisal.

And this is to restabilize the property and bring its vacancy down from 41.4% down to 1%.

And after making all these adjustments, I come up with a value of about $17.6 million or $52 a square foot, which is pretty much in line with my adjusted approach.

The rest of my packet, hopefully you've had a chance to go through it.

I know it was very voluminous, but I included a digested rent roll kind of showing how the property is doing, giving you a vacant inline versus vacant junior space, showing the restaurants there that struggled last year, of course.

And there's also a few tenants in this particular property that are just having overall J.Crew,

and other tenants that are just shutting down stores nationwide and they're really paring back their footprints.

Page 5 of 94 indicates the lease-up costs that I calculated to bring down, it's essentially 36.4% of the total vacancy to bring it down to 5% total.

But the rest of the packet is, of course, the costar report, just so you can get a good idea of what each parcel is made of.

The actual rent roll starts on page 22 of 94, and then the past few years of income expense.

So that starts on page 29.

On back, I also included the outstanding recoverables.

As I said, it was over $1.1 million as of the term of the year, and that's on page 30 of 94.

Working on that, I included the historical rentals as well and more historical income expense.

And then I also included all the media and all the articles that I found about how indoor malls are being affected.

And that starts on page 45 and 94.

I'll just give you some of the headlines.

Hopefully you've had a chance to look through them, but mall operators face trouble ahead as tenant exodus and pandemic fallout push off recovery.

Just give some details about people,

Investors are really focused on malls and just how they've had to...

The next article is found on page 49 and 94.

I think 2020 was bad for retail.

It's been 21B versus all the effects of the pandemic shake out.

Retail really figures out what sort of footprints they want and how they want to refocus on online shopping versus having brick and mortar stores.

And then finally, I think the biggest reports I'd like to bring attention to that I included in this portion are, start on page 60.

So this is a report that's on page 56 of 94, page 60 of the PDF.

But it's a Moody's Analytics report just indicating the overall effect of COVID-19 on CRE transactions.

And it shows, they looked at a bunch of appraisals before COVID happened and after COVID occurred.

This is a median individual average change and average and median change.

So page 60 of 94 shows a really nice chart to digest it.

Now the sample size isn't huge.

It's only eight moles that they looked at, but the aggregate change they found was a negative 23.9% reduction in value.

The initial average was much more dramatic, negative 44.1% in value.

The initial median was negative 48.3% in value.

So, no surprise here, the underperforming malls at the beginning of the pandemic got hit the hardest, and that's exactly what this property is categorized at.

And moving back, I'd just like to, I guess, refer to probably the most salient points in the appraisal,

In the appraisal on page 70 is just a market analysis discussion.

I think the conclusion really highlights what the issues are here.

So it says the subject is a Class C regional mall with overall sales volumes for the subject tenants averaging about $282 a square foot, which is how they count shopping malls.

You know, they look at how the in-line stores are doing.

You know, the foot traffic is driven by the anchor stores, but the in-line stores is really the beneficiaries of that.

and the higher the sales they get, the higher classification model.

So if you look at down here near Richmond, if you look at Stony Creek, you look at Short Palm, there's a huge disparity in value per inline spaces.

And that's the difference between Class C Mall and Class A Mall.

But overall, the tenants were already in decline for the last four years prior to COVID-19.

Demographic trends generally indicate an adequate support

For regional economic base with growth projected to continue, overall the asset is located in the main retail corridor of a stable market.

The subject has averaged to good access, averaged to good exposure, but is struggling to maintain stabilized occupancy in recent years.

Characteristics of the retail market examined at a macro and micro level support our collision with the subject should be able to maintain the current occupancy pattern, but overall income will continue to decline.

And then right on the next page is that really large study of national mall comparables and looking at cap rates of sales from the past four years.

And as you can see, the range

The average is 15.9% cap rates.

The median is 15%.

Maximum, the highest cap rate reported was 31.7%.

Lowest, which was one of the few malls that was in good shape that was selling.

This is a particular sector that's been hit incredibly hard.

And as evidenced by its own bankruptcy, it's just

They're just looking for some relief here just for the value to be brought in line with their institutions of value from the appraisal and, you know, but that's what I have for you here.

Thank you.

I guess I'll start out just because I'm not as familiar with

the whole situation.

Exactly.

Yes, sir.

