Vail Daily column: Values matter in Avon
When I was growing up, my parents always taught me that values matter. Two of those values were telling the whole truth and being honest with one’s self and others. I believe that these values are lacking in the town of Avon’s potential acquisition of The Skier Building. My points are as follows:
• The Skier Building does not have adequate parking to meet current zoning requirements. The town’s appraisal stated that the value of The Skier Building without the requisite parking was $2 million. Eric Heil, the town’s attorney, wrote in a Sept. 18 memo to the town that “it should be noted that the town is the only potential buyer of The Skier Building, which can meet parking requirements off site, at this time.” This statement acknowledges that the building lacks value without parking; that is, no third-party investor would be able to purchase the building for commercial use if he or she did not also purchase parking rights from the seller’s associated project. Yet the town wants to pay $3.2 million, which its own appraiser stated was the value of the building with parking. Might voters and attendees of the town meetings on The Skier Building have had a different view if they were privy to the town lawyer’s memos on the parking issue? Is it correct that an arm’s length, third-party investor should have to live with a parking requirement, but the town can simply waive this requirement for itself?
• KPMG was commissioned to conduct a replacement cost analysis of The Skier Building for the seller. In its appraisal, KPMG included soft costs of $262,554 (these are overhead, fees, etc.), a developer’s profit of $577,619 and the skier statue at $75,000 as part of this $4 million valuation. The total of these three items is $915,073. Do you think the town should include $915,073 in these irrelevant costs in its review of a seller’s appraisal? When you as individuals seek to acquire real estate on your own behalf, do you put faith in a valuation set forth by a seller? Do you want to recognize developer’s profit on a never-completed building as relevant to an acquisition analysis? Why does the town keep referencing an inflated replacement cost analysis by a seller to justify its price? (“We met in the middle so that must be good.”) So when the town tells us that we should put credence in an appraisal that includes $1 million in specious inclusion, are they telling the whole truth and being honest with themselves?
• Under the current restrictions in place, The Skier Building’s ground floor can only be used for retail purposes. With no demand for retail in this area, it is no wonder the seller neither finished the building nor has been able to sell it to date. However, the town plans on lifting this restriction once it owns the property. Isn’t that convenient? The town would not let others waive the retail requirement, but it will do so (like the parking) for itself. This retail restriction significantly impacts the property’s value to a third-party purchaser. Again, if the town had disclosed this issue previously, voters might have had a different opinion on the value of this property.
• The town’s justification for purchasing The Skier Building is that it fits with a 2007 Town Center District Investment Plan, which also states that the existing Town Hall is too small for the town’s current needs. As we all know, 2007 was the height of a real-estate market that came crashing down. Most of us have had to adjust to a different reality since then, but somehow that reality hasn’t filtered down to the town. In reading town information available online, the town states that it currently needs only 11,000 square feet of space, which is more than available at the existing Town Hall. So the 2007 town report is outdated both in terms of where the real estate markets have transitioned, as well as because of its current space needs. As the town digitizes its files, one would expect that its space needs would fall even further. And the existing Town Hall can most likely be repaired and upgraded for a cost closer to $2.5 million, or almost $3.5 million less than it wants to spend on The Skier Building. Once the Police Department is relocated, the town would have more than adequate space in its existing facility.
• Buz Reynolds, one of Avon’s Town Council members, states that he will personally be involved in overseeing the completion of The Skier Building. With respect, where was Buzz when the town’s pavilion budget almost doubled? And why did Buz either not know or not inform the Town Council that it can renovate its existing building without having to trigger an upgrade to new building construction code? In terms of valuation, Buz seems comfortable with a seller’s appraisal that includes $915,073 in costs that should be irrelevant to a savvy purchaser’s analysis. So why does he take comfort in providing a hefty “developer’s profit” to the seller? Does he know that the seller most likely is carrying The Skier Building on its books at less than $3.2 million, so that it will recognize a large gain on the sale of an asset where “the town is the only potential buyer of The Skier Building, which can meet parking requirements off site, at this time?” Buz also states that the COP vote is not one that will determine whether the town purchases The Skier Building but rather only how the town finances it. If you as the voter decide to vote “no” on the COP financing, why wouldn’t Buz take this as a signal that the voters of Avon do not want the town to purchase The Skier Building?
• Finally, let’s put this replacement cost analysis to bed. One can argue all he or she wants about what something would cost to construct. But what something costs is not relevant to a real estate investment decision. If what you constructed is unsalable because your parking doesn’t meet code and your ground floor can only be leased for retail purposes and there’s no demand for retail, how is replacement cost relevant? How many ill-conceived real estate projects were foreclosed upon and even torn down in the past 20 years because they were constructed in the wrong place at the wrong time with the wrong amenities (or lack of amenities)? By waiving its own retail and parking restrictions, the town has magically created a huge windfall for the seller that it could never achieve on its own. It has literally created value (and therefore profit) for a developer by paying for something that no one else can create or value (parking and transforming retail space into municipal space). Rest assured, this project is being carried on the seller’s books at far less than what is being paid. So the seller benefits immensely here. Finally, if we adopt the town’s view that replacement cost is relevant, does that mean that if a destination resort hotel is built at the Eagle airport, its value must be what was invested in constructing it? This is like the Field of Dreams — if we build it, value will come …
Values matter — they matter in terms of honesty and transparency. They matter as to the true value of The Skier Building. As residents, voters and taxpayers of and in Avon, we deserve to know the facts that are all available online in the town’s Sept. 23 meeting notes. We shouldn’t have to hunt for them. We should be told all of the background on this controversial building, and we should be better represented in how our tax dollars are spent. Simply stating, as Mayor Fancher did, that this acquisition will not raise taxes, is not a high enough standard. If it were, then perhaps the mayor should hand out $100 bills in the Town Center next to that gorgeous wood structure and statue of heaven knows what, because handing out that money won’t raise taxes.
Vote “no” on the referendum, which our Town Council will hopefully recognize means, “Don’t acquire The Skier Building.” Because if they do acquire it, then like that $75,000 skier statue that comes with the building, it will all be downhill from there.
Mark Kogan, a retired Goldman Sachs partner who has handled tens of billions of dollars in commercial real estate investments in his career with the firm and for his multi-generational family real estate business, is a full-time Avon resident.