Land Values and Solutions Study Garfield County Land Values and Solutions Study BBC Research & Consulting 3773 Cherry Creek North Drive, # 850 Denver, Colorado 80209 800-748-3222 www.bbcresearch.com June 1, 2006 Report Presentation

Introduction Two Economic Studies Are Underway The Economic Impact Model The Land Values and Solutions Study

Land Values Study: Project Objectives Demonstrate what factors drive residential land values in Garfield County. Document how rural industrialization (gas, gravel, power lines, etc.) affects the value of residential property. Offer mitigation strategies for situations where value losses occur.

Land Values Study: Three Phases Phase I. Data Collection and Analysis Phase II. Statistical Analysis and Conclusions Phase III. Solutions and Mitigation Evaluation

Phase I: Process Assembled a data base of 7,600 sales transactions Unincorporated, residential sales; 1987-04 Cleaned and added data: gravel roads, geographic features, water & sewer, etc. Ultimately used 20+ variables per property Assembled gas drilling and industrial data Location of power lines, gravel pits, highway, railroads Location & dates of gas wells Integrated GIS with Community-Viz mapping software Analyzed data in light of interviews and anecdotal observations.

Phase II: Statistical Analysis Meet with committees; revised conceptual approach Completed Statistical analysis Tested 20+ property variables Land characteristics (e.g. size, presence of water) Location (e.g.; RFRV vs. CRV, distance to town) Structural characteristics (e.g.; size, age, number of bedrooms) Determined factors that explain value Provided a basis for understanding impact on property value and strategies for mitigation

What is Hedonic Regression Analysis Hedonic regression analysis is a method of explaining demand or prices for a particular good (e.g. a housing unit) by attaching estimates of value to its component characteristics (e.g. size of structure, age, quality of construction) Why Use? Produces results with statistical authority

Variables Tested for the Property Value Models — Included in Model Land Characteristics: Size (acreage) Presence of water features Presence of “good” vegetation (CRV only) Structural Characteristics: Size of home New home (less than 10 years old) Presence of garage (CRV only) Presence of outbuildings Heated space in outbuildings Central wastewater system (RFV only) Locational characteristics/ industrial proximity Distance from Glen. Sprgs. (CRV only) Distance from Pitkin County (RFV only) North of Colorado River (CRV only) View of Mt. Sopris (RFV only) Distance to nearest paved road Distance to nearest gravel pit (CRV only) Gas well completed within 90 days after sale (CRV only) Gas well completed less than 2 years prior to sale (CRV only) Gas well completed more than 2 years prior to sale (CRV only) Value appreciation over time: Increase in value per acre by year Increase in value per square foot by year

Variables Tested for the Property Value Models — Tested and Rejected Land Characteristics: South facing percentage All flat terrain Structural Characteristics: Number of bedrooms Number of bathrooms Construction type (e.g., modular, condominium, etc.) Additional house age groupings (e.g., 10 to 20 years old) Water system other than a private well Locational characteristics/ industrial proximity Distance to nearest town Adjoins Federal land Distance to I-70 Distance to railroad Proximity of high voltage lines Proximity of land fill

Challenges Wide variation in property characteristics and locational influences Value effects across three key dimensions — property characteristics, size and time of sale Sample sizes diminish with multiple variables Difficult to measure some key factors All data sets have some inaccuracies

Results We can explain influences on property values with a reasonable level of accuracy: 76% of value variation in Roaring Fork Valley (2,726 observations) (95% confidence level) 81% of value variation in Colorado River Valley (4,727 observations) (95% confidence level) Provides a reliable basis for overlaying impacts of gas drilling and other industrial effects.

Industrial Impacts We tested effects of highways, railroads, gravel pits, power landfills lines and gas drilling Also tested positive site attributes: vegetation, views, proximity to USFS lands, rivers Proximity to highways, power lines, landfills and railroads were not proven to have an impact on values Proximity to gravel pits and gas drilling has an apparent (but not statistically significant) impact on property values

Gas Drilling Data Issues Gas well permits 5,010 Operational wells 2,674 Parcels with operational wells 354 Valid single parcel sales of parcels with operational wells 140 Final sample “Well impacts” (less than 160 acres) 32

Revised Colorado River Valley Property Value Model Baseline Property: (Average Property With Gas Well) Total Value = $303,079 $271,623 Well completed at time of sale (11%) $280,070 Well completed long before sale Well older than two years (8%) $254,736 Well activity at time of Sale Well completed less than 90 days after sale (16%)

Generalized Gas Drilling Impact on Property Value in Colorado River Valley Loss/Gain Exploration Phase +$100,000 Drilling Phase Completion Phase +$53,000 +$50,000 Typical Residential Change in Value +$25,000 $303,0791 Drill Site Properties Change in Value ($32,000) ($50,000) ($49,000) ($100,000) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Months 1 Typical property with a well — 40 acres, small home, 24 miles from Glenwood.

Generalized Gas Drilling Impact on Property Value in Colorado River Valley Loss/Gain Exploration Phase +$100,000 Drilling Phase Completion Phase +$53,000 +$50,000 Typical Residential Change in Value +$25,000 $303,0791 Drill Site Properties Change in Value ($32,000) ($50,000) ($49,000) Perception of Risk Institutional Uncertainty Quality of Life Impacts ($100,000) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Months 1 Typical property with a well — 40 acres, small home, 24 miles from Glenwood.

Generalized Gas Drilling Impact on Property Value in Colorado River Valley Loss/Gain Exploration Phase +$100,000 Drilling Phase Completion Phase +$53,000 +$50,000 Typical Residential Change in Value +$25,000 $303,0791 Drill Site Properties Change in Value ($50,000) Impact of Gas Employment Demand ($100,000) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Months 1 Typical property with a well — 40 acres, small home, 24 miles from Glenwood.

Impacts of Gas Drilling: Conclusions Properties that experience drilling see a reduction in market value, but seemingly temporary On average, net residential loss of value of about 16% during drilling and about 8% three years after drilling ceases Anecdotal data suggest: There is no average well site Some drilling instances have more severe impacts Problem compounds with contiguous site operations or multiple drilling Micro site issues are hard to capture Recent wells tend to be closer to residential uses

Impacts of Gas Drilling: Conclusions (cont.) Gas activity also has countervailing positive impacts: Gas employment drives housing demand Property lease payments Site improvements Tax revenues Mineral owners have legitimate property rights, which can’t be ignored Drilling is not locally regulated so operational restrictions are limited

Mitigation Possibilities Institutional Quality of Life Perception of Risk Education material/seminar Ombudsman Recommend cooperative lenders/brokers Fund property purchase or buy down Define and enforce best practices IGA with COGCC Education Remedial funds Insurance Certification of completeness Environmental monitoring reporting

Land Values and Solutions Study Institutional Changes Ombudsman/Advocate Document county land value changes over time Represent Owners Clearing House of Information for Appraisers, Realtors and Buyers Environment Response Agent Intergovernmental Agreement with COGCC Lending or Property Purchase

Quality of Life Mitigation Measures Phase I Exploration Landowner notification Negotiated surface damage provisions Ground water testing Phase II Drilling and Field Organization Reasoned environmental protections Reasoned well-siting practices Noise and nuisance abatement

Quality of Life Mitigation Measures Phase III Production and Stimulation Responsible stimulation techniques Proper waste disposal Air and water quality monitoring Phase IV Abandonment and Reclamation Certification of proper abandonment Reclamation with native topsoil and vegetation

Land Values and Solutions Study Garfield County Land Values and Solutions Study