It is not always appropriate to challenge the cadastral value, and it is better to attract qualified specialists in time than suffer high costs for valuation, forensic examinations, representative services, etc., without any economic result. After several rounds of contesting tens of thousands of reviewed cases, the level of qualification of representatives of authorities and courts allows them to see both the inconsistency of the methodology in relation to a specific object, and even the inconsistency of the cost with standard intervals.
It is becoming more difficult with land plots for large commercial facilities, because their value is derived from the value of a single real estate object.
In the summer of 2020, the Moscow City Court instructed Valrus experts to conduct a re-examination of the value of the land plot on which the Filion shopping center is located. Filion Shopping Center is a regional shopping center located near the Bagrationovskaya metro station. The total area is 128 thousand square meters, the leasable area (GLA) is 57.65 thousand square meters. Despite the fact that Filion shopping center is currently not the most modern, its initially thought-out concept and good location allows it to compete directly with such a shopping center as "Oceania" and "European", to maintain minimum vacancy even in a crisis and achieve rental rates above the market average.
The owner of the land plot appealed to the Moscow City Court with a claim to challenge the cadastral value of the plot and submitted a report to the valuation company, in which the market value of the land plot was estimated at 1.345 billion rub. (37 thousand rubles/sq.m.). After reviewing the results of the report, the court appointed the first examination, in which the expert estimated the market value of the land in the amount of 1.367 billion rub., which is almost the same figure that the administrative plaintiff claimed. The results of the first examination, of course, raised objections from the administrative defendant in the person of the Department of Urban Property of the city of Moscow, in connection with which the court ordered a re-examination, which was entrusted to the experts of our company.
There is practically no information about the sale of equivalent land plots even in such a developed market as the Moscow market. Even vacant land plots have significant differences from each other, and the cost of built-up areas should take into account the parameters of a specific development. Therefore, the use of a comparative approach to valuation is excluded in practice. The main approaches to valuating such land plots are either the remainder technique or the distribution method. In both cases, the land plot is valued as part of a single real estate object, minus its improvements. At the same time, the main approach to valuing shopping malls as single real estate objects is profitable, through capitalization of rental income. When using the remainder technique, it is necessary to calculate the cost of improvements within the framework of the cost approach, the cost of land will be equal to the difference between the cost of a single object and improvements. In the distribution method, a separate estimate of the cost of improvements may not be carried out, the cost of land is determined on the basis of a typical share of the site determined on the basis of analytical data.
How we have repeatedly explained, it is impossible to reliably determine rental income for a large shopping center without analyzing the concept of the facility, the register of tenants and the conditions of the actual lease relations (rent-roll). However, the case file did not contain data on the actual rental rates at the valuation date. One can only guess how the shopping and entertainment center was evaluated before without this information. For this reason, a request was sent to the Moscow City Court for additional documents related to the activities of the Filion shopping center, namely on the composition of tenants and the amount of actual rental rates in effect at the valuation date, data on the volume of turnover by the largest tenants, the amount and structure of operating expenses.
After receiving this information, we were able to calculate the net operating income of a single property. This made it possible, based on the actual rental rates, to calculate the market value of a single real estate object, which amounted to about 200 thousand rubles per 1 sq.m of leasable area. From the received market value of a single real estate object, the share of the value attributable to the land under study was allocated. As a result of estimates, as part of the re–examination, the market value of the site was set at an amount that was 68% higher than the cadastral value - 3.457 billion rub. (95.3 thousand rubles/sq.m).
It should be mentioned that the cost of the building as an object of capital construction at the time of the examination had already been disputed, and the difference between the cost of the mall in its entirety and the cost of the land determined in the Valrus examination practically corresponded to the established cost of the capital construction facility, which further confirms the validity of the conclusions of our expert.
The plaintiff could not provide any arguments that cast doubt on the expert's conclusions, and the city administration, in this situation, did not even try to submit any comments. After reviewing the results of the re-examination, the court decided to refuse to satisfy the plaintiff's administrative claims. The decision was not contested by the parties in the appellate instance.