In August 2020, Valrus experts were assigned a re-examination to determine the market value of "Extreme" Shopping Center in the framework of an administrative case challenging its cadastral value. The first examination did not convince the Moscow City Court, therefore, the increased responsibility for conducting research that could convince the court and the sides of the process fell on us.
The objects of the assessment were two buildings forming the Extreme Shopping Center. The unusual nature of this work was due to the fact that this commercial property had a narrowly focused specificity: goods for sports, tourism, fishing and outdoor activities, and was located in an area with actively developing residential buildings, that is, more typical for grocery super- and hypermarkets This fact was confirmed by an inspection of the shopping center by experts: empty rental areas, unfilled parking in front of the building, lack of buyers. There is a "dying" shopping center, which requires high costs for building repairs and a complete reformatting of the business at all.
Two approaches were used in the work: income and comparative. As part of the income approach, experts calculated all the real leasable areas in accordance with the explications and the inspection carried out. The areas were also divided according to their functional purpose, namely: retail premises, office premises and storage (utility) premises. A market rental rate was determined for each type of premises, and then the capitalization method was applied to calculate the market value of a single real estate object. To calculate the cost of a single object using a comparative approach, we selected low-class retail facilities of microdistrict and district scales, mainly representing detached buildings.
The allocation of the value of the land plot took place after the coordination of the results of the evaluation of the single real estate object by two approaches. As a result, the difference in cost between the first and repeated examination was 12% (downward), which is quite a lot when recalculated in financial terms, as the cost of buildings is several billion rubles.
Having answered all the questions of the Moscow City Court, Valrus experts have once again proved their professionalism. The appeal also agreed with our arguments and made a positive decision, upholding the decisions of the court of first instance.
But the story doesn't end there! As professionals, we are always interested in what may happen next with the objects being valued, which, among other things, allows us to verify our understanding of the mechanisms and pricing of the market as professional appraisers and experts who are part of it. Therefore, after seeing information on news sites about the purchase of the "Extreme" shopping center by a large developer Pioneer Group, we made convinced that our conclusions about the expediency of changing the functional purpose of this land plot were correct. According to market participants, the land plot on the street Smolnaya 63B will be used for housing construction, for the same purposes the developer also bought a neighboring plot at 63A Smolnaya street.
From the point of view of the methodology of cadastral valuation and valuation for the purposes of challenging the cadastral value, this case is interesting because the value of the object in current use may differ from the value in the most efficient use. The developer could purchase the object by considering the demolition of the shopping center and changing the type of permitted use of the site for housing construction, that is, pay the entire amount for land rights, while valuing the cost of the building to be zero. At the same time, the owner pays property payments separately for both the building and the land. If, within the framework of a cadastral valuation, a land plot is valued based on the maximum value corresponding to its most efficient use as conditionally free, then it is necessary to recognize the possibility of evaluating existing improvements taking into account economic depreciation within the same most efficient use. Does anyone agree with the market value of the building of an existing shopping center equal to zero or close to it? The question is rhetorical. Otherwise, as the definition of cadastral value suggests, it is necessary to proceed from the existing type of permitted use, the most effective use within it, without assumptions about the change in the type of permitted use of the land plot.
In our practice, there were intermediate options when there was evidence of the initiated processes of making changes to urban planning documentation, which did not end with an order on approval of the draft layout and making changes to the Rules of land use and development, for example, a draft design agreed upon at the Architectural Council, approval by the Urban Planning and Land Commission of the draft territory planning, the results of public hearings, etc. The use of existing buildings can be either continued or suspended. In such situations, it is necessary to understand in more detail the stages of approval of urban planning documentation, and, perhaps, to value the site already taking into account the changing type of permitted use, and buildings, especially if the building parameters are obviously ineffective even based on the still authorized type of permitted use, based on the minimum period of remaining use, since considering the real estate tax as an analogue of the tax on wealth, capital tax, we cannot ignore the significant increase in the value of land that can occur during the passage of important stages of approvals.