More accountability, transparency sought statewide on public land appraisals, purchases
August 7, 2014
News of land being set aside for purposes of conservation and/or public use is typically met with celebration. But an increasing chorus of voices within California and the real estate industry is casting doubt on whether public money is being used to overpay for land set aside for conservation and recreation purposes throughout the Golden State.
Sandy Dean, chairman of the Humboldt Redwood Company, headquartered in San Francisco, has been leading the charge to vest the appraisal process overseen by public agencies with more accountability and transparency.
"The state is overpaying (for land and conservation easements)," Dean writes in a letter addressed to three members of the California Wildlife Conservation Board.
"We live in a time when California struggles mightily to adequately fund schools and social services. If we are going to expend funds for conservation, the state should be paying current fair market value supported by analysis that would pass muster with private market buyers."
“Thou shalt not use conservation purchases as comps. They are tainted. They are not a good indicators, mostly because the buyers are playing with someone else’s money.”
Daniel Ketcham, real estate appraiser
The California Wildlife Conservation Board is a division of the California Department of Fish and Wildlife and oversees capital outlays in the hundreds of millions of dollars annually toward projects aimed at enhancing wildlife protection and public recreation.
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The board, which meets on a quarterly basis, disbursed about $14 million during one meeting in November 2013, according to board minutes, including about $1.4 million during the consent portion of the meeting, typically reserved for noncontroversial matters.
Dean and other critics who have attended the WCB's meeting assert that appraisals used by the state in an effort to assess appropriate value relating to purchases of land outright or conservation easements are riddled with stale comps (comparisons) "that no private buyer would ever accept."
While Dean is at the forefront of this movement that began in 2011 after he and his colleagues began to monitor the activities of the Wildlife Conservation Board, he is not alone.
Daniel Ketcham, a real estate appraiser based in Nevada County, said he and a certain number of his own colleagues have developed a dictum based on recent land purchases by the conservation community.
"Thou shalt not use conservation purchases as comps," he said. "They are tainted. They are not a good indicators, mostly because the buyers are playing with someone else's money."
The term "comp" is real estate vernacular for comparison and describes the process whereby professional appraisers attempt to ascertain the value of a given piece of real estate by studying other parcels of a similar size and function that have been recently sold.
While generally speaking, Ketcham, Dean and other critics — including Republican lawmakers and members of the Howard Jarvis Taxpayers Association — have expressed concern over public funds being used to enrich landowners at the expense of taxpayers. The nuts and bolts of the issue focuses on the appraisal process by the state and whether it is being used appropriately to arrive at accurate land valuations that would pass muster in the open market.
Locally, attention has revolved around the $3.2 million purchase of Rice's Crossing, about 2,700 acres of land adjacent to the Yuba River.
The sale was finalized in June by the Bear Yuba Land Trust, which envisions the large tract of Sierra foothills forest soon transforming into an outdoor recreational playground, replete with multi-use trails threading through the steeply flowing topography.
While public celebration is due, some in the local real estate industry are wondering why three grants consisting of public dollars were used to purchase a piece of property for what amounts to $1,200 per acre.
Marty Coleman-Hunt, executive director of the Bear Yuba Land Trust, insists her organization got "a pretty good deal," particularly considering a 2008 appraisal found the property to be worth around $7.5 million.
The appraisal process used by state agencies in California is required to value the property at its "highest and best use," meaning that if a property is subdividable, for instance, it should be valued with the consideration of what each subdividable parcel could potentially fetch on the open market, said Coleman-Hunt.
Critics, including Dean, assert this method of arriving at purchase prices lacks a true economic analysis of development value, forgoing factors such as development costs, availability of infrastructure and the time required to market and sell such properties — to say nothing of demand in an economic environment of slow recovery from one of the greatest global recessions in modern times.
Rice's Crossing straddles Nevada and Yuba counties, with the lion's share of the property encompassed within Nevada County's jurisdiction. The zoning designations on the property mean the residential development potential of the land is limited. However, the land trust has said in its communications relating to the purchase that it will continue light timber harvest, meaning the appraisal could take into account its potential economic output.
But, according to an arrest declaration filed by the California Attorney General against developer Phil Lester, the former owner of the Rice's Crossing property had already executed a wholesale timber harvest on the property.
"Between 1998 and 2001, the property was logged, decreasing the underlying value of the property," the declaration states. "The partners netted approximately $1.8 million from the timber sales."
Lester is currently facing multiple counts of fraud stemming from allegedly illegal practices relating to Gold Country Lenders, a hard money lending operation he ran from approximately 1991 to 2010.
Prior to the purchase by the Bear Yuba Land Trust, Rice's Crossing was under the ownership of a group known as the New Bullards Bar Partnership, which consisted of at least three local investors including Lester, Pat Browning and Scott Leonard.
In Nevada County Superior Court recently, Lester's attorney, Mary Beth Acton, noted for the record that Lester had signed documents that remove him from ownership of the property, so that the sale to the land trust could go through.
Lester bought the parcel for $850,000 in 1997, the arrest declaration states. The average price per acre for timberland in the United States in 1997 was about $900 per acre, although the value was slightly higher in the Pacific Northwest at about $1,200 per acre, according to Forest Investment Associates. Lester paid about $315 per acre for the Bullards Bar property.
Fast forward to 2012, the timberland price per acre in the nation was about $1,600 per acre representing a 77 percent increase, according to the same study. For the Pacific Northwest the increase was 75 percent to about $2,800 per acre.
While Rice's Crossing comes in well below the Pacific Northwest average, the purchase price represents a 276 percent increase from when Lester bought it in 1997, and after it had been harvested for the $1.8 million in timber.