And how does the PPP or the CARES Act fit into this?

Are they contributing?

Are you going to get it eventually?

That's something I'm not absolutely privy to.

Just based on, you know, the management was brought in last year.

The special servicer just hasn't had the overall, I guess, experience with this property to know if the recovers are going to be coming through through the PPP, which is, you know, done on a tenant by tenant basis and it's not done on the general mall basis.

All right.

Do we have any questions, Mr. Cromwell?

Right.

Well, it's under appraised in the appraisal because it's kind of lumped in, whereas it's an asset that could easily sell separately, it would probably go for, you know, around 400 to 500, maybe even $600 a square foot.

Large chain restaurants actually did pretty well I guess weathering the storm and you know looking at the values I've seen of recent sales you know once we were I guess more in the clear from the pandemic even though we're not you know they've actually been selling pretty at pretty significant levels but overall you know it's

I don't like how the appraisal lumped everything together.

I feel like they should have maybe separated that out and valued it separately instead of just saying, oh, this is all worth $15 million.

But overall, that's just what I'm seeing in the market.

I just think it's kind of, it can be sold separately.

Very good, thank you.

The cap rate that I used, so if you go back to page three, it's the blue column.

So if you work your way through the appraisal, this pro forma is exactly what's in the appraisal except for, as you said, I backed out the ground rent expense.

So, you know, I wanted to make it apples to apples because of course us being, Virginia being a fee simple jurisdiction, you know, we're not allowed to take into consideration that ground rent expense.

We're looking at the fee simple value.

So once you take out the ground rent expense, I'm coming up with that NOI of about 2.5 million.

And then I use the 14% cap rate as concluded by the appraisal, which is based on, you know, all those different sales that are on page, I think 70.

Maybe I'm missing something here.

Operating expenses on page three went up 25% from 40 to roughly 50%.

Do I have that right?

Yes, so that's based on the ratio.

So just the way that I was looking at it was, you know,

The pro forma that was providing the appraisal is done as more of a ratio instead of just actual.

Okay.

The management said that they didn't specifically, I don't know if the owner did, because as they are just a special servicer, there's more of a trustee, I don't think that they would have applied for PPP funds, because that's not in purview of, you know, restabilizing, trying to get this back on the market.

Because we're talking about the effects of COVID in 2020.

Yes, sir.

Thank you.

I can reach out and see.

Yeah, I can get you an accounting if they have it.

It's just a matter of they have it on easy access records.

The issue that I found with a lot of the other malls I've worked with is that the individual tenants get the PPP and that's mostly for their going to payroll.

It's not so much for rents and recoverables.

So it was

relief to keep people employed at that point in time.

Mr. Farrell?

I was just going to follow up on that.

I mean, it's my experience that every astute business owner has gone for PPP loans if they qualify.

And I expect these people have counsel at the ready to look into it.

I just want to make sure I understand, going back to the cost approach, as you stated earlier, use the tax assessment for the Red Lobster, the Sears, and the two anchor spaces.

And so when I go back to look at those numbers, they do not add up to $14 million.

So they add up to about $18 million.

So I'm curious as to what I might be missing.

No, I apologize.

I apologize.

I was incorrect.

Often an error, never in doubt.

So just ignore my question.

All right.

Are there any further questions from the committee?

OK, thank you.

And I'm going to let Stuart handle most of the details.

I just wanted to go over a few things and say that we agree with a lot of stuff that Mr. Owen has said today.

Certainly, COVID has been a huge effect on retail and malls.

The mall itself, there are kind of three different things affecting the mall here.

with the closure of the Sears in 2019, the closure of the JCPenney in 2020, and then the decline of retail overall.

But I do want to point out that we've decreased the assessment on these four combined parcels.

by 64%, I believe, from last year to this year.

And we are using now on the

on the mall, 14% cap rate, which is 5% percentage points of where we were last year for a stabilized mall.

And we're including 45% total vacancy in the analysis.

So I just wanted to point out that we are absolutely aware of the issues that are facing the mall, and we have

taking steps in the valuation process to account for those.

One more thing before Stuart gets going is the appraisal was dated, the appraisal that was provided by the owner was dated in August and

And the difference between August and January 1 of last year was stark in relation to COVID and the release of the vaccine and the outlook of evaluations and retail.

as those things changed in the last four months of the year.

