|Valuation of Contaminated Commercial Properties: Sag Harbor, Ronkonkoma, and Bedford, New York||Creation
of Benefit Valuation Database for U.S. EPA and Environment Canada
|Tax Certiori Valuation - 410 Airway Drive, Mattituck, New York||Circle K Sale Leaseback
|The Economic Impact of Operating the Shoreham Nuclear Plant||Groundwater Contamination, Lindenhurst, New York|
|170 Old Country Road Mineola, New York||1 Robinson Lane, Ridgewood, N.J.|
|Valuation of Personal Injury Damages||The ACB Computerized Cost Benefit Analysis System|
|A Benefit Analysis of the Reduction in Theft Crimes||Feasibility Studies/Appraisals|
|Location of Group Homes for Mentally Retarded- New York|
644-656 Old Post Road (Route 22) in Bedford, New York is improved with a one-story 6,876+ square foot neighborhood strip shopping center situated on a 1.5 acre site. The property is listed by the New York State Department of Conservation as an Inactive Hazardous Waste Disposal Site because volatile organic chemicals were detected in 1978. A dry cleaner had been located at the site. Tests wells found Tetrachloroethylene (300 parts per billion), Trichloroethylene (56 ppb), and cis-1,2-dichloroethylene (51 ppd) in the groundwater. DVA valued the property as if uncontaminated, and then as if contaminated under two scenarios. In the first scenario the owner is not responsible for costs to remediate contamination, under the second the owner is.
321-329 Smithtown Boulevard in Lake Ronkonkoma, New York is 0.56 acre site improved with a one-story plus basement 4,806 square foot neighborhood shopping center. On or about September 10, 1992 a tenant, Impala Press, was given a Notice of Violation by the Suffolk County Department of Health Services for permitting toxic chemicals to be discharged into a dry well and a cesspool at the property. A subsequent letter from the New York State Department of Health dated January 27, 1993 stated that the Suffolk County Department of Health Services reviewed the results of tests performed at the site, and found that they "indicate that some very slight residual contamination still remains in the bottom soil. However, the conditions are such that no further remediation is required by this office at this time." Based upon that letter, DVA found that the contamination did not significantly reduce the value of the property.
1742 Sag Harbor-Bridgehampton Turnpike in Sag Harbor, New York is improved with a one story 1,800+ square foot commercial building situated on a 0.89+ acre site. Contaminated groundwater from the Rowe Industries Superfund Site migrated to this site. Once again DVA appraised the property as uncontaminated, and after accounting for the effects of pollution.
DVA has been working with the U.S. Environmental Protection Agency, Environment Canada and other consultants to create a database of benefit valuation estimates derived from previous studies. The database covers values derived for water, land, and air pollution through a wide variety of methodologies. The prototype has been designed, and the final version will eventually be available via the internet. DVA conducted a comprehensive literature review to derive the raw materials for the dataset.
410 Airway Drive in Mattituck, New York consists of a 16 acre parcel of land with a 12 acre air strip. The property is currently used to repair airplane engines. It contains a variety of structures utilized for offices, assembly of engines, a machine shop, hangars, and storage with a total gross building area of approximately 34,203 square feet.
The property has been contaminated by a variety of pollutants. Cesspools have been polluted with kerosene-like petroleum solvents and metals siphoned off from engine washing. Halfway down the runway fluids have inhibited the growth of nearby vegetation. In 1978 Suffolk County investigated the site and required that the owner cease certain activities and remove some soil. The property has incurred more than $60,000 in fines, approximately $2,500 each quarter. The site lies above a sole source aquifer, and there are many wells in the area. It may constitute a threat to water supplies, but contamination has reportedly not traveled far. The owner reports that due to contamination the property cannot be sold, and insurance costs have increased significantly.
Our estimate of market value for the land uncontaminated was $17,500 per acre or $280,000 for the site as vacant. Sales of industrial buildings indicate that the value of a 34,203 square foot industrial building on a two acre site would be roughly $12.50 per square foot of building area, or $427,538. Using the Income Approach, the buildings would command a rent of approximately $2.00 per square foot or $68,406 NNN. Assuming a vacancy rate of 20% results in an Effective Gross Income of $54,725, and costs of 10% indicate expected net operating income of $49,252. A capitalization rate of 12.5% leads to a value of $394,019, say $400,000.
Because the Income Approach is emphasized by assessors we estimate a value of $400,000 for the building. The value of the excess 14 acres should be 14 * $17,500 or $245,000. The total value before contamination is thus approximately $645,000.
To estimate the effects of pollution we derived changes in expected rents, vacancy rates, expenses, capitalization rates and sale prices based upon studies of roughly comparable properties. This procedure takes into account increased costs resulting from contamination as well as well as the stigma attached to polluted properties, which renders them less easily marketable. We estimated that pollution will reduce the value of the property by 50% to approximately $330,000.