While timber is a renewable resource, it typically takes harvestable pine and oak about 20 years before it is merchantable as pulpwood and at least 40 years before it can be utilized as saw logs, according to the Kentucky Division of Forestry.
The $3.2 million was provided to the Bear Yuba Land Trust in the form of public grants, one for $1.9 million by the California Natural Resources Agency's River Parkways Program, another $1 million through the Sierra Nevada Conservancy and the remainder via the Caltrans Environmental Enhancement and Mitigation Program. All of the money comes from Proposition 84.
Proposition 84 was passed by 53 percent of California voters in 2006 and allows the state to issue more than $5 billion in general obligation bonds to fund programs that ensure the safety of water supply, enhance water quality, flood control, waterway and natural resource protection, water pollution and contamination control, state and local park improvements, public access to natural resources, and water conservation efforts.
While the $5 billion is bond money, and as such is not drawn from the general fund, the debt service on all projects is paid out of California's general fund budget, according to California Department of Finance spokesman H.D. Palmer.
The concern over public funds used in conservation transactions is not restricted to the Sierra foothills, as two large transactions in Mendocino forests that occurred in 2011 have drawn scrutiny.
The first of the notable purchases, known as the Gualala project, involved a Virginia-based land trust leveraging public dollars disbursed via the California Wildlife Conservation Board, wherein state money to the tune of $19 million was used to procure a conservation easement on 14,000 acres of forested land.
The second purchase, known as the Usal project, used $20 million of WCB money to purchase yet another conservation easement on a 50,000 acre tract of timberland in the remote northwestern portion of Mendocino County.
Dean, chairman of the Humboldt Redwood Company, has been on the warpath to convince the WCB of its errant real estate appraisal process ever since the purchase price for these large tracts was disclosed.
Dean was joined at a May 2012 WCB meeting by other interested parties, including Assembly Republican Office of Policy representative Doug Haaland, Eric Eisenhammer, director of grassroots operations at Howard Jarvis Taxpayer Association, and R&A Investment Forestry President Jim Rinehart, in registering complaints over the appraisal process.
The complaints were two-fold: 1. Appraisals lacked validity and accuracy, and were too often compared to other transactions where state money either funded the entire or a portion of the purchase price; 2. The entire process lacked transparency.
Dean and Eisenhammer, in particular, exhorted the board to make the appraisals available to the public before a transaction was finalized, so the public could weigh in on whether they thought the price was valid, as opposed to continuing the present protocol of disclosing appraisals only after the properties were in escrow.
"We asked for the appraisals of Usal and Gualala to be released before those deals were completed," Dean wrote in a follow-up letter to the board on April 10, 2012.
"The staff of WCB said they could not release the appraisals because it would violate WCB policy. There are no legal restrictions to releasing appraisals."
Despite those requests, WCB Executive Director John Donnelly said a policy of releasing appraisals in advance would not conform with other state agencies that procure land on behalf of taxpayers or bond-payers, that such a policy may have a cooling effect on certain landowners willing to work with the WCB and, finally, as appraisals require a great deal of technical know-how, such documents would be subject to the misinterpretation of the general public.
Dean balked at such a notion, insisting on the public's right to know.
He and others further asserted the board should hire an independent appraiser to come up with its own land valuations, as the existing policy of allowing the buyer to contract appraisals may be insufficient as the buyer is ultimately using public money to consummate the deal and may not possess a vested interest in keeping the price down, to the detriment of public coffers.
Ultimately, the three-person board struck a compromise, agreeing to keep appraisals from public view in advance of the sale, but also allowing that the WCB would contract out for an independent appraisal on land deals where the agency's contribution has exceeded $5 million.
The issue so far is that, according to Karen Fink, a high-ranking member of the California Department of Finance and WCB board member, none of the projects that have come before the board have met the $5 million threshold.
"There have been no large acquisitions," Fink said. "We haven't been able to use the external review process yet."
Despite the lack of large acquisitions, the most up-to-date meeting minutes of November 2013 show the board distributed slightly less than $14 million in funds to various projects, including one at $4.8 million.
Furthermore, according to the same board minutes, Donnelly and his staff brought back recommendations to the board to strike or gut the appraisal policy, stating that it was causing worries with partners about different standards across different agencies and eliciting unnecessary delays.
Board Chairman Charlton Bonham, who is also currently the director of the California Department of Fish and Wildlife, told staff during the meeting that just because other agencies set the bar at a certain height, didn't mean that this organization couldn't operate under more stringent parameters.
Michael Sutton, a WCB board member and member of the California Department of Fish and Wildlife Commission, asked if staff was willing to negotiate with landowners after an appraisal was made by the buyer.
The response by staff member Dave Means reads as follows, according to the minutes:
"Mr. Means responded further, stating negotiating value puts WCB staff in a difficult position, because in some cases the owner may refuse to accept the lower values, which may seem like a good result if we were trying make a profit by buying low and selling high, but because this is for habitat and species protection it may mean we walk away from some important resource protection."
Ultimately, the board ruled to keep the current real estate appraisal policy in place.
Dean continues to assert that the WCB and other California agencies need independent appraisals to ensure that public money is being used efficiently, particularly in an era where the state of California has considered shuttering nearly a quarter of its state parks in the interest of saving money.
"It is clear that the staff of the WCB and conservation groups that benefit from WCB funds, seek to have the least change possible to the existing system," Dean wrote.
"The state deserves to get great deals in this time of economic distress, and more transparency will help."
Matthew Renda, a former staff writer, is a regular contributor to The Union.
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