So I think that we have to kind of take that into consideration as the way a retail property would be looked at in August, as opposed to the way it would have been looked at in a better outlook that you would have had in January 1st.

And as our value is January 1st, I think we need to consider that.

Now for the details, I'll let Stuart take it.

Good morning, everyone.

Great.

I just wanted to say that the first of all, to start out with the appraisal was really for a liquidation sale for all four properties combined.

We are charged to look at this from the highest and best use standpoint for each because each property is an individual property.

They're all very different.

one of the shopping mall, of course, and then we have two anchors.

And then we also have a restaurant, full service restaurant.

We have to look at these individually, unlike the appraisal, which was for liquidation.

We assess the fee simple interest estate as required by state law, which includes the full bundle of rights.

The total value would not be appropriate in comparison to properties.

Our combined total assessment on the four properties on page four shows that our assessed value is $30,129,700.

Our combined planned assessment is $20,169,200.

While going through the 2019 income and expenses on the representatives page 40, we looked at the 2019 income expenses because we felt like that was the last typical year of income and expenses for the property.

and also on page three of his handout, you'll see over to the far right, let's say actual 2019.

What we found was we both made some errors in adding up the total expenses.

We had not added for both marketing and for real estate taxes.

And to handle that for our pro forma from using the 2019

Incoming Expenses, on page 5 of our handout, we used a loaded cap rate and we loaded the taxes because we do not believe that a potential investor would think that there would be

$50,000 in real estate taxes at that point, or whatever the number was that was cited in there.

So we loaded the cap rate on our pro forma approach.

But to get to that pro forma approach just for the mall property, we had to back out the rents.

We backed out $112,000 staying on page five of our handout.

We had to back out $412,000, $87,000.

and for the Red Lobster, we backed out 110,000 and you have to ask yourself how come you cannot back out the J.C. Pennies?

J.C. Pennies has been receiving some income for the COVID shots and also we do see the potential that for some temporary tenant, much like the COVID tenant for Blue Ridge Health District,

Spirit Halloween, for example, or some other Christmas tenant will come in there and will pay some money going forward.

So back up, that income, we arrived at, going to our income, our proforma income approach, $5,311,349.

That represents about 91% of the total income going back to our 2019s on

on the tax representative's page 40, we had to back up a little more than $400,000 for the tenants at that point.

So then we have to ask ourselves, okay, in 2019, it was 27%,

Vacant.

And so moving forward, we believe just like an investor, there's going to be more vacancy.

So we looked at the 2020, 12-31-20 tax roll and it showed it was 52.16% vacant at that time, which is on the same error handout page five, just to the right of vacancy and collection additional 18%.

We believe that roughly about 45% would be more appropriate for the property moving forward.

We believe an investor would think that they could probably do a little better and also COVID had some effect on that higher 52% number.

But then we have to ask ourselves, how did we get the expenses for the property?

So on page six of our handbook, you'll notice how we arrived at the total expenses for the property.

We went ahead and added back the marketing.

And then as we described earlier, we loaded the cap rate, which will be added later, to arrive at $1,923,538, which is quite a bit

more than the tax row pat on going back to, I hate to keep moving you on back and forth so much, going back to operating expenses on his page three.

So then what we did was we said, well, how do you get to an appropriate amount of expenses for the property?

So we looked at the ratio for the rents and that was 91%.

So we just believe that 91% of the expenses should be going, of those expenses should be going towards the mall itself and not to the JC Penney's and also the Red Lobster and the Belk.

So at that point, it becomes 91% of the total 2019 expenses.

Then we added in another 4% for the replacement reserves, staying on page five.

And so the total expense ratio winds up being 44.86%, or total 1.925596.

That's solely attributable to the mall itself.

Then we get to NOI, finally.

And that's 2.429710.

And we used a loaded cap rate.

We used 14, which is the same as the tax rep used and also the appraiser used to come up with a total value of $16.357, $300 million, which is slightly higher because of that discovery of the expense situation.

and also because we had not accurately selected the vacancy of the property at that time.

On page eight, you'll see of our property,

Handout, you'll notice that how we treated regional malls, we used the 14% and previous years we had used 9% or 2020 valuations of the properties and also the 2019 used 8.75 or those were much better days for shopping malls as we all know.

