Tuesday, September 09, 2008
Is County Building Worth $41M?
By Dan McKay
Copyright © 2008 Albuquerque Journal
Journal Staff Writer
The Downtown office building that Bernalillo County wants to buy for nearly $41 million was sold just eight years ago for about half that price: $21.7 million. And it's on the property-tax rolls now for even less, about $21.1 million.
But county administration insists that the 15-story 500 Marquette building is worth $40.8 million, plus another $1 million for the artwork on site, although the county-hired appraiser pegged the value at about $30 million if it were being considered for private investment.
While outsiders acknowledge that the price increase looks steep, they say the building is probably worth more to the county government than it would be to a private investor. That's because constructing a new building Downtown would be much more expensive, and the county can be assured of filling the place with its own employees — rather than having to deal with negotiating leases and finding other occupants.
On the other hand, the appreciation represents an 88 percent increase since 2000.
"In this market, I think they could probably acquire the property for a little bit less," said City Councilor Ken Sanchez, an accountant and real estate broker.
Bernalillo County commissioners voted 4-1 last month, with Michael Brasher the only "no" vote, to authorize revenue bonds to finance the purchase. They say rental income from the building's current occupants will cover the debt payments for several years.
As those leases expire and county employees move in, the county says it will save money by consolidating offices into one spot. The county now has offices in at least four buildings Downtown, including the City Hall complex.
An appraiser hired by the county did a "sales comparison" and "income capitalization" analysis on 500 Marquette. The firm, Godfrey Appraisal Services, pegged the reasonable price at $40.8 million for an "owner-occupant" on Jan. 1, 2009, which is when the county has said it might start moving in. An investor-based price, however, would be only $30 million as of the beginning of this year, according to a letter by Godfrey.
The figures were contained in a two-page letter the county released after a Journal request for documents justifying the price.
Appraisers not involved in the deal were reluctant to estimate how much they think the building is worth.
Tim With, senior vice president and principal at Grubb & Ellis New Mexico, said 500 Marquette "is a very unique building," especially given that it has its own parking structure and a skywalk connected to City Hall.
Going from $21.7 million to $40.8 million "is a huge amount of appreciation for an asset over an eight-year period of time," With said. "But it just so happens that this particular user probably values that building at a higher level. They have to be Downtown. If they were to buy a piece of land and build a new facility, it would cost significantly more than that."
The county has already sold revenue bonds for the purchase but is still negotiating with the building's owner, Hub Albuquerque LLC, a partnership of out-of-state investors.
The county Assessor's Office, meanwhile, values 500 Marquette at $21.1 million for property-tax purposes. That value is based on "2005 market income," a county spokeswoman said.
Asked why it's so low, given the sales price in 2000, Assessor Karen Montoya said the "Downtown office market has suffered from high vacancy rates for years."
State law calls for the commercial property to be on the books at "current and correct market value," she said.
County Manager Thaddeus Lucero — when asked why the county administration was willing to pay more than the assessed value — said that "market value and assessed value are two different things."
County Commission Chairman Alan Armijo said he isn't bothered that one branch of county government values the building at $21.1 million while another is willing to pay $40.8 million. Assessed values almost always lag behind up-to-date market prices, he said.
"It would be great if I could buy my house at the assessed value," Armijo said. "An assessment is for tax purposes. Market value is dictated by what something is bought and sold for."
The property pays about $360,000 in property taxes to local governments each year. That revenue would go away if it comes under public ownership.
Lucero said he took into account the drop in revenue when he predicted the county could pull off the deal at "no additional cost to the taxpayer."
As for the amount the county administration is willing to pay, county spokeswoman Liz Hamm said: "Mr. Godfrey used the income approach to establish the value. The $40.8 million value is based upon full occupancy of the building. Replacement cost would be more than twice that amount based upon current construction costs for a similar building."
The county already has a largely unused building Downtown — the old courthouse at Fifth and Tijeras NW. But that building doesn't have enough space to fit all of the county's offices, officials said, and renovating an older building can sometimes be more expensive than to buying a new one.
The county might realize some revenue from selling its interest in the city-county Government Center, which is part of the City Hall complex. The city of Albuquerque shares ownership of the structure with the county.
Ed Adams, the top executive under Mayor Martin Chávez, said the county has approached the city about selling its interest to the city. The county believes the property is worth about $30 million, Adams told city councilors this week. That means the city would have to pay roughly $15 million for the county's share.
The administration is analyzing whether it makes sense to buy out the county and move city operations into the old county spaces. If not, Adams said, the county could conceivably rent its part of the building to someone else.