The property received a substantial tax reduction based upon
Kenneth Acks was part of a team of analysts, economists, and
engineers hired by the Suffolk County Government to evaluate the
economic impact of charging ratepayers for the cost of the
Shoreham nuclear plant, of operating the plant, and of selected
Scope of Work: Mr. Acks studied the economic impact of charging
the full projected completion costs to the ratepayers, and of
constructing alternative generating facilities. He investigated
impacts upon employment, corporate balance sheets, business
location decisions, consumers, governments, homebuyers, the
housing market, and property values. Through surveys,
Input/Output models and econometric analyses Mr. Acks obtained
estimates of welfare losses, and a thorough tally of costs and
benefits arising from the operation of the plant. Findings were
presented in testimony to the state utility commission as well as
to blue ribbon panels established by the County Legislature and
the governor of the state. Results were also utilized in the
RICO case against LILCO, which resulted in the award of $23
million in damages by a jury.
Findings: Mr. Acks and his fellow consultants forecast a loss of
over 35,000 jobs in the LILCO service area, assuming that the
full cost of the plant were to be put into the rate base. A
decline in local business and consumer income would cause a loss
of 20,853 jobs; and an additional 14,288 jobs would be lost due
to flight of manufacturing industries from Long Island.
Through both a macro-economic analysis and survey of area
businesses, Mr. Acks identified specific industries which would
suffer severely by major rate hikes. For example, the
energy-intensive plastics industry would be forced to move or
close down because locally applied rate hikes would cause it to
lose competitive standing vis a vis neighboring non-Lilco area
A unique macro-economic study found that Shoreham's operation
would reduce home values near the plant by 7.1% and by lesser
amounts as far as 20 miles from the plant. The total loss in
home values was projected at $410 million. Property tax
collections would fall by $12 million per year (assuming the
reductions in property values were properly recorded by
In 1984, a title company insured the sale and leaseback of 378 convenience stores located in 12 states. In 1991 the proprietors (after filing for bankruptcy) were claiming that the sale-leaseback and associated purchase options were not valid because the prices and rents were arbitrary, and did not reflect market values.
DVA was called upon to determine whether the indicated sale prices, rents, and option terms were plausible. In addition, the client requested a determination of potential losses if the transaction was found to be invalid. We were thus required to estimate current market values. Current market values were influenced by the presence of underground storage tanks at many of these convenience stores because they often sold gasoline.
We called more than 400 appraisers throughout the country to gather information on sale prices and rents of convenience stores and similar properties. We also gathered information from brokers and investment bankers specializing in convenience stores, as well as mergers and acquisitions databases. Cost data on remediation of dangers posed by underground storage tanks (UST's) were factored into our analysis. In addition, we studied the decline in sale prices of properties containing UST's, as knowledge of potential damages and laws changed.
We found that the prices, rents and option terms were plausible, but that property values declined significantly from 1987 due partly to market weaknesses and partly to environmental considerations.
The subjects of this report were four single family homes located
in Lindenhurst, New York. They are immediately downgradient from
the Active Industrial property, which has been classified as an
inactive hazardous waste site by the New York State DEC following
the discovery in 1987 that tanks containing perchlorethylene had
been leaking. A plume of contamination has been found to run
under the subject homes. The plume contains toxic chemicals
associated with perchloroethylene, including trichloroethane, and
trichloroethene. Also of concern is possible contamination of the
groundwater under the subject homes from gasoline. Testing of a
private irrigation well on one of the subject homes in March,
1994 by the Suffolk County Department of Health Services found
chemicals associated with perchloroethylene in the groundwater
but also found constituents of gasoline such as benzene, toluene,
and xylene in excess of state standards. Although the DEC
discovered in 1988 that gasoline tanks at a Texaco station at the
northwest corner of Montauk Highway and Wellwood Avenue were
leaking, no testing of the groundwater under the subject homes
for gasoline products was conducted until the Health Department
sample in March, 1994. Air testing in the subject homes later in
1994 showed the presence of low levels of gasoline constituents,
including in the Ring Residence at 108 Lane Street, MTBE
The appraisers first valued the properties as uncontaminated, and
then determined the influence of the toxic chemicals upon the
The appraisers used a variety of techniques to estimate the
effects of toxic contamination upon the properties. The
techniques produced ranges of estimated effects as follows:
Range Most Likely
Cost Approach N/A -9%
Sales Approach -20% to -69% -20%
Income N/A -30%
Hedonic Property Regressions 0% to -16% -15%
Contingent Valuation Method -3.5% to -20% -20%
Health Effects N/A -7%
Based on the above information, we concluded that the values of
the properties have been reduced by at least 20% due to the
presence of contaminants.
