Appraiser says garage overvalued
RICHLAND – The downtown garage that was sold for $26.5 million in 1999 to help pay for the River Park Square renovation might be worth as little as $3.4 million on the open market today, an appraiser hired by the City of Spokane told a federal jury Monday.
Bruce Allen, a consultant hired by the city as it prepared for the trial, said many things have changed since other appraisers first tried to put a value on the garage proposal some 10 years ago. The market value has declined steadily, dropping from about $21 million in 1996 to between $7.5 million and $3.4 million last year, he estimates.
But attorneys for the city’s former bond counsel Roy Koegen, whom the city is suing for legal malpractice, pointed out that Allen is basing his estimates on a different appraisal system and ignoring some of the reasons the city got involved in the garage project.
In other testimony, the head of the team that made the 1996 projections about how much money the garage would make denied there was any attempt to “make up numbers” to get a desired result.
“No, absolutely not,” said John Dorsett of Walker Parking Consultants, who worked at various times for both the city and the Cowles development companies that own and operate the mall.
Monday night, after the day’s trial session in Richland, the Spokane City Council met in a short executive session to receive an update on negotiations between the city and Perkins-Coie in an effort to settle the case before it goes to the jury. After the closed-door session, city Attorney Mike Connelly declined to discuss specifics.
In the morning’s testimony in federal court, Allen said during his cross-examination that his estimates of the garage’s value don’t include any potential benefits for renovating the city’s retail shopping district, or increasing jobs or retail sales that generate taxes.
He estimates the price someone in the market for a garage would be willing to pay has dropped since the parking facility opened because it has several years’ worth of actual revenue data, rather than estimates that have proved too high.
The garage also pays rent for the ground on which it sits, which Allen said is “above the market” and would drive down the garage value. The rent wasn’t set when earlier appraisals were done, but once it was, “they were paying too much.”
It needs some $1.4 million in repairs, in part because promised or scheduled maintenance hasn’t been done, so buying the garage now “would be like buying a house where the roof was shot,” he said.
Although the city had two appraisals that supported the garage’s $26.5 million price when the deal was negotiated in 1996, Allen said those appraisals looked at “investment value,” a system that’s not commonly used.
“I can’t remember the last time I was asked to use investment value,” he said, adding that the system shouldn’t be used without at least including a fair market value, which in this case would be lower, for comparison.
Investors, who bought garage bonds to be repaid by its parking revenues, would be interested in its market value, not its investment value, he said.
But during cross-examination, he said other downtown developments, including one in Seattle that included a parking garage, used the investment value. And while his estimates suggest what “an average garage buyer would pay,” he didn’t know whether the River Park Square garage has never been on the open market.
Karl Oles, an attorney for Koegen and his former firm of Perkins-Coie, noted that Allen estimated the garage might have had a market value of $21 million in 1996, based on the information city officials had. Allen said if he had been advising city officials back then, he would have advised them not to pay more than that amount.
“Do you know if anybody did tell the city anything like that at that time?” Oles asked.
“I do not,” Allen replied.
Koegen and former City Manager Pete Fortin are expected to testify they told elected city officials not to pay more than about $18 million for the garage. When the mall’s developers said that price would kill the renovation proposal, other city leaders negotiated the higher price.
Oles also suggested that the market value was at least partly the fault of the city, because it refused to loan money for the unmet maintenance costs that Allen cited. While the consultant said he wasn’t able to answer that, he later said his study of construction records suggest the mall developer didn’t restore the original 750 spaces in the garage to a “first-class facility” during the mall renovation project.
In later testimony, parking consultant Dorsett defended the work he did in 1996 on what kind of money the mall might generate. Those numbers turned out to be overly optimistic, and from its opening in the fall of 1999, the garage has been unable to cover all of its set costs for bond payments, operations, maintenance and rent.
Dorsett said he did estimates for the mall owner in 1995, when it was considering a renovation. The development companies are owned by Cowles Publishing Co., which also owns The Spokesman-Review.
Michael Cillo, one of the city’s special attorneys for River Park Square matters, told the jury last week that employees of the developer and Walker consultants manipulated the parking rates to inflate the revenue projections, which would in turn support more bonds.
“In other words, they cooked the books,” Cillo said in his opening statement.
But Dorsett said Monday his company ran a series of “back of the napkin” revenue scenarios for the developer in 1995. They settled on a rate of $1.50 per hour after exchanging several memos, including one that carries a notation from Dorsett that asks “what does the rate need to be to make the project work?”
But after the company was hired by the city in 1996, it started over and used a different method to project the number of customers, the demand for parking and rate it could charge. He said the $1.50 per hour rate was merely a jump from the average price of downtown parking, which he calculated at $1.36 per hour, adjusted for a few years of inflation that would occur before the project opened.
Attorneys for both sides spent much of their time exploring something that was not in the Walker report, the cost of a parking validation program, and how it might affect garage revenues. When the garage opened, the rates went up and the validation program went down, so that instead of getting two hours of free parking with a $20 purchase, shoppers with that same purchase got $1 off whatever they owed.
Cillo suggested the lack of information about the validation program was “a significant oversight” in the information prospective bondholders received about the project. Dorsett said he wouldn’t use that phrase, but added: “We would have liked to have that information.”
Ralph Cromwell, another of Koegen’s attorneys, pointed out Walker’s report says in at least nine places the effects of parking validation were unknown. The consultants repeatedly asked the city for information on the validation program, but were told it wasn’t available because city officials didn’t know what it was going to be. The validation program wasn’t determined until 1999, almost a year after the bonds were sold.
Later in the day, Michael Edwards, the outgoing director of the Spokane Downtown Partnership, said the new validation rates were set because neither the business owners nor the city could support the cost of the old rate of two free hours.
From his dealings with Koegen, Edwards said the attorney always seemed to work to protect the city’s best interests. The mall renovation triggered other developments in downtown like the restoration of the Davenport Hotel, he added, and while the city still has some vacant buildings “the impact of River Park Square has been largely good.”