2017 Southeastern Brownfield Workshop Property Valuation 2017 Southeastern Brownfield Workshop Atlanta, Georgia November 8, 2017 Holly Selby Associate Analyst Greenfield Advisors, Inc. Clifford A. Lipscomb, Ph.D., MRICS Vice Chairman and Co-Managing Director

Greenfield Advisors A 41 year-old real estate and financial firm with offices in Seattle, Washington and Cartersville, Georgia Known for forensic economic analysis and property valuation Specialize in complex real estate issues Also does valuation software work through AVM Analytics LLC Also does capital raising through Bartow Street Capital LLC Member of the Inc. 5000 (two consecutive years) Cool recent projects: jet fuel spill in British Columbia; landfill-related odor and dust case

Brownfield Property Valuation Brownfield vs. Greenfield valuation – what’s the difference? What are the different approaches to conduct brownfield and greenfield valuation? What makes brownfield property valuation difficult?

Complexities with Brownfield Properties – Stigma 1. Stigma is persistent and long-lived It can be theorized that stigma would ameliorate after remediation. However, recent studies indicate that stigma is persistent (Chapter 29 of Brownfields Law and Practice) 2. Pre-remediation stigma Stigma that results from knowledge of a contamination event that has not yet been remediated. 3. Post-remediation stigma After clean-up, amelioration may occur over time; however, the time frame is very long.

Complexities with Brownfield Properties – Highest and Best Use Brownfield designation may affect H&BU in many ways: Legal or physical restrictions may be imposed. Financial feasibility may be affected. Net present value may not be optimal. Subsurface and surface estates may be affected differently.

Estimation of Brownfield Value Three most common approaches to valuation: Sales Comparison Approach Cost Approach Income Approach

Estimation of Brownfield Value – Sales Comparison Approach Sales Grid (traditional appraisal) – compares hedonic components of a subject property to the comparables and makes adjustments one at a time to arrive at a value. Regression Models – examine all comparables together as a group and use statistics to measure the marginal values of the hedonic components. Makes adjustments simultaneously.

Estimation of Brownfield Value – Sales Adjustment Approach Sales Grid Example

Estimation of Brownfield Value – Sales Comparison Approach Regression Equation Example Y = α + β1 X + β2 Z + ε δY/δZ = β2 *Z is a discrete variable that equals “1” if the site is contaminated (brownfield) or “0” if it is not contaminated (greenfield)

Estimation of Brownfield Value – Cost Approach Determine site value (land) as if ready for development of highest and best use. Add cost of improvements as if new. Deduct for any obsolescence (physical depreciation, functional obsolescence, or economic/external obsolescence). *The cost approach is often inadequate for brownfield valuation due to stigma and the difficult task of quantifying its effects.

Estimation of Brownfield Value – Cost Approach Simple Cost Approach Example

Estimation of Brownfield Value – Income Approach Discounted Cash Flow (DCF) Analysis – flexible valuation methodology that has the capability of dealing with time-varying cash flows Can directly estimate the internal rate of return (IRR) on a project, which is very helpful for brownfield investors Provides a platform for performing sensitivity or “what-if” analyses

Estimation of Brownfield Value – Income Approach Discounted Cash Flow Analysis Example

Application to Current Brownfields Instances where brownfield property valuation is appropriate and needed: A seller is hoping to sell a brownfield property to a potential buyer, such as a local government or industrial authority. Determining the difference in remediation costs and actual market value Assistance in appropriately allocating incentives for redevelopment

Clifford A. Lipscomb, Ph.D., MRICS Vice Chairman and Co-Managing Director Greenfield Advisors, Inc. E-mail: cliff@greenfieldadvisors.com Holly Selby Associate Analyst Greenfield Advisors, Inc. E-mail: holly@greenfieldadvisors.com 102-A East Main Street | Cartersville, GA 30120 | USA Office: 770.334.3952 Web: www.greenfieldadvisors.com