This 170,000+ square foot office building was suffering from
declining rents and increased vacancies due to market weaknesses.
In addition, the owners were faced with the need to remove
asbestos due to tenant demands and regulatory initiatives. These
factors reduced net income significantly. The tax assessment on
the property was based on rosier scenarios, and preliminary "back
of the envelope" calculations indicated that the building was
DVA conducted an extensive survey of market rents, and sale
prices of land and buildings in the area over a five year period.
This survey confirmed our initial impressions and indicated that
the property was overassessed for a period of four years.
We evaluated the effects of the asbestos by (1) incorporating the
effects of the removal into a discounted cash flow model, (2)
examining past studies of the effects of disamenities upon
property values (including surveys), and (3) considering sales of
buildings with varying degrees of asbestos. We were able to
obtain a value for the building as contaminated.
The owners negotiated a tax reduction of more than $2,000,000
based on our analysis.
In late 1986 gasoline tanks at the Village of Ridgewood Garage
were found to be leaking. An environmental services firm (DRA)
estimated that between 3,600 and 5,100 gallons of gasoline were
lost. Village records indicated that approximately 25,300
gallons of gasoline remained unaccounted for. Product fumes were
first noticed within the subject building on December 2, 1986.
Since that date, the owners were forced to evacuate the building
several times. In addition, floors and walls were damaged.
Engineering studies found significant amounts of oil below the
surface of the subject property. The owners remediated some of
the damage, but oil remains in the groundwater. Potential damage
from the oil must be monitored continuously. DRA estimated that
it would take six to ten years for the current remediation
program to clean the ground water.
DVA first appraised the building as if it were unaffected by the
gasoline leak utilizing four commonly employed valuation
methods--(1) the Cost Approach, (2) the Direct Sales Comparison
Approach, (3) Discounted Cash Flow Analysis, and (4) Income
The appraisers evaluated the effects of the pollution by (1)
incorporating the effects of the remediation and monitoring costs
into a discounted cash flow model, (2) examining past studies of
the effects of disamenities upon property values including
surveys, and (3) considering sales of other contaminated
buildings. We were then able to obtain a value for the building
as contaminated.Circle K Sale Leaseback
In 1984, a title company insured the sale and leaseback of 378
convenience stores located in 12 states. In 1991 the proprietors
(after filing for bankruptcy) were claiming that the
sale-leaseback and associated purchase options were not valid
because the prices and rents were arbitrary, and did not reflect
DVA was called upon to determine whether the indicated sale
prices, rents, and option terms were plausible. In addition, the
client requested a determination of potential losses if the
transaction was found to be invalid. We were thus required to
estimate current market values. Current market values were
influenced by the presence of underground storage tanks at many
of these convenience stores because they often sold gasoline.
We called more than 400 appraisers throughout the country to
gather information on sale prices and rents of convenience stores
and similar properties. We also gathered information from
brokers and investment bankers specializing in convenience
stores, as well as mergers and acquisitions databases. Cost data
on remediation of dangers posed by underground storage tanks
(UST's) were factored into our analysis. In addition, we studied
the decline in sale prices of properties containing UST's, as
knowledge of potential damages and laws changed.
We found that the prices, rents and option terms were plausible,
but that property values declined significantly from 1987 due
partly to market weaknesses and partly to environmental
DVA was called upon to value damages resulting from a care
accident which severely injured a patient and impaired his mental
abilities. We summed the present values of lost earnings, fringe
benefits, household chores, medical costs, and of lost enjoyment
of life. The economists estimated damages based upon four
scenarios. The following estimated present values were
Type of Damage Past Future Total Rounded
Lost Earnings $210,945 $241,694 $452,639 $450,000
Fringe Benefits 84,691 131,461 216,152 220,000
Household Chores 12,045 15,838 27,883 30,000
Medical Costs 25,792 30,559 56,351 60,000
Enjoyment of Life 653,269 1,553,672 2,206,941 2,210,000
TOTAL $986,742 $1,973,224 $2,959,966 $3,000,000
DVA is often called upon to evaluate the feasibility of potential
development projects. In order to determine whether projects
make sense we conduct extensive analyses of: regional and
neighborhood economic and social conditions; supply and demand in
real estate and industry markets; sale prices of vacant and
occupied land; comparable rents; and vacancy rates.
We also work together with environmental service and engineering
firms to evaluate vacant land parcels with respect to the
presence of environmental hazards, soil conditions, danger of
flooding, availability of utilities, drainage, and topography.
