Light-rail parcel in Va. Beach not worth $40M, appraisal says

VIRGINIA BEACH

While city officials work to raise $40 million to buy the old Norfolk Southern rail line, a city appraisal says the land is worth much less.

The city won’t release the appraisal, citing “ongoing negotiations,” but officials familiar with it said it values the corridor, the likely route for a light rail project, at about $6 million. The assessed value of the rail line – the amount Norfolk Southern pays taxes on – is $7.3 million.

The $40 million asking price is about what a 2003 Norfolk Southern appraisal determined the land was worth. The line is 10.6 miles long and 66 feet wide, crossing the city between Newtown Road and Birdneck Road.

City officials are trying to pull together $40 million in local, state and federal money. The City Council has informally agreed to put up $10 million.

Mayor Will Sessoms, a proponent of light rail , said the Beach is close to a deal with Norfolk Southern, based in Norfolk. So debate over what the land is worth, which stalled past negotiations, may be moot.

“A line this long cutting through the center of the city, going through extremely valuable real estate, is worth a significant amount of money,” said Councilman Jim Wood. “What it’s worth? I don’t know. If the city’s portion is $10 million, that’s an incredibly good deal, because I don’t think we would get it any cheaper than that.”

Wood said the city is worried that using eminent domain powers would take too long and end up costing the city more than $10 million.

Why the gap in appraisals? Appraisers and lawyers who specialize in rail corridors said it boils down to approach. Norfolk Southern spokesman Robin Chapman agreed, saying the two appraisals “reflect differences in methodology.”

The seller, usually a railroad company, typically hires appraisers who use what’s known as the “across the fence” method. This says a corridor should be worth the same amount as the land through which it passes.

The land value is then multiplied by what’s known as a “corridor factor” to reach the final price. The rationale for corridor factors is that the land takes on extra value because it forms an unbroken corridor, which would be expensive for the city to acquire .

Norfolk Southern’s appraisal used a 1.75 corridor factor, which increased the price from $23.2 million – the appraised land value – to $40.6 million.

Not everyone in the small world of rail-corridor appraising agrees with this method. California attorney Todd Amspoker, who touched off a debate in a Right of Way magazine article in 2000, argues that the way to value a corridor is to figure out what it could be sold for on the open market, not what land next to it is worth. He says small strips of land often don’t have much development potential.

“If I were working for the city, I’d hire an engineer or a land-use planner and find out what kind of developments could actually be put on the property,” he said. “Somebody has to show how it would be developed on the open market, and if you can’t show any development, I don’t see how you can value it.”

Virginia Beach hired Minnesota appraiser John Schmick to do an appraisal. Schmick, like Amspoker, has argued in Right of Way that “across the fence” methodology leads to excessive prices. He declined to talk about the Beach rail line specifically but said: “It’s a real simple question. What can you do with it? That’s what it’s worth.”

California appraiser Arthur Rahn said Schmick most likely valued the Beach rail line based on what could be done with the property if it were sold on the open market. Schmick probably didn’t use a corridor factor multiplier, he said. He and Schmick have sparred in magazine articles.

“Let’s just say I don’t think John is one of the great fans of corridor factors,” said Rahn, a former railroad company appraiser.

Proponents of light rail, such as City Councilman John Uhrin, said development around the project would generate revenue that would far exceed what the city might pay for the property.

“This will drive private investment,” he said.

Aaron Applegate, (757) 222-5122, aaron.applegate@pilotonline.com