On page nine, we look at the PricewaterhouseCoopers, overall cap rates for regional malls, and you'll go down to the 2020 fourth quarter.

Well, notice that there wasn't a whole lot of movement with that.

And I believe that's because there was some hope, given that there was a vaccine at the end of the year and that some tenants may come back.

And you'll notice the high range is 15.

We used a 14 on the mall because this mall still does have some revenue coming in.

And it's not at all as bad as some of those in the Richmond area.

that Michael has talked about.

Before questions, if you wouldn't mind, I want to follow up on a little bit.

and a little more overview.

So I think that last statement that Stewart said is important.

In the words of Mark Twain, the reports of my death have been greatly exaggerated.

I think the law is not dead yet.

It's still, I think that even the lender admits there's still some life here because they've purchased it back.

So

I also, and in that, you know, I actually made a kind of a false statement a little while ago I wanted to correct.

So the mall parcel itself is the parcel that we reduced 64% from last year.

The Sears, we are already assessing at $1,000 through the improvement.

So it's basically just land value.

The Belks, we are depreciating at 90%, but it's still open.

And then the mall vacancy, as I mentioned earlier, we were using 45 percent on top of the much higher cap rate.

And I just wanted to give a little clarity just to make sure everybody was clear on the comments Stuart made about the loaded cap rate and the taxes.

The 2019 taxes or the taxes included in the 2019 statement were based on $53 million value.

So obviously those would not be appropriate in valuing a $16 million property or what we're saying is worth $16 million.

So by loading the cap rate, it automatically includes the amount of taxes that would be based on that value.

Quick question, Mr. Stables.

I have two different numbers here.

The vacancy rate of them all at the first of the year was 45% or 56%.

We're showing it was 52.16%.

However, we believe some of that was COVID related.

And so that's why we used 18% for additional vacancy.

The 2019 income and expenses used, it showed 27.06% at that time.

And so when you add the two together, that's where we came in.

Right, and the vacancy is obviously changing throughout the year due to COVID.

2020 started the rent roll at 27.09%, which is on page five of what Stuart provided, and then ended the year at 52.16.

So it changed drastically during that year as it had that COVID effect.

Thank you.

Anybody else have a question?

Mr. Ferrell.

I'm just trying to digest all this.

Yeah, there's a lot of numbers.

I'd like to reconcile the differences in the leasehold estate and the fee simple estate.

I agree with Karen.

That's the key to this and that's why I ask about the 14% cap rate on the overall.

You have two different income streams here and one is the least fee and the other is the least hold to stay.

You know, I would love to be the owner of the least fee.

Okay.

You're getting $376,000.

There were a couple of numbers that I looked at.

I couldn't reconcile them.

I think in my calculations that, man, I would love to have $379,000 coming in, but I certainly wouldn't cap it at 14%.

I mean, that's just, I mean, sitting on with, you know, $14 million of real estate sitting on your ground that you could get for nothing is gonna put you in a pretty secure place as far as someone paying that ground rent.

And so a safe rate is what we would use in appraisal theory, which could be anything you want.

I mean, it's like, what's a, what's, you know, I refinance my house for three and change.

If you did it at 4%, that's a big number.

And you add it back to the leasehold value, you're coming up with a total market value for the property as if, you know, a fair market value where Stewart's coming in.

So I think that's the big fallacy here.

So in a sense, you're taking that $379,000 in Michael's version, he's capping that at 14% also.

when in my version, I kept at it three and a half, maybe, yeah, three, seven, I don't know, you pick a number, but that's a very safe income as far as they go.

So if you had those, you know, the difference, the capitalized value just on the, you know,

the leech ramp, the ground ramp, you're coming up to right where, maybe even a little, I came up with more than Stewart had.

Are there any other questions?

Mr. Wynn, you're good?

No questions for me.

All right, thank you, Mr.

Staples.

This is absolutely a complex property.

So, you know, when you add that leasehold or the lease of the land on top of it, it definitely makes it even more complex on top of all the other issues that are facing it.

And I just want to reiterate that we've made great changes to the way we've done this and a lot of

things that would reduce the value based on a lot of those effects.

And I think our value is fair in where it should be.

Well, if there are no further questions, I think that concludes the presentations for both sides.

We will

be discussing this application and we will send you in writing within the next two weeks our determination.