Risks posed by site characteristics, if any, are factored into
Feasibility studies conducted in the past include the following:
Project Name Location Estimated
Townview Apartments Fishkill, NY $34,120,000
Rosewood Nursing Home Peabody, MA $13,500,000
Broadhurst Willows Apartments Manhattan, NY $9,400,000
Draper Hall Apartments Andover, MA $4,200,000
Cadbury Commons Health Care Cambridge, MA $7,250,000
Baytowne Apartments Webster, NY $13,500,000
St. Luke's Nursing Home Oswego, NY $7,500,000
Anapolitan Health Care Annapolis, MD $5,000,000
Suffolk Saturn St. James, NY $2,000,000
English Station Apartments Greece, NY $14,000,000
North Cape Convalescent Center Cape May, NJ $10,000,000
The Problem. Although the economic theory of social costs and
benefits of government policy and of private development projects
is fairly well developed, few decisionmakers avail themselves of
these tools. The dichotomy between theory and practice arises
because of the expense and time involved in measuring complicated
phenomena. Therefore, policy tends to be made, not
systematically, but in an ad hoc intuitive fashion, which is more
susceptible to political manipulation. In addition, important
costs and benefits are often omitted due to the cost of
collecting information. The above failures can also lead to the
inability to negotiate mutually beneficial compromises.
The System. The ACB system reduces the costs of social
cost-benefit analysis by creating a menu driven centralized
database of information generated by previously published studies
which will provide rough first guess estimates of the costs and
benefits of various proposals. The system allows the policymaker
to change assumptions and will also serve a bibliographic
The studies on the database can also be used to determine damages
In terms of crime, the program, upon the users selection of
various menu choices, presents coefficients from studies showing
the extent to which the hiring of a policeman tends to increase
arrests. It then multiplies these results by the coefficients of
studies measuring the extent to which an increase in arrests cuts
crime, and finally by estimates of the costs of crime.
The information used for this database consists of regression
coefficients, survey results and cost estimates derived from
studies previously published in academic journals, or by official
government agencies. The academic journals include the American
Economic Review, the Journal of Economic Literature, the Journal
of Political Economy, the Review of Economics and Statistics, the
Journal of Environmental Management, the Journal of Public
Economics, Land Economics, and the Journal of Urban Economics.
The system: 1) takes data from studies, 2) places the data into
comparable groups, 3) converts the units of each study into a
common base, 4) derives a single representative (weighted
average) number for each group by weighting the elements of the
studies. One scheme attaches greater significance to studies
performed in later years (in terms of data and publishing date),
and also utilizes subjective weights based on the apparent
quality of the study, and 5) produces a series of potential cost
benefit scenarios based on different types of analyses.
A description of the system appeared in the April 1995 issue of
The Engineering Economist.
Kenneth Acks directed a study to determine optimal location of
group homes given siting of existing facilities, community
opposition, vacancy rates and prices. The study was sponsored by
the NYS Office of Mental Retardation and James Felt Realty/Grubb
Scope of Work. DVA studied supply and demand for housing,
property values, rents, and vacancy rates in each of New York
City's 59 community districts and 3 suburban counties. We
delineated economic activity, population, age distribution,
income, income distribution, zoning, land uses, and the stock of
housing. We also investigated changes in stock, rehabilitation,
and construction activity. Vacancies were disaggregated by type,
size, rent, and duration. A model was created to determine the
expected number of vacancies and rents for supported apartments
and group homes.
We also determined appropriate locations in terms of price, level
of community opposition, safety, and extent of previous public
activity. Prices and vacancy rates were forecasted. Hedonic
studies of property values and wages were explored to determine
the premiums that must be paid for client and staff safety.
Prices, rents, and construction costs in other areas of New York
State were compared to those in New York City.
Kenneth Acks provided research support for a study of the costs
and benefits of crime reduction programs for Professor Albert
Madansky, the Center for the Study of Public and NonProfit
Institutions of the University of Chicago, and the U.S.
Department of Labor.
Scope of Work: Analyzed benefits, both nationally and
state-by-state, of a reduction in the criminal population. Seven
cost elements were evaluated:
(1) The dollar value of the thefts perpetrated in a year
(2) The annual dollar of savings in police protection costs
(3) The annual dollar savings in judicial costs
(4) The annual dollar savings in incarceration costs
(5) The annual savings in personal anti-theft and insurance
(6) The annual savings in public welfare costs
(7) The annual net benefit of an additional ex-offender in the
Findings: Average Benefit From Cutting the Criminal Population by
100 Theft Criminals.
(1) dollar value of thefts $247,853 $309,816
(2) police protection savings $46,020 $225,500
(3) judicial cost savings $787 $52,990
(4) incarceration savings $10,297 $67,961
(5) anti-theft savings $614,669 $618,151
(6) public welfare savings $35,200 $35,200
(7) labor force value added -- $278,000