Subject: Property Valuation & Investment Strategy
Client: Alexis Gutierrez, Esq., Chair, Litigation Department, Higgs, Fletcher & Mack, San Diego, CA
Experts: Alan Nevin, Bob Backer
In many of our real estate litigation cases, our director of economic and market research, Alan Nevin, will partner with an experienced real estate appraiser expert in order to develop a more comprehensive understanding of the properties involved. This team approach allows them to present a far more compelling story than either one of them could offer alone.
On one recent assignment, Nevin worked with appraiser Robert Backer, MAI, SRA, on a case for Alexis Gutierrez, the head of the litigation practices at Higgs, Fletcher & Mack. This collaboration allowed them each to tap their strongest talents, and in the process, create a winning effort for the client.
The case revolved around the valuation of two properties in La Jolla, including the most appropriate strategy for holding the properties and the capital required to invest in them. Both properties are currently in mediocre condition.
The plaintiffs (who own a 50 percent interest in the properties) wanted the managing partner (who owns the other 50 percent) to invest substantial sums in the properties to increase their value and cash flow.
How the Appraiser and Economics Expert Witness worked together
Backer completed a traditional appraisal by looking at logical comparables. Unfortunately, there were few comparables for these properties, so Backer had to do some substantial homework to determine the value of the properties.
Simultaneously, Nevin looked at the market for the properties, the rents they were currently achieving, and the costs of remodeling. He then determined the future economic benefit of investing substantial sums in the properties. His conclusion was that virtually any investment in the properties, other than modest cosmetic improvements, would not result in securing higher quality tenants or rental income. Furthermore, this would not lead to higher property values and certainly not to additional cash flow.
For example, at one of the properties, the cost of replacing a roof would have devoured 1.5 years’ worth of cash flow with no income benefit. This analysis made it clear that patching the roof was the better solution.
Taken together, the conclusions presented by Nevin and Backer convinced the trier of fact that they were correct, and the case was ruled in favor of our client.
“We were quite pleased to lend our expertise to this case and to see that our collaborative approach contributed to a successful outcome,” said Nevin. “It’s a testament to the power of teamwork. I couldn’t do the job Backer does, and he couldn’t do mine. But together, we are able to tell a fuller, richer story that can have a valuable impact.”