I thank you very much for your huge packet and the time that we spent on it and we will struggle with this issue.

Hard to find that unmute button, sorry.

I would like to just make a comment about something Peter said about the lender buying this property indicated he or yet had optimism about the property.

Unfortunately, that's not true.

The lender would only bid his debt

and that's very common.

I work for American National Insurance Company, National Life of Vermont and Travelers Insurance Company doing commercial lending and I know they've got no choice otherwise if they had a 14 million dollar debt and they bid 12 they're walking away from 2 million right there that they could have get a judgment on perhaps

and they just don't want to take that right off at this present time.

So it really doesn't have anything to do with optimism.

It's not a valid sale.

Thank you.

All right.

I guess that can, oh, Ms.

I'd like to also add a comment that, you know, in reading the appraisal by Colliers, there,

their liquidation value was four and a half million dollars.

Their market value of the leasehold estate was $15 million.

So I don't think that they were really tasked with just doing a liquidation value.

So I just be, you know, I just wanted to note that that their appraisal was based on the market value of the leasehold estate.

Thank you.

All right.

One more try.

Any further questions?

All right, thank you very much for all your efforts, and we will discuss this and let you know.

Thank you.

Thank you very much.

Mr. Lynch?

Yeah, I believe he's presented all four together as one thing.

And we've explained the differences between the four and how we value.

Yes.

Yeah, he did change that a little bit towards the end of his presentation when he said that could be considered separately.

And I agree with that.

And I also agree that the three parcels, the two anchors in the mall, they're not necessarily one economic unit, but they are symbiotic in the fact that they feed off each other.

Would it be okay if Billy called him back and just confirmed that maybe, did you want to say anything about Red Lobster or J.C. Penney or the milk store?

Since he did, I don't know.

Well, I thought I thought he said he was presenting them all at once.

Yeah, that's what I thought.

Well, it was, but there again, he's challenging two of those three assessments.

So I think he's entitled to the presentation by Mr.

Staples.

You know, we could take a nine minute recess just to confirm with the guy.

All right.

Do we stop the recording or do we continue?

We can continue.

It's a short time.

OK. All right.

Very good.

I thought it was clear that he had said what he wanted to say.

Where he didn't say what he's before.

Thanks.

Are we back in session?

Mr. Cromwell, is he in?

I don't see him in the picture, but I assume he's... Yeah, he's here.

He's here.

No worries.

Sorry, I ended up changing my shirt.

I have a puppy.

Good, good.

We were questioning

You had stated that you were presenting the properties as a whole, correct?

Yes, sir.

Okay.

We just were making sure that we have done everything and given you every opportunity to present it as you chose and that I didn't cut you off and put you into a difficult situation.

I appreciate it.

Everybody else?

Mr. Onan did provide the individual amounts for each parcel on his applications.

He did.

Yeah, and those are strictly based on just mathematics.

They're not really

Thank you.

I do have a few questions.

Mr. Owen, I'm looking again at your documentation on page three, and I think that you have tried to address that ground lease, bring it up to the fee simple.

Right.

In the blue column, I took out the entire, I think it's $327,000 of ground rent payments from expenses, and that's how I adjusted for it.

And so in looking at the value of the other parcels, you based it on the tax assessment.

So I'm assuming by your other comment that basically you just did an allocation of the decrease in value.

And so you're really not

Essentially, it seems to me like you're not really quarreling with the assessments of the other parcels.

Right.

That is where, yeah, you know, the basic argument here is that, you know, the inline stores are what's really hurting here.

You know, the big box at some point in time, you know, most jurisdictions just look at big box as based on a cost approach, because there's not good sales and the sales, as I said,

you know that happen are always distressed you know if let's say Circuit City you know as an example they sold a ton of big box stores you know they were all you know went into bankruptcy just all distressed so those sales aren't really indicative so you know I try to be as accepting of you know what the appraisal institute or appraisal institute and the association of assessing officers you know say to do for those properties

Here, the real property that's going to be lacking income is going to be that inline stores, the inline stores, which is where the value usually is in these sorts of sites because typically the anchors are owned separately by the anchor stores.

Sears owns all theirs for a long time.

J.C. Penney usually owns theirs.

And then my other question is, and I guess this question would be to you as well as to Mr.

