The Urgency for Change: Transitioning to a Modern Cost Table
Identifying problems & seeking DLGF permission to proceed contracting independently with cost vendors capable of CAMA integration.
Motivation for accurate cost:
"Lowest of the three" laws for self-storage & apartments has exacerbated the need for modern and accurate cost indications to maintain Indiana's constitutional system of market value rooted in the St. John litigation of the late 1990s.
Tippecanoe County maintains robust income capitalization models that correlate well with sales and reconcile at our concept of market value. With the requirement to implement replacement cost assessments for such a prominent property type, like apartments, we view Moore Cost as a long-term solution to forced departure from "market value" while maintaining legal compliance with "lowest of the three" laws.
Accurate cost would serve as a relevant valuation method for special use property, and most newly constructed C&I facilities.
Overall assessment market value credibility would increase if replacement cost reconciled with other relevant indications to value. Many counties rely entirely on DLGF for their C&I assessments; low cost translates directly to low AV in the absence of adequate sales for trending. More accurate cost would contribute to higher sale inclusivity in the ratio study process.
Examining the Accuracy of Cost Tables
We have included nine case studies illustrating the drastic difference between RCNs computed with DLGF-supplied cost tables vs other indications of value. For each case, we compared the RCN result from the DLGF-supplied cost table, Moore Cost Online and Gordian RS Means (both union and open shop).
We compared the cost results to other relevant indications of value, such as: sales, income capitalization models & appraisals.
Case Studies in Tippecanoe County
SAMPLE PROPERTIES
Case Study 1 - Heavy Factory
Approximately 600K square feet, built in 2011 on 54 Acres zoned I3. Steel superstructure w/ 10" sandwich panel walls. Furnace area has 50' ceilings & FP steel. Good highway access.
Used to manufacture aluminum ingots from scrap & extrude finished products.
Two separate offices: one production office and one higher grade, corporate office.
Case Study 2 - Fast Food / Casual Dining
Free standing, 2680 square foot fast food/fast casual restaurant on .56 acres on US 26. Facility was built in 2015. High traffic counts, good visibility and access. Located on an out-lot in front of a popular big box retail store.
Cost is a viable way to value properties that typically transact with non-tangible assets.
Case Study 3 - Free Standing Single Tenant Retail
The oldest property studied; built in 1996. Unusual, triangular lot measures 2.12 acres. Situated in a desirable retail corridor on US 38 next to a large, multiple-anchored retail facility and across the street from the 800K square foot Tippecanoe Mall.
This property sold in 2022 and 2023. These sales provide a reasonable market value range to compare the various cost indicators. The seller in the 2022 transaction was a struggling national retailer liquidating assets during bankruptcy.
Case Study 4 - Self Storage
This self storage property consists of 11 storage "mini-warehouses" and an office.
Viable competitor with a newer facility, site with good access and visibility & close/convenient to sprawling new residential construction.
Due to the size of the multi-building record cards, this presentation provides samples for some of the buildings at this location. Full documentation available.
Case Study 5 - Mixed Use Retail/Student Housing (on campus)
A 226-unit, 604-bedroom development over retail and parking in the heart of Purdue campus; very prominent location. Built in 2019 and features contemporary appearance, furnished apartment options and desirable amenities.
This is a prime example of the loss of AV that would result from mandated use of DLGF cost schedules for student housing.
Case Study 6 - Industrial Warehouse
A 175K square foot shipping/receiving warehouse facility built in 2008 situated in an industrial subdivision.
A physically simple design and recent sale/recapitalization activity make this a valuable benchmark for costing industrial property.
Case Study 7 - Hotel
A 6 story, full-service hotel built in 2003 with 106 rooms, restaurant and event space. The hotel is centrally located in the "levee" area of Purdue's campus on the Wabash River. The hotel is attached to a mixed-use development that includes apartments and retail.
Tippecanoe County has experienced a boom of new hotel construction. Accurate replacement cost could be beneficial valuation tool and/or provide reconciliation with other approaches.
Case Study 8 - Student Apartments; Shuttle-Bus Market
A 177 unit, 515 bedroom multi-building development built in 2001. Too far North of campus to easily walk or bike - considered "shuttle bus" student housing.
This is an example of the type of fiscal loss resulting from changing from "market value" to unadjusted cost for apartment developments.
APARTMENT_REPLACEMENT_MARKET
Case Study 9 - Multi-Tenant General Office
A 3-unit office building built in 2019 on 3.2 acres of GB land. The location features moderate traffic counts and visibility.
Solution: Moore Precision Cost
Modern cost based on the same Craftsman data currently being utilized by the DLGF; same data producing better results.
Integration with ProVal & other 50IAC compliant CAMA environments.
The ability to utilize existing physical data in CAMA to produce better cost today; facilitate future reassessment projects to continue improving cost modeling into the future.
For Counties and properties relying on unadjusted cost for C&I valuation (for legal purposes or lacking sales), the result is more accurate and equitable C&I AV.
The DLGF cost schedule can be broadly adjusted via the computation of a county-specific LCM. We view this as a temporary way to bridge the gap between DLGF cost and value. Long term, we seek cost schedules that produce accurate and property-type specific results.
Implementing MCO: Scope of Work
Pulling CAMA data into a cloud-based test environment.
Testing, finalizing and producing cost values via Moore's cloud-based cost schedule.
Return the resulting cost to CAMA for the user to implement in mass or per parcel.
Conclusion
Systemically low cost is becoming increasingly problematic as new laws change the common use of the "cost base" for trending to the final, unadjusted value. Low cost continues to be a problem for counties with inadequate sales for C&I trending. We request the DLGF allow counties to contract with cost vendors to maintain market value level of assessments in Indiana.
Q&A Session