TIF No. 4: What is the Farah building worth?
By Emanuel Anthony Martínez
Posted on December 22, 2003
Mayor Joe Wardy, council members, and participating businessmen announced in a press release on October 15, 2003 that "El Paso's old Farah Building, Hawkins Ave. and I-10, will be transformed from an obsolete manufacturing plant to a major upscale retail development tentatively named the Towne Centre at Cielo Vista."
[The press release, developed in part by Clarke Advertising and PR, lists the project's private-sector partners as Fortis Advisors, RJL Real Estate Consultants and Sedberry & Associates -- with a building design by RSP Architects.]
Placed as a cornerstone of the project proposal is a $25 million incentive package, garnered through a two-phase strategy: (1) the creation of single purpose, single property Tax Increment Finance District or TIF, and (2) a Sales Tax Sharing agreement between the City and the retail developers.
According to city documents, "[t]he creation of the TIF will allow our community to offer $12 million in bonds to be used for infrastructure improvements needed to ready the site for this new development. The incremental increase in property tax revenue from the new development will be used to service the $12 million of bonds."
In order to have a successful TIF -- one that will capture at least $12 million through the incremental increase in the valuation of the property -- two things will have to happen. One, El Paso's other taxing entities will need to join the TIF -- thereby agreeing to forego any revenue that might have been received by the property's increase in valuation. And two, the property will need to increase in valuation.
While two county commissioners and County Judge Dolores Briones have recently expressed some reservations about the county participation , the question of the valuation of the property has also become an issue.
The greater the increase in valuation of the property after the creation of the TIF, the more revenue it captures. Conversely, the less increase in value, the less revenue.
Today, the Farah building is valued by the Central Appraisal District -- the agency that sets property values for tax purposes -- at $5.2 million. However, an October appraisal by Hoover Appraisal Company, commissioned by the Greater El Paso Chamber of Commerce, values the property at $25.8 million.
At a current value of $5.2 million for the property, the TIF would stand to capture a healthy purse should the same property later be sold for $25.8 million or more.
Good news, right? Wrong.
In part, it is a problem of timing for the city; and in part, it is the reflection of a property valuation system for tax purposes that does not appear to appraise commercial property at its market value.
Either the property is worth $5.2 million or it's worth $25.8 million -- not both. And if the CAD raises the valuation of the property significantly in its 2004 appraisal -- before the creation of the TIF -- it will be difficult for the city to finance the $12 million in bonds required for the mall project.
For mayoral executive assistant Adrian Ocegueda, the solution to the timing problem was getting a guarantee from the CAD that they would not increase the 2004 valuation for the property. "I just got off the phone with the Central Appraisal District, and what we have from them is that nothing will happen to the value this coming year," he said in the El Paso Times on December 14.
Unfortunately for Ocegueda, the taxable value of properties are not set by promises.
Rather, Dr. Charles Gilliland, with the Texas Real Estate Center, said in a telephone interview that the Texas State Constitution requires CADs to set the taxable value of property equal to the market value of property every January 1.
When asked the reason for the disparity between the tax value and the recently appraised market value of the Farah property, CAD appraiser Felipe Guzman said, "I have no idea." Asked if the 2004 valuation for the property would reflect the Hoovers appraisal of $25.8 million, he said, "There is no guarantee that will happen."
According to Guzman, the CAD conducts its own appraisals. "We have to do our own analysis and value the property based on what we find," he said. In reference to the Hoovers appraisal, he said, "one appraisal will not change the market value." And regarding when and how the property's current valuation of $5.2 million was set, he answered, "I don't have that information right now. Right now that's what it is."
Interestingly, the CAD's website lists its most recent sales price -- and one would think "market value" -- as $25 million under "Sales History." In addition, notes from CAD documents on the property indicate that the most recent reappraisal was conducted on July 9, 2002 using the cost approach.
The Cost Approach
The income approach involves estimating the market value of a property based upon the income stream projected to be derived from a property. For commercial and income-producing properties, the income approach is generally the primary approach to value.
The sales approach involves estimating the market value of a property based upon an analysis of recent sales of properties with similar characteristics and in a similar location. This approach is most generally not used as a primary approach to value unless the sales activity for similar properties is active and there is good information available about recent sales. Rather, the sales approach is often used as the singlemost important check on the income approach.
The cost approach involves estimating the market value of a property based upon a calculation of what it would cost to exactly reproduce the building on the site, in precisely the same location and condition. This approach is almost never the primary approach to value.
According to California-based Bridger Commercial Funding, "the cost approach is not considered a very reliable valuation method in an active, strong market because the values tend to be rising faster than the cost to construct. Conversely, in an inactive, depressed market the cost approach may not be the most reliable approach to value because prices may have fallen below replacement cost due to oversupply."
In an attempt to follow-up with the Central Appraisal District, a telephone call was placed to Zeke Laurel, Supervisor of the Commercial Department. Laurel, in turn, referred the call to Jerry Griffin, Director of Valuations for the CAD. The call from the Newspaper Tree was not returned by Griffin.
The Tax Increment Finance District ordinance for the mall is item 23 on the agenda for the City Council meeting for Monday, December 22 --
23. PUBLIC HEARING - MAYOR'S OFFICE: An Ordinance creating Tax Increment Financing District Number Four (No. 4), City of El Paso (50 acre site on the Southeast corner of Viscount and Hawkins Blvd.); making Findings Of Fact concerning the conditions of blight, residential property and assessed valuation within said District; creating a Tax Increment District Board of Directors and defining the powers, duties and terms of office thereof; providing for submission of a plan of improvements for said District; providing for duties of the Tax Assessor; setting the boundaries for said District; and providing a Severability Clause. (District 3) [Mayor's Office, Adrian Ocegueda, (915) 541-4145]
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