Staples, has anyone done, you know, I think that you made the comment that there probably a, you know, the property is right for redevelopment into more of a mixed use type of property.

I have not personally, I haven't seen them do that.

I think that's something that, you know, whoever the bank ends up selling this to is gonna, that's when they're gonna, you know, sharpen their pencils and look to see what sort of opportunities they have.

You know, they have the hotel right beside the mall.

They have, you know, some apartments, et cetera.

Oh, Mr. Lynch.

If I can add, one of the problems I have with the appraisal was that the highest and best use as vacant and as improved were different, which means the appraisal is saying that it's the highest and best use as

However, because it's only value on the leasehold part of the value, it really doesn't get into any of that.

It doesn't value the land separately to tell you that it would be a certain amount if those improvements were removed.

And I think there's a lot of value

as we know from how much money the Costco site sold for, I think $11 million back in 14, a much smaller site.

And so there's a lot of value in the land and it's really kind of putting that together with the improvements that are there.

I think the appraisal, unfortunately, it's not as simple as just capitalizing the land rent.

consideration of the appraisal as it's done.

All right.

Mr. Cromwell has his hand up.

I don't know if you can see him.

Yeah, just following up with Peter's comment, I mean, the redevelopment of a property like this is going to be very, very complicated.

If you look at the rent roll, you have some big tenants that are going to roll off, their leases are going to expire for the next, you know, 2025 or 24.

And then you got some little guys in there, their leases extend much further beyond.

and those have rights.

Those people have rights to the shopping mall.

They've got rights to the common area access.

They've got common to parking.

So a three or 4,000 square foot gym with a lease extending, you know, on into the 2020s.

I don't know how long the last one is, but those are gonna be very thorny.

I mean, you just can't kick them out.

You know, you like to buy them out.

And so when you start putting together redevelopment plan, you've got to have everybody's consent because you're gonna disturb all sorts of complicated easement rights and store rights and everything else.

That's my two cents on that.

It's going to be way too complicated for anybody to do it unless they could.

And they wouldn't buy it.

They would put it on a contract.

and for whatever million, and then they would go negotiate with these guys to get them out or whatever.

But it's gonna be a big time operation for someone to come in.

We've got local players that are buying off pieces, you know, like the JCPenney store.

That's very predictable.

I think Michael said that and very doable, but the inlines part is gonna be really thorny.

Well, no, I totally agree with you.

Not only in addition to what you're saying, but redevelopment would be further complicated by the fact that the belt parcel and the JCPenney parcel are out parcels and they're really going to make redevelopment of that property more complicated.

unless they could be purchased as well.

Back in the day, J.C. Penney and Sears had huge legal teams and I guarantee you they tied up that operator six ways to Sunday regarding what they can do, what changes in the

the area that can be made, who knows what his sense are actually gonna be necessary.

So it's gonna be very interesting.

All right, let's not redevelop the mall all at once.

Let's get back to the matters at hand.

Thank you, Mr. Owen, for coming back and straightening us out on that issue.

We will, as I said, let you know in writing in two weeks as to our determination.

Okay.

All right.

Ladies and gentlemen, we're faced with this issue.

Where do we stand?

Well, I think he's done a very good job of explaining the current climate of retail, especially retail.

and I do think that I'm troubled by this vacancy rate having gone up to 52% by the end of the year.

I've been in that mall.

It is a very sad situation.

I just want to spend a little more time looking at Stuart's income approach.

But I'm kind of inclined to

I was just going to say, on the vacancy rate, I get it.

We have to look at the year as a whole, though.

It started at 27%.

So I mean, while it may have ended at 52%, I think taking an average of 45% is probably fair.

And I don't know when the vacancy started to occur.

I mean, if it was 52% vacant in February, that would be one thing.

But it sounds to me like Stuart or Peter, it sort of gradually ended up at 52%.

We don't know exactly.

I don't know how you come up with a valuation on this that makes sense to me.

Well, I think Stuart's done a good job.

I mean, it's very difficult.

I agree with you, David.

It's very difficult, but it comes down to judgment, experience, what facts you do have, you know, and relying on appraisal theory and practice through the years.

I think we affirm it.

Actually, I think we affirm all of them.

I didn't see any support for doing anything with Red Lobster or JCPenney given the sales.

That's just silly.

So we go right through that.

