Battle Brewing Over the Value of Projo Building - Major Implications
Thursday, December 03, 2015
A battle is brewing between lawyers and appraisers - and the impact to the City of Providence is worth millions over the next decade and it all centers on the Providence Journal Building on Fountain Street. How this plays out may have far bigger implications on the value of commerical office space in Providence and the city's tax base.
In June, the Providence Journal’s former owner A. H. Belo sold the newspaper’s historic building to Providence developer Buff Chace’s Cornish Associates and Boston-based Nordbloom for $3.3 million according to records with the City of Providence.
GoLocal has exclusively secured a copy of the 100-page appraisal of the Fountain Street property completed by the commerical real estate service firm, Keystone Consulting Group.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTSignificantly Different Values
The City of Providence last pegged the value of the formal Providnce Journal building at more than $10 million. The building was assessed at $9.25 million for the structure and $1.113 million for the land. The present total assessed value is $10,409,400.
"I just got the [new] appraisal last night," City of Providence Tax Assessor Dave Quinn told GoLocal on Wednesday. "The value we'd last had as of December 31, 2012 was $10 million."
Now, the new ownership group who operates under the name Fountainview Owner LLC, wants the assessed value lowered to a number closer to the actual purchase price. The owners are also pursuing a tax stabilization agreement [TSA] on the building as well. The building is more than 170,000 square feet and the cost of aquisition was just under $20 a square foot.
For the City of Providence, a significant decrease in value on the building would be a major hit to the City’s already strained financial situation. On November 13, Moody’s Investor Services revised the City of Providence’s bond rating downward and changed the City’s outlook from stable to negative.
“The revision of the outlook to negative from stable reflects the continued challenges the city faces achieving structural balance and improving its very weak reserve position. Rising pension and healthcare costs will continue to pressure the city's finances,” wrote Moody's in its Rating Action.
Presently, the annual taxes on the structure and the land is more than $382,500. A two-thirds decrease in the assessment would be a nearly $250,000 hit to the city's already upside-down budget situation. At a time when the City is scrambling for every dollar, the loss of more than $2 million over the next decade is an unanticipated and significant hit.
“It was open market offer and bid acceptance process, there was nothing unique,” said Chace's attorney, Zach Darrow, of the purchase. “In dealing with the valuation by the city -- the purchase price wasn't sufficient, so we went out and got an appraisal.”
Keystone Appraisal
Keystone's appraisal is bad news for the City of Providence as the firm conducted industry standard approaches to valuation. On a sales comparison approach the property has a value of $3.290 million in value and on an income capitalization approach value, the Providence Journal has a value of $3.820 million. At a final reconciliation, Keystone valued the property at $3.560 million.
The Keystone final value represents a 65 percent decrease in value in the assessed value.
Comps used to determine the value included properties such as 275 Westminster Street, 2-4 Richmond Square, 10 Dorrance Street and 6-10 Weybosset Street.
Implications are Huge
If the Providence Journal building has lost two thirds of its value in the past few years, will the appraisal be used by other commercial real estate owners to argue that their property is equally depressed?
A report issued by Commercial Real Estate mega-firm CBRE in January, characterized the market as recovering, “The expected decisions of several large tenants with 2015 expirations have not yet filtered into the market and it is unknown whether there will be corporate contraction, renewal or relocation. These decisions could have a material effect on vacancy rates in the Class A sector, potentially pushing the vacancy (rate) back into double digits.”
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