The actual lender for this property called me about three years ago, maybe four.

and asked me what I thought about them all and to talk about it because they were in a position of extending the loan.

I guess there had been a loan balance was becoming due.

and I was being amortized over a long period but I was doing payable in a shorter period of time and they were gonna extend that and they were in my opinion.

I told them I wouldn't put my family's money in this thing.

I lived at that time less than a mile from the fashion square and I don't think I've been into it three years and that was three years ago.

So it's definitely a trend.

I think next year we'll see the assessment go down even further.

And I just, I don't have a lot of hope for this property.

Well, I mean, let's say if I'm looking at the numbers, right, the assessment from 2020 to 21, it's gone down 65%.

from 46 million to 16 million.

Applicant is asking for 9 million, which by my numbers is 80%.

So I'm sort of struggling.

I mean, you know, maybe this is going to turn out to not be a great investment for the owner, but it's not.

Not necessarily our responsibility, I think, to compensate for a bad investment.

I mean, I'm pretty comfortable with a 65% decrease.

I think Stuart's done a good job also.

Am I mistaken that the J.C. Penney Building parcel sold separately earlier?

Yes.

But yeah, it was sold prior to bankruptcy liquidation.

And what was the price per square foot on that building?

Never did.

I'm still working on it.

Okay, that's fine.

Okay.

And you've appraised this property at what $72 a square foot?

I have 4.944.

However, after discussing the property with him,

Oh, no, no, no.

My question is you valued the property at 80.

You valued the subject shopping center at $83 a square foot?

And the penny sold for, what, $42 a square foot?

And the tax rep is arguing for about $47, $48 a square foot.

Right.

Price per square foot can be found on page 11 of my handout.

84.94.

It's now being divvied up for mixed-use development.

We had a number of closed malls in Henrico County.

Regency Square is yet another one.

Well, I guess the matter at hand is, has the applicant approved

that his valuations are correct versus Stewart's.

And if we stick to that versus trying to, everybody has to, I have a feeling that we're all trying to come up with hypothetical valuations due to COVID.

And I don't think we can do that.

How big is the land?

It's 10.17 acres.

So I'm just looking on page three at the highlighted area of the pennies.

So you're saying that the pennies parcel, did they also get that wooded parcel on your page three?

That's our best information that we have.

We'll do some deed research to get more information on the plant.

OK. That wooded piece did so.

22138.

2-2-1-8-3.

That was a part of the penny sale?

No, it was not.

It was not.

Because you don't have the lease hold, you don't have the lease fee and the value there and all those things.

They're just not, just not comparable.

But I do think that if you look at the sale and what Stewart's done on that parcel, that's fine.

Red Lancer is fine.

Belk's fine.

So that's why I think that if you look at that Sears site is going to be a real asset to somebody because it goes over there all the way to 29.

You've got a lot of excess land to develop there.

So yeah, I think we'll see something happen, I appreciate it.

I don't know what their play is.

A lot of these firms that buy REITs are just waiting for COVID and everything to boil over.

And you'll see that flip or be redeveloped.

People, you know, when I was working for UVA Foundation, almost every day somebody asked me, I heard that UVA bought Fashion Square Mall.

Alright so I'm not going to take that as a motion but I'm certainly going to I take that as sort of a basis of discussion that Bill thinks that these look okay and I'm sort of

Well, no, that's, he said in his opinion, he thought the appraisal was low on the Red Lobster, but he wasn't trying to make an opinion as to what the assessment should have been.

So I'm not concerned about that either.

It is kind of what it is if you values consistently and equalizing each approach to each property, that's what we're here for.

And I think we've done that, okay?

To get in and start tweaking around and try to adjust stuff that hasn't been requested is not where we ought to be right now.

I would just add one other thing in that I do think that trying to compare their numbers, it really looks like if you look at his modified stabilized appraisal on page three versus Stewart's numbers, the big difference is really in the expenses.

And so

Without really being able to dive into Mr. Ryan's expenses, I think that we really should be affirming this value, particularly since he doesn't seem to have a real issue with the assessments on the other parcels, on the other three parcels.

Everyone's happy with the motion?

It's been seconded.

Very good.

It could be one letter with all four parses on it.

I'll look into it.

Hang on a second, let me get there.

No, works for me.

Aye.

The meeting is adjourned.